Bills Would Increase Accountability for Tax Credits
Thursday, May 12, 2011
Rhode Island gave up $1.67 billion in potential revenue in 2008 through tax credits, exemptions, deductions and other preferential tax rates with little known about whether these expenditures are benefiting the state economy, according to The Poverty Institute, a social policy think tank .
Now, the General Assembly is considering two bills that would improve a state-wide biennial report designed to track tax expenditures.
"Over the years we have made deep cuts to higher education, health care and other public services that Rhode Islanders depend on," said Kate Brewster, executive director of the institute. "Yet we're losing money to tax giveaways without any evaluation of whether they benefit Rhode Islanders in any way."
Unlike direct spending, which is reviewed and renewed annually, tax expenditures become permanent provisions in the tax code and can continue indefinitely without evaluation as to whether they are achieving their intended purpose. The current biennial report on these expenditures "doesn't accurately measure their costs or evaluate effectiveness," according to the institute.
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The first bill, introduced by Rep Teresa Tanzi, D-South Kingstown, would address two fundamental flaws in the current method for evaluating tax expenditures —first, that there is no explanation of the expenditures' intended goals (making it nearly impossible measure effectiveness) and second, that there is not requirement to review new expenditures after they are enacted. (Tanzi is pictured right.)
"As we struggle to close a $300 million budget gap, it is critical that state spending through the tax code be subject to the same level of scrutiny as direct spending," said Tanzi. "The legislation I introduced would require any new tax expenditure to include a clearly stated goal and expiration date and would force it to be evaluated in order to continue."
The second bill, introduced by Rep Donna Walsh, D-Charlestown, would increase transparency of tax expenditures by giving Rhode Islanders access to information about whether companies receiving tax breaks are actually creating local jobs.
"If we don't know how many jobs are created — if any — by companies claiming state tax breaks, we don't know whether they are cost effective tools for economic development," said Walsh.
Brewster called the legislation introduced by both representatives "critical to ensuring that future budgets can be balanced without sacrificing the services that are essential for the health of our people and the economy." She said that The Poverty Institute also recommends the establishment of a permanent commission that would conduct systematic reviews of tax expenditures.
Rhode Island reporting still better than some others
Rhode Island's tax expenditure report is better that those in some states, — primarily in the areas of accessibility, scope, and detail — but it needs serious improvement in documenting the purpose of all tax expenditures, evaluating these expenditures, and showing their impact by income level, according to a report released by the Center on Budget and Policy Priorities, a Washington, D.C. nonpartisan, nonprofit research organization.
"A well-designed tax expenditure report can help a state save money — something most states definitely need to do right now," said Michael Leachman, co-author of the report and assistant director for state fiscal policy at the Center.
"By showing policy-makers and the public how a state is spending its money and what the spending is accomplishing, a tax expenditure report can identity ineffective spending through the tax code that policy-makers can then eliminate," he concluded.
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