CTJ's Tax Justice Digest, October 27, 2006

Dogged by sagging poll numbers, President Bush and Vice-President Dick Cheney have continued speaking all over the country about tax issues despite surveys showing that Americans are more concerned with the war in Iraq and many other issues. The tax breaks enacted by the President and Congress in 2001 and 2003 expire at the end of 2010 (see CTJ's timeline), and Republican candidates for Congress propose to make them permanent. Even if they have been vague on the details, Democratic candidates have uniformly called for reining in the tax cuts for the wealthiest Americans only, and some have specifically said they would extend marriage penalty relief and the doubling of the child tax credit.

Nevertheless Bush has been telling crowds at campaign stops that if Democrats control Congress, "The marriage penalty will return... The death tax will spring back to life. The child credit will be cut in half, from $1,000 per child to just $500 per child." (The so-called death tax, or estate tax, currently applies only to estates worth over $2 million, or $4 million for married couples, but is scheduled to apply to estates worth only $1 million after 2011 and will still have very little effect on family farms and small business.) Many Congressional candidates appear to be following Bush's rhetorical lead. No word yet on whether the President has read CTJ's report card which flunks many of his allies in Congress.

On 20^th Anniversary of a the Tax Reform, Many Wonder Whether It Can Happen Again

The Tax Reform Act of 1986, spurred partly by the efforts of Citizens for Tax Justice, was hailed as a rare instance in which the common good trumped special interest and bipartisanship triumphed over politics. Loopholes were closed, tax rates were lowered and conservative President Ronald Reagan signed the bill that originated in a Democratic House. In today's politically poisonous atmosphere on the Hill, many believe there is a serious need for that type of bipartisan tax reform — but little chance that it will happen. This week Senator Ron Wyden (D-OR) was joined by former Senator Bill Bradley, who led the 1986 effort, to call for a new round of tax reform. Wyden's proposal would reduce the number of income tax brackets to three, close many loopholes, offer a larger standard deduction and a 10 percent refundable tax credit for state and local taxes paid.

Some veterans of the tax reform battle say conditions in 1986 were perhaps more conducive to reform. Back then both sides could agree to draft a reform that was revenue neutral, whereas today one of our greatest needs is to raise more revenue to close the budget deficit. (The President has claimed that his tax breaks will actually pay for themselves but economists, even those within his own administration, have widely refuted this claim.) Back then, both sides eventually agreed on some basic points of fairness. For example, capital gains were taxed at the same rate as other income. It's hard to imagine our current President agreeing to that since the capital gains tax cut and other regressive breaks have been central to his policies (which partly explains why 99 percent of Americans are actually worse off under the President's tax and fiscal policies).

Athens on the Pacific?

It's not easy for the California legislature to raise taxes. A 2/3 supermajority requirement means that it's often easier for good-government advocates to bypass elected officials entirely and seek direct voter approval of ballot initiatives. This election year is no different. For example, Proposition 88, if approved, would impose a new "parcel tax" of $50 on each parcel of property in the state to help fund education. Many education advocates, including the California Federation of Teachers, see the parcel tax as a regressive, zero-growth revenue source that could ultimately make the state's school funding system less sustainable. The California Budget Project (CBP) has a helpful overview of Prop 88 here.

Proposition 87 would impose a tax on oil production and use all the revenue to reduce the state's reliance on fossil fuels and encourage the use of renewable energy. Interestingly, Prop 87 includes a possibly-unenforceable measure that would prevent oil companies from passing on the cost of this tax to consumers. The California Budget Project tells all here. 

Other ballot proposals would use a corporate income tax hike to provide public funding for elections, and hike the cigarette tax by $2.60 a pack to pay for health care. Each of these ideas has at least some merit — and it's refreshing to see the ballot being used for constructive revenue-raising (rather than TABOR-fueled tax cuts) for once. But most Californians simply won't have time to read and digest policy briefs on each of the 13 ballot measures up for a vote this fall-- which begs the question of whether direct democracy is the right way to make these decisions.

Washington State Sticks Up for Its Estate Tax

In case you forgot that ballot initiatives are usually a tool of anti-taxers, Washington State voters will pass judgment on the state's estate tax on election day. Initiative 920 would repeal the tax in July of 2007. You can't throw a brick in the Evergreen State these days without hitting an eloquent advocate for preserving the estate tax. Editorials favoring preservation of this important revenue source are here and here. Also see the Economic Opportunity Institute's backgrounder on Washington's estate tax.  

Taxes and Sprawl 

In Connecticut, the linkage between property taxes and suburban sprawl is becoming an issue in the state's gubernatorial campaign. The Hartford Courant's editorial board notes that both major-party candidates are expressing concern over this important quality-of-life issue — but that challenger John DeStefano has a better grip on the linkage between state tax policy and sprawl than does incumbent Governor Jodi Rell. In 2003, a blue-ribbon commission chaired by DeStefano emphasized that heavy reliance on local property taxes is partially to blame for Connecticut's sprawl problems. Both candidates have proposed cutting property taxes (Rell wants to eliminate the state's car tax; DeStefano wants to double a $500 tax credit for property taxes for all but the wealthiest Connecticuters). DeStefano wants to enact a "millionaire's tax" to help pay for the expanded property tax breaks. 

Merry Property Tax Holiday for Wyoming Taxpayers?  

With Halloween and Thanksgiving just around the corner, it's no surprise that state lawmakers are in the holiday spirit. But Wyoming policymakers may have taken the holiday mood one step too far with a property tax holiday proposal.  Governor Freudenthal is proposing a one year property tax holiday that would reduce property tax rates by 12 mils. Apparently the state doesn't need to generate property tax revenue next year because surpluses are expected.  This proposal leaves low- and middle-income taxpayers with little to celebrate because the tax cuts aren't targeted to those with the least ability to pay. A better policy alternative would be to expand the state's current property tax relief programs.

New Jersey's Income Tax: "If It Ain't Broke..."

In New Jersey, a legislative special session on property tax reform now feels a lot less special as it enters its third month. The folks at New Jersey Policy Perspective offer a compelling argument that the state's personal income tax could be reformed in a way that would help reduce property taxes. For a previous NJPP report showing how sales tax reform could be part of the solution, click here.

Green Party Gubernatorial Candidate Improves His Chances by Speaking Rationally About Taxes

Rich Whitney, the Green party candidate for Illinois governor, has captured a lot of ground in the past few weeks.  A recent poll puts Whitney at 14%, almost unheard-of for a third-party candidate.  Whitney attributes much of his appeal to his innovative ideas on school funding: he favors increasing the income tax rate on higher-income individuals to pay not only for education, but also to reduce property taxes.  Swapping regressive property taxes for progressive income taxes will make the Illinois tax system more predictable, adequate, and fair.  This innovative school funding plan stands in sharp contrast to Whitney's Democratic and Republican opponents, both of whom have foresworn income tax hikes.  Rich Whitney's strong showing suggests that ideas may matter more to voters than party affiliation.

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