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Are Business Tax Incentives Working?

October 16, 2012

Contact: Sean O’Leary at 304-720-8682, soleary@wvpolicy.org

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New Report Highlights the Need for Transparency and Evaluation of Tax Incentives

[Charleston, W.Va.] –West Virginia spends millions of dollars each year on tax incentives to attract businesses and boost job creation, but taxpayers and policymakers have little information about whether or not they are getting their money’s worth and more scrutiny is needed. These are the key findings of Every Dollar Counts: The Need for Transparency and Evaluation of Business Tax Incentives, a new report published today by the West Virginia Center on Budget and Policy. Business tax incentives include investment tax credits like the Opportunity Tax Credit, local property tax abatements like enterprise zones, tax preferences such as the reduced severance tax on thin-seamed coal, and other tax expenditures.

Currently, the state discloses and evaluates business tax incentives through three separate documents – the Tax Credit Review and Accountability Report, Tax Credit Disclosure List, and Tax Expenditure Study – and each document has significant shortcomings that deprive state policymakers of the ability to effectively evaluate the state’s tax incentives.

“These tax expenditures are a major economic development policy tool for the state, but before we can even ask if they are working, we should know who is receiving them, how much they cost, and what our goals are when we give them out. Unfortunately, these basic questions are unasked and unanswered each year,” said Sean O’Leary, Policy Analyst with the West Virginia Center on Budget and Policy and coauthor of the report.

According to the Pew Center on the States, West Virginia is one of 29 states that is “trailing behind” in evaluating its business tax incentives and that states that effectively evaluate their business tax incentives get the most “bang for the buck.” Evaluations should provide policymakers with up-to-date data, cover all major tax incentives, accurately measure their full economic impact, and identify and draw clear conclusions about whether or not the incentives have met their goals.

“With important state programs and services being cut next year, lawmakers need to take a hard look at the millions the state spends each year through the backdoor on business tax credits and other tax incentives,” said Ted Boettner, coauthor of the report and Executive Director of the West Virginia Center on Budget and Policy. “Unfortunately, this spending through the tax code is not transparent and the public has no indication whether taxpayers are getting a good return on their investment or how much it costs state and local budgets each year.”

Today’s report shows that West Virginia could do much more in terms of providing full accounting and transparency on the results of how tax incentives are helping the state. Recommendations include publishing all reports online on an annual basis, adding “sunset” provisions or an end date to tax incentives, and disclosing information on the companies that are receiving the incentives such as how many jobs they are creating and the amount of the incentive they received. Read report