If a company planned to spend a chunk of money on a new advertising campaign, we'd expect that measurable goals would be set. Articulation of the goals would enable the company to determine if the campaign was successful. And we'd expect that data would be collected to enable the company to determine if the goals were met. If not met, the campaign would likely be canceled, or modified and retried.
We rarely see this approach used for tax incentives (special tax credits, deductions or exclusions). Sometimes even the goals are not specifically articulated. California has done it both ways, usually without the goals specified or data required to be collected. In 1993, the manufacturing investment credit (MIC) was enacted. The enacting legislation stated that the MIC would expire at some later point if there was not at least a 100,000 increase in manufacturing jobs. In contrast, in 2013, new incentives were enacted (such as the new employment credit) without specific goals set. While a lot of information on the use of these incentives will be made public, no specific goals were stated, so the information cannot be used to see if the incentives were successful.
I notice that a recent report from Maine on a review of its tax expenditures notes this problem - lack of data and useful measures. Specifically:
"Lack of useful data. The Task Force did not have adequate data to evaluate most tax expenditures. While the biennial MRS tax expenditure report forms an excellent starting point for review of tax expenditures, it does not in many instances contain the kind of information necessary either to evaluate the effectiveness of a tax expenditure or to provide the kind of information necessary to determine the fiscal impact of the repeal or reduction of a particular tax expenditure. Estimates of fiscal impact in the report are frequently based on economic assumptions and modeling rather than specific experience. Identifying and gathering such information is an enormous task which awaits the development of a process for on-going evaluation." (Dec. 2013 report of the Tax Expenditures Review Task Force, page 10)
I believe the business approach for being strategic as to spending should also be used by governments (whether for new direct spending or spending through the tax system). That is, the goals for any incentives should be articulated and data needed to perform the measurements should be required to be collected. What do you think?
Other recent “Sales Tax Policy - Tales & Trends” posts by Annette Nellen, CPA, ESQ:
- With Sales Tax Software, Are Sales Tax Discounts Still Appropriate?
- Idaho Keeps Sales Tax On Groceries
- Sales Tax Policy Outlook for 2017
- Would Broader Sales Tax Base Deliver Simplification - and Savings?
- Trailing Nexus - When Does It End?