State Tax Breaks Pile Up

Denver and Baton Rouge are 1,200 miles apart (not to mention some steep elevation change), but state lawmakers in these distinct capitals are grappling with a similar challenge: a tax code increasingly clogged with special interest tax breaks.

In Colorado, legislators have proposed a “bumper crop” of tax credits this year. The legislature has already had to beat back a bill that would have provided $11.6 million in tax credits for parents who send their children to private schools, but dozens more are awaiting consideration. Tim Hoover, communications director for the Colorado Fiscal Institute, has compared the atmosphere at the Capitol to a recording of “Oprah”: “Tax incentives are handed out the way Oprah gives away cars to her audience members. You get a tax credit! You get a tax credit. Everybody gets a tax credit.”

In 2009, Colorado lost $2.7 billion to various tax credits, exemptions, and deductions. The only reason we’re even able to put a number on these otherwise hidden tax provisions is because the state recently joined most of the rest of the country by publishing a tax expenditure report (PDF). The good news is that some Colorado legislators are now trying to make this report a regular feature of the state’s budgeting process, published every two years. The bad news (other than all the new breaks that lawmakers are trying to pile on) is that the report does nothing to show if the state’s tax breaks are having their intended effect. This is one reason why Colorado was ranked as “trailing behind” in the pursuit of evidence-based tax policy by the Pew Center on the States.

While Louisiana is ranked higher by Pew as a result of having evaluated at least some of its tax breaks, its tax code is similarly jam-packed with special interest giveaways. But thanks to Louisiana State House Speaker Chuck Kleckley, the effectiveness of these exemptions will be the subject of a new, independent tax study this year, with recommendations to be released next spring. Don’t get too excited, though. In 2012, Louisiana created the Legislature’s Revenue Study Commission which recommended better monitoring of tax exemptions, but that recommendation has yet to have much of a tangible impact.

Colorado and Louisiana, like most states, still have a long way to go in making regular evaluation of their tax breaks a reality, but if they’re looking for a little inspiration they may want to direct their attention toward the progress being made in Rhode Island.  The Ocean State now requires that state analysts determine the number of jobs actually created by certain “economic development” tax breaks, and that the Governor make recommendations on those tax breaks in his or her budget proposal.