Conservatives Critique “Tax Cronyism,” and Progressives Critique the ALEC Report

I was pleasantly surprised to learn recently that the American Legislative Exchange Council (ALEC) has issued a report calling on policymakers to end the wasteful subsidies given to corporations by state and local governments. Their report titled The Unseen Costs of Tax Cronyism: Favoritism and Foregone Growth criticizes special tax breaks for certain companies, which it points out tend to increase the tax burden on other companies and put them at a competitive disadvantage.

Corporations are very good at extorting costly subsidies from state and local officials, but some of those corporations and a growing number of policymakers are realizing that these incentives aren’t an effective way to promote economic growth. A number of businesses in the Kansas City area have prevailed on Missouri legislators to call a ceasefire to the use of incentives for pirating corporations across the border with Kansas. The ALEC report reflects that many other large corporations have also come to realize that selectively handing out incentives to businesses is an inefficient and inequitable use of government resources.

Although I’m pleased that a conservative group like ALEC is speaking out against “tax cronyism,” the group that has been leading the fight against wasteful subsidies, Good Jobs First is leery of the report – which it says was written by an organization that “is essentially a front for powerful corporations to transmit their state legislative wish lists to business-friendly legislators.” In a recent blog post, Phil Mattera of Good Jobs First wrote a critique of the report that makes a number of interesting and important points.

Mattera notes that ALEC is guided by corporate backers, including 10 companies represented on its Private Enterprise Advisory Council. The Subsidy Tracker database maintained by Good Jobs First indicates that all but one of those 10 companies have received state and local subsidies – including $89 million to Koch Industries, $133 million to United Parcel Service, $202 million to Pfizer, $278 million to Peabody Energy, and $340 million to Exxon Mobil.

Mattera criticizes the ALEC report for blaming policymakers for “tax cronyism” without faulting the recipients of the subsidies or even acknowledging their role in extracting giveaways from state and local lawmakers. He wrote that “the report also fails to acknowledge that big subsidy giveaways are common in states celebrated in the Rich States, Poor States,” which is an annual report written for ALEC by supply-side economist Arthur Laffer.

The other major criticism leveled by Good Jobs First at the ALEC report is that: “their alternative to ‘tax cronyism’ or targeted corporate tax giveaways is generalized corporate tax giveaways. That is, after decades of declining corporate tax rates and corporate contributions to state treasuries, they want big business to pay even less of a fair share of the cost of public services.”

There seems to be a growing number of policymakers on both the left and the right who agree that special corporate tax breaks are wasteful and inequitable. As that agreement broadens, so does the argument about alternative uses for the revenue that is at stake. Let’s have a robust debate about that topic (in the context of broader tax and budget challenges and priorities), but let’s not allow that debate to become an intractable obstacle to the elimination of wasteful subsidies.

From www.wisconsinbudgetproject.org.

Photo from Dallas 2014 “Don’t Mess With Texas, ALEC” protest by Kit O’Connell released under a Creative Commons license.