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Missouri might just be the poster child for why it’s so important to ramp up the amount of scrutiny given to special tax breaks.  From 2005 to 2009, the state accidentally spent over $1.1 billion more on tax credits than lawmakers expected.  More recently, despite its budget being squeezed by a poor economy, Missouri’s tax credit spending continued on auto-pilot, actually rising by some 15 percent, while education and health spending fell well short of Missourians’ needs (PDF).  Making matters worse, the only tax credit “reform” to come close to passage in recent years was an unsuccessful effort to scrounge up some tax credit savings and blow them on a massive giveaway designed to turn the St. Louis airport into a futuristic hub for freight between China and the Midwest.

What Missouri and other states need is a way to carefully evaluate all of their tax breaks on an ongoing basis, and an incentive to get lawmakers to act when a tax break is proven to not be worth the cost.  To that end, the Institute on Taxation and Economic Policy (ITEP) just published a new resource outlining five steps that states can take to make this basic standard of good governance a reality, and showing that over a dozen states have already taken at least one of these steps.

In brief, those steps are:

  1. Require tax breaks to include specific goals and measurable objectives.
  2. Require rigorous analyses of the success (or lack thereof) of tax breaks by trained, non-partisan analysts.
  3. Use “sunsets” (or expiration dates) to spur lawmakers to debate and vote on tax breaks after they’ve been analyzed.
  4. Require the Governor’s budget proposal to include recommendations on tax breaks after they’ve been analyzed.
  5. Require the legislature to hold hearings on tax breaks after they’ve been analyzed.

Every state has significant room for improvement when it comes to the level of scrutiny it applies to special tax breaks.  To learn more, read ITEP’s report: Five Steps Toward a Better Tax Expenditure Debate.