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Transparency for Tax Expenditures: A California Proposal

1 min readBy: David Splinter

The Blue Proposal of the Commission on the 21st Century Economy offers some alternatives to one of the major reform plans, including a suggestion for taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. expenditure transparency.

The proposal suggests all tax expenditureTax expenditures are a departure from the “normal” tax code that lower the tax burden of individuals or businesses, through an exemption, deduction, credit, or preferential rate. Expenditures can result in significant revenue losses to the government and include provisions such as the earned income tax credit (EITC), child tax credit (CTC), deduction for employer health-care contributions, and tax-advantaged savings plans. s:

1. Be displayed in the Governor’s Annual Budget with estimated costs for the fiscal year

2. Have a sunset date no longer than five years

3. Have a performance-based metric calculated

In a previous post, Mark Robyn wrote that many economists agree “that tax expenditures are really just spending in disguise and that their use shrinks the tax base and forces up tax rates. States are effectively subsidizing all the activities associated with their tax expenditures…”

In addition, another Blue Proposal item seeks to improve checks and balances by creating a tax dispute resolution forum independent from the entity that administers those taxes. Commissioner Christopher Edley expressed support for both the transparency and dispute resolution forum proposals, although he questioned the performance-based metric.

For more posts on tax expenditures see: alternative fuels credits, film tax credits, education credits, and the mortgage interest deduction.