Report: State Gave $1.7 Billion in Tax Breaks in 2009
Saturday, September 01, 2012
A new state report showing that Rhode Island gave up at least $1.7 billion on tax breaks in Tax Year 2009 raises questions about whether the public and policymakers are given enough information to know if this was money well spent, the Economic Progress Institute announced this week.
The 2012 Tax Expenditures Report, released this month by the state Office of Revenue Analysis, documents the cost of 235 state tax breaks that reduced what many people and companies owed the state.
“With resources tight and essential services being cut we need to look extra hard at whether these tax breaks are a good deal,” said Kate Brewster, executive director of The Institute. “It’s time to turn up the volume on this silent spending,” Brewster said, noting that other states, including Massachusetts, are making progress in recognizing that taxpayers deserve to know whether tax breaks are worth the revenue the state gives up. “Given all of the areas where we need to invest to create jobs – education, transportation, and health care for example – it’s more important than ever that tax breaks receive the same scrutiny as spending through the state budget.”
Tax breaks come in various forms and are known collectively as “tax expenditures,” a term that reflects the reality that revenue given up this way is the same as money appropriated and spent by the state through the budget. The key difference is that tax breaks aren’t reviewed annually. They are enacted into law and tend to become permanent provisions of the tax code with no evaluation as to whether they are serving their intended purpose or are of benefit to the state or its residents.
Brewster said reforms are needed, such as requiring that all new tax expenditures include a statement of purpose, performance measures, methods for evaluation, and a fixed date on which the tax breaks will expire unless the Legislature votes to renew them. “With such safeguards in place, policymakers can make informed decisions about what’s in the public interest – and tax breaks that aren’t in the public interest could more easily be eliminated.”
Representative Teresa Tanzi has for the past two years introduced legislation that would provide policymakers with these tools. She also is calling for a comprehensive review to determine the effectiveness of tax breaks. While the bills received a hearing in the House Finance Committee, they were held for further study.
Tax expenditures come in many forms, including credits, deductions, exemptions, preferential rates, and more. They can be taken against one or more types of taxes, depending on the law. Brewster stressed that many tax expenditures are beneficial, like the sales tax exemption for food. But others, like the sales tax exemption for aircraft and aircraft parts, have never been evaluated as to their effectiveness in boosting the economy.