State lawmakers should review whether tax breaks are still worthy

THERE'S a lot of talk of reform as we enter a critical legislative session for the state. But for all the talk of the need for change, there's been scant talk of reforming one set of state policies that costs the state more than $6.5 billion a year. The state blindly keeps hundreds of special tax breaks on the books each year, for everything from face-lifts to Wall Street banks.

Not all tax subsidies are bad especially if they accomplish something. But some tax breaks have been on the books since the 1930s, and we've never looked to see if they still make sense.

Given the magnitude of the state's budget crisis, the cuts are coming.

Lawmakers should weigh a number of factors as they prioritize. They should avoid disproportionately impacting people of color and low- and moderate-income people. They should avoid damaging our values, whether they be educating our children, making sure people have basic health care, or protecting the priceless beauty of the environment we are honor bound to pass along. And we should avoid those cuts that damage our longterm economic prosperity such as cutting higher education.

One area where lawmakers should focus attention is tax subsidies. Even without the immediate crisis, our practice of handing out these tax expenditures is in need of reform.

Like spending for education or health care, tax breaks cost the state money. Unlike other kinds of spending, subsidies do not have to be justified and reapproved every two years. Subsidies on the books, their merits unscrutinized until someone looks. And too often no one looks.

While the state's Joint Legislative Review Committee reviews tax expenditures, it does so only once every 10 years. It is also only an advisory body. Unlike state spending on priorities like education, nothing compels the Legislature to reconsider the subsidies.

This is a time when we need strong management from the state. But without reform that will bring about an examination of all forms of spending, we will lose the opportunity to ask rational questions that need to be asked: "Does it make sense to keep subsidizing Viagra when we're cutting funding for kids to go to college?"

That children have access to health care should be another priority — not simply because our values say so, but because it's smarter and cheaper to prevent illnesses before they become serious and expensive. Yet instead of a balanced approach that weighs that benefit against the costs of unnecessary or simply silly tax subsidies, the state is considering the elimination of Apple Health for Kids health coverage for 27,000 children.

Before we take some of the steps being proposed — like stopping health coverage for 66,000 low- and moderate-income people, most of whom are working — we should first ask if the state should get out of the business of eliminating crow's feet.

The state should impose sunset dates on all tax subsidies. That would force legislators to re-examine whether expenditures are still needed before allowing them to continue. Our recent analysis found that, of 301 tax preferences that would generate revenue if repealed, only 37 (12 percent) include an expiration date to force them to be re-examined.

Even without the immediate crisis, there are compelling reasons for reform. Through regular examination of all tax breaks, we would be able to make rational, broader decisions about state fiscal policy. For instance, the billions we spend on tax breaks means higher taxes for everyone. To illustrate, we found that the 6.5 percent sales-tax rate could be lowered to 4.2 percent by eliminating all business tax subsidies along with the sales-tax exemption lawyers, financial consultants, cosmetic surgeons, and others get for personal and professional services.

Reform is also needed to a system that makes it difficult to end tax breaks once they're created. While budget cuts can be made by a simple majority vote, it takes a two-thirds vote by the Legislature to eliminate tax breaks. During the recent special session, lawmakers cut higher education by $51 million. Yet, a $10 million per year sales-tax exemption on cosmetic surgeries remained intact.

Legislators should ask the voters to reform the two-thirds requirement. Before then, legislators should examine the money we're spending on tax breaks against the most damaging of the proposed cuts.