Key Points
  • Policymakers should reduce or eliminate tax cronyism in a revenue-neutral fashion or as part of broader tax cuts. Attempting to close off these tax carve-outs without decreasing tax rates elsewhere can be a devastating blow to firms and does little to improve a state’s competitiveness.
  • If tax cronyism is not completely eliminated, remove tax cronyism from the tax code and put it on the budgetary side of the fiscal ledger—make the program budget-based, cash payments instead of elements of the tax code that reduce a firm’s tax burden. This increases revenue certainty and budgetary transparency.
  • Subject existing tax cronyism to rigorous reporting standards to ensure transparency, and conduct a critical analysis of whether these measures are creating tangible economic growth over and above their true economic cost. The Task Force on Tax and Fiscal Policy’s model policy, Tax Expenditure Transparency Act requires articulated legislative intent and measurable performance goals for each tax carve-out.

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 reports, tax carve-outs totaled $228 billion for personal income and business earnings tax exemptions, and $260.1 billion for sales tax exemptions. According to The New York Times, states have given out 157,072 grants to specific firms.

Tax cronyism is counterproductive to a healthy economy. When states resort to tax carve-outs in a misguided attempt to grow their economies, they are ignoring the bigger problem—an uncompetitive tax climate. As outlined in the ALEC Principles of Taxation, competitive tax rates with broad bases create a pathway to growth. Reducing or eliminating cronyism is essential to ensure that economic opportunity is maximized for everyone and the government operates with the public’s trust.

Articles

State Budgets

State of the State: Delaware

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Publications

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Model Policies

  • Resolution Opposing Taxpayer Financing of Professional Sports Stadiums Draft

    Summary The resolution opposes taxpayer financing of professional sports stadiums and venues. Definitions “Professional sports” means any sporting event or competition featuring non-amateur athletes. High school or collegiate level athletics and competitions funded solely by 501(c)(3) non-profit entities within their charitable purpose are excluded from this definition. “Stadium” or “Professional …

  • ACCE Principles of Taxation Final

    The fundamental principles presented here provide guidance for a neutral and effective tax system; one that raises needed revenue for core functions of government, while minimizing the burden on citizens. Simplicity – The tax code should be easy for the average citizen to understand, and it should minimize the cost …

  • Occupational Board Reform Act Final

    A bill for an act relating to occupational regulations contrary to the Sherman (Antitrust) Act; establishing the state policy for the regulation of occupations, specifying criteria for government regulation to increase opportunities, promote competition, encourage innovation, protect consumers, and comply with federal antitrust law; proposing coding for new law as ____________, …

  • Eminent Domain Authority for Federal Lands Act Final

    Section 1. The following shall be enacted as Section _______ of the eminent domain provisions of the State Code: Other Property which may be taken – State as plaintiff. (1)   Subject to Subsection (2), property which may be taken under this part includes property possessed by the federal government unless …

  • Transparency and Government Accountability Act Final

     {Title, enacting clause, etc.} THE PEOPLE OF THE STATE OF {insert state} DO ENACT AS FOLLOWS: Section 1. {Severability clause} The State of {insert state} shall maintain an official, searchable website accessible to all citizens that affirmatively discloses all appropriate information as described in subsections (a through i).  The state …

Task Forces

Tax and Fiscal Policy

The ALEC Tax and Fiscal Policy Task Force is dedicated to researching and promoting sound economic policy aimed at creating …

Press Releases

  • New Report Exposes Pension Fund Cronyism image

    New Report Exposes Pension Fund Cronyism

    FOR IMMEDIATE RELEASE Contact: Ashley Pratte [email protected] Arlington, VA (December 14, 2016) – Pension fund cronyism has run rampant throughout the country as some lawmakers and trustees recklessly place …

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