According to the Congressional Budget Office (CBO) report released on Tuesday, the overall corporate tax rate (corporate receipts as a percentage of domestic economic profits) in 2011 dipped to 12.1 percent, an all-time low over the 40 years for which CBO has tracked this data, and less than half the historic average of 25.6 percent. As the Wall Street Journals notes, this is even as corporate profits are on the rise.

The CBO notes that the “unusually low levels” of corporate taxes were not only driven by the recession, but also by tax breaks, such as those allowing for special deductions for depreciation in the value of equipment. This reinforces the critical point that Citizens for Tax Justice has been making that although the US has one of the highest statutory corporate tax rates, a wide variety of tax breaks cause the US to actually have the second lowest effective corporate tax rate in the developed world.

Looking forward, the CBO projects that the corporate tax rate will rebound substantially over the next few years and return to near its average historic rate. Unfortunately, this projected rebound may not come to fruition as it assumes that lawmakers will actually allow the expiration of corporate tax breaks. Unfortunately, extension of unnecessary corporate tax breaks, such as the allowance of 100 percent bonus depreciation, is one of the few areas where the Republican leadership and the Obama Administration agree.

Although Congress should be more proactive in raising corporate taxes, the CBO report reveals yet another area where Congress could improve the situation by doing nothing — and allowing tax cuts to expire. Of course, that would require lawmakers to overcome the billions spent by corporations to protect these tax breaks. 

Grassroots groups throughout the country have used Citizens for Tax Justice’s report “Corporate Taxpayers & Tax Dodgers,” to pressure lawmakers to clean up the tax code. Here’s a sample of what some groups have done in California, Massachusetts, Minnesota, Texas, and Washington.

California: A coalition of activist groups, including SEIU, the Teamsters, Good Jobs LA, and Occupy LA,  rallied in Hollywood to protest FedEx’s less than one percent corporate tax rate over the last three years. Good Jobs LA explained that the $552 million in tax subsidies that FedEx received in 2010 alone could have been used to create over “1,000 jobs, contributed tens of millions for Medicaid and food stamp benefits, and added more than $11 million for education programs.”

Massachusetts: MassUniting and Occupy Boston rallied at the Boston headquarters of General Electric (GE), perhaps the most infamous tax dodger due to its astounding negative 45.3 percent tax rate. Many of the protestors carried signs reading “I Paid More in Taxes than General Electric.”

Minnesota: Minnesotans for a Fair Economy marked the beginning of the state’s legislative session by demonstrating against Wells Fargo, which received a shocking $17.9 billion in federal tax breaks wiping out its taxes for the last three years. The protestors emphasized that Minnesota legislators have continuously prioritized corporate tax breaks over critical investments in education.

Texas: The community group Good Jobs Great Houston took to the streets (and brought a pig along with them) to protest the “ Dirty Thirty,” a group of companies that spend hundreds of millions of dollars to lobby Congress, yet pay nothing taxes. The protest took place outside the headquarters of Centerpoint Energy, which earned its place in the “Dirty Thirty” for the $1 billion in tax breaks it received over the past three years.

Washington: The advocacy group Working Washington held a rally against Wells Fargo's corporate tax dodging at the bank’s Seattle corporate offices. To demonstrate their opposition to corporate tax breaks, the protesters brought along a giant check depicting the $17.9 billion in tax subsidies that Wells Fargo has received over the last few years.

Photos via Good Jobs LA and Good Jobs Great Houston

• Institute on Taxation and Economic Policy’s (ITEP) Executive Director, Matthew Gardner, carried the torch for progressive corporate income tax reform in New York during his visit to Albany this week. He briefed legislative staff and the press on ITEP’s recent report, Corporate Tax Dodging in the Fifty States, 2008-2010, which  found that twenty profitable Fortune 500 companies paid no state corporate income taxes over the last three years, and 68 paid none in at least one of those three years.
• The Michigan League for Health and Human Services reminds Michiganders about the upcoming $1.6 billion in tax cuts for businesses that will be made up by raising taxes on low- and middle-income families and retirees. The League (with some help from ITEP) found that the poorest Michigan families will be hurt substantially by the upcoming changes compared to better-off taxpayers.
• New Hampshire Governor John Lynch is urging the legislature to restore the cigarette tax to $1.78. The Governor said in his State of the State address, “The cut in the tobacco tax was nonsensical. That money would have been better spent in our community college and university systems, for example.” One legislator called the legislature’s ten cent cut in the tax last year a giveaway to out-of-state tobacco companies.
• Last year, Wisconsin Governor Scott Walker proposed, and the legislature approved, freezing the state’s homestead property tax exemption. The Wisconsin Budget Project released a report this week showing that because the tax credit will no longer keep up with inflation, “working families and the elderly will be hit with a $14 million property tax increase over the next two years, and see their taxes continue to rise in later years.”
• Republicans in the Minnesota Senate are pushing a plan that would completely eliminate the state’s business property taxes and leave a “more than $800 million dollar hole in the general fund.” Democrats are fighting back, saying the bill will boost Wal Mart’s bottom line but won’t create any jobs.

On Tuesday, the Congressional Budget Office reported that the federal budget deficit will fall from $1 trillion this year to less than $300 billion over the next several years — but only if Congress can resist enacting budget-busting laws like another extension of the Bush tax cuts, which would more than double the projected deficit.

Budget experts have long known that our deficit would be largely under control if Congress would simply stop extending the Bush tax cuts. But this might be news to anyone who listens to lawmakers insisting that public services must be cut dramatically to balance the budget.

What these lawmakers really mean, but never say, is that public services would need to be slashed to pay for a further extension of the Bush tax cuts — despite the lack of any evidence that these tax cuts have helped America.

The CBO report shows that extending the Bush tax cuts through the next decade would cut revenues by $4.6 trillion over the next ten years, and cost an additional $0.8 trillion in interest payments on the national debt — thus adding a total of $5.4 trillion to the national debt!

In the face of these frightening numbers, Republicans in Congress want to extend all of the Bush tax cuts. The Democrats are not much better. President Obama has proposed to extend about 81 percent of the Bush tax cuts, and most Congressional Democrats have followed his lead. 

Even organizations that have the ostensible purpose of promoting a balanced federal budget fail to see that Congress could help the budget situation dramatically by simply refusing to pass any more tax cuts. For example, take this statement about the CBO report from the Committee for a Responsible Budget:

The good news is that under current law assumptions, the debt would become more manageable in the medium term. The bad news is that these policy assumptions are politically unrealistic, suboptimal, and not a long-term fix.

Why would the so-called “Committee for a Responsible Budget” first acknowledge that the government will approach budget balance if Congress does nothing, and then insist that Congress has to pass laws that take us off that path? What’s so “suboptimal” about allowing the Bush tax cuts to expire?

Their argument is that the economy will suffer if the tax cuts expire at the end of this year. The Republicans in Congress make a much more extreme claim, which is that the economy will suffer if any portion of the tax cuts ever expires.

None of this is supported by evidence. Expiration of the Bush tax cuts would allow taxes to return to the levels in place at the end of the Clinton years. If anyone is worried about tax policies that are “suboptimal” for the economy, they should not fear the tax rates that existed during the boom years that Clinton presided over. If we need further short-term stimulus next year, then there are far better, fairer and less costly ways to achieve it.

Sometimes, lawmakers and others claim they worry that low- and middle-income people will suffer if they have to pay Clinton-era tax rates again.

This is absurd. A fact sheet from CTJ shows who would benefit from another extension of the Bush tax cuts. The folks who are struggling the most in America today, the poorest fifth of taxpayers, would receive just 1.1 percent of the tax cuts in 2013. The bottom three-fifths of taxpayers would receive just 13.4 percent of all the tax cuts.

On the other hand, the richest five percent of taxpayers would receive 47.2 percent of the tax cuts, and the richest one percent alone would receive 31.3 percent of the tax cuts.

It’s reasonable to argue that the parts of the Bush tax cuts that go to low-income Americans should be made permanent, because they help people who truly need help. These include, for example, the provisions that expand the Earned Income Tax Credit and the refundable part of the Child Tax Credit.

But low-income tax breaks represent only a small part of the cost of overall Bush tax cuts. So Congress could and should extend those parts of the tax cuts that go to people who need them without busting the budget. If Congress instead sends President Obama another bill extending all or most of the Bush tax cuts, then he should get out his veto pen.

We can’t be the only ones left scratching our heads after reading a recent New York Times story headlined Second Year In, Republican Governors Moderate Tone.  After all, on the very same day an Associated Press story ran with the headline Emboldened GOP wants to abolish state income taxes.

So which is it? Moderate, or ready to abolish what’s left of fair tax structures in the states?

When it comes to taxes it’s the latter; governors across the country are looking to make state tax systems – already uniquely regressive – even worse. 

Politicians are generally reluctant to ruffle voters’ feathers in years that include contests to elect a president, fill 33 U.S. Senate seats, all 435 offices in the U.S. House, and numerous statewide offices, so this might explain the conciliatory tone the New York Times detects.  But in spite of that general reluctance, some governors’ plans for their states’ tax systems are anything but moderate.

The AP story covers some ground we’ve written about here and here.  In South Carolina, Republican Governor Nikki Haley wants to eliminate the corporate income tax and cut personal income taxes by collapsing the state’s current six tax brackets to three.

In Oklahoma, a legislative task force report states that the governor and legislators should be able to make Oklahoma a “no income tax state” in seven to 10 years. Governor Mary Fallin is poised to act on this recommendation and will likely support a reduction in the state’s personal and corporate income tax rates this year.

And in Kansas, under Republican Governor Sam Brownback’s radical tax proposal, Kansans earning less than $25,000 a year would pay an average of $156 more in income taxes while those making more than $250,000 would see an average cut of $5,200 a year. And here’s the kicker – these findings are actually from Brownback’s own Kansas Department of Revenue!

In fact, the Institute on Taxation and Economic Policy (ITEP) found that when you look at all the components of the Kansas governor’s plan, the bottom 80 percent of the state’s income distribution would collectively see a tax hike under the Brownback plan, while the best off 20 percent of Kansans would see substantial tax cuts.

All of these measures take tax systems that are already unfair and make them even worse. All of these measures do further harm to those who have little while further stuffing the pockets of those who have plenty. All of these measures erase revenues that help to pay for essential public services for each and every resident of the state.

None of these ideas are “moderate,” and all of these measures should fail.

Photo of Nikki Haley via Mary Austin and photo of Sam Brownback via KDOTHQ Creative Commons Attribution License 2.0

CTJ's Steve Wamhoff contributes a bit of persuasive writing to US News & World Report's Debate Club feature this week. The question before the debaters: Should Mitt Romney Pay More Taxes?

Wamhoff writes, "The revelation that Mitt Romney received an income of $21 million in 2010 and paid just 13.9 percent of that in federal income taxes has highlighted an enormous problem in our tax code. Income from investments (or income that is manipulated to appear to come from investments) is taxed at lower rates than income from work. And this is a huge benefit for the rich.... Warren Buffett is right. People like him, and Mitt Romney, should pay more to support the society that made their fabulous fortunes possible."

Read the whole piece here, and then vote for us and against the tired old supply side arguments the experts from American Enterprise Institute and the Club for Growth are offering.

Photo of Mitt Romney via Gage Skidmore Creative Commons Attribution License 2.0

• A column in the Tulsa World questions the notion touted by conservative lawmakers that Oklahoma’s personal income tax is holding back the state’s economy and therefore should be eliminated.  An ITEP analysis published earlier this month raises other concerns with plans to dismantle this important tax source- over half of Oklahoma households would actually see their tax bills rise if current proposals are enacted.
• More state leaders- and voters- are joining the call to make it easier for states to collect taxes from internet sales.  A majority of Michigan voters recently polled are receptive to paying sales taxes on the goods they purchase online.  And, Idaho Governor Butch Otter told Chamber of Commerce leaders in his state that he supports collecting online sales taxes to “level the playing field” between internet retailers and in-state businesses.
• The Nelson A. Rockefeller Institute of Government reports that while state revenues are on the rise, 36 states are still collecting less tax revenue than they were before the economic downturn.
• The Columbus Dispatch quotes ITEP Executive Director, Matthew Gardner, in a story that started out about the availability of free tax preparation help and turned into one about tax fairness.
• Rhode Island lawmakers, union leaders, and advocacy organizations kick off a “Tax the Rich” campaign.  Based on ITEP data, a bill was filed to introduce a new top bracket for taxpayers with incomes above $500,000.

There are few areas of policy where lawmakers’ shortsightedness is on display as fully as it is with the gasoline tax.  Now, with a series of twenty six new charts from the Institute on Taxation and Economic Policy ( ITEP), you can see the impact of that shortsightedness in most states as shareable graphs.

Overall, state gas taxes are at historic lows, adjusted for inflation, and most states can expect further declines in the years ahead if lawmakers do not act.  Some states, including New Jersey, Iowa, Utah, Alabama, and Alaska, are levying their gas taxes at lower rates than at any time in their history.  Other states like Maryland, Oklahoma, Massachusetts, Missouri, Tennessee, Arkansas, and Wyoming will approach or surpass historic lows in the near future if their gas tax rates remain unchanged and inflation continues as expected.

These findings build on a 50-state report from ITEP released last month, called Building a Better Gas Tax.  ITEP found that 36 states levy a “fixed-rate” gas tax totally unprepared for the inevitable impact of inflation, and twenty two of those states have gone fifteen years or more without raising their gas taxes.  All told, the states are losing over $10 billion in transportation revenue each year that would have been collected if lawmakers had simply planned for inflation the last time they raised their state gas tax rates.

View the charts here, and read Building a Better Gas Tax here.

Note for policy wonks: Charts were only made in twenty six states because the other twenty four do not publish sufficient historical data on their gas tax rates.  It’s also worth noting that these charts aren’t perfectly apples-to-apples with the Building a Better Gas Tax report, because that report examined the effect of construction cost inflation, whereas these charts had to rely on the general inflation rate (CPI) because most construction cost data only goes back to the 1970’s.  Even with that caveat in mind, these charts provide an important long-term look at state gas taxes, and yet another way of analyzing the same glaring problem.

Example:

Governor Martin O’Malley’s budget has been circulating for a few days, and it seems people are just now  turning their attention to one of its smaller tax changes, that is, the Governor’s proposal to end the tax exemption for digital downloads of things like software, songs and magazines.

Maryland’s House Minority Leader had some predictably harsh words for O’Malley after learning of the proposal, but it’s hard to argue that the state should be taxing books and CD’s bought from Maryland retailers, while not taxing digital versions of the exact same products purchased over the Internet.  Viewed in that light, it’s more than a little confusing why the House Minority Leader apparently views this proposal as some kind of revenue grab.  If it’s reasonable for Maryland’s sales tax to apply to all the books, CD’s and other similar products purchased within the state’s borders, the governor’s proposal is also reasonable.  The fact is, this change would simply update the state’s sales tax code to take account of the changing ways in which Marylanders are doing their shopping.

Just as taxing services and online sales is the right response to a changing consumer marketplace, so is a tax on digital downloads.

Photo of of Governor Martin O'Malley via Chesapeake Bay Program Creative Commons Attribution License 2.0

The rapid-fire succession of GOP debates has continued, with four more occurring in just the last couple weeks. Here we deconstruct the most ludicrous or notable quotes from each candidate:

Former House Speaker Newt Gingrich: …when I was speaker, we had four consecutive balanced budgets...

It was exciting to see Ron Paul finally call Gingrich out during the latest debate for repeatedly claiming that he balanced the federal budget four years in a row. Citizens for Tax Justice’s Bob McIntyre thoroughly debunked this claim over 9 months ago when Gingrich first starting making it, yet until now none of the GOP candidates have called him out for it.

Former Governor Mitt Romney: I'm proud of the fact that I pay a lot of taxes.

Romney does not pay “a lot of taxes.” He paid an effective tax rate of less than 14% on his $22 million in 2010, which is actually a lower rate than many individuals making just $60,000 pay.

Former House Speaker Newt Gingrich: I'm prepared to describe my 15 percent flat tax as the Mitt Romney flat tax. I'd like to bring everybody else down to Mitt's rate, not try to bring him up to some other rate.

Gingrich’s $18 trillion tax plan would not bring everyone down to the rate that Romney pays because it would actually further reduce Romney’s tax rate to almost zero. Even Romney seemed to think that reducing his tax rate to zero would be going too far and went out of his way during a recent Republican debate to point this out to Gingrich.

Former Senator Rick Santorum: I talk about five areas where I allow deductions… one of them would be, be able to deduct losses from the sale of your home. Right now, you can't do that. You have to pay gains, depending on the amount, but you can't deduct the losses.

Ever trying to play the role of a blue collar populist, Santorum highlighted his idea to allow taxpayers to deduct losses from the sale of their home. He left out the fact that current law already allows an individual to exclude up to $250,000 of capital gains from the sale of a home. How could it be fair to exclude the gains but deduct the losses? He also ignores the fact that homeowners are already subsidized to the tune of $75 billion through the home mortgage interest deduction. A much more effective approach to helping struggling homeowners (and renters for that matter) would be for state lawmakers to enact strong property tax circuit breakers, which are better targeted to low-income households.

Representative Ron Paul: I would like to see income tax reduced to near zero as possible.

Although he has not laid out a specific long term tax plan, Paul has frequently called for the complete repeal of the 16th amendment (which allows the creation of the income tax) and might seek to replace it with a national sales or flat tax. He does not typically mention that such a plan would be extremely regressive no matter how you structure it.