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ALEC’s Radical Tax and Budget Agenda

Numerous states are considering — and some have already enacted — sweeping tax and budget proposals that follow recommendations of the American Legislative Exchange Council (ALEC), our new analysis explains, and middle- and lower-income residents could end up paying the price.  These proposals would:

cut taxes deeply for wealthy individuals, investors, and corporations; shift tax burdens substantially from well-to-do to middle- and low-income households; and impose strict constitutional or legal limits on revenues or spending that would severely limit states’ ability to provide adequate funds for education, health care, and other priorities, and impair state economic growth.

For example:

  • ALEC proposes that states repeal state personal and corporate income taxes, which provide one-third to one-half of a typical state’s funding for schools, health care, and other key services.  No state other than oil-rich Alaska has ever repealed its state income tax, but in 2012 there were major efforts in Oklahoma, Kansas, and Missouri to do so, and so far in 2013 governors and/or leading legislators in four additional states — Louisiana, Nebraska, North Carolina, and South Carolina — have proposed (or voiced plans to propose) full repeal of personal or corporate income taxes or both.
  • ALEC and its allies are working to ensure that states that now lack income taxes can never enact them.  New Hampshire voters defeated an ALEC-supported constitutional amendment on the 2012 ballot that would have banned the state from ever putting an income tax in place.  Tennessee is expected to place a similar measure on its ballot in 2014.
  • ALEC and its allies have begun promoting legislation that exempts “pass-through income” — business profits that are taxed as the owners’ personal income rather than as corporate income — from taxation.  Though ALEC advances the idea as a way to help small businesses create jobs, it mostly would benefit large, profitable companies organized as Subchapter S-corporations and limited liability corporations, as well as investment funds and private consultancies that do not create many jobs.

    In 2011, North Carolina enacted the nation’s first-ever exemption of pass-through income up to $50,000 per taxpayer.  A year later, Kansas eliminated such taxes entirely, at an estimated cost at least $245 million per year when fully phased in.  South Carolina enacted a rate cut specifically for pass-through income in 2012.

  • ALEC offers states model legislation for a constitutional requirement that state legislatures approve all new taxes and fees or any increases in existing taxes and fees by two-thirds votes.  Proponents argue that supermajority requirements are designed to control spending but, in reality, they allow a small minority of legislators to hold the budget process hostage to narrow concerns and make it difficult for lawmakers to pass reasonable tax increases that have public support.

    Proponents have pushed supermajority legislation in a number of states in recent years, including Arizona, Hawaii, Idaho, Maine, Michigan, Minnesota, New Hampshire, and Texas.  In 2011, Wisconsin adopted a supermajority statute.

As our report explains, ALEC’s studies and reports claim that its agenda would boost economic growth and create jobs, but they are disconnected from a wide body of peer-reviewed academic research on public finance.  Our report outlines a better way forward for states to meet their balanced budget requirements while also creating the conditions for economic growth and a higher quality of life.