CTJ's Tax Justice Digest, July 14, 2006

Bush Celebrates Soaring Deficits as Wealthy Americans and Corporations Escape Fair Share of Taxes

Having slashed personal income taxes, primarily on the wealthy, over the past six years, the Bush administration would like the public to believe that tax revenues are nonetheless doing just fine, and that the budget deficit is not really a problem. Nothing could be further from the truth, as a close look at the administration’s own new estimates in its July 11 “Mid-session Review” reveals. CTJ's recent analysis shows that, contrary to the rosy scenario described by administration officials, corporate income taxes are not keeping pace with skyrocketing profits, and that personal income taxes remain far below their pre-Bush levels. Meanwhile, the nation's huge budget deficits continue unabated.

Meanwhile, the Center on Budget and Policy Priorities points out that officials within the Bush Administration have already refuted the President's claim that tax breaks actually increase revenues.

CTJ's Message on Bush Tax and Spending Policies Making Its Way Across the Country

The editorial board of the Des Moines Register cited CTJ's fact sheets in denouncing the effects of President's Bush's tax and spending policies over the past six years on Iowa. The CTJ state-specific figures, which are accompanies by national data, show that across the nation and in every state, 99 percent of Americans actually lose out under Bush's fiscal policies because the added debt burden to be paid off outweighs the benefit of the tax breaks. The exception is the wealthiest one percent. Their tax breaks are so huge that they outweigh the added debt burden from the President's borrowing. The Iowa Policy Project has more details here. For see how this mountain of debt affects residents of your state, click here.

Senate GOP Leaders Still Cannot Find the Votes to Gut the Estate Tax

Proponents of making massive inheritances tax-free are still hoping the Senate will vote before the August recess on the bill the House passed last month to gut the estate tax. A bill to fully repeal the estate tax failed by three votes in the Senate on June 8, and it is not clear that the House-passed "compromise" bill would be any more popular. Part of the reason is that the so-called compromise is estimated by the Joint Committee on Taxation to cost three fourths as much as full repeal over the long-term. It is even possible that some conservatives will refuse to support the bill because instead of repealing the tax altogether it ties it to the capital gains rate, which is currently 15 percent.

The House-passed bill would exempt estates valued at $5 million for each spouse (the current exemption is $2 million for each spouse). The value of an estate above the exemption and under $25 million would be taxed at the capital gains rate. Any value above that amount would be taxed at twice the capital gains rate.

State Legislators Take Credit for Property Tax Cap, Make Local Governments Pay

From Indiana, here's yet more evidence that there's no "free lunch." Earlier this year, state lawmakers enacted a property tax cap law which limits the tax on a residential property to 2% of its assessed value. The cap, oddly called a "circuit breaker" although it has virtually nothing in common with the property tax circuit breakers used in most other states, will also apply to business properties starting in 2010. For Indiana local governments, this means a fiscal "perfect storm," with tax caps biting at the same time that the state has cut aid to local governments in order to balance its budget.

No big deal, say Republican House leaders. Ways and Means Chairman Jeff Espich asserts that this one-two punch to locals is "not a real problem." But bond rating agencies are dissenting from Espich's rosy view of things--and their move to downgrade Indiana local governments' bond ratings is already hitting Hoosiers in their pocket books. The Indianapolis Star has more here.

More Gimmicks in Education Funding

As ITEP has pointed out in the past, sales tax holidays, whether they cover school supplies or other necessities, are a costly and ineffective political gimmick. Apparently no one is listening in Georgia, which is adding a new innovation to its upcoming sales tax holiday. In January, Governor Sonny Perdue proposed giving $100 gift cards to Georgia teachers to use for classroom school supplies during the state's sales tax holiday weekend. His proposal is now a reality. By July 18 108,000 classroom gift cards worth $100 each will have been distributed to Georgia teachers for use during the state's sales tax holiday weekend. The gift cards are certainly a kind gesture, but perhaps adequately funding Georgia's school system is an even better goal that the policymakers should work to achieve. For more on this, check out the Talking Taxes blog here.

Warning: Good Times Won't Last Forever

Last week, North Carolina policymakers agreed to a budget that allocates $950 million more to education than in previous years. The state is commendably putting its large surplus towards improvements in the schools. While this is cause for celebration, it is also worrying that the surplus is being used to finance on-going expenses. Will these programs shoulder losses again in future years when revenues are not so high?

The state budget also begins to phase out two temporary tax hikes. The state sales tax was reduced by a quarter-penny and the individual income tax rate for the highest wage earners was reduced. State lawmakers are using these provisions to begin to fulfill their promise to repeal the tax increases that were first approved in 2001.

Court Ruling Makes Illegal Drugs Tax-Free

A Tennessee court has ruled that taxing illegal drugs is unconstitutional. Previously, people who sold illegal drugs were required to purchase tax stamps to attach to packages containing the drugs. Not suprisingly, very few people bought the stamps but the law could be used, before this ruling, to collect taxes from convicted drug dealers. The new ruling is based on the reasoning behind the lack of compliance -- purchasing the stamps amounts to admitting that you possess illegal drugs and is therefore self-incrimination. This tax is another example of the lengths Tennessee lawmakers will go to avoid addressing the real problem with their tax system: the lack of a personal income tax.

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