People skeptical of government overreach often look at a policy proposal and ask whether it reduces the amount of money the government has. If so, then it limits the government’s power and is a good idea.

Would that it were so simple.

It is good to have a healthy suspicion about public spending. Limited-government advocates ought to notice, however, that even a proposal that reduces government revenue can increase government power.

Consider the old Michigan Economic Growth Authority tax credits. The program gave select businesses credits based on how much they paid employees. The credits were refundable, meaning that companies could collect a check from the state. Indeed, the size of MEGA credits is the reason why the state’s Michigan Business Tax raises nothing for the state government but instead pays out hundreds of millions of other people’s money to its “taxpayers” each year.

These credits are not recorded as spending, but rather as credits against taxes that reduced government revenue. It gave the state the ability to offer billions in subsidies to select companies. It lowered revenue but didn’t limit government.

In other words, preferences can be used to do spending that doesn’t show up in budget bills.

Not all preferences are unbudgeted spending, though, and it can get complicated.

Credits can be used to effectively lower taxes. The homestead property tax credit used to be a way for state lawmakers to reduce property taxes. It let state lawmakers provide a practical reduction in property tax burdens without requiring local governments to lower their rates.

Property taxpayers received a credit against the state income tax based on how much they paid in property taxes. This effectively lowered the burden of property taxes.

The credit no longer serves its tax-relief purpose, however. Lawmakers put limits on who is eligible, based on income and home values, and they exclude higher-income households and even many middle-income households. A credit that doesn’t reduce taxes for most taxpayers is no longer a credit that reduces taxes; it is a credit that redistributes money and tax burdens among people.

Whether lawmakers intend to lower taxes or fix improprieties in tax policy can be difficult to decipher. Sometimes tax preferences are meant to avoid the problem of tax pyramiding. Or to address unintended penalties of job-discouraging rules. Some tax preferences do limit government and address problems created by tax policy. Whether they are good tax policy resides more in whether they fix tax policy problems than the amount of money exempted from taxes.

Elected officials also receive perennial requests from special interests for favors, often through the tax code. Film producers want taxpayers to pay for the costs of filming. Businesses want more selective handouts; even gig businesses have already been assigned billions from the state’s newer subsidy program. Lawmakers should be on guard about awarding more favors.

Other preferences are about redistribution, something that politicians on both sides of the aisle care about. Elected officials want to lower taxes to groups of people, or to ensure that the bulk of the costs don’t go to the wealthy, as tax rate reductions would. Bills get introduced to deliver relief to working families or every family or to a politically sympathetic group. Targeted tax relief is less about letting everyone keep more of what they earn and more about rewarding popular groups.

Lawmakers ought to be concerned about tax rates, which matter more than tax preferences. The decisions made to employ more people are influenced by rates. States are competing with each other over their tax climates. The states that have broad bases and lower rates tend to grow more than others.

Preferences for some make it harder to lower taxes on everyone. With just the money earmarked from taxes or authorized through taxes for subsidies to select businesses, the state could have easily afforded the permanent 0.2% income tax reduction that the governor has tried to thwart.

Tax policy can be complicated. There are perennial requests to get favors from the government and to use tax policy for redistribution. These proposals can expand, rather than limit, government power, even if they result in less revenue.

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