Earlier this week, the Oklahoma House voted to create a legislative task force to evaluate whether or not the state’s numerous tax credits are fulfilling their intended purpose.
State legislatures and governors across the country are proposing significant cuts to public investments to close state budget shortfalls. In many cases, public investments with proven track records and a positive return on investment are on the chopping block. In Texas, for instance, more than 100,000 children may lose access to a pre-K program that a 2006 study showed returned at least $3.50 to the state for every dollar invested (other studies have shown a 7:1 rate of return).
State spending through the tax code, however, has typically been absent from the discussion of closing state budget shortfalls. Many states, including North Carolina, attempt to account for this “tax-code spending” through tax expenditure reports. Few states have taken the next logical step and evaluated this kind of state spending.
The vote by the Oklahoma House follows in the footsteps of Washington State, which tasks a Citizen Commission to evaluate and make recommendations to the state legislature on the state’s tax-code spending.
Tax-code spending does include many worthwhile investments that do achieve their intended purpose. The state Earned Income Tax Credit, for example, has proven to be an effective tool for better aligning total state and local taxes to ability to pay. Other tax-code spending, however, like the Article 3J “Bill Lee” tax credits aimed at creating jobs in the state, lack evidence demonstrating cost-effectiveness in achieving their intended goals.
Before considering short-sighted cuts to public investments with proven track records of success and a strong return on investment, state policymakers would be well advised to broaden the scope of their shortfall-closing efforts and put tax-code spending on an equal footing with other public investments.