CTJ's Tax Justice Digest, August 31, 2006

The Building Blocks for Bad Policy

Across the country, large retailers continue to extract huge subsidies from local governments desperate for jobs and corporate investment. In the suburbs of Kansas City, Merlin Entertainments Group of London is in talks with local governments about the construction of a proposed Legoland amusement park. The group has asked the state of Kansas to raise over 50% of the $740 million needed for the project using public funds from bond issues, which the state and local governments will be paying back in future years. These sorts of business incentives are becoming increasingly popular in many states, as lawmakers look for quick fixes to long-term economic troubles. (For more on this check out the Talking Taxes Blog.)

The "need" for business incentives is also a hot issue in Michigan, where many are worried about attracting business to the state. However, even extremely conservative voices, such as the Mackinac Center for Public Policy, have testified in legislative hearings that poorly-targeted tax breaks for individual business projects are not what Michigan’s economy needs. Mackinac Center for Public Policy Senior Economist David L. Littmann submitted a letter to the legislature, saying: "State subsidized grants, tax abatements or other economic incentives targeted at single entities (firms, industries or individuals), but paid for via general taxation, are ethically and economically perverse."

It remains to be seen whether there could be a broader debate on the federal level about the usefulness of tax incentives to encourage economic development. Congress and President Bush resorted almost entirely to tax incentives to rebuild the Gulf Coast in the wake of Hurricane Katrina. Now, a year after Katrina, a new report from the Brookings Institution argues that evidence on the effectiveness of tax incentives is either inconclusive or negative, and that they can only work in combination with government grants and greater coordination among different levels of government and other interested parties.

Hurricane Katrina and The Local Tax Base

One year after Hurricane Katrina devastated the Gulf Coast, people across the region are still coming to terms with the impact that the storm had on residents, services, infrastructure, and even local tax bases. Some localities have experienced an immense growth in their sales tax revenues during the past year because residents of New Orleans and other Katrina-torn towns have relocated to other cities. Local governments are waiting to see how their population changes before deciding if it's necessary to change their local tax rates as a result of the influx of Katrina victims.

Waiting for Lower Gas Prices? Don't Hold Your Breath

As Americans hit the road en masse for Labor Day weekend, many are probably asking whether $3-a-gallon gas will be with us much longer. Detroit automakers are now strongly suggesting that we shouldn't hold our breath waiting for a return to the "good old days" of sub-$2 gas. Meanwhile, despite new evidence that transportation infrastructure in Wisconsin and Pennsylvania is in dire need of an influx of new revenue, lawmakers in those states continue to assert that now is "not the right time" for a gas tax hike. And in Illinois and Indiana, policymakers are seeking to capitalize on the public's distemper by pushing for gas tax cuts - a temporary solution for a permanent problem.

Opposing Campaigns Disagree on More Than Just Prop 87

California's ballot initiative season is underway. This November, Golden State voters will pass judgment on Proposition 87, a tax on California oil production that's designed to raise $4 billion over ten years. Advocates of Prop 87 want to use the money to help fund alternative energy sources. So far, however, proponents and opponents of Prop 87 aren't focusing too much on arguing the merits of the proposed tax, but are instead fighting over who gets to use relevant Internet domain names such as www.NoOn87.org. A while back, forward-thinking proponents of Prop 87 bought this and a variety of similar domain names to prevent them from falling into the hands of Prop 87 opponents. But it appears that this strategy has run afoul of a California law designed to ensure "truth in advertising" in web-based political advocacy.

As America Suffers High Gas Prices, Oil Companies Pretend to Suffer High Taxes

Oil giant ExxonMobil, perhaps in an effort to prevent oil-production taxes like Proposition 87 from becoming a reality, has embarked on a new PR campaign to convince Americans that they already pay plenty of taxes. An ad appearing in the Washington Post earlier this week makes the extraordinary claim that they paid a 275 percent tax rate last year. But CTJ Director Bob McIntyre's latest column for the American Prospect finds that ExxonMobil's math is suspect, to put it politely.

Government Needs to be Paid for - Even on the Last Frontier

Alaskan voters approved an initiative to increase tax revenues by charging a $50 "cruise tax". In the wake of Alaska's recent troubles with oil revenues, it's no surprise that voters decided to bolster public coffers and stabilize long-term revenue with an additional tax source. It appears that voters took a lesson from their recent oil revenue troubles: diversity is good.

Business Turning Against TABOR

Kiplinger reports that business are expected "to mount pitched battles to defeat" TABOR-esque spending tax cap initiatives in Maine, Michigan, Montana, Nebraska, Nevada, and Oregon. In fact, there's a concerted effort forming in Oklahoma that is actually being lead by business groups. The Chairman of Tulsa's Chamber of Commerce was even quoted as saying that TABOR would be a "train wreck" for Oklahoma.

Tax Swap an Election Year Issue in Illinois

Here's some good news for Illinois advocates and taxpayers who want a fair tax system. The Illinois tax swap proposal, which would cut property taxes and replace the revenue through progressive changes to the state's corporate and personal income taxes, appears to be a campaign issue year. This article describes how one Illinois Senate candidate supports the tax swap concept and his opponent claims that her own tax proposal will be unveiled in the coming weeks.

Warning to Michigan: Don't Follow Ohio's Lead

As we've reported in a past issue of the CTJ Digest, Michigan legislators voted to eliminate their state's Single Business Tax. Legislators are now learning how easy it is to cut taxes, but that it's much more difficult to agree on a way to replace a revenue source that equates to 20% of the state's general fund. One option that legislators are talking about is studying Ohio's most recent corporate tax changes. Before following in Ohio's footsteps too quickly, policymakers are cautioned by this editorial to understand first the flaws inherent in Ohio's Corporate Activity Tax.

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