Don't forget the tax expenditures: Cutting subsidies by a simple majority

This is the third of a series of posts on the need for tax expenditure reform. Today, we focus on the need for legislators to be able to remove subsidies by a simple majority.

While state Legislators hastily cut our health care, education, and other crucial public systems by another $500 million on Saturday, hundreds of special tax preferences and subsidies that cost taxpayers more than $6.5 billion each year completely avoided the budget axe.

The reason: tax expenditures can only be cut via a supermajority (two-thirds) vote in the Legislature.  Among other policy changes, eliminating this onerous requirement would help policymakers make more balanced and rational decisions about public priorities going forward.

The major problem with tax expenditures in our state is that they are treated much differently from traditional spending on programs and services during the budget process.  Even though tax expenditures have the same impact on the state budget as normal forms of spending, their costs are not considered alongside other priorities as the budget is being developed.

This lopsided budget process has meant that important investments in education, health care, and other core structures has weathered more than $5 billion in cuts throughout the recession. Meanwhile, spending on tax subsidies for a minority of businesses and individuals has remained virtually untouched.

For instance, on Saturday, Basic Health – a health insurance program for the working poor -- was cut by nearly $30 million dollars through June 30, 2011.  Yet, a $10 million per year sales tax exemption on nose jobs, face-lifts, and other cosmetic surgeries remained completely intact.

The supermajority vote required to curtail or eliminate tax expenditures makes this fundamental imbalance much worse, giving a small minority of legislators the ability to protect even the most wasteful tax subsidies.

Reform is Needed:

Due to limitations imposed on the legislature by Initiative 1053, the supermajority requirement can only be reformed by a vote of the people for the next two years.  For future budgets, legislators should consider an important reform:

Legislators should consider a path that would allow voters to decide whether all forms of state spending – both program expenditures and tax expenditures -- should be cut or eliminated by a simple majority.

For more information on tax expenditures and transparency reforms, see this post.