CTJ's Advice for the New Congress

In a commentary published in Tax Notes, Citizens for Tax Justice offers its advice to the new Democratic-led Congress on the many tax and fiscal issues facing the nation. A fundamental problem today is that voters have made it clear that they're ready for change in many policy areas by putting a new party in charge of Congress, yet the President who signed major deficit-financed tax cuts into law still sits in the White House. President Bush has said he will veto any proposal to repeal his tax policies. During the first year of this Congress, CTJ suggests focusing on two areas where some bipartisan agreement is possible: cracking down on offshore tax evasion and reforming the Alternative Minimum Tax in a budget-neutral, progressive way.

 

Tax Breaks to "Compensate" Small Businesses for Minimum Wage Increase

While the House of Representatives was passing a bill that increased the minimum wage on Wednesday, Democrats in the Senate were preparing a similar measure with the addition of tax breaks for small business. It is believed among many in Congress that without such tax breaks, the minimum wage hike (which is supported by at least 80 percent of the public) will fail to get the 60 votes needed to pass the Senate. The problem, according to Jared Bernstein at the Economic Policy Institute, is that there is no policy rationale for pairing tax breaks with the minimum wage hike. Since studies show that it will add little to the costs of most businesses and many are operating in states that already have a higher minimum wage anyway, it's hard to see how the tax breaks could be targeted to those businesses affected by the minimum wage or what they would even need to be compensated for.

Senate Finance Chairman Max Baucus (D-MT) wants to pass $8 to $10 billion worth of tax breaks for small business, either as part of the minimum wage bill or separately, including breaks related to depreciation for new construction, deductions for depreciable assets, allowing more small businesses to use cash accounting, and incentives for hiring welfare recipients and other at-risk workers.  

 

The National Taxpayer Advocate Releases Annual Report to Congress

The Alternative Minimum Tax (AMT) and the tax gap are the most serious problems facing taxpayers today, according to the IRS' independent National Taxpayer Advocate Nina E. Olson. In her annual report to Congress, Olson describes the inequities created by both, including the extra $2,200 in taxes that every compliant taxpayer must pay, on average, to subsidize those who are noncompliant due to the tax gap.  Olson also recommends the IRS end its practice of hiring private bill collectors, who are not required to make their collection policies and procedures public.

 

Governor Corzine Highlights Property Tax Reform in New Jersey

In his state of the state address, New Jersey Governor Corzine outlined a proposed property tax reform package and emphasized property tax breaks that are fairly progressive in terms of who benefits.  The proposed package would reduce property taxes by 20% for those with incomes less than $100,000.  Those with incomes of $100,000 to $150,000 would see 15% reductions, and those with incomes of $150,000 to $250,000 would see a reduction of 10%.  In addition to the tax cuts, the proposal would also cap the amount property taxes can be increased per year at 4%. 

 

Number of Federally Taxable Estates Falls By Nearly 40 Percent

Citizens for Tax Justice has released new reports on the number of people in each state affected by the federal estate tax and the share paid by particular income groups. The figures may be interesting in light of continuing efforts in some states, particularly in Nebraska, to repeal state estate taxes. The CTJ estimates, which are based on newly released 2005 data from the IRS, show that estate taxes are hardly a crushing burden. Only 0.8 percent of Americans who died had to pay any federal estate taxes in 2005, since any estate worth less than $1.5 million was exempt. Only 12.4 percent of the taxable value of estates went to federal estate taxes, and only 4.2 percent went to state taxes, and over half of these taxes were paid by estates worth over $10 million.  

 

Arizona's Cigarette Tax: What's a Decimal Point or Two Between Friends?

Tax legislation is often messy and complicated. This presents a challenge for those seeking to change state tax systems through ballot initiatives or referenda: how can these complex tax issues be boiled down to a simple and accurate description that voters will be able to read and understand while in the voting booth? Arizona's latest ballot-initiative snafu illustrates this difficulty. Health-care advocates successfully gathered signatures last summer for an 80-cents-per-pack cigarette tax hike — but what appeared on Arizona voters' November ballots was a 0.8 cent tax, which was approved by a 53% majority. This would provide one-one-hundredth of the revenue these advocates sought. The state's Attorney General has ruled, oddly, that the 80-cent tax can be collected anyway, but RJ Reynolds is considering filing a suit to prevent the implementation of this tax hike. Read more about it on the Talking Taxes weblog.

 

What Ever Happened to The Guy Who Told Republicans Tax Cuts Would Pay for Themselves?  

In an attempt to get his campaign for Governor off to an early start, Georgia House Speaker Glenn Richardson has hired Arthur B. Laffer, the "father of supply-side economics," to study Georgia's tax structure. Laffer was an economic policy advisor to President Ronald Reagan. He was hired by Richardson to study various tax proposals, including one that would eliminate all property taxes, introduce a flat state income tax, and increases the sales tax rate to 5 percent. Today even President Bush's economists have discredited Laffer's idea, but apparently no one has told Speaker Richardson that.

 

Missouri Tax Cuts: Not so Fast!

This week Missouri's Speaker of the House, Rod Jetton, proposed eliminating the state income tax on Social Security benefits. The Speaker's tax cut would cost just over $100 million each year. Many advocates and Legislators are concerned because the state income tax currently only applies to the Social Security benefits of the wealthiest Missourians. This tax cut proves the rule "if it sounds too good to be true, it probably is."

 

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