Tax Analysts Blog

Transparency: Good for the Tax System, Critical for Good Government

Posted on Apr 1, 2015

Modern state tax policy has been dominated by cravenness and cronyism. But every once in a while, politicians muster the courage to do the right thing. Several proposals have been advancing in legislatures that will bring more transparency to state fiscal systems. I cannot overstate the importance of these measures. Opaque government benefits only the rich and well connected at the expense of everyone else. Worse, secrecy breeds cynicism and lack of trust in our political system.

On March 18 the Alabama Senate passed a bill that would require the Legislative Fiscal Office to submit an annual tax expenditure report detailing the state's tax incentives, credits, deductions, and exemptions. The bill (SB 119) was sponsored by Sen. Bill Hightower (R), who is now in the running for my state tax politician of the year. The bill would require that the report list the estimated costs associated with each state tax expenditure. The report would be submitted to the Legislature at the same time the governor is required to submit his budget proposal. The bill passed the Senate 30 to 0.

As I write, it is unclear whether the bill will pass in the House or ultimately be signed by the governor; I can't think of a reason why it would not. But the importance of this bill should not be lost on anyone. Alabama has historically been the most aggressive state when it comes to tax incentives. Indeed, it practically invented using tax laws to further economic development. In most states, the tax incentive programs are shrouded in mystery -- there is little knowledge of who gets what. As a result, there is little accountability. For Alabama to consider adoption of a measure that would shed light on the practice is significant.

Transparency-related legislation (HB 361) was introduced in Kentucky by Rep. Tommy Thompson (D) as part of a taxpayer bill of rights. That measure unfortunately was left to die in the House. But in Arizona, Rep. Darin Mitchell (R) introduced HB 2251, which would require the Department of Revenue to annually report data on credits or carryforwards of $5,000 or more. The credits cover such things as job creation, research and development, renewable energy production, and investment in qualified facilities. The Kentucky measure should have been passed, and the Arizona proposal should be passed. Citizens should be asking why all these measures took so long. We cannot have enough sunlight in government, particularly when it comes to our money.

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