Tax Credit Masquerade
By Ali Mickelson
Beware of changes to tax credits masquerading as reforms. Sometime the proposed “reforms” transform what was originally a worthwhile effort to help individuals, create jobs or support the broader economy into giveaways for the well-off. We have seen examples of this at both the state and federal level in 2014.
Congress is currently debating something somewhat misleadingly called the Child Tax Credit Improvement Act. This Act includes an expansion of the Child Tax Credit, which supports working families with children and which CFI has long supported. The problem is this legislation would make more well-off families eligible for the credit while failing to extend improvements enacted in 2009 that supported low-income working families. By failing to make permanent the 2009 improvements – which are set to expire in 2017 — the modifications would make many relatively affluent families better off while cutting off millions of low-income working families from the credit.
A more local example of changes made to a tax credit that fundamentally altered the intended policy is Colorado’s Job Growth Incentive Tax Credit, which was modified in the 2014 legislative session. This credit was created in 2009 to encourage businesses to create jobs in Colorado. Its passage required many compromises from both business and employee advocates, including wage standards and a requirement that businesses receiving the credit attest that “but for” the credit, the jobs wouldn’t have been created.
Unfortunately, some of the beneficiaries of the tax credit felt the hard-won compromises impeded business recruiting, so they worked to amend the bill in 2014. The changes reduced the wage standards and changed the “but for” requirements in the original bill to make it less meaningful. The result is a credit that rewards companies for creating lower-wage jobs, with less of a guarantee that they even needed the credit to create the jobs in the first place. The change also increases the amount of money that is likely to be diverted from public priorities like schools and colleges.
Throughout our history, CFI has been a vocal advocate for efficient and effective spending through the tax code. We use a set of principles to evaluate all tax credits and work hard to ensure that the credits we support advance an economy that works for everyone, not just the wealthiest few. As a result of our evaluations, we know that not all tax credits are created equal. They can be structured to promote or thwart widespread prosperity.
Even credits that are already in place can undergo slight modifications that change the scope or beneficiaries in dramatic ways. These two examples show that it is not the name of the credit that determines whether it contributes to an economy that works for all, but the details of how the credit is applied and who benefits from the credit. That is why it is so important to see through the tax credit masquerade.
