Cronyism

Good Jobs First Acknowledges the ALEC Fight Against Cronyism

The issue of cronyism provides a great opportunity for many advocates of truly free markets and limited government to ally with principled leftists on a mutual cause—ending special preferences granted by government. At its very best, shared opposition to cronyism allows both sides to set aside their conflicting policy goals and focus on a common task, often to powerful effect.

Our recent paper—The Unseen Costs of Tax Cronyism: Favoritism and Forgone Growth—has been a demonstration of this. Our paper cites the Center for Budget and Policy Priorities (CBPP) and the Institute for Taxation and Economic Policy (ITEP) approvingly for their work on tax transparency. It also utilizes figures from the New York Times, which were in part collected by Good Jobs First, which does a good job monitoring and cataloguing targeted tax credits. We have disagreed with Good Jobs First in the past, as well as CBPP and ITEP, as these organizations favor big government over pro-growth tax policy and make errors on the way to those conclusions, but in this narrow case, their work is generally sound.

Though these groups tend to emphasize the revenue lost from tax cronyism that could be spent towards larger government and maintain an uncomfortable anti-business disposition, we reach a very similar final conclusion: end tax cronyism. ALEC instead focuses on economic distortion from market processes, public choice analyses, and how cronyism undermines true pro-growth policy—limited government, low tax rates, broad bases, fair and competitive markets.

That’s why we were thrilled to see this tweet from a normal critic, Good Jobs First, the day after our report was released.

GJF-tweet

Good Jobs First followed up with a blog post that they seem to have thought was a criticism, but we largely consider it an endorsement.  Good Jobs First, using their target tax break database, shows that ALEC Private Enterprise Advisory Council members have received these tax preference measures in the past. We agree and thank them for pointing out that we aren’t afraid to be independent, stand by the principles of free market economics, and follow our official ALEC Principles of Sound Tax Policy. We hope that in discovering our opposition to cronyism in light of the circumstances of our members, they have learned much about how we operate as an organization.

It’s also worth pointing out that in our conception of ending tax cronyism, where rates are lowered as bases are broadened, preferably also reducing the size of government and therefore overall taxation, most if not nearly all businesses stand to be better off. A simple, competitive tax code means cheaper tax compliance and reduced cost for lobbying for preferences just in order to achieve a vaguely reasonable tax burden. It also means turning the state into a hive of growth, creating spillover effects from improved economic activity for firms in that given state. So any businesses—even those currently utilizing tax preferences—need not be opposed to ending tax cronyism.

Sadly, after largely endorsing our work, Good Jobs First ends their post with an unfortunate but perhaps obligatory swipe at the tax work of ALEC generally, suggesting that taxes don’t matter to growth and that ALEC is at fault for allegedly dropping overall tax burden of business. It’s an argument we’ve dealt with from Good Jobs First before, and many of their allies in the past (here, here, here, here).

The claim is incorrect, as we note in the links above, but more importantly, that claim overlooks revealed preference among the states. Even in the most leftwing states such as Massachusetts, Illinois, California, and New York, their political leadership, which consistently favors big government, is implementing these cronyist tax preference provisions for a clear reason—their tax codes aren’t competitive. Which makes you wonder, what exactly do these states hope to gain from tax preferences, if taxes don’t matter to growth?

Given that it is clear that taxes do matter to economic performance, we are faced with a fundamental policy question: tax competitiveness through markets or attempts at tax competitiveness through central planning, known as tax cronyism. Indeed, tax cronyism is the epitome of central planning: trying to direct and control the economy through manipulation by government policy.

In conclusion and towards setting aside our differences, we do appreciate Good Jobs First for noticing our study and giving our study inadvertent complements. We appreciate their work on exposing tax cronyism, even if we frame the issue very differently.

 


In Depth: Cronyism

Cronyism in tax policy stifles innovation, hinders competition and introduces a deep temptation for corruption. The 2014 ALEC Center for State Fiscal Reform study, The Unseen Costs of Tax Cronyism: Favoritism and Foregone Growth, found that in the most recent year in which states published their respective tax expenditure …

+ Cronyism In Depth