Billions of dollars of state resources are spent each year on tax breaks for individuals and corporations, and many of those breaks are outdated and ineffective. Fortunately, this year lawmakers took an important step toward shining more light on the wasteful tax breaks. Senate Bill 5882, signed into law last month, will require all new tax breaks to include:
- Expiration or “sunset” dates: Going forward, all new or expanded tax breaks will automatically expire after 10 years. Expiration dates are important because they force policymakers to occasionally reexamine the costs and benefits of tax breaks against competing public priorities.
- A specific public purpose: Far too many tax breaks on the books in Washington state have no clear purpose that benefits the public. That’s a problem for state auditors because they cannot determine whether a tax break is working effectively if it lacks a specific goal or intent. Senate Bill 5882 requires each new tax break to include a clear purpose under at least one of six major categories: encouraging certain behaviors among consumers, like purchasing solar panels; attracting businesses to Washington state; creating or retaining jobs; addressing structural flaws in the tax system; reducing taxes for certain individuals or businesses; or a general purpose not captured in the previous categories.
- Rigorous performance metrics: SB 5882 requires that all new tax breaks identify specific and relevant metrics to be used by state auditors when evaluating its performance. For example, a new tax break intended to create jobs should stipulate the number and type of jobs it is intended create so state auditors can determine whether it was successful.
- Public information on businesses that receive tax breaks: Businesses that receive more than $10,000 each year from tax breaks designed to create jobs or attract businesses to Washington state must disclose to the public the total amount they received from those breaks. They must also provide information on salaries and benefits for the jobs created with the tax breaks. To alleviate concerns that such sensitive information could benefit the business’s competitors, all of this information will be staggered by two years, meaning the most recent data will always be two years out of date.
Senate Bill 5882 is a step toward a more transparent tax break system, but it only applies to new tax breaks, not the ones already in place. Next year, policymakers should work to extend these reforms to the hundreds of tax breaks already on the books in Washington state.
For more information, check out our 2013 Session Recap: Not a Path to Prosperity.