States are spending billions of dollars per year on corporate tax credits, cash grants and other economic development subsidies that often require little if any job creation and lack wage and benefit standards covering workers at subsidized companies.

These are the key findings of “Money for Something: Job Creation and Job Quality Standards in State Economic Development Subsidy Programs”, a 51-state “report card” study published today by Good Jobs First, a non-profit, non-partisan research center based in Washington, DC.

“With unemployment still so high, taxpayers have a right to expect that economic development investments create significant numbers of quality jobs,” said Good Jobs First Executive Director Greg LeRoy. “The days of ‘no strings attached’ are largely gone, but the fine print in many states is still full of gaps and loopholes.” Read the rest of this entry »

Rep. David Dank is co-chair of the Tax Credit Task Force. This is his 0pening statement to the Task Force’s meeting of November 9th. It is reprinted with permission and has been edited for length as indicated by [...] The full unabridged statement can be seen here. A column presenting OK Policy’s recommendations for tax reform that previously appeared on Oklahoma Watch can be seen here.

[…] The very first question we need to ask today is who we are representing here []

I think the only valid answer is, The Taxpayers.

Not the special interests who have benefited from many of these tax credits… and certainly not the few who have manipulated this system for personal gain.

I think we should also make a second thing clear today [] We are not against business. We don’t oppose growth. We believe that government policy can help create jobs. We don’t think all credits or incentives are bad.

What I think most of us believe after all we have heard here is that far too many tax credits and other incentives enacted in the past were created for the wrong reasons, and in the wrong way. Read the rest of this entry »

Many state political and business leaders are clamoring to do away with Oklahoma’s personal income tax, the state’s single largest revenue source, while acknowledging the need to maintain sufficient tax revenue to fund basic services. One influential participant in the tax debate, House Revenue and Taxation Committee chairman David Dank, has made clear that he would support raising the state sales tax in order to eliminate the income tax.  Rep. Dank was quoted in February saying:

My personal preference would be to eliminate the state personal income tax entirely and replace it with consumption taxes on items other than groceries and prescription drugs, where everyone pays a fair share based on what they buy. The more money people have, the more they spend.

In Rep. Dank’s view, eliminating the income tax will draw  businesses and investors who will otherwise choose a state without an income tax, such as Texas. However, if the point of tax reform is to boost Oklahoma’s economy, our leaders should be wary of raising the state sales tax. Scrapping the income tax in favor of higher sales taxes would do many things, but none will be good for our economy.  Here are just a few ways that a higher sales tax will hurt our state: Read the rest of this entry »

The Oklahoma tax code is riddled with some 450 ‘tax expenditures’ that reduce state funds by exempting or giving back tax payments for favored groups and activities. Despite widespread rhetoric about the need for serious reform of  tax expenditures, eliminating tax breaks was “the dog that didn’t bark” this past legislative session. The Legislature did, however, pass HB 1285 to create a Task Force for the Study of State Tax Credits and Economic Incentives. The Task Force is charged with examining the justification and economic impact of all state tax credits and incentives.

On a sweltering Friday in mid-July, an overflow crowd of policymakers, lobbyists, reporters, and policy analysts packed the fourth floor committee rooms at the State Capitol for the Task Force’s first meeting. The meeting began with opening statements from the ten Task Force members, which includes legislative leaders from both parties, statewide officeholders, and Cabinet secretaries. Their remarks emphasized that in a time of severe fiscal constraint, expenditures through the tax code must be held to the same scrutiny and accountability as direct budgetary expenditures. In particular, Task Force co-chair David Dank stressed that decisions about tax credit programs must be guided by a recent Attorney General’s opinion on the subject. As we discussed in this blog post, then-AG Drew Edmondson laid out a three-part test to determine the constitutionality of a tax credit.  The AG’s opinion cast doubt on several existing tax credits, particularly transferable tax credits where entities purchasing a tax credit are not held to the same standards and conditions as those who initially qualify for and receive the credit. Read the rest of this entry »

In an earlier post, we discussed tax breaks that had been extended or newly created in the most recent legislative session. The governor promised to eliminate tax credits that “do not create jobs,” but there were no successful bills to end credits or any other tax expenditure this year.

The unwillingness so far of state leaders to rein in tax expenditures is a serious problem. As OK Policy pointed out in a pair of issue briefs[1, 2], Oklahoma’s tax code is full of holes created by numerous exemptions, deductions, and credits. The estimated cost of all these tax breaks is $5 billion a year. In an issue brief released last year, OK Policy also laid out several principles for how to make tax expenditures more transparent and accountable and distinguish good tax breaks from bad.

To understand why that is important, consider that direct appropriations must be approved by the legislature every year.  Tax credits, deductions, and exemptions reduce state funds to accomplish policy goals in the same way as direct spending. But as the Center on Budget Priorities explained in a report on tax expenditure transparency, “Most tax expenditures are written into the tax code and thus will continue indefinitely — regardless of how costly they may become over time — unless the legislature acts to discontinue them.” Read the rest of this entry »

When we discuss government budgets, direct spending receives the most attention by far. Less noticed is the substantial expenditure on tax credits and incentives, what some have called the “submerged state.”

That inattention may have allowed several unconstitutional measures to sneak through in Oklahoma. At the end of 2010, outgoing Attorney General Drew Edmondson issued an opinion on the constitutionality of Oklahoma tax credits. The opinion was requested by Rep. David Dank, R-Oklahoma City, who chairs the House Revenue and Taxation subcommittee. An AG opinion does not have force of law–only a court can legally determine constitutionality–but it can provide guidance to lawmakers and the courts. Read the rest of this entry »

“Imagine never having to file an Oklahoma income tax form again, and having no more state income tax withheld from your paycheck.” This is the scenario floated recently in a press release by David Dank, the Chair of the House Revenue and Taxation subcommittee. According to the release:

Dank said he would favor completely eliminating the state personal income tax and replacing that revenue with a higher state sales tax on merchandise other than groceries and prescription drugs.

The main reason behind Dank’s proposal is said to be the need to compete with states that have no personal income tax, especially our southern neighbor:

We are already being left behind in economic and job growth by states like Texas with no income tax,” Dank said. “If we are going to compete in the crucial next few years, we need to stop talking and start acting to dramatically reform our state tax system.”

Rep. Dank’s call to reform Oklahoma’s tax system to look more like Texas, and particularly the endorsement of a complete elimination of the personal income tax, may have a vaguely familiar ring. In the early 2000′s, the state embarked on an extensive tax reform process guided, at least initially, by the goal of making Oklahoma’s tax system resemble that of Texas.  After a year of research, reports, task forces, hearings and recommendations, the final tax reform proposal that emerged from this process was much different than what was initially considered – and wound up going almost nowhere. While much has changed in the intervening eight or nine years, we thought it might be helpful and instructive to dust off our files from that go-around and provide a quick recap of what happened back in 2001-02. Read the rest of this entry »

Are tax breaks for businesses a legitimate tool of economic development, or a form of corporate welfare? The fact is they can be either. The challenge is telling the two apart and ensuring through clear legislative language and ongoing oversight that policies that provide tax credits or other preferential treatment to businesses are meeting their goals.

Last week, a Joint Legislative Task Force created by legislation authored by Rep. David Dank and Sen. Randy Brogdon met to begin examining transferable tax credits. These are  tax incentives where one company qualifies for a tax  and sells that credit for cash to another company that wants to reduce its tax obligations.

According to a presentation by House staff attorney Mark Harter, the “general rule is that a tax credit can only be used by the person or entity who performed some economic activity or who invested money in some way.” Yet the Task Force heard that two of the state’s most notorious transferable tax credits – for non-stop coast-to-coast air service (Great Plains Airline) and for space transportation vehicle providers (Burns Flats spaceport) – provided much weaker standards. In those cases, taxpayers ended up on the hook for tens of millions of dollars for projects that failed (literally) to get off the ground.

But even where eligibility requires performance of certain economic activity, either job creation or capital investment, oversight and compliance is often uncertain. Rep. Dank was especially critical of the state’s coal credit intended for the purchase of Oklahoma mined coal. Businesses and individuals claimed anywhere from $5 million to $12 million in coal credits in 2007. Yet, according to Rep. Dank (quoted in the Journal Record, subscription only):

But there is no evidence that these were ever used to produce more coal or to hire more miners. Instead, tax credits given to the coal industry in Oklahoma were sold to companies that had nothing to do with coal, reducing revenues to the state with no economic gain.

The next meetings of the Task Force will no doubt dig deeper into how particular credits have been used, or misused.

Over the past several years, the state has made genuine progress in improving accountability and transparency of tax incentives.  An Incentives Review Committee, created by statute, has been reviewing major tax credits and making recommendations; their work was responsible, in part, for the decision to allow one of the most expensive and controversial incentive programs, the Venture Capital Credit, to expire at the end of 2008. As we discussed in this blog post, implementation of the Taxpayer Transparency Act (SB 1) led earlier this year to the launch of a searchable online database that generates lists of all individuals and businesses that claimed tax credits (so far information is available only for 2007).  And for the first time ever in the state, the Legislature this session passed a tax credit bill, SB 929,  that included a “clawback provision” allowing for the state to demand repayment of credits in the event that companies failed to uphold their obligations – as promptly occurred when Mercury Marine announced it was pulling up stakes from Stillwater and returning over $1 million in payments.

So what more can be done? One interesting idea was proposed recently by Good Jobs First, a national policy organization that focuses on corporate accountability:

We also need responsible budgeting. Let’s also require each state to enact a Unified Development Budget: an annual report to the legislature itemizing all forms of spending for jobs—both appropriations and tax expenditures. Tax breaks typically dwarf appropriations by ratios of 4 to 1, 6 to 1, 8 to 1 or more, so we need the whole iceberg up on the table for an annual check-up.

While Oklahoma has made strides in making available information on tax incentives with the Taxpayer Transparency Act and biannual Tax Expenditure Report, it remains difficult, if not impossible, to find comprehensive information on the full array of tax credits, especially regarding credits claimed on taxes other than the income tax (insurance premium tax, gross production tax, ad valorem tax).  A Unified Development Budget such as proposed by Good Jobs First could go a good ways towards helping pull the various pieces together into a single picture – and ultimately help policymakers with the tough but essential goal of reaching informed decisions about which tax credits are working to promote good jobs and investment, and which are purely handouts to special interests.