OPINION: Alaska has a revenue problem, and expanding corporate tax credits won’t help

Tax credits have long been popular, growing more so every year. Supporters promote them to provide government backing for new initiatives or ongoing programs, steering money to their favorite causes, bypassing actual appropriations by federal, state or municipal lawmakers.

With a tax credit, businesses or individuals can make donations to a program or invest in a project, such as housing, and reduce their taxes to the public treasury.

The credits divert private money that otherwise would become public money when taxes are paid. Essentially, they are a subsidy.

They are an acknowledgment that supporters do not have the political votes to achieve direct federal, state or municipal funding for a particular housing or child care or education program, so let businesses and individuals contribute to the program and reduce their taxes.

It’s a win-win-lose. Taxpayers get a break, the nonprofits or schools or housing advocates get money, and the public treasury loses revenue.

“The rise in the use of credits is probably best seen as the outcome of an ill-fated political compromise. Republicans like credits because they look like tax cuts. Democrats like them because they advance social policies without raising government spending. Both sides are getting a bad deal,” says a commentary published a quarter-century ago by the nonpartisan Brookings Institution.

The century-old public-policy research house notes that the proliferation of targeted credits adds complexity to the tax code. “In addition, tax subsidies tend to breed demand for more subsidies,” the 1999 commentary says.

Amen to that — and I’m not a religious person.

That’s why it’s so discouraging to see Gov. Mike Dunleavy introduce legislation that would significantly expand the list of corporate donations eligible for tax credits, and also vastly increase the amount of money those corporations could save by writing checks to something other than the state treasury.

The state has long granted credits for corporate donations to universities and colleges, K-12 schools (public and private), value-added seafood processing investments and a few more. Those credits cost the state maybe a few million dollars a year in lost revenues.

Dunleavy’s bill would widely but vaguely expand the list of donations eligible for tax breaks to include child care services, anything that reduces residential heating or electricity utility rates, reduces residential mortgage rates, reduces the costs of building energy-efficient housing in the state, or “improves food security and affordability.”

Dunleavy’s own Revenue Department reported it has no way of knowing how many businesses would take advantage of the expanded tax breaks, but it calculated that if every eligible entity in Alaska donated to the max, the state could lose about a quarter-billion dollars a year in revenue.

The governor’s bill lacks the research needed for lawmakers to consider opening the state treasury door that wide. Besides, the tax credit would be available only to corporate taxpayers, which, in Alaska, means only publicly traded corporations that do business in the state, such as Walmart, Target, Wells Fargo, FedEx, Alaska Airlines, Delta Airlines and not many more — plus the biggies ConocoPhillips and ExxonMobil.

Even if you believe in tax credits as a sound public policy, Dunleavy’s bill likely would do little to help most communities that lack any presence of large corporations.

Thankfully, neither the House nor the Senate have held a hearing on this tax turkey. It’s unaffordable and unhelpful, and an uncaring answer to real needs for more affordable housing, better schools and improved access to child care.

The bill is a cop-out.

“A better approach (than tax credits) would be to decide on the goals of public policy and find a straightforward and open way to pay for them,” says the Brookings Institution commentary.

Amen. Alaskans — businesses and individuals — should pay for the public services they need, not pretend that tax credits are the solution.

Larry Persily is a longtime Alaska journalist, with breaks for federal, state and municipal public policy work in Alaska and Washington, D.C. He lives in Anchorage and is the publisher of the Wrangell Sentinel weekly newspaper.

The views expressed here are the writer’s and are not necessarily endorsed by the Anchorage Daily News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary(at)adn.com. Send submissions shorter than 200 words to letters@adn.com or click here to submit via any web browser. Read our full guidelines for letters and commentaries here.