In a free market, businesses compete on the basis of who can provide the best goods and services at the best prices to willing customers. In a crony economy, businesses compete on the basis of who can get the most political favors. Thanks to new tax discrimination bills supported by Colorado’s legislature and governor, the state’s economy has moved further in the direction of cronyism.
On May 13, the House Republicans distributed a media release about two Republican-led tax discrimination bills that Governor John Hickenlooper signed into law. House Bill 1080 extends a pre-existing “$1,200 tax credit for every new employee hired to aircraft manufacturers… to include firms that provide aircraft maintenance, repair and completion.” House Bill 1287 extends through 2024 a “performance-based credit provid[ing] an income tax credit to businesses that undertake new job creation projects in Colorado…. To qualify for the tax credit, businesses must create at least 20 new full-time jobs.”
On May 16, the House Democrats distributed a media release about a Democrat-led piece of tax discrimination legislation also signed by Hickenlooper. House Bill 1142 alters the pre-existing “enterprise zone tax credit system,” something “intended to provide incentives for job creation in rural or economically underperforming areas.” This year’s bill caps credits “at a maximum of $750,000 per company per tax year. The bill also calls for increasing new business facility employee credits, investments in job training programs and increasing credits to employers providing health care benefits to their employees.”
The bill politicizes Colorado’s tax-discrimination policies even more than the media release indicates, however. The cap is considerably more, shall we say, flexible, for “a taxpayer may seek a waiver of the limitation… by completing a written application to the Colorado Economic Development Commission for permission to claim a credit in excess of such limit….”
In other words, business owners who do the best job of pleasing bureaucrats also get to pay fewer taxes.
A net tax cut is all well and good for those among the select few businesses that meet the political requirements. But other businesses end up bearing a heavier net tax burden—a violation of equal treatment under the law.
Why does the aircraft industry get special tax breaks that other industries do not get? (The short answer is they have better lobbyists.) Why do businesses that create 15 full-time jobs not get the tax break? Why do established, stable businesses with low staff turnover suffer a tax disadvantage to upstarts that may be gone in a decade? Why do businesses located in the “wrong” area, or worse at lobbying politicians, pay higher net taxes? Such tax cronyism is unfair and anti-free enterprise.
The premise behind each of the discriminatory bills is that high taxes drive away businesses. But this fact is true of all businesses, not just those in the airline industry, those wanting to hire an additional 20 people, and those located in depressed areas.
If the legislature wishes to create a business-friendly tax environment, it should establish lower taxes for every business, and make the effective tax rate the same for everyone.
The legislature should stop playing favorites, end its tax cronyism, and move in the direction of free markets.