Proposed Legislation Would Provide Tax Break Reform

SB 6088 will be heard this afternoon in Senate Ways and Means. The bill would require that all newly enacted tax breaks expire no more than five years after the effective date. It would also require them to include a statement of why the tax preference is needed, its explicit policy goal, and clear metrics for evaluating whether these goals have been met.  If enacted, past tax breaks that are extended or expanded would also be held to the same standards.  SB 6088 is a step towards increased accountability around tax breaks in our state.

Under current law, most tax loopholes in the state have no clear date of expiration. As we’ve noted previously, of the 301 tax expenditures that would raise revenue if repealed, only 37 (12 percent) have a set date for termination. Now more than ever, effective management of our state resources requires that lawmakers review and prioritize all forms of state spending — from direct spending on education and health care to hidden spending on tax breaks for various businesses and individuals.

A more thorough review of tax breaks would benefit our budget process:

• Direct comparison to other spending priorities: In deciding whether to renew expiring tax expenditures, officials would be forced to examine how their merits and costs align with other state spending priorities — a dynamic that is absent from our current budget process.
• Freeing up resources and clarifying long-standing tax breaks: With routine sunset dates in place, wasteful or ineffective tax expenditures could be allowed to expire, freeing up resources for more efficient uses. In addition, this approach would allow officials to update or clarify the many older tax expenditures that have no clearly stated public purpose or means by which to evaluate them.
• Honest treatment of spending in our tax code and spending in the budget: At least once every two years, advocates for education, health care, and other public services must defend funding for critical programs before the legislature and the public. However, in the case of tax expenditures, businesses and individuals who benefit from these loopholes rarely, if ever, are required to justify these public expenditures. Establishing sunset dates would end this disparity by requiring recipients of tax expenditures to regularly explain and defend their use of public funds.
  

SB 6088 is a step in the right direction for ensuring increased transparency and accountability in our tax code. Applying the same level of scrutiny to tax breaks as we do to other forms of state spending creates a more honest and effective budget process.

For more information read our policy brief on tax break reform, “Every Dollar Counts: Why It is Time for Tax Expenditure Reform.”