HB 413, sponsored by Representative James Tipton, is a good government bill that establishes a structure for the General Assembly to know more about and better consider the purpose, cost and impact of tax expenditures.
Kentucky loses more than $8 billion every year through tax expenditures – tax breaks, exemptions and exclusions that leave us with less money for investments in schools, infrastructure and other building blocks of our communities. Creating a process for the regular and continuous scrutiny of tax expenditures is an essential first step toward building a tax and budget system that reflects our priorities. HB 413 incorporates many of the suggestions made by the Task Force on Tax Expenditures – a bipartisan group of legislators that met regularly over the interim in 2018 to review, examine and analyze tax expenditures.
HB 413 addresses two specific weaknesses in the current system – the lack of good data to use in evaluating tax expenditures, and the lack of a coherent, regular process for doing so. With regard to the process, the bill establishes:
- A five-year sunset for all new tax expenditures; and
- The creation of a 17-member Tax Expenditure Oversight Board to review, analyze, provide oversight, and report to the General Assembly on tax expenditures.
To improve the data available to analyze and evaluate tax expenditures, HB 413:
- Requires that all new tax expenditures include a purpose statement and reporting requirements;
- Provides the oversight board with statutory authority to request and receive sufficient data from executive branch agencies to effectively evaluate tax expenditures;
- Requires the Department of Revenue and all agencies administering or responsible for tax expenditures to assign a unique number to each individual taxpayer to allow the tracking of tax expenditures across cabinets and programs;
- Requires the oversight board to publish an annual report; and
- Requires the Office of State Budget Director to produce an annual tax expenditure analysis in statute (past expenditure analyses have been required biennially by budget language) and adds additional requirements for the analysis, including a data dictionary explaining the source of data used to produce each estimate, the purpose or goals of each expenditure, and a statement about whether the purpose or goal of the tax expenditure is being met.
Passage of HB 413 would be a very strong first step toward more transparency and accountability within our tax system. The structure established by the bill will enable legislators to make more informed choices about how resources are used and will also require that tax expenditures be evaluated and considered regularly by the General Assembly in an intentional and deliberate way.