North Carolina is home to one of the great examples of how economies flourish when government gets involved: the Research Triangle Park. It was developed in the 1950s by a public-private partnership, depended heavily on more than one governor’s leadership and on the proximity of three major research universities (two of which are public), and succeeded in fundraising after it was granted nonprofit status from the state. It was designed with the goal of helping North Carolina transition into the modern economy, and it worked.

But a candidate for governor named Pat McCrory wants to turn the state into a low-tax, low-service loser that could never undertake such a visionary project. While McCrory takes full credit for overseeing Charlotte’s economic boom while he ran that city as its Mayor, if he follows through on his anti-government campaign promises, North Carolina won’t have the resources to usher in the economic boom McCrory says he can deliver statewide.

McCrory has made cutting taxes the centerpiece of his campaign for governor. He has pledged to cut the corporate income tax, the individual income tax and the estate tax if elected. Sadly, yet predictably, this candidate has also refused to release any details about the structure of these proposals, including their bottom-line cost in terms of revenues. What we do know, though, is that he’d have a friendly audience in the state capital, where GOP leaders – who control the legislature – have already proposed the outright elimination of personal and corporate income taxes. 

As the Institute on Taxation and Economic Policy (ITEP) has explained, corporate and personal income taxes are among the few tools state policymakers have for minimizing the stark regressivity of state tax systems, including North Carolina’s. An analysis (PDF) of all state and local taxes paid by Tar Heel State residents shows that the highest earners pay a far smaller portion of their income in taxes than do middle- and low-income families. McCrory’s proposed tax cuts would only exacerbate this gap. Indeed, the candidate has held up Tennessee and Florida as his models for state tax policy—two states that also happen to be among the five most regressive state tax systems in the country.

But McCrory doesn’t talk about tax fairness. Instead, he presents the party line and says tax cuts are a means to support North Carolina’s “economic development brand,” which he claims is diminished by high taxes.

Here are three reasons he is wrong.

One, while the state’s unemployment rate is stubbornly high (9.4 percent), the cause is the state’s dependence on waning manufacturing jobs, not its tax policy. The unemployment rate is just as high across the border in manufacturing-dependent South Carolina despite that state’s lower business and personal income tax rates. Two, as the News & Observer points out, North Carolina is already regarded as being very business-friendly in national surveys of executives and industrial recruiters. And three, as research from ITEP has shown, supply side arguments for cutting taxes to grow the economy simply do not hold up in the face of evidence.

Instead of making the state more enticing to business, McCrory’s race-to-the-bottom strategy on tax policy would threaten the public services that make the state so appealing. North Carolina’s public investments are already suffering from acute budget cuts. The legislature recently dealt a blow to the University of North Carolina system and the community college system, as well as to job recruitment and economic development programs. McCrory’s tax cuts would make additional cuts to such critical public programs all but inevitable, exacerbating the economic slump that is, of course, a nationwide phenomenon.

Any political candidate who’s serious about learning how taxes affect the economy should read ITEP’s Four Tax Ideas for Jobs-Focused Governors.  This short report explains that the way you make taxes support economic growth is not by cutting them, but rather by wisely deploying them as revenues in the public interest.

Cartoon by John Cole, NC Policy Watch

This year, 18 states will encourage consumers to buy back-to-school items tax free. These sales tax holidays get lots of promotion and lots of press, but the reality is that sales tax holidays are no kind of deal for most taxpayers. State tax systems are known for the way they demand more from lower income families, and a three-day break barely makes a dent in that.

The reality is that sales tax holidays offer too little relief to the families that need it most. They require that you do your shopping during a brief window of time, which requires a financial flexibility that more affluent families have but those on tight budgets often don’t. On the retailers' side, some stores have been shown to raise their prices during the tax holiday and others report it's no net gain for them since they end up selling products they would have sold some other weekend anyway.

Sales tax holidays are political side-shows that might distract taxpayers, but they don’t solve any problems. Responsible lawmakers should instead implement fundamental reforms.  For example, year-round sales tax credits that can be claimed on tax forms offer a stable, reliable and more substantial break for working families. States have multiple options (PDF) for using the tax code to genuinely help families make ends meet.

The Institute on Taxation and Economic Policy has updated its Sales Tax Holiday policy brief to coincide with the back-to-school shopping season. You can read it here.

To celebrate the five year anniversary of the first “Rich States, Poor States,” an Arthur Laffer/ALEC publication that ranks states based on how closely their tax and budget policies adhere to conservative economic principles, the Iowa Policy Project put it to the retrospect test and found it lacking.  They write, “The ALEC Outlook Ranking fails to predict economic performance. In fact, the less a state followed ALEC’s prescriptions, the better it did in terms of job growth, and the better it did on change in poverty rate and median income.”

New York just decided to throw even more taxpayer money at filmmakers, despite ample evidence that these giveaways don’t do much for long-term job growth or economic performance.

This Topeka Capital-Journal letter-to-the-editor from a registered Republican laments that the tax plan signed into law by Governor Brownback “will increase Kansas income tax on the poor and reduce taxes predominately for the wealthy.”

On Tuesday, Tennessee Governor Bill Haslam told the House Judiciary Committee that states need to be able to collect sales taxes on internet purchases. He said plainly, “This discussion isn’t about raising taxes or adding new taxes.” Instead it’s about “collecting taxes already owed.” We couldn’t agree more.

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

According to one of the latest counts, officials in 30 state governments have indicated that their state plans to opt out of the Medicaid expansion that was enacted as part of health care reform, or are at least leaning in that direction. The reason many conservative state officials, like Florida Governor Rick Scott, cite for opting out (putting aside general criticism of the evils of “Obamacare”) is that participating would “strain state budgets.”

In reality, the Medicaid expansion is the deal of a lifetime for state governments. The nonpartisan Congressional Budget Office (CBO) estimates that the federal government will take on nearly 93 percent of the costs of the Medicaid expansion over its first nine years. On average, that means that states will receive over 9 additional Medicaid dollars for every 1 they spend themselves.

While this may already sound like a great deal, many states may end up actually saving money by embracing the Medicaid expansion. An in-depth study by state officials in Arkansas found that it would actually cost the state $3.4 million more to not participate in the Medicaid expansion. Similarly, a study by the Urban Institute found that health care reform overall will save state budgets between $92-129 billion dollars from 2014-2019.

In some cases, the failure of the state government to accept the Medicaid expansion may also have the side effect of putting even more strain on local budgets. Last year in Texas, for example, the decision by the Republican Governor Rick Perry and state legislators to cut Medicaid forced the El Paso County Hospital District to raise property taxes to make up for the increasing costs from nearly uninsured patients. This dynamic explains why many local officials in Texas support the Medicaid expansion, even as Governor Perry is one of its most outspoken critics.  

While many conservative governors are claiming that the Medicaid expansion would cost too much, they are at the same time continuing budget-busting tax breaks for the wealthy. Iowa Republican Governor Terry Branstad for instance has said that the Medicaid expansion would be “unaffordable” and “unsustainable”, even though its estimated cost would be less than 4 percent of the revenue that could be raised by ending the Iowa’s bizarre and regressive deduction for federal income tax payments.

Considering the generous deal that governors are being offered, many commentators believe that most if not all the states will ultimately take the deal, despite the recent election year grandstanding. The CBO is not so sure. On Tuesday, CBO released its latest cost projections of health care reform, which predicts that many states will choose to opt out of the Medicaid expansion resulting in 3 million fewer people insured.

Photo of Gov. Terry Branstad via Iowa Politics Creative Commons Attribution License 2.0

On Tuesday, House Republicans released a proposal, H.R. 6169, that would relax some of Congress’s normal procedural rules in order to enact an overhaul of the tax code — so long as the tax overhaul meets the objectives laid out in the House budget plan authored by House Budget Committee Chairman Paul Ryan.

H.R. 6169 was introduced on Tuesday by House Ways and Means Committee Chairman Dave Camp and House Rules Committee Chairman David Dreier and lays out several components that the tax overhaul legislation must have in order to be passed through the easier legislative procedure. All of these components are identical to those laid out in the Ryan Plan

The required components of the tax overhaul, which are also those laid out in the Ryan Plan, include:

• replacing the personal income tax rates with just two rates, 10 percent and 25 percent (or less)
• repeal of the Alternative Minimum Tax (AMT)
• reducing the statutory corporate income tax rate to 25 percent (or less)
• adoption of a “territorial” tax system (exempting offshore profits of corporations from U.S. taxes)
• collecting revenue equal to between 18 and 19 percent of GDP

The “findings” section of the bill states that revenue will “rise to 21.2 percent of GDP under current law,” meaning its proposed revenue target of between 18 and 19 percent of GDP is an explicit cut in revenue.

A Huge Tax Break for Millionaires No Matter How It’s Structured

CTJ issued a report in March concluding that Ryan’s proposed changes to the personal income tax would provide taxpayers with income exceeding $1 million in 2014 an income tax cut of at least $187,000 on average

Like Ryan’s plan, the bill introduced by Camp and Dreier does not say which tax loopholes and tax subsidies should be closed to ensure that the tax system still collects revenue equaling between 18 and 19 percent of GDP even after the plan’s steep rate reductions and the repeal of the AMT are in effect.

We estimated that even if those with incomes exceeding $1 million were forced to give up all the tax expenditures Ryan could possibly want to take away from them — all their itemized deductions, tax credits, the exclusion for employer-provided health insurance and the deduction for health insurance for the self-employed — even then the net result for these taxpayers would be an average income tax cut of $187,000 in 2014. That’s because the income tax rate reductions Ryan proposed are so deep that they would far outweigh the loss of all these tax loopholes and tax subsidies.

Increasing Incentives for Corporate Tax Dodging

The CTJ report on the Ryan plan also explains that reducing the statutory corporate income tax to 25 percent would likely lose revenue when we should be raising revenue from corporate tax reform. (CTJ’s major study last year of most of the profitable Fortune 500 corporations found that their effective tax rate, the percentage of profits they actually pay in taxes, was just 18.5 percent, far less than the statutory rate of 35 percent that Ryan and Camp complain about.)

CTJ’s report on the Ryan Plan also explains that a territorial tax system — exempting offshore profits of corporations from U.S. taxes — can only increase the incentives that U.S. corporations already have to disguise their U.S. profits as “foreign” profits through shady transactions that shift their earnings (on paper) into offshore tax havens.

Photo of Rep. Dave Camp via Michael Jolley Creative Commons Attribution License 2.0

Today, a majority of U.S. Senators voted for a proposal that would extend for one year the Bush-era income tax cuts, except for those tax cuts going solely to the richest 2 percent of taxpayers, and would also extend some 2009 provisions that expanded parts of these tax cuts benefiting low-income working families. A minority of Senators voted for a proposal that would extend all the Bush-era income tax cuts, including those solely benefiting the richest 2 percent, but that would allow the 2009 provisions for low-income working families to expire.

The following is a statement from Robert McIntyre, director of Citizens for Tax Justice:

“Both of the tax bills taken up today by the U.S. Senate would extend far too many tax breaks, including tax breaks for those with the highest incomes, and would make future deficit reduction even more difficult. But the bill modeled largely on the President’s tax proposal is certainly the fairer and more responsible of the two.

“Our estimates show that under the Senate Democrats’ bill, which is modeled on President Obama’s proposal to extend most of the expiring tax cuts, people with incomes up to half a million dollars would, on average, continue to enjoy most of the Bush-era income tax cuts they enjoy today. It is ridiculous that a large number of U.S. Senators believe that this bill would not provide sufficient tax breaks to high-income taxpayers, and therefore voted for the Republican bill to extend all the Bush-era income tax cuts.

“The Republican bill that would extend all the Bush-era income tax cuts also would allow the expiration of the 2009 provisions that expanded the Earned Income Tax Credit and the Child Tax Credit that benefit low- and moderate-income working families. The expiration of these 2009 provisions would mean that 13 million families with 26 million children would lose tax breaks, according to our estimates. Virtually all of these families have incomes under $50,000, and in most cases they earn far less.

“A proposal that provides larger tax breaks for the richest 2 percent of taxpayers while allowing the expiration of tax breaks for 26 million children living in low- and moderate income families is the epitome of upside-down priorities. It is unfortunate that the majority party in the House has already lined up behind this coddle-the-rich-at-the-expense-of-tens-of-millions-of-American-children approach.”

UPDATED July 26, 2012:
On Wednesday the Senate approved the Democrats' tax bill, modeled on President Obama's plan to extend most of the expiring tax cuts, and rejected the Republican alternative. (See CTJ's statement on the votes.)

The Republican proposal (S.3413) would extend all the Bush-era tax cuts but would allow more recent expansions of tax breaks for low-income families to expire. The Senate Democrats’ bill (S.3412) would implement most of President Obama’s proposal to extend the Bush tax cuts, except for certain provisions benefiting the rich, and to extend the more recent expansions of tax breaks for low-income families.

The Senate Democrats’ proposal would extend most of the Bush income tax cuts, but would allow the expiration of most of those income tax cuts going solely to the richest two percent of taxpayers — married couples making over $250,000 and singles making over $200,000. The Senate Democrats’ proposal would also extend some 2009 provisions that expanded certain parts of the Bush income tax cuts (related to the EITC and Child Tax Credit) that benefit low-income working families, while the Senate Republican proposal would allow these to expire.

A report published by CTJ last month compares how taxpayers in different income groups would be affected by the Congressional Republican approach to the tax cuts and by President Obama’s approach, which the Senate Democrats are generally following. (You can find state-specific versions of this report here.)

Senate Democrats’ Proposal Differs from Obama’s in only One Way that Matters

The Senate Democrats’ bill (S.3412) differs from President Obama’s proposal (which we examined in the reports discussed above) in a few ways, but most of these differences will not matter by the time Congress is finished determining how much we should pay in taxes for 2013.

For example, there are two important pieces of President Obama’s approach that Senate Democrats have left out of their proposal (extending relief from the Alternative Minimum Tax through 2013 and extending some, but not all, of the Bush estate tax cut into 2013), but it’s generally assumed that Congressional Democrats will try to enact these proposals later this year or, if necessary, early next year.

There is one real difference between the President’s approach and the Senate Democrats’ proposal in that the latter would extend part of the income tax cuts for stock dividends for those with incomes above $250,000/$200,000. This CTJ fact sheet explains the difference and demonstrates that it benefits the very rich (those making over $1 million) in a significant way.

Dispelling Myths and Calculating Your Taxes under Different Proposals

CTJ has also provided reports to address some of the most common misconceptions about these tax cuts.

For example, it is often asserted that taxpayers with any amount of income in excess of $250,000 or $200,000 will lose all of their tax cuts under the Democrats’ approach. This CTJ report demonstrates that married couples with incomes between $250,000 and $300,000 would lose just two percent of their income tax cuts under President Obama’s proposal and would lose just 1 percent of their income tax cuts under the Senate Democrats’ proposal.

To take another example, Republicans like to say that their proposal would result in lower taxes and that Democratic proposals would result in higher taxes. This CTJ report finds that 13 million working families would actually get more tax breaks under the Democrats’ proposal because it would extend the 2009 expansions of the EITC and Child Tax Credit, which the Senate Republican proposal would allow to expire.

Finally, for those who want to know how they would personally be affected by the competing approaches to the income tax cuts, CTJ has created an online calculator that will tell you what you’d likely pay in 2013 in federal income taxes under the President’s proposal and under the Congressional Republican proposal.

Tax Provisions Not Included in CTJ Figures

All of this work from CTJ has focused on proposals that extend all or part of the Bush tax cuts, and proposals that expand parts of the Bush tax cuts (like the 2009 provisions related to the EITC and Child Tax Credit). We have not included, in any of our figures, additional provisions in the Democratic and Republican proposals to provide tax breaks for small businesses, or the Senate Democrats’ proposal to extend the American Opportunity Tax Credit, which was first enacted in 2009 and helps families pay for post secondary education.

Photo of Senate Majority Leader Harry Reid via Talk Radio News Services Creative Commons Attribution License 2.0

A new report about the long-term fiscal problems facing the states is making news, and for good reason. While much of the report focuses on spending-side issues that we’ll leave for others to address, one of the main findings of the State Budget Crisis Task Force is that state tax bases are narrow, shrinking, and increasingly inadequate.  That finding is largely spot-on, even if it’s not terribly surprising.  According to the report, the causes of this growing inadequacy are, in no particular order:

• Sales tax bases are shrinking as consumers spend more on personal services that, unlike tangible products, are not subject to sales taxes.

• States are often unable to enforce their sales taxes on online shopping—which is on track to account for ten percent of all purchases in the next few years.

• State corporate income taxes are declining due to a multitude of tax breaks given to business, and sophisticated tax avoidance strategies used by corporations.

• State gas taxes are being squeezed by rising construction costs and growing vehicle fuel-efficiency, due largely to a structure that has left rates stagnant for decades.

The Institute on Taxation and Economic Policy (ITEP) has an array of policy briefs and reports that elaborate on and confirm these findings, and that offer suggestions for reforming their tax systems.

One area where the Task Force seems to have strayed from its mission, however, was in devoting excessive attention to concerns over tax volatility.  The Task Force’s suggestion for dealing with volatile revenues is a good one (use rainy day funds (PDF) more responsibly).  But it misses the mark by failing to point out that more volatile taxes are often the best (PDF) at addressing the Task Force’s main concern—inadequate long-term revenue growth.

Volatility is an inevitable part of state tax systems that can be managed.  But anemic long-term revenue growth is a much more serious problem that can only be addressed with fundamental tax reforms designed to allow state tax systems to operate effectively in the 21st century economy.

• Louisiana is preparing to take a much closer look at the $4 billion it spends on special tax breaks each year, as the brand new Revenue Study Commission holds its first meeting this week.  The chairman of the state’s House tax-writing committee admits that “we don’t know” whether Louisiana’s tax breaks are working, even though “some of these things have been on the books for more than 80 years.”  Gov. Jindal may be the biggest obstacle to progress on this issue, as he’s said that eliminating an ineffective tax break is technically a “tax hike” that he would veto.
• An op-ed in the Orlando Sentinel highlights the problems with Florida’s tax system, and how to fix them: “Our tax structure is inadequate to our needs, poorly matched with today's economy and unfair to average Floridians and small business owners.”  Writing for the Florida Center for Fiscal and Economic Policy, the author urges closing corporate tax loopholes and other special interest tax breaks to begin addressing these problems.
• As we’ve pointed out before, most of Indiana gubernatorial candidate John Gregg’s tax ideas so far have been short-sighted and unaffordable.  But Gregg’s newest idea to create a child care tax credit is a good one, as has been recommended (PDF) by the Institute on Taxation and Economic Policy (ITEP).
• The Anniston Star Editorial Board has a numbers-heavy piece explaining the problems with the state’s tax system.  In a nutshell: “Alabama may be a low-tax state for people and businesses at the upper end of the income scale, but at the lower end, Alabama’s tax system adds to people’s misery.”  ITEP has found that Alabama has one of the ten most regressive state and local tax systems in the country.

In a little over a week, Georgia voters will decide whether to raise local sales taxes to better fund transportation.  The state’s business community supports the effort, but Jay Bookman at the Atlanta Journal-Constitution reminds readers businesses are one reason the state’s transportation spending is 49^th in the nation. “In an effort to keep their own tax burdens as low as possible, Georgia business leaders have a long history of preaching that taxes are always destructive, government is always incompetent and untrustworthy and there is no problem that can’t be solved by cutting taxes even lower.”

Ohio Gov. John Kasich isn’t backing down from his plan to cut the state’s income tax, and pay for it with higher taxes on natural gas and oil.  All signs are that he’ll continue to push for that plan after the November election, but House Democratic Leader Armond Budish wants to go a different route, saying that: “Gov. Kasich’s proposal to modestly increase the severance tax on oil and gas companies is a step in the right direction … But we should be protecting local property taxpayers and prioritizing our communities, not passing more tax cuts that disproportionately benefit wealthy Ohioans.”

The Wall Street Journal writes about the trend toward more Republican governors embracing the enforcement of sales taxes on online purchases.  The trend has been so pronounced that Sen. Lamar Alexander (R-TN) says the federal government will enact legislation granting states sales tax enforcement powers “if not this year, then definitely by next year.”

Arizona voters may have a chance to vote on extending the temporary sales tax increase they approved in May 2010.  The Arizona Secretary of State initially blocked the measure from appearing on the ballot for technical reasons, but a Superior Court judge rejected that move, saying that 290,000 voter signatures should not be thrown out because of what amounts to “a photocopy error.”  It remains to be seen whether that decision will be appealed to the state Supreme Court.

At a hearing before the House Ways and Mean Committee today, witnesses from Corning, Inc. and 3M called for a “territorial” tax system, which would exempt offshore corporate profits from U.S. taxes, and which is part of Mitt Romney’s tax plan. Both companies said that their ability to compete internationally is harmed by the current system, in which U.S. corporations pay U.S. taxes on foreign profits when they bring them back to the U.S. (U.S. taxes minus a credit for whatever they already paid in foreign taxes).

As we explain in another post, our 2011 corporate tax study found that both of these companies actually pay higher effective tax rates in the other countries where they do business than they pay in the U.S., raising the question of how our tax system could be making them less able to compete.

Our 2011 study examined most of the Fortune 500 corporations that had been profitable for three years straight and found that two thirds of those corporations with significant foreign profits paid higher taxes to the foreign governments than they paid to the U.S. on their domestic profits.

Despite the U.S. having a relatively high statutory corporate tax rate, the effective U.S. corporate tax rate (the percentage of profits that U.S. corporations actually pay in income taxes) is clearly lower than that of most other countries (not counting tax havens, where companies don’t do any real business).

A refreshing dose of honesty was provided by the witness from Ford Motor Company, who said Ford’s offshore operations are, in fact, in “high-tax” countries and that Ford has no position on whether or not we should adopt a territorial system.

As we explain in a fact sheet and in a more detailed report, adopting a territorial system would mainly increase the incentives to shift operations (and jobs) to a handful of countries that really do have low corporate tax rates, or to simply disguise their U.S. profits as “foreign” profits generated in countries with low (or no) corporate taxes.

As we also explain in our report, the expansion of U.S. corporations’ operations in foreign countries may not be in the interest of U.S. workers.

In some situations those offshore operations may be substitutes for U.S. operations, meaning U.S. jobs are shipped offshore. In other situations those offshore operations may compliment U.S. operations, meaning U.S. jobs are created, particularly in corporate headquarters and research facilities, to support the offshore operations. Data from recent years shows that the former effect is more pronounced than the latter.

But either way, America does not need a tax system that favors offshore operations over U.S. operations — which is exactly what a territorial system would do. 

We’re not alone in this view. Last year, several small business associations, labor unions, and good government groups joined a letter opposing a territorial system. And today, the New York Times editorialized that the “corporate tax system needs reform, to raise more revenue, more fairly. The territorial tax system does not meet those criteria.”

A new study by Ernst and Young is grabbing headlines by purporting to show that President Obama’s plan to end most of the Bush tax cuts for the richest 2% of Americans would cause job losses over the long term. This study is highly suspect however because it makes methodological assumptions that are out of line with other independent studies, which actually show that  the expiration of the Bush tax cuts would lead to increased economic growth over the long term.

As the White House explains, the study assumes an entirely unrealistic drop in the labor supply by medium and high income earners due to higher tax rates. Their expected labor supply response is nearly 10 times higher than the non-partisan Congressional Budget Office (CBO) assumes when it makes similar estimates on labor supply effects. 

In addition, the Ernst and Young study makes the bizarre assumption that all of the additional tax revenue will be used for additional spending, rather than for deficit reduction. While it does not explain any reason for this assumption, the effect of it is to eliminate the possibility that the additional revenue will increase private investment by reducing the deficit’s “crowding out” effect.

When the non-partisan CBO performed a study in January 2012 on the economic effects of allowing the Bush tax cuts to expire using its much more robust assumptions, it found that the extension of all of the Bush tax cuts and other expiring measures would reduce Gross Domestic Product (GDP) by as much as 2.1 percent in 2022 and would reduce Gross National Product (GNP) by as much as 3.7 percent in 2022.

Building on this, Citizens for Tax Justice’s Bob McIntyre notes that even President George W. Bush’s own Treasury Department, which was “managed by Bush appointees who profess a deep affection for Bush’s tax-cutting policies,” found that over the long term extending the Bush tax cuts would have “essentially no beneficial effect on the U.S. economy at all.”

Ernst and Young’s reliance on a radical methodology, putting it out-of-line with even the Bush Administration’s Treasury Department, is not be much of a surprise considering that the study was paid for by conservative anti-tax groups like the US Chamber of Commerce and the National Federation of Independent Business. Both these groups have proven in the past that they are willing to distort the facts in order to protect the wallets of the country’s wealthiest corporations and CEOs.

Photo of US Chamber Logo via Truth Out Creative Commons Attribution License 2.0

Earlier today, the U.S. House of Representatives’ Ways and Means Committee held a hearing on “tax reform and the U.S. manufacturing sector.”  With no apparent irony, the Committee invited Susan Ford, a senior official from champion corporate tax-avoider Corning, Inc., to testify on how Congress ought to make the U.S. tax code more friendly for manufacturing.

Ford raised eyebrows with her claim that in 2011, Corning paid a U.S. tax rate of 36 percent and a foreign tax rate of 17 percent.

It’s unclear how Ms. Ford comes up with a 36 percent rate, but clearly one thing she’s doing is counting Corning’s “deferred” U.S. taxes (taxes not yet paid) as well as “current” taxes (U.S. taxes actually paid in 2011). Of course, those “deferred” taxes may eventually be paid. If and when they are paid, they will be included in Corning’s “current” taxes in the year(s) they are paid.

But current taxes are what Corning actually pays each year, and Corning has amassed an impressive record of paying nothing, or less than nothing, in current U.S. taxes. CTJ and ITEP’s November 2011 corporate tax avoidance report found that between 2008 and 2010, Corning didn’t pay a dime in federal corporate income taxes, actually receiving a $4 million refund to add to its $1.9 billion in U.S. profits during this period. And a more recent CTJ report found that in 2011, Corning earned almost $1 billion in U.S. pretax income, and once again didn’t pay a dime in federal income tax. These data paint a dramatically different picture from the “36 percent” claim made by Corning before Congress today.

Ford’s testimony also includes a common but false claim about how U.S. taxes compare to foreign taxes:

“American manufacturers are at a distinct disadvantage to competitors headquartered in other countries. Specifically, foreign manufacturers uniformly face a lower corporate tax rate than U.S. manufacturers…”

In fact, over the 2008-2010 period, Corning paid a higher effective corporate income tax rate to foreign governments than it paid to the US government. (Which wasn’t hard to do, since it paid nothing to the U.S. government.) CTJ’s November 2011 report shows that over the 2008-2010 period, Corning paid  -0.2 percent (negative 0.2 percent) of its US profits in US corporate income taxes, but paid 8.6 percent (positive 8.6 percent) of its foreign profits in foreign corporate income taxes.

During the Congressional hearing, 3M executive Henry W. Gjersdal made a similar, and equally misleading, claim, in his testimony before the Committee, arguing that “[i]n an increasingly global marketplace, 3M’s high effective tax rate is a competitive disadvantage.”

But if 3M has a high worldwide effective tax rate, it’s not because the U.S. corporate income tax is high. In fact, like Corning, 3M paid a higher effective corporate income tax rate to foreign governments than it paid to the U.S. government between 2008 and 2010. Specifically, it paid an effective 23.8 percent rate on its US profits in US corporate income taxes and 27.1 percent on its foreign profits in foreign corporate income taxes, according to CTJ’s report.

Let’s remember that Corning also spent $2.8 million on lobbying during the 2008-10 period they spent enjoying a tax-free ride from the federal government. There are companies across the country paying their fair share in taxes and still making enough to grow their business and please their shareholders. Those are the kinds of companies Congress should be hearing from.

A new poll from the Pew Research Center reports that Americans believe eliminating the Bush tax cuts for the rich would be both beneficial to the economy and make the tax system more fair. By a two-to-one margin, the public says raising taxes on income over $250,000 would help the economy (44%) rather than hurt it (22%), with (a particularly wise) 24% saying it would make no difference. By a similar 44%-to-21% margin, Americans say this tax increase on the rich would make the tax system more fair rather than less fair (25% say no difference would result).

This new finding from a polling organization with an impeccable record contradicts a recent McClatchy-Marist poll which concludes a majority of Americans favor extending all the Bush tax cuts. As an expert pollster with Americans for Tax Fairness (ATF) pointed out, the McClatchy question’s jumbled wording likely left respondents confused as to which groups would be affected by a tax increase. In contrast, the Pew Research Center poll simply asked (PDF): “Do you think raising taxes on income over $250,000 would” help or hurt the economy and make the tax system more or less fair? The Pew Research finding is also in line with other recent surveys, as ATF reminds us, from National Journal and NBC/Wall Street Journal that show most Americans oppose extending the Bush tax cuts for the rich.

As Citizens for Tax Justice has explained, raising taxes on income above $250,000 would result in just 1.9% of all Americans losing some portion of the Bush income tax cuts, and for most, the “loss” would be negligible. For example, an average married couple earning between $250,000 and $300,000 would lose only 2% of their total Bush income tax cuts, or $199, in 2013. This is because all taxpayers—even those in the top income bracket—benefit from the lower tax rates on income below the $250,000 threshold that are set to remain in place under such a plan.

The American public continues to support progressive and fair taxation; we just need our elected leaders to deliver it.

Chart from Pew Research poll overview.

A report from the conservative Heritage Foundation uses data from the Treasury Department to make the claim that President Obama’s approach to the Bush tax cuts will “hurt job creation.” Once again, the Heritage Foundation is wrong.

The Heritage report focuses on “flow-through” businesses, those businesses that are not organized as corporations that pay the corporate income tax, but rather are organized as entities whose profits are passed on to the owners and taxed as part of their income, under the personal income tax. These businesses are therefore impacted by the debate over the personal income tax cuts first enacted under President Bush.

The report makes much of the fact that most flow-through business income is concentrated among those taxpayers whose income exceeds $200,000, meaning they are close to, or above, the income threshold at which the Bush income tax cuts would expire under Obama’s approach. (President Obama proposes to extend the Bush income tax cuts for the first $250,000 that a married couple makes and the first $200,000 that a single taxpayer makes.)

The Heritage Foundation report is wrong in its conclusion about job creation for several reasons.

First, as CTJ has already demonstrated, single taxpayers can earn considerably more than $200,000 without losing any tax cuts under Obama’s proposal, and married taxpayers can earn considerably more than $250,000 without losing any tax cuts under Obama’s proposal.

Second, there is no reason whatsoever for a business person to create jobs just because his or her taxes are low. A business owner does not pay taxes on the part of business revenue that goes towards paying compensation to employees. Business owners are only taxed on what they take home after they’ve paid their employees and their other expenses. That means that a married couple with a business would need to take home over $250,000 in profits (meaning they take home more than that after paying their business expenses) before they would lose part of their Bush income tax cuts under Obama’s proposal. (And even then they would only pay the higher, pre-Bush tax rates on the portion of their net income exceeding $250,000).

If a business owner can profit by selling the goods or services produced by an additional employee, it makes sense to make that hire regardless of what the tax rate will be on that profit. If the choice is between profiting and paying taxes on the profit or passing up the opportunity to profit entirely, no reasonable person would choose the latter option.

Conversely, if hiring an additional employee will not result in a profit, then there is no reason to make the hire, no matter how low taxes are or how much cash the owner has available.

Anti-tax lawmakers and commentators sometimes claim that business owners will save their after-tax income to make investments that will expand their company and lead to more hiring, and that higher taxes make this impossible. This is generally wrong because large businesses typically borrow to make such investments, and any business that is truly a “small business” can use a provision (known as “section 179 expensing”) that allows them to deduct the entire cost of making those capital investments. President Obama is asking Congress to raise the limits on this tax break so that more small businesses can benefit from it.

Finally, the fact that a great deal of flow-through business income is concentrated among a few high-income owners of big companies does not logically lead to the conclusion that we must provide more tax breaks to the high-income owners of big companies.

The Heritage Foundation cites Table 15 of a Treasury study that looked at different ways of identifying flow-through businesses. The Treasury study found that in 2007 (the most recent year for which data are available) 34.8 million tax returns claimed flow-through income, but only 4.3 million of those represent business owners who employed workers. It also showed that only 1.2 million both employed workers and earned more than $200,000, meaning their income is at or close to the threshold at which they would lose some of the Bush tax cuts under Obama’s proposal. These 1.2 million business owners earned 91 percent of all the income earned by the flow-through businesses with employees.

According to the Heritage Foundation, this data means that the “businesses that earn almost all of the income are the most successful flow-through employer-businesses. That also means they are the businesses that create the most jobs.” This last assertion by Heritage seems particularly dubious, given that these “most successful” flow-through businesses include hedge funds and private equity funds like Bain Capital, law firms, lobbying firms and other extremely profitable companies with relatively few employees — not the companies most Americans think of when they hear the words “small business” or “job creators.”

The Heritage report concludes that Obama’s proposal would result in higher taxes on “almost all income earned by job creators.”

The fact that most flow-through business income is tied up in the hands of a minority of rich Americans does not logically lead to the conclusion that we should therefore keep taxes low for the richest Americans. The data from the Treasury study also shows that 50 percent of the income going to flow-through businesses with employees actually goes to taxpayers with income exceeding $1 million. Given everything explained above (that business people do not create jobs just because their taxes are low) this does not logically lead to the conclusion that we should keep taxes low for people making more than $1 million annually.

The Michigan government is facing an unprecedented lawsuit charging that some of its public schools are inadequate to the point that they violate state law.  You might think this would make lawmakers revisit the wisdom of their tax-cutting compulsion, but you would be wrong.

Last year, anti-tax lawmakers’ crowning achievement in the Great Lakes State was to slash business income taxes by some $1.6 billion, or 83 percent.  Some of that cut was funded with cuts in state services, though most of it was paid for with personal income tax hikes (PDF) on the state’s elderly and poor.  Some lawmakers viewed those personal income tax hikes as a political liability, however, so Gov. Snyder went ahead and signed a token tax cut, worth an average of ten dollars per taxpayer per year, conveniently designed to take effect about one month before voters head to the polls in November.

But more troubling than this political gamesmanship is a pair of larger tax cuts that lawmakers may try to enact this fall after returning from recess.

In May, the state Senate passed a bill, after many months of negotiations, that repeals the tax businesses pay on industrial and commercial personal property (equipment, furniture, and other items used for business purposes).  The Detroit Free Press said that “there’s general agreement across party lines and all levels of government” that the tax is bad for business and should be repealed, and noted that the House may follow the Senate in doing so this fall.

There is also consensus, however, that since the overwhelming majority of revenue generated by the business personal property tax flows to local governments, localities can’t absorb a cut that severe.  But while the state seems likely to make up part of the difference, there are also serious doubts regarding how much of the lost revenue the state can actually afford to replace, and whether that replacement revenue will dry up the next time the state’s budget is battered by a national recession.

But property tax cuts for businesses aren’t the only pricey tax cut on the legislature’s list. Last month, the House overwhelmingly voted to slash the state’s personal income tax rate, at a cost of $800 million per year by 2018.  The bill’s sponsor promises that revenue growth resulting from the cut will be so strong that it will “not lead to program cuts or shifted funds.” Forgive us if we’re skeptical of that claim.

Finally, to top things off, reversing these tax cuts if they prove destructive and unaffordable could soon become a lot harder.  That’s because the Koch-backed Americans for Prosperity-Michigan has just submitted the signatures needed to put a measure on the ballot amending the state’s constitution to require a supermajority vote of the legislature to raise taxes. Just so we’re clear, supermajority requirements are one of the worst tax ideas of all time.  The Michigan League for Human Services explains the problems with the supermajority proposal in this report (PDF), including how it could entrench special interest tax breaks, damage the state’s credit rating, and pressure local governments to the point of breaking when state funds run short.

Call both your Senators and your Representative today and tell them:

Support President Obama's proposal to allow most of the Bush tax cuts for the richest 2 percent — couples making more than $250,000 and singles making more than $200,000 — to expire.

Oppose any extension of more tax cuts for the rich — even a temporary one.

Call the U.S. Capitol at 888-744-9958 (TOLL FREE)

The Senate will likely vote this week and the House may vote soon after. They need to hear from you NOW. 

The toll-free number is provided by Americans for Tax Fairness (ATF), a coalition of organizations including Citizens for Tax Justice and other advocacy organizations, think tanks, labor unions, small business associations and watchdog groups.
 
To learn more about how President Obama's proposal compares to the Congressional Republicans' proposal to extend all the tax cuts (even for the rich), check out these publications from Citizens for Tax Justice:

Bush Tax Cut Proposal Calculator: Find Out How Much You Would Pay

The Bush Tax Cuts: President Obama's Approach vs. Congressional Republicans' Approach (includes state-specific versions)

Fact Sheet: How Many People Are Rich Enough to Lose Part of the Bush Tax Cuts Under Obama’s Proposal? (state-by-state figures)

Fact Sheet: Married Couples with Incomes Between $250,000 and $300,000 Would Lose Only 2% of Their Bush Income Tax Cuts under Obama Plan versus GOP Plan

• Figures from the Institute on Taxation and Economic Policy (ITEP) are cited in this editorial explaining why making Kansas’ tax structure more like Texas’ is public policy at its worst.
• Dan Carpenter’s column in the Indianapolis Star explains who’s hurt by an Indiana law set to issue $300 million in automatic tax breaks as a result of the state’s allegedly rosy budget situation.  Taxpayers might be happy at first to see an extra $100 or $200 in their bank accounts, but at what cost?
• PolitiFact Oregon confirms what advocates long argued: special tax breaks are on autopilot and growing fast, while education and other services suffer as a result.
• North Carolina GOP gubernatorial candidate (and likely next Tarheel State governor) Pat McCrory is making big promises to cut taxes if elected.  What’s in his plan?  Cutting personal income taxes, lowering the state’s corporate income tax rate, and eliminating the state’s estate tax.  Sound familiar?
• Looking who’s playing politics now in New Jersey.  Just days after Governor Chris Christie chided Democrats for holding up his tax cut proposal for political reasons, the state’s Republican Party aired its second radio ad attacking Democrats.  From the ad: “Sadly, it’s the same old story from the Legislature.  Billions for special interest spending.  Not a dollar for tax cuts for New Jersey families.”
• A new budget and tax policy primer from the Open Sky Policy Institute offers a great overview of how Nebraska collects and spends public funds.  One of many important facts: Nebraska actually spends more on special tax breaks than it does on all General Fund appropriations combined.

Many residents of Washington, D.C. have found a good restaurant or shopping deal through an online facilitator like LivingSocial. These websites work by putting consumers in touch with local retailers looking to entice new customers with appealing discounts. But recent action from the D.C. Council could reverse the script, leaving the city’s citizens on the hook for a misguided and revenue-draining attempt at capturing high-tech businesses. After passing a sweet tax deal for one company, the Council is now considering slashing income taxes for just about anyone affiliated with a high-tech company at the expense of the working taxpayers of D.C.

The first tech-tax action taken by the D.C. Council was ensuring that LivingSocial, a high-tech company founded in D.C., remained within the city limits. While the leadership of LivingSocial have long trumpeted their D.C. roots—the chief executive, Tim O’Shaunghnessy, is the son-in-law of Washington Post Co. Chairman Donald E. Graham—they have also made no secret about the organization’s consideration (or threat) of leaving the city for a less “expensive” location. “We’ll make a commitment to the District if the District will make a commitment to us,” O’Shaunghnessy told the Washington Post.

This past week the city government solidified that commitment with LivingSocial in a deal that is far sweeter than anything LivingSocial offers its members. On July 10, the D.C. Council unanimously approved an agreement that keeps the fledgling company’s headquarters (and at least half of its new hires place of residence) within the District’s lines in exchange for a $32.5 million tax break. The deal provides LivingSocial with corporate and property tax abatements over a five-year period beginning in 2015.

What’s more troubling for the city and its residents, however, is a separate proposal to give away tax dollars to investors in online companies. The Technology Sector Enhancement Act of 2012 would allow so-called “angel investors” (qualified employees or stockholders in a qualifying tech company) to only pay a 3 percent tax rate when selling their stake in the company for a profit. Both new and preexisting investments would be covered by the new rate. Additionally, the bill exempts qualified companies from business franchise taxes for five years after the date the company first has taxable income.

Under D.C.’s current tax system, capital gains are taxed like any other income, with the maximum marginal tax rate at 8.95 percent. In fact, the special tax rate (3 percent) for tech investors would be even lower than the lowest income tax rate (4 percent) paid by working D.C. residents. As the D.C. Fiscal Policy Institute has explained, the city would be creating a “Warren Buffett problem” by taxing high-income tech investors at far lower rates than all working D.C. residents. 

Moreover, as the Institute on Taxation and Economic Policy (ITEP) has previously noted (PDF), capital gains are among “the most unequally distributed sources of personal income.” By giving special treatment to such income, governments shift the responsibility for funding government services more heavily onto lower- and middle-income taxpayers.

In addition, the tax giveaway to high-income taxpayers could also be a huge drain on the city’s already stretched-thin budget. A financial impact statement from the city’s Chief Financial Officer notes that such tax cuts will reduce both corporate franchise and capital gains tax collections and that the negative impact “could be substantial.” Unfortunately, the cost of this legislation has not been projected in any detail. The financial impact study merely states that the revenue losses “cannot be reliably estimated at this time.” But the report does explicitly note that if a company were to have a successful IPO “the revenue losses could be significant.”

Such substantial revenue reductions have dire consequences for public investments. And as is often explained (though frequently forgotten), it is those public investments—an educated workforce, first-rate transportation infrastructure and quality health care—that are far more likely than tax incentives to attract high-value-added industries to cities and states.

The D.C. Council was set to vote on the tech tax cut the same day as the LivingSocial deal, but lobbying from anti-poverty groups in opposition to the legislation resulted in the vote being tabled until September. Let’s hope that in the meantime the Council puts some more thought into whether tax breaks for some of the District’s most fortunate residents should really be a top budgetary priority.

As the nation’s governors gather in Williamsburg, Virginia this week, their focus is on their Chairman’s initiative, Growing State Economies.  Too often, however, a governor’s knee-jerk response to a lagging economy is to start cutting taxes, even though state tax cuts offer very little economic bang-for-the-buck.  But while tax cuts aren’t the economic panacea that is often claimed, there are ways in which governors can reform their states’ tax codes to pave the way for improved economic success.

A new report from the Institute on Taxation and Economic Policy (ITEP) identifies governors who get it right and governors who get it wrong, and outlines four commonsense options designed to create infrastructure jobs, boost consumer demand, improve business efficiency, and offer local retailers a more level playing field.

 Read the report.

The National Governors Association is meeting this week and our clickable yearbook of 22 governors is assigning honors to some and detention to others for the tax policies they pushed in 2011 and 2012.

(Single Infographic Version)

	Jan Brewer (R-AZ)	Jerry Brown (D-CA)	Sam Brownback (R-KS)
	Most Likely to Side with Wealthy Investors	Best at Playing a Bad Political Hand	Most Likely to Bankrupt His State
	Lincoln Chafee (I-RI)	Chris Christie (R-NJ)	Andrew Cuomo (D-NY)
	A+ For Effort at Sales Tax Reform	Fiscal Drama Queen	Best Reversal on Millionaires Tax
	Mark Dayton (D-MN)	Mary Fallin (R-OK)	John Kasich (R-OH)
	Most Willing to Stand Up to Legislature	Biggest Loser at Cutting Income Taxes	Fracking Tax Squanderer
	Paul LePage (R-ME)	John Lynch (D-NH)	Dan Malloy (D-CT)
	Reverse Robin Hood Award	Smartest Veto of the Year	Most Likely to Make Rich to Pay Fair Share
	Martin O’Malley (D-MD)	Butch Otter (R-ID)	Deval Patrick (D-MA)
	Defender of Public Services	Champion of the “1%”	Mr. Popular Gimmickry
	Beverly Perdue (D-NC)	Rick Perry (R-TX)	Pat Quinn (D-IL)
	Most Likely to Gamble with State’s Future	Grover Copy Cat Award	Least Likely to Prioritize Seniors
	Brian Sandoval (R-NV)	Rick Scott (R-FL)	Rick Snyder (R-MI)
	Most Likely to Defy Grover’s Tax Pledge	Corporate Tax Giveaway King	Biggest Tax Hiker on the Poor and Elderly
	Scott Walker (R-WI)
	Biggest Bully

 Recent evidence has lead Citizens for Tax Justice to wonder: do the “experts” over at Grover Norquist’s Americans for Tax Reform intentionally lie, or are they just sloppy?

Here’s what we’re looking at:

In their recent policy brief, Americans for Tax Reform links to one of our reports and writes:

"…[E]ven the left-wing Center for Tax Justice admits that “in some parts of the country, $250,000 is really not very much to raise a family on and it’s unclear whether families in such a position can afford to pay higher taxes.”

The problem is that the quote they attribute as the position of Center for Tax Justice (who’s that?) is actually us here at Citizens for Tax Justice (thank you very much) reporting something from the New York Times, and it’s something that we clearly oppose. Here’s the full quote from CTJ’s report:

“Recent articles in the New York Times and the Fiscal Times quote observers and analyses questioning President Obama’s proposal to allow the Bush income tax cuts to expire for adjusted gross income (AGI) in excess of $250,000. One theme of these articles is that in some parts of the country, $250,000 is really not very much to raise a family on and it’s unclear whether families in such a position can afford to pay higher taxes. The idea that Obama’s income tax plan will result in unaffordable tax increases for people who make $250,000 a year is wrong on several levels”

On the one hand, supporting the theory that this misquote results from pure sloppiness is their error of accidently calling us Center for Tax Justice – something busy journalists do all the time.

On the other hand, supporting the theory that Grover’s Americans for Tax Reform is intentionally misrepresenting the position of Citizens for Tax Justice is that our report was a laundry list of reasons why families who make $250,000 can afford to pay higher taxes, making it almost impossible for any semi-literate person to have missed that point. (Plus it’s no secret CTJ supports tax increases for this group.)

Which theory sounds right to you?

Photo of Grover Norquist via Gage Skidmore Creative Commons Attribution License 2.0

The Orlando Sentinel’s editorial board explains the “slow-motion disaster” that is Florida’s tax system, cataloging the lack of sales taxes on services (PDF) and online shopping taxes (PDF), and gasoline tax shortfalls (PDF), among others.

Special tax breaks for businesses frequently reward behavior that would have occurred anyway.  The most recent examples come from Florida, where Publix, CSX, TECO Energy, NextEra Energy, and Mosaic Co. are seeking millions in tax breaks for capital spending they were already planning to undertake.

Online shopping in the DC-Metro area is about to become more expensive, according to this Washington Post article.  Here’s why that’s a good thing for tax fairness, the Marketplace Fairness Act and state coffers.

Advocates for increasing the Arkansas severance tax rate on natural gas from 5 to 7 percent and eliminating exemptions turned in nearly 70,000 signatures on Friday. If the Secretary of State verifies enough signatures, the long overdue rate increase worth $250 million in annual revenues will be put on the November ballot. 

Check out New Jersey Governor’s Chris Christie talk at the Brookings Institution today on “Restoring Fiscal Integrity and Accountability”.  Christie used the first several minutes to give his view on the current tax cut standoff in the Garden State, claiming Democrats were playing politics by holding up his tax cut proposal (when in fact what they’re doing is the right thing).

Every year the Organization for Economic Co-Operation and Development (OECD) produces reports about each of its 34 member countries’ economic prospects. The one they just published about the United States points out the “disproportionate income growth for top earners over the past two decades,” that our tax system is a global underperformer when it comes to ameliorating poverty, and recommends that progressive tax reforms should play in a key role in tackling our increasing income inequality.
 
According the OECD, income inequality has grown continuously over the last four decades. In fact, of the 34 countries in the OECD, the U.S. has the fourth highest level of income inequality as measured by each country’s Gini coefficient. Reinforcing this trend, our current tax-and-transfer system is 30 percent less effective in reducing income inequality than it was in 1980.

One approach that the OECD proposes to counteract U.S. income inequality through the federal tax code is to limit the tax savings from each dollar of certain deductions and exclusions in the federal income tax code. This approach was recently proposed as part of President Barack Obama’s American Jobs Act. Such proposals would increase the progressivity of the tax code and reduce the economic distortions created by tax breaks.

Bad Ideas

While many of the report’s recommendations are progressive and smart, it also some recommendations that would please the most conservative policymakers (leaving us scratching our heads as to how AP could label it “left-leaning”). For example, it calls for a significant reduction in corporate tax rates and the continuation of the special low tax rates for capital income. Of course, what the U.S. needs to do is enact revenue-positive corporate tax reform and treat capital income as ordinary income because these moves would afford us the revenue to implement the OECD’s other more reasonable recommendations, such as increasing government spending on education and job training, to reduce income inequality.

Good news: Wisconsin appears to be  gearing up for serious income tax reform. Bad news: the legislator heading up the effort is a flat tax proponent.

Illinois Governor Quinn began the legislative session in February proposing a variety of loopholes be closed, but the budget he signed on June 30 didn’t close those loopholes.

Think state budgets don’t have an impact on what services localities can provide? Read this article about eight South Carolina school districts facing cuts.

Millionaires don’t flee taxes. With help from ITEP, the millionaire migration myth takes a hit in this Baltimore Sun letter to the editor.

Illinois’ pension system is in crisis.  This insightful column by the Center for Tax and Budget Accountability’s Ralph Martire argues that the state’s tax policy is at least partially to blame:  “For decades, Illinois’ antiquated, poorly designed tax policy created an ongoing structural deficit.”

Seems New Jersey Governor Chris Christie will do or say just about anything to deliver on his reckless promise to cut personal income taxes.  His latest strategy is grandstanding in a very public spotlight (he’s enjoying all sorts of media appearances this week and more speculation of a VP nod) in an effort to get his way, and get it now, at the expense of the poorest New Jerseyans.

Here’s a sketch of how the New Jersey tax cut debate drama has played out in recent months:

Despite early and legitimate criticism from some lawmakers that Christie’s budget depends on overly optimistic revenue projections, and despite legitimate concerns that the state cannot afford any tax cut this year, the Assembly and Senate both got on board with the tax-cutting governor. Specifically, each chamber offered up plans to cut property taxes for households with incomes under $250,000, and the Assembly included a millionaire’s tax to help fund their more generous property tax credit program.

At first, Governor Christie dismissed these alternative proposals (particularly the common sense and highly popular millionaire’s tax component, saying he’d rather “rearrange his sock drawer” than talk about it).  But eventually he embraced the Senate version (which at this point had become his best chance to claim some victory on tax cuts) and struck a tentative compromise in May to deliver property tax cuts to households with incomes below $400,000.

Once again, though, revenue reality got in Christie’s way. Days later, the nonpartisan New Jersey Office of Legislative Services (OLS) estimated that New Jersey revenues would come in $1.3 billion behind the governor’s projections.  This revelation gave Senate and Assembly Democrats pause and left many unsure, again, about supporting any tax cuts. Stories in the New York Times and Wall Street Journal  explain Democrats’ concerns: Christie is banking on revenues to increase by 7.3 percent next year, yet average state revenue growth nationwide is only 4.1 percent, and, the Garden State’s current year revenues continue to lag.

Due to these concerns, the Senate and Assembly went around the Senate leader’s deal with the Governor and sent Christie a  budget with a $183 million earmark for a tax cut, contingent on the state meeting revenue projections later in the year.  The budget also includes restoring the state Earned Income Tax Credit (EITC), a tax break (PDF) for low- and moderate-income working families, from 20 back to 25 percent of the federal credit.

Governor Christie bristled at this (very sensible) plan. He vetoed the EITC increase and called lawmakers back to Trenton the week of July 4 and presented his so-called compromise – give him his expensive tax cut and he’ll give back a modest tax credit for the working poor.

In a smart and comprehensive editorial on Christie’s latest demands, the Newark Star-Ledger wrote:

He is holding the working poor families of this state hostage by refusing to restore the tax credit he took away from them two years ago unless Democrats yield.

The credit is worth about $50 million a year, a pittance in a budget of nearly $32 billion. But for a single mom with a few kids and a job working as a cashier, the state credit is worth about $500 a year. Combined with a federal credit five times that large, it makes a meaningful difference…

He will restore the credit, he says, only if Democrats agree to take the blind leap and commit to his larger tax cut now, before the revenue numbers come in. Be reckless, he says, or he will shoot the hostages.

His predictions for revenue growth are the most optimistic in the nation, despite the fact the state economy is lagging behind other states. No one but his own obedient Department of Treasury believes this nonsense, including the nonpartisan Office of Legislative Services and the Wall Street bond rating agencies.

So why not wait and see? If the tax cut isn’t scheduled to take effect until 2013 anyway, what does that simple prudence cost?

Just one thing: It would deny Christie a political win in advance of the party convention in August…. Christie scores a few political points. And the working poor absorbed one more of his blows.

The experts at New Jersey Policy Perspective also endorse patience and explain that the state is already moving money around and deficit-spending to make the already frayed ends meet.  They conclude that when the numbers are finally in, lawmakers should have a serious debate on the crucial question of whether any tax cuts should be enacted or whether the state should “invest the $1.5 billion to put New Jersey back on the path to good jobs, long-term economic growth, and middle-class tax relief.”

This is the kind of grown-up thinking New Jersey needs. But until and unless Chris Christie gets over his ideological commitment to slashing taxes and his personal commitment to climbing the political ladder, his constituents are in for a lot more theater and a lot less fiscal sanity.

Interested in knowing how much it costs to fund (or not) local firework shows this 4^th of July? Read this.

Meantime, 46 states now allow sales of high powered consumer fireworks rather than lose the revenues to other states – but often turn around and ban their use because of the fire hazard in dry July.

On Sunday, Texas started collecting state and local sales taxes on items purchased from Amazon.com – and the sky didn’t fall. Read why (PDF) items purchased online should be taxed.

Forbes’ estate tax expert cited the Institute on Taxation and Economic Policy’s (ITEP) work discrediting claims that eliminating Tennessee’s gift and estate taxes (as Arthur Laffer advises) will lead to robust economic growth.

An exposé on Louisiana’s budget busting “alternative” fuels tax credit shows it (predictably) helped pay for plain old gasoline in flex fuel cars, too.

According to official estimates, once the Affordable Health Care Act takes effect, it will provide about $26 billion a year in tax credits to help middle-income families lacking health insurance to purchase it. At the same time, the act will impose about $7 billion a year in fees on middle-income families that choose not to purchase insurance.

Senate Minority Leader Mitch McConnell (R-KY) said this $19 billion-a-year net middle-class tax cut is "a middle class tax cut — tax increase."

Well, that's sort of correct. But when you combine the two tax provisions, they clearly add up to a middle-class tax cut.

Here's another way of looking at the fees and the tax credits. The health law will make about 28.6 million people eligible for the tax credits. The number of people who will not be eligible for these credits or the newly expanded Medicaid and who will be subject to the mandate is 7.3 million, which is just two percent of the population (three percent of the non-senior population). Even fewer — just 1.2 percent of Americans — would actually choose to pay the fee rather than obtain health insurance, according to the Congressional Budget Office.

(Photo courtesy Fox News)