Can Massachusetts Get Its Tax Giveaways Under Control?

Legislation to give the state's auditor better oversight would be a boon for taxpayers.
August 4, 2015
By Charles Chieppo  |  Contributor
Principal of Chieppo Strategies and former policy director for Massachusetts’s Executive Office for Administration and Finance

A few months ago, I wrote about Massachusetts Gov. Charlie Baker's plan to end the state's film tax credit. Powerful opponents succeeded at killing the proposal, but if a pending piece of legislation becomes law, those special interests will have won the battle but lost the war.

Most states offer an array of business tax breaks that result in significant foregone revenue. In Massachusetts, the amount is in the billions. Legislation backed by state Auditor Suzanne Bump would give her office access to business tax returns solely for the purpose of auditing "tax expenditures," as the various tax breaks are known.

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Under the legislation, the auditor's office would be able make sure businesses actually qualify for the breaks they receive; track whether state agencies are appropriately pursuing "clawbacks" that require businesses to reimburse taxpayers if the recipient fails to meet requirements of the tax-break agreement; and determine if commitments to job creation or other public benefits have been met.

Predictably, the bill has drawn howls of opposition from business organizations, and the legislature must indeed carefully craft any legislation to limit the scope of the auditor's review of business tax returns to gathering tax-expenditure data. But the fact that 37 other states already grant the entity that performs their audit function access to this information demonstrates that it can be implemented without making a business that receives a tax break the victim of a public witch hunt.

Other Massachusetts agencies, including the Massachusetts Probation Service and the Department of Transitional Assistance, already have access to the returns. It seems appropriate that tools to make sure that people aren't wrongfully collecting welfare benefits also should be available to government to ensure that businesses aren't getting tax breaks they don't qualify for.

Most business tax breaks are likely to be more effective than the film tax credit, which cost Massachusetts taxpayers about $88 million in foregone revenue during fiscal 2015. A Department of Revenue report found that state taxpayers paid nearly $119,000 for each job created by the credit in 2012.

And Massachusetts is hardly alone. A report from Maryland's Department of Legislative Services estimated that, even assuming that every production filmed in that state would have gone elsewhere but for tax credits, state and local taxpayers would still recoup just 10 cents on every dollar awarded in credits between 2012 and.2016.

Government incentives to promote economic development are by no means always bad. But with one U.S. Government Accountability Office report finding that state and local tax revenues are not on track to return to pre-Great Recession rates as a percentage of gross domestic product until 2058, taxpayers deserve to know that any funds diverted from schools, transportation funding or other priorities are actually boosting the economy. Providing public auditors with the data to review those incentives is an important step toward providing that assurance.