Press Release

Groundbreaking New Report Exposes Tax Code Cronyism in the States

Groundbreaking New Report Exposes Tax Code Cronyism in the States

Report reveals state governments manipulate their tax codes to create unequal opportunities for businesses and individuals

Maryland, Illinois, Oregon and New Jersey among states that aggressively pursue tax carve-outs; full 50-state table included in report  

Arlington, VA (July 24, 2014)—Never-before-seen data in a groundbreaking report unveils the unequal tax treatment of businesses and individuals by state governments and provides specific state data on tax carve-outs. The report, released today by the American Legislative Exchange Council, shines a light on state government favoritism or “targeted growth” through the use of tax carve-outs and other incentives to attract taxpayers to a specific state. The favoritism employed by state governments creates unfair tax codes and leads to a system the authors call “tax cronyism.”

“State governments should not be in the business of picking winners and losers through their tax codes,” said Jonathan Williams, co-author of the report and director of the ALEC Center for State Fiscal Reform. “Instead of engaging in tax cronyism, which creates a system that caters to government-favored businesses and individuals while pushing out the others that do not receive special treatment, policy makers should strive to create a competitive tax system for all businesses.”

State tax expenditure reports, which vary widely, reveal the distortionary methods employed by state governments to attract businesses to their states. In the most recent year in which each state published their respective tax expenditure reports, the sum of tax carve-outs was as follows: $228 billion for personal income and businesses earnings tax exemptions and $260.1 billion in sales tax exemptions.

To see the amount each state reported in tax carve-outs and the number of businesses and individuals that benefited from those carve-outs, visit

“The report provides state-by-state data that had not previously been assembled, and data collection was a challenge due to major transparency issues in state reporting of tax preferences. As a result, our report calls on states to improve their data reporting and provides concrete steps to achieve transparency,” said William Freeland, co-author of the report and a research analyst at the ALEC Center for State Fiscal Reform.

The report finds that states that use tax carve-outs to improve the state’s economy rarely meet their goals for economic growth. As an example, the author cite New Jersey’s 10-year tax incentive program that gave away more than $4 billion in tax carve-outs but did not achieve noticeable economic growth.

“Tax carve-outs rarely meet their goals for economic growth,” said report co-author Ben Wilterdink, a research analyst at the ALEC Center for State Fiscal Reform. “Worse, by allowing specific firms or industries to be exempted from ordinary tax treatment, there is a large incentive for firms and industries to rely on government for an unfair competitive advantage, which opens the door for abuse.”

The report also offers solutions to end tax cronyism. States that end special tax carve-outs for firms and industries while lowering rates is one solution to solving the tax cronyism problem. The authors highlight Michigan and Washington as examples of states with commendable transparency policies, while Maryland, Illinois, Oregon and New Jersey are noted for maintaining especially cronyist tax policies.

To download a copy of The Unseen Costs of Tax Cronyism: Favoritism and Foregone Growth, visit

Contact: Molly Fuhs


The American Legislative Exchange Council is the largest nonpartisan, voluntary membership organization of state legislators in the United States. The Council is governed by state legislators who comprise the Board of Directors and is advised by the Private Enterprise Advisory Council, a group of private, foundation and think tank members. For more information about the American Legislative Exchange Council, please visit: