Research Council explains why “tax expenditure budget” wouldn’t improve state tax policy.”

Although the so-called “tax expenditure budget’ bill hasn’t moved out of committee, as long as the Legislature is still in session, such things may reappear. So a new Washington Research Council report is both timely and relevant. Here’s the conclusion, based on the WRC’s solid analysis:

PSHB 1703 states that its intention is “to improve transparency and accountability.” Washington already has a nationally-recognized process for reviewing tax preferences. If the Legislature hasn’t acted on a recommendation from JLARC and the Citizen Commission, it has made a policy choice.

The tax expenditure budget would include most tax preferences regardless of the reason for their existence. This does not reflect normal practice among tax policy experts. Moreover, the shift in terminology under PSHB 1703 from the already pejorative “tax preference” to “tax expenditure,” which has a much narrower meaning in the literature, is objectionable.

Additionally, the bill would completely undermine the four-year balanced budget requirement. As we have written, the requirement is a valuable policy that promotes sustainable budgets (WRC 2019).

Ultimately, requiring nearly all tax preferences to be readopted every two years without regard to economic consequences would not be an effective way to improve tax policy in Washington. Instead, it would introduce considerable uncertainty for taxpayers and policymakers alike.

We wrote about the House hearing on the bill. The Council’s analysis is a welcome addition to the debate.