When a Deal Isn’t a Deal (Editorial)

We used to be true believers in the economic medicine of tax incentives, based on our observation that money is a great motivator of human behavior. But believing in the power of tax incentives has become like believing in the power of oxycodone: Yes, it’s powerful and useful when used properly, but it’s also addictive and counterproductive when abused.

A great example of tax incentive abuse was front-and-center at the legislative session that was winding down last week. In 2011, lawmakers graciously approved a sales tax exemption for the trucking industry in return for a promise that the Arkansas Trucking Association would help pass an increase in the tax on diesel.

The truckers got a bird in the hand and then backed out of their side of the deal, at least temporarily. But undoing the sales tax incentive – or even postponing its start from this summer to next to give the truckers time to make good on their promise – proved to be an enormous waste of time, even though the Trucking Association didn’t officially oppose repeal or delay of the tax break. The different strategies for trying to stop that tax break from taking effect were reminiscent of the machinations used to pass the Medicare prescription drug benefit and federal health care reform. At press time on Thursday, the issue still wasn’t settled, horse-trading was continuing apace and an extension of the session was threatening.

The awarding of a tax incentive in this case seemed to have incented the wrong behavior. Trucks are still using Arkansas roads, but they are paying less for the privilege at a time when our transportation system needs more dollars. The diesel tax increase may or may not happen.

This has been an unusual, possibly even unique, set of circumstances, so we won’t try to draw too many conclusions from it. But we will draw this one: When making deals with the taxpayers’ money, trust but verify.