View source for Resolution Supporting Congressional Action to Affirm State Authority over Tax Incentives and Economic Development Exposed

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==ALEC Resolution Text==

Background

The value of state tax incentives has always been a matter of vigorous debate. Do
state tax incentives encourage job creation and investment that otherwise would
not occur or are they merely a form of corporate welfare? Historically, this debate
has taken place among elected legislators in state capitols; however, a recent
Federal Appeals Court decision paves the way for state tax policy to be decided,
not in state Legislatures, but in the Federal court system.

In September 2004, a three judge panel for the 6th U.S. Circuit Court of Appeals
struck down Ohio’s program that provides manufacturers tax credits for new
machinery and equipment used in Ohio. Under the auspices of the “Dormant
Commerce Clause Doctrine” the Federal Court declared that the Investment Tax
Credit (ITC) program violated the Constitution by penalizing companies that may
want to develop business outside Ohio. This Court’s decision, while limited to the
four states in the 6th Circuit (KY, MI, OH, and TN), has far-reaching implications and
paves the way for other Federal courts to dictate state tax policy and thus remove
the decision from the hands of elected state lawmakers.

In response to the 6th Circuit’s opinion Federal legislation was introduced in the
109th Congress that seeks to ensure that state Legislatures retain the authority to
decide whether to offer economic development incentives. From a federal
perspective, the question is not whether economic development incentives work. Rather, the question is whether state Legislatures or Federal courts should decide
state tax policy.


Model Legislation

WHEREAS, the American Legislative Exchange Council’s (ALEC) mission is to
promote the principles of federalism and support policies that give states flexibility
to shape public policy, and;

WHEREAS, ALEC has a longstanding policy that the federal government should not
unduly interfere with the ability of states to structure competitive tax systems,
and;

WHEREAS, ALEC has long promoted broad-based, low rate state tax systems as a
matter of tax policy, and;

WHEREAS, states nevertheless use a variety of tools to encourage and promote
economic development and job creation within their borders for the betterment of
their citizens, and;

WHEREAS, non-discriminatory tax incentives available to any in-state investor are
an important tool for competition and economic development and should be
debated as a matter of policy, not constitutional law, and;

WHEREAS, the Cuno v. Daimler-Chrysler case is an example of the federal
government, through its court system, improperly preempting state authority and
inappropriately restricting and usurping the taxing powers of state government,
and;

WHEREAS, similar lawsuits have been filed in other States, and;

WHEREAS, federal legislation has been introduced in the 109th Congress to affirm
the authority of states to offer tax incentives for economic development purposes
if they so choose;

NOW THEREFORE BE IT RESOLVED, that the American Legislative Exchange
Council supports congressional efforts to affirm state authority and sovereignty
over such non-discriminatory economic development tools.