Help Us Restore Tax Credit Transparency

this seems like a good idea (0.00 / 0)

what is the argument against transparency here?  

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by: GoldsteinGoneWild @ Wed Jul 01, 2009 at 15:20:41 PM CDT

that people will realize (6.00 / 6)

how ineffective these tax credits are (something private studies have found)?

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My thoughts are mine and mine alone. They should not be considered representative of any other organization, group or person - save me.

~Ryan.

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by: Ryepower12 @ Wed Jul 01, 2009 at 15:23:39 PM CDT

[ Parent ]

Do you have any basis for saying that? (0.00 / 0)

I ask because tax credit deals are an important way that affordable housing gets built.

Personally, I think affordable housing, especially for low-income citizens, is quite a good idea.

BMG: Reality-based commentary.

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by: Bob Neer @ Wed Jul 01, 2009 at 15:47:02 PM CDT

[ Parent ]

If affordable housing is a public good (6.00 / 2)

Then public funds should be used for it. Tax credits are almost always less targeted and harder to administer then simple government grants.  

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by: Power Wheels @ Wed Jul 01, 2009 at 15:54:42 PM CDT

[ Parent ]

I was referring to the film tax credits (6.00 / 2)

Not housing. The basis is the studies that came out before Massachusetts created the tax credit, that showed the state would lose about $3 for every dollar invested flushed down the toilet.

Housing? I'm willing to throw a lot of money into housing to create affordable units to keep people in Massachusetts and prevent families from going homeless. Am I willing to lose money to get Tom Cruise to film in Massachusetts? Does it come with a free autograph for all 6.5 million of us? /snark off

Maybe I would if it were revenue neutral -- bringing in as much as the state was spending, but in all likelihood it's not. The very fact that the facts are being kept from the public just goes to show that those who are most heavily pushing this measure probably know it, too. Open up the books, report all the facts -- Carl Sciortino is absolutely right on this. We can't afford to be shutting down schools while we throw tens of millions away in the quest to film the next Steven Spielberg blockbuster. If the Massachusetts film tax credit magically solves the problems just about every other state's had that have created similar programs, and we're making this tax credit at least revenue neutral, then fantastic. I just have my doubts -- doubts I'd be willing to have assuaged if the process were transparent.  

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My thoughts are mine and mine alone. They should not be considered representative of any other organization, group or person - save me.

~Ryan.

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by: Ryepower12 @ Wed Jul 01, 2009 at 16:23:06 PM CDT

[ Parent ]

Wandering off into speculation (4.00 / 1)

Isn't the argument for film tax credits also based on trying to attract creative industries to Boston? You know, the whole innovation economy thing. There were a bunch of articles in the last decade about how innovative cities were welcoming to three things: gays, rock bands, and a third thing I've forgotten.

Anyway, this is so blazingly intangible, how could it be measurable? It could be like the industrial parks and technology parks that have sprung up across the country based only the hope that they will attract industries and the industries never appear because, well, there are already too many such parks. But it could also be like anything entrepreneurial where no ideas no matter how good is guaranteed.

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by: KBusch @ Wed Jul 01, 2009 at 19:48:05 PM CDT

[ Parent ]

So you want to shut down dozens of schools because (0.00 / 0)

Maybe, kinda, sorta, this could go somewhere, if we're lucky?

But we don't want to ensure that we can analyze anything to see?

I'm sorry, I'm just not buying. This industry will only come to us so long as our tax credits are less than other states -- it's a race to the bottom. At the very least, we need to go back and fix some of the issues in this law, such as the fact that it's not transparent and that the tax breaks are given even if the jobs are out of state. At the very least, we should know what we're getting in return -- and the money we spend on credits should be going toward employees who are paying Massachusetts income taxes.  

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My thoughts are mine and mine alone. They should not be considered representative of any other organization, group or person - save me.

~Ryan.

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by: Ryepower12 @ Wed Jul 01, 2009 at 20:57:10 PM CDT

[ Parent ]

Truth through dialog (6.00 / 1)

Reading the discussion on this thread, I kept feeling that there was another side to it, a counter-argument, some plausible but unexpressed reason for this policy. Polemics against an absent enemy seem weird. Possibly Power Wheels below is correct in asserting that these tax breaks represent a victory of lobbying over policy.

You'll see that my comment, if read more closely, was reflective. I make no prescription. I sell nothing for you to buy — or to refuse to buy.

Instead, I just want to know what the strongest argument for these tax breaks is. I don't agree with that argument. I can't. I don't know what it is.

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by: KBusch @ Wed Jul 01, 2009 at 22:16:16 PM CDT

[ Parent ]

Rational for obstruction (6.00 / 4)

The primary reason suggested as to why the tax credits are not disclosed currently is that tax returns should remain private.  However, these are specific business tax credits that essentially act like state grants.  They are supposed to have some public policy benefit, and very well may, but there is currently no way to verify their effectiveness.  

I find the privacy argument to be incredibly lacking for these specific tax credits.  Any organization, non-profit, for-profit, municipality, etc, that applies for a direct grant from the state has to disclose all of the information and more that we are asking for here.  The fact the funding comes in the form of a tax credit rather than a direct grant or line item shouldn't in and of itself shield the recipients of the taxpayer subsidy from having to explain how the money is used and whether it met the intended public policy goal.

I suspect the underlying fear of some opponents has less to do with privacy as it has to do with having a little sunshine on some programs that might not be as beneficial as they have been touted to be.  There is a lot of money riding on keeping these tax credits shielded from any public scrutiny!

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by: Carl Sciortino @ Wed Jul 01, 2009 at 23:19:26 PM CDT

[ Parent ]

Film Credit: Mass INC has done a lot of work (0.00 / 0)

 analyzing the real impact of the film industry credit.

Why do we pay 25% of Tom Cruise's salary again? And cut local aid at the same time? I forget. The Governor's office is still doing the on one hand, on the other hand shuffle, according to Bruce Mohl's latest blog on Commonwealth unbound  

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by: Judy Meredith @ Thu Jul 02, 2009 at 15:15:36 PM CDT

[ Parent ]

Exactly right (6.00 / 5)

And consider that many of these tax credits came about because specific industries with well organized lobbying efforts (e.g. the film industry, the biotech industry) sold the legislature some tripe regarding how great it would be for the state as a whole to give that specific industry special tax breaks. Now the same well organized lobbying efforts will try to stop the legislature and the public from realizing what poor policy the credits were in the first place. The legislature should:
1) Stop passing the credits in the first place based on some slick presentation promising returns that in reality range from highly speculative to completely unattainable.
2) If they cannot help themselves from passing tax credits, put triggers in the  tax credit statutes requiring  base levels of employment or economic activity for a taxpayer to be eligible for the credit.
3) If they can't do #2, at least  have some sort of review after the money is already gone to ensure that it wasn't completely wasted.

Rep. Scortino and Sen. Eldridge seem to be pushing option #3, and the legislature still seems to be balking at this minimal step. I guess it all goesback to not wanting to take on those industries with well organized lobbying efforts. Maybe someday the legislature can do #2 and #1 (hopefully all over the faces of such industries) but I'm sure they won't be holding their breath waiting for that to happen.

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by: Power Wheels @ Wed Jul 01, 2009 at 15:50:31 PM CDT

[ Parent ]

In all fairness (6.00 / 1)

at the very least the biotech stuff has the potential save lives, so I don't mind that spending as much - but I do see where you're coming from, and I'd like to at least make changes in how the biotech stuff is spent (or at the very, very least change how universities are impacted by P.I.L.O.T. if they're receiving giant sums from the state for their research).  

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My thoughts are mine and mine alone. They should not be considered representative of any other organization, group or person - save me.

~Ryan.

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by: Ryepower12 @ Wed Jul 01, 2009 at 16:28:27 PM CDT

[ Parent ]

Mass PIRG Transparency 2.0 (6.00 / 2)

is a very helpful briefing document on transparency in government.

Thanks for your good work on this Carl.

 

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by: Judy Meredith @ Wed Jul 01, 2009 at 15:48:37 PM CDT

Good Jobs First (0.00 / 0)

Great discussion, glad to see so much interest.  

Judy, the Transparency 2.0 document is fantastic.  MassPIRG has done a great job highlighting the importance of this kind of web transparency, thanks for linking to it.  

Also, here is another interesting resource from Good Jobs First, grading states on how well we disclose information about economic development subsidies.  

While Massachusetts has made some important steps in getting more info online, in this area we are sorely lagging behind.  

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by: Carl Sciortino @ Wed Jul 01, 2009 at 23:04:54 PM CDT

[ Parent ]

Thanks for this post (6.00 / 3)

This is a good amendment and we should support it.  

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by: dhammer @ Wed Jul 01, 2009 at 15:53:14 PM CDT

The Senate was persuaded to dilute the transparency requirement (0.00 / 0)

during its budget debate in May, by this syllogism:

Information about the receipt of tax credits appears on corporate income tax returns;

Corporate income tax returns are confidential;

Therefore, the identity of corporations receiving tax credits must also be kept confidential.

(Which brings to mind a syllogism of Woody Allen's:

All men are mortal;

Socrates was a man;

Therefore all men are Socrates.)

But regardless of what one thinks of the strength of their arguments, those opposing the disclosure of taxpayer identity had enough clout to persuade the Senate to reverse the course it had taken just the week before, when the complete transparency provision - including the disclosure of taxpayer identity --  was included in the Senate Ways and Means budget.  

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by: HesterPrynne @ Wed Jul 01, 2009 at 17:23:42 PM CDT

Great discussion, but... (0.00 / 0)

...for the definitive word on selective tax incentive programs read Dave's old post on the Beverly/AMG/Kerry Healey tax break fiasco. It proves the points from Ryan and Hester. Good posts guys, thanks.

ProgressiveMan

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by: ProgressiveMan @ Wed Jul 01, 2009 at 22:41:02 PM CDT

Aw shucks. :-) (0.00 / 0)

For those interested in a trip down memory lane, here it is.  That was a pretty good post, wasn't it?  ;-)

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by: David @ Thu Jul 02, 2009 at 09:30:54 AM CDT

[ Parent ]

Bingo! (6.00 / 3)

Carl and Jamie,

You've hit the nail on the head!

Only, not strongly enough, in my book!

I completely support what you and the Governor are trying to do here. That said, let's not stop there.

Ryan and others have articulated very well some of the reasons these tax credits are a bad idea.

But, despite Ryan's disclaimer, his logic does NOT apply only to the film industry.

I'm an economist, and although this isn't my specialty, I have read plenty of studies and seen surveys of the literature. There is almost universal agreement among economists who study this issue that tax credits (more broadly, the term is "tax expenditure") do NOT produce any net economic benefit to the community that gives them.

This applies to all kinds of things, not just the film industry. Auto factories, sports arenas, convention centers, you name it. The tax money spent (or not collected, which amounts to the same thing) is not recovered from the activity it goes to promote.

If Rhode Island, for example, gives a company in Boston (say, one in the financial industry about the size of Fidelity) a tax break to locate some facilities in that state, and the Boston company takes them up on it and moves some employees across the state line, who benefits? Maybe some of the employees like it, some don't. RI gains some jobs, MA loses some. Same jobs. It doesn't create new jobs. It doesn't create new tax revenue. Any new revenue taken in by RI very likely doesn't compensate them for the revenue they lost to the company. MA loses revenue. So, for society as a whole, it's a deadweight loss (in terms of total state revenue). So, again, who benefits? I leave that as a homework assignment.

There is a document produced each year by the DOR called the "Tax Expenditure Budget" -- deadly boring reading! (The film tax credit is mentioned on page 38 of 64 in the FY09 report, e.g.) Yet, if you can get (or skip) to page 63 of 64, you will see some astounding totals. $20 billion (yes, with a "b") is gone, vanished, lost to the state, without even so much as a bill coming before the legislature to approve this (most of this stuff was done years ago). It is not debated each year, as are other (cash) expenditures. Yet, it is coming out of our pockets as surely as if we were writing checks.

This is a HUGE piece of change, obviously. And yet, it is hidden from public view, for all practical purposes. Sure, this document is put out each year, and hurrah for that. But, where is the debate? Where is the outrage?

I'm not saying, btw, that all of these expenditures fall under the category of useless giveaways. Some of them do serve useful purposes, such as the personal income tax exemption and the sales tax exemption on food and clothing. These things make our tax system more progressive and are good things. And this is probably the most efficient way to administer these benefits.

Still, in many, many cases cited in this document, that good purpose could just as easily be served via the appropriations process, where priorities are weighed each year and cuts are made across the board, if needed. Not here. These are all fixed in stone (relatively speaking; they get changed rarely).

Okay, I know I'm a voice crying in the wilderness, but thanks for this opportunity/excuse to rant about the "hidden" tax expenditure budget. This is truly, to me, an outrage, and an enormous percentage of our true budget that escapes the kind of transparency that people on this post are begging for.

If we could add this $20B back into the appropriations process, do you think it would all be used the way it is being used now? Maybe. I doubt it.  

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by: Michael Forbes Wilcox @ Thu Jul 02, 2009 at 15:11:45 PM CDT

Good points (0.00 / 0)

Carl, Judy, Ryan, Michael:

Good points and helpful links.  This is an imporant issue.

I believe Peter Enrich (Northeastern Law prof.; PDM member) did a study when he worked for the Dukakis administration that demonstrated that providing companies with tax credits/breaks decidely was not a cost-effective way to create jobs.

Good Jobs First (as Carl mentioned, above) is an important resource.

See also The Great American Jobs Scam.

For an policy alternatives to tax giveaways, see Michael Shuman's The Small-Mart Revolution, a book I'd recommend that all state legislators and municipal officials read.

--Leo


Leo Maley

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by: leo @ Thu Jul 02, 2009 at 17:18:51 PM CDT

[ Parent ]