Will the brakes be put on tax breaks?

There is definitely something in the air. Over the past several weeks, there has been a heavy flurry of attention paid to the state’s system of tax expenditures, the array of over 450 exemptions, credits, deductions and the like that allow taxes not to be paid when they otherwise would. Yesterday, we released an in-depth issue brief which we titled “Let There Be Light: Making Oklahoma’s Tax Expnditures More Transparent and Accountable.” In our press release, we stated:

While the merits of granting tax preferences can be debated as a matter of principle, the reality is that they are unlikely to be abandoned entirely. There is a chance now to build on important progress made in recent years in increasing disclosure and scrutiny of tax expenditures to really get a handle on which tax breaks are worthwhile and effective, and which are wasteful giveaways.

Just as our issue brief was hitting in-boxes, the Oklahoma Gazette hit the stands with a front-page feature story by Scott Cooper examining several aspects of the total $5.5 billion that the state grants in tax benefits each year . The article features strong quotes from both Republican and Democratic elected officials affirming the need to subject tax breaks to much more careful scrutiny at a time of gaping budget gaps:

“Some of them have outlived their usefulness. Some of them are not creating jobs and need to be eliminated,” said Rep. Jeff Hickman, R-Fairview, chairman of the state House Subcommittee on Revenue and Taxation. “I think there is going to be a desire to do that. A lot of them we inherited and have been on the books for a long time.”…

“That is something that needs to be looked at continuously,” said Rep. Ken Miller, R-Edmond. “Tax credits are not meant to be corporate welfare, but an economic development tool used to produce high-wage jobs and diversify our economy. What we need to do as legislators is make sure that those tax credits continue to meet their intended purpose.”

“The state of Oklahoma, in this sort of backdoor (non-appropriated) method of tax credits and tax exemptions, gives away hundreds of millions of dollars,” said state Treasurer Scott Meacham, a Democrat.

Some elected officials have been willing to target specific credits and exemptions for elimination or suspension. Governor Henry in his budget proposed outright elimination of two investment tax credits intended for rural and small businesses that have grown exponentially in cost and have come under mounting suspicion of possible wrong-doing. The Governor also proposed a one-year suspension of over a dozen income tax credits as part of his strategy for bridging next year’s budget gap. As we noted in our brief (p.4), legislators this session have introduced some 20 bills that would provide for increased disclosure and review of tax expenditures or that would suspend, eliminate, or narrow existing provisions. Meanwhile, Democratic State Senator Tom Adelson this week held a press conference in which he called for the elimination of tax preferences with an estimated fiscal impact of $250 million as a way to help ease budget shortfalls  – earning an immediate rebuke from the Oklahoma Press Association and Tulsa World for suggesting that newspapers and advertising sales lose their tax exemptions.

Will all of this increased attention translate to policy changes that would address the concerns about transparency, accountability and cost of tax expenditures? It’s certain that the defenders of particular tax breaks will fight hard to maintain their preferences, and that the hard work of subjecting credits and exemptions to oversight and evaluation will pose a real challenge for legislators. But the conclusion of Scott Cooper’s Gazette piece provides genuine grounds for hope:

However, because of the harsh economic conditions and the state’s looming budget deficit, change could happen. Miller, who is running for state treasurer, quoted one of his colleagues when saying this economy is like the winter storms Oklahoma recently endured: It caused the removal of tree limbs that needed to be cut down anyway for power to be restored.

“This situation we have now,” Miller said, “provides the political will to actually accomplish some needed changes.”