Sometimes referred to as “back-door spending” because tax expenditures involve money given out through exemptions written into law rather than through budgeted appropriations, these exemptions increasingly are used to try to encourage businesses to move into the state or hire more people. In other cases, tax expenditures help struggling residents by, for example, exempting food and clothing from the sales tax or providing an Earned Income Tax Credit to working people who are paid too little to support their families. When taken together, New Jersey tax expenditures are substantial – in Fiscal Year 2017 alone they totaled $23.9 billion.28
Tax expenditures have been proliferating rapidly, particularly the tax breaks offered to businesses to persuade them to come to, or stay in, New Jersey, since a 2013 law expanded use of this type of subsidy. At the same time, the effectiveness of this strategy is being questioned. At present, New Jersey does not monitor tax expenditures closely to control their growth and to determine whether they deliver their designed economic benefits.29
RECOMMENDATION
Review tax expenditures concurrently with state budget outlays.
The publication of a tax expenditure report at the same time as the governor’s annual budget message is already mandated by law, but the details of revenues foregone are not considered at the same time as direct budget outlays. If, following the example set by some other states, New Jersey legislators subjected tax expenditures to annual review and required votes on their renewal, it would increase the likelihood of open debate about the value of subsidies, along with the debate about other state spending.
Provide long-overdue information on all companies receiving $100,000 or more in subsidies, including how many people were hired and how much they are paid, whether jobs are full time or part time, and whether health coverage is included.
Such information is required by legislation passed in 2007 but has never been provided. Understanding whether tax subsidies actually work would help policymakers and the public determine whether specific tax breaks are a good investment.