Nicholas testifies on tax breaks

Our Policy Analyst Andy Nicholas testified today before the Citizen Commission for Performance Measurement of Tax Preferences.

Here is the text of his testimony:

"I would like to begin by commending the staff of the Joint Legislative Audit & Review Committee (JLARC) and the members of the Citizen Commission.  Your analyses bring much needed scrutiny and transparency to the billions of dollars spent each year on special tax breaks in our state.

However, my primary purpose today is to highlight my concerns over JLARC’s recommendation to continue a large sales tax break for Oregonians and other nonresidents – all of whom benefit from our public safety, health, and transportation structures while shopping here in Washington.

I have three primary concerns with this recommendation:

• The public goal identified by JLARC for this tax break cannot be measured or evaluated: In these performance evaluations, what matters – and needs to be measured – is the extent to which individuals and businesses actually respond to tax incentives. In other words, auditors should evaluate whether or not incentives actually achieve public goals – be they job creation, environmental protection, or other objectives. JLARC found that the implied goal of this tax break is to remove a disincentive for nonresidents to shop in Washington. But the mere creation or elimination a theoretical incentive cannot be evaluated and says nothing about whether the incentive achieves results.

• There is no evidence that the sales tax break creates jobs or stimulates business activity in Washington state: JLARC’s own analysis finds no conclusive evidence that this tax break causes more Oregonians or Alaskans to shop in Washington. In fact, their analysis shows that product availability may be a more significant determinant where nonresidents choose to shop.  This would explain why the majority of nonresident sales occur in King County, several hours away from Northern Oregon.

• The recommendation does not help policymakers make balanced choices: With no information on how the sales tax break for nonresidents impacts job creation in our state, policymakers cannot balance this expenditure against other important public priorities, such as educating our children or creating safe and healthy communities.

To be fair, conducting a thorough analysis of how the tax break for nonresidents impacts cross-border shopping patterns would be difficult and expensive. Still, when presenting this analysis to the legislature, I hope you will take my concerns into account and highlight the fact that JLARC’s recommendation on this tax break does not reflect its actual impact on job creation or our state economy."