September 2008 Archives

House of Representatives Votes Down Bailout Plan

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Plan Includes Steps to Rein in Executive Compensation for Entities Rescued by the Taxpayers

On Monday afternoon, the U.S. House of Representatives voted down the multi-billion dollar financial rescue plan (H.R. 3997), that the White House and Congressional leaders negotiated over the weekend. It was expected that the House would pass the plan on Monday, followed by the Senate on Wednesday. As of this writing, it is unclear what next steps lawmakers will take. House leaders of both parties supported the plan. They could hold a vote on a modified version of the bill in the hopes of picking up some supporters, as the vote was relatively close (205-228).

The plan the House rejected would allow for the Treasury Department to purchase bad debts or "toxic assets," particularly mortgage-backed securities, from the banks and other parties that currently hold them. The goal is to allow lenders to stay afloat and ensure that credit remains available -- which facilitates everything from home mortgages to loans for business. These assets could later be sold by the government when the market has stabilized. The end result for the taxpayers might be a profit or a loss, meaning that the long-term price is uncertain but will ultimately be less than the widely cited $700 billion figure.

Limits on Executive Compensation

As part of the plan, there would be limits placed on the compensation paid to top executives at the entities selling assets to the government. Currently, companies cannot deduct more than $1 million for compensation paid to an individual in a given year, but for entities participating in this program the limit would be lowered to $500,000. The current limit is often circumvented by companies that make "performance-based" payments and other types of payments, but some of these loopholes would be closed for companies participating in this program.

Severance packages (the often derided "golden parachutes") for executives departing from such an entity would be banned. For those entities whose assets are directly purchased by the government, this applies to any golden parachute payments and the entities would also have a "claw back" of any bonuses paid based on financial statements that later turn out to be incorrect. For those entities whose assets are obtained through an auction, the ban on golden parachutes would apply to any new agreements but not existing agreements.

These steps were considered reasonable by Democrats and even many Republicans who usually chafe at the idea of any government interference in how companies pay their employees. The difference between this situation and all the others is that the companies in question now are being propped up directly with taxpayer dollars, making any argument that the free market must be allowed to determine the optimal pay for executives sound ludicrous. Meanwhile, many lawmakers fear the fall-out from voters, whose basic sense of fairness might be offended by the idea that taxpayers are paying or partially paying compensation packages of millions of dollars for those managing the entities that seem responsible for much of the economic crisis.

Other Provisions Won by Congressional Leaders

Congressional leaders won several other concessions from the White House. Among them are the following:

First, several provisions are geared towards preventing a loss to taxpayers. The government would acquire warrants to obtain non-voting shares of stock of the entities whose assets are purchased, so that taxpayers can share in profits if they become profitable. If the deal results in a loss for the taxpayers after five years, the President must propose to Congress legislation to recoup the money from the financial sector. What shape this would take exactly is unclear, but House Speaker Nancy Pelosi and others had, over the weekend, discussed a fee on financial institutions after the five-year period.

Second, Congress will be able to conduct oversight and stop the flow of money to the program if necessary. Only $350 billion would be provided initially, and the rest would come in another installment in the future that Congress could block if they did not like how the program was being run. Congress would be able to exercise oversight by requiring accounting reports of the assets purchased, the formation of an oversight board, and the appointment of an inspector general for the program.

Third, for mortgages purchased by the Treasury, steps must be taken to prevent foreclosures by renegotiating monthly payments in cases when it will not cause too much loss to taxpayers, although what this means exactly is unclear. For mortgage-backed securities purchased by Treasury, the Treasury must lean on the servicers to do so. The Treasury can use loan guarantees, credit enhancements, and the Hope for Homeowners program for these purposes. Some advocates are displeased that another provision was not included which would allow judges in bankruptcy proceedings to alter the terms of mortgage loans.

Next Steps?

The bailout represents a spectacular failure of free-market ideology, which has apparently caused many conservative lawmakers to oppose it. Some progressive lawmakers may have also been offended by the idea of using taxpayer money to pay for the mistakes of wealthy investors and banking industry executives. Members of the House had initially planned on adjourning on Monday, but it is unclear as of this writing whether that will happen.

Ballot Update 2008: Arizona: A Proposal to End All Tax Increases?

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Arizona's Proposition 105 won't immediately change any taxes, but its implications for tax policy in the state are potentially severe. The question seeks to amend the state's constitution to require that any tax increase be approved by a majority of registered voters. This would be in addition to the requirement that tax increases enacted through the legislature be approved by 2/3 of legislators.

Under this new proposal, if, for example, only half of registered voters took the time to vote in an election where a tax increase was on the ballot, every single one of them would have to vote in approval of the tax measure for it to become law. Essentially, any registered voter that fails to vote will be counted as in opposition to the measure. As one observer puts it, "anyone who wants to vote no can just stay at home."

For some perspective, no ballot initiative (tax related or otherwise) has received approval from a majority of registered voters in Arizona since 1974. In fact, it's possible that at majority of registered voters do not even vote in some elections.

The passage of Proposition 105, coupled with the 2/3 majority requirement in the legislature, could perhaps bring to an end the possibility of any future tax increases occurring in Arizona. Needless to say, this would be a very irresponsible arrangement, given the recent budget troubles in the state.

Ballot Update 2008: Nevada: A Toothless Proposal with Great Ideals

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The attention paid to Nevada's ballot situation declined dramatically when a Proposition 13-style cap was kicked off the ballot due to election law violations. But voters will face another interesting tax-related proposal in November. Question 3, placed on the ballot by the Nevada legislature, seeks to amend the state's constitution to require that any proposed exemption to property taxes, sales taxes, and use taxes be demonstrated to have some social or economic purpose. Additionally, the proposal seeks to require that all new exemptions also be enacted with an expiration date, or "sunset provision".

The first of these requirements (that a social/economic purpose be demonstrated) will likely change very little in practice. The proposal is sufficiently vague on what constitutes a social/economic interest that the legislature should have no trouble demonstrating such an interest for any exemption it desires to enact.

The second requirement (that all exemptions be written with sunset provisions) may be a bit better in terms of practical effect. Of course, since no limit is placed on when any specific exemption must sunset, the legislature can easily bypass this requirement for all practical purposes by writing the legislation to sunset at some date absurdly far into the future. But the goal is good in concept. By requiring that all exemptions be periodically reexamined (or face expiration), parties receiving benefits through tax exemptions will be treated in a manner more analogous to those who receive government benefits through direct spending. Unlike budgetary outlays, which are usually revisited every year of two, tax exemptions are often tucked into the tax law and forgotten about, only to continue benefiting the parties in perpetuity.

So while Question 3 won't do too much to shake up Nevada tax policy, hopefully it will spark some useful discussion in the state about enacting more meaningful reforms.

Ballot Initiatives: An Often Crooked Process

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The runup to the 2008 elections has given us plenty of reminders of why direct democracy is generally not the best approach to tax reform. In North Dakota, a typo in the language of a proposed tax cut may actually result in a tax increase for some families. In Nevada, the failure of supporters to properly file thousands of signatures in favor of an (ill-conceived) property tax cap resulted in that measure being thrown off the ballot.

But while both of these rather innocent mistakes are undoubtedly serious, neither is as serious as the rampant dishonesty often involved in the signature collection process. In Arizona, for example, a staggering 42% of signatures for a transportation ballot proposal this year were found to be invalid. In North Dakota, though problem wasn't quite as rampant, one signature collector this week was found guilty of faking potentially hundreds of signatures for their regressive income tax cut.

While there may be compelling reasons rooted in democratic theory for allowing citizens to take matters directly into their own hands, it is also important to remember the benefits of representative democracy. A badly written ballot proposal backed by thousands of fraudulent signatures is hardly an improvement over whatever flaws the legislative process may have. The problems with the initiative process illustrate that there are good reasons for having those who we have elected (and whose salaries we pay) writing our laws.

New Jersey: Progressive Income Tax Reform Doesn't Scare Off the Wealthy

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When New Jersey enacted a new top income tax rate of nearly 9% on incomes of over $500,000, opponents of progressive tax policy issued dire warnings that the state's wealthiest residents would flee the state, with detrimental effects both on productivity and tax revenues. Needless to say, those fears proved to be baseless, as a new report out of Princeton University shows that out-migration by wealthy New Jerseyans has been nothing more than a "small side-effect" of the tax hike -- a policy that raises over $1 billion annually for the state. In fact, as a result of strong income growth among the more fortunate members of society in recent years, the number of New Jersey residents with incomes over $500,000 actually increased by 70% between 2002 and 2006.

You can read the report here. For more information, check out New Jersey Policy Perspective, one of the key groups involved in the original passage of this progressive policy.

Michigan Business Taxes: What's a Legislator to Do?

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For several years Michigan businesses lobbied hard for the elimination of the state's corporate tax and they ultimately proved victorious. Their efforts were so successful that the elimination of the Single Business Tax (SBT) was accelerated and the tax was eliminated two years early, despite the enormous two billion dollar hole that this would leave in the state's budget. When the SBT was on the chopping block business groups celebrated, but now some businesses are unhappy with the amount of taxes they pay even under the new Michigan Business Tax (MBT).

The legislative fight over a replacement tax was hard fought, but even many in the business community were realistic that the revenue had to be replaced. The Detroit Chamber of Commerce outlined guiding principles for the creation of a new revenue stream including these: "The state should proceed in a thoughtful and deliberate way. The state legislature and Governor must build consensus within the business community before adopting a new form of business taxation. Any replacement tax should not generate more business tax revenue than business taxes being replaced."

In July 2007, Governor Granholm signed legislation enacting the MBT, which includes a tax based on modified gross receipts and business income. While the Michigan Chamber of Commerce opposed the legislation, the Detroit Chamber ultimately endorsed the MBT. In 2007, Sarah Hubbard, vice president of government relations for the Detroit Regional Chamber, said the chamber supports the legislation and while the new MBT may not be perfect, "it provides the stability and certainty we need for economic development. I think philosophically this is a good bill. It rewards investment in Michigan."

Now fast forward. According to a survey by the Michigan Chamber of Commerce, businesses are up in arms about the MBT and nearly one-third of responding businesses saw their taxes more than double. What is a policymaker to do? The tax that businesses desperately wanted off the books is gone, the replacement tax that was endorsed by at least some businesses is on the books, and yet many still aren't satisfied. Perhaps this shows that businesses and legislators were too quick to accelerate the repeal of the SBT, especially given that a carefully studied alternative wasn't in place.

Battles Already Beginning for 2009 and 2010 Ballot Proposals

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It's never too early to begin preparing for future ballot battles, particularly when they are likely to dramatically affect states' abilities to fund public services that residents depend on. Here are three states that might see major ballot battles in 2009 and 2010.

Maine: TABOR Question Appears Likely in 2009

It looks like Maine voters may face a bruising battle over state spending limits in 2009. The "Maine Leads" consulting firm claims to have gathered enough signatures to place a "Taxpayer Bill of Rights" (TABOR) spending cap on the 2009 ballot.

Supporters of this initiative have apparently learned very little from the lessons of two other states making headlines in recent weeks.

Colorado voters gave TABOR a chance, but because of the excessive restrictions it placed on their government's ability to provide valued services, a major, permanent scaling back of the requirement is being voted on this November.

Similarly, though California lacks a TABOR spending cap, the state has plenty of experience with supermajority requirements in its legislature (which TABOR would impose on any tax increase). After the recent budget debacle in California, serious talk has recently surfaced of ending their 2/3 requirement for the approval of state budgets (as explained below). Maine would be wise not to follow down California's obviously failed path.

Fortunately, a strong opposition to the TABOR campaign can be expected. The Maine Center for Economic Policy is very familiar with the issue, having already worked on the front lines of a similar battle when TABOR was on the ballot in 2006. At that time, they authored a report worth revisiting, aptly titled: "TABOR: Not Right for Colorado, Not Right for Maine.

Utah: A Return to a More Progressive Income Tax in 2010?

The Utah Rings True Coalition is beginning the process of getting a graduated rate income tax onto the 2010 ballot. The current, 5% flat rate income tax that took effect this year is defended by numerous lawmakers in the state, despite the huge breaks such a system offers to wealthy taxpayers. The group will have over a year to gather the 92,000 signatures needed.

Utah Voices for Children has authored a variety of important policy briefs on the flaws of the flat-rate system. You can find them here.

California: Recent Budget Gridlock Renews Calls to End 2/3 Requirement for Budgets in 2010

With the recent gridlock surrounding the state budget still fresh in everyone's minds, multiple legislative leaders have voiced an interest in placing on the 2010 ballot a proposal to end supermajority requirements for passing state budgets. Referring to the recent delays the supermajority requirement created in enacting their 2009 budget, Senate leader Darrell Steinberg said "We can't keep doing this. This is ridiculous. It's unproductive."

And support for ending the supermajority requirement isn't coming only from the majority party. Republican state Senator Tom McClintock has said that "The two-thirds vote for the budget has not contained spending, and it blurs accountability! If anything, in past years, it has prompted additional spending as votes for the budget are cobbled together."

Sneaky and Unethical Travel Sites...

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This week Columbus, Georgia won an important victory against (an online travel service) in Columbus Superior Court.

First some background: Expedia can keep their prices so low because they negotiate with local hotels to pay discounted/wholesale rates for the rooms, and then they charge customers for the actual cost of the room. The tax charged by Expedia and paid by customers is on the room's actual cost. Here's the kicker: Expedia pockets the difference in tax between the wholesale cost and the room's actual cost.

This obviously leaves localities that levy lodging taxes like Columbus, Atlanta, and San Antonio out in the cold because they aren't collecting needed revenue on the actual cost of hotel stay, but the wholesaler's price. Not to mention the ethical implications of telling customers you are collecting a tax, but then pocketing a portion of it to line company's pockets. Expedia isn't the only travel site spending time in court. A lawsuit before the Georgia Supreme Court targets Orbitz, Travelocity, and fourteen other online travel sites.


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Fox News Anchor Demands that McCain Campaign Official Explain Why He Is Lying About Obama's Tax Plan

Think Progress caught Fox News anchor Megyn Kelly last week pushing back at McCain spokesman Tucker Bounds for defending his campaign's claims that Barack Obama intends to raise taxes on working-class people.

"But you guys have suggested he's going to raise taxes on the middle class and virtually every independent analyst who took a look at that claim said that's not true," Kelly said. "he'll raise it on people making $200,000 or $250,000, but not the middle class." When Bounds tried to defend his boss's honor, Kelly shot back, "I'm not giving him any credit. I'm saying what the independent analysts say. They say that claim is false."

Citizens for Tax Justice, along with many others, has made the same point in recent weeks. Last week CTJ released a fact sheet that refuted the McCain campaign's claims that Obama proposes "painful tax increases on working American families." Obama has proposed to repeal the Bush tax cuts for only married couples with incomes above $250,000 and singles with incomes above $200,000. Since the Bush tax cuts expire at the end of 2010 anyway, this means that for years after 2010, there would simply be no change in the law affecting taxpayers with incomes above those levels (except that a couple of Obama's tax cuts would benefit even these wealthy taxpayers). For everyone else, Obama proposes to extend the Bush tax cuts past 2010 and he also proposes a raft of new tax cuts targeting the middle-class.

Earlier this year CTJ found that only 2.1 percent of taxpayers have adjusted gross income (AGI) above $250,000 and only 3.2 percent have AGI over $200,000. Senator McCain has been telling crowds that "Senator Obama will raise your taxes." Unless Senator McCain is addressing only the richest 2 or 3 percent of Americans (which seems an unlikely campaign strategy) it's hard to avoid the conclusion that McCain has decided to mislead the public. In fact, it's so hard to avoid this conclusion that even Fox News has begun to accept it.

The Senate is poised to add a hundred billion dollars to the federal budget deficit by enacting more tax cuts. Democratic Senate leaders have stated that they believe new tax cuts should be paid for, but many Republicans insist on blocking any bill that increases anyone's tax bill, even if the legislation merely closes an egregious tax loophole. Their blocking tactics can succeed in the Senate, where a minority of 41 lawmakers can block most legislation. The House of Representatives, which is governed by the majority rule principle recognized by most modern democracies but not in the U.S. Senate, has passed legislation that includes most of these tax cuts but also includes revenue-raising provisions to offset their costs.

Senate leaders have apparently made a deal that would allow them to enact relief from the Alternative Minimum Tax (AMT) for a year and extensions of several temporary tax cuts targeted to various special interests (often called the tax extenders) at a cost of around $130 billion, and including a revenue-raising provision that would offset just $25 billion of that cost. The Senate is scheduled to take several votes on Tuesday, including one to provide AMT relief with the costs fully offset by revenue-raising provisions, but this is expected to fail because a minority of Senators will block it. The Senate is then expected to move on to approve AMT relief that is not paid for.

Important Revenue-Raising Provision Would Crack Down on Tax Avoidance Through Deferred Compensation

The revenue-raiser is certainly a worthy provision. It would shut down offshore tax schemes that help the already highly compensated avoid taxes on their deferred compensation. Generally, when a company pays into a deferred compensation plan for an employee, if that plan is "non-qualified" (meaning it exceeds certain limits that the super-compensated don't want to deal with) the company cannot take a tax deduction for the payment until it is actually received as income in later years by the employee. But some have figured out how to have their deferred compensation routed through an offshore entity in some tax haven so that there is no tax paid to the U.S. government or any other government, so not being able to deduct the payment is not an issue. This provision would make the deferred compensation in this situation immediately taxable to the individual, so that there would no longer be an incentive to use this scheme.

But this provision, worthy as it is, pays for less than a fifth of the total cost of the tax cuts included in the bill. The Bush administration and its allies in Congress have promoted the bizarre idea that any tax cut that is enacted for one year can be extended indefinitely without offsetting the cost because such an extension is merely "preventing a tax increase."

Republican Leaders Are Shocked -- Shocked I Tell You! -- that the AMT Will Affect More Taxpayers

This is most ludicrous in the case of AMT relief. The AMT is basically a backstop tax geared towards getting well-off people to pay some minimum tax no matter how proficient they are at finding tax loopholes to reduce or wipe out their tax liability. Tax liability is calculated under the regular rules and the AMT rules, and you only have to pay the AMT if your AMT liability exceeds your regular income tax liability. For most people who are not rich, this is usually not an issue. But the Bush administration chose to lower the regular income tax without making any permanent change to the AMT, so of course that means that more people are going have to pay the AMT. Another problem, albeit a less important one, is that inflation is eating away at the value of the exemptions that keep most of us from paying the AMT. The Clinton administration increased these exemptions, but no permanent increase in those exemptions has been made during the Bush years.

The AMT will affect over 20 million people this year if Congress does not act. In recent years Congress has passed several temporary "patches" to the AMT to prevent this from happening, and this year's patch will cost over $60 billion.

The Bush administration chose to not include a permanent fix to the AMT in its tax plan in 2001 because that would have increased the cost of the proposal. During George W. Bush's first presidential campaign in 2000, CTJ's initial analysis of the governor's tax proposal assumed that it did include a fix to the AMT, but Bush's advisers insisted that this was not true. Of course, we have ended up paying for AMT relief anyway, the only difference is that now President Bush and his allies can pretend that the need for AMT relief was entirely unexpected and that this somehow means it can be deficit-financed.

The Center on Budget and Policy Priorities helps us out with a little history lesson. This is what Senate Finance Committee ranking Republican Charles Grassley said in January of last year. It typifies what the President and his allies have been saying about the AMT:

"It's ridiculous to rely on revenue that was never supposed to be collected in the first place... It's unfair to raise taxes to repeal something with serious unintended consequences like the AMT."

Compare this to what Senator Grassley said when the first Bush tax cut bill was being debated:

"Roughly one in seven taxpayers will come under the shadow of the Alternative Minimum Tax by the end of the decade... That figure will significantly be higher if President Bush's tax plan is adopted, and that is according to the Joint Tax Committee of the Congress."

The Tax Extenders and Other Tax Cuts -- Some Bad, Some Good

The extenders include all sorts of handouts that either subsidize businesses that don't need subsidies (like the research credit), cut taxes in ways that are not particularly progressive (like the deduction for state sales taxes and the deduction for tuition which really only benefits fairly well-off families), or just offer very trivial benefits (like the provision allowing teachers to deduct $250 in classroom expenses, which yields a benefit of about $60 for teachers lucky enough to be in the 25 percent bracket). CTJ has explained in detail why Congress would be better off ending the ritual of passing "extenders" and should simply let these provisions expire.

There are surely some good provisions in the bill as well. A portion of the tax cuts (about six percent) are targeted towards disaster relief. One particularly progressive provision would make it easier for low-income people to receive the refundable portion of the child credit. Over a thousand organizations from all over the country supported this provision, including CTJ. This improvement in the child credit accounts for only around 2 percent of the cost of the entire bill, and we certainly wish that progressive provisions like this made up a much larger proportion of the tax legislation coming out of Congress lately.

Energy Tax Provisions

The Senate will also vote on a package of extensions and modifications of energy tax breaks on Tuesday. This package at least includes revenue-raising provisions to offset its $17 billion cost. One would limit -- but not eliminate -- the use of the section 199 deduction for manufacturing by oil and gas companies. (Apparently many Senators still believe that pumping oil or gas is "manufacturing" and scaled back an earlier proposal that would completely stop the energy companies from using the manufacturing deduction). Another requires securities brokers to report the "basis" of securities they buy and sell, which will help prevent evasion of capital gains taxes.

While some environmental organizations are applauding this package of incentives for everything from wind and solar power to electric cars, other green groups have thrown cold water on the party by criticizing the compromises that were made leading to passage.

"Unfortunately," wrote the president of the National Wildlife Federation in a letter to the Senate, "by including sweeping new federal subsidies for oil shale, tar sands and liquid coal refining, the bill no longer represents the kind of progress America needs to confront global warming."

Nevada: Prop 13-Style Cap Kept Off Ballot Due to Election Law Violations

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Backers of Anti-Tax Measure Admit It Will Result in Major Cuts in Education

Anti-tax advocates in Nevada once again appear to have failed in their efforts to get a Proposition 13-style property tax cap onto the ballot. This is the third time in four years that the former Assemblywoman pushing the initiative has come up short -- and her group has now started to grasp at some fairly interesting straws in an effort to reverse that trend.

After failing to collect the required number of signatures needed in 2004 and 2006, this time a District Court judge ruled that the signature collectors had failed to comply with election law procedures for some 8,000 of the signatures they collected. After removing these signatures, the initiative is again well short of the number needed.

The backers of the plan have appealed the ruling to the state Supreme Court, though that effort is unlikely to change much since the ballots are already being printed (minus the property tax cap), and insufficient time remains to re-print them. Though the group backing the plan originally planned to appeal the ruling on the grounds that the relevant Nevada election laws are not sufficiently clear, with things appearing so desperate the group is now claiming that the District Judge who invalidated the signatures has a conflict of interest in the case. The conflict? His wife works as a "Reading Program Coordinator" with a Nevada public school system, and, like many in the education field, could lose a portion of her income, or even her job, if this irresponsible proposal is enacted.

In the words of the proposal's supporters: "Since Judge McGee's wife obviously has an... economic interest in the subject matter in controversy (her income), and the Judge knows it, Judge McGee was required to reveal possible or potential conflict of interest".

So who is this judge's wife? She's worked in the Washoe County School District for 27 years. During the first 14 years she taught grades K-2, and for the last 13 she's been a reading coordinator. Unfortunately for the anti-taxers, she's actually been officially retired for 5 years, though she continues to work with the district on a very limited basis. Though they were wrong on the facts, the anti-tax group's implicit admission here that their plan could force valued school employees to be let go is quite revealing.

Of course, such a scenario is not at all far-fetched. Prop 13 in California has had a significant role in the recent budget troubles plaguing that state. If a similar property tax cap were enacted in Nevada without offsetting increases in other taxes, similar budgetary troubles (accompanied by spending cuts in areas such as education) should be expected there as well.

Finally, a State Where Taxpayers Know Who They Are Subsidizing

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Rhode Island's Remarkable Tax Credit Disclosure Report

Last week, Rhode Island's Department of Revenue Division of Taxation released a study detailing the tax credits and incentives that nearly 120 companies operating in Rhode Island received over the past year. The report is a result of recent disclosure legislation intended to reveal to the public and policymakers just how much money Rhode Island corporations receive. The Poverty Institute has their own summary of the report here. The release of the report is quite timely as lawmakers are coming to terms with a projected shortfall and may dip into the state's rainy day fund.

The disclosure legislation required the state "to annually report the names, address and amount of tax credits received during the previous fiscal year." Some states have disclosure reports, but including the names of recipients of government largesse is a very unusual -- and positive -- step. Now Rhode Islanders know which businesses received part of the $54.1 million in tax subsidies doled out during the last fiscal year. CVS (the pharmacy chain) saved about $17.2 million through various credits and watchers of Wall Street may be interested to know that Bank of America benefited to the tune of $1.72 million from Rhode Island's attempts to spur development.

The state's tax administrator said, "This report is not intended to provide an analysis as to the effectiveness of the tax credit programs. It is simply aimed at disclosing the amount of tax credits received by taxpayers." But it's almost a certainty that this type of disclosure will affect the politics surrounding these tax credits, since voters actually know who and what they're subsidizing. We'll remain on the edge of our seats until next month when the Department releases a report detailing the, "the full-time and part-time jobs created or retained by each recipient, and the employee benefits provided; the degree to which each recipient has met tax-credit requirements and goals for job creation or retention and employee benefits; and the full cost to the state of each tax-credit awarded." Thanks to this report, policymakers, taxpayers and advocates can now have honest discussions about tax incentives with an understanding about who actually benefits.

EITC Campaign in South Carolina

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Advocates in South Carolina have launched a campaign (using an ITEP analysis) to educate policymakers and the public about the benefits of an earned income tax credit (EITC). The EITC receives bipartisan support and is a unique tool that serves to help working families rise from poverty. States choose to design their credits in different ways but having an EITC is always better than having none at all. South Carolina will hopefully join over twenty states in using an EITC to make their tax structure fairer. For more on the efforts of South Carolina Fair Share and their work on the EITC click here.

ITEP Submits Comments to Minnesota Tax Reform Commission

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This summer we brought you word of Minnesota Governor Tim Pawlenty's plan to create a "21st Century Tax Reform Commission." The 15 member Commission is meeting throughout the fall and is charged with "providing advice and recommendations to the Governor on options for revenue-neutral tax reform." The Governor said that "this Commission will specifically focus on improving our job climate by reforming Minnesota's tax laws."

The Commission seems bent on discussing ways to attract businesses solely by changing tax policy, apparently assuming this is the only factor that affects a state's economy. ITEP responded to a posting by the Commission asking for public comments. We took the opportunity to remind the Commissioners that taxes actually account for a small portion of business expenses, that businesses thrive when public investment thrives, and that low business taxes don't guarantee a company's loyalty. For example, in Minnesota, "despite receiving millions of dollars in tax breaks and incentives from federal, state, and local governments, Northwest Airlines has repeatedly reduced employees and threatened to close local Minnesota facilities." Click here to see our comments in full. To stay updated on the Commission's activities check out the Minnesota Budget Project's Minnesota Budget Bites blog.

A new fact sheet from Citizens for Tax Justice clarifies some of the myths about presidential candidate Barack Obama's tax plan that have been perpetuated by the campaign of his opponent, John McCain. While CTJ does not think that new tax cuts will improve the lives of ordinary Americans, we do feel that the public should receive accurate information about the tax cuts both candidates are offering.

President Bush and his allies in Congress enacted tax cuts that are scheduled to expire after 2010. Obama would repeal the Bush tax cuts for the richest 2 or 3 percent, which means that for years after 2010 there would simply be no change in the law for these taxpayers. For everyone else, Senator Obama would change the law to make the Bush tax cuts permanent, and he also proposes many additional tax cuts for the middle-class. Even the richest taxpayers would enjoy some tax cuts under Obama's plan after 2010 that they would not receive under current law (a partial extension of the cut in the estate tax and a partial extension of the loophole for dividends).

Senator McCain voted against the Bush tax cuts but now insists that they must all be made permanent for all Americans regardless of how rich they are. The fact that Obama would not make them all permanent for the richest 2 or 3 percent has been falsely presented by the McCain campaign as "painful tax increases on working American families."

Both candidates also propose additional new tax cuts, but Obama's target low- and middle-income families while McCain's generally target businesses and corporations.

Read the fact sheet.

Senate Subcommittee Finds Evidence of Evasion of Taxes on Stock Dividends through Offshore Schemes

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The Senate subcommittee chaired by Carl Levin (D-MI) held a hearing on Thursday that coincided with the release of its report laying out the evidence that offshore entities are evading taxes on dividends, and that U.S. financial institutions are helping them.

The controversy examined by the Homeland Security and Governmental Affairs Subcommittee on Permanent Investigations surrounds stock dividends paid by American companies to "non-U.S. persons." Such dividends are subject to a withholding tax of 30 percent, unless the recipient is located in a country that has a tax treaty with the U.S. allowing that country to have the primary (or sole) taxing power. Offshore hedge funds and other entities that are based in tax haven countries having no such treaty with the U.S. have carried out various schemes to avoid this tax.

A simplified version of such a scheme would consist of an offshore hedge fund entering into a "swap" agreement with a U.S. entity, handing its stock over to the U.S. entity in return for payments that are technically not dividends (and therefore not subject to the withholding tax) but that are "dividend equivalents." After the dividend is paid, the stock can be returned to the offshore hedge fund so that all parties are in the same position they were in before the swap took place, except that the offshore hedge fund has paid the U.S. entity a fee that is a fraction of whatever it saved by avoiding the tax.

The subcommittee found evidence that many leading financial institutions in the U.S. have peddled such schemes to their clients and have probably cost American taxpayers billions of dollars over the last decade or so. Morgan Stanley alone seems to have helped clients escape paying $300 million from 2000 through 2007. The report says that the Treasury and IRS have failed for years to make needed regulatory changes or take enforcement measures that would block these schemes, and calls for Congress to enact legislation that stops these institutions from disguising dividend payments.

Observers of issues related to tax evasion are not surprised by these findings. In 2001, CTJ director Robert McIntyre wrote about what he called the "tax cheaters' lobby" that was forming under the umbrella of the so-called Center for Freedom and Prosperity, which opposes attempts to crack down on those who wish to move their income offshore to avoid U.S. taxes. He explained that the Bush administration actually withdrew support for an OECD effort to solve some of these problems, and quoted the Treasury Secretary at that time, Paul O'Neill, as saying that stopping tax evasion "is not in line with this administration's tax and economic priorities."

Federal Highway Trust Fund Running on Empty

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As explained by U.S. Transportation Secretary Mary Peters, "At current spending rates, we will start the new fiscal year on Oct. 1 with a zero balance in the [Federal Highway] Trust Fund, and will continue to spend more than we take in." If allowed to continue untreated, the consequences of this shortfall would be immense, as every state depends heavily on federal highway dollars to carry out transportation construction projects. Fortunately, a transfer of $8 billion of general revenues into the Highway Trust Fund (aptly described by one Senator as a "short term fix") appears as if it is about to be adopted. Regardless of the resolution of this immediate problem, however, this development brings with it a unique opportunity to discuss two important points related to transportation funding.

First, following the announcement that the Trust Fund would fall short, Arizona and Oklahoma each halted work on scheduled transportation projects, and numerous other states made it clear that they would be forced to follow suit if the problem is not quickly remedied. Such a development would not only have long-term consequences for the efficiency of the nation's transportation infrastructure, but would also have immediate consequences in terms of lost jobs and lost wages.

Members of Congress did not dispute these points in their overwhelming support of the $8 billion transfer to the Trust Fund. But for some reason, talk of how best to bolster the economy (especially the talk going on in the Presidential election) has been held hostage to the idea that tax cuts must be at the center of any wise economic policy. Spending on government employment (such as in the transportation sector) is more important to the nation's economic vitality, and should not be overlooked, despite the zeal with which all sides have professed the importance of tax cuts. (Although at least Democratic leaders in the House and Senate are now discussing a new stimulus bill without tax cuts.)

The second debate that needs to take place in the wake of this transportation funding scare is over what to do about the long-term sustainability of the nation's transportation finance system. The Highway Trust Fund consists mainly of revenue collected by the federal 18.4 cent-per-gallon gasoline tax. The federal gas tax has not been raised since 1994, despite the fact that 18.4 cents in 1994 is the equivalent of what would be about 27 cents in today's dollars, adjusting for inflation. While gas tax hikes aren't likely to be something you'll hear much about during the Presidential election, serious consideration will have to be given to such a plan soon (or at least to some kind of sustainable fix for our revenue shortage) should another eventual shortfall in the Trust Fund be averted.

California: Intransigence and a Broken Budget Process Win Out?

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After a 76 day delay, California may finally have a budget for fiscal year 2009, as legislative leaders appeared to have struck a deal to close the Golden State's $15.2 billion budget deficit over the weekend. Those hoping for anything resembling sound public policy to emerge from these last-ditch negotiations will likely be sorely disappointed. It is being reported that, save for the suspension of a few business tax breaks, the agreement includes no major tax increases. Rather, it is premised on cuts in spending and accounting tricks likely to make next year's budget morass even deeper.

Specifically, it appears that the agreement will rely on "accelerated revenues" -- to the tune of approximately $5 billion -- to help close the budget gap. Those revenues are to be accelerated from fiscal year 2010 through stepped-up withholding and higher estimated tax payments. In short, California legislators seem to have decided to address their chronically under-funded budget by making next year's budget even more chronically under-funded.

The reason for the delay, and the reason the budget contains few substantive changes in tax policy, is clear. The California constitution requires a two-thirds supermajority in order to pass a budget, thus enabling Republicans in the legislative minority to block the kind of tax increases necessary to bring the budget into balance.

If there is any silver lining to this budgetary cloud, it is that individuals and organizations from across the political spectrum have started to raise real questions about whether such a supermajority requirement serves any purpose. Late last month, the Bay Area Council, a San Francisco-based and business-sponsored advocacy organization, called for a state constitutional convention to consider changes to California's budget process. Given the outcome of this particular budgetary negotiation and the fact that California has been unable to pass a budget on time in 23 of the last 32 years, it's not hard to see how some might be fed up with this approach to the budget. Indeed, such delays have real consequences for real people, as Jean Ross, the head of the California Budget Project, explained recently.

Of course, because it has served California so well, Senator John McCain, the Republican nominee for President, would like to see a similar super-majority requirement used at the federal level to constrain tax policy for the entire nation. There are certainly lessons to be learned from California's latest budget mess, but limiting one's options in the face of enormous budget deficits is not one of them.

Cigarette Taxes: Another State Seeking the Path of Least Resistance

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Kansas Governor Kathleen Sebelius this week again voiced support for a 50 cent cigarette tax hike, proposing that the revenue be dedicated to expanding health care coverage to more low-income Kansans. This story should sound familiar, as numerous tax-phobic states in search of ways to pay for popular government services have recently turned to the cigarette tax.

The benefits that a higher cigarette tax would produce in terms of reduced smoking deaths and improved public health are well-documented in the recommendations included in a recent report from the Kansas Health Policy Authority. But it's the tension such an arrangement would create between efforts to reduce smoking, and efforts to fund health care, that is controversial.

Arkansas this year attempted to pass a similar cigarette tax hike dedicated to funding a new health trauma system. South Carolina pursued similar legislation (eventually vetoed by the Governor) that was designed to direct new cigarette tax hike revenues into a popular health-care expansion.

In each of these cases, legislators were seeking to fund vital programs (each of which naturally increases in cost over time) with a revenue source that is sure to decline with time. South Carolina briefly considered one interesting approach to this problem (indexing the amount of its tax to a measure of medical cost inflation) but that proposal was ultimately dropped from the final bill.

Sustainability issues arise not only from inflation, however, but also from decreases in the popularity of smoking, and increases in the incentives to purchase cigarettes in low-tax areas. This latter component of the sustainability problem, in particular, has received a good bit of attention as of late.

With cigarette tax rates having increased substantially in many parts of the country, the rewards to smokers associated with shopping in low-tax areas have grown. A recent study by Howard Chernick entitled "Cigarette Tax Rates and Revenue" found that a 10% increase in the cigarette tax rate of one state can boost the revenue collections of a neighboring state by about 1%. Maryland provides one stark example of this phenomenon, where a recent tax hike has yielded significantly less than expected as a result of cross-border cigarette purchases and smuggling. The experience of New Hampshire, however, may suggest that this point has only limited applicability (see next story).

New Hampshire: Smoke More, Or We'll Hike Your Taxes!

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Here's the headline: "Tobacco Retailers Pressed to Sell More to Stop Tax Hike." Odd isn't it? New Hampshire retailers are in a panic, hoping to sell enough cigarettes to avoid a quarter cigarette tax increase from taking effect. Last year grocers lobbied hard against an increase in the state's cigarette tax, saying that they "could bring in the same revenues if given a chance to market the state's lower cigarette prices to neighboring states." Lawmakers heard their pleas and agreed to put the tax increase on hold to see if sufficient revenues were raised. In fact, a marketing campaign was said to be in the works.

You'd have to be living under a rock to not know that smoking can kill, but New Hampshire residents are being encouraged to purchase more cigarettes. Meanwhile, legislators cannot take action to improve health by discouraging smoking because they depend on this tax revenue to fund necessary services. This is what happens when states depend on excise taxes that don't grow with the economy and refuse to raise money in progressive ways. The government is placed in the odd position of encouraging whatever is being taxed, even if it's harmful.

Missouri: The Bizarre Pairing of Education and Gambling

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Missouri may bring us another example of a "sin tax" that results in state government promoting the "sin." If Proposition A survives legal challenges, Missouri voters will be asked to approve the ballot initiative which would limit the number of Missouri casinos, raise the gaming tax to increase school funding, and eliminate the loss limit. There are a lot of competing interests represented by the initiative, which explains why there are legal challenges in the works against the proposal. It would increase funding for education, which pleases most people. It would limit the number of casinos, which pleases voters opposed to gambling. And it would let people lose as much as they want to lose, which pleases casinos and compulsive gamblers. Some may see this initiative as an odd collection of conflicting goals, while others might see it as a clever compromise. Either way, one issue left unresolved is the uncertainty over how much revenue could really be raised over the long-term in this manner. This uncertainty, along with the ethical issues involved, should prod Missouri lawmakers to see the limits in this type of quick fix and start considering a more adequate and progressive income tax.

For someone who wants to make the Bush tax cuts permanent for all but the richest 2 or 3 percent of Americans, and add on top of that a lot of new tax cuts for middle-class Americans, it's surprising how often Senator Barack Obama is accused of proposing "painful tax increases" on American "families."

Few people remember the Clinton years as a time when the economy was strangled by taxes, but today almost no one in politics seems to consider allowing all of the Bush tax cuts to expire at the end of 2010, as they are scheduled to under current law. In keeping with this trend, Senator Obama proposes to make the Bush tax cuts permanent, except for those with incomes over $250,000 (or $200,000 for single people). Families with incomes under these levels would keep their Bush tax cuts and many would benefit from Obama's Making Work Pay Credit, his refundable education credit, his refundable mortgage credit and many other provisions. (In January CTJ found that only 3.2 percent of households in the U.S. will have adjusted gross income above $200,000 in 2008 and only 2.1 percent will have AGI over $250,000).

McCain Commercials Panned as Deceptive

Nonetheless, the McCain campaign has tried to paint Obama as a major tax-hiker. The campaign started out by trying to make hay of Obama's vote for the Democratic budget resolution for 2008 that assumed the extension of many -- but not all -- of the Bush tax cuts. That budget resolution assumed that the 25 percent rate would expire and revert to 28 percent, which could cause a tax increase for a single person with taxable income above $32,550, which comes out to almost $42,000 in total income.

Never mind that budget resolutions are not law and do not raise taxes. And never mind that Obama has repeated over and over that he would extend the Bush tax cuts for everyone except those with incomes over $250,000 (or $200,000 for singles).

As FactCheck explains, the McCain campaign aired a commercial saying Obama wanted to raise taxes for everyone making $32,000 a year, but even they realized this was an outright lie since taxable income is not the same thing as total income. So then they aired a commercial telling viewers that Obama would raise taxes on people making $42,000 a year and showed a woman reading to her two children. Of course, the $42,000 figure refers to a single person, and a head of household with two children could make more than $62,000 before falling into the bracket subject to the increased rate. And of course, none of this matters, because it is not part of Obama's tax plan.

The Latest Deceptions

The McCain people haven't stopped. The campaign has a new ad that speaks of Obama's "painful tax increases on working American families." Surrogates for the campaign have made statements that seem to indicate they are either proudly ignorant of the facts or outright liars. Media Matters points out that Senator Richard Burr (R-NC) told Tom Brokaw that Obama would raise taxes "across the board on the American people without exception."

McCain's Advisers Know Their Campaign Is Lying

The most damning aspect of these statements is that the chief economic adviser to Senator McCain has acknowledged that the Obama tax plan does not raise taxes. TIME's Michael Sherer wrote, back in July:

"Here is Douglas Holtz-Eakin, McCain's chief economic policy adviser. 'I used to say that Barack Obama raises taxes and John McCain cuts them, and I was convinced,' he told me in a phone interview this week. 'I stand corrected [about Obama's plans].'"

Encouraging News on the Mississippi Tax Commission Report

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The Mississippi Tax Commission, appointed by Governor Haley Barbour, recently produced a promising draft report of recommendations for Mississippi's tax code. Even more importantly, all indications are that the final version will be even better.

Among the major recommendations: Increase the standard deduction, as well as the personal and dependent exemptions. Eliminate numerous sales tax exemptions, and expand the tax to include more services. Hike the state's third-lowest in the nation cigarette tax rate, but don't dedicate those likely unsustainable revenues to any specific program. Participate in the Streamlined Sales Tax Agreement. Consider combined reporting. And finally, undertake steps to make the state's gas tax a more sustainable source of transportation revenues.

The Mississippi Economic Policy Center (MEPC) worked closely with the Commission throughout the process of drafting its recommendations, and has offered some additional recommendations (both in this formal statement, and in this policy brief) to which the Commission has been receptive. Among the ideas floated by MEPC and not already included in the draft report: Implement a state EITC. Cut the state's grocery tax rate (Mississippi is one of only two states that provides no relief from the sales tax on groceries). Index the standard exemptions and deductions to inflation. Broaden the state's low and narrow income tax brackets. Develop a capacity for tax incidence analysis. And improve data collection on the effectiveness of state tax credits.

It will certainly be exciting to see the final version of this report, and how it influences state tax policy in Mississippi.

ITEP Op-Ed: Property Tax Relief Made Simple

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Property tax assessment limitations (caps on how much your home's value can increase for tax purposes in any given year) are again frustrating and confusing many homeowners. we've heard complaints in the past about such limits creating vastly different tax bills between neighbors, or about those limits creating inefficient incentives that discourage moving. Now we're beginning to hear complaints about those same limits resulting in tax increases even when home values are plummeting. An ITEP editorial published this week in The Detroit News explains why this new phenomenon is a predictable component of these limits, why ending the occurrence of tax increases in down-years (as has been proposed in Michigan) is a bad idea, and what states should do instead to provide a more reasoned and straightforward brand of property tax relief.

Fortunately, there are some Michigan legislators that are already ahead of the curve when it comes to this issue. Two bills have been proposed this year with the goal of improving the state's circuit-breaker, though both have yet to advance.

Read the editorial.

Ballot Update: Florida Supreme Court Ensures Property-Sales Tax Swap Won't Make the Ballot

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The Florida Circuit Court ruling we reported on last month was upheld by the state's Supreme Court this week. As a result, the ill-conceived ballot proposal seeking to slash school property taxes will not be presented to Florida voters this November. The body that put the measure on the ballot -- The Taxation and Budget Reform Commission -- is not scheduled to meet again for another twenty years. That means the only option for enacting a property tax cut of the kind Florida has been stubbornly pursuing is to go through the Florida legislature. While it's not yet clear what the results of traveling down that path will be, it's fair to say that the cut, as proposed by the Commission, will not be adopted. Former state Senate President John McKay believes that "the effort, as it's currently conceived, is dead". The cries for property tax cuts aren't likely to face a similar demise anytime soon, however, and new developments from Florida seem inevitable in the coming weeks and months.

Ballot Update: Arizona Transportation Sales Tax Hike Doesn't Make the Ballot

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In a surprising development, Arizona's proposed one percent hike in the state sales tax rate was kept off the November ballot after falling short of the number of valid signatures needed. The secretary of state found that a startling 47% of submitted signatures were invalid -- a finding the state's Supreme Court recently upheld.

Though Arizonans undoubtedly would have benefited from the influx of transportation dollars that this measure could have provided, the sales tax is arguably the worst method possible for funding transportation. Two competing principles exist for evaluating any tax proposal: the "ability-to-pay principle" and the "benefits principle". Even if you're unfamiliar with these principles by name, it's not at all difficult to see how the sales tax fails them both.

Under the "ability-to-pay principle", those best able to afford to pay for government should be asked to contribute the most. This is the standard by which most taxes are judged. Progressive income taxes that ask the most of society's wealthiest members fulfill this principle, while inherently regressive sales taxes do not.

In contrast, under the "benefits principle", taxes should be paid by those individuals who receive the benefits the government provides. In the realm of transportation, multiple options exist for fulfilling this principle, including the gas tax, tolls, vehicle sales taxes, registration/license fees, and in some cases even property taxes. The sales tax is only loosely (if at all) related to how much one benefits from the transportation infrastructure, and thus fails this principle as well.

Many (perhaps most) in the policy community believe the "benefits principle" to be the proper standard for judging transportation finance measures. But even if they're wrong, the fact that the sales tax fails both of the above mentioned principles means there is little or no reason to support such a measure.

Unfortunately, the attractiveness of the sales tax in the eyes of many lawmakers has grown as states seek to fill transportation funding shortfalls with anything but an increase in the gas tax. For example, a Minnesota bill that passed earlier this year allowed for several counties to raise their sales taxes for transportation. A Los Angeles transportation-related sales tax hike appears close to the ballot. Finally, numerous sales tax ideas have been floated in Virginia as a way of plugging a massive transportation funding shortfall. More state and local governments can be expected to follow this trend soon if gas tax revenues don't rebound.

Ballot Update: Dilemma in Minnesota Pits Fairness Against Conservation

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This November Minnesota voters will be asked to approve a change to the state's constitution. If the Clean Water, Land and Legacy Amendment is approved, Minnesota's constitution will be changed to increase the state sales tax by three-eighths of one-percent (from 6.5 to 6.875 percent). The new rate will begin on July 1, 2009 and expire in 2034. The sales tax rate increase will bring in an estimated $290 million a year for the next 25 years. Revenues generated will be divided among a variety of programs including: water quality, wildlife habitat, arts and culture, and parks and trails. Advocates of tax fairness may be torn about how to vote on this amendment given that sales taxes are regressive and take a larger share of income from low income folks than from the wealthy. It will be up to the voters to decide if clean lakes, conservation efforts, and environmental protection trump tax fairness in this particular situation

Ballot Update: Measure on the Ballot in North Dakota Despite Fraudulent Signature Collection

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It's official. When North Dakotans go into the voting booth this fall, they will be faced with a ballot initiative that would cut their state's personal income tax in half and reduce their state's corporate income tax by fifteen percent. The initiative, known as Measure 2, was approved late last month by Secretary of State Al Jaeger, despite the submission of several hundred fraudulent signatures, including at least one from beyond the grave.

While the process by which the initiative made its way onto the ballot may be troubling, its likely impact, should it make it into law, is even more worrisome. North Dakota voters and policymakers alike may be feeling flush due to an oil-boom-fueled budget surplus, but that surplus won't be around forever. The enormous tax cut that Measure 2 would engender, well in excess of $100 million per year, would be forever. Moreover, the vast majority of the tax reductions that Measure 2 would spawn would be realized by the very wealthiest North Dakotans -- at a time when the latest data from the Census Bureau show no improvement in income for the typical North Dakota household or in the state's poverty rate.

Oklahoma: In the Future, Rethink the Past

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With the fall elections a scant two months away, it's never too early to think about the harsh realities and difficult choices that state lawmakers will face once they are sworn in.

As two new fact sheets from the Oklahoma Policy Institute suggest, top on the agenda of Sooner State legislators should be the reconsideration of some of the tax cuts enacted between 2004 and 2006. For instance, reductions in the top personal income tax rate put in place over the past several years have delivered an average tax cut in excess of $11,000 per year for the richest 1 percent of Oklahomans, yet have helped to suppress income tax collections to the point where they have grown by less than half a percentage point each year over the last two fiscal years. As OK Policy observes, those tax dollars, rather than flowing back to the wealthy few, could be devoted to critical public purposes, such as "addressing critical staffing shortages in [Oklahoma's] child welfare and correctional systems."

Students Boycott School to Highlight Flawed System

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Chicago public school students boycotted classes this week. Illinois State Senator James Meeks organized a student boycott of public schools during the first week of classes to draw attention to the state's school funding crisis. The boycott began on Tuesday and was expected to go all week, but ended Wednesday when Sen. Meeks announced that Governor Blagojevich agreed to meet with him to discuss possible solutions. The Governor refused to meet with Senator Meeks if the boycott was in effect. Hundreds of students were said to have participated and organizers coordinated teach-ins for students in lobbies of area companies like Boeing and the Chicago Mercantile Exchange.

The state's current method of funding schools is based largely on property taxes and results in drastic and inequitable differences in per pupil spending across the state. This example cited by the Chicago Tribune shows the inherent inequity. New Trier Township spent nearly $17,000 per student in 2005-06 and Sunset Ridge spent about $16,000, while Chicago Public Schools spent an estimated $10,400 per student. For several years, Senator Meeks, Illinois Voices for Children, the Center on Tax and Budget Accountability, and ITEP have advocated reform of Illinois' tax structure in favor of less reliance on regressive property taxes and increased reliance on income taxes as a way to correct the flaws of the current school funding structure. Let's hope that this protest encourages the Governor to see beyond his "no new taxes" pledge and reform a terribly broken system.

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