Debate over tax incentives misses the real object of tax reform

It's tax time, and Sunday's Boston Globe has an interesting editorial about corporate incentive tax breaks in Massachusetts.

Basically, the editorial says we need more information to determine if targeted corporate tax breaks are working in Massachusetts and if some policies lack adequate protections to prevent calamities like the case of our state's investment in Evergreen Solar.

The editorial staff concludes that, "the Legislature should establish an office or commission to monitor economic-development initiatives and police their effectiveness." They might have a point. But, another state office is really the last thing we need right now. Better to convene an ad-hoc commission using existing resources. Staff at the Department of Revenue, the Auditor's office and numerous other state development agencies should be more than capable of evaluating this issue, even if they are joined by the involvement of the Legislature and outside economic and legal experts. It's possible that, as part of their review, they will not only discover weaknesses in our existing tax breaks but also identify opportunities for new incentives as well.

But, we think this argument over corporate tax breaks, while important, also misses the bigger issue. There needs to be an honest and independent review of the entire economic development and business tax system here in Massachusetts, not just our incentive process.

Some of our corporate tax breaks could be faulty. But, their very existence is evidence of an entire corporate tax system that is itself fundamentally flawed. After all, if the system is working, why do companies need a break from it in the first place?

We believe state officials need to adjust their mindset in order to achieve a sustainable economic policy for Massachusetts. State officials spend too much time pondering the possibility that our tax rates and tax laws are leaving untapped corporate revenue on the table. They need to spend more time trying to grow the corporate tax base. That means changing our permitting laws, our employment laws, and our tax code to make Massachusetts an attractive place for businesses to relocate and prosper. Growing our corporate tax base will naturally help to provide for more corporate tax revenue over time in a way that's healthy and sustainable.

The last time a special tax commission was convened by the Governor, it's main objective was to close "corporate tax loopholes." That's a euphemism for raising business taxes. Several years and billions of dollars in corporate taxes later, Massachusetts finds itself in an international hunt for new jobs. The fallacy is that some of these jobs left Massachusetts because of poor economic policy that has yet to be righted.

Governor Patrick can make as many trade missions overseas as he wants, and the state can offer as many incentives as it wishes, but companies will not flock to Massachusetts until we fix the underlying system to make it business-friendly. And, unfortunately, we don't see anyone who has the political courage and ambition to start that process in earnest.