Weekly Opinion Editorial

MONKEY BUSINESS?
by Steve Fair

Representative David Dank, (R-OKC) is on a mission to look into Oklahoma tax credits that are not doing what they were set up to do- create jobs and stimulate Oklahoma’s economy.
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The two programs Dank is concerned about are the Small Business Capital Formation Incentive Act and the Rural Venture Capital Formation Act. Both were established to encourage investments by small business ventures that are more risky than traditional business. The business must be a ‘small’ business as defined by the SBA, have half their assets or employees in Oklahoma, and cannot be a non-profit. If a small business is in a metropolitan area, they qualify for a 20% tax credit. If located in a rural area, the credit can be up to 30%.
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In April, Dank asked Oklahoma Attorney General Scott Pruitt to file a lawsuit seeking a court ruling on whether some of the tax credits are unconstitutional. Dank would like for the suit to go directly to the Oklahoma Supreme Court and see if some of the tax credits can be paid back.
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In December, then Oklahoma Attorney General Drew Edmondson said the thought the two programs were “constitutionally infirm,” saying that just the mere investment of money into a business does not satisfy the three criteria of promoting a public purpose, involving adequate consideration and have adequate controls and safeguards in place.
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Dank said Edmondson’s opinion reflected his own concerns about some credits: “If they don’t create jobs, if they don’t create economic stimulus, if they don’t contribute more to the state than what they’re getting back in taxpayer monies, then are these tax credits constitutional?”
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“Do the math on it,” Dank says, “The number of jobs they say they created based on the number of tax credits that they get, it’s about $230,000 per job. There’s something that’s just not right about that, in my opinion.”
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Oklahoma is not the only state looking at tax credits. In Monday’s edition of USA Today, http://www.usatoday.com/news/nation/2011-06-05-states-budgets-tax-incentives-Michigan_n.htm, it was reported that Michigan eliminated several tax credits, including those for small donations made to universities, food banks, museums and public television. The changes were part of a tax overhaul by Republican Governor Rick Snyder that he says will spur job growth. In Ohio, they are reviewing their tax credits to help solve that state’s over 8 billion dollar budget shortfall. In Montana, they repealed a number of clean air tax credits to help their energy and construction businesses. In Missouri, the Supreme Court is looking to strike down tax credits for a developer who has failed to live up to his promise to build up North St. Louis.
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Tax credits are very valuable to a business. They differ from a tax ‘deduction’ because they actually reduce a tax bill. A tax deduction only reduces the taxable income. Bear in mind that businesses ‘never’ pay taxes. They only collect them. The consumer pays the tax, so if a business can reduce their tax burden, in theory, they will reduce the price of their goods and services to their customer. Dank believes the two tax credits mentioned above don’t reduce prices nor do they create jobs- they are simply corporate welfare.
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Corporate welfare is a term describing a government's bestowal of money grants, tax breaks, or other special favorable treatment on corporations. Some believe it should never be used, is inconsistent with capitalism because it converts the businessman into a lobbyist. That’s a valid argument, but in today’s competitive jobs environment, tax credits, incentives and grants are tools that help spur local economic development and create jobs. Can tax credit programs be misguided and abused? Sure, and it appears Dank has found two major areas where they are being abused.
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Using tax dollars to help private business in America is not a bad spend of our tax money. That’s a whole lot better than helping foreign governments and foreign businesses who then compete against American firms.
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President Calvin Coolidge made a speech in 1925 entitled, “The Press Under a Free Government.” In the speech he said, “After all, the chief business of the American people is business.” Dank believes the tax credits programs in Oklahoma are monkey business.