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Sunsetting tax expenditures

Sens. John Carona and Rodney Ellis have the right idea.

Sen. John Carona

Over the past 18 months, many of our constituents told us they have trouble finding a reliable, accurate and up-to-date source of information on these tax breaks, exemptions and special treatments — often called tax preferences or loopholes.

Unfortunately, so do we.

The Legislature makes extensive efforts to determine the efficacy of every state dollar spent in our public education, health and human services, and criminal justice systems. With that data, elected officials can weigh the costs and benefits of different policy options in an attempt to make the most well-informed decisions. Yet we still have an astounding deficit of knowledge when it comes to tax expenditures.

Sen. Rodney Ellis

This session, we aim to change that. We have filed Senate Bill 140 — bipartisan legislation to scrub, sunset and possibly repeal scores of preferential tax breaks in Texas law. State agencies are subject to a sunset review every 12 years to determine if their functions need to be continued or reformed. The tax code would benefit from a similar periodic review of all its tax preferences to answer a simple question — are they working?

The Texas Tax Code contains numerous tax loopholes, many of which were inserted into the code in the distant past but live on long past the time the rationale for their existence has ended. Recent press reports estimate that, at a minimum, Texas spends $19 billion annually on these incentives. Yet despite this price tag, state agencies responsible for Texas’ finances are unable to provide a comprehensive list of tax preferences, much less detailed analyses. The sad fact is that the state agencies responsible for Texas’ finances are unable to determine exactly how many of your tax dollars are spent on tax loopholes, because no one even knows how many are in the tax code, how much they cost, or if they are even working.

Our ongoing budget challenges demand that we be as prudent as possible with all of our tax dollars, yet the state lacks a basic method to review and determine the effectiveness of a host of tax preferences and incentive programs. Texas needs a consistent, thorough review process to provide the public and policymakers alike with information on tax preferences’ successes and shortcomings.

Here’s SB140, which is enabling legislation for SJR12. There was some talk about taking a closer look at tax expenditures in 2011, but it never went anywhere because spending cuts were the be-all and end-all of everyone’s existence. I’m hoping for a bit more sanity this session, but if this has to be done as a Constitutional amendment that will make it a much heavier lift. Still, this is clearly an idea whose time has come – as they note, several other states do this already – so I wish them the best of luck with it. Link via Better Texas.

On a related note, Sens. Carona and Ellis’ timing on this is propitious given the push by their colleague Dan Patrick for a brand new tax expenditure gimmick, his proposal to fund private school tuition vouchers via a business tax writeoff. Former Deputy Comptroller Billy Hamilton makes short work of that.

Setting aside the effects on public education, the tuition credit idea should be rejected as a matter of tax policy alone. Education is important, but what makes this particular program worthier of tax breaks than donations to a thousand other good causes? What makes this cause more worthwhile than donations to public schools? Why this tax break and not others? There are no good answers.

We don’t know what a Texas version of this corporate tax credit program would look like or who will benefit, but whatever shape it takes, we need to keep in mind the experience in other states. States such as Florida, Pennsylvania, and Georgia have all had problems with the programs at various times because they’re designed with little or no public accountability. Companies should be free to donate money to private nonprofits if they want, but if the donations effectively come out of the state treasury, my 30 years around government tells me someone better be following the money because scandal will happen eventually.

Hamilton sure is a busy bee these days, isn’t he? Anyone who thinks Patrick’s proposed scheme would not be leveraged by people who already do send their kids to private schools or who always were going to send their kids to private schools – something that’s already happening in Louisiana – I’ve got some beachfront property in Lubbock for you.

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2 Comments

  1. […] ruling once the Supreme Court has reviewed it. This is a sensible place to start looking. See here for […]

  2. […] you know, I’ve talked before about sunsetting tax expenditures. Sens. John Carona and Rodney Ellis have filed a bill to require […]

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