House Speaker John Boehner’s recent comment that Congress should “take a look at” repealing tax subsidies for large oil companies is well-founded. A new report from Citizens for Tax Justice explains that these subsidies are a particularly poor use of taxpayer funds.
The oil and gas industry argues that their tax breaks encourage them to locate and extract more oil and gas, allowing the industry to increase supply and thus keep energy prices down below the level they would otherwise reach. But whatever one thinks of this argument, it totally falls apart when oil is selling at over $100 a barrel.
Read the report.
April 2011 Archives
We’ve all become accustomed to conservative lawmakers singing the praises of tax cuts nearly every time they open their mouths. Florida Governor Rick Scott’s devotion to anti-tax dogma, however, is among the most extreme cases we’ve seen in recent memory. Fortunately, it now appears very likely that the state’s conservative legislature will reject the vast majority of Scott’s anti-tax platform.
On Tuesday, the Florida legislature’s Republican leadership announced that they’ve come to a preliminary agreement on how to close the state’s budget gap. The agreement is unbalanced, as it relies exclusively on spending cuts to cope with the revenue slump caused by the lingering economic downturn. But the agreement does have one major upside: it does not include Governor Scott’s proposals to phase out the corporate income tax and drastically cut the property tax.
In recent weeks, Scott had tried to make his radical tax proposals more attractive by phasing out the corporate income tax more slowly. This change would have allowed lawmakers to vote in favor of a massive tax cut, and to put off debating the most difficult spending cuts until some later date. Still, even Scott’s less ambitious proposal was viewed by most Republicans legislators as too extreme.
The Republican chair of one key House committee referred to Scott’s continued insistence that the state slash taxes despite its weak fiscal situation as “just kind of odd.” And Republican Senate President Mike Haridopolos questioned the wisdom of Scott’s “job creation” strategy, saying “I'm in my 11th session now and I've had very few people come to me and say the reason they didn't come to Florida was because of the corporate tax rate."
Lawmakers have apparently agreed to set aside some money for corporate tax pork in an attempt to keep Scott happy enough that he won’t exercise his veto power. But compared to the multi-billion dollar tax cut package Scott has been pushing, the size of the tax cuts currently under consideration are very small.
Still, the fact that tax cuts are being debated at all while the state cuts billions from education, health care, and other vital services demonstrates how wildly out of touch the Sunshine State's legislature is. In the future, lawmakers should undo some of these deep cuts to public services and offset the cost by raising the state’s very low taxes. While they're at it, they can lessen the unfairness of a tax system that ITEP ranked the second most regressive in the nation.
Douglas Bruce, author of Colorado's Taxpayer Bill of Rights (TABOR), has been arrested for tax evasion. The indictment alleges that Bruce filed a false Colorado personal income tax return for 2005 and failed to file returns for 2006 and 2007 even though he had earnings during those years from his job as an El Paso county commissioner and had thousands of dollars of interest income.
The most serious charge could land Bruce in prison for up to six years and cost him fines up to $500,000.
TABOR has been widely documented as gutting Colorado's ability to adequately fund public services.
Iowa Governor Terry Branstad has made it very clear that he prioritizes corporations over working families. Earlier this week, the Governor vetoed a slight increase in the state’s earned income tax credit (EITC) from 7 to 10 percent of the federal credit. The EITC is one of the most effective and popular anti-poverty programs states can offer, but Branstad has insisted that Iowa’s “limited budget” requires a single-minded focus on slashing business taxes instead.
The Governor’s veto letter makes his reasoning crystal clear, saying "Iowa should instead focus its energies on improving our state's long-term competitive tax position for new job creation.” The letter goes on to explain that in Branstad’s mind, this means that corporate income taxes and commercial property taxes must be slashed.
In an effort to fulfill Branstad’s vision, legislation was introduced Wednesday that, when fully phased in, would allow businesses to shelter a full 40 percent of their property’s value from the property tax (by assessing commercial property at only 60 percent of its actual value for tax purposes). When fully implemented, the price tag for this measure is about $500 million.
Many local officials are wary of the proposed change since local governments are heavily dependent on the property tax to fund their day-to-day operations. The state has promised to replace the revenue localities are sure to lose as a result of this legislation, but most would prefer to have control over their own revenue streams. Making matters worse, House Ways and Means Committee Chair Thomas Sands has acknowledged that “the state doesn’t always honor its commitments.”
The Governor has chosen to favor corporations over middle class Iowans. What remains to be seen is how far the state’s legislature is willing to go to give handouts to corporations while working families struggle.
Earlier this week, Missouri Governor Jay Nixon signed into law legislation that will gradually phase out the state’s corporate franchise tax.
The tax is levied on either the total assets of a company or the value of its paid up capital stock, and it generated about $88 million in needed revenue in 2010.
In 2009 the legislature took steps to make sure that small businesses wouldn't be affected by the tax, exempting any firm with assets under $10 million. This means that the principal beneficiaries of this year's repeal legislation will be the very biggest corporations.
The Missouri Budget Project responded to the franchise tax news, saying "it's extremely disappointing that the state would eliminate a source of revenue while facing a general revenue shortfall approaching $700 million.”
The elimination of the corporate franchise tax puts enormous pressure on the state’s only other major tax on corporations — the corporate income tax. Sadly, the corporate income tax isn’t very robust either. Compared to other state corporate income taxes, Missouri's is already the lowest in the country as a share of gross state product.
Because there is no public disclosure of Missouri corporate income tax payments, it's impossible to know how specific companies are using loopholes to avoid the Missouri tax. But the tax information in some companies' public filings makes it obvious that they are successfully avoiding state taxes generally.
For example, Missouri-based Monsanto is paying less than zero dollars in state corporate income taxes nationwide. In 2010, when Monsanto reported $1.2 billion in pretax U.S. profits, it says it received a nationwide state income tax rebate of $1 million. These figures beg questions about the effectiveness of state taxes on corporations, particularly in Missouri, where Monsanto is based.
With the demise of Missouri's franchise tax, these questions should become even more urgent for Missouri policymakers who care about a fair and sustainable revenue stream.
Like most states, New Hampshire is faced with yet another budget shortfall to close in the upcoming fiscal year, this one at roughly half a billion dollars. The New Hampshire House of Representatives approved a budget in March that closed the gap almost entirely through cuts in spending ($489 million total) including reductions in child-care assistance for low-income families and funding for the state’s university system. Yet, incredibly, New Hampshire lawmakers are still considering a variety of proposals to cut business taxes.
This week, the New Hampshire Fiscal Policy Institute (NHFPI) published an informative brief explaining how various proposals to reduce the state’s two main business taxes would result in millions of dollars more in spending cuts.
The brief also debunks myths that lawmakers have promoted to justify cutting business taxes. One is that the state’s business taxes are extremely high. (They are comparable to the national average.) Another is that business taxes influence business location decisions, and that lowering taxes on businesses would fuel economic growth.
NHFPI also points out that the two business taxes lawmakers are considering reducing, the Business Profits Tax (BPT) and Business Enterprise Tax (BET), make up a relatively small share of the total taxes New Hampshire businesses pay. The tax that represents the largest share, the property tax, could in fact increase as a direct result of cutting the BPT and BET.
A state tax cut of any size would likely lead to reductions in funding for local aid, which would in turn force local governments to increase property taxes to pay for local services.
As previously noted, Connecticut is one of only a handful of states where state leaders have given serious consideration to raising revenue as part of a balanced solution to closing their budget gaps.
In February, new Governor Dan Malloy (who calls himself the “Anti-Christie” referring to New Jersey’s notoriously conservative governor) released his budget proposal for fiscal year 2012. The plan would have closed roughly half of a $3 billion shortfall with a mix of new revenues from the personal income tax, sales tax, excise taxes, business taxes, and the estate tax.
As of this week, the governor moved one step closer to enacting his vision for Connecticut when he reached an agreement with House and Senate leadership on his tax and spending packages.
Both chambers’ Finance and Appropriations Committees approved the revised budget plan on Thursday and the full House and Senate will take it up next week. Not surprisingly, Republican lawmakers criticized the proposal and unsuccessfully offered a no-tax increase amendment that would have meant more than $1.4 billion in additional cuts to essential services.
One common criticism of the Governor’s original tax package was that it hit middle-income households the hardest. While a new 30 percent refundable state Earned Income Tax Credit (EITC) ensured low-income households would not see a tax increase (and in some cases would receive a net tax cut), the proposed elimination of the state’s property tax credit would have disproportionally impacted middle-income households.
As a result, an ITEP analysis found that middle-income households would have seen the biggest tax increase as a share of income under the Governor's proposal. Tied to that criticism, several key House and Senate members as well as the Better Choices for Connecticut coalition pushed for a more progressive tax package (equipped with an ITEP analysis of that plan) that would ask the state’s wealthiest households to pay for the largest share of the tax increase.
The revised package appears to have addressed these criticisms. A scaled back version of the property tax credit would be restored and result in a smaller tax increase for middle-income households. And, changes to personal income tax rates and a mechanism to recapture the benefits of lower tax rates will mean that the top 5 percent will pay more than under the Governor’s original plan.
The Connecticut tax package also includes several significant changes to the state’s sales tax including broadening the base to include several services and currently exempted goods, a new ‘Amazon’ law, a 7 percent tax on luxury goods, and a small rate increase from 6 to 6.25 percent.
The governor’s original sales tax proposal was even more comprehensive, but several items (expanding the sales tax to include haircuts and boat repairs, an elimination of the sales tax holiday and elimination of exemption on auto-trade-ins) were left out of the revised package.
Otherwise, the revised package mostly mirrors the original and includes tax increases on estates, cigarettes, alcohol, and corporate income.
The South Dakota Legislature’s Executive Committee voted earlier this week to study the more than 100 sales tax exemptions that the state currently allows. Tax exemptions are one type of "tax expenditure," or government spending through the tax code.
Tax expenditures have the same impact as cash grants from the government, but implementing them through the tax system makes them less visible — and makes lawmakers less accountable for justifying them.
South Dakota's sales tax exemptions alone are estimated to cost over $500 million annually. Adding the cost of property tax and corporate tax expenditures would make that figure even larger. To put that figure in perspective, South Dakota's general fund budget for fiscal year 2012 is just over $1 billion.
"We don't know when they were put in place, how they were trended over time and if they continue to meet their initial intent,” said Joy Smolnisky, director of the South Dakota Budget & Policy Project.
This summer legislators will meet to review the exemptions and study whether or not they achieve any sensible policy goals. Let’s hope this initial study leads to the creation of a regularly published tax expenditure report. For more on the importance of tax expenditure reporting, see the Budget and Policy Project’s work on this important issue.
For more general information, see CTJ's report on tax expenditures.
Louisiana’s Better Choices for a Better Louisiana Coalition is taking on Governor Bobby Jindal and other legislative leaders who have said they aren’t interested in increasing taxes. The Coalition recently unveiled their plan to increase taxes by $900 million to help close next year’s budget gap, which is estimated to be $1.6 billion.
Eddie Ashworth, director of the Louisiana Budget Project, acknowledges that getting the legislature to raise taxes will be difficult, saying “I think we’re definitely pushing a rock up the hill.”
Still, the Coalition’s balanced approach to the budget shortfall, raising taxes and cutting spending, should appeal to any lawmaker who has ever claimed the title of "moderate." Also, one proposal included in the Coalition’s plan responds to the increasing momentum even in conservative circles for addressing spending in the tax code: a review of the state’s 400-plus tax exemptions, which cost about $7 billion annually.
Expedia, Orbitz, and Priceline are exploiting a major sales tax loophole, and in some states are possibly breaking the law in doing so. Last week, the Center on Budget and Policy Priorities (CBPP) released a report explaining how this loophole works, and pegging its aggregate size at somewhere in the neighborhood of $400 million per year. The report urges states and localities to pursue legal action, legislative action, or both in order to remedy this situation.
In the vast majority of cases, online travel companies (OTCs) like Expedia and Priceline currently remit sales and lodging taxes only on the “wholesale” room rate they pay to hotels — not the “retail” room rate they actually charge travelers. In doing so, the OTCs claim that the difference between the retail and wholesale price is simply a “facilitation fee” that should not be subject to sales taxes. But as CBPP rightly points out:
“The OTCs are providing the same kinds of marketing and room booking services that the hotels themselves engage in. If the hotels may not deduct a pro-rated amount of their advertising and website operation expenses from the retail room charge prior to calculating applicable hotel taxes when they incur such expenses directly, there is no possible justification for compelling such a deduction when hotels pay an OTC to provide the same services.”
CBPP recommends that states and localities either sue to recoup the taxes owed by OTCs, or if current statutes are sufficiently unclear with respect to the taxes owed by OTCs, enact new legislation clarifying that taxes should be paid based on the full retail price of the room. New York City and Washington DC have both taken this latter course of action, while a half dozen states and numerous localities have chosen to pursue legal action.
Read the CBPP report for more detail, including state-by-state revenue estimates, an explanation of why this reform won’t harm tourism, and a closer look at what states and localities must do to close this inequitable and costly tax loophole.
Weeks after the New York Times broke the story of General Electric's tax avoidance, it's still hard for many Americans to believe how successfully GE has managed to avoid owing any tax on its profits. Yet some anti-immigrant groups find it much more plausible that undocumented immigrants somehow pay no taxes at all, while relying heavily on state and local government services.
A new report from the Immigration Policy Center, fueled by data from ITEP's Microsimulation Model, shows that in fact, undocumented families pay a substantial amount of state and local taxes across the nation. The report estimates that these families pay over $11 billion a year in state and local sales, excise, income and property taxes.
It's notoriously difficult to know precisely even the basic facts about the changing undocumented population in the US, and the IPC report should be understood not as a definitive answer but as a sensible estimate based on the best available data. But the new IPC report serves as an important reminder that undocumented taxpayers make important financial contributions to the fiscal health of state and local governments.
Conservative lawmakers and pundits often claim that the richest Americans are paying a disproportionate share of taxes while a huge number of lower-income Americans pay nothing at all. CTJ has updated its report on federal, state and local taxes that explains why they're wrong.
Honeywell International has responded to a press release that CTJ posted Tuesday and which explained that the company has paid an effective U.S. income tax rate of just 4.1 percent averaged over the past five years.
The company's CEO, Dave Cote, was a member of the President's National Commission on Fiscal Responsibility and Reform and speaks frequently about his support for cuts in Medicare and Medicaid. Cote spoke on Tuesday at a public event focused on deficit reduction and was asked twice about the CTJ press release.
Within a matter of hours, Honeywell sent a letter to CTJ essentially saying that the company correctly reported large profits to its shareholders for the last two years but used available tax loopholes to report losses to the IRS.
CTJ's director, Bob McIntyre, wrote a letter back to Honeywell that concludes:
"So I think we agree on the following: The reason why Honeywell, despite reporting substantial pretax U.S. profits to its shareholders, paid no federal income tax in 2009 or 2010 (or more precisely, paid less than zero) is that it took advantage of legal tax breaks to wipe out its federal income tax liability. We may disagree, however, about whether these tax breaks should exist."
Read CTJ's press release about Honeywell and the correspondence between the company and CTJ.
Yesterday, the Business Roundtable, a politically conservative group of corporate CEOs, released a report claiming to show that U.S. corporations pay higher effective tax rates than corporations of other countries. CTJ's director Bob McIntyre was quoted in several news articles explaining why the report, which was written by PricewaterhouseCoopers, is nonsensical.
First, it includes both "current" income taxes (i.e., taxes paid) and "deferred" income taxes (i.e., taxes not paid). Because the US allows far more tax breaks in the form of (indefinite) deferrals than do other countries, that makes the US effective tax rate look much higher than it actually is. Second, the report looks at worldwide taxes paid, and attributes all of those taxes to the country where companies are headquartered. So if US companies pay a lot of foreign taxes, the report counts that as high taxes imposed by the United States!
Corporations' public filings divide their tax liabilities into "current" taxes and "deferred" taxes, the deferred taxes being those a company expects to pay in the future. Taxes that are "deferred" are quite often never paid at all. If and when they are paid in the future, they will be recorded as "current" taxes during that year, but usually the company will have more deferrals that will offset any deferred taxes that come due.
Corporations' public filings also provide their worldwide taxes on their worldwide profits. But clearly the U.S. government only has control over U.S. taxes. Many companies actually pay taxes at a higher rate on their foreign profits because other countries do not provide as many breaks for investment as the U.S. does. But surely no one expects Congress to give corporations even more breaks to help them pay their foreign taxes.
The report issued for the Business Roundtable includes current and deferred, worldwide taxes in its calculation of effective tax rates of corporations. Floyd Norris, the chief financial correspondent of The New York Times, calls this "highly misleading." He asked the author of the report how much U.S. corporations actually pay to the U.S. government (how much their current U.S. taxes are in a given year).
The reply from PricewaterhouseCoopers' Andrew Lyon (who happens to be a former assistant Treasury secretary under George W. Bush): “We have not looked at that data.”
Thankfully, Citizens for Tax Justice is looking into that data and hopes to have a report within a few months.
Hundreds of events from coast to coast are being organized to target corporations that fail to pay their fair share in taxes while lawmakers consider slashing public services that working Americans depend on.
MoveOn
MoveOn invites "frustrated taxpayers, underwater homeowners, vilified public servants, job-hunting students, and unemployed veterans—everyone facing cuts or cutbacks, a pink slip or a shrinking paycheck" to join demonstrations to demand that Congress cracks down on corporate tax dodgers and to deliver to these companies the tax bill they should pay. Find a MoveOn event near you.
U.S. Uncut
U.S. Uncut is also organizing demonstrations and events targeting corporations, some of which are in cooperation with MoveOn. Find a U.S. Uncut event in your area.
U.S. PIRG
Finally, U.S. PIRG and other organizations will have activities outside post offices on April 15 and April 18 in several states to create awareness about tax dodging by corporations and to press Congress to act. These events will target people whose minds are very much on taxes as they mail off their federal income tax returns.
See the list below for U.S. PIRG events in your state and contact information.
April 15, 2011
Event: U.S. Public Interest Research Group will be holding events outside of Post Offices across the country to try to get Congress to address tax dodging corporations with report releases and post-carding.
Locations:
Portland OR, April 15th. Contact Jen Lavelle at jlavelle@ospirg.org, 503.231.4181
AnnArbor MI, April 15th. Contact Megan Hess at mhess@pirgim.org, 734.662.6597
Chicago IL, date TBD. Contact Brian Imus at brian@illinoispirg.org, 312-544-4433 x 210 (Federal Plaza, outside of main post office)
Hartford CT, April 15th, Contact Jenn Hatch at jhatch@connpirg.org, 860.233.7554
Albuquerque NM, date TBD, Contact Erin Eckelson at erin@nmpirg.org, 505.254.1244
Philly area, date TBD. Contact Megan DeSmedt at mdesmedt@pennpirg.org, 215.732.3747
Phenoix AZ, April 15th. Contact Seren Unrein at sunrein@arizonapirg.org, 602.252.9227
Des Moines IA, Date TBD, Contact Sonia Ashe at sashe@iowapirg.org, 515.282.4193
April 18, 2011
Event: U.S. Public Interest Research Group will be holding events outside of Post Offices across the country to try to get Congress to address tax dodging corporations with report releases and post-carding. U.S. PIRG is partnering with Citizen Action in a number of states: NJ, OR, IL, MI, MO, CT.
Locations:
Trenton NJ, April 18th. Contact Jen Kim at jkim@njpirg.org, 609.394.8155
Seattle WA, April 18th, Contact Lindsay Jacobson at ljacobson@washpirg.org, 206.568.2854 (either at post office downtown, or in front of Microsoft).
Boston MA, April 19th, Contact Dee Cummings at dcummings@masspirg.org, 617.292.4805
Baltimore MD, April 18th, Contact Johanna Neumann at Johanna@marylandpirg.org, (410) 467-9389
St. Lois MO, TBD
In his speech on Wednesday addressing the budget deficit, President Obama skewered the House Republicans’ budget plan as painting “a vision of our future that’s deeply pessimistic.” He pointed out that if enacted, the budget proposed by House Budget Committee Chairman Paul Ryan would mean
- "A 70 percent cut to clean energy. A 25 percent cut in education. A 30 percent cut in transportation."
- "Cuts in college Pell Grants that will grow to more than $1,000 per year."
- Typical 65-year-olds would spend nearly $6,400 more annually on health care.
- Medicare would be turned into a voucher, and "if that voucher isn’t worth enough to buy insurance, tough luck – you’re on your own."
- 50 million would lose health insurance, resulting from Medicaid cuts and the repeal of the health care reform law.
- A trillion dollars in tax breaks for the rich (the extension of the parts of the Bush tax cuts that Obama wants to see expire).
"There’s nothing courageous about asking for sacrifice from those who can least afford it and don’t have any clout on Capitol Hill," President Obama said of the Ryan budget plan.
Ryan’s Goal Is to Shrink Government, Not the Deficit
A report last week from CTJ explains that Ryan’s budget actually reduces revenue, compared to current law and compared to Obama’s proposed budget, which makes it pretty obvious that deficit reduction is not its real motivation. The Ryan plan would essentially make permanent the level of taxation enacted under President Bush and then overhaul the tax system to eliminate loopholes and put the revenue saved towards rate reductions.
The result would be that the highest rates for individuals and corporations would be just 25 percent, and tax revenue collected would equal just between 18 and 19 percent of GDP. To put this in perspective, note that spending was about 21 percent of GDP under President Reagan – and that was before the baby-boomers were retiring, before health care costs had climbed so dramatically, and before we became engaged in multiple conflicts in the Middle East.
The Ryan plan does not spell out in any detail what the resulting tax system would look like – and there’s a specific reason for this. Last year, when Congressman Ryan presented a detailed plan that would allow people to pay income taxes at a top rate of 25 percent, Citizens for Tax Justice found that the plan would cut taxes, on average, for the richest ten percent and raise taxes, on average, for all other income groups. Remarkably, the plan would also lose $2 trillion over a decade.
Even President Obama’s Approach Could Be Dramatically Improved
While President Obama’s approach is vastly more responsible and reasonable than the House Republicans’ plan, it still doesn’t do enough to raise revenue. President Obama would allow the Bush tax cuts for the rich to expire and wants to limit tax expenditures, which are the equivalent of spending but administered through the tax code.
Like his fiscal commission, Obama says he wants an overall deficit reduction plan that cuts spending by two dollars for every one dollar of new revenue. But given that we are one of the least taxed countries in the developed world, at very least that ratio should be reversed. To be sure, much of the new revenue should come from cutting what amounts to spending programs implemented through the tax code, as the President argues.
But it’s unclear exactly what he means when he says he wants to raise $1 trillion in new revenue. If he aims to raise $1 trillion compared to the “current policy baseline,” which assumes that the Bush tax cuts are extended forever, that is mostly accomplished by allowing the tax cuts for the richest two percent to expire, as he has already proposed.
But surely more Americans than just the richest two percent can afford to pay more, especially if budget reform is going to involve “shared sacrifice,” as President Obama says. And surely we can do more than just allow part of the Bush tax cuts to expire, which will happen anyway if Congress does absolutely nothing.
Finally, the President reiterated his call for corporate tax reform to make our businesses "more competitive." Frankly, what we need is to make our businesses pay more in taxes, particularly our corporations. Even Bush's Treasury concluded in a 2007 report that the share of profits paid in taxes is lower on average for U.S. corporations than corporations of other developed countries. To not even attempt to get more revenue overall from our corporate tax system is incomprehensible.
Recently, DC mayor Vince Gray released his proposal to balance the District’s budget. In sharp contrast to the cut-heavy budgets being debated in most places around the country, Gray’s budget would use increased revenues, including taxes, to close over 40 percent of the gap. Particularly encouraging are Gray’s proposals to raise taxes on corporations and high-income earners.
One of the most significant revenue-raisers in Gray’s budget is the creation of a new tax bracket of 8.9 percent on incomes over $200,000. DC’s current top bracket of 8.5 percent kicks-in at just $40,000 of taxable income.
Gray’s plan also wisely decouples the District’s income tax code from one of many federal income tax cuts extended last year — the repeal of the “Pease” limitation on itemized deductions for high-income taxpayers. ITEP has recommended decoupling from the repeal of Pease on multiple occasions.
In addition to these reforms, Gray’s budget also recommends implementing combined reporting of corporations' profits in different jurisdictions, and increasing the minimum franchise tax on firms with gross revenue over $1 million.
Consumption taxes are relied upon to generate most of the remaining revenue boost contained in Gray’s budget. Specifically, Gray is seeking to make the city’s temporary sales tax increase permanent, raise the parking garage tax from 12 percent to 18 percent, increase the off-premise alcohol tax from 9 percent to 10 percent, and expand the city’s sales tax base to include purchases of live theater tickets.
Unfortunately, while Gray’s budget is quite reasonable on the revenue side, its spending proposals are much harder to stomach. As the DC Fiscal Policy Institute has pointed out, human services and other low-income programs fare very poorly under the plan. These programs account for only one-fourth of the city’s budget, yet two-thirds of the spending reductions pitched by Gray would come from slashing this part of the District’s safety net.
Will Rhode Island be the next state to allow special interests to prevent it from bringing its sales tax into the 21st century?
Despite near-universal agreement among economists on the wisdom of broadening sales tax bases and dozens of state tax commissions recommending such a move, state lawmakers across the country have crumbled under the pressure from service providers who do not believe their products should have to compete on the same playing field as goods.
As a result, no state in recent years has succeeded in implementing a comprehensive sales tax base broadening plan. The political ramifications of taking on previously untaxed businesses may make some policymakers wary.
This must change. As states shift from manufacturing economies to service economies, it's essential that tax structures change too.
Rhode Island Governor Lincoln Chafee included an expansive sales tax modernization plan in his budget proposal this year which would broaden Rhode Island’s sales tax base to include dozens of services, lower the general state sales tax rate, add a one percent tax on most currently exempted goods, and raise additional revenue to help mitigate budget cuts.
Governor Chafee is one of only a handful of governors willing to protect vital public services by supporting new revenues as part of a balanced budget plan. He is also one of just two governors willing to consider making long-term and necessary improvements to his state’s sales tax rather than just simply raising the rate.
Rhode Island House and Senate Finance members took up the governor’s proposal this week. More than 90 individuals spoke against the plan at the House Finance Committee hearing on Wednesday with hundreds more on site to voice their opposition. As to be expected, everyone from the auto mechanics to landscapers to salon and bowling alley owners lined the halls to say, “Don’t tax me.”
ITEP submitted testimony to both committees in support of the modernization proposal.
Democratic Representative Jan Malik, who asked business owners during the hearing why they should not be taxed while other businesses are, said “I feel their pain… But I understand what the governor is trying to do here. Why is it fair for my business to get taxed [Malik owns a liquor store] but not your business? These are the questions that have to be answered. We all have to share the pain in this state.”
Kate Brock of Ocean State Action, one of the few to speak in favor of the governor’s plan, asked why the state taxes lawnmowers but not landscapers, and nail polish but not nail salons. She said, “It is illogical to tax a good but not a service that results in the same outcome.”
It looks like the special interests triumphed at least in the short term in Rhode Island. House Speaker Gordon Fox said that the majority of house members will not be supporting the governor’s plan in its current form, but will work with him to come up a viable alternative. Senate President M. Teresa Paiva Weed also announced that the Senate is working on alternative ways to address the state’s budget shortfall. Neither would say that changes to the sales tax are altogether off the table.
Governor Chafee said he was open to hearing suggestions from the House and Senate, but reasserted the need to update the sales tax to “stabilize the state’s revenues during downturns in the economy and to better align it with modern-day customer’s spending habits.”
Many lawmakers are not only rejecting the governor’s sales tax overhaul proposal, but are also objecting to the idea of raising revenue at all to address the state’s $300 million budget gap. One of the "alternatives" will likely be more cuts to education and other core services.
If there’s one valid criticism of the proposal, it’s that even though taxing services is generally less regressive than a sales tax rate increase, it remains a regressive tax no matter how broad the base. The governor’s plan therefore asks more of low-income households than of the wealthiest in the state.
Coupling the base expansion with a fully refundable state Earned Income Tax Credit would ensure low-income households are not disproportionately impacted by the governor’s (otherwise sensible) sales tax modernization proposal.
Rhode Island’s sales tax base is one of the narrowest in the country, largely limited to tangible goods and even many of those are exempted from taxation. As currently structured, Rhode Island’s general sales tax is unsustainable, inadequate, and unfair. Governor Chafee’s proposed reforms would take important steps towards repairing each of these problems, and in particular would help stabilize revenue.
If Rhode Island (or any state for that matter) wants to continue relying on a sales tax as a substantial and reliable revenue source, lawmakers are going to have to take a stand against the service industry sooner rather than later.
North Carolina advocates seeking to protect the state’s Earned Income Tax Credit and supporting a balanced approach to the state’s budget crisis have stepped up their efforts to build public support with new multimedia campaigns.
The SaveEITC.org website, launched last week, features a clever ad titled "If You Work Hard, You Deserve a Chance to Get Ahead." The website also features fact sheets, and an action center where individuals can send virtual postcards to lawmakers explaining the many ways the EITC supports North Carolina’s low-wage workers and families.
TogetherNC, a coalition of more than 120 advocacy groups, service providers and professional associations, started running ads this week in 15 North Carolina newspapers calling on lawmakers to support teachers, firefighters, public health workers, and other vital services with new revenue.
Each of the four unique ads ends with the following message, “When our economy is out of balance, so are our classrooms. Schools and parks. Libraries and fire stations. The things that make our communities great places to work and live are in jeopardy. Lawmakers, North Carolinians want a practical approach to our economy and our state budget–one that includes not only careful spending cuts but also new revenues that work for our changing economy. Balance is a beautiful thing.”
The Together NC coalition also launched a new website, SpeakNC, which will introduce a new video each week featuring North Carolinians who rely on the hundreds of services in jeopardy of being gutted in this year’s budget.
Finally, the North Carolina Budget and Tax Center released their revenue raising and modernization plan this week. The report describes the current failings of the state’s tax system and offers a comprehensive revenue modernization plan that would update the state’s personal income tax, sales tax, business taxes, and “tax-code spending” practices. ITEP contributed substantial analysis and technical expertise to the report.
In the days leading up through Tax Day (which is on Monday, April 18 this year) there are several things you can do to promote tax fairness. US Uncut plans direct actions targeting particular corporations that have dodged their taxes. U.S. PIRG and other organizations will have activities outside post offices in several states to create awareness about tax dodging by corporations and to press Congress to act.
US Uncut Demonstrations
US Uncut protests corporations like Verizon and FedEx which have dodged all or most of their U.S. income taxes at a time when lawmakers are cutting basic public services to address federal and state budget gaps.
Find US Uncut events near you.
In D.C., US Uncut will host a creative direct action on April 15 at the Verizon store at Union Station with best-selling author of Treasure Islands, Nick Shaxson, who will do a book-signing. On April 17. US Uncut DC and organizers from Power Shift will target a corporate tax dodger and relate tax avoidance to cuts to the EPA's budget. This event is said to have a beach party/tropical tax haven theme.
Events like these will take place all over the country. Find US Uncut events near you.
U.S. PIRG Events at Post Offices
The U.S. PIRG acitivities will take place April 15 and April 18 in at least a dozen states. These events will target people whose minds are very much on taxes as they mail off their federal income tax returns.
See the list below for events in your state and contact information.
April 15, 2011
Event: U.S. Public Interest Research Group will be holding events outside of Post Offices across the country to try to get Congress to address tax dodging corporations with report releases and post-carding.
Locations:
Portland OR, April 15th. Contact Jen Lavelle at jlavelle@ospirg.org, 503.231.4181
AnnArbor MI, April 15th. Contact Megan Hess at mhess@pirgim.org, 734.662.6597
Chicago IL, date TBD. Contact Brian Imus at brian@illinoispirg.org, 312-544-4433 x 210 (federal plaza, outside of main post office)
Hartford CT, April 15th, Contact Jenn Hatch at jhatch@connpirg.org, 860.233.7554
Albuquerque NM, date TBD, Contact Erin Eckelson at erin@nmpirg.org, 505.254.1244
Philly area, date TBD. Contact Megan DeSmedt at mdesmedt@pennpirg.org, 215.732.3747
Phenoix AZ, April 15th. Contact Seren Unrein at sunrein@arizonapirg.org, 602.252.9227
Des Moines IA, Date TBD, Contact Sonia Ashe at sashe@iowapirg.org, 515.282.4193
April 18, 2011
Event: U.S. Public Interest Research Group will be holding events outside of Post Offices across the country to try to get Congress to address tax dodging corporations with report releases and post-carding. U.S. PIRG is partnering with Citizen Action in a number of states: NJ, OR, IL, MI, MO, CT.
Locations:
Trenton NJ, April 18th. Contact Jen Kim at jkim@njpirg.org, 609.394.8155
Seattle WA, April 18th, Contact Lindsay Jacobson at ljacobson@washpirg.org, 206.568.2854 (either at post office downtown, or in front of Microsoft).
Boston MA, April 19th, Contact Dee Cummings at dcummings@masspirg.org, 617.292.4805
Baltimore MD, April 18th, Contact Johanna Neumann at Johanna@marylandpirg.org, (410) 467-9389
St. Lois MO, TBD
The Open Society Foundation is hosting a briefing on tax havens Thursday morning, which will be followed by a Hill briefing that afternoon. The details are below.
April 14, 2011
10:00 a.m.
Event: Civil Society Organization Briefing/Panel.
Location: Open Society Foundation, 1730 Pennsylvania Ave. NW, Washington, D.C.
Summary: Panel discussion to brief civil society organizations on the impact of tax havens on the global economy and the developing world. The panelists will include Mr. Shaxson, author of Treasure Islands, and Rebecca Wilkins, Senior Counsel, Federal Tax Policy, at Citizens for Tax Justice
Refreshments will be served
Please come and invite your friends/colleagues
Contact: Sarah Pray at spray@osi-dc.org
2:30 pm
Event: Hill Briefing
Location: S-115 of the Capitol
Summary: Panel discussion to brief Hill staffers on the impact of tax havens on the American economy, businesses and budgets. The panelists will include Mr. Shaxson, Rebecca Wilkins and Frank Knapp, President and CEO of South Carolina Small Business Chamber of Commerce
Refreshments will be served
Contact: Bonnie Rubenstein at bonnie@ctj.org
New Report from CTJ: House Budget Chairman Paul Ryan's Goal Is to Shrink Government, Not the Deficit
Any rational proposal to balance the federal budget would rely on a mix of spending reductions and revenue increases. But, as explained in a new CTJ report, the House Republican budget plan relies on draconian spending cuts and actually reduces revenue.
The plan is motivated not by a desire to balance the budget but rather by the ideological goal of reducing the size of government to something that would be unrecognizable to Americans today.
The plan’s author, House Budget Committee Chairman Paul Ryan, is intentionally vague about his plans to overhaul the tax system. That may be because his previous attempt to explain how he would reduce the top income tax rate to 25 percent made it clear that the result would be a big tax increase for all income groups except the richest ten percent.
Read the report.
In just the last few weeks, Arkansas and Illinois joined New York, North Carolina, and Rhode Island in enacting legislation requiring some online retailers, like Amazon.com, to collect sales taxes on purchases made by their state’s residents. At least a dozen other states are considering enacting similar policies, and the list of states with a serious interest in this issue seems to be growing by the week. In a new brief, ITEP explains the basics of so-called "Amazon taxes," and discusses the actions that Amazon, Wal-Mart, Home Depot, and other retailers have taken during this new surge of interest in sales tax reform.
Read the ITEP brief.
Earlier this week, ITEP released a new report, Don’t Give Up on Pease: States Can Decouple from Recent Federal Tax Cuts for Wealthy Itemizers.
The report is a companion piece to ITEP’s July 2010 report on the impact of itemized deductions on state revenues. In that report ITEP offered five options for reforming the state treatment of federal itemized deductions. This week's report provides updated data and analysis for one of the recommendations contained in that report: decoupling from the federal repeal of the "Pease" provision.
The Pease provision, named after its Congressional sponsor, reduces the cost and regressivity of certain itemized deductions by limiting their value by up to 80 percent for the very best-off taxpayers.
Unfortunately, Pease was repealed as part of the Bush tax cuts, and this repeal was extended through tax years 2011 and 2012 as part of the federal tax compromise package signed late last year. Unless the 31 states (and DC) that allow federal itemized deductions decouple from this aspect of the compromise package, they will see a modest revenue decrease in both of those years, while their wealthiest residents will receive a bonus state tax cut on top of their already sizeable federal tax cuts.
In news that will warm the hearts of tax justice advocates across the country, Missouri voters in Kansas City and St. Louis overwhelmingly approved ballot initiatives to keep their 1 percent local earnings taxes.
This is a huge blow to wealthy campaign financier Rex Sinquefield, who bankrolled the campaign against these taxes. The St. Louis earnings tax passed with 88 percent of the vote and Kansas City voters approved the tax by a 3-to-1 margin. It’s not every day folks so clearly come out and voice their support for taxes and the vital services they fund.
Mayors of both cities appeared to be gleeful following the election results. St. Louis Mayor Francis Slay said, "I was confident that the people of St. Louis would do the right thing for the future of the city if they were armed with the facts. Regardless of what anyone thought of the earnings tax, it would have been irresponsible to get rid of it without a viable alternative to replace it."
Kansas City, Mayor-elect Sly James said, "It means that this city is going to continue to try and become as efficient as possible, but we're not going to have to do it with one hand tied behind our backs.”
Georgia’s Special Council on Tax Reform recently released recommendations to overhaul Georgia’s tax structure in a way that would improve the state's finances but also shift taxes to Georgians who are less able to pay.
As anticipated, the recommendations were quite sweeping and dealt with every major tax the state levies. The recommendations included a lot of good base-broadening measures, like repealing the state’s generous pension exclusion, eliminating itemized deductions from the personal income tax, and including more services in the sales tax base. The Council also recommended regressive changes, like replacing the state’s progressive income tax with a flat 4 percent rate, adding groceries back to the sales tax, and increasing the cigarette tax.
The Georgia Budget and Policy Institute (GBPI) offered improvements to the Council’s proposal to prevent tax increases on those who could least afford them.
A House committee came up with their own proposal as a substitute to the Council’s initial recommendations. This new plan includes a 4.5 percent flat income tax rate, no corporate income tax rate changes, and no changes to the cigarette tax. Read GBPI’s complete analysis of this substitute proposal.
The substitute hit a snag too. The Atlanta Journal Constitution reported, “A clunky but effective coalition of Democrats, tea partiers and Baptists forced state Republican lawmakers into a desperate attempt to save their troubled tax reform bill.” The bill even caused infighting between an unlikely cast of characters: Georgia tea partiers and the national leader of the anti-tax movement, Grover Norquist.
Now we are hearing that another set of tweaks to the original recommendations from the Special Council on Tax Reform is in the works and will be unveiled next week. According to the Atlanta Journal Constitution, this latest iteration ensures that more Georgians get a tax cut, but the price tag for such “reform” according to the official fiscal note is $220 million. This latest and presumably final attempt (because of the legislative calendar constraints) at reform is expensive and makes the state’s tax structure even more unfair for low-income families.
GBPI concludes, “It is better to do nothing this session and come back next year with true tax reform than pass a bill that gives large tax cuts to the wealthiest Georgians and a few favored businesses interests, resulting in further cuts to what is most needed for the broad business sector to prosper—education and basic infrastructure.” Read the full GBPI statement.
There were high hopes that the Council’s efforts would produce tax reform that would improve the state’s already flawed tax structure, but if the legislation that stems from these efforts doesn’t ensure fair and sustainable tax reform, then it’s not worth passing.
The Boss a Local Hero with Anti-Poverty and Children's Advocates
With a short letter to the editor of his hometown paper, the Asbury Park Press, Bruce Springsteen sided with anti-poverty and children’s advocates, teachers, and other New Jersey residents who oppose Gov. Christie’s cuts-only approach to the state’s budget gap.
The letter was a response to an article about rising poverty amidst budget cuts to the very programs that assist low- and moderate-income families in the state. Springsteen praised the article for being “one of the few that highlights the contradictions between a policy of large tax cuts, on the one hand, and cuts in services to those in the most dire conditions, on the other.”
The letter has forced Governor Christie to spend the past week defending his cuts to critical and core services and his adamant objection to reinstating a tax on New Jersey millionaires.
New Jersey Senate and Assembly Democrats support a plan to raise $600 million in revenue by instating a surcharge on households with taxable income of more than $1 million (the households impacted make up less than half of one percent of the state’s taxpayers).
A similar policy was in place temporarily in 2009. Democrats passed a bill to reinstate the surcharge last summer, but the governor vetoed the bill and has vowed to do the same this year.
During the governor's ABC News interview this week, Diane Sawyer said that Springsteen "has written a letter in which he says that it's simply a contradiction between your large tax cuts including for really rich people and doing things that change education for the kids that affect teachers, cut the services to those in the most dire conditions.”
Christie responded that Springsteen is a liberal who “believes that we should be raising taxes all the time on everyone to do all the things that he'd like to see government do.”
Reason to Believe in the Role of the State
Of course, Springsteen is right that in a time of economic distress, when demand for state-funded services has increased alongside growing poverty, states more than ever need to focus on education, assistance to families and communities in need, and keeping the public healthy and safe, which will in turn support economic recovery. To do this, New Jersey must have adequate revenue.
Christie Stands Up for the Mansion on the Hill
Christie went on to suggest that it was the previous New Jersey governor, Jon Corzine, who cut taxes on millionaires, which is a completely false statement. When Corzine was governor, he enacted a temporary increase on millionaire’s that expired after tax year 2009. As previously noted, a bill passed the Senate and Assembly last year to reinstate the tax, but Christie vetoed it and continues to voice opposition to any tax on millionaires.
When Sawyer pressed him more on the issue, Christie argued that the tax would “only raise $600 million.” While $600 million may be only loose change to Christie, that money would go a long way to the hard-working New Jersey families struggling to make ends meet in the face of more and more cuts to the very services they depend on.
The honest truth is that Christie would rather shrink government at the expense of the vast majority of New Jerseyans than ruffle the feathers of millionaires.
Elected officials in California and Florida face unprecedented fiscal challenges at both the state and local levels. Yet rather than working to reduce their budget shortfalls, policymakers in each state are doing their best to dig their budget holes deeper by offering new company-specific tax breaks to keep footloose corporations from moving their operations elsewhere.
A front-page article in today's New York Times offers some insights into this seemingly irrational behavior. Focusing on the battle between Kansas and Missouri lawmakers over the future headquarters of movie-theater chain AMC Entertainment, the article describes a system of extorting tax breaks that is viewed by everyone involved — from lawmakers to the beneficiaries of the tax breaks — as a pointless zero-sum game.
AMC's chief executive officer, poised to receive lavish tax handouts from the two states, wonders aloud "whether this is an appropriate role for government to be playing," and a lawyer whose job involves seeking out tax breaks for corporate clients describes it as "horrible public policy."
This situation won't be news to anyone who's followed the work of Greg LeRoy and the folks at Good Jobs First over the years. LeRoy's "Great American Jobs Scam" provides an excellent summary of the cottage industry of site location consultants that has emerged to facilitate the "economic war between the states" that the Times article describes. But the battle over AMC is only one example of egregious tax giveaways from the past week.
In Florida, Darden Restaurants (parent company of the Red Lobster and Olive Garden restaurant franchises) is pushing for new tax breaks. The Orlando Sentinel reports that this Fortune 500 company, which generated $7.1 billion in global sales during its most recent fiscal year, is pushing for legislation that would allow the millions in corporate income tax credits it already receives in Florida to be applied to its sales tax liability. This would save the company as much as $5 million.
Fortunately, the tax legislation has stalled as its key sponsor, Republican State Representative Chris Dorworth, read the ‘revelation’ in the Orlando Sentinel that his own tax break legislation would only apply to Darden Restaurants. He then decided he could not support his own legislation as written.
Meanwhile, San-Franciso-based Twitter has played tax break hardball with city officials for months, threatening to move to Brisbane if it does not receive substantial tax breaks. Despite facing a tough $350 million deficit and dramatic cuts to health services, the San Francisco Board of Supervisors capitulated to Twitter’s demands this week, passing a $22 million payroll tax break for the company on Tuesday. Roxanne Sanchez, the president of Service Employees International Union Local 1021, opposed the measure, saying, “It’s a taxpayer handout to a $10 billion company at a time we’re cutting basic city services.”
As today's Times article reminds us, corporate tax breaks all too often create benefits for one jurisdiction at the direct expense of another, with no net benefit for the US economy overall. And tax breaks targeted to a specific company set an especially dangerous precedent. As an editorial in the San Francisco Guardian put it, “once you go down the path of caving in to corporate blackmail, it never ends.”
A USA Today op-ed written by CTJ's Steve Wamhoff argues that we should approach corporate tax reform the way President Reagan did in 1986. He closed enough tax loopholes to raise new revenue from corporations, even while lowering the corporate tax rate.
Earlier this week, the Institute on Taxation and Economic Policy released a new report, Topsy-Turvy: State Income Tax Deductions for Federal Income Taxes Turn Tax Fairness on its Head. The report highlights an unusual tax break that currently exists in only six states (Alabama, Iowa, Louisiana, Missouri, Montana, and Oregon): a state income tax deduction for federal income tax payments. Collectively these states stand to lose over $2.5 billion in tax revenues in 2011 due to these tax breaks, with losses ranging from $45 million to $643 million per state.
Unfortunately, the high price tag of this tax giveaway yields remarkably little benefit to low-and middle-income families. In states where the deduction is uncapped, the best off 1 percent of taxpayers enjoy up to one-third of the benefits from this provision, while the top 20 percent enjoy up to 80 percent of the benefits. Wisely, several states have eliminated or scaled back this expensive and poorly targeted deduction in the last few years. North Dakota, Oklahoma, and Utah have all eliminated the deduction, and Oregon lawmakers voted recently to further limit their deduction.
Deductions for federal income taxes seriously undermine the adequacy and fairness of state income taxes. These deductions also leave state budgets vulnerable to changes in federal tax law. As the recession lingers and states look to enhance their long term fiscal solvency, elected officials in states with a deduction for federal income taxes paid have a real opportunity to close fiscal shortfalls in a way that has minimal impact on low-and middle-income families.
State lawmakers across the country have heard again and again that wealthy taxpayers will pull up stakes and move in response to just about any progressive state tax increase. This couldn't be further from the truth.
Anti-tax policymakers seeking an excuse to eviscerate the progressive personal income tax sometimes assert that its alleged volatility makes budgeting harder for state lawmakers, and that this volatility leads directly to the sort of difficult spending and tax decisions lawmakers around the nation are confronting today. A recent article in The Wall Street Journal by the often-sensible Robert Frank adds (possibly inadvertently) fuel to the fire for those seeking to make this "volatility" argument, giving the clear impression that California's budgetary woes can be laid at the door of that state's excessive reliance on boom-or-bust capital gains taxes. (No-income-tax states Nevada and Florida can breathe a sigh of relief -- presumably, the ongoing bitter budget battles in those states would be even worse if either state levied an income tax of any kind.)
Yet, as a new ITEP report shows, the "income tax volatility" fears reinforced by Frank's article are misleading in a number of ways. In many states, sales taxes have plummeted as rapidly as income taxes during the recent recession, and academic research suggests that on average, state income taxes are probably not meaningfully more volatile than sales taxes over the long haul. Moreover, the same research shows that progressive income taxes are a far more sustainable and reliable funding source, over the long term, for needed public investments than the other major revenue sources available to states. Finally, the "volatility" argument is usually made in states (like California) in which rainy day funds are either unprotected or inadequately funded to begin with.
Read the ITEP report
Earlier this year, Illinois took a major step toward balancing its budget for the upcoming fiscal year by increasing its flat-rate income tax from 3 percent to 5 percent. Even at that time, however, lawmakers were under no illusion that this important step had solved the state's fiscal woes. A new report from the Center for Tax and Budget Accountability provides a sobering view of just how big a budgeting challenge Illinois lawmakers still face. Among the findings of the CTBA report is that even after the recent tax hike, Governor Pat Quinn's budget proposal for fiscal year 2012 would leave the state with a revenue shortfall of over $1 billion.
This report was released at CTBA's annual fiscal symposium last week. The symposium, aptly entitled "$7 Billion in New Revenue: Now What Do We Do?", included illuminating discussions of a number of spending and tax reform strategies that could help the state deal with its remaining short-term budget deficits, while simultaneously strengthening the state's long-term fiscal position. Keynote speaker and Illinois Senate President John Cullerton reiterated his previous public statement that he viewed the state's costly and regressive income tax exemption for retirement income as a tax break worth examining as part of this process. And a new ITEP report released to coincide with ITEP staff's participation in this symposium, "Should Illinois Tax Retirement Income?", confirms Cullerton's view. The report shows that this one tax break costs Illinois almost $1 billion a year -- roughly the size of the state's remaining fiscal shortfall.
Illinois lawmakers took an important step earlier this year to pay for needed public services in the short run -- but it's important to recognize that this year's legislative actions to date have done virtually nothing to achieve the structural tax reforms needed to ensure the long-term sustainability of the state's tax system. ITEP's report -- and Senator Cullerton's willingness to identify the costliest income tax break in Illinois as fair game -- clearly identifies one important strategy for achieving these long-term reforms.
A slew of conservative commentators took aim this week at Sarah Palin for her acceptance of a $1.2 million film tax credit that she herself signed into law in Alaska for the production of the TLC reality show “Sarah Palin’s Alaska.”
The Tax Foundation, for example, pointed out in a short blog post that accepting this substantial government subsidy (worth about a third of the production costs) may not square with Palin’s own small-government ideology.
Timothy Carney went further in the conservative Washington Examiner, saying that “Palin's views on the proper role of government becomes more flexible as it comes closer to her own interests.”
Jim Geraghty, a commentator for the conservative National Review added that there is little doubt that there is a contradiction between supporting government funding for reality shows while at the same time advocating against funding of PBS, NPR, and the National Endowment for the Arts.
For her part, Palin argued in a response posted in full on the conservative Daily Caller that there was no conflict of interest because she had no idea when signing the legislation that she would benefit from it years later. She added that the subsidy does not contradict her small government philosophy because she has apparently always argued that “government can play an appropriate role in incentivizing business,” instead of “bureaucrats burdening businesses and picking winners and losers.”
As the Tax Foundation, the Center on Budget and Policy Priorities, and others have pointed out, however, film tax credits are both a horrible way of "incentivizing business," and a perfect example of government picking the film industry as a winner, while making most other taxpayers losers by default.
Furthermore, Palin's decision to enact the film tax credit in the first place shows how out of whack her priorities were as the Governor of Alaska. Perhaps the $1.2 million dollars from the film tax credit she just received could have been better spent restoring the $1.1 million in cuts to emergency programs serving troubled youths that she also made in 2008, for example.
After passing the Arizona House and the Arizona Senate’s tax-writing committee, a sharply regressive flat tax bill died a sudden death this week when its sponsor admitted that he needed to address a number of flaws in the legislation. Data from ITEP and from the state’s Department of Revenue played a vital role in demonstrating one of those flaws: its extreme unfairness.
Rep. Steve Court’s bill (HB2636) would have broadened Arizona’s income tax base significantly, and used the revenue generated by this change to replace the state’s graduated rate structure with a super-low, 2.13 percent flat tax rate. Some of the base-broadening measures contained in the bill – like the elimination of itemized deductions – deserve real consideration. But Rep. Court’s bill also eliminated the standard deduction, the personal exemption, and the low-income family tax credit. As a result, had the bill passed, Arizona’s income tax would have been left with basically no mechanism in place for ensuring that poor families would not be taxed deeper into poverty. Moreover, the bill’s attempt to abandon the state’s graduated rate structure in favor of a flat tax would have resulted in exactly the type of regressive impact you’d expect.
Armed with data provided by ITEP, the Arizona Children’s Action Alliance (CAA) played a key role in injecting the fairness issue into the debate. Late last week, The Arizona Republic ran a story explaining that the bill would raise taxes for the vast majority of Arizona families, while cutting taxes only for those at the top of the income distribution. The sponsor of the legislation refused to share the Department of Revenue’s full detailed analysis of the bill, so the Republic cited ITEP’s numbers showing that while most families would see tax hikes around $200 per year, those fortunate families with incomes between $152,000 and $354,000 would see their tax bills cut by $900 or more. Families earning over $354,000 would have seen even larger tax cuts.
Following the release of that article, The Arizona Republic’s editorial board published a piece last Sunday calling the bill “blatantly unfair,” and urging the Senate to reject it. Other groups, including most notably the real estate lobby, also objected to the bill on the grounds that it would wipe out their favorite tax preferences. A few days later, the bill’s sponsor declared it dead for this year’s session, though he’s vowed to try again next year.
Lawmakers in almost every state (44 according to the Center on Budget and Policy Priorities) must close significant budget gaps again this year. Despite these continuing fiscal woes, a variety of costly tax cuts -- from reductions in corporate tax rates to new capital gains breaks -- have been proposed alongside massive spending cuts in many of these states.
But West Virginia and Arkansas are among the six states not reporting budget gaps this year -- a fact which has provided them with somewhat more flexibility to consider reducing taxes. In this context, both Arkansas and West Virginia lawmakers recently enacted reductions in their states' sales taxes on groceries. As of July 1, 2011, Arkansas’ sales tax rate on groceries will be lowered from 2 percent to 1.5 percent. West Virginia’s rate will drop from 3 percent to 2 percent starting January 1, 2012. These cuts were championed by Governors Beebe and Tomblin as a means to provide immediate assistance to taxpayers (in particular low-income households), and as a way to stimulate their states' economies.
But reducing the sales tax on groceries is not the most targeted approach available to state lawmakers looking to support working families. The poorest 40 percent of taxpayers only receive about 25 percent of the benefit from exempting groceries in most cases. The rest goes to wealthier taxpayers who can more easily afford to pay the sales tax on groceries. Increasing Arkansas’s refundable state Earned Income Tax Credit (EITC) or enacting a state EITC in West Virginia would have been a better targeted alternative for ensuring that the tax cuts would reach low- and middle-income working families. However, when viewed alongside the sharply regressive and completely unaffordable tax cuts being considered in so many other states, Arkansas and West Virginia lawmakers should receive some credit for at least enacting progressive tax cuts that benefit low- and moderate-income households the most as a share of their incomes.