April 12, 2006

Should States Sunset Tax Exemptions?

A couple of weeks ago I had a good chuckle reading about this: Washington State lawmakers have enacted a bill mandating periodic audits of all tax preferences. Once every ten years, a special commission must put every single tax break under the microscope and ask whether these breaks still make sense. Nothing will escape their scrutiny. Oh, except for
"sales and use tax exemptions for machinery and equipment for manufacturing, research and development, or testing, the small business credit for the business and occupation tax, sales and use tax exemptions for food and prescription drugs, property tax relief for retired persons, and property tax valuations based on current use."
Because god forbid we should ever have to ask any kind of hard questions about poorly targeted tax giveaways to wealthy seniors, agribusiness or drug companies.

We laugh because it keeps us from crying. But here's the question: does the harm done by this paragraph full of sacred tax cows outweigh the good done by Washington lawmakers' willingness to confront the rest of these old tax breaks? I'm thinking no, but it's a close call.

In its purest form, sunsetting tax exemptions is a fine idea. Lawmakers at both the state and federal level have a tendency to treat tax breaks like entitlement spending rather than annual authorizations. So anything that helps drive home the point that tax breaks should be made more like spending (that is, regularly reauthorized) is a good thing. Of course, even a comprehensive "sunset" rule would have its problems in practice. Lawmakers are so busy carving out new tax breaks that it would take a lot of resources to have any kind of regular review of them all. I mean really, who could keep up?

And the real argument against institutionalized "sunsets" of this sort is it's selling our hard-working lawmakers short. We know that eventually, our elected officials will come back to wrestle with antiquated or poorly designed tax breaks. To prove it, look no further than South Carolina, where lawmakers last year pulled the plug on a property tax exemption for Spanish-American War Veterans. As in the Spanish-American War that ended (and started, for that matter) in 1898. In the nineteenth century.

Didn't need any newfangled sunset provision to get rid of that one, did they? Although it turns out New York still has such a tax break on the books.

Postscript: perhaps I'm overstating how cobwebby this tax break was. Turns out the last living veteran of this war died only in 1992, which was practically yesterday.


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