At an April 9 legislative committee hearing last year, Steve Hill explained why passage of Senate Bill 507 — establishing a system of transferable tax credits to spur investment and job growth — was in Nevada’s best interest.

“The legislation will align the program costs with the timing of the expense with the companies we are recruiting to Nevada …” said Mr. Hill, executive director of the Governor’s Office of Economic Development. “The transferable tax credit program does not require up-front funding, and the transferable tax credit expense can be accounted for in the years the expense is incurred.”

In addition, thanks to a Nevada constitutional provision against state subsidies to private businesses, the grants and loans Mr. Hill’s office bestowed upon various companies had previously been directed through state and county governments.

With transferable tax credits, no such direct appropriations are necessary, cutting out the middle man. The new approach is more “business friendly,” Mr. Hill told the Senate Committee on Revenue and Economic Development, and “has the benefit of streamlining the process” by allowing his office to work directly with businesses.

All this is no doubt true. But another advantage of tradable credits — particularly from a business perspective — went unmentioned: Not only are they are often more lucrative than other types of tax breaks, they are also more politically acceptable.

On the latter point, many tax incentives “require direct government payments that may be politically unpalatable,” writes Clinton G. Wallace in a 2012 essay “The Case For Tradable Tax Credits” published by the NYU Journal of Law and Science. Tom Kafkas of Good Jobs Matter echoes that sentiment. “Transferable tax credits are politically an easier pill to swallow as opposed to doing a direct cash grant.”

On the former point, making the credit transferable helps monetize an asset and maximizes its value. A credit worth only a given company’s tax liability, for example, has far less value than a credit that might exceed a company’s tax bill, allowing it to profit from the difference.

“The problem encountered early on in the promotion of (tax) credits was what to do if the credit cannot be fully utilized by the taxpayer,” notes Jennifer A. Zimmerman in an essay for the March/April edition of the Journal of Multistate Taxation and incentives.

“Sale, or transferability, of tax credits was one possible solution.” She continues that, “Transferability keeps tax credit programs attractive to businesses regardless of tax liability while preventing the credit from going to waste.”

Because transferable tax credits can essentially be turned into free cash beyond a company’s tax obligation — perhaps even becoming a tool for capital formation — supporters argue there is more incentive for businesses to pursue them than other types of credits. [] That, in turn, might make it easier to achieve the goals the credits are designed to promote, whether it’s economic development, historic preservation, film production or something else.

Does that assumption hold? The film tax credit craze — in which dozens of states, including Nevada, have offered subsidies to movie makers with the goal of creating jobs and establishing a viable film industry within their borders — has seen mixed results, at best. In 2009, 40 states offered incentives to attract Hollywood productions. According to the Tax Foundation, however, at least eight states have since eliminated their programs altogether or stopped funding them for a lack of results. Nine other states have reduced the available credits.

“Although a few of these tax credit programs have created a successful influx of entertainment-related revenue in states not known for their filming infrastructure, other states are losing too much money with no redeeming income going back to the state,” Joshua R. Schonauer, in a 2010 paper for the Ohio State Law Journal.

Decisions regarding transferable tax credits in Nevada are entirely in the hands of Mr. Hill’s office, created during the 2011 Legislature to stimulate development, attract new businesses to the state and to retain existing enterprises.

The office’s 11-person board includes Gov. Brian Sandoval, Lt. Gov. Mark Hutchison, Secretary of State Barbara Cegavske, two public employees and six members from the private sector. Under state law, Mr. Hill as executive director may issue credits up to $100,000. Anything beyond that requires the consent of the board.

In more than a handful of instances, this means that lawmakers have essentially delegated their taxing power to Mr. Hill’s office, which decides based on the applications before them who gets certain tax treatment and who doesn’t. At this point, Mr. Hill said in an email, “our board has not turned down an application for economic development assistance.”

Regardless of their success or failure as policy, transferable tax credits represent yet another means of social engineering through the tax code in an effort to achieve some desired outcome — in Nevada’s case, economic diversification.

Not only does this contribute to the impression that the elites exploit malleable politicians to rig the system for their own gain at the expense of ordinary citizens, it creates plenty of potential pitfalls for those writing our laws and carrying out policy.

“Policymakers will need to employ discriminating analysis to distinguish between policies that in fact benefit society as a whole and those that are primarily beneficial to rent-seekers,” writes Mr. Wallace.

He also warns how efforts to use tax policy as a means to achieve some desired good risk empowering a permanent class agitating for special treatment, which is precisely what has occurred at the federal level and remains the strongest impediment to real tax reform.

“Policymakers should be aware of the political constituency that is created by pairing special interests in a tradable tax credit regime,” he notes. “The right formula … can create a strong coalition in support of a measure, but can also make it difficult to eliminate a tradable credit once enacted … (and) that can lead to entrenchment and capture, as well.”

Fairness means many things to many people. But a sensible economic or tax policy demands simplicity, stability and equality of application. It must not be a hodge-podge of distortions intended to convenience one special interest or another. With its new dependence on transferable tax credits, Nevada moves closer to the latter.

John Kerr, longtime Southern Nevada journalist, is also a communications fellow with the national Institute for Justice.