Guest Column: One man’s tax deal is another man’s tax burden
Last fall, Colorado officials claimed a $1 billion tax increase was needed to save the state’s public schools. Voters did not agree. If officials were telling the truth, one would expect that this year, they would direct every extra budget dollar toward education.
This is not happening. Instead, lawmakers are considering an estimated $75 million in special interest tax giveaways. The Office of Economic Development and International Trade will enjoy a $3.7 million increase. It works closely with the Colorado Economic Development Commission to award taxpayer-financed business grants. In August, the commission approved a $200,000 loan to “small, rural movie theaters that are facing financial pressure.” Since almost all businesses face financial pressure, it is no wonder a Denver Post study showed nearly one-third of the businesses the commission funded had ceased to exist as independent entities.
Other economic development giveaways include $5 million for television and film producers and a $5 million fund for the Advanced Industries Accelerator Program. The program benefits people involved in currently fashionable businesses like aerospace, bioscience and electronics.
The problem with taxpayer-funded grants, tax credits and tax exemptions is that one man’s tax preference is often another man’s tax burden. When favored businesses and individuals receive grants or tax exemptions, the businesses and individuals not in political favor pay more. The state ends up taking money from successful businesses and individuals — money that might have been used to develop successful new enterprises — so it can fund business proposals it thinks might produce tax revenue in a decade or so.
Giving tax deductions for the interest on government bonds, but not private ones, biases investment decisions in favor of lending to governments instead of private businesses. Providing tax credits to businesses that create 20 new jobs at 110 percent of the average wage biases the tax system in favor of businesses that hire high-wage employees at the expense of those who hire lower-wage employees.
Worse, such special interest preferences make it almost impossible to maintain a “clean” tax base. Clean tax bases seek to raise revenue while avoiding special preferences for particular types of consumption or investment. Simple tax laws with a low general rate often raise more revenue than do complicated laws with a higher general rate and lots of special exemptions.
As a rule, the political system is incapable of distinguishing legitimate economic arguments from illegitimate ones, and often distorts economic decisions by picking winners and losers on the basis of political power or emotional pleading.
Tax breaks blessing certain special interests at greater cost to the rest of us persist. Meanwhile, lawmakers scarcely have considered a liberating and cost-saving use of tax credits.
The current political practice favoring the consumption of K-12 education though public schools biases educational decisions. Nonprofit scholarship-granting organizations could serve more needy elementary and secondary students with private tuition aid, if the organizations’ donors received a tax credit for their contributions. Children leave the public system to receive a quality education. The state comes out ahead because the scholarship costs less than the per-pupil amount for students remaining in public schools.
Colorado citizens already pay plenty of taxes. Before officials come back with new proposals for tax increases, they should stop expanding the system of special tax rates for special groups and start rolling back existing ones. At the same time, they should look at enacting tax credits that provide a general educational benefit while reducing the expense to taxpayers.
Without reforms, Colorado voters have every reason to continue to say no to new taxes.
Linda Gorman is an economist at the Independence Institute, a free market think tank in Denver.
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Rifle and New Castle are seeing decent increases in tax revenue, according to financial administrators.