Massachusetts

Tax incentive evaluation ratings

Tax Incentive Evaluation Ratings: Massachusetts

Rating: Trailing

Key points:

  • Massachusetts is trailing other states because it has not adopted a plan for regular evaluation of tax incentives.
  • The state produces high-quality evaluations of its film tax credit but does not analyze other major incentives.
  • Several offices in Massachusetts could potentially evaluate incentives, including the Department of Revenue and the office of the inspector general.

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High-quality evaluations of Massachusetts’ film tax credit have helped spark robust debates over the cost effectiveness of the program. However, the state lacks a process for evaluating other tax incentives.

The Massachusetts Department of Revenue has studied the film credit more than a half-dozen times over the last decade.a These studies make reasonable assumptions about the extent to which the credit is leading productions to locate in Massachusetts. They calculate the trade-offs of paying for the incentive, noting that a dollar the state spends on the credit cannot go to other purposes. They also estimate the extent to which the economic benefits from the program flow to other states, such as when film productions hire out-of-state workers.b By taking these considerations into account, Revenue has rigorously measured the economic impact of the program.

Revenue’s analysis shows that the film tax credit has cost the state more than $100,000 for each net new job the program has created for Massachusetts residents.c Based on the evaluations’ findings, some policymakers have argued that the state would be better off investing in alternative economic development strategies. Both former Governor Deval Patrick (D) and current Governor Charlie Baker (R) have proposed scaling back the credit. The Legislature has discussed that idea, but has not acted on it.d

Given its experience rigorously studying the film credit, the Department of Revenue is one office that could potentially evaluate incentives regularly in Massachusetts. There are other options as well. A 2016 bill would have created a new unit in the office of the inspector general to evaluate tax incentives. It would also have set standards for new tax incentives, including that lawmakers define their goals—a step other states have found facilitates meaningful evaluation. The legislation passed the Senate but was not approved by the House.e

The inspector general and the state auditor are interested in providing policymakers with better information on outcomes from the millions spent on incentives each year. However, these offices say their efforts have been stymied because they lack access to data that would allow them to analyze incentives.f

Endnotes

  1. Massachusetts Department of Revenue, “Massachusetts Film Industry Tax Incentive Reports,” updated December 2016, http://www.mass.gov/dor/tax-professionals/news-and-reports/other-reports/massachusetts-film-industry-tax-incentive-report.
  2. Massachusetts Department of Revenue, “Report on the Impact of Massachusetts Film Industry Tax Incentives Through Calendar Year 2014” (Dec. 30, 2016), 4–9, http://www.mass.gov/dor/docs/dor/news/reportcalendaryear2014.pdf.
  3. Ibid., 2.
  4. Karishma Mehrotra, “Lobbying Beats Back Baker’s Effort to Kill Film Tax Credit,” The Boston Globe, July 9, 2015, https://www.bostonglobe.com/business/2015/07/08/state-budget-keeps-film-tax-credit/z6fTIHuQLceG4tQQc8vGyL/story.html.
  5. Massachusetts S. 2435 (2016), https://malegislature.gov/Bills/189/S2435.
  6. “Watchdog Agencies Seek New Powers to Monitor Tax Credits,” Worcester Business Journal, Sept. 23, 2015, http://www.wbjournal.com/article/20150923/NEWS01/150929973/watchdog-agencies-seek-new-powers-to-monitor-tax-credits.
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Improving Tax Incentives for Jobs and Growth

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Tax incentives—including credits, exemptions, and deductions—are one of the primary tools that states use to try to create jobs, attract new businesses, and strengthen their economies. Incentives are also major budget commitments, collectively costing states billions of dollars a year. Given this importance, policymakers across the country increasingly are demanding high-quality information on the results of tax incentives.