Alabamians could learn far more about the cost and effectiveness of state tax breaks under a bill that the Legislature passed without a single “no” vote. SB 119, sponsored by Sen. Bill Hightower, R-Mobile, passed 92-0 in the House on Tuesday and 30-0 in the Senate in March. The Senate agreed with the House’s changes Thursday, and the bill awaits Gov. Robert Bentley’s signature.
SB 119 would require the Legislative Fiscal Office to provide an annual “tax expenditure” report to legislative budget committees. This report would list all tax exclusions, exemptions, deductions, credits and special rates and estimate the amount of revenue that the state forgoes as a result of these tax breaks. Alabama was one of only seven states with no such report as of 2011, according to the Center on Budget and Policy Priorities. SB 119 also requires biannual public hearings on tax breaks.
ACPP executive director Kimble Forrister praised lawmakers’ approval of the bill. “For years, ACPP has called for greater transparency and accountability when tax breaks are given by the Legislature,” Forrister said. “SB 119 will ensure that legislators and the public know how much revenue is diverted by these tax breaks. We appreciate Sen. Hightower’s leadership in bringing this bill and urge the governor to sign it.”
Tax expenditures are provisions in state or federal tax codes that reduce the amount of tax owed by households or corporations. These tax breaks are sometimes called “spending through the tax code” because, like spending, they are intended to achieve policy goals. But tax expenditures often get far less scrutiny than spending does.
States commonly give tax breaks to individuals by exempting certain income from being taxed, by allowing some expenses to be deducted from income, or by charging different tax rates on different types and levels of income. Examples of individual tax breaks include the personal exemption and the mortgage interest deduction.
Corporate tax breaks often are billed as a way to help recruit industry into a state or keep businesses from relocating to another state. These breaks can include reduced sales, income, property or employer taxes.
Tax breaks can become hotly debated public issues, like when Alabama is in a bidding war with other states for big projects like the Boeing or Mercedes plants. But often, tax breaks are issued automatically and receive little public, or even legislative, attention. Many of these tax breaks are tilted toward higher-income taxpayers, because they are more likely to owe taxes and to invest in deduction-eligible projects.
The Legislature has created hundreds of tax breaks in recent decades, and 2015 has been no different. Lawmakers this year have approved several new tax incentives to reduce taxes for businesses that hire military veterans, locate in rural or high-poverty communities, create new jobs, or reinvest in existing industries.
Some of Alabama’s tax breaks may create new jobs and help reduce poverty, while others may not. An annual tax expenditure report would help shed light on these breaks and allow the public and lawmakers to decide whether the investment has been worth the cost.
Studies have found that tax breaks have little influence on individual or corporate decisions and that the breaks often are not a better public investment than the schools, health care, public safety or other vital services that the money could have paid for instead. SB 119 would help Alabamians evaluate how much revenue the state forgoes through its tax code and whether these breaks are good for our state.
By Carol Gundlach, policy analyst. Posted May 21, 2015.