A new study
by the Massachusetts Budget and Policy Center (MassBudget) shows that the cost to the state from special business tax break spending has nearly tripled, even after adjusting for inflation, from $370 million in 1996 to over $1 billion anticipated in this fiscal year.
The Commonwealth forgoes a large amount of potential revenue each year through spending on business tax breaks aimed at supporting economic development in Massachusetts. Although less often a focus of budget debates, spending on these tax breaks is no different in its bottom-line effect than direct spending through the state budget: law makers must offset each dollar from these special breaks with reductions to other public programs or increases to other forms of taxes.
The MassBudget report
finds that the cost of special business tax breaks began to climb rapidly starting 20 years ago with incentives for the mutual fund industry, manufacturers, and others including the film industry and life sciences companies. And yet, despite the findings of a 2012 report from a state special commission that called for studying their effectiveness, most state business tax breaks have not faced a thorough examination.
Back in 2011, the Massachusetts Legislature established a Tax Expenditure Commission to "study carefully for the first time the various exemptions, deductions and credits in the Massachusetts tax code, and to recommend methods for measuring and reviewing their effectiveness." The Commission recommended an overall reduction in the number and cost of these special tax breaks. It also recommended: identifying the clear purpose of each special business tax break; creating clear metrics to gauge their impact; conducting a regular rolling review of whether to let these programs expire; and spelling out clear rules about when the Commonwealth would "clawback" forgone revenues from businesses that fail to deliver the jobs or other kinds of economic development for which the given tax break was originally awarded. Most of these recommendations have yet to be implemented.
MassBudget's new report
tracks and explains the growth of special business tax break spending, and how it has resulted primarily from three major, industry-specific tax breaks including for manufacturing companies, mutual fund companies, and tax breaks for movie production companies. The report examines these and a number of other recent tax breaks for businesses in Massachusetts.
Read the new report here (LINK
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