Over the past several months, CTJ has produced several resources that will help you to be informed about the tax issues at stake in the upcoming election. The first question many people will ask themselves on election day is, "What have the two parties done so far about taxes?" The second question is, "What do the two parties promise to do about taxes going forward?"

Our resources will help you answer both of those questions.

What Have the President and Congress Done So Far about Taxes?

The recovery act, which President Obama signed into law after it passed Congress without a single Republican vote in the House and just a few Republican votes in the Senate, cut taxes for 98 percent of working Americans. See CTJ's report and fact sheets:

President Obama Cut Taxes for 98 Percent of Working Families in 2009

State-by-state fact sheets are included.

What Do President Obama and the Congressional Democrats and Republicans Promise to Do about Taxes Going Forward?

CTJ has produced a report and state-by-state fact sheets comparing the impact of President Obama's tax plan and Congressional Republicans' tax plan on taxpayers in different income groups:

Comparing President Obama's Tax Plan and Senate Republicans' Tax Plan

CTJ has also created an online tax calculator that allows you to see how a given taxpayer would be affected by the competing tax plans.

CTJ's Online Income Tax Calculator

Click on your state below to see what CTJ has written over the past several months about state-level races and ballot measures that will affect you.

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The American Family Business Foundation, which was founded to promote repeal of the federal tax on the estates of millionaires, is at it again. AFBF, you may remember, commissioned two outrageous "studies" last year on the alleged economic benefits of repealing the estate tax, which provided the amusing subject of our report, Caviar, Cruises and Cocaine.

After the publication of our most recent estate tax report, which includes state-by-state figures, AFBF wrote in its blog that the "latest lies in the death tax debate comes disguised as a statistical study offered by a group called Citizens for Tax Justice."

"Research" that Assumes Government Collects Money and then Burns It

First off, AFBF says that it's misleading for us to say just how few deaths result in estate tax (just 0.6 percent in the most recent year for which data are available) while ignoring the broader economic impact of the estate tax, which AFBF says "reduced overall capital in the economy by $847 billion over a ten-year period."

Actually, the report they cite seems to say that $847 billion is the amount by which the estate tax has reduced capital during the entire time the tax has existed, since 1916. But putting that aside, keep in mind this figure came from the Congressional Joint Economic Committee (JEC) in 2006. Unlike the GAO, CBO, Congressional Research Service or the Joint Committee on Taxation, the JEC is not a non-partisan entity. It has a Democratic staff and a Republican staff who issue completely different (and conflicting) reports. This report was issued by the Republican staff when that party was in the majority.

The 2006 JEC study, using the methodology of a previous study but with updated data "estimates that the estate tax has reduced the stock of capital in the economy by approximately $847 billion, or 3.8 percent."

As is typical with "research" of this genre, it is assumed that the estate tax takes resources out of the economy and that those resources simply disappear. If you account for the economic cost of taxes but ignore that positive benefits of government spending in the economy, then obviously the only possible conclusion is that the tax in question shrank the economy.

In other words, these studies assume that the government collects taxes and does absolutely nothing with the revenue. In reality, tax revenue is pumped back into the economy as government spending, and most or much of it (and people will disagree on how much) is spent on investments that actually boost our economic growth. Education provides a productive workforce, roads make commerce possible, public safety and national defense ensure that your property in the U.S. won't be stolen or seized by anyone inside or outside this country. Even a federal program like Social Security that supports consumption at least pumps dollars back into the economy, which provides some benefit to businesses.

If the estate tax was repealed, some of these public services would have to be cut sooner or later to make up for the lost revenue, and the logical result could be less capital formation over time — perhaps a reduction much larger than the 3.8 percent reduction that the estate tax is claimed to produce.

Questionable Use of Data

AFBF argues that the broader economic impact is clear from research showing that repeal of the estate tax would "increase small business capital stock by $1.6 trillion and create 1.5 million jobs."

The study they cite is a February 2009 report from Douglas Holtz-Eakin and Cameron T. Smith, and it's one of the "studies" we felt compelled to refute in our Caviar, Cruises and Cocaine report. Here's what we said about this $1.6 trillion figure then:

There are more examples of how their analysis is extremely sloppy or just intentionally misleading. For example, Holtz-Eakin and Smith give us this gem:

"In 2004, individuals reported a total of $10.2 trillion in wealth on estate tax returns. Eliminating the estate tax would raise the wealth reported on estates by over $1.6 trillion."

First of all, if the estate tax is repealed, there will be no reason for anyone to report any estate value to the IRS so the “wealth reported on estates” will drop to zero.

But putting that aside, individuals did not report a total of $10.2 trillion on their estate tax returns in 2004. Actually, in 2004 individuals reported a total of less than $0.2 trillion in net wealth on estate tax returns. The amount of wealth reported on taxable estate tax returns was only $0.1 trillion.

The $10.2 trillion figure is actually an IRS estimate of the total value of the net worth of Americans with assets of more than $1.5 million in 2004.  Almost all of these people were obviously alive in 2004, and their estates were not going to be taxed in any one single year.

Thus, the $10.2 trillion is more like an estimate of the value of wealth that existed in 2004 and that might, one day, be subject to the estate tax.

So when the authors go on to say that eliminating the estate tax would increase this wealth by $1.6 trillion, they presumably mean over a span of fifty years or longer, or however long it takes those who were millionaires in 2004 to die out.

It’s a little weird to speak about economic impacts in terms of half-centuries, but it’s certainly a way to avoid being called out when your predictions don’t pan out.

Compliance Cost for the Estate Tax Are Not Greater than the Revenue It Collects

Our recent report with state-by-state estate tax figures mentions that the effective estate tax rate for those 0.6 percent of estates that were taxable was 20.4 percent. AFBF takes issue with this because, they say, the only way wealthy people can use the deductions and credits that reduce or eliminate their estate tax is by "paying the bills for high-priced attorneys and estate planners." In fact, AFBF even claims that a former Clinton economic adviser found that the estate tax's compliance cost exceeds the revenue it collects.

A report from the Center on Budget and Policy Priorities discusses research finding that the total compliance costs of the estate tax, including collection efforts by the federal government and planning costs for individuals and families, comes to about seven percent of the total estate tax revenue collected, which is comparable to the compliance costs of other taxes.

One reason for misunderstanding about the compliance costs of the estate tax is that most of the costs associated with estate planning have nothing to do with the estate tax, and yet many people assume that avoiding the tax is the only purpose of estate planning. Anyone with any assets and who has any interest at all in controlling what will happen to those assets in the future and who will inherit them will do some estate planning. No one has suggested that the estate planning profession will disappear if the estate tax is repealed.

Misunderstanding Capital Gains Taxation

There seems to be some confusion about how capital gains are taxed on inherited assets. In our recent estate tax report, we pointed out that more than half of the value of taxable estates is capital gains income that has never been taxed. As we explained,

Most large estates include assets such as real estate, stocks or bonds. Any increase in the value of these assets is capital gain income that would be subject to the income tax if they were sold during the owner’s lifetime. However, this type of income is not subject to the income tax if the owner dies and leaves it to an heir. In other words, without the estate tax, a huge amount of income would never be taxed. Over half the value of inherited estates is capital gains income that has never been taxed.

AFBF responds in a way that seems to misunderstand tax law or simply miss the point:

This formulation is not true. Under capital gains tax law, assets which increase in value are taxed whenever they are sold. If an asset is not sold, it is not taxed – but neither does it provide a tangible reward to the owner.

For example, consider a family that passes a piece of expensive artwork between 4 generations, during which time the artwork substantially increases in value.

Is the art taxed?

Of course not. The family paid taxes on the income that purchased the art. If and when they choose to sell the art and realize their profit, they will once again pay taxes.

Our point was that if your grandfather bought that art in 1920 (to stick with the art example) for $1,000 and then left it to you when he died in 2009 when it was worth $20,000, you would not have to pay income taxes on that gain of $19,000. But if your grandfather sold the art the day before he died, he would have to pay the income taxes on that gain of $19,000. By leaving it to you, your family avoids the income taxes on that capital gain. The estate tax is therefore not double-taxation on this income — which is most of the value of taxable estates.

The Estate Tax and "Small" Businesses

Our recent report also cited figures from the Tax Policy Center (TPC) on small businesses.

Late last year, the Tax Policy Center provided estimates that defined small business estates as those in which farm and business assets represent at least half of the gross estate and total no more than $5 million. Using this definition, it was estimated that only 100 farms and small business estates would have owed any estate tax this year if the 2009 exemption levels had been in effect.

AFBF cites its work that allegedly "refutes" this. First, AFBF simply disagrees about the definition of a small business.

The standard small business definition is 500 employees, though some small businesses can be as large as $175 million in gross assets and have over 1,500 employees, according to the Small Business Administration.

For people who have a business with, say, five employees, it probably comes as a shock to learn that when conservatives talk about "small business" they actually mean companies with 500 or even 1,500 employees. So much for the owner of an auto shop or corner grocery store.

Then AFBF again cites the JEC (Republican staff) report to claim that 115,000 small businesses paid the estate tax between 1996 and 2005. This is based on the number of estates with any amount of assets in any business that is not a "C corporation." That means that if a person has a stake in a company that is huge but not a business that pays the corporate income tax (say, the Tribune Company) and only has a tiny stake so that it makes up small portion of the estate, this person's estate is counted as a small business estate.

And of course, AFBF does not bother here to mention that the estate tax has been drastically cut back since the 1990s and that no one in Congress is considering allowing it to revert fully to the pre-Bush rules.

Misleading Use of Figures and One-Sides Analyses Hide Philosophical Opposition to Estate Tax

We could go on about the ways that AFBF has produced countless distortions about the estate tax but this is really beside the point. The only rationale for opposition to the estate tax is simply a deep-seated belief that society has no right to ask for more from the rich than it does from everyone else. We believe that the rich could not have made their fortunes if not for the protection of property, the facilitation of commerce and the countless other public services that taxes make possible, so it's reasonable for the rich to pay a little more in taxes. Others simply disagree.

It would be much easier to have this philosophical debate if our opponents did not hide behind supposedly complicated economic models that mystify the lay audiences who are unaware of their one-sidedness and their convoluted logic. It would be much simpler if our opponents simply told us why they think the rich should not pay more in taxes than anyone else.

In the days leading up to New Mexico’s gubernatorial election, Democratic candidate Diane Denish has called her GOP opponent Susana Martinez a “tool of corporate interests."

This claim is supported by Martinez’s opposition to long proposed state legislation to close corporate tax loopholes through enacting combined reporting. Martinez calls combined reporting a tax increase on business.  Denish sees it as a way to level the playing field between small businesses and multi-national corporations and would use the additional revenue to address New Mexico’s budget shortfall. 

When Martinez stated her opposition to combined reporting at a recent debate, Denish called her challenger’s response the “defining moment” of the campaign and said "she'll come down on the side of those big out-of-state corporations every single time. She won't close that tax loophole.”

In Texas, Republican Governor Rick Perry is campaigning against President Obama and Democratic gubernatorial candidate Bill White is campaigning against Perry’s record as the state’s head executive.  A recent article in the Houston Chronicle points out that during Perry’s tenure in Austin, the state’s budget has grown by over 12 billion and now faces an estimated shortfall of over 21 billion.

The number of Texans living in poverty has grown and funding for education and the Children’s Health Care Fund has been slashed.  Though the Wall Street Journal claims that Texas is attracting big businesses and creating new jobs, the state government does not appear to be doing a good job of bringing the benefits of economic growth to those who need it most.

New York’s GOP gubernatorial candidate, Carl Paladino, has spent the past month pledging to cut taxes by 10 percent and slash state spending by 20 percent to address the state’s looming budget shortfall. The details of his tax cuts have been sparse, though in campaign stops he has referred to cutting personal income tax rates, reducing corporate minimum taxes, and eliminating the corporate franchise tax for manufacturers.

Most recently, Paladino has admitted that his plan to reduce spending by 20 percent in one year is “unrealistic” because “closing state agencies, cutting the workforce and trimming Medicaid takes time.”

Former US Representative Neil Abercrombie and Lt. Gov Duke Aiona are both running to be Hawaii’s next governor. Abercrombie recently said, “Government can and should work to spark the private economy, particularly during tough economic times. This has always been the case.” Aiona disagrees and says, “Government does not create jobs. We're not job creators," he said. "It's the private sector, as we know, that creates jobs. It's the small businesses that create jobs.”

Despite these seemingly different takes on the role of government, both candidates have committed to keeping spending at existing levels, not increasing the state sales tax and continuing to allow hotel room tax revenue to stay with the counties. 

Yet, all is not as amicable as it appears in the land of Aloha. Aiona has said that he would support reductions in both corporate and individual income taxes, if offsetting revenue were available, but it's hard to imagine where that revenue would come from without harming low- or middle-income families. So ultimately, there actually is a pretty clear choice between these two candidates on tax and revenue issues.

Wisconsin Republican gubernatorial candidate, Scott Walker, is in favor of repealing Wisconsin’s corporate income tax.  The state’s current corporate income tax brings in over $1.5 billion every two years to the state’s coffers. Walker says that eliminating this tax will boost the state’s economy. This seems an especially foolish position given the state’s budget shortfall, which according to the Wisconsin Budget Project totals about $3 billion.  Democrat Tom Barrett has sensibly pointed out that eliminating this revenue source will mean that the state won’t be able to provide as many services and ultimately this policy change will shift taxes onto the backs of middle class families.

Corporate lobbyists are once again asking Congress and the Obama administration for a tax amnesty for "repatriated" offshore profits. U.S. corporations that shifted profits offshore would get to bring that money back to the U.S. without paying the corporate income tax at the normal statutory rate of 35 percent but rather at a special rate of just 5.25 percent. CTJ released a report addresssing this proposal the last time it was considered in Congress, in early 2009, noting evidence that the last repatriation amnesty did not lead to greater domestic investment or job creation and that repeated amnesties will only encourage corporations to shift profits offshore.

If you want an example of the sort of corporation that would benefit from an amnesty for repatriated offshore profits, look no further than Google, the search engine giant that saved itself $3.1 billion over three years by using accounting gimmicks and transactions that exist only on paper to to shift its profits first to Ireland, then to the Netherlands and finally to no-tax Bermuda.

Read CTJ's report: Will Congress Make Itself a Doormat for Corporations that Avoid U.S. Taxes?

Read the Bloomberg article: Google 2.4% Rate Shows How $60 Billion Lost to Tax Loopholes

The stakes will be high for state tax policy on Election Day, with tax-related issues on the ballot in several states. With a couple of notable exceptions (a new income tax in Washington and rollback of corporate tax breaks in California), these ballot initiatives would make state taxes less fair or less adequate (or both).

Personal Income Tax

Colorado: Proposition 101 would reduce or eliminate various fees and immediately reduce the state’s income tax rate from 4.63 to 4.5 percent and eventually to 3.5 percent).  If passed, Proposition 101 will result in an estimated loss of $2.9 billion in state and local revenue once fully implemented.

Washington: Initiative 1098 would introduce a personal income tax, reduce the state property tax and eliminate the Business and Occupation tax for small businesses. If passed, this legislation would improve tax fairness in the state with the most regressive tax structure in the country.  For more read CTJ's Digest articles about this initiative.

Business Tax Breaks

California: Proposition 24 would eliminate several business tax breaks enacted in 2008 and 2009 and increase state revenues by more than $1.3 billion.  For more details on these tax breaks, read the California Budget Project's Budget Brief on the initiative.

Super-Majority Voting Requirements

California: Proposition 25 would remove the current two-thirds super-majority requirement needed to pass the state budget (replacing it with a simple majority vote), while Proposition 26 would institute a new super-majority requirement for raising certain fees (classifying them as taxes).  For more details on these initiatives, read the California Budget Project’s initiative summaries.

Washington: Initiative 1053 would, if approved, ensure that no tax increases (no matter their size) become law without either approval by a two-thirds majority in the legislature or a public vote of the people. The Washington Budget and Policy Center gives a helpful summary of the initiative and its potential impact.   

Earnings Taxes

Missouri: Proposition A, if approved, would require that voters be asked every five years to decide whether or not local earnings taxes levied in St. Louis and Kansas City should exist. (If voters then decide to not allow them, they will be phased out over a ten-year period). The Proposition would also exclude any other local government from levying its own earnings taxes. For more on Proposition A, read Missouri Budget Project’s fact sheet.

Sales Taxes

Massachusetts: Question 1 and Question 3
A diverse coalition of businesses, advocacy organizations, citizens groups and political leaders have joined together to defeat Question 3, an initiative that would cut the state’s sales tax rate from 6.25 to 3 percent, resulting in an annual revenue loss of $2.5 billion.  Question 1 would remove the sales tax on alcohol which was just added last year in order to raise $80 million for substance abuse programs.

Washington: Initiative 1107 would repeal the new sales taxes on a variety of goods including soda, bottled water, and candy. For more information, read CTJ's Digest article on the issue and the Washington Budget and Policy Center’s summary.

Despite the regressive nature of the sales tax, it's an important revenue source. Slashing it in either Washington or Massachusetts without replacing the lost revenue with another source would cripple the ability of those states to provide core services such as education and public safety to their residents.

Property Tax Exemptions

Missouri: Constitutional Amendment 2 would exempt fully disabled prisoners of war (POWs) from paying property taxes. Read Missourians for Tax Justice’s take on this issue.

Virginia: Question 2 would change Virginia’s constitution to exempt veterans and their surviving spouse from paying property taxes if the veteran is 100 percent disabled.

Property Tax Caps

Colorado: Amendment 60 would take away the ability of voters to opt out of Colorado’s TABOR limitations as they relate to property taxes.  Currently, voters can approve an increase in property tax rates above the constitutional limit which caps increases at the rate of inflation plus a small measure of local growth.  The amendment would also require school districts to cut property tax rates in half over the next ten years and replace the lost revenue for K-12 schools with state funding (an estimated $1.5 billion will be required from the state, meaning reductions will have to made to other services to support an increase in K-12 spending).

Indiana: Public Question #1 will ask Indianans to decide if their state's constitution should be permanently altered to limit property taxes to 1 percent of assessed value for owner occupied residences, 2 percent for rental and farm property and 3 percent for business property. Voters may find it helpful to read this brief from the Indiana Institute for Working Families.

Real Estate Transfer Fees

Missouri: Constitutional Amendment 3 would prohibit the state from enacting any type of real estate transfer tax. Missouri currently doesn’t levy any such tax.  Placing the question before voters is seen as a preemptive move by the Missouri Association of Realtors to ensure that the state can’t create a transfer tax.

Montana: Constitutional Initiative 105 would, if approved, prohibit the state from enacting any type of real estate transfer tax.  The state currently doesn’t levy such a tax. The Billings Gazette has weighed in on this Initiative.

Government Borrowing

California: Proposition 22 would amend California’s Constitution to take away the state’s ability to borrow or shift revenues that fund transportation programs.  For more information, read the California Budget Project’s brief on the initiative.

Colorado: Amendment 61 would prohibit or restrict all levels and divisions of government from financing public infrastructure projects (such as building or repairing roads and schools) through borrowing.

Iowa Governor Chet Culver has rightly been very vocal in criticizing GOP challenger Terry Branstad’s proposal to slash corporate income taxes and commercial property taxes.  Branstad’s plan ignores the fact that Iowa’s corporate taxes are already quite low, as well as the reality that these tax cuts will have to be paid for – through reduced services (which Branstad has refused to identify), or through higher taxes on individuals. 

Nonetheless, despite the obvious problems with Branstad’s plan, Governor Culver’s campaign this week found it necessary to respond with a tax cut plan of its own.  In a press release heavily emphasizing his anti-tax credentials, Governor Culver proposed on Tuesday a $90 non-refundable tax credit to taxpayers earning less than $200,000 per year (or $100,000 for single filers).

According to the Governor’s calculations, roughly 65% of Iowans would benefit from the credit.  Families earning above $200,000 would receive no benefit.  Similarly, families earning too little to owe income taxes (but who still pay substantial sales, property, and excise taxes) will also see no benefit from Culver’s plan. 

Why a family earning $195,000 is more in need of a $90 tax break than a family below the poverty line is unclear. But if forced to choose between the major candidates’ plans, we can only conclude that Culver’s is clearly the more sensible of the two.

One of the more confusing developments to occur in the wake of Culver’s plan being released was the flurry of complaints from conservatives alleging that the $90 non-refundable tax credit is a form of “class warfare.”  It’s a very odd type of “class warfare” indeed when Iowa’s middle-class are on one side, and the poor and rich are lumped together on the other. 

In the end, though, it’s probably not worth spending too much time worrying about what this particular group of critics has to say.  This is the same bunch that had the audacity to argue that Iowa’s sharply regressive tax system is actually a form of “socialism.”

But putting aside all the rhetoric, one point recently made by Rep. Erik Helland is hard to ignore: “Two weeks before the election? This is a campaign rebate… It's nothing more than campaign politics.”  The sad truth is that Culver’s plan is good politics – probably even better than the platform of the “Rent is Too Damn High Party” in New York. 

No matter which candidate wins, the anti-tax direction that both campaigns have taken does not bode well for tax reform.  Keep in mind that Iowa still offers an enormously costly and regressive deduction for federal income taxes paid, as well as a sizeable break for many types of capital gains income.  Let's just hope the current tax cut arms race we’re witnessing doesn’t set the tone for the next four years.

A recent survey shows that fewer than one in ten Americans knows that that President Obama cut their taxes in 2009 and 2010, and many believe he actually raised them. CTJ released this report and state-by-state fact sheets before Tax Day showing that the recovery act signed into law by President Obama cut taxes for 98 percent of working Americans.

Read the report and state fact sheets.

The Committee for a Responsible Federal Budget (CRFB) is an organization with which Citizens for Tax Justice (CTJ) often disagrees.  A new report released by CRFB this week, however, demonstrates that CTJ and CRFB have something in common when it comes to addressing the federal budget deficit.  As CRFB explains, "reforming tax expenditures should be at the top of the budget reform agenda… [and] money raised from broadening the [tax] base will have to help close the fiscal gap rather than to pay for lower tax rates."

The CRFB recommendations appear to draw heavily on proposals from the Congressional Budget Office (CBO), President Bush’s 2005 tax reform panel, and President Obama’s Economic Recovery Advisory Board.  CRFB’s report is quite bold, recommending the reform or outright repeal of multiple itemized deductions, including those for charitable contributions, mortgage interest, and state and local tax payments. 

The report also discusses the possibility of enacting a broad limitation on all itemized deductions that’s even more aggressive than what President Obama has proposed — specifically, limiting the value of all itemized deductions to 15% of a taxpayer’s taxable income.

While the CRFB report focuses mostly on individual tax expenditures, it also mentions (however briefly) the importance of looking at corporate tax expenditures to "raise revenue, increase economic efficiency, and provide fairness."  CRFB appears to have given up all hope of achieving this first objective, however, as its report simply states that "it is likely" that the repeal of corporate tax breaks "will be used to pay for revenue-neutral reform of the corporate income tax."

CRFB also recommends a number of changes to the budget process in order to make the tough uphill battle against tax expenditures just a bit easier.  As their report correctly points out, "One of the problems … of tax expenditures is that they are not subject to annual budget review: they are created without the same level of scrutiny received by other areas of the budget, and then run open-ended with little review. Because they escape the normal budget process, policymakers have found them particularly attractive, and the tax expenditure budget has grown tremendously." 

In order to bring these programs under control, the CRFB recommends "an immediate moratorium on new tax expenditures," or as a second-best solution, "a separate tax expenditure pay-as-you-go regime, so that any new tax expenditures would be paid for by reductions in other tax expenditures, thereby keeping policymakers from further expanding tax expenditures."

CRFB also recommends conducting tax expenditure performance reviews (which CTJ has pushed for as well), and coupling these reviews with "hard savings targets" for lawmakers to strive toward when determining how to reduce tax expenditure spending.

Following the comprehensive reform of tax expenditures, CRFB would like to see a "hard cap on this area of the budget," and the inclusion of tax expenditures "in the regular annual budget process" so that they can be "treated more similarly to other spending programs."  No specifics are provided regarding CRFB’s preferred means of accomplishing this last recommendation.

For more information, see CRFB's report and CTJ’s comparison of tax expenditures and direct expenditures by budget category.  

New Jersey Governor Chris Christie campaigned on a cut taxes/slash spending platform last fall and thus far has lived up to both promises, though at the expense of the state’s lowest-income families.  Making good on his pledge to cut the income tax for wealthy New Jerseyans, Christie recently said he supports cutting the top income tax rate from 9 percent to 6 percent by the end of his term. 

In response to Governor Christie's tax cut proposal, New Jersey State Senate President Stephen Sweeney released an alternative plan to cut income taxes for older adults earning a yearly income of less than $100,000.

While it is unclear how much either plan will cost the state budget, both would likely have a substantial effect.  An aging population in New Jersey would drive up the costs of Sweeney's bill over time.  Likewise, Christie's cut would provide cuts for the rising number of millionaires in the state. 

Sweeney’s approach is certainly more targeted than Christie’s and is likely to reach low- and fixed-income older adults in the state, yet both plans leave low-and middle income working families out of the picture altogether.  This is especially troublesome knowing that Christie plans to pay for his tax cut for the wealthy with more cuts to state spending, which are likely to fall on the backs of the state’s poorest families and children.

Georgia’s gubernatorial candidates are touting competing tax plans which they claim will stimulate the state's economy and help businesses create and maintain jobs.  Neither plan is likely to do that, but both would deprive the state of revenue that is sorely needed to address the state’s short- and long-term budget shortfalls.

Democrat Offers Capital Gains Tax Break

Roy Barnes, the Democratic candidate, recently released his "Jobs Plan" to "revive Georgia’s economy."  The main element of his plan to "stimulate business growth and reduce the burdens on Georgians" is a proposal to exempt capital gains income from taxation for two years for investors who reinvest their gains in Georgia-based companies.  Barnes believes his plan will increase investments, incentivize companies to rehire, and lead to new job creation.  He has also suggested that the plan will more than pay for itself.

Capital gains tax breaks are costly, inequitable, and ineffective and thus there are a lot of problems with Barnes' plan and his assertions that it will stimulate Georgia’s economy.    

First, Georgia simply cannot afford to lose revenue when facing a projected budget shortfall of close to $2 billion next year.  State officials estimate that taxes on capital gains income under the current laws will raise an estimated $433 million next fiscal year.

ITEP State Tax Policy Director Meg Wiehe was quoted in an Atlanta Journal Constitution story on Barnes’ plan, saying, "The idea of losing any sort of revenue source seems pretty nonsensical to me when we know the things that revenue pays for — like education, teachers’ jobs and public safety — are really important for stimulating the economy." 

Second, and not surprisingly, the benefits of Barnes’ proposed capital gains break will go almost exclusively to the state’s wealthiest residents, not to the low-income households who are struggling the most to make ends meet. 

Furthermore, the idea that reducing taxes on capital gains will lead to a more robust economy is not supported by the evidence.  An array of experts agree there is little connection between lower capital gains taxes and higher economic growth, in either the short-run or the long-run.  A 2002 Congressional Budget Office (CBO) study concluded that capital gains tax breaks "would provide little fiscal stimulus" in the short-run, since most of the benefits of such cuts would accrue to high-income households, households that are more likely to save than spend, when the very aim of such short-term stimulus is to boost consumption. As for the long-term economic effects, there is no correlation between investment and economic growth and the marginal tax rate on capital gains income.

The tide has actually been turning against this type of tax break.  In just the past year, Rhode Island eliminated their preferential rates for capital gains income. And, of the eight states that currently offer some sort of significant capital gains tax break, two of them — Vermont and Wisconsin — have both recently acted to reduce their exclusions for capital gains income.  It seems like Barnes has missed the boat entirely with his proposal.

Republican Offers Corporate Tax Break

Nathan Deal, the Republican candidate, is promoting his "Real Prosperity Plan" as the best means to maintain and grow jobs in Georgia.  The core component of the plan is a cut in the corporate income tax rate from 6 percent to 4 percent. Deal thinks such a cut will make Georgia more competitive with its neighbors and help the state attract potential new businesses that will bring new jobs with them.  As critics have pointed out, most local businesses will not even benefit from Deal’s plan because they are structured as S-corporations or limited liability companies and are not subject to the corporate income tax.   

The corporate income tax is one of the fairest taxes a state can levy.  Just as working families and individuals benefit from the services that state and local governments provide, so too do corporations. At a time when Georgia is facing yet another significant budget shortfall, losing revenue from a progressive tax such as the corporate income tax is a bad prescription for fixing the state’s ailing economy, especially when the evidence suggests cutting the corporate income tax will not have the positive impact on the economy that Deal claims to seek.

A recent report  from the Center on Budget and Policy Priorities offers an excellent explanation for why proposals to cut corporate income taxes offer "false hope" and are "unlikely to have a positive impact on a state's rate of economic growth or the pace at which it generates private-sector jobs."  CBPP notes that "cutting corporate tax rates may be politically appealing, but neither logic nor evidence suggests that doing so will stimulate significant economic growth. The fact that no state has enacted such cuts in the past two or three years suggests that many policymakers already doubt the proponents’ claims."

On a side note, Deal is also an avid supporter of the so-called Fair Tax, another indicator that he is no friend of sensible tax policy.

Both Ohio gubernatorial candidates could learn a thing or two from the experts recently gathered by the Columbus Dispatch to discuss the state's fiscal issues. The Dispatch organized "four of Ohio's best budget brains," put them in a room and asked them about their ideas to solve the state's projected $8 billion shortfall.

The two former budget directors and two former state tax commissioners (who served in both Republican and Democratic administrations) agreed that solving the budget shortfall isn't possible with simply spending cuts alone and that all options, including tax hikes, should be on the table. William Wilkins, budget director for former Gov. James A. Rhodes, said, "The next two-year budget is going to require more skill and finesse than any other two-year budget in the last 50 years."

Given the enormity of the budget shortfall and the increased needs of Ohio residents, it's simply unrealistic, and perhaps even immoral, for Republican candidate John Kasich to take the "no new taxes pledge." Kasich has reiterated this sorry stance repeatedly and says he would actually cut taxes. To not even entertain the idea of tax increases may win Kasich points in the election this November, but it's a strategy that is not fair to Ohioans looking for responsible leadership. It comes as no surprise that taking this pledge puts Kasich at odds with some of Ohio's best and brightest.

Citizens for Tax Justice has updated its online tax calculator to include all of the likely scenarios for tax policy in 2011. The calculator tells you what your taxes will look like in 2011 if:

1. All the Bush tax cuts expire (which no one expects to happen),

2. Congress enacts President Obama's proposal to extend the Bush tax cuts completely for 98 percent of taxpayers along with some additional tax cuts that were included in the American Recovery and Reinvestment Act (ARRA).

3. Congress enacts legislation to extend those parts of the tax cuts exempt under the PAYGO law (the tax cuts exempt under PAYGO are similar to, but not exactly the same as, the tax cuts in President Obama's proposal),

4. Congress extends all the tax cuts enacted under President Bush and none of the tax cuts in the recovery act. (This is the Republican proposal, S. 3773, as introduced by Senator Mitch McConnell.)

See CTJ's online tax calculator.

Back in 2009 and early 2010, Grover Norquist’s "no new taxes" pledge received an awful lot of attention in Arizona.  The state was grappling with an enormous budget deficit, and lawmakers were running out of ideas for how to address it.  Republican Governor Jan Brewer, to her credit, realized fairly early on that a tax increase would be needed to help close the gap, but she and over 30 Republican legislators had signed Norquist’s pledge not to raise taxes.  Ultimately, Brewer and over a dozen other Republicans broke the pledge by sending a sales tax increase to the Arizona voters, which they ultimately approved. 

Recently, The Arizona Republic published a useful update on the pledge-breakers, pointing out that “there’s no evidence that … [any of them] … suffered any repercussions in last month’s primary election.”

Most notably, Governor Brewer coasted to an easy win in her primary battle, with all of her serious opponents dropping out before the vote even took place.  Amusingly, Norquist’s group had prematurely labeled the pledge as a “deciding factor in the Arizona gubernatorial race” just a few months earlier when Brewer wasn’t doing as well in the polls.

The Republican legislators who broke the pledge apparently fared very similarly to Brewer.  Most won their nominations, and among the four pledge-breakers that did lose, The Arizona Republic notes that, “no one is linking it to the pledge, and there is no evidence the issue arose.”  This despite Norquist’s prediction that his pledge is “self-enforcing by the citizens of each state,” and his insistence that the pledge-breakers would have to “talk to their voters and explain to them why they voted the way they did.” 

Ultimately, it seems that even Grover himself may be losing some interest in his pledge.  Back in 2004, Norquist issued “least wanted” posters for Republican pledge-breakers in Virginia – a move that Arizona lawmakers apparently feared would happen to them.  But when asked a few months back about whether he would pursue a similar strategy in Arizona, he backed down, stating that “the pledge is a commitment to taxpayers — not to me.”  His group did ultimately write one measly blog post, but nothing like what took place in Virginia.

Perhaps Constantin Querad, a Republican campaign manager, had it right when he said, "I wouldn't be surprised if everybody takes a few years off from that pledge."  We hope they take even more time off than that.

Last weekend, Jon Peacock from the Wisconsin Budget Project wrote an op-ed in the Milwaukee Journal Sentinel that raised some important issues about the need to consider tax fairness in any tax reform discussions in Wisconsin. This issue is especially relevant given recent data from the Census Bureau showing that poverty rates are rising. (Read ITEP's most recent report on this issue.)

The op-ed cited findings in ITEP's Who Pays? that Wisconsin has a regressive tax structure. As the debate over tax reform continues, Wisconsin lawmakers should heed Peacock's advice and improve the state's tax collection process, ensure corporate tax loopholes remain closed, consider broadening the sales tax base, apply the sales tax to products purchased online, and capture a larger share of federal aid.

Taxes are also a hot issue in New Hampshire right now. A forum on tax issues was held by the Rockefeller Center at Dartmouth and the Granite State Fair Tax Coalition and featured panelists from non-profits, think-tanks, and local government. ITEP's Who Pays? data was discussed during the forum to make the case for real tax reform in the state.

Cathy Silber from the Granite State Fair Tax Coalition summed it up when she said, "We can cut back on services when the need goes up or costs rise, we can raise revenue sources, we can combine these two options, or we can do nothing."

The decision is important given what's happening to families in the state now. The New Hampshire Fiscal Policy Institute's (NHFPI) recent analysis of the new Census Bureau's data finds that in New Hampshire "the poverty rate appears to have climbed 1.8 percentage points over the course of the economic downturn."

New Jersey Governor Chris Christie has been spending most of his time out of state recently, headlining fundraisers for GOP gubernatorial candidates across the country and touting an agenda to “rein in government spending” to revive the economy and create jobs.  This week, during a home visit between campaign stops, to the detriment of his state’s economy, he pulled the plug on a much needed commuter train tunnel between New Jersey and New York.  His reason?  He says the state “couldn’t afford it.”  What the state really cannot afford is Christie’s shortsighted decision.

New Jersey was not shouldering the cost of the project alone. Of the $8.7 billion price tag, the state was expected to pay $2.7 billion, with the rest of the cost shared equally by the federal government and Port Authority of New York and New Jersey.  The project was already well underway, which means that New Jersey will likely have  to repay about $300 million plus interest in federal funds already spent on the project.  

The project was also expected to create 6,000 constructions jobs a year over the next ten years.  Now, rather than hiring workers, contractors are beginning to lay off those who had recently found work.  Denise Richardson, managing director of the General Contractors Association of New York told the New York Times, “This was the project that I think everyone was counting on to revitalize the public-works sector.  For construction workers that were counting on job opportunities, it’s a real blow to them.” The state Assembly’s transportation committee chair, John Wisniewski, said the project would have created $18 billion in economic activity.

As Paul Krugman wrote in an op-ed on Christie’s decision, “Canceling the tunnel was also a blow to national hopes of recovery, part of a pattern of penny-pinching that has played a large role in our continuing economic stagnation… By refusing to pay for essential investments, politicians are both perpetuating unemployment and sacrificing long-run growth.”

Republicans Hold Tax Cuts for 98% of Taxpayers Hostage to Pass Tax Cuts for the Richest 2%... and Democrats Pass Up a Clear Shot at the Hostage-Takers

Democrats in Congress have decided to wait until after the election to act on President Obama's proposal to extend the Bush tax cuts entirely for 98 percent of taxpayers and let them partially expire for the richest 2 percent.

For months, Republicans have made it clear that they would try to block passage of tax cuts for 98 percent of taxpayers unless they could secure an extension of all of the tax cuts for the richest 2 percent as well.

Numerous polls show that significant majorities of Americans believe that the tax cuts for the richest two percent (those who are married and have adjusted gross income over $250,000 or unmarried and have AGI over $200,000) should expire. And mainstream economists agree with the findings of the Congressional Budget Office that income tax cuts for the rich provide less economic stimulus per dollar of cost than any other measure that Congress has considered.

While some Democratic members of Congress have said they would vote for a Republican alternative to extend tax cuts for all taxpayers, it seemed such a bill or amendment would never pass the Senate, where 60 out of 100 votes are needed to approve most legislation.  It seemed that all the Democrats, and perhaps some Republicans, in the Senate would vote for the President's plan to extend the tax cuts fully for 98 percent of taxpayers if that was the only option left.

Prospects in the House were less clear since bills and amendments are approved in that chamber with only a bare majority of votes. On the other hand, even House GOP leader John Boehner said he would vote for President Obama's tax plan if that was the only alternative available.

Despite all of this, Democratic leaders in both the House and Senate decided to wait until after the election to address the matter. To be continued...

Over the past several months, Citizens for Tax Justice has published several reports to explain the various issues involved in the debate over which parts of the Bush tax cuts should be extended.

Comparing President Obama's Tax Plan and Senate Republicans' Tax Plan (with state-by-state fact sheets)

CTJ's recently updated reports on competing approaches to the Bush tax cuts compare S. 3773, the proposal introduced by Senate Republican Leader Mitch McConnell to make the Bush tax cuts permanent, and President Obama's proposal to make them permanent for all but the richest 2 percent of taxpayers. The main report includes tables showing the percentage of taxpayers in each Congressional district who are rich enough to lose some portion of the Bush tax cuts under Obama's plan. The tables also show the percentage of taxpayers in each district who have adjusted gross income in excess of $1 million. (About 80 percent of the revenue savings from Obama's plan would come from these taxpayers.)

Also included are state-by-state fact sheets illustrating the distribution of the two tax plans across income groups in each state.

Read the report and the state-by-state fact sheets.

Most House Democrats Supporting Tax Cuts for the Rich Have Lower than Average Percentage of High-Income Households in Their Districts

Last month, 31 House Democrats signed a letter to House Speaker Nancy Pelosi in support of extending the Bush tax cuts for all taxpayers, and thus opposing President Obama's proposal to allow the tax cuts to expire for the very rich. New data from Citizens for Tax Justice show that two-thirds of the House Democrats who signed that letter represent districts that have less than the average share of taxpayers rich enough to face higher taxes under President Obama's plan. Further, the claim made in the letter that these very rich taxpayers "are responsible for 25 percent of national consumer spending" is simply incorrect.

Read the report.

Group of House Democrats Support Tax Preferences for Wealthy Investor Class that President Reagan Ended

Forty-seven House Democrats have reportedly written a letter to Speaker Nancy Pelosi calling for an extension of the Bush tax cuts on investment income for the richest two percent of Americans. These Democrats would preserve the historically low income tax rate of 15 percent for capital gains and stock dividends for the wealthiest taxpayers. This stance places them to the right of Ronald Reagan and illustrates a surprising lack of familiarity with history and economics.

Read the report.

Congress About to Give Away the Farm

Word on the street is that the Senate is considering including an unlimited farm exclusion from estate tax when it addresses the expiring Bush tax cuts. This report explains how this provision is not likely to help true family farms as much as extremely wealthy families who want to shelter their assets from the estate tax.

Read the report.

Allowing the Bush Dividends Tax Cut to Expire for the Richest 2% Will Not Harm Seniors

Douglas Holtz-Eakin, chief economic adviser for John McCain's presidential campaign and former director of the Congressional Budget Office, recently told the Senate Finance Committee that seniors at all income levels would be hurt if Congress did not make permanent the income tax cut enacted under George W. Bush for corporate stock dividends. As this report explains, only those seniors who are among the richest 2 percent of taxpayers would lose any portion of the Bush income tax cuts.

Nonetheless, Holtz-Eakin claims seniors at all income levels will be harmed. His argument is that corporations would stop paying dividends because the wealthiest individuals receiving them no longer would receive a tax break for them. The former CBO director has overlooked the fact that two-thirds of the dividends paid by corporations are to tax-exempt entities, meaning they would have little, if any, incentive to change their practices for paying dividends.

Read the report.

Holtz-Eakin Peddles Myths about the Bush Tax Cuts

On July 14, Douglas Holtz-Eakin, chief economic adviser for John McCain’s presidential campaign and former director of the Congressional Budget Office, gave written and oral testimony to the Senate Finance Committee concerning the Bush tax cuts. To make his case, Holtz-Eakin endorsed several myths about the Bush tax cuts.

Read the report.

While blogging for the Wall Street Journal’s “Wealth Report”, Robert Frank recently highlighted a new study showing that the anti-tax crowd’s claims regarding “tax-driven wealth flight and wealth destruction may be exaggerated.”  Specifically, the study shows that despite all the fear the Journal tried to whip up regarding the “self-destructive” nature of raising state income tax rates on the wealthy, all of the states typically demonized as being “high-tax” actually saw the number of millionaires’ living within their borders rise substantially between 2009 and 2010.

The new study in question was released by Phoenix Marketing International, and shows that the number of households with more than $1 million in assets increased by 8.1% between 2009 and 2010. 

The study also shows that Hawaii, Maryland, New Jersey, and Connecticut have the highest concentration of millionaires in the country.  And despite the fact that each of these states recently raised their top income tax rate, each saw the number of millionaires living within their borders rise substantially between 2009 and 2010. 

Specifically, three of those states – Hawaii, Maryland, and Connecticut – saw their millionaire population grow at a rate even faster than the 8.1% national average.  New Jersey was only very slightly below average, having experienced a 7.4% gain in the number of millionaires between 2009 and 2010. 

On the flip side, two of the states experiencing the slowest growth in the number of millionaires – Florida and Nevada – levy no state income tax at all!

With this in mind, all the outrage exhibited by the Wall Street Journal Editorial Board regarding the “self-destructive,” “soak-the-rich theology” of “dedicated class warrior” and Maryland governor Martin O’Malley seems to have been very much off target.  After re-reading the Journal’s editorials, it does at least become clear why Frank labeled the debate “increasingly emotional.”

Interestingly, this isn’t the first time that the facts have run counter to the Journal’s (or Grover Norquist's) gloom and doom predictions regarding higher taxes on the rich.  Both CTJ and ITEP have in the past taken the time to point out the Journal’s factual errors and other exaggerations on this issue.  And in fact, Frank has even helped to highlight some of ITEP’s work in this area on at least one occasion.

One can only hope that the Journal will begin reading their own bloggers’ work and begin to temper their rhetoric next time around.  After all, as Frank’s blog post explains, “that demographics and economics matter more than taxes in increasing and retaining wealth may seem like an obvious point.”  But ultimately, we wouldn’t recommend holding your breath waiting for the Journal to acknowledge it.

California

Californians have a plethora of fiscal related ballot initiatives to vote on in November. 

In addition to Proposition 24 (ending business tax breaks), voters will be asked whether to impose an $18 vehicle fee to fund the state park system (Prop 21), amend the state Constitution to take away the state’s ability to borrow or shift revenues that fund transportation programs (Prop 22), allow for a simple majority legislative vote requirement for passage of the state budget (Prop 25), and reclassify certain fees as taxes meaning that legislative votes on fees would then require the now necessary two-thirds approval for passage of tax increases. 

The California Budget Project has published five informative budget briefs on the propositions that are very helpful tools for voters.

Massachusetts

In Massachusetts, a diverse coalition of businesses, advocacy organizations, citizens groups and political leaders have lined up to defeat Question 3, an initiative that would cut the state’s sales tax rate from 6.25 to 3 percent.  Opponents argue that the resulting annual loss of $2.5 billion from the proposed cut would cripple the state’s ability to provide core services such as education and public safety to Massachusetts residents.  Despite the depth and fundraising power of the opposing coalition, recent polling showed residents are pretty much split on whether or not the proposal is a good idea for the state. 

Missouri

This November, Missouri voters will be asked to make a judgment call on Amendment 2. If passed, this constitutional amendment would exempt fully disabled prisoners of war (POWs) from paying property taxes. Of course, everyone respects the sacrifice that POWs made, but this Amendment raises some important tax policy concerns.

First, should tax policies, especially ones that will assist so few people (estimates are that only 100 people would be impacted), really be written into a state's constitution?

Secondly, is it fair to single out a specific group of people and offer them a tax break? Missouri already allows countless exemptions and offers special treatment to a variety of taxpayers. Perpetuating this treatment of special groups violates fundamental tax fairness principles. In fact, most veterans already qualify for a special property tax credit.

We couldn't agree more with the Kansas City Star when it opines, "Disabled prisoners of war are deserving of honor. But changing property tax laws isn’t the way to do it."

Many gubernatorial candidates campaign on a platform of tax cuts, and few, outside of Minnesota Gubernatorial Candidate Mark Dayton, promote tax increases.  In such a political climate, perhaps the best that voters can hope for are candidates that promise to maintain progressive tax structures. 

California

One such candidate, California gubernatorial candidate Jerry Brown, recently hammered his opponent, Meg Whitman, for supporting a regressive tax cut that would benefit only taxpayers who have capital gains income.

In 2008, 93% of taxpayers who paid capital gains taxes in California earned over $200,000.  While other gubernatorial candidates fight over who will cut taxes more, it is refreshing to see a candidate like Brown refuse to endanger the state's budget by cutting taxes for the wealthiest.

Illinois

Illinois current Governor Pat Quinn is having it out against Republican Bill Brady to see who will move into the Governor's Mansion next year. Brady proposes to eliminate the state's estate tax and the sales tax on gasoline, saying that this will send a message to business that  "Illinois is open again for business and we're here to stay for the long term." Quinn, on the other hand, supports an increase in the state's income tax to help solve the state's enormous fiscal woes.

Maryland

While fiscal prudence may call for hard decisions, campaigning calls for easy sound bites.  Former Governor and current Republican candidate for Maryland Governor Robert Ehrlich wants to repeal Governor O’Malley’s 2007 sales tax increase.  Ehrlich’s proposal would cost the state treasury over $600 million. While Ehrlich himself raised taxes during his tenure, the former Governor is trying to re-brand himself as the anti-tax candidate. 

Like Ehrlich, current Governor O’Malley is also seeking to distance himself from his past constructive and successful tax policies.  However, O’Malley refuses to rule out future tax increases, signaling that he has not forgotten how he expanded health coverage and increased education funding these last four years.

Michigan

The “Michigan Business Tax” has fallen out of grace with Michigan’s gubernatorial candidates.  Both Democrat Virg Bernero and Republican Rick Snyder favor eliminating the business tax and replacing it with some other revenue source. Synder’s plan would partially offset the revenue loss from the business tax cuts by instituting a flat 6% corporate income tax.  Still, Synder recognized the plan would remove $1.5 billion from the state’s coffers. 

Bernero’s plan does little more to make up for the lost revenue.  His proposal includes collecting taxes on internet sales, although he refuses to commit to any gas or service tax increase. Instead, Bernero also seeks to cut state programs and lower costs.  While it is disappointing to see both candidates propose tax and funding cuts, Bernero has pledged to support state funding for anti-poverty and unemployment programs.

Pennsylvania

Despite massive state budget shortfalls in Pennsylvania, both gubernatorial candidates, Republican Tom Corbett and Democrat Dan Onorato pledged, abstractly, not to raise taxes. Neither candidate seems to be sticking to such a pledge. Onorato was gutsy enough to suggest imposing a new tax on shale severance.  Onorato’s proposed tax would allow the state to remain competitive with neighboring states.  Onorato’s Republican counterpart, Tom Corbett, has maintained that he will not raise taxes, but he is reportedly open to increasing payroll taxes. So apparently, Corbett’s pledge only applies to big business.

South Carolina

South Carolina voters are guaranteed to see a new Governor in Columbia that is going to slash budgets instead of raising revenue. Both the major candidates, Democrat Vincent Sheheen and Republican Nikki Haley, are saying that they won't raise taxes despite the fact that the budget is in disarray (falling to mid-1990's levels) and the federal government can't be relied on for more stimulus money to help prop the state up. Sheheen has said, "We can't keep funding everything at the levels of two or three years ago. We can't keep funding everything, period."

Perhaps it comes as no surprise, but Haley does have some pet projects she'd like to see improved despite claiming that South Carolina must live within its means. She says, "When your revenues are down, the last thing you cut is your advertising, so we need to make sure the Commerce Department is strong. We need to strengthen our technical colleges." No matter who wins this election, it's going to be difficult to improve technical colleges and the Commerce Department when money is so tight and lawmakers aren't leaving many options.

Tennessee

Tennessee politicians realize the state has serious budget shortfalls.  Unfortunately, the only question facing Tennessee voters this November will be how much to cut state programs and who to reward with tax cuts.

Last week, the current Democratic Governor Phil Bredesen announced plans to cut next year’s state budget by up to $160 million.  Democratic gubernatorial candidate Mike McWherter lauded the plan, while Republican gubernatorial candidate Bill Haslam criticized the cuts for not being large enough. 

However, the candidates do have differing ideas about creating jobs through tax cuts.  McWherter proposed a $50 million state tax break for small businesses that would reward qualifying companies for creating the next 20,000 jobs.  In contrast, Haslam proposed creating regional economic development centers.  McWherter’s plan is based on a similar program in Illinois, which Democratic Governor Pat Quinn instituted and Republican gubernatorial candidate Bill Brady would like to expand.

If the recent rumblings about eliminating Idaho’s grocery tax credit become more than talk, the state will join a handful of others (Virginia, New Jersey, Minnesota, and Georgia) to address budget shortfalls on the backs of their most vulnerable residents. 

Some lawmakers seem to think the Gem State can no longer afford the annual $100 million cost of the grocery tax credit.  But, a growing number of Idahoans are living in poverty (the state’s poverty rate increased from 12.9% in 2008 to 14.3% in 2009) and those individuals can also ill-afford what amounts to a regressive tax increase as they work to make ends meet during challenging economic times.

When Idaho first adopted a state sales tax in the 1960's, lawmakers decided to leave groceries in the sales tax base and created a refundable grocery tax credit to partially offset the cost of sales taxes paid on the most basic of goods. 

Recently, the per person credit was increased and made available for the first time to those too poor to owe income taxes but who still must pay sales taxes on groceries.  While the credit is available to households at all income levels, taxpayers with taxable income under $1,000 and older adults receive a slightly larger amount per person. 

Understanding that fiscal times are tight, limiting the grocery credit to low- and moderate-income households, those who are most impacted by the regressive nature of the sales tax, is a smarter approach than outright eliminating the credit.