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New Report: Promoting Greater Transparency and Accountability for Corporate Tax Subsidies in Massachusetts

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Must the show go on?

Two Massachusetts lawmakers recently introduced a bill to establish yet another tax subsidy program designed to lure business to the Commonwealth – this one aimed pre-Broadway shows. Worth up to $3 million to a production company, the credit would cover in-state labor costs for shows that play in the Commonwealth before opening in New York or setting off on a national tour. Theater executives insist the bill is a necessity if Massachusetts wants to maintain and expand on its traditional status as a testing ground for Broadway shows, arguing that Boston is falling behind Illinois, Louisiana and neighboring Rhode Island, all of which recently passed similar provisions into law.

The discussion surrounding the theater tax credit proposal follows a familiar pattern: vague promises of job creation, warnings of lost business if the state fails to act, and a sense that Massachusetts must chase after other states in what amounts to a race to the bottom to offer ever-greater discounts on corporate tax bills. The fact is, state governments often adopt these tax credit programs without establishing clear goals for what they hope to achieve – and without any means to measure success.

Our new report, Getting Our Money’s Worth?,  takes a critical look at the Commonwealth’s special business tax subsidies – credits, deductions, exemptions and special tax rules intended primarily to spur economic growth. Some of those subsidies have achieved scant results. For example, in 2010 the much-ballyhooed film tax credit program, passed into law on grounds that it would create jobs and attract tourists, led to just 19 net new full-time employees in the state. Unfortunately, without measureable goals for the program it is difficult for taxpayers or their political representatives to evaluate it fully through an assessment of performance against targets.  

 Few of the Commonwealth’s special subsidies have those well-articulated and measureable public-policy objectives; only nine of the 25 tax breaks examined impose money-back guarantees (“clawbacks”) on their recipients; almost half of the subsidies fail to publicly disclose key pieces of information about recipients, costs, or program results; and, with just two exceptions (the film tax credit program being one of them), there are no publicly available evaluations of cost-effectiveness for any program.

The people of Massachusetts deserve to know how their tax dollars are spent, including on tax subsidies for businesses. Armed with full information on the goals and impacts of subsidies, taxpayers and officials could separate those that work and may warrant additional support from those that ought to end. Before Massachusetts approves yet another special business tax subsidy, lawmakers should adopt common-sense reforms – measureable program goals, money-back guarantees, and publicly available cost-effectiveness assessments, to name just three – to increase transparency and accountability for those subsidies already on the books.