The Social Security and Medicare trustees released their report on Tuesday announcing that the fiscal foundations of Social Security and Medicare are essentially unchanged since last year. Once again, they project that the Social Security trust funds will be depleted in 2041, at which point payroll taxes flowing into the program will be large enough to pay only 78 percent of the benefits that would go to beneficiaries if the program was fully funded.

Of course, many Americans might be surprised to learn that any program is funded, on paper anyway, for the next 33 years, so most future retirees are probably reacting calmly to this announcement, as they should. It's difficult to project revenues and expenditures of any sort out more than a decade, since these projections are extremely sensitive to changes in the economy and other factors. Further, under current rules Social Security benefits increase annually to match the growth in wages, which generally increase more rapidly than inflation, meaning that even if the unlikely worst case scenario came true and benefits were reduced in 2041, they might still be greater, in real terms, than those benefits received today.

Medicare is a different story. As the report itself says, "Medicare's financial difficulties come sooner -- and are much more severe -- than those confronting Social Security." This is because Medicare is not just facing the coming retirement of the baby boomers in large numbers, which is the only challenge facing Social Security. Medicare costs are rising because health care costs generally are rising. The trust fund for Medicare hospital insurance will be exhausted in 2019 and payroll taxes flowing into the program will only cover 78 percent of projected expenditures. Medicare benefits are not automatically cut if this happens. Rather, it would put a huge strain on the rest of the budget, as more general revenues are diverted from other services.

The cabinet officials who presented these figures on Tuesday seemed to be uninterested in answering any detailed questions about them. The figures don't exactly support the administration's approach, which has been to play up the alleged "crisis" in Social Security to somehow justify siphoning money out of the program and into private accounts, while opposing Medicare reforms proposed by the Medicare Payment Advisory Commission (MedPAC), a panel of experts created by Congress in the late 1990s.

A new report from the Center for American Progress examines presidential candidate John McCain's tax plan and finds that it costs even more than the Bush tax cuts and is even more regressive. The report assumes the extension of the Bush tax cuts, which McCain has promised to champion despite his opposition in years past. It also assumes that the Alternative Minimum Tax (AMT) will continue to be "patched," meaning most middle-income families will be exempt from it.

The report focuses on the additional components of McCain's plan: reducing the nominal corporate tax rate from 35 percent to 25 percent, allowing investments in equipment and technology to be deducted immediately (expensed), and eliminating the AMT (which would benefit those who aren't already exempted from it by the patch).

These changes are projected to cost over $2 trillion over ten years -- and that's not including the extension of the Bush tax cuts and the AMT patch that the authors assume. And that's not even counting the additional interest on the national debt that will result, since there is almost no way that these tax cuts would be anything other than deficit-financed. The authors find that 58 percent of the benefits of these tax breaks would go to the richest one percent of Americans, that they would increase the gap between how the government taxes income from wealth compared to income from work, and that immediate expensing and the low corporate tax rate would create vast new opportunities for tax sheltering.

As bad as all this is, perhaps the most alarming finding is that this plan seems to fit nicely with the goals of anti-tax radical Grover Norquist to create a consumption tax on the sly. Norquist has already spelled out several steps that would indirectly lead to a consumption tax -- like eliminating the estate tax, eliminating taxes on capital gains and dividends and interest, abolishing the corporate tax, and flattening tax rates, which Bush has partially accomplished. McCain would further these goals along.

John McCain's views on taxes are either extremely mysterious or just totally unprincipled. As we have discussed before at length, he swung from a conservative position in the 1980s and 1990s to opposing tax cuts for the rich in the early part of George W. Bush's administration and now has swung back to the right with a plan that his own advisers admit would cause the deficit to grow.

Several weeks ago, we told you of a potentially interesting development in New Hampshire-- an effort by the Granite State Fair Tax Coalition to have voters in nearly a hundred towns call upon their elected officials to forego the so-called "Pledge." The Pledge is a vow many New Hampshire lawmakers have taken to oppose the creation of a broad-based income or sales tax.

The effort to have voters voice opposition to the Pledge has met considerable success. As the New York Times reported last week, resolutions sponsored by the Fair Tax Coalition passed in close to 70 percent of the towns in which they appeared. This hardly means that New Hampshire is about to leap past its New England neighbors in terms of tax fairness, but making sure that policymakers keep an open mind is an important first step.

Over the past few months, there's been a movement in Missouri to expand the circuit breaker program that benefits low-income property taxpayers. In addition, Indiana Governor Mitch Daniels recently signed legislation increasing his state's renter deduction. Clearly Minnesota Governor Tim Pawlenty didn't get the memo about the trend to help ease property tax burdens in targeted ways. Instead, Governor Pawlenty is proposing to reduce his state's renters' credit by 21 percent. The Minnesota Budget Project rightly points out that approving the Governor's proposal "would not only have a significant impact on ... low-income households, but also increase the regressivity of the property tax." As ITEP notes in its policy brief describing circuit breaker credits, whether such credits are designed to aid renters as well as homeowners is a critical consideration, since it's widely understood that some portion of the rent people pay consists of property taxes.

To read more about benefits of the Minnesota renters' credit, check out the Minnesota Budget Project's report here.

Arkansas Governor Mike Beebe has called a special session starting Monday to consider a higher severance tax on natural gas. The Governor says that the tax hike will eventually raise as much as $100 million to help pay for state highways. The current level of tax was established in 1957 and is based on the volume of gas extracted. Beebe's proposal would change the tax base to market value, bringing Arkansas in line with what most states have been doing since the 1970s. Basing the tax on market value would ensure that inflation will no longer erode the value of revenues generated by the tax, which is currently providing natural gas companies with an effective tax cut each year. A 2003 ITEP study of the Arkansas natural gas tax found that if the state had imposed a 5 percent tax on the market value of natural gas in 1975 (rather than basing the tax on volume) the state would have raised $610 million between 1975 and 2001, instead of the $13 million it actually collected. For more on the state's severance tax and potential reforms read this report from Arkansas Advocates for Children and Families.

Higher severance taxes may soon be on the agenda as well in Colorado, where environmental groups and higher education advocates have banded together in support of a ballot initiative to generate $200 million in additional revenue from the oil and gas industries. The proposal would eliminate several severance tax deductions and exemptions, the most notable of which allows companies to write off 87.5 percent of their property tax bills. The revenue generated would go to fund college scholarships and renewable-energy programs, among other things.

Facing the clashing realities of rising transportation costs and widespread opposition to tax increases, state governments are turning to tolls, fees, and less visible local sales taxes wherever possible. But though increasing the gas tax has been perceived as political suicide by many politicians, tinkering with this traditional centerpiece of transportation funding is worth a second look. Gas taxes are intended to charge drivers for their use of public roads, and when gas tax revenues consistently fall short of the amounts needed to maintain those roadways, increasing that tax makes great intuitive sense.

Aside from all this, in most cases raising the per-gallon gas tax can boost revenues without actually "increasing" taxes in the traditional sense. This paradox, where a "tax increase" may not actually be a "tax increase" at all, arises primarily from the odd structure of the gasoline tax. Unlike traditional percentage-based sales taxes where the tax you pay is a fixed amount of every dollar you spend (typically 5-7 cents per dollar), gas taxes are levied as a fixed amount per gallon (typically 15-35 cents per gallon at the state level).

Under a traditional sales tax, as the price of goods increase, tax revenues increase accordingly. With a 5% sales tax rate, for example, the tax owed on a $3 gallon of milk is 15 cents. If after a few years milk has increased in price to $4 as a result of inflation, the tax per gallon will rise to 20 cents. This increase in taxes paid is in essence identical to what occurs when the legislature decides to increase the per-gallon tax on gasoline, but it receives none of the negative publicity. Additionally, given that inflation increases the cost of providing public services, such tax increases are in fact a necessary component of any sustainable method of financing government.

Though this problem plagues every government relying on per-gallons gas taxes, taking a look specifically at Minnesota's recent gas tax increase is particularly illuminating. Legislators in Minnesota who were involved in the tax increase are currently taking a lot of criticism for being "tax-first liberals" unconcerned with perceived out-of-control government spending.

Using data released by the U.S. Energy Information Administration, the 2 cent gasoline tax enacted in Minnesota in 1925 was at the time equivalent to a 9% tax (when gasoline cost 22 cents per gallon). Where does Minnesota stand today now that their tax was recently increased from 20 to 28.5 cents? This may come as a shock to some, but today's 28.5 cent tax is still the same as a 9% rate (assuming, conservatively, that gas costs $3.07 per gallon). Without the 8.5 cent hike, the effective gas tax rate would have been only 6.5%. For some perspective, Minnesota gas taxes have been levied at effective rates of 20% or more for 13 of the past 83 years, most recently in 1988 and 1989.

A similar result can be shown by examining the effects of inflation over this time period, using data from the Consumer Price Index (CPI). Adjusted for inflation, the 2 cents collected on each gallon of gas in 1925 was the equivalent of what would be a 24.4 cent tax today. By setting the rate at 28.5 cents, what the legislature has done is little different from what inflation does to percentage-based sales taxes, though inflation of course does not have to face any of the harsh criticisms currently directed at Minnesota legislators.

Data released by the U.S. Census Bureau also suggests that Minnesota's 8.5 cent hike may not really be a tax increase by yet another measure: as a share of consumer income. While many meaningful measures exist for measuring tax changes, what has the most meaning for consumers is tax as a percentage of personal income. Data on this measure do not extend as far back, but what is clear is that a smaller portion of Minnesotans' budgets is going to paying the gas tax than at almost any time in the last 30 years. In 1977, 0.7% of income earned by Minnesotans went to paying the gas tax. The trend since then has been steadily downward, reaching a low of 0.3% of income in 2005. The 8.5 cent hike will certainly change this figure, though not by enough to negate the overall trend. This trend can be observed in nearly every state, and it demonstrates plainly that despite numerous per-gallon tax increases across the nation over the past few decades, gas taxes have become a less important component of taxpayers' daily budgets and daily lives. If transportation is to continue to be adequately funded, the portion of taxpayers' budgets devoted to its funding it will have to rise.

Summing up, it should be clear that states are justified in regularly increasing their per-gallon gas tax rates. Doing so is necessary for maintaining transportation infrastructure, and doing so should, in reality, be relatively painless since inflation is always hard at work minimizing and eventually negating the impact of such increases.

Citizens for Tax Justice has released a new report explaining that the budget resolution approved by the House of Representatives last week deals with tax policy in a more responsible way than the version approved by the Senate. The differences between the two resolutions must be ironed out by a House-Senate conference committee that will negotiate a final version to be approved by both chambers.

The resolution approved by the House offers more responsible tax provisions in a number of areas.

First, the House budget plan uses "reconciliation instructions" that would make it easier to pass a bill to provide relief from the Alternative Minimum Tax (AMT) without increasing the deficit. Any further increase in the national debt is likely to be borne, in the long-run, by the middle-class, so it would be unfair to take on debt to provide AMT relief, which mostly benefits families that are relatively wealthy. The Senate plan, unfortunately, does not use this approach because the Senate assumes that an AMT patch will be deficit-financed.

Second, the House plan does not emphasize cutting the estate tax the way the Senate plan does. CTJ's data shows that the estate tax now affects fewer than 1 percent of estates. The Senate decided, however, to cut the estate tax for these few, wealthy families and to finance this tax cut with surpluses that may never materialize.

Third, the House plan would not cut taxes on better-off Social Security recipients. Such a tax cut, which the Senate plan includes, would only benefit those seniors who are well-off.

The House-Senate conference committee that takes up the budget resolutions should reject the choices that the Senate has made with regard to taxes and choose the more responsible path set by the House of Representatives.

Governor Mitch Daniels of Indiana finally got the property tax reforms he wanted. The central components of the plan, signed by the Governor on Wednesday, cap property taxes at 1% of the value of a home, 2% of the value of rental property, and 3% of the value of business property.

The revenue loss to government will in large part be offset by a variety of tax increases, meaning the plan is actually more of a tax "swap" than a tax "cut". The sales tax is raised from 6% to 7% by the bill, and most localities can be expected to raise their flat-rate income taxes to help compensate for the property tax reductions.

Reducing one tax (the property tax) and replacing the revenue with a more regressive tax (an increased sales tax) can often mean that low-income people really face a tax hike rather than a cut. Or, if the tax increases are not enough to replace the lost revenue, this tax "reform" could result in a loss of funding for state and local public services. "Swapping" lower property taxes for higher sales taxes is not a fair deal for working families.

As discussed in a previous Digest, earlier versions of the bill contained modest protections for low-income taxpayers, including an expansion of the earned income tax credit (EITC) and some relief for renters. The final version of the bill did expand and make permanent the EITC, as planned, though the relief to renters was scaled back to a meager 20% of the original proposal.

Under this bill, the state now assumes responsibility for funding a variety of programs previously handled by local governments. Even combining this with the prospect of local income tax increases, however, some local governments are already preparing for budget shortfalls.

A better policy would provide tax relief in a more targeted way (i.e. based on one's income) and would be much less costly. The legislature did pass a constitutional amendment that would move in this direction, but under the state's ratification rules this measure must be approved again by the next legislature before it's put to the voters. But even this plan, while it has the right idea, has some flaws that are outlined in an earlier Digest article.

In last week's Tax Justice Digest, we warned that May 8 could be a dark day for Florida taxpayers if the Commission charged with proposing tax-related constitutional amendments did not abruptly change direction. Well, that dark day may have already come, now that the Commission has tentatively approved a massive property tax cut, coupled with regressive sales tax increases to partially offset the revenue lost by that hike.

On the heels of fairly substantial property tax reforms approved by voters just this January, this proposal, which many are already considering a sure-bet to reach the November ballot, would eliminate most school property taxes in the state, with a cost to government of $9.6 billion. $3.3 billion of that would be offset with a one cent sales tax hike. The remaining $6.3 billion addition to Florida's existing $3 billion budget shortfall would be offset by removing numerous sales tax exemptions, taxing services, reducing spending, and in the meantime, hoping for strong economic growth. One member of the commission summed up the plan fairly well, stating "a sales tax is a regressive tax; we're not doing anything here except changing who pays the bill".

Unfortunately for Florida's children, (who just recently had $500 million cut from their schools' budgets) though much of the responsibility for funding education will simply be shifted to lower-income Floridians, significant cuts in education spending will also almost certainly occur. If the measure gains the approval of the voters, the legislature will be responsible for determining the methods for dealing with the loss of revenue. The opposition to removing sales tax exemptions and taxing services runs so strong in the legislature that these regressive tax increases will likely not be carried nearly far enough to offset revenue losses, should the plan pass. Cuts in spending should therefore be expected to be quite deep.

Simply put, the commission's plan is a failure by any number of measures. It makes Florida's tax system even less fair, leaves inadequate funding for even the most vital public services, and, as one member of the Chamber of Commerce stated, "nothing in this proposal will fix the brokenness" of Florida's property tax, which levies vastly different taxes even on neighbors with very similar homes. Hopefully by proposing a plan so extreme that it has spurred opposition from groups as varied as the Florida Chamber of Commerce, teachers' organizations, and advocates for the poor, the Commission has made it likely that Florida voters will vote down the plan in November.

A Republican candidate for Missouri Governor, State Treasurer Sarah Steelman, incorrectly told the Senate Pensions Committee that a study showed undocumented immigrants cause the state and federal government to lose between $242 and $449 million in income and payroll taxes. Later officials in her office acknowledged that she actually misinterpreted the study during her testimony.

Misinterpretation is one possible explanation. It's worth wondering why she was so ready to repeat the myth that undocumented workers don't pay taxes. Obviously, immigrants (documented or not) pay sales and property taxes and ITEP's own estimates show that about half of undocumented workers actually do pay taxes through regular payroll withholdings. If Ms. Steelman would like to be a little better informed (or a lot better informed) she can always read the Missouri Budget Project's report detailing how much state and local taxes are paid by undocumented workers in Missouri.

We told you last week the Georgia House was all in a flutter over property tax cuts including caps and repeal of the state's car tax. With only a handful of working days left on the legislative calendar, Senate Republican leaders this week pushed through a tax cut package of their own which includes a 10 percent cut in income tax rates over five years. Estimates are that eventually the state would lose more than $1.2 billion a year. Despite mountains of evidence that tax cuts don't pay for themselves or stimulate the economy (one need only look at the fiscal situation on the federal level to understand this) Senators are billing the income tax changes as a "stimulus plan." The Georgia Budget and Policy Center has a new analysis showing the damaging impact this cut would have on the state.

New York is no different than most states in at least one respect - it too must confront a major budget deficit, estimated at $4.7 billion for the fiscal year starting April 1. It may, however, follow a much more responsible path than Georgia and other states attempting to cut taxes in the midst of dire financial straits. The state Assembly has approved a plan that would levy a temporary income tax surcharge on people with incomes over $1 million and that would yield roughly $1.5 billion per year. The plan is opposed by the Senate, but new Governor David Paterson has yet to rule it out.

Maryland faces a situation similar to New York and is also considering an increase in personal income taxes for some of its wealthiest residents. But rather than devote that additional revenue to current appropriations, lawmakers want to use it to repeal a change in tax policy that isn't scheduled to take effect until this summer. Recent tax projections in the Free State are now $333 million lower than previously expected and, just this past week, the Maryland House adopted a FY 2009 budget that reduces spending $250 million below Governor Martin O'Malley's initial request.

Yet, one topic that continues to dominate conversations in Annapolis is the extension of the state's sales tax to computer services. Enacted as part of a larger tax package during last fall's special session, the tax change isn't slated to take effect until July 1, but is the target of a major lobbying campaign by the computer industry. The Governor recently threw his weight behind a Senate plan to repeal the computer tax and replace the lost revenue with an increase in the personal income tax: specifically, the creation of two new tax brackets with rates of 6.0 percent and 6.5 percent for taxable income above $750,000 and $1 million respectively. Such a move would improve the progressivity of Maryland's tax system, but could be a step back for sustainability. Maryland - like most states - needs to expand its sales tax base to include more services or be left with a tax system that is poorly matched to today's economy.

The House and Senate both passed their budget resolutions on Thursday. The Senate budget plan (S. Con. Res. 70) was approved by a vote of 51 to 44, while the House budget plan (House Con. Res. 312) was approved by a vote of 212 to 207.

All 100 Senators showed up Thursday for what is often called "vote-a-rama," an avalanche of amendments that members offer each year to the budget. These amendments generally are not binding, but they put Senators on record as supporting or opposing key tax and spending policies. Lawmakers often offer them to force the opposing party to take votes that might be politically difficult.

Slashing the Estate Tax and Other Tax Cut Promises

The budget resolutions project surpluses in fiscal years 2012 and 2013, although the math used to project these surpluses is questionable. Senator Max Baucus (D-MT) offered an amendment which was adopted by a vote of 99-1 and which shows that the Senate intends to spend this "surplus" on extending parts of the Bush tax cuts that he describes as focused on the "middle-class." While these do include keeping the lowest income tax rate at 10 percent and keeping the $1,000 child credit, they also include a cut in the estate tax to benefit families with estates worth several million dollars.

The amendment, while not binding, puts the Senate on record as supporting a change in the estate tax that is understood to involve freezing in place the estate tax rules that are scheduled to take effect in 2009 (an exemption of $3.5 million per spouse and a top estate tax rate of 45 percent). Under current law, the estate tax rules get more generous each year until the estate tax disappears entirely in 2010, and then in 2011 revert to the rules that were in place during the Clinton years.

CTJ's recent figures on the estate tax show that it affected less than one percent of estates during 2005 and 2006. And those estates were subject to an exemption of $1.5 million per spouse. Now the exemption is $2 million and in 2009 it will be $3.5 million.

Throughout the day on Thursday, Democrats in the Senate used a strategy of countering Republican amendments to provide new deficit-financed tax breaks with very similar amendments that were equally regressive but deficit-neutral.

Alternative Minimum Tax

For example, Senator Arlen Specter (R-PA) offered an amendment that would have repealed a change in the Alternative Minimum Tax (AMT) that was enacted in 1993. The 1993 law increased the AMT for some relatively well-off taxpayers, to correspond with increases in the ordinary income tax. The Specter amendment therefore would cut the AMT from its current level for those well-off taxpayers, and this cut would be deficit-financed. Before members were allowed to vote on this, the body voted on an amendment offered by Senator Kent Conrad (D-ND) to do the exact same thing except with the costs offset. The Conrad amendment didn't specify just how those costs would be offset, and neither amendment would be binding. But apparently enough Senators felt that they would be credited with voting to "do something" about the AMT if they voted for the Conrad amendment, which was approved 53 to 46, instead of the Specter amendment, which failed, 49-50.

(The amendment by Senator Specter seems to be part of a long-term strategy by the Republicans to convince opinion leaders and the public that the expanding reach of the AMT is due to policies enacted during the Clinton administration. To find out why that is NOT the case, read the post on our blog that addressed this last year.)

More Estate Tax

A similar pattern played out in more ominous ways when the Senate turned its attention back to the estate tax. Senator Jon Kyl (R-AZ) offered an amendment that would slash the estate tax further than the Baucus amendment would. The Kyl amendment would have put the Senate on record in support of raising the estate tax exemption to $5 million, or $10 million for married couples, and lowering the top rate to 35 percent. As the Center on Budget and Policy Priorities points out, this would cost about 77 percent as much as fully repealing the estate tax. Before members were allowed to vote on this, a vote was held on an amendment offered by Senator Ken Salazar (D-CO) to make the exact same changes, but with the costs offset in some unspecified way.

Slashing the estate tax any further than it already has been would be an entirely unwarranted boon for America's richest families and is bad policy even if it is done in a deficit-neutral way. If less than one percent of estates were affected by the estate tax when the exemption was $1.5 million, as CTJ has found, it's very hard to imagine why the exemption would need to be raised to $5 million.

Disturbingly, the Salazar amendment got 13 more votes this year than an identical amendment offered by Senator Ben Nelson (D-NE) last year. While the Salazar amendment failed this year, it failed by a vote of 38 to 62, whereas last year it failed 25-74.

Even more disturbing, the Kyl amendment -- the amendment to slash the estate tax WITHOUT offsetting the costs -- nearly passed, with a vote of 50-50. This vote is a signal to organizations working on tax fairness that we must redouble our efforts to educate lawmakers and the public about the extremely regressive effects of repealing or greatly reducing the estate tax.

Social Security

As he has in the previous couple years, Senator Jim Bunning (R-KY) offered an amendment to repeal the tax increase on Social Security benefits that was enacted in 1993. Bunning decided to offset the costs in his amendment with across the board cuts in discretionary spending. His amendment failed, 47-53.

The federal government began taxing a portion of Social Security benefits in 1984, and increased the amount that can be included in taxable income to a maximum of 85 percent in 1993. The idea was to treat Social Security benefits more like other retirement income, such as pensions and IRA distributions. For most retirees, the vast majority of Social Security benefits are income that has never been taxed. Most beneficiaries still pay no federal income taxes on their benefits, but above certain income levels benefits gradually become taxable. For the best off, 85 percent of benefits must be included in taxable income.

Repealing the 1993 provision would do nothing to help the majority of Social Security beneficiaries. Nonetheless, the Democrats offered an alternative amendment that would make the same change as Bunning's amendment, but which also called for some unspecified offsets. That amendment was approved 53-46.

Meanwhile, in the House of Representatives...

Over in the House, the Republicans offered an alternative budget resolution that would make the Bush tax cuts permanent and eventually repeal the AMT. These measures would be paid for with large cuts in Medicare, Medicaid, and other programs, while increasing defense spending. This alternative failed, 157-263.

The Democrats' budget resolution in the House was approved by a vote of 212 to 207. One way the House version differs from the Senate version is the use of what is called "reconciliation." A budget resolution can include "reconciliation instructions" that instruct the relevant committees to write legislation to meet some fiscal goal, and this legislation could be passed in the Senate with only a simple majority of votes rather than the usual 60 needed to overcome a filibuster.

This year, the House plan includes reconciliation instructions to produce a couple revenue-neutral bills. One would delay a scheduled reduction in payments by Medicare to doctors while another would provide another year of relief from the Alternative Minimum Tax (AMT), without increasing the budget deficit. Negotiations that will take place in conference will determine whether reconciliation instructions will survive in the final budget resolution.

On Tuesday the Washington State Legislature passed the Working Families Credit (WFC), modeled after the federal Earned Income Tax Credit (EITC), and sent it to Governor Chris Gregoire for her signature. Qualifying families would claim a credit equal to 10% of their federal EITC. The EITC is a highly regarded program that has lifted thousands of families out of poverty. If the WFC becomes law, Washington would join 22 states and the District of Columbia in implementing similar programs. Washington would also be the first state that doesn't have an income tax to offer the credit. Even in states that do have income taxes, it's the sales taxes and property taxes that are really a burden for the poorest families, and the EITC can counter the regressive effects of those taxes. For more on this groundbreaking credit check out this policy brief from the Washington Budget and Policy Center.

In recent years, more and more states have come to realize that they often receive little in return for the hundreds of millions of dollars in business tax incentives that they dole out. Rhode Island can now be counted among them. Earlier this month, the Democratic and Republican leaders of the state Senate jointly introduced legislation requiring the agencies administering upwards of $80 million in state tax incentives to compile annual reports detailing the number and quality of jobs attributable to those incentives.

While that legislation - and even more far-reaching companion legislation in the House of Representatives - holds promise, the state Division of Taxation is ready to deliver some measure of reform now. On Monday of this week, the Division proposed new rules that would clamp down on the state's film production tax credit... and with good reason. According to the Providence Journal, a production company that spent less than a month in Rhode Island filming the straight-to-DVD Hard Luck received a tax credit for $2.65 million, even though it spent less than $2 million on Rhode Island businesses and workers. In other words, Rhode Island probably could have saved money simply by employing those businesses and individuals directly. Given that the movie starred Wesley Snipes, this outcome probably isn't all that surprising.

For more on state tax giveaways and what can be done to combat them, see Good Jobs First's new blog, Clawback.

A Florida commission appointed primarily to examine the state's tax system has so far been a significant disappointment. Lying dormant for decades before assembling like cicadas every 20 years, the commission is empowered to propose changes to Florida law and to place constitutional amendments directly on the ballot. The commission is supposed to be an independent body removed from politics, but that's not obvious given the inequitable and unsustainable proposals that it's spending most of its time on.

Despite Florida's well-documented budget shortfalls, and the increasingly desperate attempts to fill them (see here, here, here, and here), many members of the commission remain committed to poorly targeted property tax cuts that will cripple state finances and will benefit the wealthy far more than those truly needing relief. The most recent bit of property tax "reform" proposed within the commission is a "super exemption" of 25% of a home's value from taxation. This would be available for all homes valued at over $50,000, and would be provided to homeowners regardless of their ability to pay their tax bills. The proposal would also extend more generous property tax cuts to businesses. It would also allow homeowners who benefit more from the existing (and convoluted) property tax relief system to retain those benefits rather than switching to the "super exemption".

As a small gesture to those concerned with the massive hit the state budget would take as a result of this change, the sales tax would be raised temporarily (for three years) to offset a portion of the cut. No solution for the inevitable revenue shortfalls beyond the first three years has been proposed.

The commission has until May 8 to make its final proposals. If the terms of the debate going on within the commission do not change by that time, May 8 could be a very troubling day for those concerned with tax justice and the adequate funding of state and local programs.

This week in the Georgia House, lawmakers voted overwhelmingly (166-5) to approve property tax cuts, including the elimination of the state's car tax, that will cost the state more than $750 million when fully phased in. Republican Speaker Pro Tem Mark Burkhalter doesn't seem concerned with offsetting the lost revenue. Responding to concerns about the plan's price tag, he says, "It's very simple. You cut taxes, the economy grows. The economy grows, Georgians prosper. The best way to stem off any recession is to cut taxes. Not to clam up, go home and wait for the storm to pass." We've learned on the federal level that tax cuts simply don't pay for themselves, but clearly legislators in Georgia want to try their own experiment with this flawed (and dangerous) economic myth. The House-passed bill contains another misguided property tax change... a 2% cap on annual increases in a home's value for tax purposes (the cap would be 3% for businesses).

The Georgia Budget and Policy Institute issued a report adding up the costs of the state House's handiwork related to taxes this year and found that the tax bills passed this session would cost as much as $113 million in FY 2009, $473 million in FY 2010, and $798 million in FY 2011.

Coincidentally, the Oklahoma Senate passed a proposed constitutional amendment last week also dealing with caps on increases in a home's taxable value. In this case, the cap would be decreased from 5% to 3% (the 5% cap would remain intact for businesses). Assessment value caps of this sort have recently received much attention in Florida. The unfair way in which these caps provide the greatest relief to long-time residents (creating vastly different property tax bills between neighbors with similar houses) recently drove Florida residents to amend their constitution to patch over the problem in a very imperfect way.

Rounding out the recent trend in debating poorly reasoned property tax cuts is Arizona, where the House narrowly approved a measure to permanently repeal a portion of the property tax that is currently suspended. Allowing the tax to take effect again would raise about $250 million annually for the state, significantly reducing the projected $1.2 billion revenue shortfall for the current fiscal year. If the plan passes, cuts in public services could be the result.

Yesterday, the House and Senate budget committees both approved their respective versions of the federal budget resolution for fiscal year 2009 on party-line votes. Just as happened last year, both versions assume that the Bush tax cuts will expire at the end of 2010 or that, if they are extended, they will be subject to pay-as-you-go (PAYGO) rules. This means that the costs of any tax cut extension would have to be offset with increased taxes elsewhere or cuts in spending, so as to avoid an increase in the federal budget deficit. The House signaled that is it more committed to PAYGO, however, by including procedural protections for legislation to offset the costs of providing another year of AMT relief.

While the budget document is not binding and merely spells out the tax and spending goals of Congress, it can provide for procedural rules that may make certain legislation affecting the nation's fiscal health easier or more difficult to pass. For example, the budget resolution could include what are called "reconciliation instructions" that would instruct the relevant committees to write legislation to meet some fiscal goal, and this legislation could be passed in the Senate with only a simple majority of votes rather than the usual 60 needed to overcome a filibuster.

Republicans demanded that the reconciliation process be used to extend the Bush tax cuts without offsetting the costs. While budget resolutions are not law and cannot, by themselves, raise taxes, Republican lawmakers have taken to claiming that the resolution includes the largest tax increase in history since it does assume an extension of the Bush tax cuts. They made this same claim last year.

Senate Ready to Cave on PAYGO and Alternative Minimum Tax; House Says 'Not So Fast'

While the Republicans want to use the reconciliation process to increase the budget deficit, the House Democrats want to use it to keep the deficit under control. Their budget plan includes reconciliation instructions to produce revenue-neutral legislation that would delay a scheduled reduction in payments by Medicare to doctors and revenue-neutral legislation that would provide another year of relief from the Alternative Minimum Tax (AMT).

Congress will surely provide another "patch" to the AMT this year, meaning a temporary extension of the increase in exemptions that keep most people from having to worry about the tax. The question is whether it will be paid for or deficit-financed, as was the patch enacted at the end of last year.

Last year the House did pass a bill that would have paid for an AMT patch mainly by closing tax loopholes that allow managers of buyout funds to pay taxes at lower rates and shelter their income in offshore tax avoidance schemes. In the Senate, that bill did get the votes of all the Democrats (except the Presidential candidates, who were campaigning) but could not overcome the filibuster by Republicans. If such a bill was offered this year under the reconciliation process to protect it from a filibuster, its chances of passage would be greatly increased.

Despite this, many Senate Democrats are insisting that they not pursue the matter. Senate Finance Committee chairman Max Baucus was quoted by Congressional Quarterly saying, "think to cut to the chase, this Congress is not going to pay for AMT. I think it's a waste of time to have AMT paid for."

Senate Budget Committee chairman Kent Conrad (D-ND) told BNA that "My strong preference would be to have it offset. That was clearly not the will of the body last year and in our soundings, it's clearly not the will of the body this year."

Senate Democrats Plan to Spend "Surplus"

The budget resolutions project surpluses in fiscal years 2012 and 2013. Whether these surpluses will actually materialize is highly debatable. The budget assumes no more expenditures on Iraq beyond the $70 billion requested by the President. Further, the budget "baseline" used by the Congressional Budget Office, which assumes that the Bush tax cuts will expire at the end of 2010 as laid out under current law, does project a surplus in 2012 and 2013, but only if the Social Security surplus is included in the calculation. The Social Security surplus was not meant to be spent on other programs. It's not remotely clear that Congress can produce a surplus that does not include Social Security.

Nevertheless, Democrats in the Senate are planning to offer an amendment much like the one adopted last year that would show that the body intends to spend that "surplus" on extending parts of the Bush tax cuts that they describe as geared towards the "middle-class." While these do include the 10 percent rate and the child credit, they also include a cut in the estate tax to benefit families with estates worth several million dollars.

President Threatens Vetoes Over Small Differences in Spending

The Senate version calls for $18 billion above what the President has requested in discretionary spending (spending that must be approved each year) while the House version calls for about $22 billion over the President's request. This difference is relatively minor since the entire amount of discretionary spending requested by the President for fiscal year 2009 is $992 billion, and discretionary spending only accounts for around a third of all government spending. Nonetheless, the White House has signaled that the President is ready to veto bills that spend more on these programs than he has proposed, as he did last year. This raises the possibility that Congress could simply rely on continuing resolutions to keep the government running until the next president takes office.

A new report from Citizens for Tax Justice shows that the federal estate tax continues to reach less than one percent of estates, despite the complaints of anti-tax activists that middle-class people are crushed by the so-called "death tax." In most of the states that are home to Senators who want to abolish the estate tax, the percentage of estates affected is particularly low.

Under the Bush tax cuts, the estate tax is scheduled to change to allow even more estates to escape federal taxation. In 2004 and 2005 estates worth up to $1.5 million (or $3 million for estates owned by a married couple) were exempt from the estate tax. (Most of the estates listed in the new report were subject to that exemption.) Since then, the exemption has increased to $2 million ($4 million for married couples) and in 2009 the exemption will increase to $3.5 million ($7 million for married couples). In 2010 the estate tax will disappear entirely. After 2010 all the Bush tax breaks expire, including this generous treatment of estates.

Some lawmakers want to make permanent the complete repeal of the estate tax, which would cost over a trillion dollars over a decade. As this data makes clear, that would benefit very few families with the biggest estates.

Yesterday's Boston Globe breaks the story of how Kellogg Brown & Root (KBR), until last year a subsidiary of Halliburton, is avoiding hundreds of millions of dollars in federal Social Security and Medicare taxes by pretending its Iraq-based employees are working for a Cayman-Islands based "shell company."

According to the Globe, KBR has made a special arrangement to avoid paying taxes on about 10,500 of its American employees who are working in Iraq on various reconstruction programs. The way it works: KBR recruits people to work on reconstruction-related projects. But when the workers get their first paycheck, they see that it's not coming from KBR, but from a KBR subsidiary, Service Employers International Inc, (SEI).

Why such deception? Because unlike KBR, SEI is not based in the United States. SEI's corporate home is the Grand Cayman Islands. (Legally, anyway -- SEI has no actual offices in the Caymans, just a mailing address.) And while KBR employees working in Iraq would be subject to the 15.3 percent payroll tax for Social Security and Medicare (half of which is paid by the employer, the other half of which is paid by employees), SEI employees don't incur federal payroll tax liability because they're not working for a US-based company.

The Globe estimates that SEI is avoiding about $101 million in payroll taxes every year using this scam. If this has been going on throughout SEI's 5-year stint in Iraq, that's more than $500 million in revenue that won't be shoring up the Social Security system.

KBR representatives breezily dismiss this by pointing out that "the loss to Social Security could eventually be offset by the fact that the workers will receive less money when they retire, since benefits are generally based on how much workers and their companies have paid into the system."

So, for those looking for a more creative way of subverting Social Security than John McCain's privatization plans, here it is: reduce future Social Security benefits by pretending your employees aren't entitled to them!

One glitch in this clever plan, as the Globe alertly points out, is that Medicare benefits are not reduced for those who don't contribute. So the Medicare portion of the foregone 15.3 percent tax is money that is going to have to be raised through taxes on the rest of us. And Texas-based KBR is also avoiding state unemployment taxes on these workers, when means that they'll be ineligible for unemployment benefits later on.

In Massachusetts, there now appears to be a growing consensus that the state should put a stop to tax avoidance by highly profitable multi-state and multi-national corporations and adopt what is known as combined reporting. Earlier this year, the state's Study Commission on Corporate Taxation recommended moving towards combined reporting. Governor Deval Patrick included legislation to achieve that goal in his FY 2009 budget proposal, while Speaker of the House Sal DiMasi has also recently expressed support for the change.

There is far less agreement, however, about what to do with the nearly $500 million in additional revenue that combined reporting and other important tax reforms would ultimately yield. Governor Patrick would use a portion of that revenue to reduce Massachusetts' corporate income tax rate and Speaker DiMasi would use nearly all of it on such a rate cut. Yet, as ITEP's Jeff McLynch pointed out in testimony before the Massachusetts legislature earlier this week, lowering the corporate income tax rate would force the state to make larger spending cuts to close a $1.2 billion budget deficit and also preclude longer-term and far more economically productive investments in areas such as higher education, worker training, and public infrastructure. Just as importantly, lowering the corporate income tax rate in conjunction with a move to combined reporting would simply allow many businesses to keep the tax breaks that they took for themselves through avoidance schemes like passive investment companies and captive REITs.

The Massachusetts Budget and Policy Center has weighed in on this debate as well, issuing two new reports: one describing the state's tax system generally and another discussing the shortcomings of plans to reduce the corporate income tax rate.

Advocates in Kentucky have long been pushing for the implementation of a state Earned Income Tax Credit (EITC). The EITC is a popular, targeted tax credit that offers assistance to working families. Similar credits have been enacted in 22 states and the District of Columbia. The House Budget Committee passed a bill that would introduce a credit equal to 7.5 percent of the federal EITC, coupled with a broader state estate tax. The bill will now go before the full House.

Policymakers in Connecticut have revived their efforts - stymied by a veto by Governor Jodi Rell - to enact a refundable EITC equal to 20 percent of the federal credit. A bill creating such a credit was approved by the General Assembly's Human Services Committee in late February; see this recent testimony from Connecticut Voices for Children on the measure's potential impact.

The state of Washington, despite lacking a personal income tax, could also be moving towards adopting a version of the EITC. Called the Working Families Credit, it would provide as many as 350,000 Washington residents with a credit amounting to 10 percent of their federal EITC, thus offsetting some of the impact of Washington's highly regressive tax system.

In more low income tax relief news, the Idaho House Revenue and Taxation Committee voted this week to increase the state rebates offered to offset the state's sales tax on groceries. Currently Idaho residents receive a $20 credit as an offset to the sales tax on groceries (more for seniors). The proposal being debated in the House would provide increased and targeted tax relief. For example, the new expanded credit would offer $50 per family member if the family's income is less than $25,000. The value of the rebates would increase each year until the maximum credit of $100 is reached. By 2015 the proposal is expected to cost about $122 million. Read more about options states have to provide targeted tax relief in ITEP's policy brief.

Georgia taxpayers dodged a substantial bullet this week. We've been following for months now Georgia's GREAT Plan and its various modifications. Originally the "Georgia Repeal of Every Ad Valorem Tax" would have repealed virtually all Georgia property taxes and replaced the lost revenues by expanding the state's sales tax base. The tax fairness and budget implications of such a regressive and costly plan did not sit well with many observers and lawmakers.

The bill's main proponent, House Speaker Glenn Richardson, eventually gave up the fight for the original bill. The bill then morphed into a cluster of property tax proposals including the freezing of assessed property values and capping local property tax revenues. (For more on the specific provisions take a look at the Georgia Budget and Policy Institute's fact sheet here). Recently, GBPI's Director Alan Essig had an editorial in the Atlanta Journal Constitution titled, "Have Responsible, Not Reckless, Tax Reform."

It seems that more than a few lawmakers agreed with Essig.In a victory for tax justice advocates, the newer version of the GREAT Plan was defeated in the Georgia House this week by a vote of 110 to 62, ten votes short of the 120 needed to pass.

The Florida Taxation and Budget Reform Commission meets only every twenty years and is supposed to be free of political pressures. Florida has the country's second most regressive tax structure, mainly because it has no state income tax. The state is facing a multi-billion dollar fiscal shortfall according to this Center on Budget and Policy Priorities paper.

Now would be the perfect time for the Commission to come forward and offer creative revenue-raising ideas. Yet, as a Palm Beach Post editorial rightly states, the Commission "is wasting its opportunity to update the state's outmoded tax structure." Even a proposal that would broaden the state's sales tax base and close loopholes appears to have been rejected. Many businesses cling to their unjustified exemptions from the sales tax. As the Palm Beach Post explains, "The argument that customers of lawyers, accountants and architects will go to Georgia to avoid a 6 percent tax has achieved almost magical reverence in Tallahassee." Broadening the sales tax base would go along way toward modernizing the state's tax structure and filling the state's budget hole. The inability to think outside of the politically popular box continues to plague Floridians.

Commission members and other policymakers would do well to read the Florida Center for Fiscal and Economic Policy's brief describing how the quality of life in Florida compares to that of other states. For example, Florida has the 2nd highest percentage of uninsured children in the country and is 50th in per capita funding for higher education. Florida is the perfect example of residents getting the government they pay for.

Ideas are being floated in Alabama and Illinois to address the regressive nature or their tax structures. Proponents of a revenue-neutral plan that has gained some attention in Alabama claim that it would cut taxes or keep them at their current level for 80% of taxpayers, while increasing taxes on only the wealthiest 20% of payers. Since the Alabama tax system is incredibly regressive, this would be a very welcome change.

Under the proposed plan, the income tax would be made more progressive by increasing personal exemptions and standard deductions, at a cost of about $250 million per year. Additionally, the regressivity of the Alabama sales tax would be reduced by exempting groceries. The grocery exemption would bring Alabama closer in line with the overwhelming majority of states, as Alabama is one of only two states that makes no effort to mitigate the regressive effects of the grocery tax. The $550 million price tag attached to these tax cuts would be paid for by eliminating Alabama's regressive tax deduction for federal income taxes paid. Only two other states allow for a full deduction of federal income taxes paid. Eliminating this deduction would increase taxes the most for those wealthiest Alabamians who have the highest federal income tax liabilities.

The reforms proposed in Illinois, and just recently approved by a Senate committee, would result in a net tax increase of about $3.8 billion to be used to fund education, early childhood programs, pensions, health care, and construction projects. Given that Illinois is projected to have budget deficits this year and for years to come, progressive tax increases seem like a very good idea. To ensure tax fairness, revenues would be raised by the most progressive tax available - the income tax. The personal income tax rate would increase from 3% to 5%, and the corporate income tax rate would rise from 4.8% to 8%. Offsetting much of this tax increase would be property tax cuts (a minimum of 20% of the school portion of property tax bills) and income tax credits for low-income families.

Unfortunately, the governors in each of these states are opposed to the plans (primarily to the tax increases for wealthier taxpayers). This means that if tax reform is to occur in 2008, it could be much less progressive than what has been proposed thus far. It's certainly refreshing, however, to see state lawmakers discussing these kinds of relatively major tax overhauls with fairness considerations obviously on the top of their agendas.

In case you thought the dearth of Halliburton-related scandals in the news lately meant that the company's leaders were regaining their moral compass-- fear not. Yesterday's Boston Globe breaks the story of how Kellogg Brown & Root (KBR), until last year a subsidiary of Halliburton, is avoiding hundreds of millions of dollars in federal Social Security and Medicare taxes by pretending its Iraq-based employees are working for a Cayman-Islands based "shell company."

According to the Globe, KBR has made a special arrangement to avoid paying taxes on about 10,500 of its American employees who are working in Iraq on various reconstruction programs. The way it works: KBR recruits people to work on reconstruction-related projects. But when the workers get their first paycheck, they see that it's not coming from KBR, but from a KBR subsidiary, Service Employers International Inc. (SEI). The Globe's Farah Stockman quotes several KBR hires who had no idea they were working for SEI until they landed on the ground in Iraq.

Why such deception? Because unlike KBR, SEI is not based in the United States. SEI's corporate home is the Grand Cayman Islands. (Legally, anyway--- SEI has no actual offices in the Caymans, just a mailing address.) And while KBR employees working in Iraq would be subject to the 15.3 percent payroll tax for Social Security and Medicare (half of which is paid by the employer, the other half of which is paid by employees), SEI employees don't incur federal payroll tax liability, because they're not working for a US-based company.

While KBR isn't releasing information on SEI employees' pay, the Globe's Stockman estimates a ballpark average pay of $63,000 for their 10,500 Cayman-based workers. At 15.3 percent, this would mean SEI is avoiding about $101 million in payroll taxes every year. And if this has been going on throughout SEI's 5-year stint in Iraq, that's more than $500 million in revenue that won't be shoring up the Social Security system.

The good news, according to Stockman, is that virtually none of KBR's competitor companies for Iraq reconstruction contracts have been pulling the same shenanigans:

Other top Iraq war contractors - including Bechtel, Parsons, Washington Group International, L-3 Communications, Perini, and Fluor - told the Globe that they pay Social Security and Medicare taxes for their American workers.
"It has been Fluor Corporation's policy to compensate our employees who are US citizens the same as if they worked in the geographic United States," said Keith Stephens, Fluor's director of global media relations.

The bad news is that the US Defense Department apparently knew about KBR's malfeasance four years ago, in 2004-- and didn't do anything about it. Pentagon auditors told the Globe they were OK with KBR's offshore shenanigans because the tax savings "are passed on" to the US military.

You'd have to know a lot more about the bidding process for reconstruction contracts to know whether this is true. Since labor is a big cost for these contractors, the ability to reduce these costs by 15 percent would clearly make it easier for KBR to underbid its competitors. But would they underbid by the full 15.3 percent, or by just enough to make sure they get the bid? Take a wild guess.

Now, if KBR is shortchanging Social Security and Medicare trust funds by $500 million, we should be upset about this, right? The Globe says KBR representatives breezily dismiss this argument by pointing out that "the loss to Social Security could eventually be offset by the fact that the workers will receive less money when they retire, since benefits are generally based on how much workers and their companies have paid into the system."

So, for those looking for a more creative way of subverting Social Security than John McCain's privatization plans, here it is: reduce future Social Security benefits by pretending your employees aren't entitled to them!

One glitch in this clever plan, as the Globe alertly points out, is that Medicare benefits are not reduced for those who don't contribute. So the Medicare portion of the foregone 15.3 percent tax is money that is going to have to be raised through taxes on the rest of us.

But as long as these employees figure out some other infallible way to put aside an adequate nest egg for retirement on their own, the rest is gravy, right? Well, no. As it turns out, Texas-based KBR is also avoiding unemployment taxes on these workers, when means that they'll be ineligible for unemployment benefits later on.

There's a simple solution to the whole problem, which is for Congress to pass legislation requiring companies receiving defense contracts to refrain from artificially offshoring its employees. In the Senate, John Kerry has a bill that would do just that.

We noted a couple of weeks ago that presidential candidate John McCain appeared to be following in the footsteps of the first President Bush by making a pledge that he would almost certainly not be able to keep as President: "no new taxes." But in a recent interview with the Wall Street Journal, McCain laudably retreats from this position:

WSJ: On ABC's "This Week" on Feb. 17, in response to a question, "Are you a 'read my lips' candidate, no new taxes?" you replied, "No new taxes." Did you mean that literally?
McCain: I'm not making a "read my lips" statement in that I will not raise taxes. But I'm not saying I can envision a scenario where I would, OK? But I'm not making it a centerpiece in my campaign.
I want lower taxes. I want the family to keep more of their money.

McCain clearly wants to enact more tax cuts, of course. In the same interview, here's his prescription for getting the economy going again:

I would go very public in advocating that the tax cuts be made permanent, otherwise Americans are looking forward to a tax increase at a vulnerable time in our economy. I would call for the elimination of the AMT [alternative minimum tax]. And we absolutely need to reduce corporate tax rates, which are the second highest in the world.

But the good news is that he's not taking a blood oath that this is the only acceptable outcome. In today's political climate, that (sadly) counts as a victory for fiscal sanity.

Now that John McCain is semi-officially the Republican nominee for president in 2008, more attention is being paid to the important question of how he'd restructure the US tax system. As we pointed out recently, McCain's current position on extending the Bush tax cuts (he wants to) is sharply at odds with his speeches (and, more importantly, his votes) during the Bush administration's tax-cutting spree between 2001 and 2005. In short, he not only voted (sensibly, in our view) against various editions of the Bush tax cuts-- he also explained quite clearly that he thought these cuts were too tilted to the wealthiest Americans and would bust the budget. And he now claims not to be troubled by either of these concerns, despite the fact that both of these concerns remain quite accurate.


In yesterday's New York Times, Elizabeth Bumiller surveys the inconsistencies in McCain's policy positions across a number of issues, and finds that "[H]is most striking turnaround has been on the Bush tax cuts, which he voted against twice but now wants to make permanent." Here's Bumiller's take on McCain's shift:

In May 2001, Mr. McCain was one of only two Republicans...to vote against President Bush's $1.35 trillion 10-year tax cut. On the Senate floor, Mr. McCain said, "I cannot in good conscience support a tax cut in which so many of the benefits go to the most fortunate among us, at the expense of middle-class Americans who most need tax relief."
Two years later, Mr. McCain was one of three Republicans to vote against additional Bush tax cuts... because, he said then, the costs of the Iraq war were not yet known. Specifically, he said he was open to the idea of tax cuts in the future, "but not until Congress and the administration have a better understanding of the costs of war and peace."
Later, he said he also opposed the 2003 tax cut because it, too, disproportionately benefited the rich. "I just thought it was too tilted to the wealthy, and I still do," Mr. McCain told Stephen Moore, a member of The Wall Street Journal editorial board, in an interview published on Nov. 26, 2005.
These days, Mr. McCain says at almost every campaign stop that he wants to make those tax cuts permanent rather than have them expire, as the law stipulates, because getting rid of them would have the effect of a tax hike. He rarely mentions that he originally opposed them or that he did so in large part because he thought they were too tilted to the rich -- an objection that
conservatives consider heresy.
When pressed, Mr. McCain now says he voted against the tax cuts because they were not accompanied by sufficient spending cuts, an explanation somewhat more palatable to the right. Asked last week on his campaign plane if he thought the tax cuts were too tilted to the rich, Mr. McCain sidestepped the question and replied that he preferred his own tax proposal at the time, which he said was "more tilted towards the middle class."

We've argued before that the "flip-flop" epithet is often just silly. Consistency is often a foolish standard to impose on lawmakers in an ever-changing world, as our recent foreign policy exploits remind us-- in 2003 it was not all that hard for lawmakers to make what turned out to be the wrong choice on invading Iraq, and by 2005 it was pretty clear that those initial decisions were based on bad information stoked by a trigger-happy administration and a compliant media.

But when McCain was voting against the Bush tax cuts, we didn't need the CIA to help us evaluate them. McCain's earlier criticisms of the Bush tax cuts' fairness were based on the complete (and entirely accurate) information that was available then-- and remains available now-- about who would benefit from Bush's proposed cuts.

Even on an issue as cut-and-dried as this, however, you could make a case for why McCain's contradictory positions on the Bush tax cuts are sensible. McCain could, if he wanted to, explain that he just doesn't value fairness or balanced budgets as much as he used to, and that he now thinks we ought to pare down the size of government by any means necessary. If and when he does this, we can stop calling this a "flip-flop" and start calling it a lightning-quick, politically-aware evolution in his policy positions.

Until he does so, however, this seems like a case in which the "flip-flopper" label might fairly be applied.