The Tax and Fiscal Policy Task Force of the American Legislative Exchange Council has voted to move forward with model legislation that would require lawmakers to shine light on their votes to provide tax preferences, an ALEC director said in an interview with Tax Analysts.
Jonathan Williams, ALEC's director for tax and fiscal policy and its director for state fiscal reform, said in the August 16 interview that the model legislation is based on SB 5882, which will go into effect October 1 in Washington. That legislation, passed with bipartisan support by the Washington Legislature and signed into law by Gov. Jay Inslee (D), requires lawmakers to identify legislative intent and expected performance outcomes for tax preferences. Lawmakers may still vote to give tax preferences, or incentives, but must be transparent as to why they are doing it and exactly what they hope to achieve.
"We don't think the government should be picking winners and losers," Williams said in the interview. "We think the government should be transparent about its intent."
Williams said the Tax and Fiscal Policy Task Force approved the model legislation earlier this month at its 40th annual meeting in Chicago. He said the legislation now goes to the entire ALEC board for a 60-day review, as is customary for the organization. He expects the legislation to pass and become an ALEC model bill.
The legislation was brought forward by task force member Jason Mercier, director of government reform for the Washington Policy Center, an organization with offices in Seattle and three other Washington cities. The Washington Policy Center describes itself as "an independent non-partisan think tank promoting sound public policy based on free-market solutions."
In an interview with Tax Analysts, Mercier said he worked with Washington state lawmakers to draft SB 5882.
"If tax preferences are used, we want to see more performance measures and more transparency," Mercier said. "What we'd like ideally is to have a broad base and low rates so that tax preferences are not necessary, but if they are used they should specify the legislature's explicit intent and have measurable performance goals."
Mercier said that, as in SB 5882, model legislation for tax preference laws should include a provision that a tax preference performance statement accompany any new legislation lawmakers draft requesting preferences. He also listed five categories lawmakers should consider when stating purpose, or the reason why they believe a tax preference is appropriate in a particular case.
"Is it intended to induce a certain behavior by the taxpayer?" he said. "Is it for industry competitiveness? To create or retain jobs? To address unfairness, as in a case of double taxation? Or to give tax relief?"
If the purpose for the tax preference doesn't fit one of those categories, Mercier said, the lawmaker should be specific as to what it is and why it is necessary.
"You just can't pass a new tax preference without some purpose for it," he said.
Williams said those criteria appealed to the task force as a whole.
"We mean business when it comes to neutrality in the tax code and looking at performance-based ideas," he said. "This is a good way to put this into legislation."