CTJ Tax Justice Digest: November 3, 2006

Tuesday's Vote to Decide the Fate of Bush's Tax Cuts for Wealthy

Alarmed by slumping poll numbers, President Bush and Vice-President Cheney have continued their efforts to convince the public that Democrats will sink the economy if they take a majority in either chamber of Congress on Tuesday. Cheney recently targeted Ways and Means Committee ranking member Charlie Rangel (D-NY), who will become the chairman of the tax-writing committee if Democrats take a majority in the House, and who has indicated that he might allow tax breaks for the wealthiest families to expire at the end of 2010.

While it's not clear which Bush tax cuts will be allowed to expire under Democratic leadership, tax breaks for large estates, capital gains and dividends would probably be among them. The popular "marriage penalty" relief and the increased child credits would probably be extended or made permanent. Democratic leaders have also pledged to revive the pay-as-you-go (PAYGO) rules that were the only procedural reform that helped eliminate budget deficits in the past, end certain tax breaks for large oil companies, and make college tuition permanently deductible. Remember to find your Representative's and Senators' scores in CTJ's Congressional Tax Report Card.

Several States to Decide Tax Issues Tuesday
The stakes will be high for state tax policy as well next Tuesday, with tax-related issues on the ballot in more than a dozen states this year. WIth a couple of notable exceptions (a property tax amendment in Alabama and, to some extent, an oil-tax initiative in California), these ballot initiatives would make state taxes less fair or less adequate (or both).

Taxpayer Bill of Rights (TABOR)

Maine - Question 1
Nebraska - Initiative 423
Oregon - Measure 48

Voters in three states will evaluate tax- and spending-cap proposals modeled after Colorado's so-called "Taxpayers Bill of Rights" (TABOR), which was partially repudiated by Colorado voters last fall. Find out more about what makes TABOR a ticking time bomb here. (Montana's TABOR ballot initiative was thrown out by the state's Supreme Court last week, as was Nevada's last month.)

Property Tax Caps

Arizona - Proposition 101 - tightening existing caps on growth in local property tax levies.
Georgia - Referendum D - exempting seniors at all income levels from the statewide property tax (a small part of overall Georgia property taxes. (The Georgia Budget and Policy Institute evaluates this idea here.)
South Carolina - Amendment Question 4 - capping growth of properties' assessed value for tax purposes. The State newspaper explains why the cap would be counterproductive.
South Dakota - Amendment D - capping the allowable growth in taxable value for homes, taking a page from California's Proposition 13 playbook. (The Aberdeen American News explains why this is bad policy here - and asks tough questions about whether lawmakers have shirked their duties by shunting this complicated decision off to voters.)
Tennessee - Amendment 2 - allowing (but not requiring) local governments to enact senior-citizens property tax freezes. In an almost-comical gaffe, both the printed and electronic ballots distributed to Tennessee voters accidentally omitted part of the initiative explaining that the benefits of the tax freezes could be limited to low-income seniors.

Each of these proposals are designed to provide property tax breaks for certain families, but take radically different approaches to doing so. Arizona's limit would restrict property tax growth for all taxpayers in a given district; South Dakota's proposal would narrow the scope of these breaks in a hard-to-defend way by allowing tax cuts only for taxpayers whose property is rapidly becoming more valuable; Georgia's would give tax cuts to seniors at all income levels. Tennessee's proposal would give locals a fairly well-crafted new tool for relieving property taxes on fixed-income seniors.

Cigarette Tax Increase

Arizona - Proposition 203 - increase in cigarette tax from $1.18 to $1.98 to fund early education and childrens' health screenings.
California - Proposition 86 - increasing the cigarette tax by $2.60 a pack to pay for health care (from $.87 to $3.47).
Missouri - Amendment 3 - increasing cigarette tax from 17 cents to 97 cents.
South Dakota - Initiated Measure 2 - increasing cigarette tax from 53 cents to $1.53.

In an anti-tax environment in which good-government advocates are sometimes confronted with a choice between regressive revenue sources and no revenue source at all, some progressives are going with the regressive option. Each of these proposals is meant to fund an important public service - but each would rely on a revenue source that is shrinking fast.

State Estate Tax Repeal

Washington - Initiative 920 .

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. The Washington State Budget and Policy Center has information on how the estate tax works and why it's important to keep it.

Revenue for Education

Alabama - Amendment 2 - requiring that every school district in the state provide at least 10 mills of property tax for local schools.
California - Proposition 88 - would impose a regressive "parcel tax" of $50 on each parcel of property in the state to help fund education.
Idaho - Proposition 1 - requiring the legislature to spend an additional $220 million a year on education - and requiring the legislature to come up with an (unidentified) revenue stream to pay for it.
Michigan - Proposal 5 - mandating annual increases in state education spending, tied to inflation - but without specifying a funding source. The Michigan League for Human Services explains why this is a bad idea.

Unfortunately, the initiative in California would raise revenue in a regressive way, while the initiatives in Idaho and Michigan mandate increases in education spending without providing any revenue source. Only Alabama's Amendment 2 takes an approach that is both responsible and progressive. Alabama Arise explains why the proposed shift away from regressive sales taxes toward the property tax would be a good thing.

Income Taxes

Oregon - Measure 41 - creating an alternative method of calculating state income taxes.

Measure 41, which would allow wealthier Oregonians the option of claiming the same personal exemptions allowed under federal tax rules, would bypass a majority of Oregon seniors and would offer little to most low-income Oregonians of all ages.

Other Ballot Measures

California - 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.
California - Proposition 89 - using a corporate income tax hike to provide public funding for elections.
South Dakota - Initiated Measure 7 - repealing the state's video lottery - proceeds of which are used to cut local property taxes.
South Dakota - Initiated Measure 8 - repealing 4 percent tax on cell phone users.

Poor Tax Policies Dog Gubernatorial Races

2006 is also a big year for gubernatorial elections, with contests in 36 states. Tax issues have played a role in many of these campaigns - but the policy discussions have rarely been pretty.

Those Republicans trying to move from Congress to a Governor's Mansion are having a particularly difficult time convincing voters they can manage a state's budget because of their association with the President’s fiscal policies and the staggering national debt. In Wisconsin, Rep. Mark Green is facing an uphill battle to unseat incumbent Governor Jim Doyle. After criticizing Doyle’s tax and spending policies, the governor’s campaign responded that “Green has been a rubberstamp for President Bush and Republicans in Congress who have transformed the largest surplus in history into the largest deficit in history.” Colorado’s Rep. Bob Beauprez is receiving similar criticism as he trails behind his opponent, Bill Ritter, in that state’s gubernatorial race. In Iowa, Secretary of State Chet Culver is leading Rep. Jim Nussle, who is certainly associated with the President’s fiscal recklessness because of his position as Chairman of the House Budget Committee.

Gubernatorial races in other states have demonstrated that you don't need a Congressional pedigree to come up with bad tax ideas. Both major-party candidates in Illinois have refused to support the "tax shift" from property taxes to income taxes that most experts agree is necessary, although a third-party candidate has seen the light. In Florida, neither major-party candidate is willing to pull the plug on the state's poorly-designed property tax cap, although Democratic candidate Bill Davis has at least identified a funding source to pay for property tax cuts: bringing back the state's recently-repealed tax on intangible property such as stocks and bonds. And in Connecticut, incumbent Governor Jodi Rell wants to combat growing antagonism toward property taxes the old-fashioned way: by simply repealing the state's car tax. Challenger John DeStefano disagrees, and wants instead to increase the state's property tax credit for low- and middle-income families. DeStefano also, to his credit, has ideas for how to pay for this expensive tax cut, including a millionaire's tax and a windfall profits tax on electricity generators.

CTJ's Tax Justice Digest, November 3, 2006 - Election Special 2006