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 Many states have exemptions and credits that are decades old and in some cases outdated or underperforming, with no laws in place to review them and assess their actual impact in local communities.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.
As 2011 legislative sessions draw to a close, many states continue to wrestle with budget shortfalls. Some adopted responsible measures this session to rebuild prosperity through a balanced approach that included revenue generation, while others went down a destructive path relying exclusively on job-killing cuts. The same revenue debate that played out in the states is now coming to a boil in Washington D.C. as policymakers consider ways to raise revenue to address the federal deficit — including one misguided proposal that would result in more corporate welfare and provide little benefit for the nation’s economic security.
Department of Labor statistics released last week revealed the bad news: unemployment is back to 9.1%, after only 54,000 jobs were added in May. These numbers come as Fortune 500 companies are reporting record profits, still benefiting from the large tax cuts that reckless conservative economic policies have provided them over the past 10 years. Recent studies show why, in order to address a stubborn domestic jobs crisis head-on and to reinvigorate America’s competitiveness in the global marketplace, advancing state policies that encourage green job creation is more critical than ever.
In early March, New Mexico progressives achieved a notable victory after the state legislature approved SB47, a bill to develop an annual tax expenditure budget, to accurately assess how much the state spends on tax breaks for various industries and companies. The bill's movement is complimented by heightened legislative momentum around accountability across the states. Such reforms, including increasing disclosure of state spending on subsidies, contracts, and corporate tax breaks, are especially necessary considering the bleak fiscal and economic circumstances states continue to confront.
Although the recession may have technically subsided at the national
level, states are still reeling from historic budget shortfalls,
stubbornly high unemployment, and significant revenue declines and will
continue to face fiscal challenges in the upcoming year. The lingering
effects of the downturn have forced state lawmakers to consider
extreme fiscal measures to confront budgetary constraints. What’s
more, states have already utilized a substantial portion of the federal
funds available for state fiscal relief through the American Recovery
and Reinvestment Act (ARRA).
These dire circumstances merit progressive tax and budget policy as a
means to provide essential services, make critical investments in
long-term growth areas, support working and middle-class families who
have been disproportionately hit by the impact of the downturn, and
ensure that all taxpayers are contributing their fair share.