Special Briefing: State Tax Breaks

Join us for a Special Briefing to discuss a forthcoming Volcker Alliance issue paper, Benefit or Burden: Evaluating $1 Trillion in State Tax Expenditures. The issue paper addresses how US states hand out massive tax breaks every year to advance policy goals, such as aiding low-income families, spurring business investment and job creation, or mirroring the federal tax code. Known broadly as tax expenditures, these exemptions, credits, abatements, and other measures reduce state revenues by an estimated $1 trillion a year, almost three times their 2021 total state expenditures on education. Such tax expenditures, which often suffer from lax government oversight, may be leaving states short on revenue at time when the effects of climate change and the cost of deferred maintenance means that they will need to spend more on infrastructure now and in the decades ahead.

Our panel of experts will include one of the issue paper's authors, Matt Fabian, partner, Municipal Market Analytics; as well as Jonathan Ball, legislative fiscal analyst, State of Utah; Tim Bartik, senior economist, W.E. Upjohn Institute for Employment Research; and Arlene Martinez, deputy executive director, Good Jobs First.

Moderated by William Glasgall, Volcker Alliance senior director, public finance and Penn IUR fellow, and Susan Wachter, co-director of Penn IUR, this briefing is the fifty-third in a series of sixty-minute online conversations featuring experts from the national research networks of the Volcker Alliance and Penn IUR, along with other leading academics, economists, and federal, state, and local leaders. 

Special Briefings are made possible by funding from The Century Foundation, the Volcker Alliance, and members of the Penn IUR Advisory Board.

Recordings of the entire Special Briefings series are available on the Volcker Alliance website: SPECIAL BRIEFING SERIES ARCHIVE.

Be sure to subscribe to the Special Briefing podcast, available on Apple Podcasts, Spotify, Google Podcasts, TuneIn, iHeart Radio and more.

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NEW YORK, OTHER STATES SHORTCHANGED BY $1 TRILLION STATE TAX BREAKS, NEW ECONOMIC ANALYSIS SHOWS

 Economic Experts Examine if Massive Tax Breaks Are Beneficial or Leaving States Short on Critically Needed Revenue

The discussion centered on a new issue paper from the Volcker Alliance, Benefit or Burden: Evaluating $1 Trillion in State Tax Expenditures, which examines the present and predicted effects of such massive tax breaks, which often lack rigorous oversight, and offers scorecards comparing the reporting methods of six states with widely differing policies: Alabama, Minnesota, New Jersey, New York, Utah, and Washington.

According to the paper, tax expenditures decrease state revenues by as much as $1 trillion annually, nearly three times the total state spending on education nationally in 2021. The paper offers recommendations for states wishing to improve their evaluation and disclosure of tax expenditures.

Matt Fabian, one of the paper’s authors, stressed that states need to track their tax expenditures more closely and evaluate if they are truly necessary or beneficial in the first place: “We went into this project expecting a mess,” he said. “It was much worse than that. We're not even advocating for true, actual public disclosure of the information. We just want states to get their arms around what it is they're doing.”

When asked what makes sense in optimizing tax breaks in terms of distressed communities, Tim Bartik, senior economist at W.E. Upjohn Institute for Employment Research, said that the best course of action would be to “target the distressed communities and limit the tax breaks in non-distressed communities, except in special cases. I would also make sure that before you massively fund tax breaks, that you fund infrastructure and job training which evidence suggests is more cost effective in creating jobs than some of these tax breaks. States need to fund more programs where community colleges will train workers for companies so they can make sure they have the labor and the real estate they need.”

Arlene Martinez, deputy executive director at Good Jobs First offered a different take: “I was a journalist for many years, reporting a lot on local spending and budgets, and I could see what would happen when communities were strapped for cash. The programs that often got cut were often programs that targeted low-income folks or vulnerable people, because they tended to have less of a voice in the process.”

Jonathan Ball, Utah legislative fiscal analyst, presented the state’s four tools for evaluating tax incentives: a cost estimate on every piece of legislation, taking dynamic fiscal notes, a regular scheduled set of reviews for the incentives, and risk mitigation through budget stress testing. He said that while Utah didn't score very well overall in terms of following best practices with monitoring and reporting on taxes, he was pleased with their performance compared to other states.

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Matt Fabian is a partner at Municipal Market Analytics (MMA), an independent research and consulting group that publishes data, analysis, and commentary on the US municipal bond market. MMA subscribers include institutional investors, underwriters, bond issuers, regulators, and think tanks. He is frequently quoted in the national and trade media on a broad range of topics connected to municipal bond and is a regular speaker at industry conferences and private events.

Along with Lisa Washburn, Mr. Fabian authors the weekly Outlook report, which covers credit and market structure trends and federal policy and regulatory developments. Lisa and Matt also write the weekly Default Trends report, which tracks and analyzes troubled and defaulted municipal borrowers. Matt is the principal instructor for MMA’s Municipal Credit and Strategy Masterclass, an asynchronous learning module that provides twenty NASBA-approved continuing professional education credits on completion.

Prior to MMA, Mr. Fabian headed US municipal research and strategy at UBS in New York. He was also a credit analyst at the monoline bond insurer FSA and at Moody’s Investors Service. He served as chairperson of the Municipal Analysts Group of New York and has received the National Federation of Municipal Analysts’ Industry Contribution Award.  

Mr. Fabian has a bachelor of arts degree in political science from Penn State University and a master of public administration degree from the Maxwell School of Citizenship and Public Affairs at Syracuse University. 

For more than twenty-five years, Jonathan Ball has helped Utah legislators solve big problems. He and his team of economists, finance professionals, and support staff find sound financial solutions that make Utah better. They staff appropriations committees, estimate the cost of proposed bills, balance the state’s budget, assure the state’s long-term fiscal health, and improve the efficiency of state government operations. Prior to his career in Utah, Ball worked in Washington, DC at the White House Office of Management and Budget, U.S. Department of Commerce, Washington Office of the State of Michigan, and Joint Economic Committee of Congress. He earned degrees from Michigan State University and Georgetown University. Ball lives in the Utah mountains with his wife Samantha and three daughters. 

Tim Bartik’s research focuses on how broad-based prosperity can be advanced through better local labor market policies. This includes both policies affecting labor demand, such as state and local economic development policies, and policies affecting labor supply, such as place-based scholarships.

Bartik’s 1991 book, Who Benefits from State and Local Economic Development Policies?, is widely cited as an important and influential review of the evidence on how local policies affect economic development. Bartik is co-editor of Economic Development Quarterly, the only journal focused on local economic development in the United States.

Bartik’s recent work on economic development includes research developing a database on economic development incentive programs around the U.S. He has also developed a simulation model of incentives’ benefits and costs for local residents’ incomes, and how these benefits and costs vary with incentive design, local economic conditions, and how incentives’ budget costs are paid for.

Bartik’s research has also examined policies to promote local skills, and how these affect local prosperity. His 2011 book, Investing in Kids, examined how early childhood programs could promote local economic development. According to Nobel prize-winning economist James Heckman, “Tim Bartik has written a thoughtful book on the value of a local approach to financing and creating early interventions to foster child development.” Bartik has also done extensive research with his Institute colleagues on the effects of the Kalamazoo Promise, a pioneering place-based scholarship program intended to improve the local economy.

Bartik received both his PhD and his MS in economics from the University of Wisconsin–Madison in 1982. He earned a BA from Yale University in political philosophy in 1975. Prior to joining the Upjohn Institute in 1989, he was an assistant professor of economics at Vanderbilt University. 

Arlene Martinez joined Good Jobs First with experience watchdogging local government as part of the Ventura County Star’s investigations team and before that, with The Morning Call in Allentown, Pennsylvania, the Los Angeles Times and Hispanic Link News Service in Washington D.C. In 2019, she launched USA TODAY Network’s statewide California newsletter. She loves Annual Comprehensive Financial Reports, Excel, and working to make the world a more just and equitable place through government accountability, smart economic policies and promoting the amazing work of her colleagues. Arlene has a Bachelors in Communication from the University of California, Santa Barbara, and received her executive Masters in Business Administration from California Lutheran University. Se habla español.