Press Release  Tax Expenditure Review Commission Releases First Report

Boston — A commission created by the Legislature to examine the impact of state tax breaks for individuals and businesses has released its first report to the Legislature. Two members of the Tax Expenditure Review Commission (TERC) are excited by this first-ever review of the break’s beneficiaries and impacts. Commission members State Auditor Suzanne Bump and Senator Adam Hinds hope that the evaluation of 26 tax expenditure programs in the areas of commerce, energy, and research and development will help inform the policy debate about revenues and develop a discipline with which to analyze new tax proposals. They say that the Commission members pointed to a number of specific expenditures which did not justify the fiscal cost, were not claimed by intended beneficiaries, did not serve as a meaningful incentive, or were no longer relevant.

“Massachusetts spends billions of dollars each year in tax expenditures without the same scrutiny of a typical budget process,” said Hinds. “This Commission is a critical part of adding transparency and accountability while ensuring hard-earned tax dollars are spent wisely.”

“This report provides a literal dollars and cents analysis of 26 tax expenditures, enabling a much better understanding of who are the beneficiaries of these tax policies and of whether the Commonwealth as a whole benefits from their favorable tax treatment,” said Bump. “This will facilitate tax policy that is more targeted toward specific economic and societal goals, offering the possibility of raising more revenue more fairly, without resort to increases in actual tax rates. This analysis, done by experts at the Department of Revenue and agreed upon by a bipartisan group of commissioners, sets it apart from work done by a prior commission charged with making recommendations relative to tax expenditures.”

Among the tax expenditures flagged for legislative review in the report is the Capital Gains Deduction for CollectIbles. According to DOR, 88% of the $2 million foregone state revenue benefitted 33 individuals with annual taxable incomes exceeding $1 million, saving them $1.8 million in taxes.

The report also highlights the Massachusetts Life Sciences tax credit, the Economic Incentive Development Program, and the Historic Rehabilitation credit as models for other tax expenditure programs. In these programs, the authorizing agencies have an annual budget amount which may be used to grant tax credits, and they have the necessary discretion and expertise to allocate the budgeted credit amounts to projects most beneficial to the Commonwealth, where the impact of the credit is likely to be the greatest. Senator Hinds has filed a bill that would establish this process for tax expenditures moving forward.

The majority of the 385-page report is made up of in-depth analysis of the 26 tax expenditures reviewed by the commission. For each expenditure, the report provides information about its goals, costs, benefits, and more. It is the most robust public analysis of these tax expenditures ever conducted.

The report follows a report released in 2012 that noted the lack of transparency and accountability related to these tax expenditures. Bump, who sat on the committee that produced the 2012 report, has consistently called for greater oversight of these tax expenditures. In 2011 testimony before the Legislature about her office’s attempts to analyze this spending, she noted, “Once a tax break gets passed, however, it goes into a black box.”

The Tax Expenditure Review Commission was established under Chapter 207 of the Acts of 2018 to review each tax expenditure in the Tax Expenditure Budget every five years; to consider the purpose, goal, and effectiveness of each Tax Expenditure in this review; and to report its findings biennially to the Legislature. The TERC is chaired by the Commissioner of the Department of Revenue, and other members include the State Auditor; the State Treasurer; the chair of the House Committee on Ways and Means; the chair of the Senate Committee on Ways and Means; the House and Senate chairs of the Joint Committee on Revenue; the Minority Leader of the House of Representatives; the Minority Leader of the Senate; and 3 members to be appointed by the governor, who have expertise in economics or tax policy.

The report from the Tax Expenditure Review Commission is available here.

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