State Tax Expenditures and CBPP Report

The Center for Budget & Policy Priorities has released a report - Promoting State Budget Accountability Through Tax Expenditure Reporting (May 2011). The report notes features of various state tax expenditure reports and what features should be in them to make them of most use to policymakers, the press and others. The report also includes some helpful reminders and observations such as:

• Tax expenditures are not examined regularly as are direct budget items.
• When there are no sunset dates that would require some discussion on whether the special deduction, exclusion or credit should be renewed, and no special data collected or made available to lawmakers, an element of spending easily continues even if it is not effective.
• "if policymakers, the media, and the general public lack information about tax expenditures, they cannot fully participate in decisions about how to allocate state resources. In fact, in many states the policy debate encompasses little more than half of the state’s total expenditures because expenditures made through the tax code are not part of the conversation."

Some of the improvements the CBPP suggests include:

• Have sunset dates for tax expenditures.
• Create a performance review process for tax expenditures.
• Set a maximum cost for tax expenditures.
• Set accountability measures for taxpayers that claim economic development tax incentives.

These are useful suggestions for states and the public. I think if the public and the press had better information on tax expenditures, more questions would be asked. Tax expenditures can grow with no oversight to catch it. In 2009, some Oregon lawmakers observed that the cost of its roughly 380 tax expenditures was greater than spending on education, health care and public safety combined (8/19/09 post). I think the public would be shocked at that. I think they would also be shocked at the spending on housing and education in the tax law.

I'd like to see a report with the tax expenditures included in the budget by function. So, the tax expenditures for housing would be itemized and included in the budget for the housing agency (such as Health and Human Services Department). Then that should be broken down to show the use of the funds among the income quintile groups.

What do you think?

Tax Expenditures and Income Tax Reform

There has been greater talk, including some op eds, on the need to reign in "tax expenditures" - tax rules that are not necessarily in the law to measure income, but to provide some type of subsidy or incentive, such as energy credits, or the mortgage interest deduction. The National Taxpayer Advocate's 2010 report notes that the roughly $1 trillion of tax expenditure means that everyone pays higher rates to help pay for this cost.

But, tax expenditure numbers should be approached carefully to know what the numbers mean and don't mean. I have a short article published today in the AICPA Tax Insider - Rethinking the Income Tax Calculation. It explains what a tax expenditure is and some of the cautions to exercise wen using this data.

Do you think Congress will start to reduce the number of tax expenditures as part of income tax reform?

California Senate Hearing on Tax Expenditure Accountability

On February 24, 2010, the Senate Revenue & Taxation Committee is holding an informational hearing on Tax Expenditure Accountability. Unfortunately, there are no details on the committee's website.

Perhaps they are going to discuss the tax expenditures report? Here is the link to the Dept. of Finance page where they can be found - here.

I'd like to hope that in searching for spending cuts, the committee is going beyond those in budgets and looking at the hundreds of spending items buried in the tax law. I've got some short write-ups on this and some examples of spending that can legitimately be cut - here. And here.

Anyone know what the focus and purpose of the hearing is?