KY Policy Blog

Bill Would Be a Step Toward Greater Accountability for Tax Breaks

By Anna Baumann
February 20, 2013

Legislation introduced in the House proposes new reporting requirements for some economic development incentive programs, and is a step in the right direction toward greater scrutiny of these costly financial subsidies.

Kentucky needs better data on the cost-effectiveness of the business tax breaks it awards. A few years ago, the state created an online database that provides information on tax breaks when they are awarded, but provides no follow-up information about the resulting impact. House Bill 242 would require the Cabinet for Economic Development to post online information about the number of jobs actually created, wages paid and tax breaks received by companies participating in some of its programs, and to produce an annual report.

In 2013, the business tax breaks and financial assistance programs included in HB 242 will cost the state almost $200 million, according to the state’s tax expenditure report. As a tool for economic growth, tax breaks can be less effective and more costly than other proven strategies such as funding for early childhood education, small business assistance and job training.

Over the past 30 years, Kentucky has relied heavily on corporate tax breaks to attract business and create jobs while falling behind on other important factors like quality of living, a healthy and educated workforce and infrastructure.

HB 242 would help inform the debate. But even if it were to become law, there’s no guarantee the state would use the data generated to make tough decisions about whether to curb these programs. Unlike funding for education and health which are vulnerable to cuts each budget session, tax breaks are permanent fixtures in the tax code. Legislation should impose expiration dates on tax incentive programs in order to bring them up for regular review and allow legislators to weigh whether there are more valuable uses of state dollars. Otherwise, ineffective subsidies will continue to fly under the radar from year to year.

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