• Just last year Sears and other companies threatened to leave Illinois after the state’s corporate income tax rate increased. So two months ago, Illinois lawmakers awarded Sears a targeted tax credit to appease them. The company kept their headquarters in Chicago (not surprisingly), but announced last week they would be laying off 100 employees from their headquarters anyway.  
• The Institute on Taxation and Economic Policy (ITEP) responds to Oklahoma Governor Mary Fallin’s misguided tax plan with an op-ed in The Oklahoman.  The Governor has said that her income tax repeal proposal is “pro-jobs” and a “game-changer,” but ITEP makes clear that Oklahomans should not expect their economy to improve if they join the no-income tax club.
• Virginia just struck a deal with Amazon requiring the company to begin collecting sales taxes by September 1, 2013, but traditional brick and mortar retailers in the state don’t want to wait another eighteen months for a more even playing field.  The North Jersey Record opens its editorial of a potentially similar deal in the Garden State with the right question: “How much help from the state of New Jersey does a business with a 2011 profit of $631 million really need?”
• Some legislators in Minnesota are proposing a hike in regressive cigarette taxes. Governor Mark Dayton’s various proposals to increase taxes on the best off Minnesotans are the better plan. 
• An editorial in the Kansas City Star wisely points out that the “soak-the-poor approach to tax reform of Topeka today is counter-productive to getting people back to work.” The piece calls on lawmakers to “stop [their] mean spirited attack on the poor” and keep the state’s Earned Income Tax Credit. 
• In an interview with CNN last week about his income tax cut plan, New Jersey Governor Chris Christie lashed out at Warren Buffett for his call for higher taxes on the rich saying the billioniare "should just write a check and shut up.”  To which Buffett replied, "It's sort of a touching response to a $1.2 trillion deficit, isn't it? That somehow the American people will all send in checks and take care of it?"

Romney: I Have Friends Who Own NASCAR Teams

The 2012 NASCAR season kicked off Monday with the Daytona 500. The much-celebrated start to the racing season is a chance to remind Congress and the administration that it's time to end track owners' special tax break.

In 2004, President Bush signed a tax bill chock-full of special interest tax breaks, including one for his NASCAR friends. The legislation allowed track owners to write off the cost of motorsports facilities (track, grandstand, etc.) over seven years for tax purposes. For accounting purposes, these assets are written off over their useful lives, ranging from ten to thirty years. The accelerated write-off allowed by the tax break costs the U.S. Treasury an estimated $40 million per year.

This particular tax break, along with many others known as “the extenders,” expired on December 31 of 2011. With the projected deficits and the clamor for base-broadening corporate tax reform, you’d think this special-interest loophole would be an easy one to keep off the books. Even Oklahoma Republican Senator Coburn has called for its elimination. But Florida Rep. Vern Buchanan is pushing for bringing back the NASCAR tax break, while he's busy collecting campaign contributions from the industry. And President Obama's budget proposal also calls for extending it.

An interesting question is whether GOP Presidential hopeful Mitt Romney is a supporter of this tax break, too. As he said in an interview Sunday, "I have friends who own NASCAR teams," and it turns out some of those friends are also campaign donors.

As governor in Massachusetts, Romney made the decision to close a slew of corporate loopholes that brought in some $370 million to his state's treasury. Presidential candidate, Romney, however, doesn't like to talk about that.

So we will see: will we have a presidential race featuring two candidates who try to bolster their blue collar bona fides by supporting the NASCAR track owners' loophole, or two candidates who mean it when they say they want to simplify the tax code?

Photos of Nascar related materials via Side Hike  and Brian C Creative Commons Attribution License 2.0

For Immediate Release: February 27, 2012 (rev. 4/12)

Contact: Anne Singer, 202-299-1066, ext. 27

General Electric Paid Only Two Percent Federal Income Tax Rate Over the Past Decade, Citizens for Tax Justice Analysis Finds; Actual Payments Were Probably Lower

Washington, DC – General Electric’s (GE) annual SEC 10-K filing for 2011 (filed February 24, 2012) reveals that the company paid at most two percent of its $80.2 billion in U.S. pretax profits in federal income taxes over the last 10 years.

Following revelations in March 2011 that GE paid no federal income taxes in 2010 and in fact enjoyed $3.3 billion in net tax benefits, GE told AFP (3/29/2011), “GE did not pay US federal taxes last year because we did not owe any.” But don’t worry, GE told Dow Jones Newswires (3/28/2011), “our 2011 tax rate is slated to return to more normal levels with GE Capital’s recovery.”

As it turns out, however, in 2011 GE’s effective federal income tax rate was only 11.3 percent, less than a third the official 35 percent corporate tax rate.

“I don’t think most Americans would consider 11.3 percent, not to mention GE’s long-term effective rate of 1.8 percent, to be ‘normal,’ ” said Bob McIntyre, director of Citizens for Tax Justice.  “But for GE, taxes are something to be avoided rather than paid.”

Citizens for Tax Justice’s summary of GE’s federal income taxes over the past decade shows that:

O From 2006 to 2011, GE’s net federal income taxes were negative $3.1 billion, despite $38.2 billion in pretax U.S. profits over the six years.

O Over the past decade, GE’s effective federal income tax rate on its $81.2 billion in pretax U.S. profits has been at most 1.8 percent.

McIntyre noted that GE has yet to pay even that paltry 1.8 percent. In fact, at the end of 2011, GE reports that it has claimed $3.9 billion in cumulative income tax reductions on its tax returns over the years that it has not reported in its shareholder reports — because it expects the IRS will not approve these “uncertain” tax breaks, and GE will have to give the money back.

GE is one of 280 profitable Fortune 500 companies profiled in “Corporate Taxpayers and Corporate Tax Dodgers, 2008-2010.”  The report shows GE is one of 30 major U.S. corporations that paid zero – or less – in federal income taxes in the last three years.  The full report, a joint project of Citizens for Tax Justice and the Institute on Taxation and Economic Policy, is at http://ctj.org/corporatetaxdodgers/. Page 24 of the report explains “uncertain” tax breaks.

###

Citizens for Tax Justice (CTJ), founded in 1979, is a 501 (c)(4) public interest research and advocacy organization focusing on federal, state and local tax policies and their impact upon our nation (www.ctj.org).

Founded in 1980, the Institute on Taxation and Economic Policy (ITEP) is a 501 (c)(3) 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 (www.itepnet.org).

Note: GE’s profits and taxes for 2009 and 2010 have been slightly revised from an earlier version of this release. The earlier version inadvertently used GE’s restated 2009 and 2010 figures from GE’s 2011 annual report. Those restated figures excluded the half of NBC that GE sold to Comcast in 2011, and did not reflect GE’s actual results for those two years.

What do Tom Cruise and Florida Senator Bill Nelson have in common? Both have taken advantage of a lax definition of what constitutes farming in order to reap large property tax breaks.

The Miami Herald reports that by allowing a few cows to graze on 55 acres of his land, Senator Nelson reduced his property taxes on the land from over $45,000 to just $3,696 in 2011. The reduction results from the fact that a few cows make Nelson’s property suddenly agricultural land, and as such, its value is a mere $210,000, rather than its full market residential value of $2.7 million.

Using a similar tax break in Colorado, Tom Cruise was able to pay only $400 in property taxes on his $18 million, 248 acre tract of land in Colorado by allowing sheep to graze on it for brief periods each year. The good news for Colorado taxpayers is that the state legislature has since taken a small step toward closing the loophole by valuing residences on ‘agricultural land’ at the same rate as they are on residential property.

Rather than just tightening up eligibility requirements though, lawmakers could instead replace current agricultural land valuation systems with an agricultural circuit breaker that makes property tax relief available only to real family farms. This would not only ensure that Senators and movie stars do not abuse the system, it would also better target those farmers most in need of property tax relief – the farmers for whom the tax loopholes were presumably written in the first place.

Photos of Tom Cruise and Senator Bill Nelson via Nasa HQ and Surrealistic Scenes Creative Commons Attribution License 2.0

• Two of the country’s largest Big Box retailers, Target and Best Buy, are turning up the pressure on their home state of Minnesota’s legislators to pass a law requiring online businesses to collect sales taxes.  Republican lawmakers are divided over the issue because some see the so-called “Amazon” tax as a tax increase which they adamantly oppose.  One Republican House member, however, came up with a compromise: use the revenue gained from taxing internet sales to pay for an “outdoors, guns, and ammo” sales tax holiday. Huh?
• The Idaho Mountain Express editorial board gets it right when it opines  against Governor Otter’s proposal to cut taxes by $45 million, “just when things are looking up, would any sensible family insist that its wage earners take jobs that pay less? That's absurd and so are the proposed tax cuts.”
• In the refreshing news department, the former CEO of the Georgia Chamber of Commerce comes out against a business tax credit bill saying, “credits like those proposed in House Bill 868 could inadvertently undermine our state’s economy by diverting revenue from equally essential investments.” Here’s another gem, “To thrive, businesses large and small need a well-educated workforce, good transportation systems to facilitate their supply-chain, and stable, safe neighborhoods for employees and customers. They also need customers with sufficient income to buy their goods and services, something that tax credits cannot assist.” We couldn’t have said it better ourselves.
• The Orlando Sentinel wisely editorializes against Florida lawmakers cutting state revenues to cities and counties. “[C]utting taxes is easy; paying for it is hard,” they write. “And lawmakers have been dumping much of that dirty work on local government leaders.” A former mayor now in the state legislature is quoted: "We're trying to take credit for cutting taxes when we're, in essence, really just telling somebody else, 'You need to cut.'" 

Last month, New Jersey Governor Chris Christie made a bold and reckless promise to cut personal income taxes across the board. 

Christie used his annual budget address this week to spout conservative talking points to justify his tax cut plan.  There are two claims in particular we take issue with: the idea that high tax rates harm economic growth; and that high tax rates cause families to flee states.

From Christie’s speech:

“First, any job growth plan for New Jersey has to start with cutting taxes… So, to the naysayers, I say this. We have been down the road of high taxation. It didn’t work. The result was high unemployment, high taxes and low growth. The result was families leaving New Jersey.  The old way was a dead end for New Jersey. High taxes and excessive spending left us stranded in a world of declining growth, declining prospects and a diminished ability to compete as a state.”

Christie’s claim that cutting taxes will lead to job growth is one of the most frequently repeated talking points used by conservative lawmakers seeking to reduce or eliminate state personal income taxes. 

Two new reports from ITEP clearly dispel this conservative tenet. “'High Rate’ Income Tax States Are Outperforming No-Tax States” explains that the nine states with the highest top marginal tax rates (New Jersey included) are outperforming the nine states without income taxes, in terms of both growth in economic output per person and median income levels. 

Between 2001-2010, New Jersey beat six out of nine states with no-personal income tax in terms of lowest unemployment rate.  And over the same time period, New Jersey topped four out of nine no-tax states in terms of economic growth per-capita.

A second report, “Athur Laffer Regression Analysis is Fundamentally Flawed, Offers No Support for Economic Growth Claims” shows that an analysis on which tax-cutters like Christie rely, that predicts huge economic gains as a result of cutting state personal income taxes, is fundamentally flawed. 

The conclusion of both reports: there is simply no evidence that state income tax rates harm state economies (or the national economy, but that’s another matter).

Then Christie invoked the millionaire-migration canard:

“Our tax rates, and our overall tax burden, were also the worst in the region. And the effects were being felt: a study by scholars at Boston College found that $70 billion of wealth had left the state in the prior five years. That exodus hurt jobs, economic growth and yes, even state tax revenues…”

This claim – that high taxes will (and have) force wealthy New Jerseyans to flee the state – is yet another unfounded conservative myth. 

In fact, as ITEP has pointed out in the past, the Boston College study Christie referenced made no mention of taxes at all, let alone in New Jersey families’ migration decisions.  A second study that actually looked at the role of taxes in New Jersey migration decisions (which Christie did not mention), found the impact of the state’s “half-millionaires’ tax” on New Jersey’s high-income earners was “small,” and that the change in the net out-migration rate following the enactment of the tax was “negligible.”  The researchers for this second study also review Census Bureau interviews that show that while people gave a lot of reasons for leaving the state – retirement, new jobs, family needs – none reported they were leaving because of tax rates. 

Photo of Governor Chris Christie via  Bob Jagendorf Creative Commons Attribution License 2.0

Today the Treasury Department released “The President’s Framework for Business Tax Reform” outlining the Obama Administration’s ideas for corporate tax reform. Citizens for Tax Justice has been generating research on corporate taxes for over 30 years, most recently with its November, 2011 report, Corporate Taxpayers and Corporate Tax Dodgers, 2008-2010.  In response to the White House and Treasury Department release today, Citizens for Tax Justice Director, Bob McIntyre, issued the following statement:

“The corporate tax reform ‘framework’ released by the Obama administration today fails to raise revenue that could be used to make public investments in America’s economy and America’s future.

“The President has proposed to reduce the statutory corporate tax rate from 35 percent to 28 percent, make certain temporary tax breaks, including the research and experimentation credit, permanent, and add some new business tax breaks.  In total, these tax cuts would cost us about $1.2 trillion over the next 10 years.

“To offset this cost, the President proposed in his fiscal 2013 budget to raise about $0.3 trillion from closing or reducing business tax loopholes.  That leaves almost $1 trillion in further business tax reforms that would be necessary for the tax plan to break even, as the President say he wants to do. His 'framework,' however, leaves the sources of this $0.9 trillion in offsetting reforms mostly unspecified.

“We can and should collect more tax revenue from corporations. Right now, America's biggest and most profitable corporations are paying, on average, a ridiculously low amount in federal income taxes, and many of them are paying nothing at all.

“Last year, 250 organizations, including organizations from every state in the U.S., joined us in urging Congress to enact a corporate tax reform that raises revenue. These organizations believe that it’s outrageous that Congress is debating cuts in public services like Medicare and Medicaid to address an alleged budget crisis and yet no attempt will be made to raise more revenue from profitable corporations.

"It's very disappointing that the President has proposed what is at best 'revenue-neutral' corporate tax reform.  In 1986, President Reagan and Congress passed a tax reform act that increased corporate tax payments by more than a third.  In today's terms, that would be a corporate tax increase of more than a trillion dollars over the next 10 years. The corporate tax reform that we need today should do no less."

CTJ has published a fact sheet explaining why corporate tax reform should be revenue-positive and a fact sheet explaining how the international corporate tax rules should be reformed.

Photos of President Obama and Secretary Geithner via Downing Street and World Economic Forum Creative Commons Attribution License 2.0

• New Mexico legislators took important steps last week to level the playing field between in-state mom and pop stores and multi-state big box stores when they sent Governor Martinez a bill mandating combined reporting, in other words, closing the loophole that allows national retailers to shelter their profits in no-tax states.  Despite strong support among small business owners for closing corporate loopholes, the governor is likely to veto the legislation.
• Some Minnesota legislators are not backing down from their pledge to cut the business property tax, promising what tax cut advocates always promise: it will be good for the state’s economy.   In effort to paper over the hole the cut blows in the budget, they propose to gut a tax credit for low- and middle income families and seniors who rent – a credit that was already reduced last year.
• The Washington State Senate overwhelmingly passed a bill that would require any new or expanded tax breaks to “sunset” (or expire) after five years.  Washington already has over 250 tax breaks that automatically drain the state’s coffers every year without ever having to be voted on.  Both Citizens for Tax Justice  and The Institute on Taxation and Economic Policy (ITEP) support this kind of accountability, as does the Washington State Budget and Policy Center.

Published in the Sacramento Bee, February 17, 2012

With jobs front and center in most voters' minds, politicians seeking to cut or repeal personal income taxes are marketing their proposals as tools for boosting the economy. Recently, some have sought to bolster this claim by asserting that states without income taxes are experiencing a real economic boom, and by promising that the boom can be recreated in any state smart enough to join the no-tax club.

My organization was skeptical of these claims, so we decided to take a closer look at one of the most prominent studies, cited by the governors of Kansas and Oklahoma, among others. It turns out that the study was done by a consulting firm headed by economist Arthur Laffer, perhaps best known as a longtime spokesman of a supply-side economic theory that George H.W. Bush once called "voodoo economics" because of its bizarre insistence that tax cuts often lead to higher revenues.

In kicking the tires on the study's findings, we paid particular attention to the same 18 states it includes: the nine without income taxes, and the nine with the highest top income tax rates.laf But while Laffer chose to focus on clumsy aggregate data (more on that later), we took a look at three of the most important and widely recognized measures of economic success: growth in economic output per person, growth in median income levels, and the unemployment rate. The results we found were very different than Laffer's.

In terms of the first two measures - economic output per person and median income levels - the nine states without income taxes are actually lagging behind the nine states with the highest top income tax rates, and most no-tax states are actually doing worse than the national average. On the third measure, the unemployment rate, it turns out that no-tax states and "high tax rate" states are essentially neck and neck, which will no doubt shock lawmakers promising that an improved job climate will come hot on the heels of income tax repeal.

We also found that on all three measures, some of the states most frequently disparaged by the tax cut true believers - including Maryland, Hawaii and Vermont - managed to best not only no-tax idol Texas but also most of the other eight states "unburdened" by a personal income tax.

So how was Laffer able to reach the opposite conclusion, and in the process generate a wave of assertions that states without income taxes are booming? It turns out that the aggregate numbers he picked - designed to measure the total size of an economy and its workforce - are heavily influenced by shifts in population. These shifts, in turn, are driven by a slew of factors Laffer fails to control for, like the housing market, population density, birth rates, immigration and even climate. And since most no-tax states happen to be located in the growing south and western regions of the country, they tend to have a lot of these factors working in their favor.

Laffer also makes no effort to account for the tremendous natural resource advantages enjoyed by many no-tax states. The two best performing states, according to Laffer, also happen to be the two states most dependent on mining: Alaska and Wyoming. But one would be hard pressed to find a serious analyst in either state willing to attribute their recent growth to the lack of an income tax.

The bottom line is this: no-tax states aren't booming, and lawmakers should not expect their states' economies to improve if they join the no-tax or low-tax club. In fact, in terms of the economic factors that matter most to families - income levels, and whether or not they can find a job - the states with the highest top income tax rates are, in most cases, doing better than the no-tax states. If the economy is really the concern of lawmakers railing against the income tax, it's time for them to put away Arthur Laffer's tax cut snake oil.

ABOUT THE WRITER

Carl Davis is a senior analyst at the Institute on Taxation and Economic Policy, 1616 P Street NW, Suite 200, Washington, D.C. 20036; website: www.itepnet.org.

This essay is available to McClatchy-Tribune News Service subscribers. McClatchy-Tribune did not subsidize the writing of this column; the opinions are those of the writer and do not necessarily represent the views of McClatchy-Tribune or its editors.

Photo of Art Laffer via  Republican Conference Creative Commons Attribution License 2.0

Here’s a huge tax fairness victory in Iowa. The state Senate voted unanimously to increase the Earned Income Tax Credit from 7 to 13 percent of the federal credit to help working families make ends meet.

Matt Gardner, Executive Director of the Institute on Taxation and Economic Policy (ITEP), blogs about lessons for Georgia from a new ITEP report on the economies of states with and without income taxes.  Gardner writes that Georgia lawmakers “wanting to join the non-income tax club are simply idolizing the wrong states.  Most states without income taxes are doing worse than average … and the states with the highest top tax rates are actually outperforming them.”

Also in Georgia, anti-tax guru Grover Norquist is weighing in on collecting taxes on internet sales, warning that it is a violation of his group’s “no new tax” pledge to vote for legislation requiring online retailers to collect sales taxes on purchases.  But the fact is, Georgians who shop online do, by law, have to pay the sales tax on those purchases if the e-retailer does not collect the tax, but the requirement is basically unenforceable.  Collecting taxes legally due is not a tax increase.

Missouri lawmakers are falling all over themselves to come up with revenues without “raising taxes” because the trust fund that pays for veterans’ services in the state is insolvent.  Silly “non tax” ideas being floated by legislators include casino entrance fees and a special lottery, which have already proven to be unsustainable revenue sources for veterans’ and other programs.  Missouri is notorious for its failure to tackle serious tax reform; will a backlog of military veterans in need of care give lawmakers incentive to do the right thing?

Bills in both the Iowa House and Senate are advancing that would finally raise the state’s long stagnant gas tax rate.  ITEP recently found that Iowa hasn’t raised its gas tax rate in 22 years, and that since that time the tax has lost $337 million in yearly value relative to rising transportation construction costs.

On February 17, the President plans to visit a Boeing plant in Washington state to tout his proposed new tax breaks for American manufacturers. This is an odd setting to discuss new tax cuts, because over the past 10 years (2002-11), Boeing has paid nothing in net federal income taxes, despite $32 billion in pretax U.S. profits. A new fact sheet from CTJ explains.

Read the fact sheet.

Photo of Boeing Plant via Jeff McNiell Creative Commons Attribution License 2.0

In an attempt to bolster income tax repeal efforts in states like Oklahoma, Kansas, and Missouri, supply-side economist Arthur Laffer recently teamed up with an Oklahoma-based group to perform an analysis that predicts huge economic gains as a result of cutting state personal income taxes.  A new report from the Institute on Taxation and Economic Policy (ITEP) shows, however, that the analysis is fundamentally flawed.

Bear with us as we guide you through a few methodological weeds.

At issue here is what’s called a regression analysis – a statistical tool used to explain the relationship between one set of variables and another.  In this case, Laffer has attempted to explain how state income tax rates affect economic growth, and, according to Laffer’s regression, the effect is enormous. He shows an inverse relationship between taxes and growth. That is, the lower the tax rates, the greater the economic growth.  Repealing Oklahoma’s income tax, he therefore predicts, will more than double the rate of personal income growth and state GDP growth, and create 312,000 jobs in the process.

If this sounds too good to be true, that’s because it is.

As ITEP’s new report explains, Laffer performs a data sleight of hand to produce his result.  He includes federal tax rates in an analysis supposedly aimed at explaining a state tax system. And as it turns out, this decision hugely distorts the results.  It allows him to include in his overall “tax rate” figures the Bush tax cuts – which caused a 4.1 percent drop in the top federal tax rate.  At the same time, his measure of economic growth just happens to be taken from the early 2000’s, when the country was climbing out of the post 9/11 recession. That is, the economic growth indicators were improving just as the Bush tax cuts were going into effect.

Laffer essentially creates a bogus measure (federal and state tax rates combined) and maps it onto an exceptional moment in economic history.  This allows him to create the illusion that cuts in state tax rates between 2001 and 2003 fueled economic growth later in the decade.  If the analysis is refocused on just state tax rates, the findings fall apart entirely, as the regression no longer shows any relationship between state tax rates and economic growth.

But Laffer’s analysis is plagued by more problems than these.  Also notable, as covered in an earlier report from ITEP, is its complete failure to measure the impact of other factors, from sunshine to oil production, that contribute to state economic growth.  The flaws in Laffer’s analysis are so fundamental that its findings cannot be taken seriously. 

ITEP’s two companion critiques of why Arthur Laffer’s analysis should not be trusted can be found here.

Photo of Art Laffer via Republican Conference Creative Commons Attribution License 2.0

President Obama's fiscal year 2013 budget plan would cut taxes by $4.1 trillion over ten years. A brief report from CTJ explains that most of this cost results from his proposal to make permanent 78 percent of the Bush tax cuts, which would reduce revenues by $3.5 trillion over a decade. The budget plan does include some good proposals that, together, would raise $1.1 trillion over a decade. Of course, these revenue-raising proposals don't come close to offsetting the costs of the tax cuts.

Read the report.

• In this upside down world where closing a corrupt tax loophole is called a tax hike (like that’s a bad thing), some states are moving towards amending their constitutions to require a two thirds supermajority to raise taxes or borrow money. This is a shame. New Hampshire Senators, for example, are expected to vote on a supermajority proposal later this week. Here’s an excellent editorial from the Idaho Statesman and a new report from the Center on Budget and Policy Priorities about the perils of supermajorities.

• It’s been just over a month since Kansas Governor Brownback unveiled his tax plan and the criticism continues. His plan, which would raises taxes on the bottom 80 percent of the income distribution, was recently called “radical and troubling.” Attention is shifting to the House, where leaders are now introducing their own tax proposal which includes the most costly and regressive elements of the Governor’s proposal.

• Kudos to Kentucky Governor Steve Beshear for appointing his 23 member blue ribbon commission to study the  state’s tax system and propose ways to reform it.  Let’s hope they heed the governor’s call for "a tax system that produces adequate revenue that meets the needs of our people," and his admonition that there comes a time "when slashing programs and services starts a downward spiral from which recovery is too difficult and too steep."

• Good news from Nebraska, where it looks like support is weak for the Governor’s proposal to eliminate the inheritance tax.  Legislators know that revenue from this tax goes directly to counties, which would have to cut services or make up the revenues with regressive tax increases.

• Finally, in planning your Valentine’s dinner, you might think twice about eating at a Yum Brands restaurant (KFC, Taco Bell, and Pizza Hut) or serving Campbell Soup, H.J. Heinz or ConAgra Foods products.  Our Corporate Tax Dodging in the Fifty States, 2008-2010 found that, despite being profitable, these companies didn’t pay any federal corporate income taxes in at least one year between 2008-2010.

We are still analyzing the President's latest budget plan, which was released today, but there are a few things we can say right now.

Unfortunately, President Obama has once again proposed to make permanent the vast majority of the Bush tax cuts. The administration manipulates baselines to pretend that allowing the expiration of a portion of the Bush tax cuts (which are already scheduled to expire under current law) raises revenue. The budget plan would actually make permanent 78 percent of the Bush tax cuts at a cost of $3.4 trillion over the next decade.

The budget plan includes other tax provisions, including about $1 trillion in tax increases and half a trillion in tax cuts. Of course, this means that the budget plan would not come close to raising enough revenue to pay for the parts of the Bush tax cuts that would be extended.

In some ways this budget plan is an improvement over President Obama's previous budget plans. For example, while the President would still extend the Bush income tax cuts for the first $250,000 of income for married couples and the first $200,000 of income for unmarried taxpayers, his previous budget plans had partially extended the tax cut for stock dividends even for incomes in excess of those amounts. His decision this time around to allow stock dividends received by the rich to be taxed just like any other income is a step in the right direction.

Certain questions remain to be answered. For example, the Buffett Rule is sensible in concept but it’s unclear how the administration would implement it. The budget document says that the President “is proposing that the Buffett rule should replace the Alternative Minimum Tax.”

It’s unclear that the Buffett Rule could raise enough revenue to offset the cost of repealing the AMT. Even if it did, that would seem to mean that no new revenue would be produced because repeal of the AMT would cancel out the revenue effect of enacting the Buffett Rule.

Another area where more detail is needed is corporate tax reform. The administration is said to be planning a more detailed approach to overhauling the corporate income tax in a way that is revenue-neutral.

The administration should not bother attempting the overhaul the corporate income tax unless this would help resolve one of the biggest challenges we have — which is raising revenue to pay for public investments.

One of the most frequently repeated talking points used by lawmakers seeking to reduce or eliminate state personal income taxes is that doing so will usher in an economic boom.  Recently a number of observers, led by supply-side economist Arthur Laffer, have sought to bolster this argument by claiming that states lacking an income tax have economies that far outperform those in the states with the highest top tax rates.  But a new report from the Institute on Taxation and Economic Policy (ITEP) shows that the truth is exactly the opposite.

Over the last decade, economic output per person has grown significantly faster in the nine states levying a “high rate” income tax than in the nine states without an income tax at all.  And while “real” (inflation adjusted) median income levels have declined in most states, the drop has been much smaller in “high rate” states than in no-tax states.  To top things off, unemployment rates have been virtually identical across both types of states, which would undoubtedly come as a shock to anti-tax lawmakers promising that an improved job climate will come hot on the heels of income tax repeal. 

So where is the myth about booming no-tax states coming from?  The most recent claims are all based on a misleading analysis generated by Arthur Laffer, long-time spokesman of a supply-side economic theory that President George H. W. Bush once called “voodoo economic” because of its bizarre insistence that tax cuts very often lead to higher revenues.

This time around, Laffer ignores important economic measures like median income and unemployment rates in order to focus on aggregate numbers, like total growth in economic output and employment.  But the aggregate numbers are heavily skewed by changes in population, which just so happens to be growing fastest in the south and western regions of the country where most no-tax states are located.  Of course, huge population shifts like the long-running south and westward migration of the U.S. population aren’t determined by tax rates (population density, the housing market, birth rates, immigration, and climate are just a few of many factors that come into play), but this coincidence allows Laffer to suggest that such a relationship exists, even though he provides no evidence for it.

For more detail on what Laffer’s analysis misses, and how “high rate” states truly stack up relative to no-tax states, be sure to read ITEP’s recent report.

House Republicans passed a bill earlier this month to force Congress’s non-partisan tax analysts to assume that tax cuts cause less revenue loss (or even increase revenue) because they improve the economy so much.

The Pro-Growth Budgeting Act of 2011 would require Congress’s Joint Committee on Taxation (JCT), the non-partisan organization that estimates the revenue impacts of tax proposals, to include the economic feedback effect of tax cuts into their revenue estimates. Republicans call this “dynamic scoring” and often call the estimating process in use now “static scoring.” The truth is that JCT currently does take into account the behavioral effects of tax changes, but not any effects on the overall size of the economy, which usually would be small and nearly impossible to predict accurately.

The real point of the bill is to give some sort of respectability to an idea that no mainstream economists believes in — that tax cuts can partially pay for themselves or can even increase revenue. For example, Senate Minority Leader Mitch Connell is fond of claiming that the Bush tax cuts did not lead to any decrease in revenue.

As Citizens for Tax Justice’s Bob McIntyre points out, even the Bush Administration Treasury, which was packed with “appointees who profess a deep affection for Bush’s tax-cutting policies,” found in 2006 that extending the Bush’s tax cuts would have essentially no beneficial effect on the economy over the long term, and would certainly not pay for themselves.

In addition to being wrong, the House’s rewrite of the revenue estimating process is also wildly unfair. It explicitly exempts appropriations bills from dynamic scoring, which means that any positive economic impact of increased spending or negative impact of cutting spending would be ignored while tax cuts are assumed to benefit the economy.

Based on this, Bruce Bartlett, a former Republican Treasury official, worries that the bill is another step toward creating “a smokescreen to incorporate phony-baloney factors into revenue estimates to justify unlimited tax cutting.”

Photo of House Republicans via Republican Conference  and Creative Commons Attribution License 2.0

In his State of the State speech, Ohio Governor John Kasich boasted, “in six months we eliminated an eight billion dollar budget shortfall without a tax increase—eliminated it. We are now balanced. In fact, we cut taxes by $300 million.”  What the governor failed to mention is that these cuts have had enormous consequences. For example, these cuts are making it harder for senior citizens centers to stay open, forcing public libraries to go begging for local tax dollars and raising college tuition.

It doesn’t have to be this way.

Ohio lawmakers concerned with the state’s ability to meet the needs of its citizens should be looking into ways to both restore these harmful spending cuts and reverse an earlier round of regressive across the board income tax cuts passed in 2005. One step toward these ends is to follow the prescription laid out by Policy Matters Ohio (PMO) to ask the wealthiest one percent of Ohioans, whose income averages $981,000 a year, to pay 1.2 percent more in personal income tax.  In their report (which uses ITEP data), PMO says the “proposal would not change the amount of taxes paid by nearly 99 percent of Ohio taxpayers. It would affect only the most affluent, who can most afford to pay, and the increases for them would be relatively small. Yet it would allow the state to make up nearly half the cuts made to public schools and local governments in the current two-year budget.”

It’s a basic matter of fairness that state sales taxes should be applied to things we buy, regardless of whether a purchase is made online or in a brick-and-mortar store.  Back in 1992, however, before online shopping even existed, the Supreme Court handed down a ruling that made this a lot more difficult by telling out-of-state retailers (mostly catalogues back then) they didn’t have to collect sales tax – at least until the federal government says otherwise.  In recent years, the explosion in online shopping has made the issue more urgent, and we expect that in 2012 the push for a more rational online sales tax policy could reach critical mass as more states seek to restore lost revenues.

Federal legislation. Sales taxes owed on Internet purchases can’t be collected comprehensively until the federal government empowers states to require that online retailers collect the tax.  Until then, the best states can do is make use of the partial fixes discussed below.  Fortunately, a federal solution might not be as far off as it once seemed.  Multiple bills have been introduced in Congress that would allow for a comprehensive solution, and an increasingly influential coalition of state lawmakers and traditional retailers are pushing for a national law.

State legislation.  Even though federal legislation is needed to fix the online sales tax problem in its entirety, states do have tools at their disposal for chipping away at it right now.  Specifically, states can require that out-of-state online retailers collect sales taxes if they are partnered with in-state affiliate businesses, or if they have in-state subsidiaries or sister companies.  Discussion of enacting a law of this type is currently underway in Arizona, Florida, Indiana, Maryland, and Virginia, and we expect that other states will join this list soon.

State-level deals with Amazon.com.  Amazon.com has a long history of shirking its responsibility to collect sales taxes, but to its credit the company seems to have realized that it won’t be able to continue this dodge forever.  In just the last year, Amazon has struck deals with South Carolina, California, Tennessee, and Indiana to begin collecting sales taxes at a specific future date.  Recent reports say that Florida might join this list soon, as Amazon is eyeing building a distribution center in the Sunshine State – if it can convince lawmakers to let it off the tax-collecting hook for just a few more years.  We’re sympathetic to traditional retailers who point out that Amazon can and should begin collecting sales taxes sooner rather than later, and hope that this unwieldy patchwork of agreements helps build the case for a national solution.

Oklahoma’s Governor Mary Fallin finally unveiled her plan for eliminating the state income tax.  Full elimination would take a number of years, but low-income families are likely to be hit hard right away when various refundable credits are repealed.  The Institute on Taxation and Economic Policy (ITEP) plans to conduct a full analysis as soon as sufficient details are made available.

One Michigan lawmaker wants to take money away from Medicaid, education, and other programs to cover the cost of maintaining the state’s roads – costs that the state’s long stagnant gas tax can’t keep up with.  This is not the only such proposal to redirect money to cover up for lawmakers who lack the political courage to raise their state’s gas tax. Nebraska, Utah, Wisconsin, Virginia, and Oklahoma have proposed or enacted similar raids that ITEP warned of in its recent report, Building a Better Gas Tax.

The Colorado legislature is debating a boondoggle of a bill which would create a sales tax holiday the first weekend in August.  The facts are getting out that these events are expensive and don’t benefit the people who need them most.

The Virginia-Pilot has an excellent editorial on the efforts of some lawmakers to ramp up the level of scrutiny applied to billions of dollars in special interest tax breaks.  As the Pilot points out, Richmond is increasingly forcing cities and counties to pick up costs the state can’t cover, yet lawmakers threw away $12.5 billion in corporate tax breaks without any evidence they are helping Virginians.

Two tax increase initiatives appear headed for California’s November ballot that Governor Jerry Brown fears will undermine support for his own initiative to temporarily raise the sales tax and income taxes on wealthier Californians.  The competing measures are both permanent and superior in terms of fairness: a “millionaire’s tax” backed by labor groups who say it will raise $6 to $10 billion for education; and a $10 billion personal income tax hike on all Californians except for low-income families, backed by a wealthy civil rights attorney. But with three tax increasing options on the ballot, there’s a good chance the measures will cancel each other out, leaving California still in a fiscal wreck.

Photo of Jerry Brown via Randy Bayne  and Creative Commons Attribution License 2.0

A new Washington Post-ABC News poll shows that only nine percent of Americans believe the tax system works for the middle class, with 68 percent saying it actually favors the wealthy. The survey shows a public overwhelmingly convinced that our tax system is unfair and that taxes should be raised on wealthy Americans.

The belief that the tax system is unfair has surely been fueled by the recent revelation of presidential candidate Mitt Romney’s super low 14% tax rate on his $21 million income. In fact, the same poll found that 66 percent of the public generally – and even a near majority of Republicans! – believe that Romney is not paying his fair share in taxes.

Not surprisingly, then, Americans overwhelmingly support increasing taxes on the wealthy, according to this poll, with 72 percent saying that taxes should be increased on millionaires. Of course, time and time again polls have shown the public’s robust support for progressive taxation.

A Growing Gap Between Small and Big Business

In related news, a nationwide survey released by the American Sustainable Business Council, Main Street Alliance and Small Business Majority shows that small business owners are fed up with how our corporate tax system favors big corporations at the expense of small businesses.

Indeed, 9 out of 10 small business owners said that big corporations use loopholes to avoid taxes that small businesses have to pay, with three quarters of the small business owners noting that their business is harmed by such loopholes. The same survey found that 67 percent of small business owners believe big corporations pay less than their fair share.

Even when small and large busineses agree that they want more tax handouts from Congress, they're talking about very different things, according to a new Bloomberg (subscription only) poll.  Asked what tax changes would help them most, advisors to smaller businesses prioritize things like reducing payroll taxes on employers and making permanent the deduction for self-employment. Big business priorities included 100 percent expensing (a.k.a. bonus depreciation) of equipment and complete overhaul of the corporate tax code – including a reduced tax rate.

These studies are more reason corporate lobbyists and their patrons in Congress should stop pretending they’re all about small business. They’re not.

New Jersey Governor Chris Christie made a bold and reckless promise in his January State of the State address: a personal income tax cut for all.  His plan is to gradually reduce income tax rates by 10 percent across the board, at a cost of $1 billion a year once fully implemented.

Democratic lawmakers and public interest advocates were quick to point out one very big problem with Christie’s plan: the state simply cannot afford it.  The Governor has yet to say how he would pay for it, yet the likely scenario is more cuts to education spending and local aid which would, in turn, force local governments to increase property taxes to make up the difference.  As Senate President Stephen Sweeny said, “it’s taking money out of one pocket and putting it in another.”

And, now thanks to an analysis by the nonpartisan NJ Office of Legislative Services (OLS), we know exactly which pockets will be fuller as a result of Christie’s grand plan.  It’s no surprise given Christie’s past allegiance to millionaires that the wealthiest New Jerseyans stand to gain the most from a billion dollar cut in one tax (personal income) that will likely force an increase in another (property). 

Even if property taxes are not increased as a result of Christie’s proposals, New Jersey families are already paying more in property taxes in recent years thanks to Christie’s reductions in property tax credits and rebates (all of which could be restored for a smaller price tag than the proposed personal income tax cut).

OLS’s findings are consistent with the Institute on Taxation and Economic Policy’s (ITEP) research on the share of income New Jerseyans pay in state and local taxes.  Both OLS and ITEP agree – low and middle-income families spend a greater share of their income on property taxes than on income taxes.  The reverse is true for New Jersey’s wealthiest families, which is why a cut in income taxes, accompanied by an increase in property taxes, will make an unfair situation even worse.

Rather than a “tax cut,” Christie’s plan is more accurately characterized as a “tax swap.”  New Jersey Policy Perspective’s Deborah Howlett called the plan “a gimmick."  Indeed. The plan is based on projected revenues which may or may not materialize. The Governor said that if they do, however, this tax cut will be at the top of his list of ways to spend whatever extra money trickles in. There are more important things at the top of a lot of his constituents’ lists, however, including restoring those property tax credits.

Photo of Governor Chris Christie via Bob Jagendorf Creative Commons Attribution License 2.0

Citizens for Tax Justice Director, Bob McIntyre, writes in The the Hill's Congress Blog today:

....Just as Ronald Reagan and a bipartisan Congress did in the Tax Reform Act of 1986, we should crack down on wasteful, often harmful corporate tax subsidies. The 1986 reforms curbed useless tax breaks for oil companies, public utilities, defense contractors and a wide array of corporate special interests. It rewrote the way we tax multinational corporations to make it harder for them to avoid their U.S. tax responsibilities by moving their U.S. profits to foreign tax havens. And by doing so, it made our economy more productive and increased corporate tax payments by more than a third.

Indeed, if just the 280 corporations that CTJ analyzed in our 2011 study had paid the full 35 percent corporate tax rate on their U.S. profits over the 2008-10 period (instead of only half that much), they would have paid an additional $223 billion in corporate income taxes.

Read the full essay here.

• Kudos first to Washington State Representative Marko Liias who introduced a bill that requires the wealthiest Washingtonians to pay a two percent income tax to help fund education. This is big news because Washington doesn’t currently levy ANY income tax.
• Washington Post Columnist Robert McCartney rightly applauds Maryland Governor O’Malley’s “courage on taxes.” McCartney is right when he says that in terms of tax hikes, “What’s scary in the short term might pay off down the road — not only for politicians, but also for the state.”
• This week, Jeff McLynch from the New Hampshire Fiscal Policy Institute presented testimony to the Commission to Study Business Taxes.  His group opposes the Commission’s draft recommendations first and foremost on the grounds that it would cut state revenues dramatically, leading to program cuts.  He also points out that the Commission’s proposed change to a “Single Sales Factor” corporate income tax apportionment formula could well have the unintended consequence of deterring many types of companies from making the Granite State their home.
• Interested in an inspiring, principled op-ed about what real tax reform means? Read this, from Kentucky.

(See CTJ director's full explanation of Facebook's use of the stock option deduction here.)

Facebook, Inc.’s upcoming initial public stock offering (IPO) paperwork reveals that it plans to wipe out all of the company’s federal and state income tax obligations for 2012 and actually generate a half billion dollar tax refund. As part of the plan, Facebook co-founder and controlling stockholder, Mark Zuckerberg can expect a $2.8 billion after tax cash windfall.

According to Facebook’s SEC filing, the company has issued stock options to favored employees, including Zuckerberg, that will allow them to purchase 187 million Facebook shares for little or nothing in 2012. Options for 120 million shares (worth $4.8 billion) are owned by Zuckerberg. The company indicates that it expects all of the 187 million in stock options to be exercised in 2012.

The tax law says that if a corporation issues options for employees to buy the company’s stock in the future for its price when the option issued, then if the stock has gone up in value when employees exercise the options, the company gets to deduct the difference between what the employee bought it for and its market price.

When, as Facebook expects, the 187 million stock options are cashed in this year, Facebook will get $7.5 billion in tax deductions (which will reduce the company’s federal and state taxes by $3 billion). According to Facebook, these tax deductions should exceed the company’s U.S. taxable 2012 income and result in a net operating loss (NOL) that can then be carried back to the preceding two years to offset its past taxes, resulting in a refund of up to $500 million.

Senator Carl Levin, who has proposed to limit the stock option loophole, told the New York Times, “Facebook may not pay any corporate income taxes on its profits for a generation. When profitable corporations can use the stock option tax deduction to pay zero corporate income taxes for years on end, average taxpayers are forced to pick up the tax burden. It isn’t right, and we can’t afford it.”

To be sure, Zuckerberg will have to pay federal and state income taxes (at ordinary tax rates) when he exercises his $4.8 billion worth of stock options in 2012. That’s only fair, since that $4.8 billion obviously represents income to him. But even after paying taxes, he’ll still end up with $2.8 billion.

The problem isn’t Zuckerberg’s personal taxes but Facebook’s. Why should companies get a tax deduction for something that cost them nothing?  If an airline allows its workers to fly free or at a discounted price on flights that aren’t full (for vacations, etc.) airlines don’t get a tax deduction (beyond actual cost) for that, even though the workers get taxed on the benefit, because it costs the airline nothing.

In the case of stock options, there is also a zero cost to the employer. So it’s more reasonable to conclude that while employees should be taxed on stock option benefits (“all income from whatever source derived” as the tax code states), employers should only be able to deduct their cost of providing those benefits, which, in the case of Facebook and Zuckerberg, is zero.

The bottom line is that there’s something obviously wrong with a tax loophole that lets highly profitable companies like Facebook make more money after tax than before tax. What’s about to happen at Facebook is a perfect illustration of why non-cash “expenses” for stock options should not be tax deductible.

See page 12 of our Corporate Taxpayers and Corporate Tax Dodgers report for more about the 185 other companies we found exploiting the stock option loophole.

Photo of Facebook Logo via Dull Hunk and photo Mark Zuckerberg via KK+ Creative Commons Attribution License 2.0

Note to Readers: Over the coming weeks, the Institute on Taxation and Economic Policy will highlight tax policy proposals that are gaining momentum in states across the country.  This week, we’re taking a closer look at proposals which would increase state revenues to pay for important public investments. 

Given the number of Governors calling for major tax cuts in their states, you’d think that states are suddenly awash in cash and well on the road to economic recovery.  But the reality is that very few states are back to where they were before the recession hit in terms of tax collections and public spending.  Many were limping along with federal stimulus funds, but now that’s dried up, too. Recognizing the need to begin restoring investments in education, transportation, and health care or prevent even more devastating cuts to these services, a handful of Governors have put tax increases on the table.  The proposals range from across-the-board rate increases to tax hikes only on the wealthiest, permanent to temporary changes, and plans that require only legislative approval to ballot initiatives for the public to decide.

California Governor Jerry Brown is taking his proposed tax increase to the voters in November.  In an effort to prevent damaging cuts to public education, Brown is asking wealthy Californians to pay more income taxes and everyone to chip in with a higher sales tax for the next five years.  A recent poll shows Californians are overwhelmingly on his side- more than 2/3rds of those surveyed support the Governor especially when the tax increases are linked to investments in education.

Maryland Governor Martin O’Malley included several revenue raising measures in his recent budget proposal to help close a $940 million gap.  Most notable is a plan to raise taxes on upper-income Marylanders through limiting the amount of itemized deductions and personal exemptions they are able to claim - a recommendation ITEP made last year.

O’Malley also proposed taxing internet transactions, digital downloads and increasing taxes on tobacco products and the state’s “flush tax.”  He recently announced a plan to apply the sales tax to gasoline rather than an increase in the designated gas tax to address transportation needs in the state.

Washington lawmakers are facing off on how best to address a $1 billion budget gap this year.  Governor Christine Gregoire is pushing for a temporary half-cent sales tax increase that would raise roughly $500 million, and to close the remaining gap with spending cuts.  At least two competing proposals, however, have emerged that would raise needed revenue and improve the fairness of the state’s tax structure.  The first is a one percent tax on corporate and personal income that would raise $500 million and allow for a reduction in the state’s sales and business-occupations taxes. Another plan would tax realized capital gains at five percent, raising between $215 million and $650 million a year. 

Given Washington’s restrictive rules on revenue-raising (a two thirds legislative supermajority is required to enact increases), any proposed tax increase will likely end up on a ballot (which a legislative simple majority can implement) for the voters to decide this Spring or Fall.

North Carolina Governor Beverly Perdue recently proposed reinstating most of a temporary sales tax increase that expired last year.  She wants to invest the $800 million the tax would raise in the state’s public schools, community colleges and universities, all of which suffered massive cuts over the past four years.

Massachusetts Governor Deval Patrick is promoting some revenue raising ideas he says are supported by the public.  His $230 million revenue package includes a 50 cent per pack increase in the cigarette tax (bringing the total to $3.01), increases on other tobacco products, expanding the bottle bill so that a wider range of beverages require a redeemable nickel deposit, and taxing candy and soda at the state’s 6.25 percent rate (both are currently exempt from taxation).

Rhode Island After failing to gain legislative support last year for his reform-minded and sensible tax plan, Governor Lincoln Chafee has offered up a hodgepodge of tax changes this year he thinks lawmakers can stomach.  Chafee’s$88 million tax package includes some modest expansion of the sales tax to items such as taxi and limousine rides and pet services.

Photo of Christine Gregoire via Studio 8, photo of Deval Patrick via Green Massachusetts, and photo Jerry Brown via Steve Rhodes Creative Commons Attribution License 2.0

Grassroots groups throughout the country have used Citizens for Tax Justice’s report “Corporate Taxpayers & Tax Dodgers,” to pressure lawmakers to clean up the tax code. Here’s a sample of what some groups have done in California, Massachusetts, Minnesota, Texas, and Washington.

California: A coalition of activist groups, including SEIU, the Teamsters, Good Jobs LA, and Occupy LA, rallied in Hollywood to protest FedEx’s less than one percent corporate tax rate over the last three years. Good Jobs LA explained that the $552 million in tax subsidies that FedEx received in 2010 alone could have been used to create over “1,000 jobs, contributed tens of millions for Medicaid and food stamp benefits, and added more than $11 million for education programs.”

Massachusetts: MassUniting and Occupy Boston rallied at the Boston headquarters of General Electric (GE), perhaps the most infamous tax dodger due to its astounding negative 45.3 percent tax rate. Many of the protestors carried signs reading “I Paid More in Taxes than General Electric.”

Minnesota: Minnesotans for a Fair Economy marked the beginning of the state’s legislative session by demonstrating against Wells Fargo, which received a shocking $17.9 billion in federal tax breaks wiping out its taxes for the last three years. The protestors emphasized that Minnesota legislators have continuously prioritized corporate tax breaks over critical investments in education.

Texas: The community group Good Jobs Great Houston took to the streets (and brought a pig along with them) to protest the “Dirty Thirty,” a group of companies that spend hundreds of millions of dollars to lobby Congress, yet pay nothing taxes. The protest took place outside the headquarters of Centerpoint Energy, which earned its place in the “Dirty Thirty” for the $1 billion in tax breaks it received over the past three years.

Washington: The advocacy group Working Washington held a rally against Wells Fargo's corporate tax dodging at the bank’s Seattle corporate offices. To demonstrate their opposition to corporate tax breaks, the protesters brought along a giant check depicting the $17.9 billion in tax subsidies that Wells Fargo has received over the last few years.

Photos via Good Jobs LA and Good Jobs Great Houston

• Institute on Taxation and Economic Policy’s (ITEP) Executive Director, Matthew Gardner, carried the torch for progressive corporate income tax reform in New York during his visit to Albany this week. He briefed legislative staff and the press on ITEP’s recent report, Corporate Tax Dodging in the Fifty States, 2008-2010, which found that twenty profitable Fortune 500 companies paid no state corporate income taxes over the last three years, and 68 paid none in at least one of those three years.
• The Michigan League for Health and Human Services reminds Michiganders about the upcoming $1.6 billion in tax cuts for businesses that will be made up by raising taxes on low- and middle-income families and retirees. The League (with some help from ITEP) found that the poorest Michigan families will be hurt substantially by the upcoming changes compared to better-off taxpayers.
• New Hampshire Governor John Lynch is urging the legislature to restore the cigarette tax to $1.78. The Governor said in his State of the State address, “The cut in the tobacco tax was nonsensical. That money would have been better spent in our community college and university systems, for example.” One legislator called the legislature’s ten cent cut in the tax last year a giveaway to out-of-state tobacco companies.
• Last year, Wisconsin Governor Scott Walker proposed, and the legislature approved, freezing the state’s homestead property tax exemption. The Wisconsin Budget Project released a report this week showing that because the tax credit will no longer keep up with inflation, “working families and the elderly will be hit with a $14 million property tax increase over the next two years, and see their taxes continue to rise in later years.”
• Republicans in the Minnesota Senate are pushing a plan that would completely eliminate the state’s business property taxes and leave a “more than $800 million dollar hole in the general fund.” Democrats are fighting back, saying the bill will boost Wal Mart’s bottom line but won’t create any jobs.

On Tuesday, the Congressional Budget Office reported that the federal budget deficit will fall from $1 trillion this year to less than $300 billion over the next several years — but only if Congress can resist enacting budget-busting laws like another extension of the Bush tax cuts, which would more than double the projected deficit.

Budget experts have long known that our deficit would be largely under control if Congress would simply stop extending the Bush tax cuts. But this might be news to anyone who listens to lawmakers insisting that public services must be cut dramatically to balance the budget.

What these lawmakers really mean, but never say, is that public services would need to be slashed to pay for a further extension of the Bush tax cuts — despite the lack of any evidence that these tax cuts have helped America.

The CBO report shows that extending the Bush tax cuts through the next decade would cut revenues by $4.6 trillion over the next ten years, and cost an additional $0.8 trillion in interest payments on the national debt — thus adding a total of $5.4 trillion to the national debt!

In the face of these frightening numbers, Republicans in Congress want to extend all of the Bush tax cuts. The Democrats are not much better. President Obama has proposed to extend about 81 percent of the Bush tax cuts, and most Congressional Democrats have followed his lead. 

Even organizations that have the ostensible purpose of promoting a balanced federal budget fail to see that Congress could help the budget situation dramatically by simply refusing to pass any more tax cuts. For example, take this statement about the CBO report from the Committee for a Responsible Budget:

The good news is that under current law assumptions, the debt would become more manageable in the medium term. The bad news is that these policy assumptions are politically unrealistic, suboptimal, and not a long-term fix.

Why would the so-called “Committee for a Responsible Budget” first acknowledge that the government will approach budget balance if Congress does nothing, and then insist that Congress has to pass laws that take us off that path? What’s so “suboptimal” about allowing the Bush tax cuts to expire?

Their argument is that the economy will suffer if the tax cuts expire at the end of this year. The Republicans in Congress make a much more extreme claim, which is that the economy will suffer if any portion of the tax cuts ever expires.

None of this is supported by evidence. Expiration of the Bush tax cuts would allow taxes to return to the levels in place at the end of the Clinton years. If anyone is worried about tax policies that are “suboptimal” for the economy, they should not fear the tax rates that existed during the boom years that Clinton presided over. If we need further short-term stimulus next year, then there are far better, fairer and less costly ways to achieve it.

Sometimes, lawmakers and others claim they worry that low- and middle-income people will suffer if they have to pay Clinton-era tax rates again.

This is absurd. A fact sheet from CTJ shows who would benefit from another extension of the Bush tax cuts. The folks who are struggling the most in America today, the poorest fifth of taxpayers, would receive just 1.1 percent of the tax cuts in 2013. The bottom three-fifths of taxpayers would receive just 13.4 percent of all the tax cuts.

On the other hand, the richest five percent of taxpayers would receive 47.2 percent of the tax cuts, and the richest one percent alone would receive 31.3 percent of the tax cuts.

It’s reasonable to argue that the parts of the Bush tax cuts that go to low-income Americans should be made permanent, because they help people who truly need help. These include, for example, the provisions that expand the Earned Income Tax Credit and the refundable part of the Child Tax Credit.

But low-income tax breaks represent only a small part of the cost of overall Bush tax cuts. So Congress could and should extend those parts of the tax cuts that go to people who need them without busting the budget. If Congress instead sends President Obama another bill extending all or most of the Bush tax cuts, then he should get out his veto pen.

We can’t be the only ones left scratching our heads after reading a recent New York Times story headlined Second Year In, Republican Governors Moderate Tone.  After all, on the very same day an Associated Press story ran with the headline Emboldened GOP wants to abolish state income taxes.

So which is it? Moderate, or ready to abolish what’s left of fair tax structures in the states?

When it comes to taxes it’s the latter; governors across the country are looking to make state tax systems – already uniquely regressive – even worse. 

Politicians are generally reluctant to ruffle voters’ feathers in years that include contests to elect a president, fill 33 U.S. Senate seats, all 435 offices in the U.S. House, and numerous statewide offices, so this might explain the conciliatory tone the New York Times detects.  But in spite of that general reluctance, some governors’ plans for their states’ tax systems are anything but moderate.

The AP story covers some ground we’ve written about here and here.  In South Carolina, Republican Governor Nikki Haley wants to eliminate the corporate income tax and cut personal income taxes by collapsing the state’s current six tax brackets to three.

In Oklahoma, a legislative task force report states that the governor and legislators should be able to make Oklahoma a “no income tax state” in seven to 10 years. Governor Mary Fallin is poised to act on this recommendation and will likely support a reduction in the state’s personal and corporate income tax rates this year.

And in Kansas, under Republican Governor Sam Brownback’s radical tax proposal, Kansans earning less than $25,000 a year would pay an average of $156 more in income taxes while those making more than $250,000 would see an average cut of $5,200 a year. And here’s the kicker – these findings are actually from Brownback’s own Kansas Department of Revenue!

In fact, the Institute on Taxation and Economic Policy (ITEP) found that when you look at all the components of the Kansas governor’s plan, the bottom 80 percent of the state’s income distribution would collectively see a tax hike under the Brownback plan, while the best off 20 percent of Kansans would see substantial tax cuts.

All of these measures take tax systems that are already unfair and make them even worse. All of these measures do further harm to those who have little while further stuffing the pockets of those who have plenty. All of these measures erase revenues that help to pay for essential public services for each and every resident of the state.

None of these ideas are “moderate,” and all of these measures should fail.

Photo of Nikki Haley via Mary Austin and photo of Sam Brownback via KDOTHQ Creative Commons Attribution License 2.0