December 2010 Archives



The Wall Street Journal and "Missing Millionaires": Evolution of a Lie



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We've all heard Mark Twain's quip that "there are three kinds of lies: lies, damned lies, and statistics." For those of us who think accurate statistics need to be a guidepost for sound economic policy, this line rankles a bit-- if people distrust all statistics, then how can we ever gain popular support for sound policies? But it's much easier to understand why Twain's putdown rings true with so many Americans when you read the latest anti-tax diatribe from the Wall Street Journal's editorial board. In an editorial about the alleged disappearance of Oregon's upper-income taxpayers in response to a recent tax hike, they trot out this old chestnut:

All of this is an instant replay of what happened in Maryland in 2008 when the legislature in Annapolis instituted a millionaire tax. There roughly one-third of the state's millionaire households vanished from the tax rolls after rates went up.
The Journal first broke this story in an editorial in May of 2009, when they breathlessly declared that "[o]ne-third of the millionaires have disappeared from Maryland tax rolls" between 2007, when the state increased its top income tax rate on high-income families, and 2008. This was, as it turns out, not even close to true. A report from the Institute on Taxation and Economic Policy, published a few days after the Journal's editorial, showed that in fact, the most likely explanation for the decline in the number of Marylanders with taxable incomes over $1 million during this period was that they stopped being millionaires: while preliminary data available at the time did show the number of millionaire filers dropping by 13% between 2007 and 2008 (far less than the "roughly one-third" claimed by the Journal), the same data also showed a sharp increase in the number of filers earning less than $1 million, and a net increase in the overall filer population.

To be clear, the data available at the time couldn't be used to say anything definitive about what really happened to the missing millionaires-- all anyone really knew is that they had either gotten poor, or moved, or died. But the fine folks at the Journal were all too happy to give the impression that nearly a third of the state's millionaires had hopped a Lear Jet for Florida. And dozens of prominent and less-prominent blogs and news outlets obediently repeated the "one-thirds" claim as indisputable fact.

Almost a year later, in March of 2010, the Journal swooped in for another driveby lesson in supply-side Maryland economics. This time, their claim was understandably less bold:
One-in-eight millionaires who filed a Maryland tax return in 2007 filed no return in 2008.
One-in-eight is 12%-- so the good news is that they were now at least using the correct number ITEP had identified a year earlier, in lieu of the clearly-inaccurate "one third" figure. But the bad news is that by this time, the bean-counters in Maryland's tax-collection agency had released revised numbers which showed quite clearly what had really happened to upper-income filers during the year in question. And again, an ITEP report gave the real scoop: in fact, of the millionaires who filed as Maryland residents in 2007, just 6.8 percent had not filed as Maryland residents in 2008, far below the 12% figure the Journal was reporting (and, of course WAY below the "one-third" figure the Journal had originally touted).

6.8% of millionaires is still bigger than zero, of course, so that might seem like a problem. But, as the same ITEP report noted, you could sensibly ask what amount of millionaire mobility was normal in Maryland in the pre-income-tax-hike years. The answer: in the seven years before the enactment of the tax hike in question, an average of 5.6 percent of Maryland's millionaire filing population moved out from one year to the next.

So after all that brouhaha, the "smoking gun" in Maryland was that in a normal year, 5.6 percent of Maryland millionaire filers move, or die, or for other reasons stop filing in Maryland. In the year following the income tax hike, that number nudged up slightly to 6.8 percent.
Which meant that at most, what the Journal was fussing about was 1.2 percent of Maryland millionaires.

This question stopped being interesting for Maryland policymakers earlier this year when they decided to allow their high-end income tax hike (which was temporary) to expire as scheduled.
But it became interesting to the Journal again when another state, Oregon, enacted similar legislation. And so it happened that in an editorial ostensibly analyzing the impact of Oregon's proposal on the number of millionaires in that state (which ITEP, clearly irritated at this line of argument, promptly took apart here), they slipped in the old "one-third" canard to bolster their claim that mass millionaire migration is the inevitable outcome of hiking state income taxes on the rich. Here it is, one more time:
All of this is an instant replay of what happened in Maryland in 2008 when the legislature in Annapolis instituted a millionaire tax. There roughly one-third of the state's millionaire households vanished from the tax rolls after rates went up.

And, because the Wall Street Journal said so, once again a drumbeat of "blogs" and tweeters have echoed the totally-false "one-third" claim.

Some statistics are accurate. Others are misleading. And others are simply, demonstrably, wrong. The Journal's mystifying insistence on repeating an assertion that they've previously acknowledged was wrong could just be the result of an early holiday vacation for the fact-checking crew at the WSJ editorial board, if any such crew exists. But it's uncontestably what Twain would have called a "damned lie." Hopefully policymakers in Oregon (and Maryland) will recognize it as such.


Wall Street Journal Wrong Again on State Migration



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The Wall Street Journal recently published an editorial suggesting that a state income tax increase caused up to 10,000 wealthy taxpayers to flee the state of Oregon.  A new report from ITEP, however, explains why this assertion is totally unsupported by data from the Oregon Legislative Revenue Office (LRO).

Specifically, the Journal claims that because 10,000 fewer taxpayers were affected by a recent state income tax increase than the LRO originally anticipated, it must be the case that most of those 10,000 taxpayers packed their bags and moved to Texas.  But as ITEP's report explains, the decline wasn't due to migration; instead, Oregonians simply earned less than the LRO thought they would (because of the recession), and as a result fewer taxpayers were affected by the new tax rates on income over $250,000 (or $125,000 for single filers).

ITEP also criticizes the Journal for continuing to spread the myth that "one-third" of Maryland's millionaires "vanished from the tax rolls after rates went up" on millionaires in 2008.  ITEP has noted the fallacy of this claim on two separate occassions, and even the Journal itself has conceded as much in the past (see page 2 of ITEP's report).

Read the Report



CONGRESS PAYS THE RANSOM: TAX CUTS FOR MILLIONAIRES



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This week, Congressional Democrats found that they could not enact policies that economists find to be the most effective economic stimulus (extended unemployment benefits, tax cuts for low-income families) unless they gave into Republican demands to also enact something that provides virtually no economic stimulus — tax cuts for millionaires.

It would be difficult to explain to a high school social studies class how this happened. The majority of Americans want the Bush tax cuts for the rich to expire. The majority of the House of Representatives and the Senate feel the same. So does the President of the United States. In fact, Barack Obama campaigned on allowing the Bush tax cuts to expire, as scheduled, but only for income in excess of $200,000 for unmarried taxpayers and $250,000 for married taxpayers. Over 80 percent of the revenue savings from Obama's (original) plan would have come from millionaires.

And yet, the House and Senate approved legislation to extend the Bush tax cuts for even the very richest taxpayers for two years. This turn of events is a stunning victory for those who want to continue the economic policies of George W. Bush — policies that are as discredited as any could possibly be.

Before the compromise negotiated by President Obama and Republican leaders was accepted, the House passed a bill based on President Obama's original tax plan. The Senate tried to as well but it was filibustered by Senate Republicans. That means Senate Republicans voted against a full extension of the Bush tax cuts for 98 percent of taxpayers and a partial extension for the two percent with incomes above the $200,000/$250,000 threshold.

Senate Democrats then voted on their tax plan again, except with the threshold raised to $1 million, and Republicans filibustered that as well. Republicans literally blocked tax cuts for all Americans in order to secure larger tax cuts for millionaires.

The Senate operates under rules in which a bill supported by 59 percent of the chamber does not have enough votes to pass. This gives a distinct advantage to whichever party is willing to block any and all legislation even if the result will be economic catastrophe. Conversely, it creates a serious disadvantage for whichever party is committed to avoiding that catastrophe at all costs. It's a bit like a hostage situation, in which one party cares about the life of the hostage and the other does not.

And so, the Democrats, committed to providing extended unemployment insurance benefits for an additional 13 months and extending tax cuts for low- and middle-income families, were forced to give into the demands of Republicans who were willing to allow the extended UI benefits to end and were willing to allow tax cuts to expire for families at every income level.

Of course it's true that some of the tax breaks in the compromise plan go to low- and middle-income people. But, as our report explains, over 38 percent of the tax breaks next year will go to the richest 5 percent of taxpayers. Over 25 percent of the benefits will go to the richest one percent — and that's more than will go to the entire poorest 60 percent of taxpayers.

The procedural rules of the U.S. Senate have made that chamber the greatest embarrassment of the democratic world. Meanwhile, the House of Representatives will be controlled for the next two years by politicians who purport to believe that cutting taxes causes government revenue to increase. The political debate is driven by pundits who think that the federal budget crisis will be solved by the coming together of the two parties — even though one of those parties has made it clear that they will only accept a budget overhaul that reduces revenues rather than increases them.

Our sole hope lies in our ability to convince the public that the plans offered by anti-tax, anti-government lawmakers will devastate public investments that American families depend on while enriching the wealthiest Americans. We have pointed out again and again and again that their plans are a disaster for tax fairness and fiscal responsibility. Our work has only just begun.



CTJ's Online Tax Calculator, State-by-State Figures, on the Compromise Tax Plan



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Citizens for Tax Justice has updated its online tax calculator to illustrate how the compromise tax plan approved this week by the House and Senate would impact families of various sizes and income levels.

Go to CTJ's online tax calculator.

 
This calculator can tell you how a taxpayer with specific characteristics would do under the compromise plan and under the other proposals that lawmakers have considered. Unlike other online calculators, this one tells you where the particular taxpayer falls on the income ladder, what fraction of the tax cuts go to taxpayers at the same level or lower, and what fraction of the tax cuts go to taxpayers with higher incomes.

For more information about the compromise tax plan, including an explanation of the provisions included and state-by-state estimates of the impacts on different income groups, see the report we released last week.



New York's Next Governor Will "Aggressively" Push for Property Tax Cap



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Over the last few weeks, New York Governor-elect Andrew Cuomo has been pushing legislative and union leaders to support his proposal to cap local property tax increases at 2% per year.  The New York Times has described the proposed cap as “tougher than the tax cap efforts in some other states,” and Governor Cuomo’s campaign literature has promised only “narrow, limited exemptions” to the cap.

A spokesman for the Governor-elect said that Cuomo will “move aggressively” to see that this “centerpiece” of his agenda is enacted.  Similar caps have been sought by past Governors in New York, but the Times thinks that “Mr. Cuomo may be facing a more favorable political climate for a cap” than have his predecessors.

In addition to potentially gutting school districts’ most important revenue source, a cap of this sort will also solidify existing inequities between districts.  As Frank Mauro of the Fiscal Policy Institute explains, "when you apply a percentage cap to change, you institutionalize the disparities and you make them worse." Moreover, for fixed-income home-owners and renters who are already facing unaffordable property taxes, capping increases does nothing to remedy the underlying problem.

Instead, as Mauro and others have pointed out many times, a significant enhancement to New York’s circuit-breaker program could assist those New Yorkers most affected by the property tax, without drastically reducing local revenues.



Minnesota Gets a Pro-Tax Justice Governor



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After a long campaign and recount battle, Minnesota will have a new governor who is a champion of tax fairness.

Former Senator Mark Dayton ran a hard-fought race against Republican Tom Emmer.  Earlier this month (after a nearly finished recount), Emmer conceded. Governor-elect Dayton won the election by under 10,000 votes. During his campaign, Dayton emphasized tax policies that would help fill the state’s multibillion dollar budget gap, including the addition of a fourth income tax bracket targeting the richest Minnesotans and a third property tax bracket for homes valued over $1 million.  Having Dayton in the Governor’s mansion is a victory for tax justice advocates.

But the victory party isn’t likely to last long, because the new Governor will be working with a House and Senate that have Republican majorities hostile to many of Dayton's proposals. Dayton admits that it will be "very difficult" to enact his reforms. But now he has the position and the opportunity to win Minnesota residents over to the cause of progressive tax reform.



Debate Over Capital Gains Taxation in Arkansas



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Trouble is brewing in Arkansas. Tax fairness advocates are anticipating that legislation to further reduce the amount of taxes paid on capital gains income will be a hot issue in the upcoming legislative session. Arkansas Advocates for Children and Families (AACF) released a brief this week explaining that Arkansas already offers a 30 percent exclusion for capital gains income and is one of only eight states that offers a substantial tax break for capital gains.

CTJ and ITEP have long argued that all types of income, including capital gains, should be taxed in the same way. Providing special breaks for capital gains is regressive, in addition to making tax rules needlessly complicated. Most low- and middle-income families don't have any capital gains income and therefore don't benefit from this tax break.

The AACF brief cites ITEP data and explains, “For 2010, the poorest 80 percent of Arkansas taxpayers (those with incomes less than $71,000) are projected to earn only 2 percent of the capital gains income earned by the state’s taxpayers. In contrast, the top 1 percent of Arkansas taxpayers, those with incomes of $352,000 or more, will likely earn 75 percent of all capital gains income in Arkansas.”

Further enhancing the already generous exclusion would benefit well off Arkansans, cost the state valuable revenues, and certainly do nothing to improve tax fairness. For more on capital gains taxation in the states, see ITEP’s report on this issue.



Worst Idea on the Table for 2011: Cutting State EITCs



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Tax increases on low-income working families hit hardest by the economic downturn are on the table in a handful of states, where lawmakers are considering eliminating or reducing their state Earned Income Tax Credits (EITC) as one small “solution” to their large budget shortfalls.  The proposal under consideration in Wisconsin is perhaps the most egregious, where governor-elect Scott Walker has also pledged to cut taxes for his state’s wealthiest households and corporations. 

In search of reasons to “examine” and potentially cut the credit, Wisconsin lawmakers have begun to voice concerns about the increased cost of their EITC program.  But the reason for this increase is obvious: millions of Americans are experiencing reduced work hours and wages, or are without a job at all, as a result of the lingering economic downturn.  This means that more families are in need of the additional income assistance the credit provides to help pay for food, housing, transportation, and other necessities. Proposals to cut state EITCs amount to kicking these vulnerable families while they're down.

Furthermore, the federal government recently recognized the hardship these families are facing and decided to expand the benefits of the federal EITC program.  Since state EITCs are calculated as a percentage of the federal credit, this translates into a very small increase in the cost of state EITCs.  Reducing these state EITCs now would essentially cancel out some of the much needed progress being made on this issue.

Unfortunately, state lawmakers will continue to grapple with significant budget dilemmas in 2011 and beyond.  But balancing their budgets on the backs of those families hit hardest by the recession should be a nonstarter.   When asked about the potential threat to Wisconsin’s EITC, Jon Peacock of the Wisconsin Council on Children said, “We would have to question the priorities of any politicians willing to cut the EITC while refusing to adjust the minimum wage for inflation and insisting on giving tax breaks to the wealthiest households."

State EITCs provide affordable, effective, and targeted assistance to the growing number of individuals and families living in poverty.  Rather than eliminating state EITCs, now is exactly the time for states to consider enacting more of these valuable programs, or expanding existing EITCs.



Tax Cut Advocates Making Tax Reform Impossible



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All of the media attention over the deficit commission recommendations and the tax debate happening this month in Washington has initiated a fair amount of discussion about the possibilities for fundamental tax reform. The Washington Post had two editorials on the subject over the weekend, followed by an article this week in the Wall Street Journal.

In a New York Times op-ed, David Brooks encouraged the President to make tax reform a priority, beginning with the upcoming State of the Union address. While there are plenty of naysayers, Tax Analysts' Joe Thorndike makes the case for tackling the deficit and tax reform together.

But a big bump in the road ahead is Grover Norquist. You'd think his group called Americans for Tax Reform would actually be in favor of... well, tax reform. Their anti-tax bias is so fanatical, however, that they refuse to support any plan that raises revenue, even if it makes the tax code drastically simpler and more efficient. Specifically, while Norquist concedes that many tax expenditures (a tax break aimed at a particular industry or objective) are "horrible tax policy," he refuses to support eliminating them unless lawmakers promise not to use any of the money for deficit reduction. Instead, Norquist insists that the revenue produced from eliminating tax expenditures must entirely be used to lower tax rates. 

Simply put, Norquist's first, second, and third priorities are lower taxes — deficit reduction and tax reform be damned. That's why Len Burman suggested renaming Norquist's group, Americans Against Tax Reform. One could argue that "Americans Against Taxes" would be even more fitting.

Lawmakers who are serious about addressing the budget problems and reforming the tax system would put everything on the table and turn off the noise from Norquist. Real tax reform would mean some winners and some losers. The end result would be a fairer, simpler tax code that raises enough money to pay for public services and promotes economic prosperity for all Americans. (Read more on CTJ's recommendations for reform.)



Report from CTJ: Compromise Tax Cut Plan Tilts Heavily in Favor of the Well-Off



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(Includes state-by-state figures)

A new report from CTJ finds that the compromise tax plan agreed to by President Obama and congressional Republicans would provide more than a quarter of its tax cuts to the best-off one percent of all Americans. That’s almost double the share of the tax cut that the President proposed to give the highest earners.

At the same time, the new tax plan would reduce taxes, and increase the budget deficit, by $424 billion in 2011 alone. That’s 40 percent more in tax cuts than the $301 billion tax cut the President had earlier proposed.

Read the report.

House Democrats voted in a closed-door caucus meeting on Thursday to not take up the compromise deal, which also includes a 13-month extension of expanded unemployment benefits, until changes are made to the tax provisions. Meanwhile, the Senate is debating the compromise today.

Under the compromise plan:

- The wealthiest one percent would get an average tax cut in 2011 of almost $77,000 compared to current law (under which all of the tax cuts enacted since 2001 are scheduled to expire). That’s almost triple the $29,000 tax cut that President Obama proposed to provide to the top one percent.

- Meanwhile, the lowest-income fifth of all taxpayers, those making less than $20,000 a year, would get a smaller tax cut than the President earlier proposed. This is because the GOP-inspired, 2 percent temporary reduction in the payroll tax in the compromise plan offers low-income workers a considerably smaller payroll tax reduction than the President’s proposal to extend his “Making Work Pay” payroll tax cut. The Making Work Pay payroll tax cut entirely eliminated the 6.2 percent worker payroll tax on the first $6,450 in earnings ($12,900 for couples).

The payroll tax cut agreed to by the President and GOP leaders would also provide considerably less economic stimulus “bang for the buck” than the President’s earlier proposal, because it is largest for high earners, who are less likely to spend their payroll tax savings. The compromise payroll tax cut would cost an estimated $112 billion in 2011, double the $57 billion dollar cost of the President’s earlier proposal. But we estimate that $112 billion in added borrowing would stimulate only an extra $18 billion in consumer spending compared to the President’s earlier payroll tax cut plan.



New Report from ITEP: The Good, the Bad, and the Ugly: 2010 State Tax Policy Changes



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For a review of the most significant state tax actions across the country this year and a preview for what’s to come in 2011, check out ITEP’s new report, The Good, the Bad, and the Ugly: 2010 State Tax Policy Changes.

"Good" actions include progressive or reform-minded changes taken to close large state budget gaps. Eliminating personal income tax giveaways, expanding low-income credits, reinstating the estate tax, broadening the sales tax base, and reforming tax credits are all discussed.  

Among the “bad” actions state lawmakers took this year, which either worsened states’ already bleak fiscal outlook or increased taxes on middle-income households, are the repeal of needed tax increases, expanded capital gains tax breaks, and the suspension of property tax relief programs.  

“Ugly” changes raised taxes on the low-income families most affected by the economic downturn, drastically reduced state revenues in a poorly targeted manner, or stifled the ability of states and localities to raise needed revenues in the future. Reductions to low-income credits, permanently narrowing the personal income tax base, and new restrictions on the property tax fall into this category.

The report also includes a look at the state tax policy changes — good, bad, and ugly — that did not happen in 2010.  Some of the actions not taken would have significantly improved the fairness and adequacy of state tax systems, while others would have decimated state budgets and/or made state tax systems more regressive.

2011 promises to be as difficult a year as 2010 for state tax policy as lawmakers continue to grapple with historic budget shortfalls due to lagging revenues and a high demand for public services.  The report ends with a highlight of the state tax policy debates that are likely to play out across the country in the coming year.



State Transparency Report Card and Other Resources Released



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Good Jobs First (GJF) released three new resources this week explaining how your state is doing when it comes to letting taxpayers know about the plethora of subsidies being given to private companies.  These resources couldn’t be more timely.  As GJF’s Executive Director Greg LeRoy explained, “with states being forced to make painful budget decisions, taxpayers expect economic development spending to be fair and transparent.”

The first of these three resources, Show Us The Subsidies, grades each state based on its subsidy disclosure practices.  GJF finds that while many states are making real improvements in subsidy disclosure, many others still lag far behind.  Illinois, Wisconsin, North Carolina, and Ohio did the best in the country according to GJF, while thirteen states plus DC lack any disclosure at all and therefore earned an “F.”  Eighteen additional states earned a “D” or “D-minus.”

While the study includes cash grants, worker training programs, and loan guarantees, much of its focus is on tax code spending, or “tax expenditures.”  Interestingly, disclosure of company-specific information appears to be quite common for state-level tax breaks.  Despite claims from business lobbyists that tax subsidies must be kept anonymous in order to protect trade secrets, GJF was able to find about 50 examples of tax credits, across about two dozen states, where company-specific information is released.  In response to the business lobby, GJF notes that “the sky has not fallen” in these states.

The second tool released by GJF this week, called Subsidy Tracker, is the first national search engine for state economic development subsidies.  By pulling together information from online sources, offline sources, and Freedom of Information Act requests, GJF has managed to create a searchable database covering more than 43,000 subsidy awards from 124 programs in 27 states.  Subsidy Tracker puts information that used to be difficult to find, nearly impossible to search through, or even previously unavailable, on the Internet all in one convenient location.  Tax credits, property tax abatements, cash grants, and numerous other types of subsidies are included in the Subsidy Tracker database.

Finally, GJF also released Accountable USA, a series of webpages for all 50 states, plus DC, that examines each state’s track record when it comes to subsidies.  Major “scams,” transparency ratings for key economic development programs, and profiles of a few significant economic development deals are included for each state.  Accountable USA also provides a detailed look at state-specific subsidies received by Wal-Mart.

These three resources from Good Jobs First will no doubt prove to be an invaluable resource for state lawmakers, advocates, media, and the general public as states continue their steady march toward improved subsidy disclosure.



New Jersey Think Tank Examines Governor Christie's Income Tax Returns



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New Jersey Policy Perspective (NJPP) released a timely examination of Governor Chris Christie’s income tax returns last week.  

The group used the Christies' tax return to illustrate an important, and often overlooked, point about the distinction between marginal rates (which apply only to taxable income over the amount where the tax bracket starts) and effective rates (which tell us what share of a taxpayer’s income goes to overall income tax).  While the Christie’s 2009 taxable income of $540,792 pushed them into a bracket (taxable income of $500,000 and above) with a marginal rate of 10.25%, only the last $40,792 of their taxable income was taxed at that top rate, not the entire amount as is most often assumed. 

Like every other household in New Jersey, the Christie family benefited from the state’s progressive graduated rate structure, which applies different rates at different levels of income for all taxpayers.  For example, the rate for the first $20,000 of income in New Jersey is 1.4%, so the Christies paid only $280 on that portion of their income.  

As a result, Governor Christie and his wife paid just 6.2% of their income in state personal income taxes in 2009, rather than 10.25% as the governor would have you believe.  NJPP’s report found the actual share of income the Christies paid in taxes to be in line with rates in Georgia, and lower than neighboring New York and Philadelphia, PA.  

Too often in tax policy debates — and certainly in the current debate on the Bush tax cuts — lawmakers, advocates, and the media foster a misunderstanding of how graduated income taxes work, implying that a “high” tax rate applies to every dollar of income.  Thankfully, NJPP’s new report sheds a light on the distinction between marginal and effective tax rates.



Georgia Tax Exemptions Under the Microscope



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This week the Georgia Budget and Policy Institute (GBPI) released a new issue brief detailing the impact of taxing groceries. In it, they recommend that “all exemptions, credits, and deductions should be examined and weighed against each other and against the principles of tax reform.” 

Loophole-closing reform is a vital step toward a more sustainable sales tax, to be sure. But there are many other exemptions in Georgia’s tax code that should be studied closely and potentially eliminated before Georgians pay sales taxes on food. For example, Georgia offers one of the nation’s most generous exemptions for retirement income, and the state also offers an unusual and regressive tax deduction for state income taxes paid.

The debate over exemptions is heating up because the Special Council on Tax Reform and Fairness for Georgians will make their tax reform recommendations soon, and the media is reporting that one potential “reform” would be to add food back to the sales tax base. Let’s hope their recommendations take aim at other exemptions that wouldn’t so dramatically raise taxes on low-and middle-income families.



Big Doings in South Dakota



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Last week, the South Dakota Budget and Policy Project (SDBPP) launched their new website and released their South Dakota Budget Primer: A Guide to the South Dakota Budget Process. The guide is designed to offer readers assistance in “understanding the components of the state budget, how it is created, and some of the priorities and choices it reflects.”

The group is one of the latest additions to the State Fiscal Analysis Initiative (SFAI), a nationwide network of nonprofit groups working on state tax and budget policy coordinated by the Center on Budget and Policy Priorities. If you aren't familiar with the good work done by the SFAI group in your state, you should be, as these groups will be directly involved in efforts to make state tax systems fairer and more sustainable as a means of closing continuing budget shortfalls in 2011.
 
The group's existence is especially exciting because, according to ITEP's 2009 ranking of state tax fairness, Who Pays, South Dakota has one of the five most chronically unfair tax systems in the nation. As the Budget Primer points out, the main reason for this is that the state has no personal income tax, coupled with its especially high sales tax. The Primer is a valuable resource for stakeholders seeking to understand next steps for reforming the state's out-of-balanced tax system.

The guide closes by saying, “It is citizen involvement — your involvement — that helps assure that South Dakota’s budget priorities reflect our values and meet the needs of our state.”



Tax Extenders Study Would Signal Commitment to Both Tax Reform and Deficit Reduction



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The Senate “compromise” tax bill unveiled last night has dropped an important provision that would have required the JCT and GAO to evaluate whether the so-called “tax extenders” are fulfilling their intended purposes.  This provision was included in both the House-passed version of the extenders, and in the Senate version that Finance Committee Chair Max Baucus introduced just one week ago.  Adding this study back into the bill would be a small but meaningful step that would signal Congress’ interest in tax reform, deficit reduction, and general government efficiency.

The “tax extenders” package consists of about 50 expiring tax provisions – costing nearly $30 billion each year – that Congress has repeatedly extended on a temporary basis.  These tax breaks, or “tax expenditures,” are designed to encourage everything from railroad track maintenance to coal mine safety, but Congress has no idea whether they’re actually accomplishing these things at a reasonable cost.  Rather than using the extenders repeated expiration as a chance to review their effectiveness, Congress routinely extends them at the last minute without any serious analysis (just as it seeks to do this year as part of a larger bill seeking to extend all of the Bush tax cuts).  The JCT/GAO study, which until last night appeared to be closely wedded to the tax extenders package, would have filled this analytical void by examining each tax extender using ten different criteria designed to reveal whether they are effective in achieving their intended purposes.

While the White House continues to express concern that major changes to the compromise tax bill could unravel any bipartisan agreement, the addition of the tax extenders study is a modest, commonsense change that should not divide lawmakers along party lines.  Indeed, the extenders study could actually broaden the base of support for the Senate compromise bill.  In explaining the importance of the study, both the House-passed bill and the bill introduced by Senator Baucus last week cite the effect these provisions have on the “escalating public debt,” and the way in which these tax breaks complicate the tax code for individuals and the IRS.  Adding this study back into the bill could signal to both deficit hawks and tax reform advocates that these tax provisions will not be allowed to continue unless very good reasons can be found to justify their existence.

In addition to widespread support for the study in the House, and apparently within the Senate Finance Committee, the sentiment behind the JCT/GAO study has also picked up significant support among outside groups.  Eric Toder of the Tax Policy Center, the Center for American Progress, and a dozen other national groups have said that the study would be very useful in informing future debates over extending these provisions.

While not mentioning the tax extenders study specifically, President Obama’s Chief Performance Officer, the GAO, the Pew-Peterson Commission on Budget Reform, the OECD, and numerous, other, groups, have also cited the need for additional evaluation of tax breaks.  The tax extenders study would be an important step forward in conducting these evaluations.



Senate Republicans & Five Democrats Block Full Tax Cut Extension for 98% of Taxpayers & UI Benefits



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A minority of Senators made clear on Saturday that if the Bush tax cuts cannot be extended for the very richest taxpayers in America, then they will allow the tax cuts to expire for everyone.

Senate Republicans successfully filibustered a bill based on President Obama's tax plan to permanently extend the Bush tax cuts for the first $250,000 of income for married couples and the first $200,000 of income for unmarried individuals. The two percent of taxpayers with incomes above $250,000/$200,000 would therefore continue to enjoy part of the Bush tax cuts while the other 98 percent would continue to enjoy all of them.

Throughout months of debate over President Obama's tax plan, lawmakers and reporters often seemed to think that a person making one dollar over the $250,000/$200,000 threshold would lose all of the Bush tax cuts. CTJ's recent report shows this is entirely untrue. For example, it explains that married couples with incomes between $250,000 and $300,000 would only lose 1 percent of the Bush tax cuts, on average, under the Democratic tax plan.

The bill, introduced by Finance Committee Chairman Max Baucus, would also have allowed the estate tax to come back into effect but only at the levels that existed in 2009, with an adjustment for inflation. The bill would also have made permanent expansions in refundable tax credits for low-income families that were included in the economic recovery act enacted last year. Emergency unemployment insurance (UI) benefits, which recently expired, would have been extended for one year under the bill.

Unlike nearly every democratic institution on Earth, the Senate cannot approve anything without a super-majority of three-fifths of the chamber's votes. Democratic leaders were able to muster 53 votes for the tax bill, seven short of the 60-vote threshold to overcome a filibuster.

Voting with the Republicans were Joe Lieberman (D-CT), Ben Nelson (D-NE), Joe Manchin (D-WV), Jim Webb (D-VA), and Russ Feingold (D-Wisconsin). Unlike the others, Feingold made it clear that he voted against because he believed that this bill to extend tax cuts entirely for the first $250,000/$200,000 of income is simply too expensive.

The Senate held a second vote on a proposal introduced by Senator Chuck Schumer (D-NY) that was the same plan except that the tax cuts would be made permanent for the first $1 million of income. Republicans and Senator Lieberman voted against this bill also, but were joined by some progressive Democrats who believed that the $1 million threshold was too high.

"A minority of Senators are saying that the chamber must extend tax cuts for the extremely rich, or else low-income and middle-income families will lose their tax cuts, and people who are jobless through no fault of their own will receive no more help," said Bob McIntyre, director of Citizens for Tax Justice. "Even a proposal to extend the tax cuts for the first $1 million of income is not enough to satisfy this minority of Senators. Their disregard for working class Americans and their blind loyalty to multi-millionaires would be hard to believe if they were not on full display this weekend."



House Republicans Vote En Masse Against Full Tax Cuts for 98% and Partial Tax Cuts for 2%



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Yesterday, after months of debate, the House of Representatives approved one of President Obama's campaign promises, to fully extend the Bush tax cuts for the 98 percent of taxpayers who are either married couples with adjusted gross income (AGI) below $250,000 or unmarried taxpayers with AGI below $200,000.

The bill, H.R. 4853, passed by a vote of 234-188, with only 3 Republicans voting in favor and 20 Democrats voting against.

House Republicans, despite their history of supporting tax cuts as a solution for every known problem, voted en masse against the bill, which extends the Bush income tax rate reductions for the first $250,000 of a married couple's income and the first $200,000 of a single person's income.

Democratic leaders in the Senate have scheduled a vote for Saturday on a bill introduced by Finance Committee Chairman Max Baucus that is also essentially based on Obama's tax plan. It is likely that all or nearly all of the 58 Senate Democrats will vote in favor of this bill.

But Republicans in the Senate threaten to filibuster Obama's tax plan because it only partially extends tax breaks for the richest two percent of taxpayers. Republican leaders have demanded a full extension for all taxpayers.

In other words, Republicans threaten to hold hostage a full extension of the tax cuts for 98 percent of taxpayers in order to protect tax cuts for the richest two percent.

While threatening to block consideration of tax bills not to their liking, Senate Republicans simultaneously refuse to proceed to any other legislation until the tax cuts and pending spending measures are dealt with. In the recent letter signed by all 42 Senate Republicans, the caucus promised to prevent the chamber from even debating any legislation until this happens.

The letter itself makes wildly inaccurate statements about tax cuts, which are refuted by CTJ's recent report on small businesses and tax cuts.

President Obama has taken the unfortunate tactic of negotiating with Republican Congressional leaders before Congress even attempts to vote on his original tax plan. Formal negotiations are taking place between OMB Director Jack Lew, Treasury Secretary Timothy Geithner, and Congressional leaders.

Democratic leaders in Congress want to at least demonstrate that their party favors allowing the tax cuts for the richest 2 percent to partially expire and force the Republicans to explain why they would block a full extension of tax cuts for the other 98 percent.

If the two parties eventually come to a compromise, it is possible that it would involve an extension of the expanded unemployment program, which just expired, through the end of next year. Most economists agree that jobs will remain scarce well into next year and that UI benefits are effective economic stimulus because they put money in the hands of those most likely to spend it right away.



Refundable Credits for Low-Income Families Included in Tax Bills



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The tax bill passed by the House yesterday (H.R. 4853) would make permanent two provisions that were included in the economic recovery act and which would otherwise expire at the end of this year. One makes the child tax credit more accessible to low-income working parents. The other reduces the marriage penalty in the EITC.

The bill introduced by Senate Finance Chairman Max Baucus, which Democratic leaders plan to vote on Saturday, would make these changes permanent as well as a third change in the recovery act that expands the EITC for families with three or more children.

For more information, see CTJ's recent state-by-state figures showing how each of these provisions impacts families with children.



Call Your Senators Now and Tell Them to Let the Tax Cuts for the Rich Expire



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Tell them it's outrageous that some lawmakers want to hold hostage tax cuts for 98 percent of taxpayers in order to protect tax cuts for the richest 2 percent.

Tell them it's outrageous for lawmakers to say we can't afford to extend unemployment insurance for people laid off through no fault of their own — even as these same lawmakers support extending the Bush tax cuts for the very richest Americans!

Simply click here, fill in your phone number and you will receive an automated call that directs you to the Capitol switchboard. The switchboard can direct you to your Senators even if you're not sure who they are.



New Report from CTJ: Married Couples Earning $250k-$300k Would Lose Only 1% of Their Bush Tax Cuts under Obama Plan



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There seems to be a lot of confusion in the media and among the public about President Obama’s plan to let the Bush income tax cuts expire for joint incomes above $250,000 and single incomes above $200,000. Many people seem to think that couples and singles who make more than these amounts will lose all of their Bush tax cuts. This is not even slightly true.

Read the report.



New Report from U.S. Chamber Watch & CTJ: The U.S. Chamber's Fight to Protect Its Richest Corporate CEOs' Wallets



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The U.S. Chamber of Commerce has lobbied heavily for Congress to make permanent all of the Bush tax cuts — even for the richest Americans — despite the fact that these tax cuts will ultimately hurt business far more than it could possibly help. Part of the explanation must lie in the personal interests of the CEOs who fund and run the Chamber. As this report from U.S. Chamber Watch and Citizens for Tax Justice explains, many of these CEOs would personally gain $700,000 to $1.7 million a year if the Bush tax cuts are extended.

Read the report.



CTJ's Statement on the Unbalanced Deficit Plan Rejected by President's Fiscal Commission



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The President's fiscal commission rejected a deficit-reduction plan that CTJ and others found to be seriously unbalanced. The plan was supported by 11 of the 18 commission members, but the rules of the commission specified that a plan could not be approved without a super-majority of 14 of the 18 votes. House and Senate leaders had promised to bring to the floor any deficit reduction plan that was approved by the commission, which they are now not obligated or likely to do. 

The plan could still, unfortunately, influence lawmakers in the future. It relies on cuts in public services for two-thirds of the deficit reduction it strives for, while relying on increased revenues for only one-third. In fact, the plan claims it would somehow “cap” federal revenue at the arbitrary level of 21 percent of the economy. As a result, the plan relies far too much on cuts in public services that will be impossible to make without adversely affecting Americans — including those with very modest incomes.

As CTJ's statement on the plan explains, part of the problem is the commission’s approach to closing tax loopholes. The plan makes bold proposals to close tax loopholes, but unfortunately uses most of the resulting revenue to lower tax rates! Since the goal of this commission is to reduce the budget deficit, it’s hard to fathom why lowering tax rates would be on its agenda at all.

Read CTJ's full statement on the deficit plan.



State Tax Code Spending Under Fire



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For years, both state and federal lawmakers have opted to forgo the hassles of the appropriations process in favor of enacting tax breaks — or “tax expenditures” — aimed at exactly the same goals.  The result has been a steady rise in tax code spending, and a corresponding decline in transparency and fiscal responsibility.  Recent developments in Missouri, Georgia, New Mexico, and Maine, however, indicate that at least some lawmakers are interested in getting a grip on this type of out-of-control spending.

In Missouri, the Tax Credit Review Commission, created by Governor Jay Nixon in July, finally issued its recommendations this week.  In addition to recommending the elimination of 28 tax credits and the reform of 30 more, the Commission also took the commendable step of proposing some broader reforms to the way Missouri lawmakers deal with tax credits.  Most notably, the Commission suggested sunsetting every state tax credit in order to force their review, and even proposed a schedule for sunsetting them in waves two, four, and six years from now.  This proposal closely resembles a reform enacted by Oregon in 2009.

In addition to sunsets, the Missouri Commission also proposed capping tax credits in order to reverse the explosion in tax credit spending the state has experienced in recent years.  In support of this proposal, the Commission notes that “as State revenues have declined and spending for other programs has been reduced, spending on the State’s tax credit programs has continued to grow.”  Finally, the Commission also recommends eliminating and/or reducing the ability of businesses to carry-back their tax credits to prior years’ tax bills, and enacting additional “clawback” provisions to ensure that companies only benefit from tax credits if they consistently meet all of the eligibility requirements.

The Georgia Council on Tax Reform and Fairness seems to be contemplating a similar path.  While the group’s report won’t be out until early January, the chairman has suggested sunsetting most tax exemptions on a five year schedule.  Hopefully, the final report from the Council will include this recommendation and enhance it further by bringing all tax expenditures — not just tax exemptions — within its scope.  The Council would also be wise to offer some specific ideas for ensuring that the debate over expiring tax provisions is sufficiently rigorous (like by implementing a complementary tax expenditure review system).

In Maine, a working group comprising various state agency heads recently came out with recommendations that are quite similar to those being considered in Missouri and Georgia.  While not advocating the use of sunset provisions, the group has suggested the creation of a review system similar to the one that exists in Washington State.  Multiple lawmakers have voiced support for the idea, though Maine’s recent switch from all-Democratic to all-Republican control could complicate things.

Finally, in New Mexico, the drive to review state tax code spending is coming not from a commission or working group, but from lawmakers themselves.  Back in 2007, New Mexico lawmakers passed a bill enacting a tax expenditure reporting requirement, only to be thwarted by Gov. Richardson’s veto.  As a result, New Mexico is one of just seven states without a legal requirement that tax expenditure reports be released on a regular schedule.  Now, the Albuquerque Journal reports that some lawmakers — including the Governor-elect — are pushing for enhanced disclosure and review of the state’s film tax credit, among other tax expenditures.

Hopefully, the difficult budgetary situations confronting each of these states will spur lawmakers to do what’s long overdue: finally get a grip on out-of-control tax code spending.



Arkansas: Task Force Unveils Anti-Poverty Recommendations



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This week the Arkansas Legislative Task Force on Reducing Poverty and Promoting Economic Opportunity released thirty-one recommendations for reducing poverty in the state. Rich Huddleston, co-chair of the task force and Executive Director of Arkansas Advocates for Children and Families said, "Poverty hurts individual Arkansans, but it also has a long-term impact on our economy. Our businesses need a healthy, educated work force. To get there, we need to ensure that our children are in good shape and get a quality education." 

Not surprisingly, the panel found that tax policy has a role to play in poverty reduction. The panel recommended a variety of policy changes including: creating a state Earned Income Tax Credit, fixing the Arkansas low-income tax threshold, and continuing efforts to cut the state sales tax on food. See the panel’s full recommendations here.

Arkansas, of course, is not alone in having sensible options for using the tax code to reduce poverty. To read about more effective anti-poverty strategies in your state, read ITEP’s report: Credit Where Credit is (Over) Due.



Louisiana: New Coalition Launched in the Pelican State



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This week, a broad coalition of 18 Louisiana organizations launched Better Choices for a Better Louisiana. The group is interested in urging lawmakers to take a balanced approach to the state budget by cutting “tax code spending” and not just cutting public services funded through direct spending.

When announcing the coalition, the Louisiana Budget Project's Edward Ashworth called for "a more balanced approach to solving Louisiana's budget problems." Leaders of the group have already called upon legislative leaders to not pass any more tax breaks and to review the effectiveness of the state’s existing tax credits and exemptions.

 

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