CTJ Tax Justice Digest: October 12, 2006

Help Voters Get the Real Story on the Bush Tax Breaks:

Forward and Distribute CTJ's New Fact Sheets

President Bush is trying hard to make the upcoming mid-term Congressional election about taxes (as opposed to, say, Congressional pages). His basic argument seems to be that since some Democrats opposed some of the tax cuts he proposed, all Democrats want to raise taxes on everyone. (For more on this deceptive line of argument, see the latest Talking Taxes blog post.)

The President's argument also depends on the assumption that his tax cuts benefit all Americans, which is entirely untrue. To help voters get the real story, Citizens for Tax Justice has released new state fact sheets that gather together in one place the important state-by-state analyses released by CTJ on special tax breaks for capital gains and dividends, reductions in personal income tax rates, estate tax cuts and an array of corporate tax loopholes and summarize their effects on state residents at different income levels. The fact sheets are a quick and easy way for voters to understand the price Americans are paying for six years of regressive tax and fiscal policy.

Tax breaks for the elderly are a perenially popular move. But as researchers in Iowa and Georgia have documented, they are often implemented in a way that makes the tax system more unfair. Now Wisconsin gubernatorial candidate Mark Green has revealed his own flawed plan for giving tax breaks to the elderly with the faulty reasoning that seniors will be less inclined to move away unless they can avoid paying their fair share.

A Bad Idea in New Mexico is a Bad Idea in South Dakota

This November, South Dakotans will vote on the latest too-good-to-be-true policy solution — Amendment D, a constitutional amendment that would change how property is assessed for tax purposes. In most states a property's taxable value depends on what its really worth. Amendment D would confuse matters by creating two different property tax systems. Property that is sold would be assessed based on its value at the time of the sale. Property that does not change hands would be assessed by rolling back its value to 2003 levels and then increasing growth by an arbitrary 3% or the rate of inflation.

The ideas driving Amendment D are nothing new. In fact, almost identical laws have passed in New Mexico, Florida and California. These laws created a situation where one home located next to an identical home could be assessed at twice the value of the adjacent home, merely because it was sold more recently. As this excellent letter to the editor points out, South Dakota currently has several measures in place to support homeowners when property taxes are due. An expansion of the current homestead credit or a property tax circuit breaker would help those most in need of assistance.

For years, Michigan's business community sought the repeal of the state's major business tax — the Single Business Tax (SBT). Earlier this year the tax was repealed — leaving a $1.8 billion hole in the state's budget and no firm ideas about what type of business tax will be enacted to replace it. Now some fear that businesses won't be inclined to locate in Michigan because of the uncertainty surrounding Michigan's business tax structure. For more on the long term impact of short-sighted tax policy decisions, check out Tax Cuts on Layway: The Short- and Long-term Fiscal Implications of 2006 State Tax Actions from the Center on Budget and Policy Priorities.

Hidden Costs of Inheritance Tax Elimination

Since it was established in 1901, the Nebraska state inheritance tax has been a tried and true revenue source for counties. The tax provided $30 million to Nebraska's ninety-three counties in the past fiscal year alone. Similar to an estate tax, the inheritance tax applies only to inheritances above a specific multi-million dollar threshold. The tax rate depends on the relationship between the decedent and the inheritor: spouses and charities are exempt from the tax, for example, while non-relatives pay a higher rate. Recently, the tax has come under threat from the state senate. Larry Dix, executive director of the Nebraska Association of County Officials, is worried that some lawmakers will again try to repeal the tax in the upcoming session. Any revenue lost by repealing this vulnerable local tax would have to be recouped through higher property, sales, or income taxes. More importantly, inheritance taxes help to offset the regressivity of property and sales taxes.

Another Bake Sale Won't Fix It

Minnesota taxpayers and local governments are feeling the pinch of inadequate school funding. This article notes that at least 68 Minnesota school districts are asking voters this fall to increase local funding to meet unmet education needs. Those living in the Land of 10,000 Lakes aren't the only taxpayers struggling with education funding. The National Access Network offers an invaluable resource to those interested in helping children in their states achieve an accessible, adequate and equitable education. To learn about organizations, resources and the latest in education funding trends in your state, check out their website.

Beer drinkers in Vermont have it easy. When Vermonters buy a bottle of wine, they pay the state's sales tax — but if they buy a six-pack of beer it's exempt. But thanks to new legislation, starting in January the state's sales tax will apply to beer as well — ensuring that all alcoholic beverages are taxed the same way. Vermont is cleaning up its sales tax laws as part of its membership in the Streamlined Sales Tax Project, a coalition of state government officials seeking to close what's arguably the most threatening sales tax loophole in the nation — the inability of states to tax Internet-based sales. An ITEP policy brief explains why this sort of sales tax simplification is a necessary step as the state seeks to tax all retail sales fairly in the 21st century.

The Institute on Taxation and Economic Policy has an opening for a policy analyst. See the online posting for more information.

CTJ's Tax Justice Digest, October 12, 2006