Group backs periodic reviews of tax breaks
Calls for some to sunset every five years
A state commission assembled to review a $26 billion budget of tax breaks, deductions, and expenditures unanimously approved recommendations on Monday calling for periodic reviews to assess the effectiveness of current tax expenditures and for certain breaks to sunset every five years.
If the recommendations of the Tax Expenditure Commission are embraced by the Legislature and Gov. Deval Patrick, state officials would work together on a one-time review to identify specific policy purposes and desired outcomes for each of the more than 200 tax expenditures on the books, potentially in time for a more substantive debate on each during the next budget cycle.
“We must do everything possible to ensure that every taxpayer dollar is being invested as effectively as possible – and that includes taxpayer dollars we choose to invest in the form of tax breaks,” said Secretary of Administration and Finance Jay Gonzalez, in a statement. “The report of the Tax Expenditure Commission provides policymakers with a thoughtful and comprehensive roadmap for managing the Commonwealth’s tax expenditure budget.”
The commission – chaired by Gonzalez and consisting of bipartisan representation from the House and Senate along with Treasurer Steven Grossman, Auditor Suzanne Bump and two economists – voted to approve the final draft of a report that will be released within a week.
The final recommendations came as the House began its deliberations on a fiscal 2013 budget that includes no new or reduced taxes. Since approving a sales tax hike in 2009, the appetite in both the House and Senate for generating additional revenue through higher taxes has waned, and House Speaker Robert DeLeo has cautioned against any changes to tax code at a time when the state’s economic rebound is still “fragile.”
The commission recommended that all tax breaks that function like grants, such as life science industry tax credits, sunset every five years unless explicitly reauthorized by the Legislature. Other credits that individuals must qualify for in order to receive, like the film tax credit, would be reviewed every five years, while all others like sales tax exemptions would be subject to 10-year reviews.
The commission will also recommend that “grant-like” tax credits be accompanied by clawback provisions that allow the state to recoup its investment if credit goals such as job creation are not met, and that all such programs be capped annually.
The six legislative members of the commission all endorsed the final draft report, including Democratic Sens. Stephen Brewer of Barre and Katherine Clark of Melrose, Republican Sen. Michael Knapik of Westfield, Democratic Reps. Brian Dempsey of Haverhill and Jay Kaufman of Lexington, and Republican Rep. Steven Levy of Marlboro.
Kaufman described himself as “very happy” with the report, which must be filed with the Legislature by April 30.
Bump said she was “extremely excited” by the results of the commission’s work, and pledged to continue with her own audit of businesses’ compliance with the tax breaks they routinely use each year.
“We reached bi-partisan consensus on a framework and standards for evaluating the efficiency and effectiveness of every existing and proposed tax expenditure. In the context of the polarization and paralysis that characterizes tax policy development at the national level, the collaborative work of this commission is both inspiring and encouraging,” Bump said in a statement.
The report will also recommend that the state’s new Commonwealth Performance, Accountability and Transparency office report annually to the governor and Legislature on the effectiveness of all tax expenditures, including meeting job creation goals.
Though the commission did not recommend the elimination of any specific tax expenditures, Gonzalez has said the budget is “probably too big and should be reduced both in size and amount.”
During House budget debate Monday afternoon, Kaufman, who co-chairs the Legislature’s Revenue Committee, repeated his longstanding call for a comprehensive review of tax policy.
“We haven’t even begun to frame that debate here,” Kaufman said, urging his colleagues to support an amendment calling for a study of Republican-sponsored plans to reduce the sales tax to 5 percent. The study amendment prevailed on 119-37 vote.House Minority Leader Brad Jones predicted a “huge push” to raise the income tax rate next session. Republican lawmakers say studies of tax policy proposals never materialize and claim such study amendments are intended to avoid direct votes on proposed tax rate changes.
During budget debate, Rep. Stephen Kulik of Worthington said the commission’s report will provide “thought-provoking” principles to guide legislative debate on tax policy.