News outlets in my home state of Kentucky report that a Creationist-themed amusement park, “Ark Encounter,” is seeking approval for taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. incentives. We wrote on this several years ago when the sponsoring organization, Answers in Genesis (AiG), first applied for tax incentives. Now, AiG is proposing to build the project in smaller stages, instead of all at once, and thus has reduced their incentive request from $43 million to $18.25 million in sales tax rebates.
Kentucky has an extensive set of tax incentives offered to many different industries, with incentives sometimes worth more than 50 percent of a total investment, as I’ve reported previously. The Bluegrass state offers these deals in no small part due to its otherwise high and burdensome state and local taxes, especially income taxes.
Tax incentives create economic distortions, which can lead to inefficient business investments and distortions between sectors based on political preferences. This causes economic losses as state subsidies induce investment and employment decisions based on political concerns rather than profitability.
But the Ark Encounter tax incentives reveal another fundamental concern with tax incentives: they put the government in the awkward position of financing speech that many voters may not support. Whether it’s film tax incentives to movies and political TV shows or sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. rebates for religious businesses, tax incentives interject public resources into private concerns. No matter a person’s religious beliefs, Answers in Genesis presumably has a right to use its own money to build a theme park, and enjoy equal treatment under the law. But when equal treatment means access to special incentives, tax incentives can have unintended effects.
The solution to this problem isn’t simply to selectively deny tax breaks to some firms based on political or religious preferences, creating a problem of even more explicit political favoritism. Rather, the demand for generous tax incentives reveals problematic elements of state taxes. If policymakers in Kentucky want to promote economic growth, broad-based tax reform is more effective than narrow handouts, and helps reduce thorny political questions like those surrounding Ark Encounter.
Read more on Kentucky here.
Read more on tax incentives here.
Follow Lyman on Twitter.
Share this article