CTJ's Tax Justice Digest, October 20, 2006

Congressional Candidates Spar Over Taxes

While CTJ Report Card Flunks Many Incumbents 

The new voter scorecard from Citizens for Tax Justice grades members of Congress on key tax bills and calculates a score for each incumbent. The good news is that 157 members of the House and Senate earned perfect scores — 100 percent — on the votes they cast over the past six years, thus earning CTJ's “Taxpayers’ Friend” award. The bad news is that 258 members of the House and Senate earned grades of 0 percent, thus earning CTJ's “Enemy of the Taxpayers” designation.

The question on everyone's mind is whether those incumbents with a history of voting for regressive tax policies will face any consequences at the polls in November. Congressional candidates all over the nation are arguing about taxes during debates and campaign stops. A new Talking Taxes blog post describes how Senate candidates are frequently accusing each other of supporting higher taxes.

Democrats generally have called for rolling back the Bush tax breaks for the wealthiest families while Republican candidates generally cling to the disproven argument that the economy will collapse if wealthy people are taxed fairly. In a typical display, the candidates for Minnesota's Senate seat argued on national television, the Democrat calling for rolling back tax loopholes and breaks for the wealthiest and the Republican arguing for balancing the budget solely through cuts in services (which would have to be massive). Meanwhile, Republican House candidates are finding their support for a national sales tax to be a liability in Colorado, Georgia and Minnesota.

Speaking of Issues Candidates Should Address...

What do candidates think about efforts to repeal or partially repeal the estate tax? To make sure this question doesn't get lost in the various political controversies swirling around all the races right now, United for a Fair Economy has a web page with information individuals and organizations can use to urge candidates to support a fair estate tax.  

The Federal Budget Deficit — Same Old Same Old  

Recently the Bush Administration was trumpeting "improved" deficit numbers, claiming that the deficit for the just-ended fiscal year was "only" $248 billion, a big improvement over what was claimed as the deficit for last year. To the contrary — the actual deficit for the just-ended fiscal year is about $434 billion, and government estimators expect that deficit to grow each year for the foreseeable future.  

What is going on is that the Bush Administration's claim of a shrinking deficit is based predominantly on money "borrowed" from the Social Security Trust Fund. The Trust Fund is supposed to pay for Social Security benefits for future retirees.  CTJ wrote about this issue in the summer, and although the numbers have changed slightly, the analysis is just as applicable today.

The Bush Administration also attempted to declare the budget deficit has been chopped in half since 2004. As others have pointed out, fiscal 2004 brought the highest deficit of the Bush years, and the figure the President is using for comparison is actually the artificially high predicted deficit, which was more than $100 billion above the actual deficit. The bottom line is that the long-term fiscal outlook is as bleak as ever despite any recent small bump in revenues.

So Much for Simplifying Taxes  

The IRS recently reached its "drop-dead" date with respect to sending tax forms for 2006, such as Forms 1040-EZ, 1040-A, and 1040, to the printer, so the forms can be distributed to taxpayers toward the end of the year.   

However, Congress may yet this year renew significant tax provisions that have expired or will expire, including the sales tax and higher education deductions.  But if Congress does act, it appears unlikely that the official tax forms will reflect the extensions, creating confusion.  In the past when this has happened, IRS has made diligent efforts to inform taxpayers of the changes and provide updated forms, at least on its website, to reflect the Congressional changes.   

Consider this an early warning of possible confusion ahead; CTJ will keep you abreast of the situation. 

Thinking Up New Tax Avoidance Schemes May Become More Profitable Than Ever 

Fair-tax advocates know only too well that Fortune 500 corporations are often shockingly brazen in their tax-avoidance efforts. But as Floyd Norris documents in today's New York Times, some companies are taking it to the next level. Not content to enjoy the fruits of their creative accounting, companies are actually using an obscure 1998 federal appeals court ruling to patent their creative tax strategies-- which means they won't be available to competing companies. As Norris points out, the implications of this strategy are absurd: an enterprising family could patent the Earned Income Tax Credit and charge other working families royalties to claim this important tax break. 

State Estate Tax Repeal on the Ballot in Washington

The wealthiest half of one percent of families living in Washington State currently pay an estate tax that funds smaller classroom size, assistance for low-income students and other education purposes. Bill Gates, Sr. argues that it is sensible to think of this as an "opportunity recycling program." Unfortunately, not every wealthy family agrees, and the repeal of the state estate tax will be on the ballot this fall. The Washington State Budget and Policy Center has a fact sheet and a discussion brief on how the estate tax works and why it's important. 

Looking to Pay for Property Tax Relief without Hurting Schools

As Florida gubernatorial candidates gear up for the final weeks of their campaigns fiscal issues are taking center stage. Because Florida doesn't have an income tax, services are mostly funded through regressive taxes. However, candidate Jim Davis has suggested one progressive alternative — bringing back the state's intangible wealth tax. To read more about this unique funding mechanism read this editorial from the Research Institute on Social and Economic Policy at Florida International University. 

Indiana Legislators Taking Credit for Tax Breaks, Passing the Costs on to Local Government 

Earlier this year, the Indiana legislature tried to score election-year points by passing a popular tax cut while passing off all the costs to local governments. The bill, HEA1-2006, which capped property taxes at two percent of the property's gross assessed value, will apply to all real estate in Indiana by 2010. Currently, Indiana provides no means for local governments to raise or borrow funds to offset the revenue loss from applying the 2% cap. Worried over the coming revenue loss, (which is projected to cost Terre Haute, for example, almost $6 million), the Indiana Association of Cities and Towns has come forward with a proposal to allow local governments to recoup some of the lost revenue with a local sales, income, or other supplemental tax. The proposal, named Hometown Matters, would have to be approved by the state legislature.

While a local income tax could be a good way to boost county coffers, a sales tax would make the tax system more regressive. Still, no matter what alternative local governments choose, the revenue will help local cities and towns avoid axing services for want of funding. That would repair the fiscal harm for now, but ultimately Indiana must consider the long-term impact of unfunded mandates on local governments.

Not so Nonprofit: Americans for Tax Reform

According to a newly released report by the minority staff of the Senate Finance Committee, Grover Norquist's nonprofit group Americans for Tax Reform (ATR) "appear[s] to have perpetrated a fraud" on taxpayers by abusing its non-profit status.  According to detailed evidence within the report, including numerous email exchanges between Norquist and disgraced lobbyist Jack Abramoff, ATR seems to have been used not for the good of the public, but as a vital tool in Abramoff's lobbying practices.

The report outlines ATR's practice of receiving payments in exchange for favorable news articles and introducing lobbying clients to government officials, including President Bush and Karl Rove.  ATR's "use of tax-exempt dollars to further a lobbying agenda through paid advocacy," the report states, "appears indistinguishable from lobbying undertaken by for-profit, taxable firms."  The report also goes on to detail Indian tribe payments garnered by Abramoff to ATR, who then wrote checks for similar amounts to organizations run by Ralph Reed backing anti-gambling initiatives.

Casey Cabalquinto to Leave ITEP 

After three years, ITEP policy analyst Casey Cabalquinto is leaving to join Change to Win. Casey authored some pretty monumental reports while he was here, including the ITEP Guide to Fair State and Local Taxes and Achieving Adequacy: Tax Options for New York. Casey also conducted distributional analyses for advocates in dozens of states. We'll miss him!

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