Naming Tax Credit Names
Corporate lobbyists have long blown a fog of fear, disinformation and confusion about public disclosure of corporate income tax credits.
It’s time to clear the air.
First, a definition: corporate income tax credits are dollar-for-dollar reductions in the amount of income tax a company pays to a state (or federal) government. A company can earn such credits by performing activities deemed to constitute economic development, such as making capital investments in new capacity, performing research and development, hiring new employees, and/or producing movies or commercials.
These credits are very costly; among economic development tax breaks, they are likely the fastest-growing revenue drain on state budgets over the past decade. For example, one state gives a credit of 5 percent per year for 20 years for new capital investment. That is, if a company has enough taxable income, over time, the state will pay the entire cost of a new facility in foregone corporate income taxes.
Corporate lobbyists would have us believe that letting taxpayers see which company is getting these credits, and the dollar value of the credits, would somehow violate confidentiality or poison the “business climate.”
Nothing could be further from the truth. (Of course, we also need disclosure of outcomes: were the jobs created? How well do they pay? Do they have health care?)
I offer two kinds of evidence: 1) almost every other costly economic development subsidy has been disclosed for decades; and 2) many states have been disclosing corporate income tax credits for years, and there is no evidence they suffered any “business climate” harm.
First, regarding other costly subsidies: If a company gets a property tax abatement or reduction, there’s a public record at the county tax assessor’s office. If a company gets an Industrial Revenue Bond, that’s an open record at the county development authority. If a company gets a training grant, that is visible at the Workforce Investment Board. If a company benefits from being in a Tax Increment Financing (TIF) district, copious records enter the public domain. If a company gets a discretionary or competitive grant, those files are usually very public.
So what’s the big deal about income tax credits? Remember: this is not about disclosing tax returns; this is about disclosing tax breaks.
Second, regarding states that have been disclosing corporate income tax credits (naming the company, specifying the dollar value of the credit), just take a look at this quick sampling our staff threw together in an afternoon:
Connecticut – see pages 406-407 re: urban/industrial and job creation tax credits
Florida - Qualified Target Industry Refund
Illinois – numerous tax credits and exemptions, including EDGE
Missouri – 20 different economic development programs, including film credits
Montana – Low Income Housing Tax Credit Program
New Jersey's BRRAG Program
North Carolina – William S. Lee tax credits
Pennsylvania -- more than 200 programs, including film and enterprise zone credits
Wisconsin -- 107 programs, including film investment, film services, and dairy credits
Other states, such as Maine (since 1999) have been collecting and disclosing tax credit data, but they just haven't put them online yet (the 21st century progresses slowly...)
The list will soon get longer. Subsidy disclosure bills are getting introduced more frequently in state legislatures, and they often call for making public the names of corporate tax-credit recipients. This year, Massachusetts enacted a law that will do so, and several other states took a step in this direction by mandating the publication of tax-expenditure budgets that show the total cost of tax credit programs.
Bottom line: the amount of company-specific tax credit data online is exploding. Anyone who claims it will violate confidentiality or hurt the business climate, well, that's just so 20th century!
Heads up to state commerce secretaries: in the same way we have twice graded the states' Recovery Act websites, we are coming back at you to rate how well you disclose on major subsidy programs, revisiting our State of State Disclosure report of 2007.
No calls, please; that's all the hints you get.