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Movement Towards Tax Break Accountability

Posted by Andy Nicholas at Mar 22, 2013 12:30 PM |
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As the Legislative Session progresses all three branches of state government have taken, or are poised to take, actions that could greatly enhance transparency over the hundreds of special tax breaks on the books in Washington state.

Although more needs to be done, there have been several encouraging developments, including:

  • Eliminating the supermajority vote barrier: Earlier this month, the State Supreme Court struck down the law that required a supermajority – two-thirds vote - for tax increases. Among other problems, the supermajority law allowed a small handful of lawmakers to block any attempt to rein in special interest tax breaks.
  • Unanimous Senate support for greater tax break accountability: Senate bill 5843 would require most new tax breaks to include key transparency requirements – including a sunset date, a clear purpose and policy goals, and specific performance metrics to help state auditors gauge its effectiveness. This bill was passed unanimously by state Senate earlier this year and is waiting for action in the House Finance Committee.
  • A Disciplined House Finance Committee: All of the transparency and accountability tools in the world would be useless without a commitment among policymakers to foster accountability. With the newly reconstituted Finance Committee, leaders in the House of Representatives are doing just that. The Finance Committee has shown discipline, passing far fewer tax breaks than the Senate Ways and Means Committee and requiring all newly proposed tax breaks to include sunset dates and performance metrics.
  • Governor to propose narrowing tax breaks for education: Governor Inslee has announced that he will unveil a strategy for funding education that includes eliminating or narrowing unproductive tax breaks, which have in the past compromised the state’s ability to invest in schools.

Over the last two decades, policymakers have dramatically increased their use of tax breaks to further various legislative goals. As the graph below shows, the number of tax preferences on books has nearly doubled since 1990, rising to 640 from 333 over the last 23 years.

March-2013_TaxBreaks_cumulative

But, unlike direct spending on schools or health care services, tax breaks don’t have to go through the biennial appropriations process, despite the fact that they cost the state a large amount of money. This makes it easier to enact tax breaks and difficult to balance against competing public priorities.

History has shown that most tax breaks are poor mechanisms for achieving policy goals, but they have remained popular with policymakers. According the Institute on Taxation and Economic Policy:

“Administering spending programs through the tax code allows policymakers to simultaneously claim that they are taking action on an important issue while also taking credit for cutting taxes, shrinking government, or deferring to the private sector. In reality, however, selectively shuffling around tax burdens leaves no less of an imprint on the economy than direct government spending.”

More reform needed

While recent developments indicate progress toward a more accountable tax break system, more aggressive steps will need to be made to ensure true accountability is achieved. Notably, policymakers should apply sunset dates to most existing state tax breaks – a reform that was proposed last year under HB2762. Such a reform would help policymakers evaluate tax breaks and balance their costs against the need to invest in schools, health care, and public safety.

For more information on how we can bring greater accountability to tax breaks in Washington state, read the Budget & Policy Center brief, Every Dollar Counts: Why it’s Time for Tax Expenditure Reform.
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