Schmudget Blog
— filed under: ,

Don’t forget the tax expenditures: The need for sunset dates

Posted by Andy Nicholas at Dec 09, 2010 07:15 PM |
Filed under: ,

At a time when policymakers are contemplating massive cuts to core public priorities, one large area of state spending – tax expenditures – remains in need of significant reform.

Earlier this week, we noted that the bevy of preferential tax rates, exemptions, deductions, and other tax expenditures costs our state some $6.5 billion in foregone resources each year – a cost that is borne by ordinary tax payers through higher general tax rates and diminished public services. Yet, these tax subsidies escape even basic scrutiny during the budget process, meaning their costs are not balanced against other public needs, such as educating our children. 

Today, we propose the first of several common-sense, and long overdue, policy reforms that would address these problems: imposing expiration or “sunset” dates on all current and future tax expenditures.

Sunsetting tax expenditures would force policymakers to consider their costs

The major problem with tax expenditures is that legislators are not required to review them during the budget process to ensure they achieve their intended public purposes. As a result, during recessions policymakers often resort to cutting basic public services in order to balance the state budget, while costly tax expenditures avoid serious scrutiny.

An effective way to force policymakers to balance the need for health care, public safety, and other core services against the costs of tax subsidies would be to: 1) apply expiration dates to all existing tax expenditures; and 2) apply automatic sunset dates to all newly enacted or re-enacted expenditures.

Reform is long overdue

The vast majority of tax preferences do not have a scheduled sunset date.  The graph below shows that of the 301 tax preferences that would generate revenue if repealed, only 37 (12 percent) include an expiration date.



A new framework

Developing a systematic framework to sunset all tax expenditures over the next several years would help policymakers make balanced and reasonable choices about spending priorities while our state recovers from the Great Recession.

The key advantages of this approach include:

  • Creating a holistic view of the state budget: In deciding whether to renew expiring tax expenditures, legislators would be forced to consider how each one impacts our ability to maintain basic public services.  This would assist them in making more balanced and rational choices when recessions and other disasters strike.
  • Making better use of Washington’s current tax expenditure audit system: In 2006, the legislature created the Citizen Commission for Performance Measurement of Tax Preferences, which is charged with reviewing all tax preferences to ensure they achieve their intended public purposes.  The commission has already reviewed 133 tax preferences, but the legislature is not required to act on its recommendations.  Sunsetting tax expenditures would force the legislature to make use of the Commission’s prior work; the Commission would also be the logical entity to conduct future audits of expiring tax preferences. Currently, the Citizen's Commission has the capacity to analyze about 30 tax preferences per year. That number could be increased with additional resources, however.
  • Starting a dialog about long-term reforms: As noted earlier this week, special tax preferences targeting a minority of taxpayers mean that ordinary taxpayers in Washington must pay higher tax rates in order to maintain essential public services.  Sunsetting all tax expenditures would force policymakers to consider this and other deficiencies of our current revenue system and could spur them to enact needed long-term reforms.

Don’t change that dial.  Future schmudget posts will detail other long-term reforms that would enhance transparency in Washington’s tax expenditure system.

Document Actions

GiveBig logo for web 2017

GiveBIG Is May 10!

A gift to the Washington State Budget & Policy Center supports our work to advance a just and prosperous state for all Washingtonians! Early giving starts on April 27.


We're Seeking Board Members

Want to engage more deeply with the work of the Budget & Policy Center? Then consider joining our Board of Directors! We are looking for three new board members this year. Click here for details.

Watch Our Budget Beat Webinars

We host regular Budget Beat webinars throughout legislative session to bring you updates and breaking news from Olympia and timely policy analysis. Visit our YouTube channel to watch our previous Budget Beats. 

Testimonies in Olympia

To advance our legislative priorities, the Budget & Policy Center team is in the state capitol throughout session testifying on a wide range of bills. Watch our recent testimonies on TVW:
Misha TVW

View Our School Funding Plenary 

Roxana_BMC_plenary_2016View the Budget Matters 2016 conference plenary, "What's at Stake in the 2017-2019 Budget: Funding McCleary and Beyond." Moderated by Ann Dornfeld of KUOW, the plenary features Nathan Gibbs-Bowling, the 2016 Washington State Teacher of the Year; Lew Moore of the Washington Research Council; Roxana Norouzi of OneAmerica; and Sen. Christine Rolfes. The plenary starts after an intro by Executive Director Misha Werschkul and an intro video by Gov. Inslee.