• The Institute for Research on Poverty at the University of Wisconsin-Madison released a report showing that Wisconsin poverty rates actually dropped between 2009 and 2010 – from 11.1 to 10.3 percent – thanks to safety net programs that were effective in keeping people out of poverty during the recession. The Institute’s director praised the earned income tax credit and food stamp programs saying that they “have done a fantastic job in this recession.”

• Rhode Island’s House Committee on Finance considered five bills this week that would raise income taxes on the wealthiest Rhode Islanders.  Read ITEP’s testimony to learn how these proposals are the best option for Rhode Island policymakers who want to both raise revenue and improve tax fairness.

• Massachusetts Governor Deval Patrick created a special Tax Expenditure Commission last year to examine the more than $26 billion in tax breaks the state hands out each year (which amounts to more money than the state is expect to take in this year!).  After months of meeting, the members unanimously approved a report that the Commission Chair referred to as a “comprehensive roadmap” to reforming the system.  Many of the Commission’s recommendations mirror those in CTJ’s recommendations for cleaning up state tax codes – and the process by which they are modified. The 8 formal recommendations in Massachusetts include: reducing the number and cost of current tax expenditures; periodically reviewing expenditures and including an automatic sunset every five years; and identifying and publishing clear policy purposes and outcomes for each expenditure.

• And this article is about a sales tax holiday for meals that’s been proposed as an actual piece of legislation in Massachusetts.  A week long sales tax holiday on meals purchased at restaurants? Sounds like a boondoggle of a loophole to us. Thankfully, commonsense prevailed and the idea was solidly defeated.

Arthur Laffer recently teamed up with Stephen Moore, his friend on The Wall Street Journal’s editorial board, to pen yet another opinion piece on the benefits of shunning progressive personal income taxes.  Most of the article’s so-called “analysis” is ripped from Laffer reports that we’ve already written about, but there was one new claim that stands out.  According to Laffer and Moore, “Georgia, Kansas, Missouri and Oklahoma are now racing to become America's 10th state without an income tax.”  If this is true, it’s news to us.  So let’s take a look at the most recent reporting on these states’ tax policy debates.

In Georgia, the state’s legislative session ended almost a month ago with the passage of a modest tax package.  Last year, Georgia lawmakers debated levying a flat-rate income tax, but that effort (which should have been easy compared to outright income tax repeal) failed and left lawmakers with little interest in returning to the issue.

The debate over the income tax debate in Kansas isn’t quite done yet, but the most recent news from The Kansas City Star is that “lawmakers say the tax reform package they'll consider next week almost certainly will fall far short of the no-income-tax goal.”

In Missouri, a number of media outlets are reporting that the push to get income tax repeal on the November ballot is all but over because a judge ruled that the ballot initiative summary that proponents of repeal proposed to put before voters was “insufficient and unfair.”

And in Oklahoma, what started as an enthusiastic push for big cuts or even outright repeal of the income tax has since been watered down into something less ambitious.  The most likely outcome is a cut in the top rate of no more than one percent, although lawmakers are still toying with the idea of tacking on a provision would repeal the income tax slowly over time (so the hard decisions about what services to cut won’t have to be made for a number of years).  But in any case, budget realities have left lawmakers in a position where they’re hardly “racing” to scrap this vital revenue source.

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

Representing a remarkable defeat for corporate tax dodgers, a spokesman for the so-called "Win America Campaign" confirmed this week that it has “temporarily suspended” its lobbying for a tax repatriation amnesty. The coalition of mostly high-tech companies pushed for months for a tax amnesty for repatriated offshore corporate profits. The campaign once seemed unstoppable because so many huge corporations, and veteran lobbyists with ties to lawmakers, were behind it. 

What supporters call a tax "repatriation holiday," or more accurately, a tax amnesty, allows US corporations a window during which they can bring back (repatriate) foreign profits to the US at a hugely discounted tax rate. The holiday’s proponents argue this would encourage multi-national corporations to bring offshore profits back to the US.

CTJ has often pointed out that the only real solution is to end the tax break that encourages U.S. corporations to shift their profits offshore in the first place — the rule allowing corporations to defer (delay indefinitely) U.S. taxes on foreign profits. Deferral encourages corporations to shift their profits to offshore tax havens, and a repatriation amnesty would only encourage more of the same abuse.

The Win America Campaign and its long list of deep pocketed corporate backers (including Apple and Cisco) spared no expense in pushing the repatriation amnesty, spending some $760,000 over the last year. This sum allowed the coalition to hire a breathtaking 160 lobbyists (including at least 60 former staffers for current members of Congress) to promote their favored policy in Washington.

So what prevented Win America from winning its tax amnesty? It was the steady march of objective economic studies put out by groups from across the political spectrum demonstrating how the holiday would send more jobs and profits offshore and result in huge revenue losses.

One of the toughest blows the repatriation amnesty took came from the well-respected Congressional Research Service’s (CRS) report showing what happened last time: the benefits from the repatriation holiday in 2004 went primarily to dividend payments for corporate shareholders rather than to job creation as promised. In fact, the CRS found that many of the biggest corporate beneficiaries of the 2004 holiday had since actually reduced their US workforce.

On top of this, the bipartisan and official scorekeeper in Congress, the Joint Committee on Taxation (JCT), found that a new repatriation holiday would cost $80 billion, which is a lot of money for a policy that would not create any jobs. Advocates for the tax holiday responded with studies of their own claiming the measure would actually raise revenue, but Citizens for Tax Justice (CTJ) immediately debunked the bogus assumptions underlying these reports. 

On top of the solid research there was the incredible and rare consensus among policy think tanks across the political spectrum to oppose the measure. The groups opposing a repatriation holiday included CTJ, Tax Policy Center, Tax Foundation, the Center on Budget and Policy Priorities and Heritage Foundation, to name a few.

The suspension of lobbying for the repatriation amnesty is a victory for ordinary taxpayers. And while the Win America Campaign isn’t dead – one lobbyist promised that "if there was an opportunity to move it, the band would get back together and it would rev up again" – its setback validates our work here at CTJ on corporate tax avoidance in all its forms. 

This week brought news of a few more states tackling the challenge of taxing purchases made over the Internet in the same way as purchases made in “brick and mortar” stores.  Nevada and Tennessee got agreements from Amazon.com, the mother of all online retailers, to start doing its part to collect those taxes, and it looks like Massachusetts isn’t far behind.

• In Nevada, Amazon.com will begin collecting sales taxes in 2014 under a new agreement announced on Monday.  The company already has major warehouses and distribution centers in the state.  Amazon’s agreement with Nevada is similar to deals struck in California, Indiana, South Carolina, Tennessee, and Virginia.
• As in Nevada, Amazon’s deal to begin collecting sales taxes in Tennessee won’t take effect until 2014, but a lesser known part of that agreement has already taken effect.  Amazon is mailing notices to all its Tennessee customers from throughout the past year letting them know that they may owe sales tax on the items they bought from the company, even though Amazon didn’t collect those taxes for them.  Similar annual notices will be sent by February 1st in both 2013 and 2014.
• The Massachusetts Main Street Fairness Coalition is continuing its calls for the state to require that Amazon collect sales taxes, and The Boston Globe just chimed in to support the idea as well.  As the Globe explains, the company’s new offices in Massachusetts should be enough to bring the company within reach of the state’s sales tax collection laws.

Of course, these efforts are only partial solutions at best.  Amazon.com may be the world’s biggest online retailer, but they’re hardly the only one.  Nevertheless, until the federal government acts to allow all states to enforce their sales tax laws on all purchases, these piecemeal victories are the best news we can hope for.

• The Maryland Budget and Tax Policy Institute just unveiled a “Doomsday Clock” on their website.  The countdown shows how many days are left until massive budget cuts take effect on July 1.  The Institute explains that these cuts can be avoided if Governor O’Malley calls a special session and lawmakers pass the progressive income tax package agreed to in conference committee.

• Former Mississippi Governor Haley Barbour continues to lobby for taxing internet sales even after leaving the Governor’s mansion. In fact, in his farewell address to Mississippians the Governor said, “It is time for the federal government to allow Mississippi and every other state to choose to enforce our laws and to collect these taxes. They are owed us today, and there is no longer any public policy reason to keep us from collecting. Indeed, good public policy says it is past time that our brick-and-mortar merchants on Main Street and in our shopping centers get a level playing field with Amazon and the Internet. That they get fair treatment for paying our taxes.”

• Thanks to an obscure tax loophole which offers Iowans the ability to write off all of their federal income taxes paid, Governor Terry Branstad had a 2011 tax bill of just $52. One state senator is pondering whether or not the state needs a “Branstad rule” to ensure that upper income Iowans pay more in state taxes. The Governor’s lack of a tax bill illustrates just how preposterous the loophole is – and why there are only six states that allow it.

• Now that the rush to make sure our taxes are filed on time is over, here’s a downright beautiful essay from a priest in Kansas reminding us the good that comes from all the frenzy.

• Here’s a thoughtful editorial from the St. Cloud Times describing Minnesota’s need to fund important transportation projects. Lawmakers there are looking into toll roads because the political will to raise gas taxes doesn’t exist – yet the editors rightly conclude, “It’s not that we oppose building this bridge or expanding roads. It’s just that the fairest revenue stream to do so is the gas tax. Legislators just need the courage to adjust it as needed.” To see how Minnesota’s gas tax has effectively shrunk over time, check out this chart from the Institute on Taxation and Economic Policy (ITEP).

Virginia Governor Bob McDonnell just signed into law the expansion of a tax break meant to support “manufacturing” that has, in fact, been used to subsidize everything from making movies to designing homes to roasting coffee. The break piggybacks on the federal deduction for “Qualified Production Activities Income” (QPAI), which was first proposed in the early 2000’s as a way to benefit US-based manufacturers.  As the proposal made its way through Congress, however, it morphed into a loosely defined tax break that Starbucks, for example, has been able to use to get $40 million knocked off its tax bill over the last few years. Walt Disney, Halliburton, Altria and the Washington Post Company are among scores of companies - not known for manufacturing - that have successfully exploited this loophole.

In most cases, state corporate tax law is based on the federal corporate tax, which means that when Congress creates an expensive giveaway like the QPAI deduction, the states go ahead and offer the same break for reasons of simplicity.  But 22 states have specifically decided that this break isn’t worth the cost, and have “decoupled” their laws from that part of the federal code.  Unfortunately, Virginia is moving in exactly the opposite direction.

The Virginia Department of Taxation estimates that this recent expansion of the state’s QPAI deduction will drain somewhere in the neighborhood of $10 million from the state’s coffers each year. Worse, Virginians can’t expect much of a return on that $10 million “investment.”  As the Institute on Taxation and Economic Policy (ITEP) explains:

“The QPAI deduction has little value as an economic development strategy for individual states, because a corporation can use the QPAI deduction to reduce its taxable income for “domestic production” activities anywhere in the United States. That is, a multi-state company that engages in manufacturing activities in Michigan will be able to use those activities to claim the QPAI deduction—and thus cut its taxes—in any state that offers the deduction, even if the company does not have manufacturing facilities in those states.

Eliminating state QPAI deductions was recently proposed in a joint CTJ-ITEP report as a way to improve the adequacy and fairness of state corporate taxes.  That report showed that many profitable companies – including some headquartered in Virginia – are paying at a rate equal to less than half the average statutory state corporate tax rate.  Loopholes like QPAI are the reason.

Photo of Gov. Bob McDonnell via Gage Skidmore Creative Commons Attribution License 2.0

Missourians can write off up to $5,000 in federal income taxes paid ($10,000 for married couples) on their state income taxes. Missouri is one of only six states that offer this deduction and it cost the state about $400 million in 2011. Calling it a “costly tax code luxury that produces no noticeable public benefit,” the St. Louis Post Dispatch blasted the deduction in an editorial today.

The editors also note that State Representative Jeanette Mott-Oxford recently offered an amendment to House Bill 1661 which would eliminate the deduction entirely, and that her legislation would significantly offset a crippling budget deficit which is projected to exceed $500 million next year.

In the House floor debate over her amendment, Representative Mott-Oxford cited the Institute on Taxation and Economic Policy’s Topsy Turvy: State Income Tax Deductions for Federal Income Taxes Turn Tax Fairness on its Head. This 2011 report found that 83 percent of the benefit of the deduction goes to the top 40 percent of taxpayers in Missouri while those in the bottom 20 percent receive zero benefit from it.

In spite of its $5,000 cap (which makes Missouri’s deduction somewhat less irrational than other states’), treating federal income taxes as a deductible expense is costing the state eight percent of its income tax revenues and the figure will rise if federal income taxes on the wealthiest filers also rise, according to ITEP’s study.

Her legislation faces a daunting political gauntlet it’s not likely to survive, but Missourians should thank Rep. Mott-Oxford for pushing them closer to the day when this loophole is finally eliminated.

Yesterday, Eric Cantor, the Republican House Majority Leader, announced that those taxpayers who pay federal payroll taxes and other types of taxes, but who don’t have enough income to owe federal personal income taxes, should be required to pay the federal personal income tax as well. Cantor made his remarks at an event (subscription required) hosted by Bank of America.

“We also know that over 45 percent of the people in this country don’t pay income taxes at all,” Cantor said, “and we have to question whether that’s fair. And should we broaden the base in a way that we can lower the rates for everybody that pays taxes... Should they even have a dollar in the game on income taxes, which is the notion of broadening the base.”

When asked if this would mean “a tax increase on the 45 percent who right now pay no federal income tax,” Cantor said, “I’m saying that, just in a macro way of looking at it, you’ve got to discuss that issue.”

CTJ’s figures show that Americans in every income group do, in fact, pay taxes and that the tax system as a whole (including all the types of taxes that Americans pay) is just barely progressive.

For example, in 2011 the richest one percent of Americans paid 21.6 percent of the total (federal, state and local) taxes but also received 21 percent of the total income in the U.S. that year. Similarly, the poorest fifth of Americans paid just 2.1 percent of the total taxes in the U.S., but only received 3.4 percent of the total income in the U.S. In other words, the richest one percent are not paying more than their share, and the poorest Americans are not getting much largesse from the tax system.

The term “broadening the base” has often been used to describe a tax reform that would end the various loopholes and tax subsidies that reduce the amount of revenue a given tax at given rates can collect.

Republican House Budget Chairman Paul Ryan recently made it clear that his idea of base-broadening would not involve repealing those tax loopholes and tax subsidies that benefit wealthy investors (the tax preferences for capital gains and stock dividends which mostly benefit the richest one percent). Cantor’s comments suggest that, like Rep. Ryan, he is interested in ending those tax subsidies that benefit the lower-income or middle-income households but not those benefitting the rich.

Several tax expenditures in the federal personal income tax reduce or eliminate the federal personal income tax for many lower-income and middle-income Americans. The refundable Earned Income Tax Credit and the Child Tax Credit are available only to those who work and therefore pay federal payroll taxes. The rules exempting most Social Security income benefits people who paid taxes over the course of their working lives. The standard deduction and personal exemptions ensure that people whose income does not meet a basic threshold are not subject to the personal income tax, similar to how corporations that are not profitable are not expected to pay the corporate tax. (Our complaints about corporations are limited to those that are profitable and still manage to pay no corporate income taxes.)

It’s unclear if Cantor is proposing to repeal the EITC and the Child Tax Credit, or the rule exempting most Social Security benefits from income taxes, or the standard deduction and personal exemptions, or what exactly. Any of these options would take a tax system that is just barely progressive and make it regressive.

We’ve long advocated for taxes that have a broad base. Tax structures that abide by this principle don’t pick winners and losers and, importantly, they keep revenues more stable in the long run.  In South Carolina earlier this week, a House subcommittee took a positive step in this direction when it voted to eliminate several exemptions to the sales tax, including the sales tax holidays for guns and back-to-school purchases.  The increased revenues would allow an overall reduction in the sales tax rate.

But when the legislation went to the full House Ways and Means Committee, it was amended. Instead of the $250 million worth of exemptions the original bill contained, the amended version only returns about $15 million in revenues to the state’s budget.

Among the unwise exemptions restored were the two sales tax holidays, which do little to help the taxpayers they’re supposed to help and don’t seem to boost local economies, either.  The Republican sponsor of the original legislation, Rep. Tommy Springer, said of sales tax holidays, “We researched tax analysis, tax reports and the evidence does not suggest they actually save money.” But as an astute Carolinian told the local news, had they ended those holidays, even if it meant a lower year round tax rate, “I don't think your typical citizen is going to see it as anything other than taking something away from them, because they've become accustomed to it.”  

Though the bill has been pared back considerably, Springer is hopeful that a fundamental piece of the legislation will be approved: the requirement that any sales tax exemptions be automatically re-evaluated every five years.  Mandating evaluation of tax expenditures is a good idea; too often these loopholes become permanent features of budgets – and sources of deficits – long after their usefulness has passed.  They aren’t the same as real tax reform that broadens the base and lowers the rate, but the transparency they afford helps build the case for progressive reform.

Photo of South Carolina State House via Richard Boltin Creative Commons Attribution License 2.0

On Tax Day 2012, thousands of people throughout the country rallied in favor of progressive taxation and against the low (or sometimes zero rates) paid by the wealthiest Americans and corporations. These protests were the latest in the growing progressive tax movement dubbed “Tax Revolt 2.0” for its focus on tax fairness rather than tax cuts.  As one commentator declared, "Tax Day doesn't belong to the Tea Party anymore."

The popularity of these protests should be no surprise considering that 68 percent of Americans believe the current tax system benefits the rich and is unfair to ordinary workers. While efforts by grassroots groups have begun to change the conversation about tax fairness, these tax day 2012 protests reveal a reach and momentum that show no signs of receding.

You could hardly travel around the US on tax day this year without running into one of over 200 rallies including: Los Angeles, Fort Worth, Kansas City, Boston, Duluth, Grand Rapids, Bangor, Chicago, Pittsburgh, Green Bay, New York City, Ames, Toledo, Kalamazoo, Newark, Seattle, and many, many more.

While the broad theme of the nationwide protests was tax fairness, the targets differed. In Jersey City, NJ for instance, protestors rallied at their local Wells Fargo bank to call out the company for its role as an infamous tax dodger, while protestors in Tuscon, AZ held their rally at a local post office to highlight how the failure to tax wealth results in the loss of jobs and critical public institutions like the Postal Service.

To be sure, the anti-tax lobby is well established, but you gotta’ believe that activists as energetic and creative as these will win the day:

Photo of the "Tax Dodgers" via  D*Unit Creative Commons Attribution License 2.0

On Tuesday, advocates for transparency scored a victory while tax evaders suffered a loss. The Treasury Department issued final regulations requiring banks to report to the IRS any interest payments made to foreign account holders in the same way they must report interest payments made to U.S. resident account holders. You’d think this sort of regulatory issue would be a pretty dull affair, but sparks flew over the last several months as opponents of the new rule accused Citizens for Tax Justice and the Obama administration of supporting dictators, kidnappers and terrorists.

The U.S. government taxes interest payments made to U.S. residents but not those made to foreigners, so before now it never bothered to require banks to report those interest payments made to foreigners. But the IRS proposed to change that rule in order to reduce tax evasion by Americans, both directly (by helping to identify Americans who evade U.S. taxes by posing as foreign account holders) and indirectly (by helping other countries enforce their tax laws so that they’ll help us enforce ours).

CTJ and the Financial Accountability and Corporate Transparency (FACT) Coalition continually expressed support for the regulations as they worked their way through the process, and CTJ’s Rebecca Wilkins testified before the Internal Revenue Service and the House Financial Services Committee in support of the rule. Sen. Carl Levin, a long-time crusader against tax haven abuse and chair of the Senate Permanent Subcommittee on Investigations also submitted comments. Levin’s committee has done ground-breaking investigative work on offshore tax evasion issues and chief counsel Elise Bean also testified in support of the proposed regulations.

At the House Financial Services Committee hearing in October, Republican Chairman Spencer Bachus read a letter from the Florida House delegation, which apparently is protective of its banks even when they facilitate tax evasion. Many people who live in unstable countries and have U.S. bank accounts, the letter argues, are “concerned their personal bank account information could be leaked to unauthorized persons in their home country government or to criminal or terrorist groups upon receipt from U.S. authorities, which could result in kidnapping or other terrorist actions…”

Wilkins explained that the IRS would only hand over information to foreign governments in response to a careful, limited request under a tax information exchange agreement. Even more important, Wilkins explained, is that the rule in effect until now actually helped criminals, corrupt government officials, terrorists and money launderers by allowing them to hide their money in the U.S.

The hearings made clear that supporters of the regulations were greatly outnumbered by the tax cheaters’ lobby, the politicians, and the bankers who benefit from facilitating tax evasion. We’re really glad that the IRS didn’t rewrite the regulations to please them.

Today we’re celebrating this rare win in our long fight for good tax policy and robust enforcement. But the real winners today are honest taxpaying citizens all over the world.

CTJ issued a one-page fact sheet that includes the information you need to understand the debates that will continue long after Tax Day. America is NOT overtaxed... Virtually all Americans, including the poorest Americans, are paying some type of tax... Wealthy Americans are NOT overtaxed... Some millionaires who live off their investments are paying a smaller share of their income in taxes than many middle-income people pay... U.S. corporations are NOT overtaxed... Tax cuts have not helped our economy...

Read the fact sheet.

Calling it “a far-out idea that would force Missourians to pay much more for groceries, homes and everything in between, while sparing wealthy citizens the need to pay income taxes,” the Kansas City Star editorial board bids good riddance to an income tax repeal proposal in Missouri.

Apparently not content with the massive business tax cut enacted last year, Michigan lawmakers are continuing to push to repeal the property tax on business equipment – a vital revenue source for local governments who can expect a net, permanent 19 percent revenue loss.

Instead of an immediate income tax cut that will cost significant revenue (that the state can’t afford),  Oklahoma lawmakers are contemplating a “trigger” plan tying cuts to year-over-year revenue growth that would eventually eliminate the tax altogether.  The Oklahoma Policy Institute explains that triggers are sold as a “responsible” way to cut taxes, "but it’s the opposite. It’s an attempt to avoid responsibility by putting the tax system on auto-pilot.“

An important study from the Pew Center on the States showing the lack of accountability in tax giveaways to business keeps getting good press. Here’s a piece from Illinois describing how, despite some very public giveaways to companies like Sears and the CME Group, the state lags in holding companies accountable for the tax breaks they receive.

This great article explains who actually pays Minnesota taxes. It cites data from Minnesota’s own tax incidence analysis report – a report that only a handful of states have the technology to develop, but is vital to understanding how taxes impact people of different income levels.

Rick Perry’s Texas has some of the lowest taxes in the nation and it trails the national average in important economic indicators.  But that’s not stopping Governor Perry from traveling the state promoting his new Texas Budget Compact, the center of which is an opposition to any new taxes or tax increases, which, he argues, will make the state stronger.  Politically, the compact is Perry’s effort to set the terms of election year debates, influence the next legislative session (eight months from now!) and assert his role as the Lone Star State’s conservative-in-chief.  In addition to opposing any new taxes, the Compact calls for: a Constitutional limit on spending tied to the growth of population and inflation; more program and agencies cuts; using the state’s Rainy Day Fund only for emergency purposes; making a temporary small business tax exemption permanent; and “truth in budgeting.”

Borrowing a page from anti-tax crusader Grover Norquist’s playbook, Perry said on Monday, “Each and every member of the Legislature or anyone aspiring to become a member of the Legislature should sign on.”  And right on the Governor’s website, individuals and lawmakers can sign on to the Compact: Yes, I stand with Governor Perry and I support his Texas Budget Compact. I want my state representatives in the Texas Legislature to sign on to Governor Perry's Texas Budget Compact.

Asked specifically, however, whether or not he would be keeping track of who has signed on or not, Perry responded, “I’m not going to have a pledge for anybody to sign. People are either going to be for them or they’re not. There’s not a lot of gray area.” 

Regardless of Perry’s intentions, the Compact smacks of the kind of binding pledge that ties lawmakers’ hands and restricts their ability to do the jobs they were elected to do.  (Happily, more and more lawmakers who took Norquist’s pledge are abandoning it on these very grounds.)

But worse than distorting the political process, the principles Perry promotes in his Compact could wreak havoc on Texas if fully embraced. 

As Texas State Rep. Mike Villarreal said in a statement released in response to the Compact:

"Governor Perry loves to talk about his principles in the abstract, but he doesn't want to discuss the disabled kids who lose health services when he won't close corporate tax loopholes, or the students crowded into full classrooms when he won't touch the Rainy Day Fund. After the deep and unnecessary education cuts that Governor Perry championed, it's no surprise that his Compact doesn't say a word about educating schoolchildren.

"The Governor doesn't seem to understand that we must educate our children if we are going to build our economy and create jobs."

News is that Rick Perry wants to run for president again in 2016. His hard line on taxes would certainly help him with his party’s base, even as it harms the state that already elected him.

Photo of Rick Perry via Gage Skidmore Creative Commons Attribution License 2.0

According to a CNN/ORC poll, one of many polls released around Tax Day 2012, a solid 68 percent of Americans said the current tax system benefits the rich and is unfair to ordinary workers. While this result is consistent with past poll results, a shocking number of lawmakers in Washington seem indifferent to the public’s hunger for more progressive taxes.

For example, one modest step toward tax fairness is the Buffet Rule, which would impose a minimum tax, equal to 30 percent of income, on millionaires in order to ensure that wealthy investors like Warren Buffett or Mitt Romney do not pay a lower tax rate than middle income Americans. Despite the fact that the Buffett Rule is favored by an overwhelming 72 percent of the American public, it was defeated in the US Senate on Monday and will likely not even come up for a vote in the House of Representatives.

Another tax day poll by Reuters/Ipsos found that 60 percent of Americans believe that tax revenues should play some part in deficit reduction efforts, while only 22 percent believe that spending cuts alone are the solution. This poll also reflects Washington’s huge disconnect with the American public as last year’s deficit reduction deal resulted in trillions of dollars of spending cuts and not a cent of additional revenue.

Even in the arena of corporate tax reform lawmakers find themselves at odds with public sentiment. In its tax day polling, Gallup found that 64 percent of Americans believe that corporations pay too little in taxes, meaning that the public would clearly favor revenue-positive corporate tax reform. And yet Republican and Democratic leaders, including the President, are proposing revenue-neutral corporate tax reform instead.

Washington’s conservative intransigence on tax issues is not going unnoticed by the public. Grassroots movements are spreading in protest of the unfairness of our tax system and pushing for progressive change. Lawmakers will find it increasingly difficult to ignore their constituents, especially as it becomes clear that other types of deficit reduction proposals (cuts in Social Security, Medicare, services for children) are far less popular than progressive tax increases.

The Colorado Fiscal Policy Institute’s #proudtopay Twitter campaign gives people a chance to voice their support for the public services made possible by paying taxes.

Wade Gibson from Connecticut Voices for Children reminds us in this op-ed that taxes do a lot of good – even making Easter travel easier.

Michigan League for Human Services president, Gilda Jacobs, writes in The Detroit News about how public services benefit her personally, and why she’s proud to pay the taxes that fund those services.

Together NC, North Carolina’s broad revenue coalition, wants you to spend some time today watching two videos: “A Day without Government” and another highlighting Russell, the public investment super hound.

There are at least ten reasons to like Ohio’s income tax. Read Policy Matters Ohio’s reasons here.

Oregon Center on Public Policy tells The Forgotten Tax Day Story here.

Pennsylvania Budget and Policy Center has a whole tax day resource page including a petition to tell Pennsylvania lawmakers to close corporate tax loopholes and end special tax breaks before making harmful budget cuts.

Voices for Utah Children follows Sam the Eagle as he flies around the state highlighting the services taxes pay for.

The Wisconsin Budget Project answers the simple question “Who Pays Taxes?” in Wisconsin with an equally simple response (using ITEP data).

• Paying Taxes to the Boss explains how 2,700 companies in 16 states are pocketing their workers’ state income tax payments rather than handing them over to the government.  Good Jobs First examines this entirely legal tax giveaway in a recent report.
• Here’s an important op-ed about the consequences of a bill moving in the Minnesota legislature that would eventually eliminate state business property taxes – at a cost of $7 billion the state can’t afford.  Wayne Cox from Minnesotans for Tax Justice writes that the bill is “sort of like a family that doesn’t know how it is going to pay its bills and decides the solution is to quit one of its jobs.”
• Anti-tax activists were trying to exploit Missouri’s broken ballot initiative process, but now a judge has dealt an enormous blow to advocates of a disastrous plan to eliminate that state’s income tax; this radical scheme now has a slim chance of getting on the November ballot.
• This is a smart article from an Indiana paper describing a phenomena we’ve talked about before – fewer gambling revenues are generated when neighboring states open casinos and compete for the same customers.
• The Birmingham News cites a recent report from the Institute on Taxation and Economic Policy (ITEP) to help explain how the short-sighted design of Alabama’s gas tax has contributed to the state’s transportation funding problems.  The state’s Transportation Director sums it up: “we have both a financing mechanism and a gauge that is 20 years old … It doesn't work and that is obvious.”

Senate Minority Blocks Even Minimal Tax Reform, Preserves Lower Effective Tax Rates for Millionaire Investors

Today, a minority of Senators demonstrated that they will filibuster even the most minimal step towards tax fairness.

The legislation, proposed by Senator Sheldon Whitehouse, would implement the Buffett Rule. It would not affect anyone except taxpayers who have incomes exceeding $1 million and yet manage to pay a smaller portion of their income in taxes than do many people who work for wages and salaries. Even the very basic step of requiring these millionaires to pay at least 30 percent of their income in income and payroll taxes proved too much for the Senate minority, which successfully filibustered this bill.

This legislation should be just the very beginning of the far more sweeping reforms that our tax system desperately needs. The main reason some millionaires pay low effective tax rates is that investment income is taxed at lower rates than other income under the federal personal income tax and is currently not touched at all by federal payroll taxes. The Buffett Rule would limit this tax preference for investment income for millionaires.

But ultimately Congress must go much further than the Buffett Rule. The way to truly make our tax system simpler and more efficient would be to completely repeal the personal income tax preference for investment income and tax all income at the same rates. This would raise over half a trillion dollars over a decade. Eighty percent of the resulting tax increase would be paid by the richest one percent of Americans, and 90 percent of the tax increase would be paid by the richest five percent of Americans. While the Wall Street Journal can be expected to call this tax reform “socialism” or “class warfare,” it was a major part of the tax reform signed into law by President Ronald Reagan in 1986.

Today we find that even the smallest step back to this Reagan-era policy is unacceptable for the Senate minority, who filibustered the Buffett Rule and apparently can be counted on to block anything resembling fair tax reform.

When CTJ analyzed Herman Cain’s 9-9-9 tax plan last year, we concluded it would cut taxes for the richest one percent by $210,000 on average and raise taxes for the bottom three-fifths of Americans by $2,000, on average if in effect in 2011. This did not surprise us, since the 9-9-9 plan incorporates elements of a “flat tax” and a national sales tax (often misleadingly called a “Fair Tax”) which are both far more regressive than our current tax system. We also concluded that the 9-9-9 plan would collect $340 billion less than our existing tax system in 2011 alone. What does surprise us is that people are still talking about the former pizza CEO’s tax plan, which is the focus of a two-day “Patriot Summit” that Cain is hosting today in Washington.

Today, Cain’s Revolution on the Hill will  roll out “the 9-9-9 educational campaign that will sweep the country in the Summer of 2012.” 

Flat tax and national sales tax plans vary, but they all would leave investment income – most of which goes to the richest Americans – untaxed. The “flat tax,” which is promoted by Dick Armey’s FreedomWorks, does not consist of one flat tax rate but actually two tax rates when you include the zero percent rate for investment income.

The national sales tax, which is promoted by the organization FairTax.org, is a straight-forward consumption tax, and this is likely to have the greatest impact on lower-income families who have no choice but to put all of their income towards consumption. (The other national, broad-based consumption tax you hear a lot about is a value-added tax, or VAT).

Cain is not the only presidential candidate to propose these types of radical changes to our tax system. Texas Governor Rick Perry flirted with both the flat tax and a national sales tax. Both Perry and Newt Gingrich eventually settled on a “flat tax” that would, like other flat tax proposals, exempt investment income from tax.

Watch this space for a look at other flat or fair tax proposals that surface during this election year.

• A letter in the Tulsa World highlights the work done by the Institute on Taxation and Economic Policy (ITEP) to expose the flaws in Arthur Laffer’s recent “research” on the economic benefits of income tax repeal.  The letter also reports on similar critiques of Laffer’s work that were made by a number of prominent economists speaking at an event hosted by the Oklahoma Policy Institute.  Our favorite?  Ken Olson at Oklahoma State University explains that Laffer’s work "does not constitute economic analysis in any real sense. As a consequence, its suggestions should be ignored as economics."

• Opponents of progressive taxation often point to Texas as evidence that shunning the personal income tax can lead to economic growth.  But the Center on Budget and Policy Priorities (CBPP) explains that Texas’ success is due to factors largely outside the control of state lawmakers, like natural resources, immigration, trade, and the availability of plenty of land for development.  It’s a point that should be obvious, but it’s also one that we’ve found ourselves having to remind people of quite frequently as of late

Millions of Americans will spend part of this upcoming weekend trying to navigate tax preparation software or filling out the actual paper forms to file their income tax returns before the Tuesday deadline. For those wishing they could pay less tax, outlined below are some tax planning ideas taken from a review of presidential candidate Mitt Romney’s tax returns.

Read the report.

Arthur Laffer and the American Legislative Exchange Council (ALEC) have just released the 5^th edition of their Rich States, Poor States report.  If you’ve fallen behind on your Laffer reading, Rich States, Poor States is mostly a collection of Laffer’s other reports from throughout the year, copy-pasted into one convenient location.

The centerpiece of this “new” report is the “ALEC-Laffer State Economic Competitiveness Index,” which is essentially a 15-item wish list of policies that Laffer and ALEC would like to see enacted in every state.  Over half the items in the Index are related to low or regressive taxes, while the others are mostly related to labor issues.

As we’ve pointed out before, the most laughable thing about the Index is the way it claims to provide a look at the important “policy variables” under the control of state lawmakers, but then ignores the ones that actually matter. For instance, few people would argue that good schools or basic infrastructure (power, transit, roads) are unimportant to states’ economic performance.  But the ALEC-Laffer rankings give states no credit for either of these outcomes. On the contrary, adequately funding any public service actually reduces states’ rankings since Laffer assumes that tax revenue is detrimental to economic growth (all research from ITEP and academic economists to the contrary).

Rich States, Poor States also attempts to rebut recent research from the Institute on Taxation and Economic Policy (ITEP) that we’d be remiss not to mention here.  According to ALEC and Laffer, “In its latest study, ITEP reaches a pro-tax conclusion by deliberately manipulating the data. It focuses on per-capita income instead of absolute income, which hides the economic losses of high tax states.”

ITEP explains in detail its reasons for using per-capita income growth as a measure of state economic performance in the report cited by Laffer. Indeed, while Rich States, Poor States is perhaps best known for the 15-item wish list, every edition of the report (first published in 2008) has also contained a section ranking states based on their actual, measurable economic performance.  And that ranking has always been based on what Laffer calls “three important variables:” absolute domestic migration, non-farm payroll employment, and per-capita personal income growth.

What’s more, ever since the first edition, Rich States, Poor States has included a set of state-specific fact sheets at the end of the report, the top of each being – that’s right – a graph of the state’s per-capita personal income growth.

The fact that this variable appears in the evidence-based section of Rich States, Poor States suggests they think it’s a reliable variable; the fact that Laffer et al characterize the variable as manipulative in the fiction-based portion of their report suggests that if there’s any deliberate manipulation going on, it’s being done by these so-called experts.

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

For years we’ve been hearing how half of all Americans don’t pay taxes –but our numbers say otherwise. So we set out to find even one American that didn’t pay any tax and, amazingly, we did! He is unique, and he is Garth.

Click on Garth below to learn more about how he does it:

States are spending untold billions on special tax breaks that are supposed to steer business to behave in ways that lead to economic growth.  We’re generally skeptical of these types of so-called incentives, and have long argued that they receive far too little scrutiny.  A new report from the Pew Center on the States thoroughly documents just how little most states are doing to figure out if ordinary taxpayers are getting their money’s worth from these deals.

Pew’s Evidence Counts reveals that 25 states and the District of Columbia have done nothing even remotely rigorous in the last five years to determine if even a single one of their business tax incentives is working.  Moreover, while Pew identifies 13 states “leading the way” in evaluating their tax breaks, they also note that “no state regularly and rigorously tests whether [tax incentives] are working and ensures lawmakers consider this information when deciding whether to use them, how much to spend, and who should get them.”

After looking at evaluation practices in all 50 states, Pew identified some of the same smart states that CTJ and the Institute on Taxation and Economic Policy (ITEP) have been urging others to emulate.  Washington State, for example, is highlighted for undertaking comprehensive and transparent evaluations of all its tax breaks, while Oregon is credited for using sunset provisions to force lawmakers to regularly reconsider tax incentives that might otherwise continue for years without a second thought.

The Pew report urges lawmakers and analysts to ask the right questions when evaluating their incentives.  Did the incentive simply reward behavior that would have occurred anyway?  Were in-state businesses put at a competitive disadvantage by not receiving the tax break?  Did a significant portion of the incentive’s benefit flow outside the state?  Could the money have been put to a more productive use elsewhere in the budget?

As Pew explains, “states have to ask the right questions to get the right answers.”  But so far, most states don’t bother to ask.

For more on Pew’s findings, and to see how your state stacks up, be sure to read Evidence Counts: Evaluating State Tax Incentives for Jobs and Growth.

Our three-minute movie in which an ordinary guy makes a shocking discovery. "Are you telling me," he says, "that unless I'm General Electric or Mitt Romney I have to pay more taxes than Warren Buffett?!"

Watch it at the CTJ YouTube Channel

A new CTJ report explains why Congress should approve Senator Sheldon Whitehouse’s proposal to implement the “Buffett Rule” to raise badly needed revenue and make our tax system fairer, but should also recognize that this must be followed by far more substantial reforms. In particular, Congress can’t stop at limiting breaks for millionaire investors but should completely repeal the personal income tax preference for investment income, as President Ronald Reagan did in 1986.

A previous CTJ report concluded that Senator Whitehouse’s bill would raise $171 billion from 2013 through 2022. The non-partisan Joint Committee on Taxation (JCT) has estimated that it would raise much less revenue, probably because JCT overestimates behavioral responses to changes in tax rates on investment income. But even if Senator Whitehouse’s bill would raise $171 billion over a decade, that’s only a fraction of the $533 billion that CTJ estimates could be raised by completely ending the tax preference for investment income.

Read the report.

Photo of Warren Buffett via The White House Creative Commons Attribution License 2.0

We’ve written a lot about plans to eliminate Missouri’s income tax and boost the sales tax instead, spearheaded by anti-tax mastermind Rex Sinquefield.  He had hoped to put this radical plan before voters this November but the initiative’s advocates aren’t sure they can use the signatures they’ve gathered because of legal challenges.  The awful policy implications of the Sinquefield plan aside, this article explains how the ballot initiative process in Missouri has gone kablooey in recent years.   The 22 versions of the anti-income-tax initiative filed with the Secretary of State is in some ways an indictment of Missouri’s elected officials who have repeatedly refused to participate in serious tax reform debates.

With tax day just around the corner, Wisconsin Budget Project reminds us that working Wisconsinites who qualify for the Earned Income Tax Credit will actually see fewer benefits this year thanks to draconian cuts in the credit passed in the 2011-13 budget.

Maryland’s Senate President says that lawmakers “have an agreement” on a package of progressive personal income tax increases, but that they simply ran out of time to pass that package before last night’s midnight deadline.  Gov. O’Malley is expected to call a special session so that the increases can be enacted, but he has not done so yet.

Here’s a great read from The American Prospect that talks about the need to reform regressive state and local tax structures, citing ITEP research.

Two reports from CTJ demonstrate that the U.S. corporate tax is not the huge burden that corporate lobbyists say it is. The first report explains why claims that the U.S. has the highest corporate tax in the world are false. The second report follows up on the thirty Fortune 500 corporations that CTJ identified last year as paying no corporate income taxes and concludes that most of them have not changed their tax dodging ways since then.

The U.S. Has a Low Corporate Tax: Don’t Believe the Hype about Japan’s Corporate Tax Rate Reduction

America has one of the lowest corporate income taxes of any developed country, but you wouldn’t know it given the hysteria of corporate lobbying outfits like the Business Roundtable. They say that because Japan lowered its corporate tax rate by a few percentage points on April 1, the U.S. now has the most burdensome corporate tax in the world. This CTJ reports explains that large, profitable U.S. corporations only pay about half of the 35 percent corporate tax rate on average, and most U.S. multinational corporations actually pay higher taxes in other countries where they do business.

Big No-Tax Corps Just Keep on Dodging

Last November, Citizens for Tax Justice and the Institute on Taxation and Economic Policy issued a major study of the federal income taxes paid, or not paid, by 280 big, profitable Fortune 500 corporations. That report found, among other things, that 30 of the companies paid no net federal income tax from 2008 through 2010. New information for 2011 shows that almost all these 30 companies have maintained their tax dodging ways.

26 of the 30 companies continued to enjoy negative federal income tax rates. Of the remaining four companies, three paid four-year effective tax rates of less than 4 percent. Had these 30 companies paid the full 35 percent corporate tax rate over the 2008-11 period, they would have paid $78.3 billion more in federal income taxes.

Presidential candidate Mitt Romney took some heat this winter for delaying release of his tax returns and then, in January, released only one year’s worth (and an estimate for 2011). Now the calls for more disclosure are heating up again since the Washington Post reported that Romney is using an obscure ethics rule loophole to limit the disclosure of his Bain Capital holdings. An earlier Los Angeles Times article reported that Romney’s financial disclosure did not list many of the funds and partnerships that showed up in his 2010 tax returns, eleven of which are based in low-tax foreign countries such as Bermuda, the Cayman Islands and Luxembourg.

While it’s Romney’s offshore holdings that are making news, the fact is any government official using offshore tax havens right now is allowed to keep that a secret.

But that’s about to change. On March 29, Senators Dick Durbin (D-IL) and Al Franken (D-MN) introduced a bill that would require members of Congress, candidates for federal office, and high-ranking federal government officials to identify which of their assets are located in tax havens when they file their required financial disclosures. The Financial Disclosure to Reduce Tax Haven Abuse Act of 2012 (S. 2253) would amend the Ethics in Government Act of 1978.

Although there’s nothing illegal about having an offshore account, estimates are that abuses facilitated by these accounts cost the U.S. Treasury over $100 Billion per year in lost tax revenue. And while the Durbin-Franken bill won’t make it illegal, it would have the effect of limiting that sort of tax dodging among public officials – or weed out candidates unwilling to tolerate a little sunshine.

In his floor statement introducing the bill, Sen. Durbin stated “it might seem ridiculous that we don’t already know whether candidates and Members of Congress are using offshore tax havens.” Sen. Franken, in the press release, said “Americans deserve transparency from public officials.” We could not agree more.

Photo of Mitt Romney via Gage Skidmore Creative Commons Attribution License 2.0

This week, Illinois Governor Pat Quinn and Chicago Mayor Rahm Emanuel came together for a Chicago Tribune Forum, one in a series on the region’s future sponsored by the newspaper. Questions from readers and journalists focused on the state’s ailing pension system and other economic matters.

One thing Mayor Emanuel emphasized is that Chicagoans are paying more than their fair share into the state’s teacher pension funds. This is part of the problem that lawmakers have refused to face head on for years -- balancing the state’s budget while meeting its pension obligations. 

The Director of the Illinois Retirement System recently revealed that the system could be insolvent by 2029. One reason the system is on shaky ground is that the state doesn’t have the right tools in place to adequately fund its obligations – like a progressive income tax or a broad income tax base.  

Illinois is unusual in two ways. It has a flat rate income tax so the state’s most affluent pay a relatively low tax rate, and it does not tax retirement income. Both of these are significant revenue sources for any state.  Lawmakers interested in solving the state’s pension problems and budget shortfall would have to start a real conversation about tax reform that includes taking a hard look at taxing retirement benefits, especially for well-off retirees.

Photo of Rahm Emanuel and Patt Quinn via  Afagen and Center for Neighborhood Technology Creative Commons Attribution License 2.0

Pennsylvania lawmakers got one step closer this week to closing major corporate tax loopholes.  Or did they?  The House Finance Committee approved legislation that would, in theory, close the infamous Delaware loophole which allows Pennsylvania companies to shift profits earned in the state to holding companies in other states (most frequently Delaware), thus avoiding paying their fair share of corporate income taxes.  However, according to the Pennsylvania Budget and Policy Center (PBPC), the bill as written not only fails to meet its intended goal, but it would in fact create new loopholes and drain the state of much needed revenue.  In PBPC’s words, “the bill is a sign that concern is growing about Pennsylvania’s corporate tax avoidance problem. It is a positive start – but in its current form, it is not a solution.”

House Democrats, led by Representative Phyllis Mundy, attempted but failed to amend the bill.  She advocated mandatory combined reporting, which makes it harder for companies to move profits around among subsidiaries, as a more effective and comprehensive approach to loophole closing, a proposal Mundy has been championing for the past year.

Pennsylvania is in dire need of a corporate tax overhaul.  A recent study by the Institute on Taxation and Economic Policy and Citizens for Tax Justice, Corporate Tax Dodging in the Fifty States, looked at the state corporate income taxes paid (or not paid) by 265 major corporations between 2008 and 2010.  The 14 Pennsylvania based corporations in the study, including H.J. Heinz, Comcast and Hershey, paid very little or even negative state income taxes during the time period.  And, data from the state’s Department of Revenue shows that more than 70 percent of corporations operating in Pennsylvania paid no corporate income taxes in 2007, likely in large part to their ability to hide profits out of state. 

In an attempt to fill in data gaps and get a better picture of what corporations are and are not paying in state income taxes, the Keystone Research Center recently sent Pennsylvania’s 1,000 largest for-profit employers a corporate income tax disclosure survey.  The hope is that the companies will respond (it is voluntary) and lawmakers can use this information in their deliberations about the best means to prevent corporate tax avoidance.

A new CTJ fact sheet explains that for the 2011 tax year, 97 percent of the Alternative Minimum Tax (AMT) will be paid by the richest five percent of taxpayers and 58 percent of the AMT will be paid by the richest one percent of taxpayers. Even in the (very unlikely) event that Congress fails to enact AMT relief for 2012, the tax will still largely be borne by the well-off.

Read the fact sheet.

Our nation’s gas tax policy is horribly designed, and the consequences have never been more obvious at either the federal or state levels.  Construction costs are growing while the gas tax is flat-lining, and the resulting tension has made even routine transportation funding debates too much for our elected officials to handle.  Just last week, President Obama signed into law the ninth temporary, stop-gap extension of our nation’s transportation policy since 2009, and numerous states are similarly opting to kick the proverbial can down the crumbling road.

Much of our collective transportation headache arises from our “fixed-rate” gas taxes that just don’t hold up in the face of rising construction costs.  The federal gas tax hasn’t been raised in over 18 years, and most states have gone a decade or more without raising their tax.  There’s no doubt that we’re long-overdue for a gas tax increase, but political concerns have kept that option largely off the table.  In addition to the embarrassing federal Band-Aid fix just signed into law by the President, here’s what we’re seeing in the states:

The Michigan Senate has voted to permanently take millions in sales tax revenue away from health care, public safety, and other services in order to complete basic road repairs.  But as the Michigan League for Human Services explains, the state would be much better off modernizing its stagnant gas tax.

Both the Oklahoma House and Senate have voted to raid the general fund as a result of lagging gas tax revenues.  These proposals are very similar to the one under consideration in Michigan, and when fully phased-in they would divert $115 million away from education and other services in order to improve some of the state’s wildly deficient bridges.

Luckily, Virginia lawmakers didn’t agree to Governor McDonnell’s proposal to raid the general fund in a manner similar to what’s being considered in Michigan and Oklahoma.  But they also failed to enact a much smarter proposal passed by the Senate that would have indexed the state’s gas tax to inflation.  It looks like rampant traffic congestion will remain the norm in Virginia for the foreseeable future.

Iowa and Maryland appear likely to follow Virginia’s lead and do nothing substantial on transportation finance this year.  Iowa House Speaker Kraig Paulsen says that after much talk, a gas tax increase is not happening.  And while Maryland Governor Martin O’Malley is trying hard to end almost two decades of gas tax procrastination in the Old Line State, it doesn’t look like the odds are on his side.

Connecticut lawmakers aren’t just continuing the status quo, they’re actually making it worse.  Connecticut is among the minority of states where the gas tax actually tends to grow over time, since it’s linked to gas prices.  But the Governor recently signed a hard “cap” on the gas tax that prevents it from rising whenever wholesale prices exceed $3.00 per gallon.  Lawmakers in North Carolina briefly considered a similar cap last year, but as the Institute on Taxation and Economic Policy (ITEP) explains, blunt caps are very bad policy and there are much better options available.

For more on adequate and sustainable gas tax policy, read ITEP’s recent report, Building a Better Gas Tax.

Photo of Governor Martin O'Malley and Sunoco Gas Station via  Third Way and MV Jantzen Creative Commons Attribution License 2.0

Tennessee lawmakers are seriously considering repealing their state estate tax, in part because of a comically flawed report from supply-side economist Arthur Laffer.  The report’s bottom-line conclusion is that Tennessee would have benefited from 220,000 more jobs in 2010 if lawmakers had simply repealed the Tennessee estate tax one decade earlier.  But as the Institute on Taxation and Economic Policy (ITEP) explains in a new brief, while 220,000 jobs is certainly an impressive number, the reasoning Laffer used to arrive at that figure is far from convincing.

Laffer begins his argument by pointing to the “Laffer-ALEC State Competitiveness Index,” which is basically a wish list of fifteen conservative policies he would like to see states enact (low income taxes, low corporate taxes, low minimum wage, etc).  Tennessee ranks 8^th overall on the Laffer-ALEC Index, and if the Index has any predictive power whatsoever, that means Tennessee’s economy should be doing pretty well.  But as Laffer admits, the reality is exactly the opposite.

Tennessee’s low economic and employment growth is particularly puzzling to Laffer because in a series of prior reports, he’s argued that states without income taxes (of which Tennessee is one) are outperforming the rest of the country.  So how then does Laffer explain Tennessee’s disappointing growth?  He decides to ignore a slew of factors that affect state economies in today’s complex world, and instead place all of the blame in one place: the state estate tax.

According to Laffer’s reasoning, if Tennessee had jettisoned its estate tax one decade ago, employment and economic growth more broadly would have sped up to a rate exactly equal to the average among all states not levying an income tax.  The natural result of this would be 220,000 more jobs in 2010, as well as $36 billion in additional yearly economic output.

Laffer says he can think of “no reason to believe” that things wouldn’t have played out this way.  But as ITEP explains in its brief, differences in economic growth rates are influenced by a range of factors that don’t appear to have even crossed Laffer’s mind, like differences in natural resource endowments, educational attainment, and infrastructure quality.  The unavoidable conclusion is that Laffer’s choice of scapegoat in Tennessee had a lot more to do with his ideology than with any sort of rigorous economic analysis.

For a closer look at Laffer’s deeply flawed argument in favor of repealing Tennessee’s estate tax, be sure to read ITEP’s full brief.

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

Last week Florida Governor Rick Scott signed into law legislation implementing a state sales tax holiday from August 3^rd to the 5^th even though these sales tax holidays are a real boondoggle for consumers (mostly PR for policymakers) and cost state treasuries needed revenues.

Will Missouri give tax credits to Ford for rehiring previously laid off employees? Read more about it in the Missouri Journal, which promises to follow up the story.

We’ve been closely following developments in the Kansas tax reform debate and here’s the latest update.  Last week, the conference committee began meeting to try to reconcile the differences between the House and Senate bill.  But compromise will have to wait until after spring break. The legislature adjourned and lawmakers won’t be meeting again until April 25. Read ITEP’s analysis of the Governor, House, and Senate plans.

Read here about an effort to end the Missouri – Kansas tax credit border wars (a.k.a. race to the bottom).  Hoping to create jobs within their borders, both states have been “willing to pay for it with tax credits and other deal sweeteners” that businesses have exploited – without necessarily delivering on the jobs.

Photo of FL Governor Rick Scott via Gage Skidmore Creative Commons Attribution License 2.0

While the sale of online coupons for local merchants boomed in 2011 – Living Social sold $750 million and Groupon sold an astounding $1.62 billion in online coupons last year – state governments are still trying to play catch up and figure out how to ensure these sales are taxed fairly.

The central question facing the states is whether a state or local sales tax should be applied on the cost of the online coupon, or on the face value of the coupon, meaning the list price of the product for which the coupon is being redeemed. For example, if you were to buy a Groupon for $25 that allows you to purchase $50 worth of books at a local bookstore, the question is whether sales tax should be assessed on $25 (the cost of the coupon) or $50 (the face value of the coupon). Whatever the amount, the tax could be collected either at the time of coupon purchase or product purchase.

As Forbes’ Janet Novack reports, right now states are treating online coupons for sales tax purposes differently, or in many cases don’t even have a definitive answer to this question. For example, New York requires that sales tax be collected by retailers on the full face value of the items purchased with coupons, but only in the case where the coupons are for a specific dollar amount of spending. California, by contrast, only applies the sales tax to the price paid for the coupon itself in any case.

So why isn’t Groupon itself collecting sales tax on the original coupon purchase, rather than having the tax collected by the merchant?  After all, it’s reasonable to compare their service to the one provided by  Expedia, Orbitz, Priceline and other travel sites who sell discount hotel rooms, as should be done in our view. The difference is that online coupon sites consider what they do to be advertising and, in fact, it’s part of Groupon’s contract with merchants that merchants handle all the taxes. Discount travel sites are more properly reselling those hotel rooms.

A promising development is that 24 states who collaborate in the Streamlined Sales and Use Tax Agreement, which grapples with state sales tax issues, are moving to tackle the coupon question head on by surveying member states and putting out model policy for all states, possibly as soon as May. The Streamlined Sales Tax Governing Board, of course, faces a difficult task because it’s a brave new world of e-commerce.  While there is more than one good way to solve the problem – as states like New York and California have shown – states need to act sooner rather than later.

Photo of Movie Ticket Groupon via Groupon Creative Commons Attribution License 2.0