The sun sets on two tax breaks (500 more escape scrutiny)

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The sun sets on two tax breaks (500 more escape scrutiny)

By - June 29, 2011

Today is the final day of the 2009-11 budget biennium in Washington state. Tomorrow, a new state budget rife with economically damaging cuts to our core public health and education infrastructure will go into effect. In the midst of all the grim budget news, today’s expiration of two business tax breaks worth about $10 million each biennium is a reminder that we still have an opportunity to pursue farsighted budget reforms and to build a prosperous future for all Washingtonians.

Applying renewal or “sunset” dates to all special tax breaks is crucial to building a more transparent and rational budget process in Washington state. A renewal date forces policymakers to proactively renew funding for a narrow tax break at regular intervals, just as they must do for direct state spending on education, health care, and other elements of our public infrastructure. The wise use of renewal dates in previous years gave policymakers the opportunity to thoroughly review the costs and benefits of several tax breaks this year.

Appropriately, two special tax breaks – a low-performing business and occupation (B&O) tax credit for the film industry  and a sales tax deferral for computer server farms – measured poorly against other public priorities like K-12 and higher education and were not renewed in the coming fiscal biennium. These wasteful tax breaks consumed about $10 million each biennium in resources, which will now be available to help fund health care, education, and other investments proven to spur economic growth. 

But these are only two tax breaks of more than 500. Previously, we found that only 12 percent of special tax breaks include a renewal date. Even worse, many were enacted years or decades ago and have never been reviewed to ensure they fulfill a valid public purpose.

This year, the lack of renewal dates for narrow tax breaks shielded them from the kind of rigorous scrutiny that is applied to direct state spending on health care, education, and public safety. As shown in the diagram below, the result will be a 2011-13 budget balanced almost entirely via damaging cuts to these and other important structures.

scale_cuts_vs_taxbreaks

Creating a truly sustainable fiscal future will require policymakers to make much greater use of renewal dates and other tax break evaluation tools in the coming years.

For more information on how we can improve transparency and accountability in our budget process, read our policy brief “Every Dollar Counts: Why it’s Time for Tax Expenditure Reform.”

 

About Andy Nicholas, Senior Fellow

Andy specializes in state budget and tax policy. Since joining the Budget & Policy Center in 2009, he has served on a Legislative Task Force on Tax Preference Reform and has conducted numerous analyses of Washington state’s tax code.

Read more about Andy