What’s Wrong with ALEC’s Subsidy Critique

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alexexposedAt Good Jobs First we are normally pleased when another organization takes an interest in our issue and adds its voice to the campaign to end the wasteful subsidies given to corporations by state and local governments. Yet when it’s the American Legislative Exchange Council (ALEC) signing on, we can’t be quite so welcoming.

ALEC, a lightning rod for controversy relating to its role in promoting voter suppression, private prisons and “stand-your-ground” policies (read Trayvon Martin), has just issued a report entitled The Unseen Costs of Tax Cronyism: Favoritism and Foregone Growth.

At first glance, the study echoes many arguments we have made since our founding 16 years ago and which Greg LeRoy cataloged in The Great American Jobs Scam. It points out how the granting of special tax breaks for certain corporations (Boeing’s $8 billion deal in Washington State is cited as a “notorious example”) tends to increase the tax burden on other companies and puts them at a competitive disadvantage. ALEC also notes, using the example of the producers of the Netflix series “House of Cards” in Maryland, how companies that get subsidies to locate in a state may later threaten to leave unless they receive even more giveaways.

Yet the similarities to our work go only so far. Rather than an independent research group, as ALECExposed has documented, ALEC is essentially a front for powerful corporations to transmit their state legislative wish lists to business-friendly legislators. Although ALEC’s board is made up of elected officials, the real power in the organization comes from its corporate backers. The most important of these are the 10 companies represented on its Private Enterprise Advisory Council.

We checked those companies against our Subsidy Tracker database (which the ALEC authors choose not to mention, citing instead a New York Times compilation based largely on our data). It turns out that all but one of the 10 companies have received state and local subsidies. In some cases the aggregate subsidy amounts have been enormous: $340 million to Exxon Mobil, $278 million to Peabody Energy, $202 million to Pfizer, $133 million to United Parcel Service, and $89 million to Koch Industries, run by the supposedly free-market purist Koch Brothers. The total for the nine companies is more than $1 billion. The one company in the group that has apparently not received direct subsidies is Energy Future Holdings, but the struggling Texas utility (now in Chapter 11 bankruptcy) is owned by private equity firms led by KKR, whose other portfolio companies have received $55 million in subsidies.

We have no idea whether advisory council members reviewed the report before it was published, but one thing that may have placated them is that the document bends over backward to avoid criticizing companies that accept subsidies. Although the term “cronyism” implies some kind of improper collusion, the ALEC authors claim that taking subsidies should not be viewed as tax avoidance. “Businesses should generally not be vilified or blamed for tax cronyism,” they argue. “The key issue rests with the policymakers who introduce these laws.” The ALEC authors even go so far as to depict targeted tax breaks as a form of “central economic planning.”

We find ALEC’s analysis here historically ill-informed and refer the authors to Jobs Scam for a primer on how corporations and their site location consultants drive the subsidy-industrial complex. Given that history, it is ridiculous to equate the haphazard nature of subsidy policies with any kind of planning.

Although ALEC wants to blame poor policymaking for tax cronyism, the report also fails to acknowledge that big subsidy giveaways are common in states celebrated in the Rich States, Poor States reports written for ALEC by the unreconstructed supply-sider Arthur Laffer. For example, Utah, which Laffer ranks first in terms of its economic outlook and second in economic performance, has given generous packages to companies such as Procter & Gamble, Goldman Sachs, eBay and Adobe Systems.

Besides the hypocrisy and lack of historical awareness, ALEC’s report has another fundamental problem (akin to that of other conservatives such as those at the Mercatus Center): their alternative to “tax cronyism” or targeted corporate tax giveaways are 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.

At Good Jobs First, subsidy reform is intended to improve economic conditions for working families and give small businesses a fairer shake; it isn’t about reducing tax rates for corporations like those bankrolling ALEC.

2 Responses to “What’s Wrong with ALEC’s Subsidy Critique”

  1. Good Jobs First Acknowledges the ALEC Fight Against Cronyism - American Legislator Says:

    […] 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. […]

  2. » Corporations to ALEC: Stop Us before We Extort Again Says:

    […] 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 […]

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