Home » Op-Ed: ‘Refundable’ tax credits wrong policy for boosting signature industries

Op-Ed: ‘Refundable’ tax credits wrong policy for boosting signature industries

by Andrew McNeill, former Kentucky deputy state budget director

To be clear, the bourbon industry isn’t seeking to stifle competition. Instead, according to the Lexington Herald-Leader, a special legislative task force is discussing how to expand upon a special tax treatment granted to distillers in 2014. A recent article reported, “distillers say (their) tax break has been washed out by another, broader tax break and they are looking to Frankfort for a fix.” The detail that sent up my red flag was the Kentucky Distillers Association reportedly asking that their members’ tax credits be made “refundable.” With refundable tax credits, companies lower their tax liability and potentially get a big check from the state treasury (paid for, of course, by you and me).Without a complete grasp of how refundable tax credits work, most Republicans tend to be supportive, believing they align with their low tax philosophy. These refunds, however, aren’t like those that individual taxpayers get when they’ve overpaid on their taxes. To illustrate, assume a distiller has $100,000 in tax liability at the end of the year and has accumulated $500,000 in refundable tax credits. Whereas traditional tax incentives would allow a company to use their credits to cut their tax bill to $0, refundable tax credits allow that and entitle the company to a $400,000 payment from the state.

Refundable tax credits are an appropriation of public money through the tax code. Without an item in the budget labeled “Appropriation for Private Industry,” these subsidies escape scrutiny. Make no mistake. This is by design. Advocates on the task force will point to the jobs and economic growth the state realizes from having the industry here. Still, it’s a sad truth that certain legislative leaders are more responsive to powerful lobbies than the average Kentuckian.How, exactly, a family of four in Middlesboro or Mayfield benefits from a concentration of distilleries around Bardstown isn’t likely to be asked by the task force – because there isn’t a good answer. It will be left up to the rank-and-file members to push back against a transfer from their constituents’ pocketbooks to corporate bottom lines. Kentuckians want our signature industries to succeed. But handouts from the government aren’t the right way to go about it.

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