Who’s getting the tax breaks?
‘Tea Party” rallies around the country are expected to observe Thursday’s tax return deadline by decrying the burgeoning federal debt and the yawning budget gaps at all levels of government. Ralliers will no doubt blame excessive spending, as usual, but that’s just part of the budgetary picture. Another factor is the growing list of corporate tax breaks that lawmakers have enacted to promote research, job creation and other goals.
These “tax expenditures” have the same impact on the fiscal bottom line as appropriations do. One difference, though, is that it can be much harder to gauge who is benefiting from tax expenditures than from conventional spending. For example, California’s government transparency website posts details on every state contract signed with vendors, large and small. But it offers no such data about the beneficiaries of tax-expenditure programs such as the ones targeted at economically disadvantaged areas, which cost nearly half a billion dollars in fiscal year 2009. With budgets stretched thin, it’s time for governments to tell taxpayers what they’re getting for those investments.
A handful of states are providing that kind of clarity today. One example is Kentucky, which provides a searchable online database of corporate financial incentives. The consumer group CalPIRG is working with Sen. Dean Florez (D-Shafter) on a bill that would create a similar resource in California. It would disclose the name of each company receiving a tax exemption worth $1,000 or more, as well as “a description of the initial justification for the expenditure.” Six business groups and the California Taxpayers Assn. blasted an early version of the bill, complaining that exposing the data “would only perpetuate the commonly held belief that California has an exceedingly poor business climate.” But the measure would impose no new burdens on corporations -- the information would be compiled by the Franchise Tax Board.
What business groups really fear is that shining more light on the tax subsidies would make it harder for lawmakers to justify them. But the point isn’t to eliminate the tax breaks; it’s to give the public more information with which to judge whether the subsidies are achieving their goals. The Franchise Tax Board published analyses of the state’s tax expenditures from 2003 to 2009, estimating each one’s cost and the number of recipients. But as the tax board’s research director acknowledged, these reports don’t measure how effective the expenditures are. And because the board doesn’t disclose who receives the subsidies, it’s impossible to tell who’s being helped. The state can’t manage tax dollars effectively when the public can’t tell where they’re going.