Yesterday, the Republican leadership in the U.S. House of Representatives released the outlines of a tax and spending plan that they argue is a more fiscally responsible alternative to the budget outline proposed by President Obama and the similar budget resolutions working their way through the House and Senate.

A new report from Citizens for Tax Justice compares the income tax proposals in the House GOP plan to the income tax proposals in the President's plan and finds that:

• Over a fourth of taxpayers, mostly low-income families, would pay more in taxes under the House GOP plan than they would under the President's plan.
• The richest one percent of taxpayers would pay $100,000 less, on average, under the House GOP plan than they would under the President's plan.
• The income tax proposals in the House GOP plan, which is presented as a fiscally responsible alternative to the President's plan, would cost over $300 billion more than the Obama income tax cuts in 2011 alone.

Read the report.

Americans are not very permissive when it comes to folks who are on the dole. Poor families receiving welfare in the United States are subject to a long list of work requirements and time limits and they can be sanctioned (that is, they can have their tiny benefit checks cut off) for failure to comply with the rules.

So it is not remotely surprising that taxpayers also want to establish some strict rules for large institutions that are on the dole. The taxpayers have handed over spectacular sums to bail out financial institutions, which amounts to corporate welfare on an epic scale. They obviously want to know that their money is being put to the use intended (i.e., saving us from another Great Depression) rather than just funding a third or fourth vacation home for a bank executive.

The delicate little problem for Congress is that lawmakers have a tendency to be awfully lax on the recipients of corporate welfare -- until their permissiveness is brought to light in some scandalous display. That's pretty much what happened recently as reports surfaced that American International Group (AIG) had paid out $165 million in bonuses after receiving $170 billion in federal TARP funds.

In the hurried butt-covering that followed, the House of Representatives grabbed the nearest tool (the U.S. tax code) and tried to use it to hammer a defect out of their bailout program to make it more acceptable to the newly attentive public. On March 19, they approved a bill that we are not exactly impressed with.

The House bill would impose a 90% tax on bonuses paid to employees of Troubled Asset Relief Program (TARP) recipients, as well as the mortgage giants Freddie Mac and Fannie Mae. The tax would apply to bonuses paid to employees of companies who have received $5 billion or more in government aid since the beginning of 2008. The tax would no longer apply when bailout-fund recipients have paid back enough to the federal government to fall below the $5 billion mark. The tax would only be imposed on employees whose adjusted gross income exceeds $250,000.

Much of the AIG bonus money was reportedly paid to the financial services group that got the firm in so much trouble with credit default swaps. Besides AIG, the bill would affect bonuses paid by eight other companies, including Goldman Sachs, J.P. Morgan, and Citigroup because the tax would apply to all bonuses paid after December 31, 2008.

As appalling as the AIG bonuses are, it's important to remember that the tax code exists to raise revenue to fund public services. Tax policy should be thoughtfully designed and carefully implemented to raise sufficient funds for services in a fair and equitable manner. Just as tax subsidies for business unnecessarily complicate the tax code, tax penalties that correct mistakes Congress made in crafting programs unrelated to tax policy are ill-advised.

Finally, taxpayers (even the least deserving) should be able to predict in advance the tax effects of their transactions. Changing tax rules or the rules of any program mid-stream seems unfair. After all, even the poor families who get the meager welfare benefits provided in most states are told about the program's rules before they receive their benefits.

When we think of tax havens like the Cayman Islands, we imagine wealthy people from around the world enjoying the beach at those tiny islands in the sun. Well, it's about to get hotter.

Both the U.S. and the international community have stepped up efforts to address tax haven abuses and recoup some of the billions of dollars of tax revenue lost each year. In the U.S., it is estimated that the international tax gap (the amount of taxes American companies and individuals should pay on foreign activities but don't) is as much as $100 billion per year.

Some high-income Americans and American corporations are not paying the U.S. taxes that they legally owe because they take advantage of offshore tax schemes. These typically involve transferring assets or income to a country where income taxes are low or non-existent and where bank secrecy laws forbid the disclosure of information about financial institutions' customers. These countries are commonly known as "tax havens." Many of these are small islands in the Caribbean, the Pacific, or off the European coast, but others are more established banking centers like Switzerland.

When corporations and wealthy individuals evade U.S. tax by using offshore tax havens, the rest of us pick up the tab. Meanwhile, those corporations and individuals continue to enjoy the tremendous advantages of living and working in the U.S. and the breadth of services the government provides. While they shirk paying their fair share of the cost, they still have full access to the U.S. market, the legal system, infrastructure, the education system -- the list goes on and on.

Recent reports indicate that the administration and Congress are ready to respond. The Senate Finance Committee held a hearing on March 17 and the Ways and Means Subcommittee on Select Revenue Measures has one planned for March 31. Three major bills have been introduced to impede the use of foreign tax-avoidance schemes. The President's budget included a line item for "international reform," and the Treasury Secretary testified at the Senate Finance Committee hearing that the administration supports the proposed legislation. He also said that the administration is planning to propose a "series of legislative and enforcement measures" to address the use of offshore structures and accounts and reduce U.S. tax evasion and avoidance.

In the international community, several developments also indicate a new resolve to deal with tax havens. Virtually all of the major governments are convinced that billions of dollars of tax revenue are lost because of offshore transactions. Many are convinced that bank secrecy laws allowed risky dealings that contributed to the financial system meltdown. During this economic crisis, governments are spending extraordinary sums to bail out financial institutions and provide for the basic needs of their people. In this climate, there is less tolerance for tax schemes that divert money from the public treasury.

Several of the major European governments and the U.S. have spearheaded an effort to get an agreement to crack down on tax havens at next week's G-20 summit. The European Union, the Organization for Economic Cooperation and Development (OECD), and the leading G-20 nations have called for tough measures, including sanctions on tax haven countries that refuse to follow rules for transparency and international cooperation to combat tax evasion. Since those developments, several tax haven countries have announced their intention to follow the OECD guidelines and many have already begun negotiating new tax treaties with the major nations.

At present, seven states (Alabama, Iowa, Louisiana, Missouri, Montana, North Dakota, and Oregon) offer state taxpayers some form of an income tax deduction for the federal income taxes they pay. This basically undoes, at least partially, the progressivity of the federal income tax. The upper-income taxpayers who pay more in federal income taxes receive the largest deductions on their state income taxes, even though they still have the greater ability to pay.

Efforts to limit or to repeal these deductions -- and to use the additional revenue to provide tax reductions for low- and moderate-income taxpayers -- have been underway in two such states. In Alabama, Representative John Knight has proposed legislation to pare back his state's federal income tax deduction in order to finance a sales tax exemption for groceries. Unfortunately, House Republicans may have successfully prevented further consideration of the bill this session, voting en bloc to keep it from coming before the House for debate.

Meanwhile, in Iowa, momentum is building for a plan that would repeal the deduction outright while also lowering tax rates across the board and increasing a pair of tax credits. House Speaker Pat Murphy recently voiced his support for the changes and the Senate seems poised to act as well.

For more on efforts in Alabama and Iowa to improve tax fairness, see the web sites for Alabama Arise and the Iowa Policy Project.

New Hampshire has long been an outlier in state tax policy. It shares the dubious distinction of lacking both an income and a sales tax with only Alaska. Unsurprisingly, it now faces a serious budget deficit. In response, the state's House Ways & Means Committee has chosen a course of action that deviates from the well-worn public policy path in the Granite State, approving a pair of bills that would generate $95 million in revenue over the next two years and do so in a very progressive manner. Specifically, legislation endorsed by the Committee would impose a 5 percent tax on income from capital gains and would revive the state's estate tax, albeit with a larger exemption and lower rate than existed prior to the tax's repeal in 2002. Needless to say, a comprehensive, broad-based income tax should remain the goal in New Hampshire, but these changes would certainly be steps in the right direction.

In search of a revenue stream to pay for replacing the increasingly unpopular surcharge on the Michigan Business Tax, Governor Granholm last week came out in support of a more progressive, graduated rate income tax. Moving away from the state's flat tax would require a constitutional amendment, and probably a fierce battle, but it would be well worth the fight. As the ITEP Policy Brief on progressive income taxation explains, this change would add sustainability, as well as progressivity, to Michigan's tax code.

Following the creation of a federal tax credit for new home buyers, two states are considering also wandering down this unproven and expensive path. North Dakota and Kentucky are each debating sacrificing taxpayer dollars to fund special tax breaks for newly built homes. In Kentucky, the break would come in the form of a $5,000 tax credit for purchasers of newly constructed homes, while in North Dakota, those fortunate enough to afford a newly built home during this downturn would enjoy a temporary doubling of their property tax homestead exemption (from $75,000 to $150,000).

In each case, the break would not be available for purchasers of older residences, suggesting that these breaks are more of a bailout for developers than they are aid for those in the market to buy a home. And in either case, the proposals still suffer from many of the flaws with the federal break -- such as their potential to re-inflate home prices, and the fact that these breaks won't provide homebuyers with any cash at the time of purchase.

This week, Citizens for Tax Justice updated its recent report on the tax proposals in the President's budget outline to include estimates of the proposals' impacts on different income groups in every state. The new state figures examine the proposed cuts compared to current law and also compared to the baseline that the Obama administration uses in presenting its budget figures. The figures show that, whichever baseline is used, the vast majority of families in every state will get a significant tax break.

Read the report. (State-by-state figures are in the final appendix.

As state policymakers craft their budgets for the upcoming fiscal year, they must confront a pair of daunting challenges, one fiscal, the other economic. The budget outlook for the states is, at present, the most dire in several decades. In this context, then, states must find ways to generate additional revenue that create neither additional responsibilities for individuals and families struggling to make ends meet nor additional distortions in the economy as a whole.

For nine states -- Arkansas, Hawaii, Montana, New Mexico, North Dakota, Rhode Island, South Carolina, Vermont, and Wisconsin -- one straightforward approach would be to repeal the substantial tax breaks that they now provide for income from capital gains. In tax year 2008 alone, these nine states are expected to lose a total of $663 million due to such misguided policies, with individual losses ranging from $10 million to $285 million per state. A new ITEP report explains that repealing these tax preferences would help states reduce their large and growing budgetary gaps, enhance the equity of their current tax systems, and remove the economic inefficiencies arising from such favorable treatment.

This report explains what capital gains are, how they are treated for tax purposes, and who typically receives them. It also details the consequences of providing preferential tax treatment for capital gains income for states' budgets, taxpayers, and economies in nine key states. Lastly, it responds to claims about both the relationship between capital gains preferences and economic growth and the role capital gains taxation plays in state revenue volatility. (Appendices to the report provide detailed state-by-state estimates of the impact of repealing capital gains tax preferences.)

Read the report.

P>Minnesota's Department of Revenue released a study last week showing that the regressivity of the state's tax system has grown significantly in recent years. On the heels of this study comes a proposal from the Chairwoman of the House Tax Committee seeking to clean up the tax code by eliminating a slew of tax expenditures in order to fund more progressive changes to the state's tax system.

You can find more details on the Minnesota Budget Project's blog, but the general idea is to replace a variety of tax breaks that are either regressive or too narrowly targeted with three simplifying tax credits, including credits for mortgage interest, charitable contributions, and lower-income families with children. Tax rates on the lower two income tax brackets would also be reduced.

On the business side, the proposal seeks to end a variety of ill-conceived business tax breaks, though unfortunately it does seek to replace them with other ill-advised measures, such as single sales factor and equipment expensing.

In continuing our effort to highlight states where progressive revenue-raising options are gaining support, this week the attention shifts to New Jersey where the Governor has proposed a budget that wisely relies on revenues from wealthier taxpayers who are most able to afford to pay during these difficult times.

Rather than only slashing services, the Governor has proposed a temporary income tax rate increase on earnings over $500,000, a suspension of the property tax deduction for better-off New Jersey residents, and the extension of a temporary surcharge on corporations. Like many proposals circulating in states across the country, the Governor's budget also includes increases in alcohol and cigarette taxes.

Overall, it's encouraging that yet another state appears ready to acknowledge that taxes on high-income earners are among the least harmful ways to escape current state budgetary nightmares. See past stories from Iowa, Missouri, Alabama, New York, and Wisconsin for more examples.

With the drama of newly impeached Governor Rod Blagojevich a distant memory, it's fine time that Illinois lawmakers got down to the people's business and worked to solve the state's startling $11.5 billion shortfall. According to the Chicago Tribune, if you converted the shortfall into $100 bills and stacked them it would make a tower 9 miles high and weigh 126 tons. The state of Illinois was surviving on borrowed money long before the current fiscal crisis rocked the Land of Lincoln. Part of the blame falls squarely on the shoulders of Governor Rod Blagojevich who infamously took a no new taxes pledge, saying, "We're not going to raise taxes on people." But then oddly, Governor Blagojevich turned around and proposed a gross receipts tax which would ultimately be paid by... people. When his proposal was defeated, he sat back and let the state go deeper and deeper into debt.

On Wednesday, Governor Pat Quinn worked to close the door on the Blagojevich era by proposing his own sweeping fix to the state's budget. Along with over $1 billion in cuts, he also proposes to increase the state's income tax rate from 3 to 4.5 percent and triple the personal exemption from $2,000 to $6,000. These are not easy times for governors of any state, but Governor Quinn's position is certainly unenviable considering the situation he is inheriting. The debate over how to solve Illinois' budget problems is far from over, but Governor Quinn's proposal is a welcome shift from the close-your-eyes-and-duck approach of his predecessor.

North Carolina Governor Beverly Perdue has presented a $21 billion budget proposal that would cut spending across the board and relies on regressive revenue-raisers to plug the state's budget shortfall. Governor Perdue is also proposing to cut spending by $1.3 billion in each of the next two years. On Tuesday she said, "The budget I'm releasing today, I believe, makes strategic investments that will create jobs and increase overall per-student spending, and is a balanced budget." But it's clear that the Governor is missing a real opportunity to be forward-thinking. She could have chosen to improve the state's tax structure through sales tax base expansion and increased progressivity of the income tax, which would offset the regressive effects of her proposed increases in the state's cigarette and alcohol taxes. Let's hope that the Governor's budget isn't the last word on how to fix the state's budget shortfall.

Citizens for Tax Justice called uponPresident Obama this week to stand by his message of transparency by finally making "tax expenditure" performance reviews a regular part of the OMB's evaluations of government effectiveness.

Simply put, tax expenditures differ from the rest of the tax code in that they focus on encouraging a specific activity or rewarding a particular group of people, rather than on trying to improve the efficiency, simplicity, or fairness of our tax system.Since tax expenditures are usually enacted with primarily non-tax goals in mind (e.g. encouraging investment, encouraging research and development, encouraging home ownership, etc.) it is important that the government make an effort to gauge their effectiveness in achieving those goals.

But despite calls from the GAO, past Congresses, and outside experts in favor of subjecting tax expenditures to regular performance reviews, the most comprehensive performance measure currently in place, the OMB's Program Assessment Rating Tool (PART), continues to focus narrowly on only traditional spending programs.

Encouragingly, language in the President's recently released budget blueprint suggests that a more comprehensive approach for evaluating the government's performance will be used under the Obama Administration (see. pp.39).It's hard to see how anything approaching true comprehensiveness could ignore the hundreds of billions of dollars the government directs toward programs administered via the tax code.Hopefully, the brief language addressing performance reviews that was included in this blueprint is the first signal that an end is coming to the free-ride thus far enjoyed by tax expenditures.

Read the full statement from CTJ

Buried in President Obama's recently released budget blueprint were four little-noticed and perhaps unexciting sentences that could signal the coming of a major change in the way the executive branch thinks about, evaluates, and reports on tax expenditures:

The Administration will fundamentally reconfigure the Program Assessment Rating Tool. We will open up the insular performance measurement process to the public, the Congress and outside experts. The Administration will eliminate ideological performance goals and replace them with goals Americans care about and that are based on congressional intent and feedback from the people served by Government programs. Programs will not be measured in isolation, but assessed in the context of other programs that are serving the same population or meeting the same goals.

While the term "tax expenditure" isn't explicitly included in this brief preview of things to come, a recently issued statement from Citizens for Tax Justice makes clear that meaningfully implementing the promises made above will have to involve shining a bright light on government programs hidden within the tax code.

For the uninitiated, the term "tax expenditure" essentially refers to tax laws that focus more on encouraging a specific activity or rewarding a particular group of people, rather than on trying to improve the efficiency, simplicity, or fairness of our tax system. Put another way, these provisions more closely resemble non-tax, spending-like programs than they do principled tax policy. Special tax breaks for capital gains income, research and development activities, mortgage interest payments, and retirement and health benefits all fit this billing. Altogether, there are more than 160 tax expenditures in our tax code (the precise number varies somewhat depending on the definition you use), and recent estimates peg their total size at upwards of $800 billion annually.

Even though most tax expenditures don't constitute smart tax policy, it can at times be sensible to administer these programs as tax policies in order to piggyback on the IRS' existing distribution structure. More often, however, these items are unwisely grafted to the tax code merely as a way to protect them from the annual scrutiny of the appropriations process, or to cash in on the widespread popularity of reducing taxes while simultaneously being able to re-direct government resources toward favored objectives.

Regardless of why these items ended up in the tax code, there's a clear need to evaluate their effectiveness in achieving the goals for which they were enacted. Have the lower tax rates for capital gains and dividends income encouraged investment? Has the mortgage interest deduction resulted in a higher rate of home ownership? These kinds of questions deserve much more rigorous and visible consideration inside government than they have received in recent years.

Fortunately, if the President is sincere in his promise to assess programs "in the context of other programs that are serving the same population or meeting the same goals", the OMB's "Program Assessment Rating Tool" (PART) will have to be expanded and re-worked in a way that allows for the consideration of precisely these types of questions. How, for example, could one ever hope to evaluate any U.S. health care policy without considering it in the context of the $160 billion subsidy for health insurance given through the exclusion of employer provided health care? Likewise, what kind of housing policy analysis could ever ignore the $90 billion given to homeowners via the mortgage interest deduction? But as things stand today, this is exactly how the Program Assessment Rating Tool is used.

As the Citizens for Tax Justice statement pointed out, the push to include tax expenditures alongside other programs in the performance review process has received significant attention in the recent past. Unfortunately, however, up until this point its merits have not been enough to propel it past the political obstacles. In writing about the very specific language calling for tax expenditure performance reviews that was included in the Senate report accompanying the 1993 Government Performance and Results Act (GPRA), one observer pointed out:

Clinton's Treasury Department, of which I was a part from 1998 to 2000, was unenthusiastic about performing these evaluations, reasoning that a comprehensive evaluation of tax expenditures would necessarily raise serious objections to measures enthusiastically advanced by the Administration ... Although the menu of favorite tax expenditures changed when President Bush took office, the Office of Management and Budget has not published any new tax expenditure analyses

- Len Burman. "Is the Tax Expenditure Concept Still Relevant". National Tax Journal. September 2003.

In order for real reform to occur, President Obama's very visible push for greater government transparency will have to outweigh the coldly political calculations that have made for "politics as usual" up until this point.

Click here for the pdf version of this document.

Citizens for Tax Justice has joined over 20 other national organizations signing a letter to Congress in support of legislation introduced by Senator Carl Levin (D-MI) and Congressman Lloyd Doggett (D-TX) to crack down on offshore tax evasion.

The letter, which several more organizations are still in the process of signing, has been made public this morning before a scheduled hearing of the Senate Finance Committee to address, as the committee website puts it, "Tax Issues Related to Ponzi Schemes and an Update on Offshore Tax Evasion Legislation."

Click here to view the letter with the current list of signatories or visit www.gfip.org.

The chairman of the Senate Finance Committee, Max Baucus (D-MT), has circulated draft legislation that would not be nearly as effective as the bill Senator Levin and Congressmen Doggett have introduced (S.506/H.R.1265). We strongly urge Senator Baucus to consider adopting the provisions of the Levin-Doggett bill as he crafts his legislation.

As chairman of the Senate Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations, Senator Levin has uncovered numerous offshore tax schemes that contribute to the estimated $100 billion in U.S. revenue lost each year as a result of offshore tax evasion. S.506/H.R.1265 improves upon similar legislation that Senator Levin and Congressman Doggett introduced last year and which was cosponsored by Barack Obama.

The Obama administration has indicated that it supports S.506/H.R.1265 and included in its fiscal year 2010 budget a goal of recouping $210 billion over ten years by reforming international tax enforcement and changing rules around deferral of taxes on foreign income.

The organizations that have (so far) signed the letter in support of S.506/H.R.1265 include:

AFL-CIO
American Federation of State, County and Municipal Employees (AFSCME)
Americans for Democratic Action, Inc
American Committees on Foreign Relations
Association for Accountancy & Business
Bangladesh Development Research Center
Caux Roundtable
Center for Corporate Policy
Citizens for Tax Justice
Coalition on Human Needs
Corp Watch
Friends of the Earth
Government Accountability Project
Medical Mission Sisters
National Consumer League
National Women's Law Center
New Rules for Global Finance
OMB Watch
Peterson Institute
Public Citizen
Service Employees International Union (SEIU)
Tax Justice Network
United for a Fair Economy
USAction

On February 26, President Obama sent to Congress the blueprint for what could be one of the most progressive federal budgets in generations. The budget calls for national health care reform, expanded education funding, a program to reduce global warming, and several improvements in human needs programs. As a new report from Citizens for Tax Justice explains, it would make the tax code considerably more progressive, and close a number of egregious tax loopholes.

There is, however, a flaw in the budget proposal: It does not raise enough revenue to pay for public services. Instead, its net effect is to cut taxes dramatically.

Opponents of the President have attempted to argue that the budget proposal calls for tax increases that could sink the economy, but this complaint is plainly unfounded. President Bush and his allies in Congress were adamant that lower taxes would lead to an explosion of prosperity, and they enacted tax cuts in 2001, 2002, 2003, 2004 and 2006. Some allies of the former President argue that Congress is now insufficiently focused on tax cuts, but this view seems bizarre and incredible given the sad economic facts all around us.

Indeed, one might reasonably conclude that we could safely allow most of the Bush tax cuts to expire at the end of 2010, as they are scheduled to under current law, without any concern about how this will impact the economy. But President Obama actually proposes to keep most of the Bush tax cuts. Obama's largest proposed tax cut is to re-enact 80 percent of the Bush tax cuts that are scheduled to expire at the end of 2010. Most of this reflects re-enacting the Bush income tax cuts for married couples with incomes below $250,000 and others with incomes below $200,000 (or put another way, for about 98 percent of taxpayers), and permanently reducing the Alternative Minimum Tax (AMT). In addition, Obama proposes to re-enact close to half of the Bush estate tax cut.

On top of re-enacting most of the Bush tax cuts, the Obama budget includes a number of additional tax cuts for families and individuals. (These would be extensions of temporary tax cuts included in the recently passed stimulus law.) It also proposes some questionable business tax cuts.

Partially offsetting its tax-cut proposals, the Obama budget proposes some significant revenue-raising provisions. These include a cap-and-trade program to reduce carbon emissions, a limit on the benefits of itemized deductions for high-bracket taxpayers, and a number of corporate and high-income loophole-closing measures.

Read the Report

It's hard to believe, but there may actually be a trend in state tax policy more prominent than increasing cigarette taxes. Business tax credits aimed at spurring economic development have been among the most popular ideas in statehouses scrambling for ways to reduce unemployment. Just last week, we described a plan in Minnesota to boost investment tax credits and a budget in California containing a few credits of its own. This week, proposals to do the same in Iowa, Kentucky, and Missouri are under discussion.

In Iowa, Republican lawmakers have suggested paying (via tax credit) half the salary of each new job created by private businesses. Oddly, because this payment would be administered through the tax code rather than as a direct grant, the debate has become confused to the extent that this policy has been labeled as a way to return to a "market-based, capitalistic system".

An excellent op-ed out of Kentucky helps clear things up a bit, noting that Gov. Beshear's proposed expansion of business tax incentives would be a costly, nontransparent, and likely ineffective way of encouraging job growth. The op-ed goes on to argue that a "broader" approach, including better targeted and more closely scrutinized spending programs, could do far more good than creating more tax credits.

Finally, as an expansion in economic development tax credits works its way through Missouri's legislature, the admission of at least one legislator that he is a "recovering tax credit addict" helped to shine some light on the unfortunate politics behind these types of tax credits. These programs can cost a state enormously, and are rarely defensible on principled tax policy grounds. Instead, they constitute a type of spending done through the tax code -- commonly referred to as "tax expenditures" -- which add complexity, shrink the tax base, require higher marginal rates, and offer little if anything in terms of making the system more responsive to individuals' and businesses' ability to pay.

One of the few benefits of a crisis as severe as the recession in which the United States now finds itself is that it may lead some to question long-established practices and to ask whether there might be a better way of doing things. In New Hampshire, which faces a budget deficit of several hundred million dollars over the coming biennium, that might mean reconsidering its status as one of only nine states without a broad-based income tax. Indeed, the New Hampshire House Ways & Means Committee last week held a hearing on a bill (H.B. 642, introduced by Representative Jessie Osborne in January) that would both establish an income tax and reduce state property taxes for a large number of homeowners. Consequently, the bill would not only generate close to $500 million per year in new revenue, but it would also make New Hampshire's tax system much fairer.

For more details, read ITEP's testimony on HB 642 here.

As we mentioned last week, California enacted, as part of its budget compromise, a change in the rules determining what share of a corporation's income is taxable in the state. To be specific, California adopted an optional "single sales factor" apportionment formula, which multi-state corporations support -- because it will help them avoid taxes. Virginia appears to be following suit this week. Both of the state's legislative chambers have approved optional single sales factor apportionment, though only for manufacturers. The Governor has yet to sign the measure, and he has reportedly taken no position on the bill. You can read the ITEP Policy Brief explaining how single sales factor apportionment can reduce the fairness and adequacy of state corporate income taxes here.

We've heard of cigarette taxes being used to fund lung cancer research. We've also heard of alcohol taxes dedicated to alcohol treatment efforts. We've even heard of the idea to tax unhealthy foods to raise money for combating obesity. Along these same lines comes a new proposal out of Utah to tax tanning salons at a 10% rate to fund melanoma research.

Frankly, Utah would be much better off if it expanded its sales tax base to include tanning services. Twenty two states already do so. Admittedly, the 4.7% sales tax rate won't raise as much revenue as the 10% tax, but it would provide advocates of the tanning tax with much stronger footing on tax policy grounds. Given that their 10% tax failed to make it out of committee, it's certainly an idea worth considering.

Last week was a rough one for tax justice advocates in many states, but especially those working in Missouri. The House Committee on Tax Reform heard not one, but two bills attempting to eliminate to state's corporate income, individual income, and estate taxes. The revenue loss from eliminating these taxes would supposedly be raised from eliminating all sales tax deductions and exemptions. These bills were based largely on the propaganda of Americans for Fair Taxation, a group which supports the elimination of all taxes based on income.

The group's slogan for promoting these types of tax changes is "Freedom. Fairness. Savings," words which have nothing to do with the policies they promote. Relying more on consumption taxes rather than income taxes only ensures that poor families pay more in taxes as a share of their income than do wealthy families. The only people who save under these "fair tax" proposals are wealthy folks. The Missouri Budget Project was one of many groups who testified against these unfair and expensive proposals, arguing "that these bills undermine the principles of fairness and equity that should be the basis of our tax system."

The poorly named Tax Payer Bill of Rights (TABOR) is a cap on allowable spending enacted in Colorado in 1992. Since then, it has become clear that the measure demolished the state's ability to fund higher education, infrastructure and health care. Despite voters approving a ballot measure to suspend Colorado's TABOR for five years, the concept of a spending limit is still rearing its ugly head in both Maine and Missouri.

In Maine, the Heritage Policy Center has a revised TABOR proposal (a previous proposal was defeated by a vote of the people two years ago), which promises to combat the state's "overspending" problem while making it quite difficult for taxes to be raised. This November, Mainers will be asked to vote once again on the TABOR. Read the Maine Center for Economic Policy's report about the many serious problems with this proposal.

Meanwhile, a proposal to cap spending is making its way through the Missouri House of Representatives, which will serve as another test for the pro-TABOR forces. Read the Missouri Budget Project's warning about TABOR's impact on the state.

Special Alert about President Obama's Budget Proposal from Our Friends at the Coalition on Human Needs:

• Learn about this transformational budget during a FREE webinar this Thursday, March 5 at 2pm eastern time (more details below)
• Organizations that wish to support and build upon President Obama's priorities please SIGN a statement online. Read statement here.

FREE Webinar:

President Obama's Budget:
The Path to Rebuild and Renew America Now

When:

Thursday, March 5, 2:00 - 3:00 p.m. eastern time

Register: www.bostonconferencing.net/chn

(Once registered you will receive instructions on how to log in, and explanatory budget materials via email. To participate, you need to be at a computer.)

This webinar will show how the President's budget would invest in health care, renewable energy, education, and more, laying a new foundation for growth that benefits us all. The budget makes an important - make that historic - down payment on renewing opportunities for Americans to join the middle class and be protected from poverty. The webinar will describe the transformational choices in the budget - a long-term plan to pay for the investments we need by raising revenues from those who can afford to pay and by cutting waste in the military and elsewhere. And it will describe a new campaign to support the President's responsible budget priorities - a campaign that needs your help.

Presenters:

• Human Needs Choices in the Budget:
  Deborah Weinstein, Executive Director, Coalition on Human Needs
• Environmental Priorities:
  Ivan Frishberg, Political Director, Environment America
• The Campaign - Rebuild and Renew America Now:
  Alan Charney, Program Director, USAction
• Donald W. Mathis, Moderator, President and CEO, Community Action Partnership

There will be time for questions!

This webinar is co-sponsored by organizations including the Coalition on Human Needs, ACORN, AFSCME, Center for Law and Social Policy, Citizens for Tax Justice, Community Action Partnership, Environment America, Food Research and Action Center, Friends Committee on National Legislation, Health Care for America Now, Jewish Council for Public Affairs, National Association of Social Workers, National Immigration Forum, National Women's Law Center, NETWORK: a National Catholic Social Justice Lobby, Public Education Network, RESULTS, United States Students Association, USAction, Wider Opportunities for Women, and YWCA USA (list in formation).