Transparency is essential for the public to understand government activities and priorities. For the public to hold government officials accountable, we need to have access to clear, comprehensive information about government expenditures, whether it’s through direct spending or via tax subsidies.
The ability to follow government expenditures and understand what they are supposed to accomplish is the first step in determining if the decisions of our government officials best serve public goals.
OSPIRG decided to investigate what information is readily available to the public about corporate tax subsidies, how much they cost the state treasury, whether they have clear goals, and whether they achieve those aims. OSPIRG staff looked at the most recent Tax Expenditure Report available on the State of Oregon website and learned the following:
$626 Million and Growing Corporate Tax Subsidies
Corporations are estimated to receive a benefit of at least $626 million in the 2009–2011 biennium in tax subsidies. This is a 5.6 percent increase from the 2007–2009 biennium and a 27.5 percent increase since the 2005-2007 biennium.
This is a very conservative number, as the level of detail in the Tax Expenditure Report was too poor to accurately measure the amount of benefit corporations received from property-tax subsidies. The total corporate benefit from property-tax subsidies is likely to be hundreds of millions of dollars. Most of the known corporate benefit from tax subsidies comes from income-tax subsidies.
Half of Tax Subsidies are not Subject to Review
Despite recent changes to the law, half of corporate income-tax subsidies have no sunset date or are otherwise subject to systematic review. “Sunsets” are dates at which government programs, including tax subsidies, are set to end and will be reviewed.
• Of 113 income-tax subsidies available to corporations, 57 of them (50 percent) have a sunset date. This represents $135 million, or only 28.7 percent of the total forgone revenue.
• Federal tax subsidies account for the majority of unscrutinized programs – only 26 percent have sunsets.
• In 2009, the Oregon legislature took a step in the right direction by creating sunsets for 16 income-tax subsidies for which corporations are eligible. These new sunsets established by the passage of HB 2067 will require review of $15.7 million in corporate tax subsidies.
Corporate Tax Subsidies Lack Transparency
Current levels of transparency are inadequate for lawmakers and taxpayers to determine whether or not corporate tax subsidies are fulfilling their purpose. Tax Expenditure Reports are the public’s primary tools for “google government,” i.e. online transparency, of tax subsidies. On a positive note, the Tax Expenditure Reports provide sufficient detail to help the public understand the goals and fiscal impact of each tax subsidy program. Information on the purpose, the lost revenue, and sunset dates is available.
However, the TER contains few tools for the public to evaluate the effectiveness of a tax subsidy toward meeting its goals – and whether or not the economic benefit outweighs the cost of the program. Specific data on who receives the benefit of a tax subsidy and if it is accomplishing a policy goal are for the most part, not available.
Transparency is more useful if the available data is provided in a format that allows for greater analysis. The way the TER presents data, in a PDF format, makes it very difficult for the public and the media to analyze data in detail.
For the public and lawmakers to better ascertain whether or not corporate tax subsidies are providing the most bang for their buck, OSPIRG makes the following recommendations:
All data on tax subsidies should be available in a sortable, searchable format such as a spreadsheet that can be downloaded from the Internet as raw data. The technology exists today to allow for robust databases to be presented on a website in simple-to-understand ways. The new transparency website should allow the public to be able to search for the name of a corporation, and pull up a list of all the tax subsidies, contracts, etc., that it receives from the state. Then that list needs to be able to be sorted further, have links to other information such as campaign contributions, and be downloadable as a search-result database.
Data should include information about which companies received tax subsidies at what cost of forgone revenues to the state. Full disclosure of this information is critical to determine the true effectiveness of a subsidy program and would hold recipients accountable for their performance toward program goals.
All tax expenditures for private companies should be subject to sunsets so that they will be reviewed for effectiveness. At the time of a sunset review, an independent body should determine if a full performance audit should take place to review a tax subsidy. Audits should be done by an agency or professional contracted company that does not have a vested interest in the subsidy.
Instead of automatically allowing changes to the federal tax code to impact state revenues, Oregon should establish a system to review them proactively. This review process would allow the state to decide whether or not to be connected to federal tax code changes before they have an impact on the state budget.
Any new tax subsidies need to have clear goals for their intended impacts in terms of specific economic development gains and/or social benefits. There should be a clearly stated, rational methodology for measuring whether the subsidy is meeting those goals as well as an explanation of why the goals should be reached through a tax subsidy instead of a direct spending program. New tax subsidies should prove they will not reward companies for doing what they otherwise would do without the subsidy. They should describe the expected value of lost revenues that will directly result from the program and a methodology for measuring those revenue costs. When a program is reviewed, it should compare actual benefits and costs to the goals and expectations set out when the program was approved.
Economic Development tax subsidies should include “Taxpayer Money-Back Guarantees” to recapture subsidies to companies that do not deliver on specific promises made as part of receiving those subsidies. Special tax subsidies and other grants should include annual tracking and reporting by individual corporations of expected results, such as number of additional jobs generated (salary levels, health care) and future investments in plant and equipment. This data should promptly be made public by posting on a government transparency website.
Oregon can do all this; furthermore, the public will benefit in many ways. It will provide greater amounts of information for legislators so they can analyze every direct expenditure and tax expenditure. The public will gain a greater understanding as to how the Oregon legislature prioritizes resources. There will be cost savings as fewer Freedom of Information requests need to be processed by state workers. As the public has more capacity to “google their government,” it will lead to wiser decisions in our democracy.
To download a spreadsheet of Oregon’s corporate tax subsidies, visit http://www.ospirg.org/sites/pirg/files/Oregon-corporate-tax-subsidies.xls.