One of the most important provisions in the new House GOP tax plan is the disallowance of the business deduction for net interest expense. While this is not the sort of tax provision that most individuals handle on a day...
- The Tax Policy Blog
- Massachusetts Tax Carve-Outs Exceed Total Tax Revenues by...
Massachusetts Tax Carve-Outs Exceed Total Tax Revenues by $4 Billion
A preliminary draft report issued by the Massachusetts Tax Expenditure Commission shows that state tax expenditures are expected to reach $26 billion in 2013, a number $4 billion larger than the projected revenues of $22 billion. In short, as the Massachusetts Department of Revenue put it, "the Commonwealth collects less in revenue than it has chosen to forgo."
The Massachusetts General Laws define tax expenditures as state tax revenues lost as a direct result of exemptions and deductions from, or credits against, taxes. These carve-outs are not very different from direct government expenditures, but unlike many direct expenditures which are downward redistribution, tax expenditures often represent upward redistribution. They create an unlevel playing field where well-connected industries gain special tax treatment.
According to currently compiled data for the Commission, Massachusetts' tax expenditures to tax revenues ratio is the highest in the country:
Tax Expenditures and Tax Revenues by State
|State||Fiscal Year||Total Tax Expenditures (Millions)||Total Revenue (Millions)||Expenditure/ Revenue Ratio|
The Commission unanimously approved a Statement of Principles on February 6 making it clear that tax expenditures should face regular scrutiny and cost-benefit analysis by Executive and Legislative branches. This type of cost-benefit analysis is usually applied to things like regulatory decisions, but is often not required to justify tax expenditures.
Often tax expenditures incur a large cost on tax payers without generating the desired returns. As we noted in a November 2011 blog post, the Massachusetts Department of Revenue found that the state's film tax credit program had high costs with minimal benefits. In Massachusetts $14.6 million in tax credits were given to filmmakers in 2010, yet the film tax incentive program only generated $800,000 in new state revenues.
The Secretary of Administration and Finance Jay Gonzalez recently made a proposal to the Commission that attempts to put a few quality control measures on Massachusetts' overflowing expenditure problem. His plan calls for eight tax credits to sunset after 5 years, and requires that many expenditure programs, including sales exemptions on food and clothing, be vetted for effectiveness every 5 to 10 years.
By implementing stronger oversight of tax expenditures, Massachusetts can start more directly honoring the principles of simplicity, neutrality, and broad bases with low rates.
Follow Scott Drenkard on Twitter @ScottDrenkard.
Get Email Updates from the Tax Foundation
Join the Tax Foundation's fight for sound tax policy Go
About the Tax Policy Blog
The Tax Policy Blog is the official blog of the Tax Foundation, a non-partisan, non-profit research organization that has monitored tax policy at the federal, state and local levels since 1937. Our economists welcome your feedback. If you would like to send an e-mail to the author of a blog post, please click on that person's name to locate his or her e-mail address or visit our staff page here.