CTJ's Tax Justice Digest, September 21, 2006

Will Two Utah Income Taxes Be Twice as Good as One?

Thanks to a special one-day legislative session earlier this week, Utah has two income taxes. Starting next year, wealthier Utahns will be able to choose between the current graduated-rate tax system (with a top rate of 6.98 percent) and a new broader-based tax levied at a lower flat rate of 5.35 percent. ITEP estimates that only 3 percent of the wealthiest Utahns will benefit from the flat-tax alternative, and that the wealthiest 1 percent of Utahns will see more than 75% of the benefit from the flat tax.

Taken on its own, the flat-tax alternative has its good points: it has virtually no exemptions, deductions or credits, which makes it a lot easier to calculate than the current tax. But the high rate on the flat tax makes it a losing proposition for virtually all low- and middle-income Utahns, which is why the legislation allows Utah families to choose which tax system they'd like to use. The legislative leadership's goal of enacting tax reform with "no losers" made the pick-your-own system the logical choice from a political perspective. The result? 97% of Utahns will pay taxes under the same old complicated income tax rules they've always had - and many of them will probably end up calculating their taxes under both systems to see if they'd benefit from the flat tax. Call it a tax cut - but don't call it tax reform.  

Want to know more? Two columnists offer good retrospectives on this year's tax deform effort. For more details on Utah's income tax changes, check out the Talking Taxes weblog here.

Fair Tax Victory in Nevada

There's some good news for state and national advocates fighting against harmful spending limits like the Taxpayer Bill of Rights (TABOR). Recently, a Nevada court ruled that the TABOR-like, Tax and Spending Control (TASC) initiative wouldn't be on the November ballot. The court rejected the initiative because TASC supporters failed to follow specific rules pertaining to the initiative process. Want to know more about the harmful impact of TABOR? Watch this excellent video from the Center on Budget and Policy Priorities.

Taxing Talk from Mark Warner

Former Virginia Governor and presidential hopeful Mark Warner says presidential candidates should not "alienate the rich" by complaining that, well, all the benefits of Bush's tax breaks go to the rich. As CTJ recently pointed out, it is, in fact, only the richest one percent of Americans that will benefit from President Bush's tax and fiscal policy once you consider the debt burden that every American will have to pay off eventually.

CTJ's blog, Talking Taxes details how the evidence does not seem to support Warner's ideas. For example, large majorities of Americans responding to the Gallup Poll say that wealthier families are paying too little in taxes.

Costly Proposals in Georgia Gubernatorial Election

With Georgia's economy on the upswing and revenues coming in higher than expected, gubernatorial candidates are attempting to spend the "surplus" in ways that won't do much for the majority of Georgians. If reelected Governor Sonny Perdue says that he'll eliminate the tax on all retirement income. His opponent Lt. Governor Mark Taylor has pledged to eliminate the state property tax. Georgians interested in investing in education and health care will likely be unimpressed with these expensive and poorly targeted tax cut proposals.

IRS Warns Churches and Nonprofits Against Supporting Candidates

Americans United for Separation of Church and State is sending letters to 117,000 churches to warn them that they could lose their tax-exempt status if they use their resources to support particular candidates. The group says that the conservative Christian organization Focus on the Family has asked for volunteers from churches in key battleground states to implement voter drives and to distribute voter guides.

But it's not just conservative groups that are at risk if they engage in politics. After spending almost two years investigating whether the NAACP should lose its tax-exempt status as a consequence of criticizing President Bush, the IRS dropped the case just last month. This investigation was particularly troubling because documents obtained by the NAACP under the Freedom of Information Act imply that the IRS began its investigation at the behest of Republicans in Congress. It was recently revealed that the IRS revoked the tax-exempt status of the Democratic Leadership Council. For more information, see the recent post on Talking Taxes about the IRS's controversial enforcement measures for tax-exempt organizations.

Tobacco Taxes are Back on the Ballot

A voter initiative in Missouri to increase the cigarette tax by 80 cents is back on the November ballot. At first, the ballot was declared invalid after many of the signatures were disqualified. However, the Cole County Circuit Court has overturned that decision, and the voters will now decide the issue this fall. The initiative is joined at the polls this fall by similar measures in Arizona and California. Many of the proponents of these measures argue that they reduce smoking. However, cigarette taxes are very regressive, forcing low-income smokers to pay a much higher percentage of their income in cigarette taxes than high-income smokers. A 2005 policy brief by ITEP showed that cigarette taxes are ten times more burdensome for low-income smokers than for the wealthy.

Further, both Arizona and California plan to use the revenue generated by this bill to pay for public services unrelated to smoking. As Bruce Fuller, a professor of education and public policy at the University of California at Berkeley, points out: "Most will agree this is a regressive tax[...] We all like to beat up on smokers, but if the program truly benefits all families, including upper class, then you're taxing blue-collar people to pay for everyone." Reducing smoking rates is a laudable goal, but lawmakers must find a way to do so that is fair and equitable.

Can the Tax Code Save the Environment?

A lot of policymakers and analysts seem to think so. Senators Ron Wyden and Robert Bennet are proposing a bill that would provide environmentally friendly vehicles with a tax credit or "cash back" option. The Congressional Budget Office is reporting that carbon taxes levied on businesses are a more efficient way for cutting green house emissions than the cap-and-trade approach. And former Vice President Al Gore has suggested that pollution taxes should replace payroll taxes, stating that "[p]enalizing pollution instead of penalizing employment will work to reduce pollution". 

Gas Tax "Buffer Zone" in Kansas?

The Kansas legislature's Joint Tax Committee is considering a proposal to create a series of gas tax "buffer zones" around the state's perimeter. Of the four states that share a border with Kansas, only Nebraska currently has a lower gas tax, allegedly prompting some motorists to cross state lines to fill up. The proposed buffer zones would allow any gas station in a "border town" to lower their gas tax to within one cent of that of the neighboring state. These areas are being promoted as a way to capture gas tax revenue that is currently lost to cross-border trade. However, it is likely that these zones will not eliminate the border problem, but instead simply move the lower gas border further inside Kansas.  If these buffer zones become reality, instead of crossing the border to get cheaper gas, Kansans will be able to simply drive into a border town.  

Tax Subsidies for Organic Farming in Iowa

Consumer demand for organically-grown agricultural products is growing-much faster than US farmers' ability to produce pesticide-free greenstuffs. To help farmers make the costly transition to organic practices, two Iowa counties are now offering property tax breaks for organic farmers. Farmers who transition their farmland to organic practices can receive up to a 100% rebate against county property taxes for up to five years.

Voting Jackpot 

Arizona citizens have found an innovative idea to bring voters to the polls this fall: a chance to win one million dollars. Voters this fall will vote on Proposition 200, which would award the money to one lucky voter selected in a post-election raffle. Some are promoting the measure as a way to make the election more democratic through increased voter turnout, while others criticize the mixing of politics and gambling. Critics ask, do we really need to make "the words ‘voter' and ‘contestant' synonymous"?

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