October 31, 2012

Tanzi Demands Oversight and Transparency of Tax Preferences

More than $1.73 billion of state revenue was given up through tax expenditures in 2009, according to the 2012 Tax Expenditures Report published this summer by the Office of Revenue Analysis, all without regular review to determine the benefit to the state. 
Each year, lawmakers agonize over state spending on programs and administration within our limited means to balance the budget, but because tax expenditures represent money that we never actually receive, we don’t get to consider whether those nearly $2 billion in expenditures are actually benefiting Rhode Islanders. 
The term “tax expenditure” encompasses many forms of tax breaks, including credits, deductions, exemptions, preferential rates and others. While some have obvious value (like the sales tax exemptions for food and most clothing, which help make those necessities more affordable) most are never evaluated by the state to see whether the investment is paying dividends for the state's economy or its citizens. 
A report issued by the Department of Revenue’s Office of Revenue Analysis in August attempted to estimate the cost of each of the 235 tax expenditure programs in Rhode Island, although in 80 cases, the state could not calculate any cost, stating “no reliable data exists from which to derive an estimate.” That information and lack thereof should be of great concern to citizens and state leaders because it represents a huge sum of money that the state is spending through the tax code without the appropriate level of scrutiny. 
This week I attended a conference held in Providence by the Federation of Tax Administrators, which reinforced my sense of urgency as I learned more states are moving toward better oversight of tax expenditure programs in today’s tough financial times. Some are using spending caps on certain segments, and sunsets to prevent never-ending subsidies; but the movement overall is towards adding sunlight and transparency to silent spending through the tax code. 
For the past two years I have introduced legislation with strong bipartisan support requiring any new tax preference to include a statement about what it is supposed to accomplish, ways to measure outcomes, and expiration dates that would provide the General Assembly with an opportunity to positively reaffirm its effectiveness on a systematic basis. 
I have also submitted and will continue to introduce legislation creating a finance sub-committee to review all existing tax expenditures and make recommendations over time as to whether to maintain, strengthen or repeal the 235 preferences that currently exist. 
My goal isn’t to eliminate tax credits and exemptions, but to refine them to perform as effectively as possible for the benefit of Rhode Islanders and the state’s economy. 
Many of these expenditures were written decades ago and are in desperate need of review. No company would write a business plan and not change it for a decade and expect to stay competitive in today’s marketplace. Why would we expect our tax code to be any less nimble in times of rapid changes in the business landscape? It’s actually a disservice to businesses that we do not respond more systematically and comprehensively to the changing markets by updating our tax incentives more thoroughly. 
Rhode Islanders are rightfully upset about a poorly vetted $75 million loan guarantee for 38 Studios, but let that be the impetus to help us create an economic development plan that is transparent, accountable and data-driven. When we’re deep in a public debate about how Rhode Island should pursue economic development, shouldn’t we be carefully evaluating each program that is supposed to be an incentive for business growth to ensure it is up-to date and primed to help create jobs and rebuild our economy?  
When the state is constantly cutting programs to balance the budget, it’s senseless to ignore one-third of our budget. If we are able to find efficiencies on tax expenditures, we might be able to fund other priorities, such as making significant investments in higher education, improving our crumbling infrastructure, or expanding public transit. Tax expenditures do important work in strengthening our economy, but Rhode Island needs to keep ours current to ensure that they provide the best return for our $1.7 billion investment.
Teresa Tanzi
State Representative, District 34
Narragansett, Wakefield and Peace Dale