Tax study calls for reining in breaks

A special commission set up to examine the large number of tax exemptions, deductions and credits in the state tax code is calling for greater scrutiny of the benefits and a reduction in their number.

A report released on April 30 by the Tax Expenditure Commission details its findings after a seven-month study of the state’s “tax expenditure” budget.

The purpose of a “tax expenditure” is to convey a specific benefit to a certain class or group of taxpayers, or to provide an incentive for certain behaviors by taxpayers.

Chief among the commission’s findings was the need to ensure that each tax expenditure has a clear and measurable public policy objective. Tax expenditures that are discretionarily awarded and grant-like should expire after five years, unless actively renewed by the Legislature; all others should be subject to review every 10 years.

“Tax expenditures are a form of taxpayer spending and should be subject to the same scrutiny by government policymakers as direct expenditures,” the commission report states.

The tax expenditure budget in fiscal 2012 was $24.2 billion – more than the total amount of tax revenue collected by the state. Of these breaks, 71 percent are in the category of sales and use, 24 percent are in personal income tax, and 5 percent are in corporate excise.

Massachusetts has a large number of tax expenditures compared to other states, both in terms of the number of breaks and the amount of foregone revenue. The commission recommends that the number of expenditures be reduced.

In recent years, the Legislature has mandated increased transparency and reporting rules around the disclosure of recipients of certain tax expenditure benefits.

The commission, established in the fiscal 2012 budget act, was chaired by Administration and Finance Secretary Jay Gonzalez. Other members included State Auditor Suzanne Bump, State Treasurer Steven Grossman, the chairs of the House and Senate committees on Ways and Means and Revenue, designees of House and Senate minority leadership, and members of the Governor’s Council of Economic Advisors.

For more information and to download the report, visit www.mass.gov/dor/tax-professionals/news-and-reports/tax-expenditure-commission-materials.