Many citizens would welcome lower taxes, but most also question the effectiveness of special tax breaks for particular groups or industries. Few government officials have the business expertise necessary to pick winners and losers in the economy. Putting officials in the position of dispensing tax breaks encourages crony capitalism.
Once in place, most special tax breaks recede into the obscure complexity of the tax code. Unlike direct spending, they don’t require an annual vote. Legislators, as a time management device, tend to focus on matters that will require them to take a vote. So, many tax breaks coast for years on end without much scrutiny.
Fortunately, we have recently started to make some progress towards bringing special interest tax breaks under better control.
In 2010, my efforts contributed to an increase in transparency around tax breaks. We enacted a new requirement for public reporting of selected tax credit giveaway programs. This was not the central goal of my transparency push at the time — I was focused on legislative spending — but it was offered as an alternative in negotiations and I accepted it. (The legislative spending transparency issues were partially addressed later in the House 2011 rules vote.)
The new rules require disclosure of the recipients of selected tax credits that are refundable (i.e., will be paid even if the taxpayer has no tax liability) or transferable from one taxpayer to another, including credits like the film tax credit and the historic rehabilitation tax credit. The disclosure requirements applied prospectively, so the first report under the 2010 law came out on June 4, 2012. Taken together, the credits cost the state approximately $170 million in calendar 2011 — click here to see where money is going.
The report shows that there were 736 tax breaks awarded (a bit fewer recipients — some got more than one break). However, the top 6 recipients account for over 1/4 of the total amount:
|Film Tax Credit||Columbia Pictures — Here Comes the Boom||$11,586,513.00|
|Film Tax Credit||Thunder Buddies, LLC — Ted||$9,088,384.25|
|Brownfields Tax Credit||DDFA Associates, LLC||$7,799,838.00|
|Brownfields Tax Credit||Partners HealthCare Systems, Inc.||$6,765,187.00|
|Brownfields Tax Credit||Clarendon Street Associates, LLC||$6,427,184.00|
|Life sciences – investment tax credit||Shire HGT, Inc.||$5,855,368.00|
According to Wikipedia, Here Comes the Boom was shot in 20 days in Massachusetts, mostly in Quincy High School — was that really an appropriate object of $11.6 million in state spending? The recipient, Columbia Pictures Industries, Inc. is a subsidiary of the Japanese conglomerate, Sony. Even allowing for multiplier effects on employment, the Department of Revenue states that “In 2010, the number of jobs for Massachusetts residents is estimated to have decreased by 2 as a result of the film incentives being offset by corresponding state spending reductions.” Hopefully, the publication of individual tax credit amounts will sharpen the conversation about the wisdom of picking economic winners and losers through the tax code.
Another initiative to control tax breaks has recently come to fruition. In 2011, Representative Hecht of Watertown and I, along with others, cosponsored a budget amendment filed by Representative Byron Rushing of Boston. The amendment was adopted with modifications and it created a Tax Expenditure Commission. While many commissions don’t produce meaningful results, the Tax Expenditure Commission, which recently completed its report, produced a wealth of information and some useful recommendations about how to decide which tax expenditures to preserve and which to sunset.
All tax measures must originate in the House and Speaker DeLeo had promised “no new taxes” at the start of the 2011-12 session, so it was clear that there would be no actual change in tax expenditures in this session — a study was the best we could do. But in the legislative session that starts in January 2013, it may be politically possible to review the tax expenditure “budget”. The House Chair of the Revenue Committee, Representative Jay Kaufman, has been a leader on the issue of tax breaks and played a critical role in the commission along with members of the Patrick administration. I think that we can count on him to continue to advocate action to narrow unreasonable tax breaks in 2013.
It’s important to note that eliminating tax breaks doesn’t necessarily mean increasing tax revenues — it could mean eliminating breaks for a few special interests while cutting tax rates for everyone. As a State Senator, I would be strongly supportive of a very thoroughgoing simplification of the tax code. That, in itself, would be worth doing because it would improve faith in government and, by lowering rates considerably, it would reduce temptations for people to do business under the table.