It’s no secret that once enacted, tax breaks receive far too little scrutiny from state lawmakers. Consider the debacle in Missouri, for example, where the state accidentally spent $1 billion more on tax credits beyond what lawmakers originally intended, in large part because the state's budget rules left lawmakers with very few options for properly overseeing those tax breaks.
In an attempt to encourage lawmakers to spend more time discussing the true costs and benefits of tax breaks, Oregon enacted a law in 2009 requiring the vast majority of its tax credits to sunset within two, four, or six years. Last week, with the first batch of credits scheduled to expire at the end of this year, the Oregon legislature sent Governor Kitzhaber a bill that will scale back the size of the expiring tax breaks by some 75 percent over the next two years – from $40million to $10million. Similarly, the credits' six-year, $500million price tag (had the legislature simply extended all the credits) will fall to roughly $136million.
Among the credits reduced by the legislation are the film tax credit, the biomass credit, and the research and development credit. The much maligned business energy tax credit (BETC) will also be replaced with new and smaller credits designed to encourage conservation and renewable energy.
Unfortunately, there is one troubling addendum to this story. Just days after passing these tax credit reductions, the legislature also gave approval to a costly new credit based on the federal New Markets Tax Credit (NMTC). The NMTC is ostensibly designed to encourage business investment in low-income communities, but as our friends at the Oregon Center for Public Policy (OCPP) point out, the credit often flows straight to the pockets of wealthy investors building upscale hotels and condominiums in areas that are hardly impoverished.
Moreover, the OCPP notes that this credit “will subsidize projects that will occur anyway,” and “despite all the talk about creating jobs, the bill does not attach job standards to receipt of the subsidy.” Additionally, “nothing in the bill matches the rhetoric that investments will be made in small businesses. The bill has no provision limiting the investments to small businesses.” On the bright side, there’s still time for Governor Kitzhaber to veto the NMTC, and regardless of whether or not the NMTC becomes law, Oregon’s tax credit spending will be much lower in the years ahead than would otherwise have been the case.
This success is thanks in no small part to the role Oregon’s 2009 sunset law played in pushing these costly tax breaks into the spotlight.
For more information on steps states can take to enhance the level of scrutiny applied to tax breaks, read CTJ’s report, How to Enact (and Maintain) Tax Reform.