CTJ, Heritage Foundation, Tax Foundation and Others AGREE that the 60 Former Hill Staffers Lobbying for Repatriation Amnesty Are Wrong

Bloomberg reports that the corporate coalition promoting a tax amnesty for offshore profits that U.S. corporations repatriate to the U.S. has hired 160 lobbyists, including an astounding 60 people who formerly served as staff to current members of Congress.

This breathtaking chart illustrates how everyone from President Obama’s former communications director to the Democratic Finance Committee chairman’s former chief of staff is now being paid by corporations to promote the repatriation amnesty.

Even more remarkable is that the organizations that study tax policy and agree on nothing have come to a consensus that this proposal should be rejected. Groups like Citizens for Tax Justice and the Center on Budget and Policy Priorities have been joined by the anti-tax Tax Foundation and the extremely conservative Heritage Foundation in opposing the proposal.

Naturally, the consensus ends there. For example, CTJ explains that the way to really fix our international tax rules is to remove the tax break that causes U.S. corporations to shift profits and operations overseas in the first place (“deferral”) while the Tax Foundation argues instead for permanently exempting offshore corporate profits from U.S. taxes. “However,” the Tax Foundation explains, “experience shows that the [repatriation] holiday has been ineffective policy.”  

The Heritage Foundation is similarly unimpressed with the proposal, saying:

“The issue here is not whether tax cuts are good or bad per se, but whether this particular tax cut would increase domestic employment and domestic jobs. Again, the answer is that it would not. . . Are these repatriating companies capital-constrained today? No, they are not. These large multinational companies have enormous sums of accumulated earnings parked in the financial markets already.”

Other organizations that have published analyses extremely critical of the proposal include the Economic Policy Institute, the Tax Policy Center, the Center on Budget and Policy Priorities, and the Center for Economic and Policy Research.

The proposed repatriation amnesty, which proponents call a “repatriation holiday,” would temporarily remove all or almost all U.S. taxes on the profits that U.S. corporations bring back to the U.S. from other countries, including profits that they shifted to offshore tax havens using accounting gimmicks and transactions that only exist on paper.

Here’s what we have said about this debate:

Data on Top 20 Corporations Using Repatriation Amnesty Calls into Question Claims of New Democrat Network

“The twenty companies that repatriated the most offshore profits under the temporary repatriation amnesty enacted by Congress in 2004 now have almost triple the amount of profits ‘permanently reinvested’ (i.e., parked) overseas as they did at the end of 2005.”

Call on Congress to Oppose the Amnesty for Corporate Tax Dodgers

1. Another repatriation amnesty will cost the U.S. $79 billion in tax revenue according to the non-partisan Joint Committee on Taxation.

2. Another repatriation amnesty will cost the U.S. jobs because it will encourage corporations to shift even more investment offshore.

3. The proposal is an amnesty for corporate tax dodgers because those corporations that shift profits into tax havens benefit the most from it.

4. Congress enacted a repatriation amnesty in 2004, and the benefits went to dividend payments for corporate shareholders rather than job creation, according to the non-partisan Congressional Research Service. Many of the corporations that benefited actually reduced their U.S. workforce.

Here’s more from CTJ on the right way to fix our international tax rules:
Congress Should End “Deferral” Rather than Adopt a “Territorial” Tax System

In 2000, when the economy was strong and the state appeared to be flush with funding, Massachusetts taxpayers voted to incrementally roll back the personal income tax rate from 5.75 to five percent.  In 2002, the state legislature halted the rollback at 5.3 percent in response to an economic downturn with a provision that it could resume if revenues exceeded 2.5 percent growth.  The fiscal restraint inherent in this provision is admirable, but did not quite accomplish the legislature’s primary goal – preventing unaffordable tax cuts when the state can least afford them.

This year, it looks like the tax rollback will resume since revenues are expected to increase between 4 and 5 percent over 2010.  But these figures actually represent a decrease in revenue when compared to pre-recession levels.  In 2008, tax revenues were nearly $21 billion.  That number dropped to just over $18 billion in 2009, and increased incrementally to $18.5 billion in 2010.  This year’s projections put the state’s revenue at slightly over $20 billion, leaving the state less well-off than it was in 2008.

The pinch on the state’s budget has been felt by almost every Massachusetts resident.  Sweeping funding cuts in education, law enforcement, health care, housing, and transportation have increased the burden on low- and middle-income families year after year.  Facing a $1.9 billion budget gap in 2012, this fiscal year’s budget also includes drastic spending cuts.  The largest of these cuts include carving out $63.8 million from higher education funding, $316.7 million from MassHealth (the state’s Medicaid program), $56.8 million from transportation funding and $100.5 million from the budget for courts and legal assistance (primarily reducing the state’s indigent defense system).  "What I've seen in my district is continued cuts to education, environmental aid and affordable housing," said State Senator Jamie Eldridge of Acton. "People are really talking about how the budget cuts that have already happened are very negative."

Proponents of the tax rollback refer to the reduction from 5.3% to 5.25% as “miniscule.”  Yet for 2012, that reduction represents $114 million in lost revenue for the state.  Obviously, that is not enough to make up for the state’s $1.9 billion budget shortfall, but it could stave off further tuition spikes in the state university system and mitigate planned transit fare hikes. 

Massachusetts also has an opportunity to learn from its mistakes.  When the economy was flush in the early 90’s, Massachusetts dropped its tax rates, then spent years trying to fill in its budget gaps.  The same pattern has developed again, made worse by a deep and unrelenting recession.  Using the first glimpses of economic recovery as an excuse to lower taxes yet again is imprudent.  Instead, the state should use the revenue surplus to revoke a portion of the drastic cuts implemented in this year’s budget, or at the very least, retain the surplus to stave off future budget shortfalls.

Photo of Massachusetts State Senate Chambers via Cody Hanson Creative Commons Attribution License 2.0

This week, the Associated Press is reporting that some lawmakers in Olympia “have been quietly exploring the logistics of a special election in February 2012 that could ask state voters to raise taxes to help fill another budget shortfall.” 

This is a very promising development. Lawmakers from Washington State to South Carolina and any state with a budget crunch should be exploring straightforward revenue raising options like this. Balancing budgets by cuts alone undermines education, health care, public safety and the myriad of other important services that government provides its constituents.

A less promising development, meanwhile, is that Governor Christine Gregoire has called the legislature back for a special session in November with the goal of finding $2 billion in budget cuts, on the heels of $4.6 billion they already passed earlier this year.

The Washington State Budget and Policy Center (WSBPC)  reminds us that there is a lot at stake in this special session. Already, state agencies have submitted budgets that reflect 10 percent across the board reductions.  Some of the real life implications of these reductions would be: over 18,000 fewer students enrolled in community and technical colleges, the loss of health care for 25,000 children, and the elimination of food assistance for 14,000 low-income legal immigrants.

WSBPC gets it right when it says, “it doesn’t have to be that way.  Policymakers can and should raise additional resources through a combination of eliminating wasteful tax breaks and temporarily increasing general tax rates or sin tax rates.

Given the harsh spending cuts that are likely coming down the pike, it’s imperative that lawmakers and the public remain vigilant and explore revenue raising opportunities in both the legislature and through the initiative process.

Photo of Washington State Capitol via Alan Cordova Creative Commons Attribution License 2.0

The question from a Tea Party voter was this: “Out of every dollar I earn, how much do you think that I deserve to keep?”

It came during the Fox News and Google Republican presidential candidates debate last Thursday, and was directed at Minnesota Rep. Michele Bachmann.  It was her second crack at the question, so she’d had plenty of time to think it through. And her reply was this: “I think you earned every dollar. You should get to keep every dollar you earn.”

A few sentences later, however, the Congresswoman added, “Obviously, we have to give money back to the government so that we can run the government….”

The anti-tax orthodoxy has become so rigid that candidates like Bachmann, who also chairs the House Tea Party Caucus, must try to reconcile the position that no American should have to pay taxes even when they work for the government who collects those taxes and know perfectly that taxes are required to “run the government.”

Bachmann may have had the most telling (and head-exploding) tax policy moment during the last weekend’s three day series of major Republican presidential candidate events, but she was not alone among the candidates in stumbling over tax issues.

Former Utah Governor Jon Huntsman faced a tough question from the debate moderator Megyn Kelly who asked, “Is there any scenario under which you could side with the 66 percent of people who believe that it is a good idea to raise taxes on millionaires?” Despite his status as most moderate Republican candidate this season, Huntsman delivered the prefabricated anti-tax response: “This is the worst time to be raising taxes, and everybody knows that.”

Clearly, not “everybody” knows that. As Kelly’s question suggested, 66% of American’s support increasing taxes on the wealthy. Hewing to their anti-tax orthodoxy, Huntsman and the rest of the GOP field find themselves at odds with two thirds of the American public.

Former New Mexico Gov. Gary Johnson made his first major GOP debate appearance memorable by using his limited speaking time to call twice for replacing our current income tax system with the, so-called, Fair Tax, which is essentially a 30% national sales tax. As the Institute on Taxation and Economic Policy showed in its report on the Fair Tax, the plan is both unworkable and extremely regressive.

Although Gary Johnson is probably the most forthright in his support of the Fair Tax, at least half of the Republican field (and most notably current front-runner Texas Governor Rick Perry) have come out in favor of it. The one exception is former Massachusetts Governor Mitt Romney, who came out against the Fair Tax in the last debate, noting, quite sensibly and correctly, that it would cut taxes for the rich while increasing them on middle income families.

Former CEO of Godfather’s Pizza Herman Cain had a strong weekend, winning the Florida Straw poll with a surprising 37 percent of the vote. ABC News notes that his success was partially due to his ability to ‘strike a chord’ with his “9-9-9” tax plan, which he also touted proudly during the debate. His plan would replace the entire federal tax system with a 9 percent national sales tax, 9 percent income tax, and 9 percent business flax tax. As we’ve pointed out before, every aspect of this gimmicky and regressive plan would mean higher taxes on lower and middle income families and much lower taxes on the wealthy.

Former House Speaker Newt Gingrich took the debate as an opportunity to – and not for the first time – rewrite fiscal history by claiming that his ‘leadership’ led to four consecutive years of balanced budgets. We’ve said it once, we’ve said it twice, and we’ll say it again: sorry Newt, you never balanced the budget.

Watch this space for reviews of all things tax as the political campaign season kicks into high gear.

Oklahoma, like most states, has many hundreds of tax expenditures, a.k.a. “spending in the tax code.”  Actually the state offers about 450 special tax credits, deductions or exemptions designed to benefit a specific activity or purchase and, in most cases, the interest group behind it – usually in the name of economic development. There is a growing awareness that these tax expenditures, despite their high costs to the state, aren’t monitored very well.  In fact, no one seems to even know how much the state spends on them. In an attempt to rectify the situation, Oklahoma legislators have formed the Task Force for the Study of State Tax Credits and Economic Incentives. The Task Force is taking a hard look at the breaks, deductions and exemptions Oklahoma offers and asking whether the state really benefits from each of these costly expenditures in terms of economic development and the general public good.

The task force met over the summer and will continue to meet until they present their recommendations around the end of the year. After its first meeting, the Oklahoma Policy Institute reported some good news: “The meeting made clear that it will be a long and sometimes contentious process, but that this Task Force is serious about meeting the challenge. “ Legislators appear to be coming to terms with the difficult political reality that every tax credit or tax expenditure has supporters. State Rep. David Dank was recently quoted saying, “It never ends. The simple truth is that we could exempt almost everything from taxation. And then I suppose we could apply for a historic preservation tax credit to turn this state Capitol building into a casino or something because state government would be broke and out of business.”

The Oklahoma Policy Institute offers a superb report on tax expenditures in the state and recommendations for change. The Institute has long called on lawmakers to ensure that “the state is allocating public resources in the best possible fashion” and the Task Force, if successful, will bring Oklahoma closer to a smart, public interest tax code.  (As long as the chairs fail in their efforts to abolish the personal income tax, but that’s another topic.)

For more on tax expenditures and other games legislators play in the name of economic development read this ITEP brief. To read about the tax expenditure problem on the federal level take a look at this CTJ report.  And if you’re really into tax policy, you can follow the Task Force meetings here, where a local news consortium is live blogging every session! The next meeting is October 20^th.

Photo of Oklahoma Capitol Dome via BJ McCray Creative Commons Attribution License 2.0

The DC Council voted on Tuesday to temporarily increase the marginal income tax rate on those making over $350 thousand a year from 8.5% to 8.95%, in a move that will raise an estimated $106 million in revenue over the next 4 years (when the measure will sunset).

Due to harsh economic times, the DC Council has faced a difficult task in balancing the District’s budget, causing it to make $108 million in cuts to critical human services support and other low income programs in the fiscal 2012 budget.

A modest tax increase on high income taxpayers may seem like a relatively straightforward step for the Council to take in a time of such austerity, yet the vote was highly contentious, with the measure just barely passed, seven to six

As part of the deal, supporters of raising taxes on high income earners agreed to undo a recently added tax code provision that progressive tax advocates liked.  Just this summer, the Council voted to start taxing the interest that individuals earn on non-DC municipal bonds they own, no matter how long ago the bond was purchased. The deal eliminates the retroactivity and means that only out of state bonds purchased after this year will no longer prove their District owners a tax break.  Although it also means a decrease in the amount of revenue generated, the elimination of the tax exemption on bond interest going forward will enhance the progressivity of DC’s tax system (just like it has for every other state).

DC’s tax increase on high income taxpayers is still only a small step toward making DC’s upside down tax system fairer. According the Institute on Taxation and Economic Policy’s Who Pays report, the middle 20% of taxpayers (those making between $33 and $57 thousand) pay on average 10.5% of their income in District income and other taxes, while the top 1% of taxpayers (those making over $1.5 million) pay an average of only 6.4%.

This small but positive step toward more progressive taxation builds on other smart revenue increases enacted by the DC Council in June, such as the implementation of combined reporting for businesses and setting budget limits on the value of itemized deductions.

For Immediate Release: September 22, 2011
Contact: Anne Singer, anne@ctj.org, 202-299-1066 x27

How 47 Governors Can Mitigate the Worsening Poverty in Their States:
Four Tax Reforms That Help the Working Poor

Washington, DC – With today’s Census data showing that 47 states now have more citizens living in poverty than a year ago, it is remarkable that four states (ME, MI, MN, WI) have recently raised taxes on the working poor by reducing targeted tax credits, and seven states (AK, AL, FL, MS, NV, TN, TX) offer no anti-poverty tax credits at all. Coinciding with the Census Bureau release of 2010 state level data on poverty, today ITEP releases its comprehensive state-by-state review of tax policies that can make the difference between falling behind and getting ahead for 46.3 million low income Americans.  The report, “State Tax Codes As Poverty Fighting Tools: 2011 Update on Four Key Policies in All 50 States,” is online at http://www.itepnet.org/poverty2011.php.

“Lawmakers try to leverage the tax code to do all kinds of things – lure business, reduce health costs – but too few use it to ease the effects of poverty,” said Matthew Gardner, ITEP’s Executive Director. “Our report shows each state what they’re getting wrong and how they can make it right.”

Among the resources state legislators and governors have at their disposal to improve the lives of their constituents, state tax codes offer four key policy tools lawmakers can easily implement to help lift families out of poverty: Earned Income Tax Credits; property tax “circuit breakers;” targeted low income tax credits; child-related tax credits.

A 2009 ITEP analysis shows that the lowest earning 20 percent of taxpayers paid 10.9 percent of their income in combined state and local taxes (income, property, sales, etc.). By contrast, the wealthiest one percent spent less than half that, just 5.2 percent of their income, on state and local taxes.  Even in states with graduated income taxes, heavy reliance on sales and excise taxes means than most states’ overall tax systems are more expensive for low income than for high income citizens.

“Targeted tax credits are like economic life lines for people who are struggling,” said Gardner. “The new Census report shows that now is the worst possible time for states to pare back these credits and makes it all the more urgent to implement them.”

“State Tax Codes As Poverty Fighting Tools” reviews four simple tax fixes and how they can be smartly designed and quickly implemented to reduce the proportion of income spent on taxes for those families and individuals state lawmakers choose to target. 

Founded in 1980, the Institute on Taxation and Economic Policy (ITEP) is a non-profit, non-partisan research organization, based in Washington, DC, that focuses on federal and state tax policy. ITEP's mission is to inform policymakers and the public of the effects of current and proposed tax policies on tax fairness, government budgets, and sound economic policy. ITEP’s full body of research is available at www.itepnet.org.

The Institute on Taxation and Economic Policy (ITEP) offers a series of Policy Briefs designed to provide a quick introduction to basic tax policy ideas that are important to understanding current debates at the state and federal level.  This week, with the unveiling of grim figures from the Census Bureau describing how poverty has increased in 47 states compared to last year, we are featuring updated policy briefs describing two critical anti-poverty tax policies. Both are immediately available to lawmakers at the state level seeking to mitigate the effects of poverty for their constituents.

• Reducing the Cost of Child Care Through Income Tax Credits
• Property Tax Circuit Breakers

In the past year, Missouri lawmakers have grown increasingly skeptical about the effectiveness of business tax breaks in encouraging economic development. But the bad news is that during an ongoing special legislative session, some lawmakers have been eager to enact massive new tax breaks for a proposed cargo hub, optimistically dubbed “Aerotropolis,” to be located at the St. Louis airport, which is meant to lure overseas cargo shippers to Missouri.

With no apparent irony, some lawmakers want to use the revenues from repealing existing ineffective tax subsidies to pay for the proposed new “Aerotropolis” package. Fortunately, the same lawmakers who have voiced their opposition to existing subsidies are building a critical mass of skepticism about the new proposal. As Senator Jason Crowell put it, "We've come to a pretty firm conclusion, I believe, that the Missouri Senate will partner with you to create jobs. It will not partner with you to subsidize activity that may or may not create jobs."

It’s looking like some scaled down version of the original package is what will pass this month’s special session.

One other promising development: so far, the circuit breaker that protects low income and senior renters has survived, and efforts to repurpose that modest program’s costs for more business tax breaks have so far failed.

Photo via AFL CIO Creative Commons Attribution License 2.0

Obama’s Plan a Massive Tax CUT Despite GOP Claims of “Largest Tax Hike in Modern History”

While House Republican Leader Eric Cantor’s staff and others have called President Obama’s jobs and deficit plan the “largest tax hike in modern history,” the unfortunate truth is that it actually cuts taxes overall and increases the deficit.

There is much to like about the plan, as explained below. Citizens for Tax Justice applauds President Obama’s vow yesterday to, in his words, “veto any bill that changes benefits for those who rely on Medicare but does not raise serious revenues by asking the wealthiest Americans or biggest corporations to pay their fair share.”

Unfortunately, however, President Obama’s proposals would ultimately reduce taxes far more than raise them, compared to current law.

The tables in the back of the President’s 80-page plan quietly remind us that the total cost of making permanent the Bush tax cuts would be $3.867 trillion over the next ten years, but the President says he will “raise revenue” by making permanent “only” $3.001 trillion of these tax cuts. We certainly applaud the President for refusing to extend the $866 billion of these tax cuts that would go exclusively to those with adjusted gross incomes in excess of $250,000, but it’s difficult to call this deficit reduction.

The President’s claims that he is raising revenue are based on the common, but misleading, practice of comparing a given proposal to an alternative “baseline” that assumes Congress has already increased the deficit enormously by making permanent the Bush tax cuts. By this logic, we do not see what stops the President from comparing his plan to a baseline that assumes Congress repealed the federal income tax, in which case his plan would “raise revenue” even more successfully.

Setting aside the $866 billion that the President proposes to “raise” by not extending that part of the Bush tax cuts, the net effect of the other tax provisions in the plan (excluding the parts used to help pay for his proposed new jobs provisions) is to raise only $259 billion over the next decade. That means that, overall, the President is proposing more than $2.7 trillion in deficit-increasing tax cuts through fiscal 2021!

The cost of these tax cuts is even greater when accounting for the additional interest payments on the national debt that will result.

Revenue could be raised by closing corporate tax loopholes, but unfortunately the President’s plan calls for a reform of the corporate income tax that is “deficit-neutral.” We believe that most, if not all, of the revenue-savings resulting from closing corporate tax loopholes should go towards deficit-reduction or job creation and public investments, rather than paying for more breaks for corporations. (See one-page fact sheet on why corporate tax reform can be “revenue-positive.”)

There are some good ideas in the President’s tax proposals that would raise revenue compared to current law and that would ask those whose incomes have grown the most in recent years to pay something closer to their fair share. This includes his proposal to limit deductions and exclusions for the wealthy, which we estimate would affect only 2.3 percent of taxpayers. (See related report.) Certainly Congress should pursue these types of tax provisions and loophole-closing measures.

But ultimately, our nation is going to need significantly increased revenues to pay for essential public programs and services. Starting off with a gigantic tax cut that makes 80 percent of the Bush tax cuts permanent, as Obama proposes, only digs our deficit hole deeper — and makes big reductions in Social Security and Medicare even more likely.

On Monday, September 19, President Obama may offer a corporate tax reform plan along with his deficit reduction proposals. Previous statements from the administration indicate that the corporate tax reform plan would be "revenue-neutral," meaning it would raise no new revenue to reduce the budget deficit or meet the growing needs of the nation.

In May, U.S. Senators and Representatives received a letter from 250 organizations, including non-profits, consumer groups, labor unions and faith-based groups from every state, rejecting this "revenue-neutral" approach to corporate tax reform. These organizations call on Congress to close corporate tax loopholes and use the revenue saved to address the budget deficit and fund public investments.

Read the letter.

As the letter explains, “Some lawmakers have proposed to eliminate corporate tax subsidies and use all of the resulting revenue savings to pay for a reduction in the corporate income tax rate. In contrast, we strongly believe most, if not all, of the revenue saved from eliminating corporate tax subsidies should go towards deficit reduction and towards creating the healthy, educated workforce and sound infrastructure that will make our nation more competitive.”

Citizens for Tax Justice has called for revenue-positive tax reform in a recent op-ed in USA Today, a report explaining why Congress can raise more revenue from corporations, and in CTJ director Bob McIntyre's recent testimony before the Senate Budget Committee.

CTJ also released a report in June focusing on 12 major profitable corporations that collectively paid an effective U.S. tax rate of negative 1.5 percent on their U.S. profits over the past three years.  

When House Speaker John Boehner said on Thursday that “tax increases destroy jobs” and are not a “viable option” for the Joint Select Committee tasked with reducing the budget deficit, he was probably unaware that a major business lobbyist and a high-profile conservative economist had admitted a day earlier that the last significant tax increases did not hurt the economy.

Bill Rys of the National Federation of Independent Businesses (NFIB) tried to explain to the Senate Finance Committee on Wednesday his view that tax increases today would hurt the economy even though the economy thrived after the 1993 tax hikes enacted under President Clinton.

“In the 1990s,” he said, “we had a dot.com boom, we had Y2K, a lot of money being spent there, so we had much stronger economic winds pushing, pushing, which we don’t have right now.”

The obvious circularity of the argument seemed to go unnoticed by members of the committee. Rys said, in essence, that the tax increases of the 1990s did not prevent economic growth because we had economic growth in the 1990s.

Stephen Entin of the conservative Institute for Research on the Economics of Taxation, made a similar comment to explain why the Clinton tax increases did not cause the economic stagnation that he predicts would result from tax increases today.

“The Clinton marginal tax rate increases were fairly modest and we were coming out of a downturn. The growth was going to look good anyway.”

Most of the tax increases proposed today, which Entin believes will lead to a reduction in GDP, actually would just allow some rates to revert to the Clinton-era rates, so it’s surprising that he calls the Clinton tax increases “fairly modest.”

Even more surprising is his comment that the Clinton tax increases were not damaging because “we were coming out of a downturn.” No one asked the obvious follow-up question: If tax increases did not prevent a recovery in the 1990s, why would they prevent a recovery today?

Entin went on to say that what also allowed the economy to grow in the 1990s was the capital gains cut signed into law by President Clinton in 1997, which reduced the top capital gains rate to 20 percent.

“Please remember that he did sign a capital gains tax reduction and a lot of the growth in that decade was due to that reduction in the cost of capital. It dwarfed the effect of raising the marginal rates.”

The capital gains cut did not go into effect until 1998 so it’s interesting that Entin thinks that accounted for “a lot of the growth in that decade,” meaning the 1990s.

It’s also noteworthy that allowing the Bush tax cuts to expire would allow the top capital gains tax rate to simply revert to 20 percent, the rate that Clinton enacted and which Entin seems to think was conducive to growth.

A close look at the numbers demonstrates that there is no policy basis for allowing capital gains income to be taxed at lower rates than ordinary income. Advocates of tax cuts for investment income have for years argued that the revenue collected from taxes on capital gains will actually rise in response to a capital gains tax cut, but the data does not bear this out. For example, capital gains tax revenue was lower in the years following Bush’s 2003 capital gains tax cut than during the Clinton years. This revenue fluctuates with the economy and does not seem correlated with tax rates.

Of course, we could give Rys and Entin the benefit of the doubt and assume they really mean that economic growth would have been even higher during the 1990s if President Clinton had not raised tax rates. But even that argument is entirely unsupported by the data. A 2008 report from the Center for American Progress and the Economic Policy Institute compares the economic recoveries following the major tax changes enacted during the administrations of Presidents Ronald Reagan, Bill Clinton, and George W. Bush. The report illustrates that the recovery under Clinton was far stronger, despite the tax increases that he enacted, than the recoveries during the other two administrations. 

Rys and Entin have both long advocated for making permanent all of the Bush tax cuts and enacting additional tax reductions. In 2010 CTJ wrote a response to arguments made by Rys and NFIB concerning the impacts of taxes on small businesses. In 2009 CTJ wrote a response to a report from Entin claiming that elimination of the estate tax would actually increase revenue.

Kentucky Republican gubernatorial candidate David Williams released the outline of his economic plan earlier this week. Williams proposes to repeal the state’s personal and corporate income taxes as part of a “revenue-neutral” tax swap, which of course means that the remaining taxes levied by Kentucky would have to be increased by close to $4 billion a year to make up for the loss of the income tax.

Williams would replace the state’s personal and corporate income taxes with a broader consumption tax of some sort. He says of this proposal, “If you tax consumption, people will make discerning choices about consumption and you will encourage productivity.”

Consumption taxes as a substitute for income taxes is backwards tax policy at its worst and is catastrophic for middle- and low- income families. In fact, the Institute on Taxation and Economic Policy (ITEP)  found that the impact of a similar proposal in 2009 was disastrous:  the poorest 20 percent of Kentuckians would have seen their taxes rise by $136 on average, while the richest one percent would have received an average tax cut of $40,910.

Explaining his plan to abolish the income tax, Williams says it will be somehow economically stimulative: “If you look at states that have done away with income taxes, states like Texas, Tennessee and Florida, many jobs there were created after they adopted that."  

What Williams doesn’t seem to know is that none of these states had income taxes in the first place, so none have actually “done away” with them.  And whether it’s Texas’s oil or Florida’s tourism industry, these states have unique natural resources to fall back on that Kentucky can’t match.

What’s more, living in Texas, Tennessee, or Florida is hard for working families. ITEP found that all three of these states are in the top ten for the states with the most regressive tax structures, meaning they make it cheap for rich people live there, but expensive for everyone else because of reliance on consumption taxes.  Florida taxes its poor families at a rate of 13.5 percent, the second highest rate in the nation.

Williams, the GOP’s candidate for governor in Kentucky, proposes that an unelected tax reform commission of “economic and tax experts” should be appointed to create a plan based on his broad outlines.  It’s not clear, however, where he’ll manage to dig up a panel of actual tax experts who believe that income tax repeal is a smart move. The only support for that kind of policy is in conservative think tanks funded by corporations who, it is well known, hate paying taxes.

Should Williams unveil more details about his economic plans as the election approaches, we’ll be right here, ready to flag his more outrageous proposals and assumptions.

Photo via Am Heart Advocacy Creative Commons Attribution License 2.0

The Institute on Taxation and Economic Policy (ITEP) offers a series of Policy Briefs designed to provide a quick introduction to basic tax policy ideas that are important to understanding current debates at the state and federal level. This week ITEP releases three briefs that focus specifically on taxes and economic development, including sustainable economic development strategies, important questions to ask about economic development research and the reasonable suggestion that recipients of tax breaks report back on their economic contributions.

These three updated briefs can be found here:

· Taxes and Economic Development 101

· Fighting Back: Accountable Economic Development Strategies

· Examining Economic Development Research

As soon as you thought you’d finally had a chance to catch your breath from last week’s Republican debate, the candidates were at it again Monday at CNN’s Tea Party Debate. As you may have to come to expect from anything associated with the Tea Party, the debate was heavy on misinformation about tax policy.
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Here are some of the tax-related highlights and missteps:

Former Massachusetts Governor Mitt Romney made misleading statements about President Barack Obama’s tax record, claiming that Obama “had raised taxes $500 billion.” What’s deceptive about this is that while Obama raised taxes by $500 billion dollars (mostly through the progressive tax included in the healthcare reform bill), he has simultaneously cut taxes overall by more than double that. Specifically, Obama cut taxes by $243 billion as part of the economic recovery act in 2009, $654 billion as part of the tax compromise he signed at the end of 2010, and is now proposing $240 billion in additional payroll tax cuts, to say nothing of his proposal to continue 81 percent  of the Bush tax cuts and other smaller tax cuts at a cost of an additional $3.5 trillion.

Later in the debate however Romney got it right when asked by a member of the audience if he supported the so-called Fair Tax (a proposed national sales tax). Romney expressed skepticism toward the proposal saying that it would decrease taxes for the “very highest income folks” while increasing taxes for “middle income people.” An analysis by the Institute on Taxation and Economic Policy confirms this point showing that a Fair Tax would primarily benefit the super-wealthy, while increasing the taxes paid by the bottom 80 percent by more than half.

While rejecting the radically regressive Fair Tax may seem like a logical move for any presidential candidate who wants to be taken seriously, Romney is actually bucking at least half of the Republican field (and most notably current front-runner Texas Governor Rick Perry) who have come out in favor of it. 

Minnesota Rep. Michele Bachmann attempted to rewrite fiscal history by claiming that the reason the deficit went “up and up and up” during the past decade was not due to the Bush tax cuts, but rather trillions in increased spending. In reality however, the Bush tax cuts were the primary driver of the deficit during the Bush years, adding some $2.5 trillion to the deficit from 2001-2010.

Bachmann went on to call for a tax repatriation amnesty, making herself the latest of the GOP presidential candidates (joining with Herman Cain and Rick Santorum) to explicitly call for a tax amnesty during the debates. Bachmann and the other candidates all claim the amnesty will create jobs, though in reality it will actually encourage companies to move more jobs and profits offshore.

Former House Speaker Next Gingrich brought up the topic of General Electric’s negative corporate tax rate in attempt to bash Obama’s choice of GE’s CEO Jeffrey Immelt as an adviser. Gingrich’s goal was to score points by arguing Obama’s choice of Immelt contradicts his own call to close tax loopholes.

Gingrich proceeded to contradict his own argument by saying that he is “cheerfully opposed” to raising taxes by closing the sorts of corporate loopholes that benefit GE and other corporations, while also conveniently leaving out that he actually works as an advisor to GE.

This week's release of Census data showing that a growing number of families are officially poor prompted CTJ to examine claims that too many Americans are paying "no" taxes and calls to raise taxes on low-income families.

Aside from recipients of Social Security benefits (which are largely untaxed), all but the poorest Americans do pay federal income taxes or federal payroll taxes or both. We estimate that in 2010, only 15 percent of non-Social Security taxpayers paid zero dollars or less in combined federal income and payroll taxes.  These families and individuals pay other types of taxes, as this report explains.

Fifty-seven percent of those who paid zero or less in combined federal income and payroll taxes had incomes below $15,000, and 76 percent had incomes below $20,000. This tells us that the vast majority of these taxpayers were quite poor because the average poverty threshold for 2010 was $14,218 for a household of two individuals and $22,314 for a household of four individuals.

Our 3-page report is here.

Minnesota lawmakers balanced the state’s budget earlier this year (after an historic government shutdown) by cutting vital programs, delaying payments to schools and issuing bonds against future tobacco settlement monies.  Of course, they have been boasting that they balanced the budget without raising taxes, but in reality all they did was pass the buck to localities.  Literally.  Their cowardice and unwillingness to consider Governor Dayton’s proposal to ask the wealthiest Minnesotans to pay a little more in income taxes is astounding and is resulting in a new kind of “trickle down” economics that we’re seeing in more and more states. 

This week the Star Tribune reported that in November a record number of  Minnesota school districts – 133 to be precise – will be asking taxpayers to support referendums to help “ward off cuts that have condensed class schedules, provoked higher pay-to-play fees and forced schools to resort to in-school advertising to make ends meet.”  Some school districts are accepting ads on student lockers and in mailings to parents. Other still have invited businesses to parent-teacher conferences to hawk their wares, and many have increased parking fees for students.  All at a time when 40 percent of school aged children in Minnesota are eligible for reduced cost meals because their parents are already facing their own hard times.  

In the St. Cloud area, some local officials are reeling from the impact of the state budget, which reduced the property tax base for some localities and cut local aid.  As St. Cloud Mayor (and former state senator) Dave Kleis put it, “There’s certainly a tendency to shift that burden onto those local communities.”

With the multiple fiscal pressures cities face, state legislators who balance their budgets by cutting local funds are putting short-term political gains over the long term economic health of their citizens.

A recent Kansas City Star editorial, “KC’s taxes especially burdensome for the poor” argues for reforming that city’s tax structure. The article cites Tax Rates and Tax Burdens in the District of Columbia – A Nationwide Comparison put out by the D.C. government. This annual study takes a close look at the major taxes levied by large cities and, by creating hypothetical profiles of different kinds of households, it ranks their impact on individual family types with variations for income, filing status, available deductions, etc.

Kansas City, Missouri doesn’t fare very well in the report. In fact, the city’s tax structure asks low-income residents to pay more than their fair share. Kansas City does have a recently reinvigorated Citizens Commission on Municipal Revenue tasked with improving the city’s “financial problems and [to] ensure continuing city growth.” The findings of the D.C. report should play a large role in informing the Commission and improving the city’s tax structure.

The Kansas City Star should be commended for opining that, “the commission needs to focus on the already high tax burden on Kansas Citians — particularly on low-income residents.”

While Citizens for Tax Justice works largely on federal tax issues, and its partner, the Institute on Taxation and Economic Policy,  focuses on state tax systems, D.C.’s annual report on tax rates and burdens reminds us that there is important work to be done improving the tax structures of cities' too. 

For detailed profiles of state tax systems – which  are notoriously regressive and take more money, as a percentage of income, from the least well off families compared to the wealthiest – you can look at ITEP’s Who Pays? A Distributional Analysis of the Tax Systems in All 50 States.

Photo via Jimmy Wayne Creative Commons Attribution License 2.0

Estimates provided by the White House show that the payroll tax cuts proposed last night by President Obama would cost $240 billion next year, just shy of the $245 billion cost of the Bush income tax cuts during the same year as estimated by Citizens for Tax Justice.

Republican lawmakers were the original proponents of a payroll tax holiday. But lately many of them have spoken out against it or are reluctant to endorse it because the President supports it. Apparently cost is not the reason for their objection, given their support of the Bush tax cuts.

The payroll tax cuts, which would go into effect in 2012 and which are the largest parts of the jobs plan announced by the President last night, have several components. The payroll tax cuts for workers would cost $175 billion, while the payroll tax cuts for employers would cost $65 billion, for a total of $240 billion.

Economists generally find that the most effective measures to mitigate a recession include programs that directly create jobs (such as Obama’s proposals to hire or retain school teachers and fix schools). Also at the top of the list are direct spending programs by the government on things like unemployment benefits (also included in Obama’s plan), since they go to the very people who are most likely to immediately spend any money or benefits they receive.

But some lawmakers oppose any and all new government spending, creating an obvious political constraint that the President has tried to navigate by proposing payroll tax cuts and other tax breaks that make up over half of the $447 billion cost of his jobs plan.

Payroll Tax Cuts for Workers: $175 Billion

As part of the tax compromise enacted at the end of last year, a one-year payroll tax cut is in effect for 2011, reducing the 6.2 percent Social Security payroll tax paid directly by workers to 4.2 percent. President Obama proposes to extend this break into 2012 and expand it by further reducing the tax paid by workers to 3.1 percent.

As we have explained before, cutting payroll taxes for workers is neither the best nor the worst possible tax measure. A tax credit that is more targeted to low- and middle-income people, like the Making Work Pay Credit, would be more effective because it would target money more towards people who are likely to spend it immediately and thereby give an immediate boost to the economy.

On the other hand, a payroll tax cut for workers is dramatically more targeted to low- and middle-income people than the other types of tax cuts that are usually debated (like the Bush tax cuts).

Payroll Tax Cuts for Employers: $65 Billion

The President’s plan would also reduce the Social Security payroll tax paid by employers to 3.1 percent for the first $5 million in wages paid in 2012. This break would go to all employers. The plan would also eliminate the entire 6.2 percent payroll tax paid by employers for any increase in a firm’s payroll up to $50 million.

Giving all companies a break for the first $5 million in wages is not likely to be effective because it gives employers a tax break regardless of whether or not they increase hiring. Economists have pointed out that many companies are stockpiling cash that they already could use to hire more workers, and a recent survey of business owners reveals that labor costs are nowhere near their main concern. In other words, only increased demand for goods and services can really prompt businesses to hire more workers. 

Some economists do believe that the payroll tax cut for businesses that expand their payroll will be more effective. But there are several reasons to be skeptical about the number of jobs that will be created as a result of this measure. First, most of this tax break will go to companies that would have expanded their payrolls anyway. Second, the payroll expansion in many cases will not mean new hires but could simply take the form of pay raises for existing employees. (This problem would be limited to a degree because the Social Security payroll tax does not apply to wages in excess of $106,800).

What businesses really need are customers. A payroll tax cut or a more targeted tax credit could help somewhat to produce more customers by putting cash in the hands of people who will spend it. But the other parts of the President’s plan, like transportation projects, extending unemployment insurance, modernizing schools, and rehiring teachers will almost certainly provide far more bang for the buck.

On Wednesday night, the GOP presidential candidates gathered at the Reagan Library for a particularly spirited debate in which candidates repeatedly turned back to tax policy. As with past debates, the GOP candidates attempted to rewrite tax history and reinforce their complete intransience on raising revenue, though there were a few glimmers of moderation.

Here are the highlights:

Former Utah Governor Jon Huntsman, in the most striking moment of the debate, called out the other candidates for signing Grover Norquist’s No-Tax Pledge, saying that he would “love to get everybody to sign a pledge to take no pledges,” noting that taking such pledges “jeopardizes your ability to lead.”

Unfortunately, he followed up this statement by pointing to his record of tax cuts in Utah, which Citizens for Tax Justice (CTJ) has called this a case study in bad tax policy. Adding to this, Huntsman’s recently released tax plan is regressive and is best characterized as tax loophole consolidation for the rich. He starts with a simplified tax system recommended by the Bowles Simpson commission, then adds huge loopholes for the rich by eliminating taxes on capital gains and stock dividends.

Texas Governor Rick Perry sought to make a name for himself at his first debate appearance by supporting the radical balanced budget amendment (BBA) promoted by Congressional Republicans, calling it a way to “start getting the snake’s head cut off.” Rather than killing some metaphoric government snake however, it is much more likely that a BBA would tie the hands of lawmakers to react to changing economic conditions and force immediate catastrophic cuts to critical government programs like Social Security, food inspection, and housing. Although Perry is one of the BBA’s most outspoken advocates, all of the GOP presidential candidates have voiced their support for it in principle.

Minnesota Rep. Michele Bachmann rewrote the legacy of Ronald Reagan in claiming that, like the entirely of the Republican field, Reagan would not embrace a deal involving $10 in spending cuts for every $1 increase in tax revenues. Her reasoning is that Reagan’s own 1982 3-to-1 deficit reduction deal failed because the spending cuts did not fully materialize (which is disputed). Bachmann’s logic break downs, however, when you consider that Reagan did not support increasing taxes just this one time, but actually increased taxes 10 more times after the 1982 deal. If anything, the lesson is that Reagan was more willing to compromise, as shown by his willingness to embrace much less lopsided deals than the candidates today reject outright.

Former Massachusetts Governor Mitt Romney did reject the claim that 47% of Americans pay no federal income taxes (a popular conservative talking point) when prompted by the moderator. Instead, Romney rightfully noted that every American feels that they are contributing “through the income tax or through other tax vehicles” and that he does not want “to raise taxes on the American people,” presumably even on those on low end who pay very little. 

Americans are, in fact, justified in feeling they contribute to government, and CTJ has provided estimates showing that all Americans pay taxes. Although Romney signaled his intention to not raise taxes on the poor, his recently released economic plan provides insignificant token relief for lower income Americans and heavily favors tax breaks for the wealthy and corporations.

Former CEO of Godfather’s Pizza Herman Cain was asked a fantastic question by the moderator on whether General Electric’s infamously low tax bill is fair. He answered that “the government needs to get out of the business of trying to figure out who gets a tax break here, who get’s a tax break there.” Though he started off well, Cain then pivoted into promoting his rather ridiculous “9-9-9” plan to replace the entire federal tax system with a 9% national sales tax, 9% income tax, and 9% corporate income tax rate. Needless to say, any plan advocating a national sales tax, a flat tax, and a 75% cut in the corporate income rate would be extremely regressive and almost certainly not raise enough revenue to fund basic government functions.

Former Georgia Rep. Newt Gingrich must not have read Bob McIntyre’s piece debunking the former House Speaker’s claims that he balanced the federal budget. Gingrich claimed during the debate that, as Speaker of the House, he “balanced the budget four straight years.” The problem, of course, is that economic growth and the 1993 repeal of the Reagan tax cuts (which every Republican including Gingrich opposed at the time) were what really led to the balanced budgets.

Former Pennsylvania Sen. Rick Santorum added his name to the long list of supporters of a repatriation amnesty, noting that such a provision is included in his plan to create jobs. In advocating for a repatriation amnesty, Santorum is following the leadership of the Republican Party and Cain, who has been the proposal’s most vocal proponent during the GOP debates.

Texas Rep. Ron Paul took his anti-government and anti-tax beliefs to their logical extreme in defending a letter he wrote during the Reagan administration informing the President that he was leaving the Republican Party. Whereas the rest of the Republican field admires Reagan without reservation, Paul called Reagan’s fiscal record during the 1980’s “a bad scene,” explaining that Reagan taxed and spent too much, leading to massive deficits. Though it’s absurd to claim Reagan taxed too much, Paul is right to point out that Reagan presided over such massive deficits that by the end of his tenure the national debt had tripled.

The Institute on Taxation and Economic Policy (ITEP) offers a series of Policy Briefs designed to provide a quick introduction to basic tax policy ideas that are important to understanding current debates at the state and federal level. This week, ITEP released new and updated Briefs that explore three costly and poorly-targeted state personal income tax giveaways: itemized deductions, capital gains exemptions, and special tax breaks for older adults. The Briefs offer several recommendations for reforming these breaks to achieve fairer and more sustainable state tax systems.

• State Treatment of Itemized Deductions
• State Income Taxes and Older Adults
• The Folly of State Capital Gains Tax Cuts

The St. Louis Post Dispatch gets it all wrong when they title a recent article: “Jobs incentives in peril as special legislative session begins in Missouri.” True, Missouri’s special session started this week and, along with moving the date of the presidential primary and repealing a new law regarding teachers and students on Facebook, taxes are on the table.

But the tax incentives supposed to spur employment and economic development aren’t in any real peril. The state of Missouri seems to be chugging along without these controversial incentives, one of which would cost the state $360 million in an attempt to make the St. Louis airport a hub for freight between China and the Midwest.

No, the state’s property tax credit, designed to specifically help low income renters who are seniors and/or disabled, is the program in real peril. Some in the legislature and now Governor Nixon are proposing to eliminate this credit entirely.  The revenue gain from eliminating the property tax credit for these renters is $57 million, by far the largest cut proposed in the legislation.  

Last year, Nixon’s Missouri Tax Credit Review Commission proposed eliminating the credit, saying the credit "doesn't really do anything.”  But tell that to a woman who’d been trying to prepare her meals on a camp stove.  Brenda Procter, a University of Missouri extension specialist in personal finance, tells of informing this client she could expect a $600 credit and “she almost crushed me with a hug. She said, Oh, my God, I can buy a stove.”

Yes, this is the program where lawmakers decided to go looking for big revenue savings while simultaneously pursuing dubious tax incentives to make St. Louis some kind of “aerotropolis.”

There is some evidence the sponsor of the repeal bill might be rethinking complete elimination of the credit, however.  Senator Chuck Purgason recently said: "Republicans are always portrayed as taking from the poor and giving to the rich, and we didn't want to do that.”

Let’s hope Missouri Republicans and the legislature as a whole defy that stereotype and do right by the state’s most vulnerable citizens.

Photo via Missouri News Horizon Creative Commons Attribution License 2.0

Over Labor Day weekend Louisiana shoppers purchasing items like firearms, ammunition, hunting supplies, holsters, certain knives and archery items didn’t pay any sales tax.  Shoppers participating in the “Second Amendment Weekend Sales Tax Holiday” should be aware that holidays like this one don’t make their state’s tax structure any fairer and they cost Louisiana money.

Governor Jindal is a big proponent of the holiday, saying, “This is a great opportunity for all hunters and campers to save money on the equipment they need to enjoy Sportsman’s Paradise. The weekend-long event will also bring more customers to our local hunting and sporting stores which will further benefit our businesses and Louisiana’s economy.”

Second Amendment politics aside, sales tax holidays are ridiculous tax policy. Holidays like this one and those offered during back-to-school time are not at all targeted, and targeting is the key to smart policy.  They do nothing to meaningfully help low and middle-income families struggling to make ends meet because they can’t just shop when the state says so.  Only wealthier consumers can postpone or move up their shopping to take advantage of these holidays. What’s more, the more well-off will likely make their purchase regardless of a tax holiday; saving four percent on the price probably does not change their consumer behavior.

Sales tax holidays falsely lull legislators into thinking they are helping families in a real way, and make too many families think the state is doing them a favor.  Sportsman’s Paradise or not, Louisiana policymakers should implement smart tax policies that offer more than just window dressing.  The Pelican State can start by ending the deduction it gives for every federal income tax dollar its citizens pay: the richer you are the more you benefit and it’s costing the state about $643 million this fiscal year.  With those revenues, lawmakers could target some tax credits in the direction of low- and middle- income Louisianans who pay a larger portion of their incomes (10% on average) than their rich counterparts in state taxes under the current structure.

Our contempt for Grover Norquist’s no-new-taxes pledge is no secret, and it seems that at least one member of Congress is willing to come out and admit he shares the feeling. Nebraska Rep. Jeff Fortenberry signed the no-new-taxes pledge in 2004, but now says he regrets the move.

He says, “A while back, I had notified the organization that I had taken that pledge when I ran for office and upheld that my first term in office but realized that this type of pledge can constrain creative policy thinking, so I asked not to be associated with it any longer."

Ouch.  Poor Grover!

Responding to Fortenberry’s snub, a spokesperson from Norquist’s group bristled, “One does not promise to be pro-life for two years, or pro-Second Amendment for one year. One is pro-life, pro-Second Amendment or pro-taxpayer as long as one is in office. Or not.”

This pathological inflexibility defines the pledge mentality and hurts our democracy. It’s chilling that even when legislators abandon the pledge after recognizing it for the ideological straightjacket it is, they are never fully released from it.  Isn’t that how cults work?

Completely taking tax increases off the table is no way to govern.  Pledges thwart the important debates and conversations that make our political system work, the current Washington gridlock offering a case in point. Rep. Fortenberry is setting an example for his GOP colleagues, going so far as to say Warren Buffett might even be right about taxing millionaires.  We’ll see if his stance helps open up our debates.

Pledging to spending cuts as the only budget balancing tool is like agreeing to eat a bowl of spaghetti with only a knife; it doesn’t work and it makes you look foolish.

Photos via Steve Rhodes & Republican Conference via Creative Commons Attribution License 2.0

President Barack Obama nominated Alan Krueger to chair the White House Council of Economic Advisors on Monday and he will likely be easily confirmed. Although as a labor economist Krueger has earned many accolades for his robust work, including a seminal article defending the minimum wage, his record on tax policy is a little more mixed.

For example, in recent months Krueger voiced support for a jobs tax credit that would give companies $5,000 for every additional employee they hire. As Citizens for Tax Justice explained when President Obama proposed a similar plan, such tax credits are a poor way to encourage job creation because they inevitably go to companies who would have hired additional employees even without the credits. In fact, those companies that are struggling the most, those shrinking or unable to expand because of weak consumer demand, would receive no help from the credit.

The most controversial position Krueger has taken on tax policy was in a 2009 guest blog post arguing that a national consumption tax (specifically a 5% rate that would raise $500 billion) should be considered as one solution to the long run budget deficit. Many conservatives exaggerated the seriousness of this blog post, failing to mention Krueger’s caveat that this was “only as a suggestion for serious discussion,” and that he was “not sure it is the best way to go.”

In any case, a broad-based national consumption tax is the wrong policy because it would inevitably be severely regressive.

To be sure, Krueger has frequently stood up for good progressive tax policy. For instance, he has laid out the strong case for eliminating billions in tax subsides for oil and gas companies, opposed the ridiculous tax subsidies cities offer to sports teams and is a long time critic of the regressive Bush tax cuts.

As House lawmakers signal their intention to move forward with tax reform this fall, let’s hope we see Krueger in his new position focus on measures that will make our tax system more progressive and better for the overall economy.

Photo via Center for American Progress Creative Commons Attribution License 2.0

Just a few months back, Michigan Governor Rick Snyder barely managed to push through a massive bill cutting the state’s largest business tax by over 80% -- paid for by raising taxes on Michigan’s elderly and low-income families.  Now, Snyder’s administration is apparently readying for Round Two, as Lt. Gov. Brian Calley has declared that his new top priority is slashing business taxes even further.  Clearly there’s not a lot of original thinking going on in Lansing.

Calley is referring to the Snyder administration’s plan to repeal the tax businesses pay on industrial and commercial personal property (equipment, furniture and other items used for business purposes).  This change would cost somewhere in the neighborhood of $800 million in lost revenue each year – revenues that flow overwhelmingly to local governments in Michigan.  As a result, state lawmakers will be tempted to pass the buck to local officials when it comes time to make the many hard choices required by a tax cut of this size.

On average, Michigan municipalities receive about eleven percent of their property tax revenues from these business personal property taxes.  As The Detroit News points out, however, that average varies widely across jurisdictions.  While the tax usually amounts to just two percent of local property taxes in wealthy residential communities, it can account for 20 to 50 percent, or more, of property tax revenues in some industrial towns.

The most vocal critic of Snyder’s proposed tax cut right now is the Michigan Municipal League, whose main concern is ensuring that the state doesn’t leave local governments high and dry when it comes to paying for repeal.  This is a very real concern.  When Ohio repealed its personal property tax, the state offered to replace lost local funds on only a temporary basis, and withdrew support even more quickly once the state encountered its own budget difficulties.  Governor Snyder’s recent remarks to Gongwer News Service (subscription required) indicate that he’s aware of this concern, describing his plan to be “largely revenue-neutral.” But we can forgive local governments if they are dubious about the governor’s assurances their budgets won’t suffer.

The issue here goes beyond just ensuring that localities aren’t unduly harmed by repeal.  Even if the state does pick up the tab, that money is going to have to come from somewhere.  And with anti-tax lawmakers in control of both houses of the state legislature and the Governor’s mansion, any tax increase large enough to fully cover the cost of repealing the business personal property tax has a hard road ahead of it. In all likelihood, lawmakers will be tempted to raid existing revenue streams, thereby forcing even deeper cuts on top of those already enacted.

Before going that route, it would be a good idea for the anti-tax true believers in Lansing to take a step back, and ask whether the state will actually gain anything by granting businesses yet another tax cut.