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A cashier counts out money at Macy A cashier counts out money at Macy's Herald Square on Thanksgiving Day in New York November 28, 2013. REUTERS/Eric Thayer  

Report: Rampant Tax Favoritism And Lack Of Transparency In State Governments

A new report released by the American Legislative Exchange Council looks at widespread state government favoritism through the tax code, in which specific individuals and businesses are treated unequally and given tax carve-outs.

Using government data on a state-by-state level, analysts at the American Legislative Exchange Council (ALEC) cataloged instances of tax grants for companies, which according to ALEC, distorts the market and should be replaced with a simpler and more competitive tax code. In particular, tax codes should be simple, fair, and apply equally, in order to spur wealth creation.

The intent of the grants is to spur economic growth and job creation, but a stunning lack of transparency and questionable economic assumptions led to ALEC’s report arguing, “Specialized carve-outs in the tax code are distortionary and ineffective at best, and examples of government cronyism at worst. These carve-outs run contrary to the principles of sound tax policy and the basic fairness of a level playing field for all businesses.”

Since past research into state-by-state tax grants has been spotty at best, co-author of the report and fiscal policy research analyst William Freeland remarked on the transparency issues ALEC’s research team found while conducting their study.

“In an ideal world, each and every state would publish an expenditure report every year. This is not the case at all, and it was pretty difficult trying to put this together,” ALEC’s William Freeland told reporters on a call Thursday.

“There are a number of states that don’t even report their tax expenditures whatsoever. Many states do not record all of the exemptions. There are huge transparency issues,” he continued.  The study shows that five states, including Alabama and Nevada, do not have available reports on tax carve-outs granted. Additionally, six other states have incomplete or infrequent data.

According to Freeland, even giving tax-cuts to particular companies with a history of successful research and development programs is problematic. “Big planners are not really equipped to decide which firms deserve tax-cuts and to make that gamble with state finances. If you give one group a special tax cut, you’re going to have to negotiate every single time,” Freeland told The Daily Caller News Foundation.

“But no one is blaming individuals from taking deductions and credits that they’re entitled to,” analyst and co-author Ben Wilterdink added. “These businesses and industries are making use of things that are already there. The real issue is trying to change the tax code away from having the government pick winners and losers, rather than demonizing firms that simply use tools available to them.”

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