What does Maryland get for its tax credits?

That’s the question Senator Richard S. Madaleno Jr. and Delegate Bill Frick want the General Assembly to ask.  On Tuesday, Senator Madaleno introduced the Tax Credit Evaluation Act, and Delegate Frick will introduce the House version shortly.

The legislature examines normal expenditures every year through the budget process. Tax credits—sometimes called tax expenditures because they cost the state money in terms of lost revenue—are seldom revisited once established.  Yet there are more than 300 tax credits available in Maryland.  I blogged about this issue previously in December (Money for Something?) and January (Maryland subsidy programs score B- in national study). 

The Tax Credit Evaluation Act (SB 739) would require the President of the Senate and Speaker of the House to appoint a committee to review most tax credits every five years on a rotating schedule.  Each tax credit would be evaluated based on five criteria:

1. the purpose for which it was established,
2. whether that purpose is still valid,
3. whether the credit is meeting its objectives,
4. whether the intentions of the credit could be better met through alternative mechanisms,
5. and the administrative and lost revenue costs to the state.

The committee’s final report to the General Assembly would recommend specific action on the tax credit (renew, modify, allow to expire), as well as any legislation needed to accomplish the recommendations.  Without affirmative action by the legislature, the tax credit would then expire.

The bill covers tax credits that the Institute supports, like the Earned Income Tax Credit, not just credits that benefit specific businesses and industries. We believe that these credits will withstand fair scrutiny, and that regular reviews will only result in their expansion and improvement.

The Tax Credit Evaluation Act would establish a review process for tax credits that is sorely needed in Maryland.  This is doubly true at a time when revenue shortfalls threaten vital services.  The principles of good governance and due diligence with the people’s money make this a no-brainer.  MBTPI supported this bill last year, and we support it again this year.