CTJ's Tax Justice Digest, August 4, 2006Welcome to CTJ's Tax Justice Digest, our regular survey of new and interesting trends in state and federal tax policy. Click here to browse through archived editions of the Digest. |
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Victory for
Fair Estate Tax Supporters:
Senate GOP Leaders Fail To Pass "Trifecta" Bill Combining Estate
Tax Cut, Minimum Wage Change and Corporate Breaks
Late Thursday night, August 3, Senate Majority Leader Bill Frist (R-TN) failed to obtain the 60 votes needed to overcome a filibuster and pass legislation including a massive tax cut for those who inherit multimillion dollar estates. The so-called "trifecta" bill combined the estate tax cut with a package of tax break extensions and a controversial change in the minimum wage.
The estate tax cut was presented as a "compromise" after conservatives failed to obtain the 60 votes needed in the Senate to fully repeal the estate tax on June 8. At a cost of around $62 billion or more per year when fully implemented, the "compromise" estate tax cut actually would have cost at least 75 percent as much as full repeal.
The minimum wage provisions of the bill would have gradually increased the wage floor from its current $5.15 to $7.25. However, the bill would have actually cut wages for tipped workers in seven states, as explained by the Economic Policy Institute.
The package of tax break extensions are largely aimed at business and may be passed as a separate bill. Some of these tax breaks have questionable value but nevertheless have bipartisan support. The largest is the research and development tax credit followed by the deduction for state sales taxes.
The vote, which took place late Thursday night, was 56-42. When it became clear that the bill would not pass, Senator Frist voted against to preserve the right to bring the bill to the floor again in the future.
Senate Passes Pension Bill That Includes More Tax Breaks for Wealthy Families Disguised As Savings Incentives
On August 3, the Senate passed a pension reform bill that makes permanent provisions of the 2001 tax break legislation that raised the contribution limits for Individual Retirement Accounts (IRAs) and 401(k) plans. As reported here before, almost no one was making the maximum allowable contributions to these savings vehicles even before the limits were increased. A small number of mostly upper-income families will enjoy a tax break that will likely have no effect on their savings. Since these families are able to save even without help, the most likely effect of IRAs is that money that would have been saved anyway is moved into these accounts to receive the tax advantages. It is therefore very unlikely that IRAs can possibly serve as "savings incentives" as their proponents claim.
One positive aspect of the pension bill is its language making permanent the Saver's Credit. Introduced in the tax break legislation enacted in 2001, it credits up to 50 percent of contributions of up to $2,000 per spouse made to an IRA or 401(k) plan for low-income families. The Saver's Credit does not help families too poor to have tax liability and it was claimed on less than 4 percent of tax returns filed in 2004. But it does certainly correct the regressive nature of savings incentives for those households who can take advantage of it.
The pension bill was passed last week by the House and will now be signed into law by President Bush.
Super-Rich Tax Cheaters Exposed by Senator Levin
The super-rich are jet-setters in more than one sense; some of them frequently send vast sums of money to offshore tax havens with strict secrecy laws, enabling these fat cats to buy real estate, paintings, antique furniture and bejeweled watches, without paying tax on the money used to purchase such luxuries. These types of scams, which hurt every honest U.S. taxpayer, were exposed this week in a voluminous report put together by Senator Carl Levin (D-Mich.). The scams often are perpetrated through the use of offshore trust accounts or shell corporations, and complex financial products such as collars or derivatives. Apart from the sheer greed involved, one of the most troubling aspects of the report is the extent to which the cheating was enabled by purportedly reputable legal and accounting professionals. The report was the subject of a hearing this week by the Senate Permanent Subcommittee on Investigations (Levin is the senior Democrat, and Senator Norm Coleman (R-Minn.) is the chair, of the subcommittee). Among the recommendations made by Levin and Coleman:
ITEP Speaks Out On Sales Tax Holidays
Sales tax holidays are growing in popularity this year with four more states, Alabama, Maryland, Tennessee and Virginia, joining nine others and the District of Columbia in waiving sales and use taxes for a limited time during July and August. To see a list of participating states and tax holiday dates, click here.
As ITEP staff told USA Today earlier this week, "This tax break makes sense for lawmakers because it's cheap and avoids real reform." State legislatures claim that tax holidays alleviate the tax burden on working families and jump-start local retail businesses. In reality, however, sales tax holidays are a political gimmick that probably helps consumers less than proponents claim.
New Jersey: Too Many Towns
Make Tax Reform Difficult
Property tax reform is never an easy task, but according to recent reports policymakers
in New Jersey face an unusual hurdle: the sheer number of
local governments in the state. According to this USA Today article,
the state includes 1,412 government entities. While these governments ensure
local autonomy, they also make property tax reform more difficult (and costly)
to achieve.
Will Corporations Avoid Paying Their Fair Share in Michigan?
A ballot initiative is under way in Michigan to repeal the state’s Single Business Tax (SBT) two years ahead of schedule. The SBT is the only tax on businesses in the state, and generates almost $2 billion in revenue, which amounts to over 20% of the money for the state’s general fund. If voters approve this ballot initiative, it could be mean that businesses in Michigan aren’t taxed at all. The loss of this much revenue would have dire consequences for state spending. Michigan’s Governor Granholm sensibly opposed the petition drive because it doesn’t offer a replacement source for the $2 billion in revenue that would be lost. Repealing the SBT without first coming up with a replacement would be a disaster for Michigan.
Tennessee Gubernatorial Candidate Gets It Half Right on Food Tax
While the governor of Tennessee, Bill Bredeson, stumps to promote the state's ongoing sales tax holiday as a means of reducing the state’s taxes, his Republican gubernatorial opponent, Jim Bryson, is discussing more permanent changes in tax policy. Bryson correctly asserts that abolishing the regressive food tax would bring more lasting relief, but he offers no replacement revenue source. As Tennessee is already a low-tax state, a new source of revenue must take the place of the regressive food tax if it is abolished. To read more on the food tax and options for revenue replacement, click here.
Tax Cut Promises on the Campaign Trail
Philadelphia mayoral candidate Michael Nutter has a plan to make his city more competitive: sweeping tax cuts. The former city councilman has made the repeal of the Business Privilege Tax (BPT) the centerpiece of his campaign. There is just one problem — eliminating the BPT will leave a $109 million hole in the municipal budget and could potentially make the city more unattractive to businesses. Not surprisingly, Nutter has failed to explain how his tax cut will impact city services. Ben Waxman, ITEP’s summer intern and Philadelphia-native, takes on Nutter’s proposal in an op-ed published in the Philadelphia Citypaper.
Going Nevadan
California's wealthiest residents appear to be going "Nevadan". Going Nevadan refers to rich Californians moving to neighboring state Nevada in order to evade paying state level personal income taxes. California is now pursuing people who go Nevadan, claiming that sometimes the move amounts to nothing more than a legal fiction.
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