Missouri State Auditor Nicole Galloway has issued a report on the Cost of Tax Incentives and Exemptions. The auditor calls for more rigorous fiscal impact studies—but inadvertently shows how important such studies are by making some questionable assumptions of her own.
The auditor notes that the fiscal impact of proposed pieces of legislation was not followed up by analysis after the fact.
State law does not require a post-implementation review of fiscal notes to determine the actual fiscal impact of legislation enacted in comparison to fiscal note estimates. Post-implementation reviews would be especially beneficial for legislation impacting the tax base or for which the fiscal note included an estimated impact on tax revenues.
For example, the auditor finds that the estimated fiscal impact of a particular bill (SB 19 in 2015) was estimated at $15.2 million annually, but she claims the actual cost for the first two years of implementation was about five times greater. To reach that number, the auditor simply examines revenue from before adoption with revenue post-adoption and assigns all the impact to a single bill. Officials from the Department of Revenue make this exact point in the text of the auditor’s report (page 9):
DOR personnel could not identify the actual cause in the reduction in corporate income taxes, but indicated SB 19 (2015) was likely one of the contributing factors along with other potential factors including "other legislative changes" and "changes in the overall economic market."
The point the auditor is making is valid and laudable: we don’t know the actual cost of the tax laws we’re adopting. Public policy is only as good as the information it relies upon. The Show-Me Institute welcomes any thorough analysis of tax policy—but the auditor’s report may be worse than doing nothing at all as it ascribes all the change in revenue to a single legislative act.
The DOR indicated in the report that such data are often misleading and collecting it can be a burden to businesses, but that the department is implementing a revenue system that may allow for more analysis. Undertaking such an analysis “would require a substantial increase in full-time employees,” which is politically unlikely. Perhaps allocating more resources to track fiscal impact of legislation is something the legislature should consider—if only to guard against the overly broad assumptions being made in the auditor’s report.