Tax credit reform has been a hot topic in Missouri for a few years now – and for good reason.  To be blunt, the state has been dishing out enormous, and growing, sums of money via tax credits with little oversight or control.  For example, when your state accidentally spends $1 billion more on tax credits than it intended, there's clearly a problem.

But despite the immensity (and obviousness) or Missouri's tax credit problem, the legislature has proven itself incapable of enacting meaningful reform.  Proposals from the Governor and prominent legislators to cap, scale back, consolidate, or sunset tax credits have received considerable media attention, but have consistently fallen short of being enacted into law.  Most legislators, it seems, are happy to ignore the rampant inefficiency of Missouri's tax credits (and muddle through the state's ongoing budgetary debacle without addressing them), just so long as they don't have to risk upsetting the multitude of lobbyists working to preserve these special tax giveaways.

In order to grease the wheels for reform in 2011, Missouri Governor Jay Nixon has taken the unoriginal step of creating a “Tax Credit Review Commission” to provide recommendations for making each of the state's 61 tax credit programs more efficient.  The Commission's work will almost certainly generate additional discussion and interest in tax credit reform, and hopefully will provide some useful data and analysis as well.  But simply creating this Commission does not constitute reform.

While tax credit reviews (or tax expenditure reviews more broadly) do have their place, they should be conducted on an ongoing basis more akin to the kind of regular scrutiny directed toward ordinary spending programs.  Moreover, if such reviews are conducted, appointing a semi-random collection of 25 businessmen, education officials, labor representatives, and lawmakers to spearhead the effort is hardly ideal.

It's unclear, for example, why prominent employees of Enterprise Rent-A-Car and Hallmark Cards, Inc. are the best candidates to conduct “critical analyses” of Missouri's tax law.  Or even more strangely, why one of the Commission's co-chairs should be part of a group of developers that has directly benefited from Missouri's tax credits (as reported by State Tax Notes, subscription required).  Talk about a conflict of interest.

To be fair, the Commission's membership does include some tax credit “skeptics” as well.  Republican State Sen. Matt Bartle, for example, recently admitted that “it’s no secret that I have come to believe that many, many tax credits do not yield the benefit that was promised.”  But including voices from “both sides” doesn't mean the Commission's structure makes sense.  Real reform will require either forcing the legislature itself to regularly review these programs (such as by making use of sunset provisions, as is done in Oregon), or by handing responsibility for such reviews over to impartial, expert government analysts (as is done in Washington State).

If all goes well, the Commission's work will hopefully spur reform not only of specific tax credit programs, but also of the broader systems in which lawmakers deal with these programs on an ongoing basis.  And if the latter type of reform is implemented well, the need for band-aids like the “Tax Credit Review Commissions” should be greatly reduced in the future.

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