Despite Rep. Tom Murry’s (R-Wake) open acknowledgement of Civitas’s Bad Bill of the Week article about HB 1149 (New Market Jobs Act), he turned a blind eye to reason and espoused the bill’s virtues in a Commerce and Job Development House committee meeting earlier today.
The bill would provide a 7% tax credit on investments in small businesses after three years and an 8% tax credit each year for four additional years. In other words, the money has to be invested for a minimum of seven years for investors to receive the full amount of the tax credit, which cannot exceed $2 million per investor. Supporters of the bill call it a good plan because the state would only be giving $40 million of tax credit for every $500 million invested. What’s another $40 million anyway?
The bill, which was approved and will now be sent to the Finance Committee, was criticized in the meeting by Rep. Mike Stone (R-Harnet, Lee), who expressed concerns that the tax breaks would encourage bad investments. Rep. Stone also asked about the bankruptcy of a Chicago business, Protein Solutions, a meat-packing company that went bankrupt after receiveing tax credits from an Illinois statute identical to the one being proposed here.
Rep. Murry, along with an “expert” who spoke about the bills adopted in other states, directly addressed the concern over Protein Solutions. The argument in favor of the bill hinged on the idea that Protein Solutions’ plight was the result of the ongoing recession, not the fault of the tax credit plan. He also noted that the government was able to recollect the tax money and put it towards other business’s equity investments (which might also fail).
If you didn’t know any better you might think from these arguments the recession just magically happened and that there was nothing that could have been done to prevent it. You might even think that such businesses as Protein Solutions fail, not because they are bad businesses or because the market does not provide the demand for their product, but because they have no control over such economic hardships. This argument fails to realize, however, that the recession happened for a reason. It happened because of government policies exactly the same as the one supported by Rep. Murry and approved today by the House committee.
The housing bubble was caused by artificially low interest rates on loans, set by the Federal Reserve. Banks were encouraged to give loans to people who could not pay them back. A lot of people were able to live in nice homes who otherwise would never have gotten loans to purchase them and many of those homes were eventually foreclosed. HB 1149 would create an identical situation. The bill would allow investors to artificially lower the interest rates on high risk loans because government money (your money) would be insuring these reckless business ventures.
Many bad businesses would be supported, businesses that would fail in the free-market, while the owners of good businesses would get no benefit from such a program. In fact, their tax dollars would be going to support it. Many people think that it is unfair when small businesses have to close. It is more unfair when good businesses are forced to support bad ones. As Rep. Stone commented, when the government starts picking winners and losers, it “does a lousy job”.