MWDN: Shine a Light on Tax Breaks

Businesses make business decisions every day, some of which involve laying employees off and moving operations out of the state or out of the country. Politicians can complain, but business owners don’t answer to politicians – unless they have previously sought favors from the state.

That’s why Fidelity Investments and Evergreen Solar were called before a committee of grandstanding politicians to explain their business decisions. In 1996, Fidelity led the effort to get the Legislature to extend tax breaks to the mutual fund industry. Evergreen took millions from the state to open a manufacturing plant in Devens.

Evergreen has now decided to move those jobs to China. Fidelity is closing its Marlborough offices, with more than 1,000 jobs shifted to New Hampshire and Rhode Island. Neither broke the law. Fidelity exceeded the legislation’s hiring requirements over the next five years. Evergreen will probably have to give some of the state subsidies back, with the amount still to be determined.

But their decisions have put a spotlight on the tax breaks the legislature regularly bestows in the name of economic development – and raised questions of whether they are working as intended. Those questions aren’t easy to answer.

“Our tax code lacks basic accountability and transparency,” state Auditor Suzanne Bump told a legislative committee Thursday. “Once a tax break gets passed, it goes into a black box and seldom, if ever, does anyone look back and determine whether it is working as intended or whether there is a continued public benefit.”

Tax breaks enacted to help a specific industry ought to be limited in time, and renewed only if the Legislature decides they still make sense. Otherwise, you’ll see more situations like the telecommunications loophole. A century ago, the Legislature helped telephone companies extend lines to rural areas by giving them a break on local property taxes. Long after the rationale disappeared, some – not all – telecommunications companies are still taking advantage of that loophole, and it’s costing cities and towns an estimated $100 million in lost revenue.

A bill now before the Legislature would require better reporting and accountability from companies receiving job-creation tax breaks from the state and provide “clawback” provisions so that beneficiaries who don’t keep their promise must reimburse the state for revenue lost.

The bill, sponsored in the Senate by Sen. Jamie Eldridge, D-Acton, and backed in the House by several area lawmakers, deserves serious consideration. Businesses should be free to make their own decisions, but the taxpayers deserve to know whether the subsidies they provide private businesses are serving the public.

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