House Democratic leaders and Ways and Means Chairman Charlie Rangel will soon introduce a plan that will help low- and middle- income people by expanding the Earned Income Tax Credit, the Child Tax Credit and the standard deduction. These provisions would be included in a long-awaited plan to permanently shield many upper-middle class taxpayers from the Alternative Minimum Tax. Democrats in the House say that their plan would offer more people tax breaks than would the usual "patch" that the Republican-led Congress has periodically enacted to restrain the reach of the AMT.

Opportunity for Organizations to Support Progressive Changes in the Tax Code 

Several advocacy groups have begun circulating a national sign-on letter for organizations who support improving the tax code for low-income people. The final deadline to sign on is Friday, May 18, but any organizations signed on earlier can be included in a partial list that will be presented to some members of Congress during lobbying activities by advocates. Click here to sign your organization onto the letter.

For anyone who does not represent an organization but wants to get involved, you can send a quick email that will go to your Representative and Senators in support of tax changes that will help low-income people. Click here to send an email.

Advocacy Community Focuses on Tax Credits 

As the Coalition on Human Needs explained in its appeal to organizations, a working family with an income below $11,750 this year is too poor to get the refundable Child Tax Credit.  (For a family of three, that's 43 percent below the poverty line.)  That leaves out 10 million poor children who would benefit from improvements in this credit.

Another credit that can be improved is the EITC, especially as it affects poor childless adults, a group of people who are usually eligible for no federal assistance of any sort. Low-income workers between ages 25-64 who are not raising children are eligible for a very small EITC (last year the maximum was $412; the average credit was only $230). Their average annual earnings were $6,050 in 2005 (about 40 percent below the poverty line for a single individual).

 

Congress Continues to Prepare Assault on the Tax Gap

The "tax gap," the difference between the total taxes owed and the total taxes paid in a given year, continues to be an alluring target for members of Congress. The IRS has estimated that in 2001, $345 billion in taxes due was not collected on time, and around $290 billion of that will never be collected. There is possibly much more tax evasion taking place in offshore tax havens. 

A bill has been introduced in the House by Representatives Rahm Emanuel (D-IL), Lloyd Doggett (D-TX) and Rosa DeLauro (D-CT) to crack down on offshore tax havens. A companion bill was introduced a few months ago in the Senate by Senators Carl Levin (D-MI), Norm Coleman (R-MN) and Barack Obama (D-IL). The legislation includes a presumption that offshore trusts and shell corporations in designated tax havens are controlled by the taxpayers funding them or directing them. It would also ban patents on tax strategies and would allow the federal government to order American banks to stop accepting or authorizing credit cards from foreign countries or banks not cooperating with U.S. tax enforcement laws. These reforms are important to anyone who pays her fair share - and is tired of subsidizing people who don't.

 

Grossly Overrated 
Gross Receipts Tax Is Not a Cure-All for the States

Over the past few years, both Texas and Ohio have enacted major changes to their tax systems, choosing to replace existing business taxes with taxes based on companies' total receipts. This takes the form of a "margins" tax in Texas and the "commercial activity" tax in Ohio. Two other states, Illinois and Michigan, are also now considering whether to follow suit by implementing taxes based, at least in part, on gross receipts.

IL Gov Won't Raise Taxes on People, Just Taxes That Are Passed onto People

Despite Illinois Governor Rod Blagojevich coming before the Illinois House in a rare all-day hearing to promote his plan for implementing a gross receipts tax (GRT) his proposal was unanimously defeated by the Illinois House in a 107-0 vote.  The Governor's proposal barely passed the Senate Executive Committee.  Analyses by the Center on Budget and Policy Priorities and the Institute on Taxation and Economic Policy suggest that gross receipts taxes are generally passed on by businesses to consumers. The Governor, however, said in his address to the House, "I will not raise taxes on people. I won't do it today. I won't do it tomorrow. I won't do it next week, next month, next year." Ironically, the Governor also said that he would oppose any income or sales tax hike because "It's regressive, and people already are paying to much" but many experts think that the GRT is regressive and hits low- and middle-income people hardest.

Eliminating Revenue Source + No Plan to Replace Revenue = Government Shutdown 

Since voting last year to repeal the state's Single Business Tax (SBT), which is set to expire on December 31, Michigan lawmakers have been in almost continuous debate regarding ways to replace this vital revenue source.  Fearing a government shutdown, the Michigan House and Senate have passed very different tax proposals. The Senate-approved plan would not completely replace the revenue lost from the SBT, while the Governor-supported House plan will raise the same amount of revenue as the current SBT, but would allow for large tax credits for Michigan-based businesses. The House and Senate proposals both have a business income tax component, but the Senate plan relies more heavily on a gross receipts tax element.  In the coming weeks, compromise is needed before Governor Granholm has the opportunity to sign this important yet contentious legislation.

Ignore Those Lobbyists Boring Holes into the Gross Receipts Tax 

Part of the allure of gross receipts taxes - to hear proponents like Governor Blagojevich tell it, anyway - is that they don't have many of the same loopholes as corporate income taxes and will expand the base of economic activity and economic actors subject to taxation.  The reality may prove quite different, however.  Gross receipts type taxes have scarcely settled onto the pages of law books in Texas and Ohio, yet businesses in both states have already begun clamoring for - and will soon start receiving - concessions and special treatment.  In Texas, the House of Representatives last week approved a bill that would double the exemption for small businesses under the margins tax, would lower the taxes paid by multistate financial services companies under the tax, and would attempt to prevent Sprint Nextel from passing the tax along to its customers. 

In Ohio, a provision of the commercial activities tax designed to raise tax rates automatically - should the total amount of revenue generated by the tax begin to fall - will soon be eliminated, thus leaving the state without an important stopgap.  These changes may not have a deleterious impact on the fiscal situation in either Texas or Ohio. The changes being debated in Texas would be offset by other revenue measures, for instance. Still, they should give policymakers in Michigan and Illinois pause.  What they enact now may ultimately look quite different from what they envision. 

 

Other State Tax Justice News

Nebraska Tax Bill a Mixed Bag

Nebraska's unicameral legislature gave second-round approval to tax cut bill LB 367 which, over two years, is expected to cost the state $400 million. From a fairness perspective the bill is largely a "mixed bag." The bill includes a measure to lower the tax bills of the very wealthiest Nebraskans by repealing the state estate tax. 

 

However, the bill also contains some tax cuts designed to help many low and middle income Nebraskans, including an expansion of the state refundable EITC to 10% of the federal level. The bill includes a poorly-targeted property tax cut, the tax brackets for some filers are broadened, and the standard deduction is increased. The good news from the Cornhusker state is that costly proposals (like lowering the state sales tax from 5.5 percent to 5 percent) and even more poorly-targeted proposals like lowering the top rate were both left out of the bill.