Regular Tax Incentive Evaluation Suggested To Legislature’s Economic Development Committee

A member of public policy organization Pew Charitable Trusts proposed a regular evaluation of state tax incentives during Tuesday afternoon’s interim meeting of the West Virginia Legislature’s Joint Commission on Economic Development.

West Virginia Legislature

“Tax incentives are one of the primary tools that states use to try to create jobs, attract new businesses and strengthen their economies,” said Pew representative Logan Timmerhoff. “But they’re also major budget commitments collectively costing states billions of dollars a year.”

Examples of processes mentioned by Timmerhoff included creating a legislative committee or hiring an outside agency to regularly review these incentives, and analyzing how certain credits impact taxpayer decision making.

“When evaluating incentives, it’s hard to know exactly how much they influence business behavior,” Timmerhoff said. “However, states have used analytic approaches that make reasonable estimates.”

How the evaluation process is done differs by state, but Timmerhoff said evaluations matter because lawmakers nationwide have often lacked good information about how well incentives are working.

The number of states that regularly evaluate tax incentives has increased within the past decade, going from six states to more than 30.

“We don’t have a formal process in West Virginia,” said Sen. Eric Tarr, R-Putnam. “It typically comes when there’s a specific sector that is looking to grow.”

Questions asked by legislators at the meeting included weighing the pros and cons of other states’ evaluation processes, and if a similar process could be used to evaluate the elimination of certain taxes, citing the legislature’s previous effort to eliminate personal property taxes on vehicles.