The folks over at the Oklahoma Policy Institute released a report this morning on Oklahoma’s numerous tax credits, incentives and rebates. In short, they call for greater transparency and more consistent reviews of existing incentives. From their conclusion:
Rather than accept all tax preferences that are currently in law, or reject them en masse as giveaways to special interests, we hope this brief can be valuable in improving the state‘s tax expenditure system and ensure that in the area of tax preferences, as in the area of direct budgetary expenditures, the state is allocating public resources in the best possible fashion.
Using information from the Oklahoma Tax Commission’s Tax Expenditure Reports and some data from the state’s Open Books site, the report estimates that $5.6 billion in tax expenditures were claimed or used in fiscal year 2008, an increase of $1 billion since 2006. To put that in some perspective, the Legislature appropriated about $7.1 billion in 2008.
Tax expenditures are an extremely prevalent and popular policy instrument in Oklahoma. The most recent Tax Expenditure Report prepared by the Oklahoma Tax Commission (OTC) identifies over 450 separate provisions of state law that provide for some reduction in the amount of state taxes that would have been collected but for the preferential tax treatment benefiting some favored activity or category of taxpayer.
The report makes it clear that the Tax Commission reports likely underestate the total amount of tax expenditures each year. That’s because some programs, such as Quality Jobs, are rebate payments and not tax credits. The state spent about $63.7 million on Quality Jobs payments in FY 2008, and lawmakers have expanded the program almost every year since it took effect in 1993. Other incentives apply not to income taxes, but to gross production taxes on energy production or taxes on insurance premiums.
Some tax credits, such as the rural and small business venture capital credits, have come under fire in recent years in several cases of alleged abuse. The institute’s report touches on this issue:
In at least one prominent instance involving a number of credits intended to encourage venture capital, the [Oklahoma Tax Commission] discovered evidence that investors were exploiting loopholes in the law to claim the credit in unintended, but legal, ways. In one year, the cost of the program soared from $2 million to $66 million, as investors found ways to claim tax credits without putting funds at risk. The Legislature stepped in to amend the law in 2006, and one of the affected credits, the Venture Capital Credit, was allowed to sunset out of existence in 2008. However, the other credits — the Small Business Capital Credit and Rural Small Business Capital Credit — continue to operate and have seen their fiscal impact snowball in recent years amidst allegations of abuse.
For another perspective on those specific tax credits, check out Nick Baker’s Prowling Owl blog. Meanwhile, at the Capitol yesterday, Sen. Tom Adelson, D-Tulsa, called for an end to several tax credits, claiming the state could save up to $259 million a year.
The Oklahoma Policy Institute report also calls attention to the work by the Incentive Review Committee, set up in 2004 by Senate Bill 1516. That committee has studied several incentives over the last few years, but at times it has been stymied by a lack of available data.
Here’s what the institute recommends in its report:
- Expand Oklahoma’s Tax Expenditure Report to provide more detailed and comprehensive information.
- Expand the Openbooks.ok.gov website to cover a fuller range of tax expenditures and provide more aggregated information.
- Consider exempting certain tax credits and/or information on individual taxpayers claiming credits below threshold amounts from the Openbooks.gov website.
- Integrate the information currently provided separately in the Tax Expenditure Report and Openbooks.gov
- Add sunset provisions to all tax incentives that are not currently sunsetted.
- Enact a statutory requirement that before any sunsetted incentive can be reauthorized, it must undergo a formal “performance review” and legislative recommendation by the Incentive Review Committee or similar entity.
- Strengthen ongoing monitoring and evaluation of existing tax credits.
- Develop a unified economic development budget that compiles information on all forms of development spending, including direct expenditures and tax incentives.
- Establish formal eligibility processes for new and existing incentive programs.
- Promote accountability by creating and enforcing standards for companies receiving incentives.
- Limit the cost impact of existing and future tax incentives through caps on overall amounts.
- Limit the cost impact of existing and future tax expenditures through triggers that would suspend or reduce selected preferences in times of budget shortfalls.
The site should allow users to download the database into a spreadsheet.