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CCBA299692DD1B34872584400056D2C8 Hearing Summary


Date Jul 23, 2019      
Location HCR 0112

Tax Expenditures and Tax Expenditure Evaluation - Committee Discussion Only

09:48:26 AM  

The committee's morning panelists introduced themselves.  These included: Katherine Loughead and Jared Walczak, of the Tax Foundation; and Alison Wakefield, of the Pew Charitable Trusts.

09:54:38 AM  

Katherine Loughead, policy analyst with the Tax Foundation, began her presentation (Attachment A).  She discussed Colorado's statutory definition of "tax expenditure," identified different types of tax expenditures including deductions, exemptions, and credits, and explained the difference between structural and preferential expenditures.

10:01:40 AM  

Ms. Loughead suggested that many of Colorado's preferential tax expenditures are small budget items because they do not strongly incentivize taxpayer behavior, and may in fact provide a tax benefit for taxpayers who would have performed the incentizied economic activity anyway.  She suggested that some of these expenditures apply so narrowly as to have have distortive market effects.

10:08:11 AM  

Ms. Loughead discussed the state's enterprise zone program. She presented a map showing that most of the state's geographic area is in enterprise zones. She suggested that businesses operating in these zones may have chosen to operate in these areas independent of the tax expenditure, which may reduce state revenue without promoting business activity in rural areas.

10:10:31 AM  

Ms. Loughead suggested that across-the-board measures to lower income tax rates would be a more successful approach to promoting economic activity in lieu of targeted tax expenditures. She argued that Colorado's economic growth is attributable to other factors beyond tax expenditures.

10:14:23 AM  

Ms. Loughead concluded her presentation. She argued that the purpose of taxation is to raise government revenue while having a minimal economic impact, and that tax expenditures do the opposite by reducing government revenue while affecting economic decisionmaking.

10:18:31 AM  

Alison Wakefield, associate manager at Pew Charitable Trusts, introduced her presentation (Attachment B).  She discussed the value of tax expenditure evaluation and how such evaluation has been conducted in other states.  She proceeded to present a history of tax expenditure evaluation in Colorado, especially Senate Bill 16-203.

10:24:47 AM  

Ms. Wakefield presented cases from Maryland and North Dakota where tax expenditure evaluation had motivated policymakers to change the structure and availability of tax expenditures.

10:26:02 AM  

Committee members asked questions of Ms. Loughead, Mr. Walczak, and Ms. Wakefield.  Committee discussion ensued regarding the availability of similar tax incentives in multiple states and interstate efforts to consolidate or eliminate certain tax expenditures.

10:36:38 AM  

Committee discussion continued regarding the empowerment of tax expenditure evaluators to make policy recommendations concerning the continuation, modification, or termination of tax expenditures.

10:42:07 AM  

The committee proceeded to discuss the effects of tax incentives in certain geographic areas on the economic performance of other areas in the state.

10:58:14 AM  

The committee discussed whether a tax expenditure could be made available to industries falling below certain economic thresholds, rather than to specific industries identified in statute.

11:09:18 AM  

Committee members asked whether panelists had studied, or were familiar with studies of, disaggregating the economic effects of a tax expenditure from the economic activity that would have occurred otherwise.  Mr. Walczak shared a study indicating that between 70 percent and 80 percent of jobs for which credits were claimed under state job incentive programs would have been created otherwise.  Ms. Wakefield's office later sent a memorandum (Attachment C) to committee members on this topic, as well as other questions raised by committee members during the hearing.

11:25:24 AM  

Committee discussion continued regarding the efficacy of the enterprise zone program.

11:41:38 AM  

The committee and panelists discussed tax architecture overall, including the utilization of broad-based tax expenditures and/or the elimination of tax expenditures and lowering of the income tax rate.

11:50:27 AM  

The committee and panelists discussed Colorado's tax expenditure evaluation process. 

11:54:22 AM  

The committee concluded its questioning of these panelists and took a recess for lunch.