Tax Analysts Blog

When Social Politics and Tax Policies Mix

Posted on May 4, 2016

Recent events in Tennessee illustrate the danger of mixing social politics and tax policies. Sometimes it gets, well, ugly.

There was a bill in the legislature that would have required students in public schools and universities to use bathrooms that matched the gender on their birth certificate. Maybe it's the libertarian in me, but I don't care what bathroom transgendered people use, and I don't think the government should either. I keep searching and can't find a single instance where this is an issue. If transgendered toilet use is not posing a public danger, why have these laws?

As was the case in North Carolina, the proposed Tennessee law prompted a lot of protests from the business community. Most businesses tend to dislike laws that single groups of people out in a negative way, because most of those being singled out are potential customers, employees, or suppliers. It's bad for business. In Tennessee, some of the biggest companies in the state urged lawmakers to reject the so-called bathroom bill. One lawyer who works closely on legislative issues told me that businesses viewed the bill as a "controversial solution to a non-problem." Opponents of the bill included Williams-Sonoma Inc., Hilton Worldwide Holdings Inc., and T-Mobile US Inc. But there were many more. The Chattanooga Area Chamber of Commerce opposed the bill because it said it would make it more difficult to attract and retain business and tourism. Eventually, Rep. Susan Lynn (R), the sponsor, withdrew the bill -- some say in the face of business opposition. The Fourth Circuit Court of Appeals held that a similar local law in Virginia was discriminatory.

What does all of this have to do with taxes? Supporters of the bill didn't take kindly to the business community's opposition. House Majority Leader Gerald McCormick (R) was so incensed that he wants to limit tax incentives to companies that spoke out against the transgender bathroom bill. As if there weren't already a thousand things wrong with tax incentives, McCormick would apparently make acquiescence to a discriminatory (according to the fairly conservative Fourth Circuit) law a prerequisite to receiving tax breaks. At least McCormick isn't pretending that tax incentives are designed to create jobs or spur economic development.

This intersection of social politics and tax policy is very dangerous. Political litmus tests -- liberal or conservative -- are very dangerous. Yet the tax incentive system is all politics. Virtually all states have politically appointed boards or commissions charged with deciding who gets -- or doesn't get -- tax breaks. That places an inordinate amount of power in the hands of a few. Usually politicians aren't as overt as McCormick in their desire to punish those who disagree, but this issue arises all the time. Film tax credits, which are often doled out or approved by politically appointed boards, base decision on content. Liberal jurisdictions are unlikely to give tax breaks to gun shops, while conservative jurisdictions are just as unlikely to give tax dollars to an abortion clinic. Those decisions, of course, reflect the politics in those states.

There is something wrong with a system that allows politicians, liberal or conservative, to make tax decisions based on their political views. McCormick said, "All these companies who tried to blackmail us for this thing, when they come for their corporate welfare checks next year, we need to have a list out and keep an eye on them." Unfortunately, the tax incentive system allows politicians to do just that.

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