The Advance Arkansas Institute’s Marjorie Greenberg spoke with legislators at the Economic and Tax Policy Committee today about tax and budget process changes that would help improve Arkansas’s tax climate.
These process changes were released in a new report released by AAI earlier this week. They include:
- Require yearly disclosure of the revenue impact of all tax expenditures.
ͽ This disclosure should be in a format that would allow policymakers to compare the revenue impact of any one tax expenditure to any other tax expenditure.
ͽ This disclosure should be in a format that would allow policymakers to understand and calculate how the elimination of any tax expenditure could be used to reduce any particular tax rate.
- Require formal review, and regular approval, of all tax expenditures.
- Incorporate the review/approval process into the regular budget process.
- Implement sunset requirements for tax expenditures.
Greenberg suggested that legislators require the Department of Finance & Administration (DFA) to submit more complete information on tax expenditures to the legislature on a regular basis. Currently, DFA’s tax expenditure reports focus on just those related to economic development. That’s a small slice of the tax expenditure pie; it does a poor job of giving legislators and the public a complete picture of the total cost of all tax expenditures in Arkansas.
Greenberg mentioned Rep. Justin Gonzales’s HB 2276 as a good start towards making the budgetary impact of tax expenditures more transparent.
The overall cumulative effect of these tax exemptions is very large for the state budget. If we run these sorts of reports going forward for the biennium, it’s going to be a long report even if you just have the dollar impact of each tax exemption. What it does is it gives lawmakers a chance to see what is the overall effect and maybe you could do a hair cut if you see one industry is getting a really, really large one.
Greenberg also suggested emulating Oregon, which passed a 2009 law that requires state legislators and the Governor to re-approve each tax expenditure after a set amount of time. This policy change would have the effect of forcing a discussion on the wisdom of certain tax expenditures on a regular basis — as opposed to just whenever the legislature feels cash-strapped.
Rather than just a review where you could or could not do things, sunsets would require action. What it would say is all tax expenditures after a certain amount of time would end and at that point all parties would have to vote whether to go ahead and extend them.
To read more about AAI’s recommendations for tax reform, read their latest paper here. There were other interesting comments from other speakers discussed at today’s meeting, which we’ll cover tomorrow.