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Looking to Avoid Further Cuts to Jobs, States Scrutinize Tax Expenditures

Most states have hundreds of tax expenditures on their books, ranging from tax credits to reduce poverty to exemptions benefiting homeowners to business subsidies. Some of these expenditures, like a sales tax exemption on groceries, have a broad social benefit and enjoy widespread public support. Yet the benefits of others, which are often created for specific companies or industry sectors while purportedly incentivizing local economic growth or job creation, are less clear. Many states have exemptions and credits that are decades old and in some cases outdated or underperforming, with no laws in place to review them and assess their actual impact in local communities. However, another year of severe revenue shortages and deep budget cuts now has many states scrutinizing the true value of these preferential tax treatments.

In Ohio, there is bipartisan support for examining the effectiveness of the state’s 128 tax exemptions, credits and deductions. These exemptions will total roughly $15 billion in forgone revenue in the current two year budget and lawmakers, advocacy groups and think tanks spanning the political spectrum are calling for the elimination of some of them to raise much needed revenue, as well as for a sunset provision that would mandate that all tax expenditures expire on a certain date unless re-approved through the legislative process. Senate President Tom Niehaus (R) has instructed the Ways and Means Committee to produce a report reviewing all 128 exemptions. Speaking to the urgency of assessing their value, Niehaus said, “If we wait until March of 2013 to have the discussion, we’ll run out of time. Do they make sense? Are they doing what they were intended to do? Do we need to eliminate them? We’re also looking at all of those programs as they relate to job incentives.”

Other states are asking similar questions. Earlier this year, Oregon lawmakers ended a number of tax credits and reduced several others, generating more than $125 million in revenue for the next four years. In New Mexico, Gov. Susana Martinez has instructed agencies to analyze the cost of tax credits to the state and whether they are in fact creating jobs. The Center on Budget and Policy Priorities notes that a number of states are pursuing tax expenditure reporting in an attempt to identify revenue that could be better spent elsewhere. According to their report released in May, Georgia and New Jersey have passed new expenditure reporting requirements and Rhode Island, North Carolina and Vermont have all made significant improvements to existing laws.

As the nation’s focus increasingly narrows on the persistent unemployment rate and the need to avoid further job-killing cuts, lawmakers, advocates and the public are all paying more attention to outdated, underperforming, or downright egregious tax credits and exemptions that are costing states dearly.

Full Resources from this Article

Looking to Avoid Further Cuts to Jobs, States Scrutinize Tax Expenditures

Center on Budget and Policy Priorities - Promoting State Budget Accountability Through Tax Expenditure Reporting

This article is part of PSN's email newsletter, The Stateside Dispatch.
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