Revised March 4, 2009

On Thursday, President Obama sent his budget blueprint to Congress. While many of the details remain to be seen, it's the most progressive budget we've seen in years. It's also a more honest budget than the last administration ever proposed. For example, it doesn't pretend that the Alternative Minimum Tax (AMT) will expand its reach to tens of millions of additional taxpayers (which Congress never allows), and it includes the cost of the Iraq and Afghanistan wars instead of pretending that they will end this year.

It goes a long way towards making the tax system fairer and more progressive. The tax portion of the budget would allow the Bush tax cuts to expire for the very rich and includes revenue-raising provisions that are progressive, environmentally friendly and which, in some cases, would make the tax code simpler.

But the budget blueprint does muddle the cost of extending the Bush tax cuts for all but the top 2 percent of individual taxpayers by using a baseline that assumes the Bush tax cuts have already been made permanent, when in reality they are scheduled to expire at the end of 2010. (In other words, the Obama administration is using a baseline that assumes John McCain won the presidential election and his allies swept both chambers of Congress and were able to enact his tax policies!)

Continuing the Bush tax breaks for 98 percent of taxpayers and providing AMT relief will cost $2.6 trillion over the 10-year budget period. That's a steep price to pay for tax cuts that have not delivered their promised benefits. As the budget moves through Congress, we hope that the goal of long-term deficit reduction will prevail and the Bush tax breaks will be reduced even more. This could mean, for example, further raising the rates on capital gains and scaling back the cut in the estate tax. These changes would help move us towards the day when the government actually collects enough revenue to pay for the services it provides.

In addition to extending a lot of the Bush tax cuts and providing AMT relief, the President's budget would also provide around $770 billion in additional tax breaks targeted to working class people, plus over $70 billion in tax cuts for business. These are offset with several revenue-raising provisions, including a "cap and trade" program to limit carbon emissions, cleaning up the international tax system and eliminating loopholes for energy companies and other corporations.

These provisions are all included in the tax portion of the budget proposal. Other parts of the proposal include other revenue-raisers. For example, the budget includes a new provision that would limit the benefit of itemized deductions so that they could not reduce taxes by more than 28 percent (instead of, say, 35 percent for people rich enough to be affected by the 35 percent income tax rate). This provision would raise revenue to offset new health care spending.

This budget may not be perfect, but it does take several steps to find revenue to invest in our future and support working class families.

Next week, CTJ will provide a more detailed analysis of the President's budget and its tax provisions.

Six Holdouts Realize State Budget Shortfall Could Not Be Fixed with Cuts Alone

The governor of California has finally signed a budget. After a prolonged struggle to convince a handful of anti-tax lawmakers that the state's problems were too large to be fixed without additional revenues, a package of spending cuts and tax increases was finally cobbled together. On the tax side, the most notable provisions include a temporary one percent sales tax increase, a temporary hike in state income tax rates, a temporary increase in the vehicle license fee, and a temporary cut in the dependent exemption credit. That's a lot of temporary help for a problem that's not likely to go away.

Negating some of the usefulness of these revenue gains are temporary tax credits for businesses, home buyers, and movie and TV production. Even worse, a permanent tax cut for multi-state corporations was enacted in the form of an optional single sales factor apportionment method. Nonetheless, securing a budget with any additional revenues at all was an important (and difficult) first step.

But the drama in California isn't over. One of the major compromises used to secure the supermajority needed to pass a budget was the inclusion of a provision placing a spending cap on the ballot for a May 19 special election. If voters reject the spending cap, the temporary tax increases will expire in early to mid 2011. If the spending cap is approved, however, the increases will be allowed to continue through early to mid 2013. Needless to say, you can expect plenty more coverage of the California saga as the story develops.

We've recently highlighted a variety of progressive revenue raising options gaining serious attention in New York and Wisconsin. This week we bring you yet another idea that's recently been the subject of debate, though this one applies to fewer states. Those seven states still offering income tax deductions for federal taxes paid (i.e. Alabama, Iowa, Missouri, Montana, North Dakota, Louisiana, and Oregon), should immediately repeal, or at the very least dramatically scale back, that deduction.

The federal income tax deduction takes what is perhaps the best attribute of the federal income tax -- its progressivity -- and uses it to stifle that very attribute at the state level. Since wealthy taxpayers generally pay more in federal taxes than their less well-off counterparts, allowing taxpayers to deduct those taxes from their income for state income tax purposes is a gift to precisely those folks who need it least. And since most state income tax systems possess a degree of progressivity, those better-off taxpayers who face higher marginal tax rates are benefited even more by being able to shield their income from tax via this deduction.

Iowa Governor Chet Culver most recently drew attention to this problem while urging lawmakers this week to end the deduction. The idea has also recently garnered attention in Missouri, where ITEP recently testified on a bill that would, among other changes, eliminate the deduction. Finally, another bill making its way through the Alabama legislature seeks to end the deduction for upper-income Alabamians.

With three of the seven states that still offer this deduction considering its elimination, this is definitely one progressive policy change to keep an eye on.

We've been lamenting for the past several years about the folly of Ohio's former Governor Bob Taft pushing through a phased-in 21 percent cut in income tax rates. Of course, the tax reductions made Ohio's overall tax structure less fair. Policy Matters Ohio recently released a report detailing the impact of the Taft tax cuts. Analysts there found that "key economic trends continued to go in the wrong direction after the tax overhaul." Despite this evidence, current Governor Ted Strickland has vowed to continue Taft's tax cutting legacy. But there is some hope brewing in the Buckeye state.

Representative Michael Skindell has called for freezing the phase-in of the Taft tax cuts for the wealthiest Ohioans. It's estimated that adopting Skindell's recommendation would bring in over $200 million and it's certainly a step toward making Ohio's income tax more progressive.

For tax justice advocates in Minnesota, it's a bleak time. Governor Tim Pawlenty is vehemently anti-tax, and his 21st Century Tax Reform Commission has largely followed his lead with recommendations to eliminate the state's corporate income tax and enact several investment tax credits, though in fairness the Commission does recommend two revenue raising options: expanding the sales tax base and increasing cigarette taxes. It's too bad that progressive revenue raising options weren't mentioned. It's hardly a surprise that some would like to see income tax cuts for the wealthiest Minnesotans preserved. But Wayne Cox at Minnesotans for Tax Justice argues against tax cuts in a recent commentary, correctly arguing that increasing the progressivity of Minnesota's tax structure would not harm the state's business climate. He warns that "the alternative is carrying out an even riskier plan that trims muscle, not fat."

There are more good proposals on improving the progressivity of state income taxes. Next we turn to Montana where Representative Dave McAlpin is trumpeting a "fix" to the state's 2003 major tax revision that reduced the top tax rate and bracket. State estimates were that the tax changes were supposed to cost $26 million a year, but in reality they actually cost the state $100 million. His legislation would introduce a new top income tax rate of 7.9 percent on Montanans with taxable incomes over $250,000, and help to right the wrongs of the 2003 revisions. If Rep. McAlpin's bill is adopted, the state could see $26 million in additional revenue and improve the progressivity of Montana's tax structure.

For more on the importance of progressive income taxes read ITEP's policy brief on this topic.

Recently, the Idaho House of Representatives voted nearly unanimously (68-1) in favor of legislation to allow nonitemizers to write off their property taxes, but this week the Senate defeated the measure. In Idaho, currently only taxpayers who itemize on their state income tax forms are eligible for the deduction. Ultimately the Senate defeated the legislation because of its $2 million price tag. But folks really interested in property tax reform would be wise to stay away from poorly targeted deductions and instead take a second look at expanding Idaho's elderly property tax circuit breaker (a credit designed to assist low income taxpayers with their property tax bills) and expand the credit to include nonelderly homeowners and renters.

The President's Fiscal Responsibility Summit

Expect to see some drama next week around the federal budget. First, on Monday, President Obama will convene a "Fiscal Responsibility Summit" with Congressional leaders and others to "to send a signal that we are serious" about the long-term deficits faced by the federal government, focusing on entitlement programs. Obama has been sending signals that he is open to any and all ideas about how to get the federal budget back under control once our economy is back on track. Which is alarming, because a lot of ideas floating around out there are incredibly bad.

For one thing, the supporters of the Bush tax cuts still fail to acknowledge that those tax cuts account for about half of the federal debt piled up by the Bush administration before the financial crisis. Pretty much all of the Republican leaders in Congress claim to be deeply concerned about the deficit, but none have waivered in their commitment to the policies that have created much of it.

Another problem is the focus on entitlements. Medicare faces a crisis, which is the crisis of exploding health care costs that we can only contain by reforming the entire health care system. Exploding health care costs are, many analysts have concluded, the single largest cause of long-term federal budget deficits.

But several right-wing policy advocates have made a cottage industry out of claiming that Social Security must be slashed in order to save America. The most notorious is Peter Peterson, the trillionaire who has set up a foundation to promote his version of "fiscal responsibility" and who apparently has been invited to the summit. CTJ director Robert McIntyre lambasted Peterson back in 1994 in a column in the American Prospect, saying, "Along with tax cuts for the rich, he explicitly endorses tax increases for the poor and the middle class as well as sharp reductions in what average families receive from the government."

McIntyre's criticism is mild compared to the assessment progressives give Peterson today. "Peterson, who made his fortune on Wall Street," writes Robert Borosage, "never raised a word about the dangers of hyper-leveraged finance houses gambling other people's money. He never expressed qualms about the leveraged buyout artists who were using debt finance to rip apart companies. He didn't fund an all-out effort to stop Bush from raiding the Social Security surplus to pay for tax cuts for the rich. But now he wants folks headed into retirement who have already prepaid a surplus of $2.5 trillion to cover their Social Security retirements to take a cut or work a few years longer to cover the money squandered on bailing out banks, wars of choice abroad and tax cuts for the few."

The President's Fiscal Year 2010 Budget Proposal

The drama won't end at the President's Fiscal Responsibility Summit. The President is also expected to release the outlines of his budget proposal next week, and it could contain some very important tax proposals. During his presidential campaign, Obama proposed to extend the Bush tax cuts (which mostly expire at the end of 2010) for all taxpayers except those with incomes above $200,000 (or $250,000 for married couples). CTJ calculated that this would essentially mean that the Bush tax cuts are extended for all but the richest 2.5 percent of taxpayers. It would also cost well over a hundred billion dollars a year, and that's before you add the cost of Obama's promised reform of the Alternative Minimum Tax or his other tax proposals. Meanwhile, he also pledged to repeal the Bush tax cut early for those taxpayers with income above the $200,000/$250,000 threshold, but he has hedged on that promise in recent months.

Obama also campaigned on promises to close some tax loopholes (like the carried interest loophole and loopholes enjoyed by the oil and gas industry) and clean up other parts of the tax code. It will be interesting to see what components of his campaign promises are included in his budget proposal.

Interestingly, the administration has stated that it will not engage in the same gimmicks used by the previous administration to conceal the true size of the budget deficit. For example, the Bush administration always assumed that the Alternative Minimum Tax (AMT) would be allowed to extend its reach to tens of millions of additional taxpayers, which of course made the budget appear more balanced than it truly was, even though everyone knew that Congress would enact a "patch" every year to prevent the AMT from expanding its reach. So this budget process may be more transparent than any we've seen in years.

On February 13, Rep. Peter DeFazio (D-OR) and seven co-sponsors introduced a bill that would impose a tax on securities transactions. The 0.25 percent tax would be imposed on the value of the securities traded. Rep. DeFazio proposes the measure as a way to pay for the various Wall Street bailouts.

This proposal would, in theory, raise revenue from the folks who benefitted from the bailouts. But there's another proposal we like better. Congress should simply eliminate the loophole in the income tax for long-term capital gains and corporate stock dividends, which subjects these forms of income to a top rate of just 15 percent.

People who earn wages must pay income taxes at progressive rates as high as 35 percent, and the first $102,000 a person earns in a year is, in addition, subject to payroll taxes of around 15 percent. So allowing people who live off their investments to pay a tax rate of only 15 percent is grossly unfair. As Warren Buffet recently pointed out, he pays a lower tax rate that his secretary, thanks largely to the loophole in the federal income tax for capital gains and dividends.

And it truly is the wealthy who primarily benefit. A report issued by CTJ in May of last year found that 70 percent of the benefits of President Bush's tax cut for capital gains and dividends goes to the richest one percent of taxpayers. The report also cited IRS data showing that in 2005, this loophole cost the Treasury $91.7 billion.

So getting back to Congressman DeFazio's proposal, we find several advantages of a higher capital gain rate over a securities transaction tax:

• Taxing capital gains at a higher rate would tax only those transactions that resulted in a gain, while a securities transaction tax would be imposed on every trade, whether or not there was a profit.
• A higher capital gains tax rate would be imposed on all capital gain transactions, not just those that arise from exchange-traded securities transactions. (Many derivative transactions are not traded on an exchange.)
• Taxing capital gains at ordinary tax rates would make the tax system much more fair and progressive. Taxpayers in the lower rate brackets would pay a lower rate on their capital gains while taxpayers in the higher brackets would pay a higher rate.
• Taxing capital gains at the same rate as ordinary income would eliminate the many, many tax avoidance schemes that taxpayers use to convert ordinary income to capital gains.
• Taxpayers would make decisions based on economics -- not on the tax treatment of different investments -- eliminating a lot of market distortion.

Unfortunately, many lawmakers feel a strong urge to expand the most egregious loophole in the federal income tax rather than repeal it. On the same day that the DeFazio proposal was introduced, Rep. Walter Jones (R-NC) introduced a bill to raise the capital loss limitation from the current $3,000 per year to $10,000 per year. This would provide another tax break for the wealthy. Generally, taxpayers can use capital losses to offset capital gains, and if they have net capital losses, they can deduct $3,000 of that against ordinary income. The rest is carried over to future years. If there were no limit, investors could choose to sell only assets that have a loss and offset other types of income, even though they might have unrealized gains in other capital assets. An October, 2008 CTJ report analyzed a similar proposal made by Senator John McCain (R-AZ) during his presidential campaign and criticized the idea for the same reason.

As we noted last week, up until now, New York has been the most encouraging example of a state considering a progressive approach to filling its budget gap. Now, with the unveiling of Wisconsin Gov. Jim Doyle's proposed budget, another state can be looked to by progressives as an example to be followed.

Gov. Doyle's budget includes two main progressive reforms. First, the income tax rate on income over $300,000 per year would be raised by one percentage point. Second, the state's unusual exemption of 60% of capital gains income would be lowered to 40%. While a 40% exemption is still unnecessary and regressive, this change would be a major first step toward taxing those who live off their wealth at a rate more similar to those who work for a living. Both of these changes would primarily affect the upper-income individuals most capable of making it through this economic storm.

More good news for tax fairness advocates comes from a recent poll of New York State voters conducted by Quinnipiac University. As the poll shows, it turns out that progressive solutions make sense not just on policy grounds, but on political grounds as well. The poll found that nearly 80% of New York voters support raising the income tax on income over one million dollars. That number falls only slightly when New Yorkers are asked if they support raising income taxes on income over $500,000. Additionally, proposals to raise tax rates on income over $250,000 enjoy well over 50% support in New York. Click here for the complete poll results.

Finally, in addition to the progressive reforms described above, the Wisconsin governor is also pushing a proposal to institute combined reporting of corporate income. Enacting such a proposal is an absolutely vital part of maintaining the viability of any state's corporate income tax.

If state tax budget shortfalls and regressive tax structures were a popularity contest, Missouri would be considered one of the cool kids. Like most states, Missouri has both an enormous shortfall and a regressive tax structure to contend with. The discussions in Missouri about ways to solve the state's fiscal mess (as in many other states) have mostly focused on program cuts.

But this week advocates from the Tax Justice for a Healthy Missouri Coalition bucked the status quo. A hearing was held by the House Tax Reform Committee on a bill, supported by the coalition, that would broaden Missouri's tax brackets, add new top tax rates, eliminate the state's deduction for federal income taxes paid and introduce a refundable credit targeted toward low- and middle-income folks.

The bill would also raise over a billion dollars. For a cash-strapped state that hasn't seen its top bracket change since 1931, this bill offers a chance to modernize the income tax, increase revenue, and make the tax structure fairer overall. It's rare that one piece of legislation has the ability to do so much good. For ITEP's testimony on this important legislation, click here.

In too many states facing terrible budget shortfalls, proposals to cut vital services and even poorly targeted tax cuts are receiving a lot of attention from lawmakers. Progressive research groups are pointing out that states cannot escape their fiscal morass simply by cutting public services. This week, the Washington Budget and Policy Center released a letter to Governor Gregoire, the Speaker of the House and the Senate Majority Leader, which was signed by twenty economists urging them to consider all options when trying to balance the budget, including tax increases. The economists agree that, "Implementing deep cuts in government spending and declining to raise revenue through tax increases is not an effective strategy to guide Washington State out of this recession. The best strategy is to continue our long-term investments in education, health care, community vitality, and economic security."

Speaking of putting all the options on the table, the Minnesota Budget and Policy Project recently released their report Revenue-Raising Options to Help Close Minnesota's Budget Deficit. In a state where the Governor has repeatedly taken tax increases off the table, it's important that policymakers and the public realize that there are progressive revenue-raising options available. Read about the menu of options presented in the paper, including sales tax base-broadening, enacting an income tax surcharge, and the creation of new income tax brackets.

Congress seems set to approve, before their Presidents' Day recess, a final economic stimulus bill that marks a victory for progressives and economists who argue that federal government spending and aid for working class families can kickstart the economy far more effectively than tax cuts for businesses or the investor class.

The agreement hammered out this week by a House-Senate conference, which is presumably the final bill, will cost about $787 billion. Around 40 percent of that will go to tax cuts, most of which will be in effect for two years. Almost half of these tax cuts are progressive breaks for families, including the refundable Making Work Pay Credit, an important expansion of the refundable part of the Child Tax Credit for low-income families, a modest expansion of the EITC, and a new partially refundable education credit (the American Opportunity Tax Credit).

According to the official cost projections from the Congressional Joint Committee on Taxation (JCT), the tax provisions categorized as "business" tax cuts (which does not count several provisions that do benefit businesses, like energy incentives and provisions relating to tax-exempt bonds) will only make up 1 percent of the total cost of the bill. Even if we define business tax cuts as including the energy incentives and other provisions that do benefit businesses, these only make up around 7 percent of the total cost of the stimulus bill.

Some lawmakers felt a political need to keep the total cost of the bill below $800 billion. It is unfortunate that some of that was filled up with a $70 billion reduction in the Alternative Minimum Tax (AMT), which is not likely to stimulate the economy (as explained in the following article).

But overall, the bill marks a bold and effective step by the federal government without funneling very much of the benefits towards corporate tax breaks. While the bill is not perfect, it's hard to complain about it.

For more on the stimulus package, see the following Tax Justice Digest articles:

Non-Stimulative Tax Cuts: A Big One Is Kept in the Final Package, But Many Others Were Significantly Scaled Back

Stimulative Tax Cuts: Included in Final Package (But Scaled Back Slightly)

Even a Pinch of Tax Reform: Stimulus Package Includes Provision to Rescind the Bush Treasury's "Wells Fargo Ruling"

Impact of Selected Tax Cuts in Final Economic Stimulus Bill, State-by-State

On January 28, the House of Representatives approved an economic stimulus bill with an official cost of $819 billion, and $275 billion of that went to tax cuts. One alternative stimulus bill that received quite a lot of support from the House Republicans consisted entirely of tax cuts and included provisions that would clearly not provide an immediate boost to the economy (like making permanent the Bush tax cuts for capital gains and dividends, which do not even expire until the end of 2010). CTJ released state-by-state figures showing that the poorest 60% of taxpayers would receive over half of the benefits of the key tax cuts under the House Democrats' plan and less than 5% of the benefits of the House GOP plan.

House Republicans put forth another plan, this one with strong backing from their leadership, that would reduce the bottom two income tax rates from 10% and 15% to 5% and 10%, and provide more tax cuts for businesses. CTJ released state-by-state figures showing that less than a quarter of the benefits of the individual tax cuts in this House GOP plan would go to the poorest 60% of taxpayers.

The House Democrats' plan was passed without a single Republican vote. Progressives found that the House-passed bill did contain some tax cuts that were basically giveaways for business (as CTJ also argued in its reports). But overall the House-passed bill promised to be an effective boost for the economy.

The Senate took up its bill the following week and managed to lard it up with several ineffective tax cuts. Fortunately, the House-Senate conference that met to work out the differences between the two chambers significantly scaled back many -- but not all -- of the ineffective tax cuts.

Amnesty for Offshore Tax Avoidance: Rejected on Senate Floor

As the stimulus package was being debated on the Senate floor, progressives did score several defensive victories. For example, the body rejected an amendment offered by Senator Barbara Boxer (D-CA) that would provide a tax amnesty for corporations that had moved profits offshore (often only on paper to avoid taxes). Profits that were "repatriated" to the United States would be subject to an almost non-existent 5.25 percent tax rate instead of the usual 35 percent tax rate. As explained in a CTJ report on "repatriation," this idea was tried five years ago and did not lead to any of the job creation that was promised. Worse, repeating this debacle would only encourage companies to move profits offshore, since they would figure that if they waited a few years, Congress would once again be in the mood to enact a tax amnesty. Fortunately, a solid majority of senators saw that this was terrible tax policy and rejected this amendment.

The Senate's Senseless Six

But plenty of ill-advised tax cuts did make their way into the Senate-passed bill, some as provisions included in the bill reported out of the Finance Committee, and others adopted as amendments on the Senate floor. Earlier this week, CTJ ranked several tax cuts included only in the Senate bill (or taking a larger form in the Senate bill) as the "Six Worst Tax Cuts in the Senate Stimulus Bill." (Read the full report here or the two-page summary here.) The largest of those six tax cuts is included in the final package, but several others have been excluded (or mostly excluded) from the deal.

1. One-year AMT "patch": included in conference agreement.

This one-year reduction in the Alternative Minimum Tax will provide essentially no benefit to the poorest 60 percent of Americans -- and unfortunately was included in the final stimulus package. For more details, as well as state-by-state figures showing how taxpayers would be affected, see CTJ's new report on the AMT "patch."

2. Homebuyer tax credit: dramatically scaled back in conference agreement.

The House-passed bill had a version of this provision that waived the repayment requirement for the limited $7,500 first-time homebuyer credit that Congress enacted in its housing bill last year. The Senate adopted an amendment by Senator Johnny Isakson (R-GA) (who voted against the bill itself) to provide a $15,000, non-refundable tax credit with no income limits for any home purchase (not just for first-time home purchases). The Senate version would cost $35 billion more than the House version. Fortunately, this provision is scaled down in the conference agreement to something closer to the House version, with an increase in the maximum credit to $8,000, at a cost of $6.6 billion.

3. Deduction for automobile purchases: dramatically scaled back in conference agreement.

This $11 billion provision was added to the Senate bill as an amendment offered by Senator Barbara Mikulski (D-MD) as an above-the-line deduction for interest payments on an automobile purchase as well as the state and local sales taxes paid on that purchase. Apparently, members of the House-Senate conference decided that subsidizing consumer debt is not such a great idea. This provision has been reduced to a $1.7 billion provision allowing a deduction for just the sales taxes paid, but not the interest, on an automobile purchase.

4. Suspension of taxes on UI benefits: included in conference agreement.

The Senate included in its bill this provision to eliminate federal income taxes on the first $2,400 of unemployment insurance benefits in tax year 2009. The best way to target aid to those who could use some help is to target aid by income level. This provision would target aid to those whose income takes a particular form rather than those whose income is below a particular level, meaning a person whose spouse earns $300,000 a year would still get this tax break if they have unemployment benefits. This provision is included in the conference agreement.

5. Five-year carryback of net operating losses (NOLs): dramatically scaled back in conference agreement.

This provision would put money in the hands of business owners but do nothing to change their incentives to invest or create jobs. The version of this tax cut included in the House-passed bill would cost $15 billion while the Senate version would cost $19.5 billion. Fortunately, the version of this tax cut in the conference agreement is smaller than either of these, with a cost of only $1 billion (officially). The conference agreement would allow this tax cut only for companies with gross receipts under $15 million.

6. Delayed recognition of certain cancellation of debt income: included in conference agreement.

Under current law, any debt forgiveness that you enjoy is considered income subject to the federal income tax. (If it was not, then we would all want our employers to issue us loans and then forgive the debt, rather than paying us salaries.) This provision, which was included in the Senate bill and also in the conference agreement, weakens this essential rule. It allows companies that have debt cancellation income to defer taxes on that income for five years and then pay the tax in increments over the following five years.

CTJ has long argued that some tax cuts could have a chance of effectively stimulating the economy -- if they are extremely targeted to poor and working class families. Several tax credits meeting this criterion were included in the House and Senate stimulus bills, although the details differed. CTJ released state-by-state fact sheets showing how families with children would be impacted by these tax cuts, and in many states families would gain between $800 and $1,000 in 2009 alone. The conference agreement does include these provisions, although some of them are scaled back somewhat.

1. Making Work Pay Credit (MWPC)

This was originally proposed by Barack Obama during his presidential campaign as a refundable tax credit of $500 for working people, or $1,000 for couples. Technically, the credit would be capped at 6.2% of earnings up to $8,100 (or twice that for married couples), meaning this credit would be the equivalent of a refund on Social Security taxes paid on that amount of earnings. The House and Senate bills both included this and only differed on the income limits and some other details. The conference agreement, however, limits the MWPC to $400 for singles and $800 for married couples. The credit will also be dribbled out over time through a reduction in withholdings, since some policymakers have decided that simply issuing checks (as was done with the rebate checks sent to households last year) results in families saving the money, which will not stimulate the economy immediately.

2. Expansion in the Earned Income Tax Credit (EITC)

Currently, low-income workers with no children can sometimes receive a very small EITC equal to a maximum of 7.65 percent of eligible earnings, while the maximum EITC for families with children is 34 percent for those with one child and 40 percent for those with two or more children. Under the House and Senate bills, families with three or more children could receive a benefit equal to a maximum of 45 percent of eligible earnings. The maximum benefit under current law is phased out at an income level that is higher for married couples than for singles. The bills would increase that difference, further reducing the "marriage penalty" in the EITC. These changes are included in the conference agreement. The total cost of these changes to the EITC is about $4.7 billion, which is much less than the cost of other provisions and this probably accounts for their survival in the final agreement.

3. Making the Refundable Portion of the Child Tax Credit (CTC) More Readily Available for Poor Families

Currently a parent who earns less than $12,550 in 2009 is too poor to benefit from the $1,000 per-child credit. People who pay federal payroll taxes but earn too little to pay federal income taxes do not benefit from a tax credit unless it is refundable. Currently the refundable portion of the CTC is limited to 15 percent of earnings above $12,550 in 2009 (this threshold is indexed for inflation). The House-passed bill would have removed this earnings threshold so that the refundable portion of the CTC would be equal to 15 percent of any earnings (the maximum credit would remain unchanged at $1,000 per child). The Senate-passed bill settled on a less generous provision retaining the earnings threshold but lowering it to $8,100.

Citizens for Tax Justice released a one-page fact sheet on Tuesday night showing how families in each state would be affected by the House and Senate provisions and how many more children would be helped by the House version compared to the Senate version. The conference agreement steers a little closer to the House version, setting the earnings threshold at $3,000.

Congress has, perhaps with good reason, temporarily set aside concerns about balancing the federal budget. Stimulating the economy and stopping the downward spiral of reduced demand and layoffs has become a higher priority than raising enough tax revenue to pay for public services. But one provision in the stimulus bill would raise revenue (albeit a mere $7 billion, officially). This provision would rescind IRS Notice 2008-83, also called the "Wells Fargo ruling" after its largest beneficiary.

In October, the IRS issued this two-page notice declaring, with no authorization from Congress, that banks could ignore a section of the tax code enacted under President Reagan to prevent abusive tax shelters. In December, over a hundred organizations signed a letter to the House and Senate asking them to rescind the Wells Fargo ruling.

An online six-minute video from the American News Project (click here if you need the YouTube version) explains how Treasury officials under former President George W. Bush issued the Wells Fargo ruling with no legal authority and gave banks a hand-out beyond their lobbyists' wildest dreams.

A provision rescinding the ruling was included in both the House-passed bill and the Senate-passed bill and is included in the conference agreement.

Even though the conference committee significantly scaled back state aid relative to the House version of the bill, states can still expect some pretty significant assistance in the near future. Unfortunately, those states are also facing even more significant budget gaps, which are likely to continue to grow larger in the coming months. To make up the difference, states will have to take responsibility for finding ways to close their budget gaps.

Policymakers in New York are readying themselves for the challenge. As the New York Times reported earlier this week, members of the state Senate are preparing legislation to close $6 billion of the state's roughly $14 billion budget deficit by raising income taxes on individuals and families making more than $250,000.

In particular, the bill would impose a tax rate of 10.3 percent on those taxpayers with incomes in excess of $1 million. In other words, faced with a mammoth fiscal and economic crisis, legislators in New York seem ready to respond accordingly -- with a proposal that reforms their tax structure in a fundamental and progressive fashion. Their counterparts in other states (many of whom are trying to muddle through with a combination of budget gimmicks, one-time fixes, and minor tweaks to sin taxes) should do the same.

For more on the steps needed to tackle New York's budget problems, see this commentary by Frank Mauro and James Parrott of the Fiscal Policy Institute.

Billionaire George Kaiser, head of Kaiser-Francis Oil Co., recently did something unusual for someone in his line of work. He told the truth about the subsidies that the oil and gas industry receives to the Oklahoma House Appropriations and Budget Committee. During his testimony, "Kaiser said he could "say unequivocally" that the tax subsidies in question have never influenced his companies' decisions to drill or restore any well in Oklahoma." Kaiser even joked, "In fact, I may lose my day job as a result of my testimony."

Kaiser focused his comments on the number of Oklahomans who could receive health care (125,000) and the raises that could be given to teachers ($1,300 each) if the state's priorities changed and the average $75 million in tax credits given to the energy industry over the last four years were put toward other priorities.

Business analysts know that if a company is making business decisions based on tax breaks, then the company isn't on very strong footing to begin with. But comments like these made by billionaire businessmen are quite helpful in cutting through the false claims made about taxes.

Speaking of ineffective subsidies, this week the West Virginia Center on Budget and Policy released an interesting report Money for Nothing: Do Business Subsidies Create Jobs or Leave Workers in Dire Straights? The report details cases of private West Virginia companies cutting jobs even after receiving taxpayer funded subsidies. Accountability and transparency are necessary to ensure that policymakers and the public aren't funding incentives that ultimately do no real good for West Virginia. The author suggests concrete steps that can be taken to ensure both accountability and transparency, including accessible subsidy disclosure, publishing outcome data, enacting claw-back provisions, and the creation of a unified state development budget.

The economic stimulus bill that the Senate approved today includes several tax cuts that are not in the stimulus bill approved by the House of Representatives two weeks ago and which should be excluded from the final bill that goes to the President.

The bill approved by the House of Representatives two weeks ago has a total cost of about $819 billion, while the cost of the Senate bill had grown last week to about $940 billion. A group of self-styled centrist Senators then put forth a compromise that took exactly the wrong approach to cutting down the costs: They mostly removed government spending that economists believe will stimulate the economy -- like aid to state governments, school construction, food stamps -- while they left in most of the regressive tax cuts that Senators have added to the bill.

A new report from Citizens for Tax Justice lists the six most regressive and ineffective tax cuts included in the Senate stimulus bill that are not in the House bill (or, in some cases, are much more limited in the House bill).

Legislation to kickstart the economy is badly needed. Lawmakers who are sincere in their desire to stimulate the economy in the most cost-effective manner should seek to exclude from the final bill these tax cuts, which economists believe will do little to boost consumer demand. They add $124 billion (according to official projections) to the cost of the Senate's stimulus bill compared to the House stimulus bill. The real cost of these provisions is considerably more.

Here are CTJ's worst six tax cuts in the Senate stimulus bill:

1. One-year AMT "patch"
2. Home buyers' tax credit
3. Deduction for automobile purchases
4. Suspension of taxes on UI benefits
5. Five-year carryback of net operating losses (NOLs)
6. Delayed recognition of certain cancellation of debt income

Read the CTJ Report: http://www.ctj.org/pdf/sixworsttaxcuts.pdf
Read the Summary: http://www.ctj.org/pdf/sixworsttaxcutssummary.pdf

The report also explains that some tax cuts could actually be effective in stimuluating the economy -- if they are extremely targeted to poor and working class families. The Making Work Pay Credit and the EITC expansion that appear in both the House and Senate bills accomplish this. So do the provisions in each bill to make the Child Tax Credit more available to poor families, but the report explains that the House provision does a much better job of this than the Senate provision.

A House-Senate conference will now attempt to work out the differences between the House and Senate bills and settle on a final bill, which President Obama wants to sign by the end of this week.

Despite their obvious unfairness, tax amnesties are a tool frequently used by states during tough budgetary times. By waiving late fees and sometimes reducing the interest rate charged on overdue taxes, state policymakers can provide their state with a quick band-aid fix without having to make the much harder choice of raising taxes or cutting valued services. But penalizing similar taxpayers at different rates dependent only upon whether they decide to pay up during an amnesty period is plainly unfair. The problems associated with amnesties become even worse, however, as soon as a state establishes a habit of repeatedly offering amnesties during tough economic times.

With the possibility of another amnesty always on the horizon, delinquent taxpayers will think twice before settling their debts with the state during normal times, and at normal penalty rates. Creating multiple sets of penalties (one for normal times, and one, lower penalty when budgets shortfalls are projected) therefore reduces fairness by penalizing similar taxpayers differently based only on the timing of their payment, and can also reduce the effectiveness of enforcement efforts and the tax system broadly. These effects can continue long after the most recent amnesty period ends. (Note that this is very similar to the argument against allowing corporations to "repatriate" their profits to the U.S. at a lower rate, a proposal which was recently rejected at the federal level).

Despite the obvious problems, Maryland and New Mexico are both considering legislation to once again provide temporary tax amnesty programs some time in the coming months. New Mexico last provided an amnesty less than a decade ago, while Maryland's last amnesty came in 2001. After that 2001 amnesty, the Maryland comptroller's office noted that "repeated use of amnesties is likely to create cynicism among law-abiding taxpayers, and lessen the need for voluntary compliance with state tax laws, which is vital for our system of taxation". Should another amnesty be offered less than a decade after the 2001 amnesty, growth in taxpayer cynicism seems unavoidable, especially in light of the fact that a similar program offered in 1987 in the state was billed as a "once-in-a-lifetime" opportunity for delinquent payers.

Without a doubt, the momentum in favor of such programs is strong. Alabama is already in the mist of an amnesty period (the state last offered an amnesty in 1984). Massachusetts is currently in the process of deciding upon a date for its amnesty program (Massachusetts last provided amnesty in 2003). Connecticut's program is already slated to take effect on May 1st (Connecticut's last amnesty took place in 2002). And Oklahoma just recently closed its most recent amnesty period, just seven years after its 2002 amnesty.

In this environment, it is extremely important for state policymakers to not only oppose more amnesties, but also to convincingly state that another amnesty will not be offered any time in the near future. For states looking to responsibly close their tax gaps, stepping-up enforcement spending is often a route that can produce sizeable returns, and is undoubtedly much more fair than trying to get something for nothing by arbitrarily waiving penalties in an effort to boost voluntary "compliance". For more specific alternatives to the tax amnesty approach, take a look at these recent enforcement recommendations from Oregon's Department of Revenue.

Last week Missouri lawmakers joined Tax Justice for a Healthy Missouri and the newly formed Long Spoons Coalition to hold a press conference promoting HB 567, a bill that would modernize Missouri's outdated income tax structure (the top $9,000 bracket hasn't changed since 1931) and produce needed revenue while cutting taxes on average for the bottom 60% of Missourians. It's fine time that this sweeping legislation receives attention from policymakers and the press.

A progressive tax reform proposal is also in the news in Kentucky, where some lawmakers want to balance their state budget in a progressive way, combining revenue-raising options with tax cuts for low- and middle-income folks. The Kentucky reform plan includes an Earned Income Tax Credit, new top rates and brackets, and broadening the sales tax base. The bill's sponsor will be meeting with Kentucky Governor Steve Beshear about the bill's merits -- a meeting we hope goes well.

Back in January, Rhode Island Governor Don Carcieri, in introducing legislation to cut spending by $240 million in the five months remaining of fiscal year 2009, remarked that, should Rhode Island "receive Federal stimulus funds, we must ... plan on using most of these funds to lower taxes for individuals and businesses, create jobs and stimulate growth." He further maintained that "to do otherwise would be irresponsible." That's an odd definition of irresponsible. Most people living in a state with an expected budget gap of nearly 14 percent in the coming year might say a plan that including permanent tax cuts and only temporary revenue-raising provisions to pay for them is pretty irresponsible. Apparently the Governor isn't most people.

Definitions of irresponsibility aside, the Governor may be about to put his plan into action. The Strategic Tax Policy Workgroup that the Governor initially convened in May of last year met for the final time last week and will soon present the Governor with a report on its work. For several months it seems that the Workgroup would make revenue-neutral recommendations, but now it appears that they will put forth options that would cut taxes by as much as $140 million. Keep in mind that total tax revenue in Rhode Island is projected to be only slightly more than $2.4 billion for the current year. Among the major cuts to be proposed by the Workgroup are the outright repeal of Rhode Island's estate tax, which would cost $28 million annually, and the replacement of the state's corporate income tax with a graduated franchise tax. The latter would reduce taxes on businesses by $82 million per year and would cap the maximum tax paid by any one business, no matter how profitable, at $10,000.

The Governor has requested -- and will likely receive -- a postponement of the deadline by which he must submit his budget for the coming fiscal year. It seems likely that his "otherwise irresponsible" plan will feature prominently in that document.

For more on Rhode Island's budget situation and on the recommendations of the Governor's Tax Policy Workgroup, visit the Rhode Island Poverty Institute's web site.

Oklahoma's Senate Finance Committee last week approved a bill that would drop the state's top income tax rate from 5.5 to 5.25 percent and that would remove groceries from the state's sales tax base. The proposal to cut the top income tax rate would reduce tax revenue by $44 million and exempting groceries from sales taxes would cost $245 million. With Oklahoma facing a $600 million budget deficit, why make these changes now?

The cut in the top rate was actually adopted several years ago, but was made contingent on state revenues meeting a target to ensure that the state could afford the tax cut. So, back then, lawmakers recognized that this tax cut would be expensive (though they ignored the fact that it is entirely regressive) and took steps to ensure the state could afford it. But now the state is not meeting that revenue target, the Senate Finance Committee wants to remove it and allow the tax cut to be implemented anyway. Will lawmakers actually approve this tax cut now that it is (by their own measure) unaffordable?

Similar questions could be posed about exempting groceries from the sales tax. To be sure, taxing those purchases is quite regressive, but Oklahoma has in place an income tax credit designed to mitigate the impact this policy has on low-income taxpayers. Since Oklahoma clearly can't afford a loss of tax revenue of this magnitude, why not build upon the income tax credit that's already in place -- an approach that would be less expensive and better targeted to those who need it the most? The Oklahoma Policy Institute has the details on this alternative means of helping Oklahomans struggling to make ends meet.

Senators Who Vote Against the Stimulus Are Opposing Significant Tax Cuts for Families with Children

Find a fact sheet showing how families with children in your state would be impacted.

New state facts sheets from Citizens for Tax Justice show that the economic stimulus proposals being considered by Congress include several tax cuts that could significantly benefit working class families with children in every state. The stimulus bill approved by the House of Representatives last week costs a little over $800 billion and about $275 billion of that would go towards tax cuts.

About half of the tax cut portion of the bill consists of a refundable "Making Work Pay Credit" (MWPC) worth up to $500 for most working people (or $1,000 for married couples). The House bill also includes an expansion in the Earned Income Tax Credit (EITC) and a provision making the Child Tax Credit (CTC) more accessible to low-income families. All three of these provisions would create or expand refundable income tax credits, which are the only type of income tax cut that can benefit parents who work and pay federal payroll taxes but do not earn enough to owe federal income taxes.

Refundable credits can allow a family of modest means to have negative income tax liability, meaning the IRS actually sends them a check instead of taking a tax payment from them. This check can be thought of as a way to offset the federal payroll taxes and other types of taxes that working families pay.

The stimulus bill that the Senate is considering this week also includes the MWPC and EITC provisions. It also includes a provision that will make the CTC more accessible to low-income families, but which will not reach as many families as the CTC change in the House bill.

In many states, families with children would receive about $900 to $1,000 in tax cuts from the stimulus proposals.

Find a fact sheet showing how families with children in your state would be impacted.

Senators should support the stimulus bill they are considering this week because, overall, it would provide the boost that the economy needs right now. If the Senate does pass its bill, then a House-Senate conference will likely spend next week working out the differences between the House and Senate versions, and there will hopefully be opportunities to ask conferees to make wise choices. For example, if the Senate version of the bill still includes the less generous expansion of the Child Tax Credit, hopefully conferees will choose to include in the final bill the more generous CTC change approved by the House.

Progressive organizations are distributing the following information to help constituents contact their Senators and urge them to support the stimulus bill being considered in the Senate this week.

The following toll-free number can be used right now to reach the U.S. Capitol, where an operator will connect you to your Senators:
866-544-7573

Progressive organizations have suggested the following message to Senators: Please vote for the economic recovery bill and oppose delaying tactics. Our state needs the jobs that will be saved; our people need its protections against hunger, sickness and unemployment. We need to rebuild our schools and roads. Vote for the American Recovery and Reinvestment Act of 2009!

Senate Should Reject "Repatriation" Proposal that Will Be Offered as an Amendment to the Stimulus

In 2004, Congress did something that, it claimed, it would never do again. It allowed corporations that had shifted their profits offshore to "repatriate" those profits -- that is, bring them back into the United States -- and pay corporate income taxes on those profits at an almost nominal 5.25% rate instead of the normal 35% rate for corporate income.

In 2004, it was obvious to all that if we provided this sort of tax amnesty more than once, corporations would actually have an incentive to move their profits out of the United States. They would know to simply wait for the next amnesty, when they could bring those profits back and pay almost no taxes on them. So, lawmakers insisted that this wouldn't happen again, no matter how much corporate lobbyists begged.

Well, the corporate lobbyists are back. They argue that repeating the tax amnesty -- which would surely encourage corporations to shift even more profits into offshore tax havens -- will be an effective stimulus for the U.S. economy! When the Senate takes up its economic stimulus bill this week, some members will offer an amendment to include this second amnesty. A new report from Citizens for Tax Justice explains what exactly is meant by "repatriation" and why it's exactly the wrong policy for America right now.

Read CTJ's report on the repatriation proposal.

California legislators appear to finally be in the early stages of negotiations over a method to fix the current year's budget shortfall. As has been obvious to most observers for quite some time, California's budget gap is far too large to be fixed with spending cuts alone, and will require some kind of tax increase. Convincing California Republicans to recognize this fact was no easy task, and it now appears that the cost of securing their support could come in the form of a spending cap. Unfortunately, while a tax increase is absolutely necessary to solve California's short-term problems, allowing a spending cap to be slipped into the deal would be nothing short of devastating in the long-term.

The case against the spending cap was articulated brilliantly by Jean Ross of the California Budget Project in a recent op-ed published in the Los Angeles Times. Ross noted that "far from being a cure-all, a hard spending cap would place an arbitrary stranglehold on the state's ability to improve its schools, rebuild its infrastructure, care for its senior population and respond nimbly to future challenges. Disguised as a solution, this cap could quickly become one of California's most serious budgetary problems". She goes on to point out that her organization "found that if this cap had been enacted in 1995, using that year's budget as the base, it would have resulted in a 2008-09 budget $39.7 billion below what was enacted in September. While this would bring the budget into balance, it also would require spending cuts more than twice as large as those proposed by the governor."

Californians familiar with Colorado's TABOR debacle should be especially wary of what Ross points out next: "The hard spending cap also would be incompatible with Proposition 98, which guarantees a minimum level of state funding for K-12 education and community colleges. That guarantee would generally outpace increases allowed under the cap, which would result in education crowding out all other state spending". The parallels with the difficulties created by Colorado's Amendment 23 (which requires increases in K-12 spending of 1% plus inflation each year) couldn't be more obvious.

There isn't any question that California needs more revenue. Just look at the fact that California's bond rating was recently decreased by two grades, or that the state Controller had to start issuing IOU's instead of tax refunds today. But while securing more revenue should be a top priority this year, accepting a spending cap as part of the compromise would be an action that Californians would regret for years.

Two thousand nine is scarcely a month old, yet it appears that Pennsylvania Governor Ed Rendell is already backing the wrong horse for the second time this year. In mid-January, Rendell's sporting hopes were dashed, when his beloved Eagles failed to advance beyond the NFC Championship game for the fourth time in five recent tries. Now, he's on the wrong side of history again, announcing last week that his forthcoming budget for FY 2009-2010 will not contain any increases in sales or income taxes, despite a projected budget deficit of some $2.3 billion. Instead, he expects that a combination of budget cuts and federal fiscal relief funds will be sufficient and, in his own words, he doesn't want to hear any "whining" about it.

Of course, as Sharon Ward, the Executive Director of the Pennsylvania Budget and Policy Center (PBPC) has recently explained, this is precisely the wrong approach for states to take in a recession. She notes that "Pennsylvania should actually be spending more, not less, to jumpstart the ailing economy" and argues in favor of tax policy changes that would generate additional revenue while making the state's tax system more fair, such as taxing dividends or closing corporate tax loopholes through the use of combined reporting.

Fortunately, Rendell's opposition to a needed tax increase may turn out to be as effective as the Eagles' attempts to stop Larry Fitzgerald. House Appropriations Committee Chairman Dwight Evans said this past week that he believes that "there will be some sort of a tax increase in order to solve this problem," though it may be the last resort.

For more on the options Pennsylvania lawmakers could use to generate additional revenue, see these recommendations from the PBPC.

By now you're familiar with the basic outline of the story. Our broader economic troubles have translated directly into state budgetary nightmares, and in most cases, the natural inclination of policymakers has been toward slashing services. As a recent op-ed from the Kentucky Youth Advocates points out, however, "making up the shortfall with nothing more than cuts in spending will cause serious, and in some cases permanent, harm to [any state's] residents and infrastructure".

In addition to the Kentucky governor's proposals to tap the rainy day fund and increase the state's abnormally low cigarette tax rate, the op-ed goes on to suggest:

• "Adding a 1 percent surtax on incomes of $500,000 or more... [or, alternatively], adding a 1 percent surtax on the richest 1 percent of taxpayers in Kentucky."
• "Kentucky also can follow the example of some 20 other states and close corporate tax loopholes so that multi-state corporations operating in Kentucky can no longer avoid paying state taxes by setting up subsidiaries in other states."
• "If the Commonwealth makes its own tax law, instead of blindly following federal law, we can "decouple" some of our tax policies from the federal tax code, especially in taxing domestic production. That alone would produce an additional $30 million dollars in 2010."
• "Finally we can broaden the tax base by enacting an equitable way of taxing services to provide sustainable revenue, particularly during economic slowdowns when the manufacturing sector slows."

Echoing a concern that should be on the minds of many states, the op-ed points out that absent changes in the way the state raises revenue, "the state will still face cuts in 2009, shortfalls in fiscal year 2010 and continuing problems in the years to follow. Even before the recession, Kentucky's annual revenues were not adequate to meet its annual expenses, and Frankfort balanced the budget by using gimmicks". Click here to read the full op-ed, or here to visit the Kentucky Youth Advocates' website.

In 2005, Ohio's former Governor Bob Taft signed sweeping tax legislation that phased out the state's Corporate Franchise Tax, the state's corporate income tax, and the Tangible Personal Property Tax, a local tax on things like machinery and equipment, and replaced all these important revenue generators with the Commercial Activity Tax (CAT). Four years later, the CAT is one of the reasons why Ohio is facing an enormous budget deficit and the tax itself has come to resemble swiss cheese.

Proponents of the CAT, a gross receipts tax, said that it would make Ohio's business climate less burdensome and remove pesky exemptions and deductions that benefit select Ohio companies with access to legislators and lobbyists. But a report released this week by Policy Matters Ohio explains that the CAT is one reason why the state faces an enormous budget shortfall and that the low-rate, broad-based tax that its advocates promised has not come to fruition. Instead, the CAT has become a victim of lawmakers eager to insert special provisions and deductions, just as happened with the taxes that it replaced. The paper offers specific recommendations for how Ohio's business taxes could be improved. Let Ohio's experience be a lesson to other states interested in business tax reform.

The debate over whether and how to tax food has been in the news a lot lately. On the one hand, policymakers need the revenues generated from applying sales taxes to a broad base of goods and services. On the other hand, taxing food is regressive, and lawmakers always believe they will benefit politically from eliminating some portion of taxes. The result is that only a handful of states tax food.

This is currently a topic of a debate in Utah, where Governor Jon Huntsman wants to remove the sales tax on food entirely. But according to the Senate Majority Leader Sheldon Killpack, "(There's) really not much of an appetite for removing the rest of the sales tax." Governor Huntsman's plan to replace the revenue lost from removing the 2.75 percent sales tax on food is to increase the cigarette tax to $3.00 a pack. There are many reasons why increasing the cigarette tax is a lousy idea, regressivity and declining base being the most serious. Utah policymakers should follow the lead of other states like Idaho which tax food just as other goods are taxed, but then offer a targeted grocery tax credit ensuring that low-income folks receive some assistance for paying sales taxes.

Speaking of Idaho, Governor Butch Otter recently championed an increase in the state's grocery tax credit, but now that scheduled increase is threatened because the state is having difficulty balancing its budget. Kudos to Governor Otter for backing the scheduled increase in his State of the State address, rightly saying, "Idaho taxpayers are struggling. And that means we must fulfill our commitment to keep increasing the grocery tax credit. The budget I'm submitting today does just that and holds us to a principle-based policy that empowers Idahoans." While it may be tempting to delay the scheduled credit increase because of budget concerns, it's necessary that those most in need receive an increase in the credit that helps offset the sales tax they pay on food. For more on low-income credits and sales tax relief, read ITEP's policy brief.