“Unlike President Obama, I will not raise taxes on the middle class,” Republican presidential candidate Mitt Romney said during his acceptance speech. It was a startling statement because it describes one of the facts about Romney’s own tax plan and attributes it to the policies of his opponent, President Obama.

Romney’s Tax Plan: Breaks for the Rich No Matter How You Look at It, Leaving the Bill for Low- and Middle-Income Americans

A recent CTJ report shows that the basics of Romney’s tax plan would give out huge tax cuts to those who make between half a million and one million dollars and those who make over a million dollars, no matter how the missing details are filled in. Romney cannot possibly meet his goal of offsetting the costs of the tax cuts (besides the enormous Bush tax cuts, which he doesn’t think need to be paid for) without raising taxes on people farther down on the income ladder.

The CTJ report finds that Romney’s proposed tax cuts would reduce taxes by an average $80,000 for people who make between half a million and one million dollars and by an average $400,000 for people who make over a million dollars.

Now, Romney promises to offset the cost of these tax cuts (aside from the enormous Bush tax cuts, which he would make permanent) by reducing or eliminating “tax expenditures,” which are the credits, deductions, exclusions and loopholes that lower people’s tax bills. But even if Romney made the very rich give up all the tax expenditures that he has put on the table, they’d still be getting huge tax cuts —  an average $48,000 for people who make between half a million and one million dollars, and an average $250,000 for people who make over a million dollars.[1]

If Romney’s plan is going to be revenue-neutral (not counting the huge cost of the Bush tax cuts) as he claims, then someone is going to have to pay higher taxes than they do now so that the people who make over half a million dollars a year can pay less. The loss of tax expenditures for low- and middle-income people can be larger than the benefits they receive from Romney’s rate reductions and other proposed breaks, meaning they face a net tax increase. In fact, this must happen for Romney to keep his promise about not losing more revenue, as the Tax Policy Center has already pointed out.

Obama’s Problem Is that He’s Cut Taxes Too Much, Not that He Raised Taxes

Romney’s claim that Obama has raised taxes on the middle-class is initially hard to understand, given Obama’s two-year extension of all the Bush tax cuts and his call to again extend the Bush tax cuts entirely for 98 percent of Americans while letting them expire partially for the richest 2 percent of Americans. (In fact, we pointed out that many of the taxpayers within the richest 2 percent, like those with incomes just over $250,000, would only have to give up a tiny fraction of their tax cuts under Obama’s plan.)

Romney’s claim that Obama has raised taxes on the middle-class appears to refer to the new mandate to obtain health insurance, which the Chief Justice of the Supreme Court decided was actually a tax and therefore within the Constitutional powers of Congress.

As we pointed out at the time the Supreme Court ruled on the health care mandate, very few people would ever actually pay the “tax,” which is the fee that will be imposed on people who choose to go without health insurance. As we explained,

It’s a tax that hardly anyone will pay.

That’s because for the vast majority of Americans who don’t have employer health coverage, the government subsidies to buy insurance will be so large that it would be foolish not to buy insurance.

For starters, any family with income less than 133 percent of the poverty line (that means all families of four with incomes of $30,000 or less) will be eligible to sign up for free coverage under Medicaid.

Above that level of income, the government will provide cash subsidies to buy insurance, starting at almost 100 percent of the cost and gradually phasing down. But the subsidies won’t disappear for a family of four until its income exceeds about $90,000.

An Urban Institute study found that fewer than 3 percent of households would be subject to the fee.

Another point that Romney and his allies seem to forget is that the 2009 economic recovery act that they criticize so much actually cut taxes for 98 percent of working families. (See the national and state-by-state estimates from CTJ.)  

If President Obama has made any mistakes on taxes, it’s that he has been entirely too willing to extend too many tax cuts for too many Americans at a time when we desperately need revenue.

[1] Notice we say that the $48,000 and $250,000 figures are the tax cuts these groups would get if they had to give up all the tax expenditures that Romney has put on the table. That’s because he has pledged to keep the tax expenditures that benefit the rich the most — breaks for investment, like the low rates for capital gains and stock dividends.

The GOP’s core philosophy about tax policy is perfectly distilled in its 2012 platform where it states simply that “[l]owering taxes promotes substantial economic growth.” What this one-sided analysis misses is that lower taxes do not promote economic growth, because they inevitably require (PDF) the government to either cut spending or to increase the deficit.

(Our GOP platform review Part II, Tax Ideas on the Fringe, is here.)

Supports More Individual Tax Cuts

The fact that the GOP platform does not make the connection between tax cuts and deficits is starkly demonstrated by the platform’s warning that the US faces an “unprecedented legacy of enormous and unsustainable debt,” while at the same time calling for a complete extension of the Bush tax cuts, at a cost of $5.4 trillion (PDF). While some GOP leaders like to say that tax cuts boost the economy so much that they pay for themselves, there is no evidence to support that claim, and even economists from the Bush Administration and a former Reagan advisor have conceded that over the long run, the Bush tax cuts have no real discernable affect on economic growth.

Supports More Corporate Tax Cuts

Another misguided tax proposal in the GOP platform is the call for a lower corporate tax rate. For one, the platform rests on the mistaken assumption  that “American businesses now face the world’s highest corporate tax rate.” While it may be true that the US has the highest statutory rate on paper, the actual amount of taxes paid by US corporations is nowhere near the statutory rate because of the large swath of corporate tax breaks and loopholes that allow many enormously profitable companies, like General Electric and Verizon, to pay nothing at all in taxes.

Comparatively, the amount of corporate taxes paid as a percentage of GDP in the US is the second lowest in the developed world. In fact, a recent CTJ analysis found that two-thirds of the largest US multinational corporations with significant foreign profits paid a lower corporate tax rate on their US profits than the rate they paid to foreign governments on their foreign profits.

Rather than dealing with the breaks and loopholes that plague our corporate tax system, the GOP platform advocates expanding them, most notably by moving the US to a territorial tax system under which corporations would have a greater incentive to move profits and jobs offshore (a problem that can be solved by ending deferral).

The new Republican platform identifies high rates as the core problem with our current tax system, but the real problem is decades of cuts and proliferating breaks and loopholes are making it impossible over the long term for the government to provide critical services without dangerously increasing the national debt.

Romney and Ryan Both Propose Plans that Would Give Millionaires Average Breaks of at Least $250,000, and Possibly as High as $400,000

Presidential candidate Mitt Romney and his running mate, Congressman Paul Ryan, have both proposed tax plans that would make the Bush tax cuts permanent, further slash personal income tax rates, reduce the corporate income tax rate, and enact several other tax cuts.

Both candidates also say that they would reduce or eliminate many “tax expenditures” (deductions, credits, exclusions and loopholes) so that their plans would cost no more than making all the Bush tax cuts permanent would cost. That’s hard to believe because neither has specified a single tax expenditure they would target. But one thing is clear: for the richest Americans, the rate reductions and other breaks would be far more valuable than any tax expenditures they could lose under either plan. (The details of the Romney and Ryan tax plans are in the appendix.)

Both Romney and Ryan’s plans would give people making over $1 million an average tax cut of about $250,000 if these millionaires had to give up all of their tax expenditures. If Romney or Ryan’s plan was implemented without closing any tax expenditures for the rich, then people making over $1 million would receive an average tax cut of around $400,000.
 
Read the report.

The GOP’s 2012 platform contains many of the policies that you would expect from the party, such as calling for the extension of the Bush tax cuts and reducing corporate tax rates. Here we focus, however, on three planks in the platform that fall far outside the mainstream of tax policy.

(Our GOP platform review Part I, Same Old Supply Side Stuff, is here.)

1. Support for a Radical Constitutional Amendment to Restrict Taxes and Budgets

Following efforts by the House GOP last year to pass the most extreme balanced-budget amendment ever, the GOP platform calls for the passage of a constitutional amendment that would require that the federal government have a balanced budget, cap federal spending at its historical average share of GDP (around 18 percent), and require a super-majority for any tax increase (with an exception for war or national emergency). This kind of amendment poses all kinds of problems, not the least of which is that it would immediately cause unemployment to double (according to nonpartisan, private sector economists) and drive the economy into a deep recession.  Balanced budget amendments in all their forms (including state level versions) are disastrous, because they essentially tie the hands of legislators and cripple government functions.

2. Nod to National Consumption Tax

Warning that we must “guard against hypertaxation of the American people,” the GOP platform says that the creation of a national sales tax or value-added tax (VAT) can only happen in conjunction with the repeal of the Sixteenth Amendment, which allowed for the federal income tax.

On the one hand, this plank is odd because a national sales tax or VAT is not a political possibility; even the hint of it prompted the US Senate to pass a resolution explicitly rejecting a VAT by an 85 to 13 vote just a couple of years ago.  Anyway, the fear that a national consumption tax would lead to some sort of “hypertaxation” is unfounded. Its implementation in Canada (PDF) is a case study showing how overall taxes can actually decrease following the creation of a national consumption tax.

On the other hand, the existence of this plank in the GOP platform suggests that the Republican party’s establishment might actually be considering a radically regressive policy like the so-called “Fair Tax” (which is just a national sales tax) and elimination of the federal income tax (the primary source of fairness in the tax code and sustainable, sensible revenue source).

3. Opposition to a United Nations Global Tax

Perhaps the most inexplicable plank in the entire GOP platform is opposition to “any form of UN Global Tax.” While there are conspiracy theories, such as how the UN may very well invade in Texas in order to enforce its radical tax agenda during Obama’s second term, the reality is that no one takes the possibility of a UN global tax seriously. To be clear, there is no indication of support among US lawmakers to implement such a UN tax, nor does the UN have the power to impose one.

by Robert S. McIntyre, CTJ Director

Almost a year ago, long before Mitt Romney became the Republican presidential nominee, CTJ was the first to figure out just how little Romney pays in federal income taxes. Based on Romney’s limited but useful financial disclosures at the time, we calculated that his 2010 effective federal tax rate was a ridiculously low 14 percent (on his reported income) — less than half of what Warren Buffett’s famous secretary pays.

Michael Scherer of Time Magazine, who’d asked us to do the analysis, posted our results on Time’s website on Oct. 3, 2011. The story got widespread attention, and led to growing demands that Romney release his actual federal income tax returns. After months of stonewalling, Romney finally released his 2010 return, which confirmed our prediction that he’d paid only 14 percent in federal income taxes.

Since then, Romney has adamantly refused to release any of his earlier tax returns, causing speculation that he has something even more damaging to hide (and keeping CTJ busy fielding media questions about what such things might be).

Looking at Romney’s past tax returns could provide some valuable information, not just about Romney himself but also about the egregious loopholes that allow him to pay so little.

But Romney is hiding a much more important tax secret: the truth about how the tax plan he’s campaigning on would affect the rest of us.

So far, all Romney has told us about his individual income tax plan is the following: First, he would extend all of the Bush tax cuts and permanently repeal the Alternative Minimum Tax. Second, he would make interest, dividends and capital gains tax-exempt for people with other income up to certain levels ($200,000 for couples). Third, he would reduce all federal personal income tax rates by a fifth (so, for example, the top income tax rate would fall to 28 percent). Fourth, well, the fourth item is the big secret.

Romney says that he would partially pay for the $8 trillion ten-year cost of the income tax cuts he proposes  by getting rid of many personal tax breaks. But he refuses to specify even a single one of them! To be sure, at one point, he suggested he might curb the mortgage interest deduction for vacation homes, but he quickly backed off even that tiny reform.

How can voters calculate even roughly how they would be affected by Romney’s tax plan without knowing the crucial details of which tax breaks he wants to eliminate? Will he crack down on tax breaks for wealthy investors like himself? Well, no, he’s ruled that out. Will he eliminate deductions for mortgage interest and property taxes? Tax credits for middle- and low-income families with children? The tax exemption for employer-paid health insurance? Tax deductions for extraordinary medical expenses? Who knows?

It’s all well and good that analysts with high-powered tax models (like ITEP’s) can calculate that even if Romney eliminated all non-investment-related personal tax breaks, his gargantuan tax plan can’t possibly break even — and thus will mean huge increases in budget deficits. But American voters also deserve to know whether Romney plans to raise taxes on them, and by how much.

Barring a speech tonight that answers these questions, that’s the crucial tax secret that the public and the media should be clamoring for Romney to reveal.

Oklahoma Governor Mary Fallin is not backing down from her quest to phase out the Sooner State’s personal income tax.  Despite her best efforts, lawmakers adjourned earlier this summer after defeating every single tax cut proposal (more than half a dozen serious versions) debated during the session. But in an interview with the Wall Street Journal’s Stephen Moore (a frequent collaborator with Governor Fallin’s tax advisor, supply-sider Arthur Laffer) the governor vowed, "[w]e are going to get that tax cut done next year." 

Hear, Hear! The Cleveland Plain Dealer editorializes that Ohio Governor John Kasich shouldn’t reduce income taxes anymore and should “leave Ohio’s income tax alone.” The Governor first tried (and failed) to pay for income tax cuts through increased fracking taxes, and now through increases in the sales tax. The progressive income tax (PDF) is the only major revenue source directly linked to a taxpayer’s ability to pay and the income tax can help to offset regressive sales and property taxes.

Wyoming’s gas tax is low by historical standards and shrinking, but perhaps not for long.  Members of an interim legislative committee on revenues approved a draft bill to increase the rate from 14 to 24 cents per gallon, which would raise an additional $72 million annually for road construction and repair.  It’s only one of several fixes Wyoming should make to restructure its gas tax, including, as the experts at Equality State Policy Center point out, provisions to “reduce the effect on lower-income residents in Wyoming” of a gas tax increase.

Both Republicans and Democrats are featuring governors at their national nominating conventions. Because convention speakers are chosen as the parties’ ambassadors to new audiences during these TV spectacles, the state policy team at the Institute on Taxation and Economic Policy are providing quick sketches of current governors from both parties who have been leaders – for better and for worse – in state tax policy. Below are profiles of two governors: Louisiana's Bobby Jindal, who was scheduled to speak tonight but bowed out to handle Hurricane Isaac, and Susana Martinez of New Mexico.

Louisiana Governor Bobby Jindal: Last year, the Governor dismissed a legislative plan to eliminate the state’s personal and corporate income taxes as too radical. This year, the budget he ultimately signed was full of “one-time” money lifted from other parts of the budget to fill in gaps. Still, as he turns his attention toward reforming the state’s tax structure, he is opposed to raising more revenue, saying, “[w]e are not going to do anything that raises revenue. It needs to be revenue-neutral.”

New Mexico Governor Susana Martinez:  In her 2011 State of the State Address, Governor Martinez waxed eloquent about supporting small business, saying, "It's the small businesses — the mom-and-pop shops, the small startups — that get lost in the layers of red tape….We will help them…."  But the fact is, Martinez failed even in her ill-advised effort to exempt roughly half the state’s small businesses - those earning less than $50,000 per year - from the gross receipts tax. And, when she had a chance to sign a bill that really did support small business owners (and that had widespread support from business groups in her state!), Martinez vetoed it. She always said she would, actually, oppose combined reporting, which is a smart rule that levels the playing field for small business by preventing large corporations from creating subsidiaries in other states to avoid paying taxes.

Presidential candidate Mitt Romney has been doing a lot of media interviews lately, and when the editors at Politico wrote up their sit-down with the GOP nominee, they characterized Romney’s answers to their questions as “the clearest window yet into how the lessons he gained in the corporate world would be applied to the presidency.

So what did he say? Romney told Politico “I learned leadership by watching people,” and named J.W. “Bill” Marriott, a fellow Mormon and the CEO of the hotel chain of the same name, as one of the people from whom he’s learned a lot about leadership. He put Marriott right up there with his mentor, Bill Bain.

While we can’t speak to Bill Marriott’s management style, we can tell you that during his 40-year tenure as CEO of Marriott International, the company engaged in aggressive tax avoiding – so aggressive that it later got them into trouble with the IRS.

The company used a tax shelter known as “Son of BOSS,” generating capital losses that a federal court deemed “fictitious,” “artificial” and a “scheme.” The government criminally prosecuted the promoters of this particular tax shelter and people are now serving federal prison sentences for it. In fact Romney himself, as a member of Marriott’s audit board, most likely signed off on this tax evasion strategy. The company has used other aggressive tax planning vehicles, too, even claiming a questionable tax credit for synthetic fuels.

Marriott also shows an ever-increasing ability to shift and shelter its profits offshore. While 3,122 of its 3,718 hotel properties are in the United States, the company pays more income tax in foreign jurisdictions than in the US, even though the majority of its profits must surely be generated here.

Marriott has over a hundred subsidiaries in known tax haven countries. For example, while it has only one hotel in the Cayman Islands, Marriott has 15 subsidiary companies there.  And in Luxembourg, where it has nine subsidiaries but zero hotels, Marriott uses one of its subsidiaries to collect royalties on its various brand names which the US cannot tax.

Does Romney admire and endorse these kinds of shenanigans? Hard to say for sure. But given his widely recognized use of some pretty aggressive (though legal, far as we know) strategies to avoid paying his personal taxes, we now have a glimpse into the values that inform his views on corporate tax policy.  We are beginning to sense a pattern in this presidential candidate, and it looks a little like disdain for our nation’s tax laws.

Both Republicans and Democrats are featuring governors at their national nominating conventions. Because convention speakers are chosen as the parties’ ambassadors to new audiences during these TV spectacles, the state policy team at the Institute on Taxation and Economic Policy are providing quick sketches of current governors from both parties who have been leaders – for better and for worse – in state tax policy. Below are profiles of more of Tuesday night’s prime time speakers.

Oklahoma Governor Mary Fallin:  Governor Mary Fallin led an unsuccessful (hooray!) attempt this year to wreak havoc on Oklahoma’s tax system which included eventual elimination of the Sooner State’s personal income tax.  To pay for the preliminary rate cuts, Fallin wanted to eliminate the personal exemption, Earned Income Tax Credit, and other credits - all tax provisions that overwhelmingly benefit low and moderate income Oklahomans.  The legislature generally supported her plan and introduced about a dozen versions of tax reform.  Every plan had one common feature: they would have raised taxes on a majority of Oklahoman families while cutting them – dramatically - for the richest.

Fortunately, despite strong legislative support to deliver a large tax cut package (and the expertise of Fallin’s supply-side consultant, Arthur Laffer), all efforts stalled this year.  But the fight to preserve Oklahoma’s personal income tax and protect the state’s poorest residents is far from over. Governor Fallin recently vowed, “[w]e are going to get that tax cut done next year." 

Ohio Governor John Kasich: When he was running for office, candidate Kasich supported eliminating the state’s personal income tax altogether. And though he later softened his radical stance, citing the inability of the state to afford such a massive change, it is clear that cutting the personal income tax has been on his agenda ever since. As governor, he first advocated paying for income tax rate cuts with revenue from a new fracking tax, but that failed. Now, he’s exploring eliminating some tax exemptions to pay for income tax reductions. Clearly, Kasich has it out for the income tax even though he already succeeded in eliminating Ohio’s estate tax and pushing through a tax credit that benefits investors.

Governor Brian Sandoval: Of all the GOP governors across the country, Brian Sandoval stands out as the one most likely to put his constituents over politics.  Working with Republicans and Democrats, Sandoval extended $620 million in temporary taxes first in 2011 and again this year to avoid deep cuts to education spending.  Significantly, Sandoval even abandoned on Grover Norquist’s “no-tax pledge” after taking a careful look at the fiscal conditions in Nevada. 

Wisconsin Governor Scott Walker: Governor Walker’s tax policy positions make him no friend to low income working families. The budget he signed reduced the value of the state’s earned income tax credit and froze the state’s circuit breaker (for low income property owners). The Governor’s budget also includes $2.3 billion in tax breaks over the next decade in the form of a domestic production activities credit (a needless business tax giveaway), two different capital gains tax breaks (that benefit the most affluent), and a variety of new sales tax exemptions.

South Carolina Governor Nikki Haley: Governor Haley’s tax policy position is clear – she’s on the side of corporations and businesses rather than working South Carolina families. Governor Haley has long supported eliminating the state’s corporate income tax.

Both Republicans and Democrats are featuring governors at their national nominating conventions. Because convention speakers are chosen as the parties’ ambassadors to new audiences during these TV spectacles, the state policy team at the Institute on Taxation and Economic Policy are providing quick sketches of current governors from both parties who have been leaders – for better and for worse – in state tax policy.

[UPDATE 8/30/12: The good people at FactCheck.org reviewed Governor Christie's RNC speech and call it a Fact Free Keynote. Read why here.]

Tonight, America will hear from New Jersey's Governor Chris Christie, a man known for his bombastic, no-apologies approach and who we crowned "Fiscal Drama Queen" in our 2012 gubernatorial yearbook.

Since taking the reigns as the Garden State’s leader in January 2010, Governor Christie’s fiscal agenda has done “serious damage to virtually every constituency imaginable in this state – except for corporations and the super-rich.”  Christie raised taxes on the working poor and on fixed-income seniors while at the same time insisting on tax cuts that disproportionately benefit the wealthiest New Jerseyans.  He has thrice vetoed a temporary millionaire’s tax (impacting a mere .2 percent of the state’s taxpayers, temporarily!) that would have prevented hundreds of millions of dollars in spending cuts to schools, health care for working families and legal assistance for low-income individuals, to name just a few programs impacted by Christie’s priorities. 

And now, Governor Christie wants a significant income tax cut so much that he continues to swear by a fantastical revenue forecast despite consensus among nonpartisan experts that 2013 revenues are likely to fall a staggering $1.3 billion below that projection, (much like the last fiscal year, which ended with $542 million less in the bank than predicted).

An ideologue with political ambitions who fails to serve his constituents, Christie is nonetheless the keynote darling of the 2012 GOP.

Both Republicans and Democrats are featuring governors at their national nominating conventions. Because convention speakers are chosen as the parties’ ambassadors to new audiences during these TV spectacles, the state policy team at the Institute on Taxation and Economic Policy are providing short sketches of governors from both parties who have been leaders – for better and for worse – in state tax policy.

We begin with Rick Scott, Governor of Florida (the GOP convention is in Tampa this week) who removed himself from the program and his host duites in order to oversee his state’s response to Tropical Storm Isaac.

Florida Governor Rick Scott: From day one in office, Governor Rick Scott has pursued a strategy of shrinking government.  His first budget proposal included enormous cuts to both corporate income taxes and property taxes (which earned him the “Corporate Tax Giveaway King” title in our recent yearbook).  Under Scott’s plan, which he unveiled before a tea party rally, the state’s already low corporate tax rate would fall from 5 percent to 3.5 percent.  At the same time, state spending would drop by $4.6 billion, with pre-K through university education taking the biggest hit, of $3.1 billion.  In his 2012 State of the State address, he called taxes “the great destroyers of capital and time for small businesses.”

Amazingly, though, not even the state’s conservative legislators have seemed interested in Scott’s ultra-conservative ideas and have largely rejected  his anti-tax platform over the past two years.  Had Scott spoken at the GOP convention, he probably would have touted his “accomplishments” as the leader of the host state and pointed to the Sunshine State’s low taxes as a key to his success.  Of course, the money always has to come from somewhere, so while Florida may be a so-called low-tax state, it is actually an extremely high tax state (PDF) for its poorest residents.

Mitt Romney appears to have a lot at stake in the upcoming election when it comes to his own federal taxes.

If Obama wins and gets his tax plan adopted, then Romney will pay an effective federal tax rate of 34.3 percent.

If Romney wins and he successfully promotes the tax plan that his running mate, Paul Ryan, proposed in 2010 (the only Romney-Ryan tax plan spelled out in any detail), then Romney will pay only 0.4 percent.

The dollar difference, per year: $7.7 million!

In contrast, Obama would actually raise his own tax rate to 28.4 percent and Romney would lower it 18.1 percent, saving Obama some $67,000.

Note: All these figures are based on the income and deductions reported on Romney’s 2010 federal tax return, the only return he has yet been willing to release.

The Congressional Budget Office’s (CBO) latest 10 year budget and economic projections set off yet another firestorm of dire headlines warning of a “deep recession” if Congress does nothing to address the so-called “fiscal cliff.” While such headlines create a sense of crisis, the real danger is not that Congress will do nothing, but rather that cynical members of Congress will use our struggling economy as an excuse to extend the reckless policies of the last 12 years.

One of the key points missing from the fiscal cliff debate is the fact that doing nothing would be rather beneficial over the long run. As Citizens for Tax Justice (CTJ) pointed out earlier this year, if Congress were to just sit on its hands and do nothing, this would solve the entirety of our long term fiscal gap and would even allow the US government to start paying down the national debt by 2015.

For better or worse, however, there’s good reason to believe that Congress will do something. As CTJ’s Director Bob McIntyre pointed out in a recent op-ed, the gap between Republicans and Democrats on how to deal with the fiscal cliff is actually relatively small considering that it’s over whether or not to extend 78% of the Bush tax cuts (as President Obama is proposing) or all of the Bush tax cuts (as congressional Republicans are proposing). Under either scenario (or somewhere in between) this would wipe out most of the fiscal cliff and prevent the country from slipping back into recession.

The critical problem, however, is that both approaches would dramatically increase the deficit over the coming years. According to CTJ estimates, President Obama’s proposal to extend most of the Bush tax cuts would increase the deficit by $4.2 trillion, while the Republican proposal to extend all of the Bush tax cuts would add $5.4 trillion to the deficit over the next 10 years. In other words, while both approaches would help the economy in the short term, they would put the US on the path to fiscal ruin.

What, then, is the best way to deal with the fiscal cliff? Lawmakers should focus on extending a responsible portion of the tax cuts that go to low and middle income families, while at the same time enacting temporary stimulus programs, such as infrastructure investments, putting teachers back to work and other programs that directly create jobs. (which are far more stimulative than extending the Bush tax cuts). This approach would have the double benefit of helping the struggling economy in the short term, while setting the US on the path of deficit reduction over the long term.

Here’s a follow up to our previous post describing the effort to get a much needed severance tax increase on the ballot in Arkansas.  The former natural gas executive, Sheffield Nelson, who was behind the effort has said that he won’t have enough signatures to qualify this proposal for the November ballot.

Last month, a Louisiana Revenue Study Commission began looking into the state’s tax exemptions to see if these government handouts are effective. Now that Governor Bobby Jindal has been passed over as the Republican Vice Presidential nominee, it appears he’s going full speed ahead with revenue neutral tax “reform” efforts.  As part of the efforts to reform the tax structure and examine tax expenditures the Governor, other policymakers and taxpayers should review these new materials from the Louisiana Budget Project.

This week, Illinois Governor Pat Quinn signed into law legislation that imposes a new tax on strip clubs. Revenue generated from this new tax will fund programs for victims of sexual assault. By choosing to enact an entirely new tax that seems destined to raise little revenue, rather than enacting needed reforms in the taxes the state already levies, Illinois lawmakers have missed a chance to make the tax system fairer. The worthy goal of funding anti-abuse efforts would be better served by eliminating income, sales and corporate tax loopholes.

Iowa’s gas tax is at an all-time low and shrinking- and transportation infrastructure is suffering because of it.  Earlier in the year, we thought Governor Terry Branstad would champion an increase in the tax to address the state’s transportation funding needs.  Now we have learned the governor will only support a “modest” change in the gas tax if lawmakers first reduce property, personal income and corporate income taxes.  Which begs the question- how will Iowa pay for much needed road and bridge repairs if the state is left with even less revenue than it had before this so-called “reform” plan?

Photo of Bobby Jindal via Gage Skidmore Creative Commons Attribution License 2.0

The Olympics may be over, but some US lawmakers are still competing for the lousy tax policy medal. Weeks after Florida Senator Marco Rubio proposed—and President Barack Obama endorsed—a bill to exempt US Olympians’ gold-medal bonuses from federal income tax, a California Senate Committee approved a plan last week to exempt these bonuses from the state’s income tax.  

An unusually pointed Senate Governance and Finance Committee staff analysis of the bill, however, noted that “the measure is the exact opposite of sound tax policy” and tartly suggested that “[t]he Committee may wish to consider whether running afoul of good tax policy is worth the bill's kind gesture.”

The staff analysis also pointed out that, like the federal legislation that inspired it, the California bill could inadvertently exempt from tax not just the $25,000 bonus Kobe Bryant will receive from his basketball gold medal, but also Olympics-related compensation he might receive from advertisers and sponsors.

Seemingly undeterred by this analysis, the Senate Committee initially approved the bill by a 5 to 1 vote last week, but its sponsor couldn’t get it past the Appropriations Committee for a full vote. He has said he will add amendments and try again.

As we’ve noted previously, the trivial cost of this measure does not change the fact that it would add one more brick to the wall of tax complexity. Meaningful tax reform requires weeding out special tax breaks for privileged groups rather than adding them; any politician who knows this and endorses an Olympic winnings tax exemption is engaging in political opportunism of hypocritical proportions.

Uber-supply side economist Arthur Laffer and Kansas Governor Sam Brownback gave small business owners a “pep talk” earlier this week about the massive tax cuts that the Governor signed into law earlier this year. It’s part of the Governor’s PR Offensive to brand a regressive tax plan, that costs $2.5 billion over five years, as somehow fiscally sound.

Wednesday Louisiana Governor Bobby Jindal released a statement that should make Louisianans nervous: “Our top priority next legislative session is to reform Louisiana's tax system so that we can make our tax code fairer, flatter, and lower for Louisiana families and businesses.” They already had to scrounge up “one time” money to fill state budget gaps; reducing revenues further by cutting taxes will only exacerbate Louisiana’s fiscal problems. 

California Governor Jerry Brown officially launched a campaign this week to gain support for his temporary income tax increase for the state’s wealthiest residents and permanent ¼ cent increase in the sales tax. It will be on California’s November ballot as Proposition 30.  At a press conference, Brown stressed that a rejection of his measure would trigger automatic budget cuts amounting to $6 billion less for K-12 schools and universities and called the measure an “opportunity to say 'yes' to our schools [and] about one simple question: Shall those who have been blessed beyond imagination give back 1, 2 or 3 percent for the next seven years, or shall we take billions out of our schools and colleges to the detriment of the kids standing behind us and the future of our state?"

Add this one to the long list of bad ideas put forth by New Jersey Governor, Chris Christie.  For the paltry sum of $120 million in cash up front, Christie is selling off the Garden State’s lottery.  The deal will require the buyer to increase ticket sales by at least 7.5 percent annually – or face a penalty.  This, Christie believes, will make the sale worthwhile. But the chosen vendor will have their work cut out: even in a record year, New Jersey’s lottery grew by only 1.2 percent (it raised $2.6 billion last fiscal year, a reported $31.5 million increase over the previous year).  

Utah policymakers have decided to get serious about their state’s deteriorating gas tax revenue. The crisis shouldn’t surprise anyone since Utah has had the same state gas tax rate for 14 years which has lost more than 30 percent of its value over time.  Rather than confronting that erosion in its value, Utah lawmakers have been raiding their general fund in order to pay for transportation. They need to increase the tax by at least 12.6 cents a gallon – and get other key recommendations from Building a Better Gas Tax from ITEP.

A widely tweeted report from the Tax Foundation claims that failure to enact the House Republican bill extending most of the expiring tax cuts would mean that Americans lose significant tax cuts — from an average $1,310 in Mississippi to an average $5,783 in Connecticut.

Here’s why the Tax Foundation report is highly misleading:

1. The report discusses what will happen if the House GOP bill extending most expiring tax cuts is not enacted and all the tax cuts are allowed to expire, but fails to mention that President Obama’s approach would extend all tax cuts for 98 percent of taxpayers and partially extend them for the richest two percent of taxpayers.  If the scenario studied by the Tax Foundation report (the complete expiration of all the tax cuts) comes to pass, it will be because the House of Representatives refused to approve the President’s approach, which has already passed the Senate.
   
   
2. While the House GOP bill would extend more tax cuts for 2.7 million high earners (the richest two percent of taxpayers), it would allow the expiration of certain tax breaks for 13 million working families with 26 million children. These are the 2009 provisions expanding the EITC and Child Tax Credit, provisions that would be extended under the approach taken by President Obama and Senate Democrats. This is why our national report and our state-specific reports show that most income groups besides the rich would, on average, pay more in taxes under the GOP approach than under Obama’s approach.
   
   
3. Even if the choice was between enacting the House GOP bill and allowing all the tax cuts to expire, the Tax Foundation report would be misleading because the average tax break for an entire state does not represent the tax break most taxpayers in that state would see. Any calculation of the average tax cuts under the House GOP bill will be skewed by the enormous tax cuts that go to the very richest taxpayers, resulting in an average tax break that is far greater than the median tax break (the tax break going to the taxpayer who is right in the middle of the income distribution). For example, we estimate that in Connecticut, the richest state in the U.S., the average tax break under the GOP bill for all the state’s taxpayers would be $3,810, but the average tax break for the middle 20 percent of the state’s taxpayers would be $1,020.[1] (The report also shows that the average tax break for the middle 20 percent of taxpayers would be $20 larger under Obama’s approach.)

[1] Note our estimate that the House GOP bill would result in a tax break of $3,810 on average for Connecticut taxpayers, which is much smaller than the $5,783 estimated by the Tax Foundation. Part of the reason is that the Tax Foundation is including the full two years of AMT relief in the GOP bill, rather than one year. The report says that the House GOP bill would provide $403 billion of tax cuts, which is very close to the $405 billion figure at the bottom of this table from the Senate Finance Committee chairman’s website. The chairman’s table shows that the figures for the GOP approach clearly include a second year of AMT relief, which accounts for a fourth of that $405 billion total. Rightly or wrongly, both parties are committed to providing AMT relief each year until some sort of tax reform makes it unnecessary, so there is really no difference between the parties on this issue, even if the Democratic proposal up for debate right now only provides one year of AMT relief while the GOP proposal provides two years of AMT relief. In any event, it doesn’t make sense to estimate an average tax break including two years of AMT relief and then report that this amount is at stake “per year” as at least one media outlet has done.

Bowing to political pressure and threats that the company would move its operations to another state, Illinois Governor Pat Quinn last year promised Motorola Mobility $100 million over ten years if it agreed to keep 2,500 jobs in the state.  (In case you’re wondering, that’s a taxpayer funded subsidy of $40,000 for each of those 2,500 employees.) Yet, as so often happens when states are in panic mode and governors believe their own rhetoric about how businesses are altruistic “job creators,” Motorola Mobility’s parent company, Google Inc., recently (and quietly) announced they will be cutting more than 700 Illinois jobs anyway.

Can it be that in the end, taxes aren’t all that important in the decisions a business makes? This news report makes that very point, citing a university economist: not even $100 million could convince the company to keep an extra 244 employees on the payroll and that’s “a good indicator that even big incentives don't dictate how a company behaves.”

Although Illinois taxpayers have already forked over $18.6 million in tax credits to Motorola, they aren’t obligated to cover the rest of the $100 million handout.  That’s because despite the insanity of offering these tax breaks to begin with, the state did build into the deal that the company had to keep those 2,500 Illinois-based employees in order to qualify for the handout.  That, at least, is something.

It’s well documented (in this national report and in more and more individual states) that there are no discernable public benefits to giving businesses tax incentives. That is why more states are getting serious about really measuring if these giveaways do anybody (other than politicians and their corporate friends) any good.

Illinois may be inching towards more tax break transparency but just this year, the legislature also killed a bill that would have created an expert committee to review tax break deals and determine if they’d contribute to the state’s economy.  The sad truth remains, however, that shortly after Motorola’s incentives were awarded last year, Sears, the CME Group and CBOE Holdings (both financial companies) also threatened to relocate and were, like Motorola, rewarded by a jittery legislature with million dollar incentives.  And then Sears turned around and fired 200 people anyway.

For more on the racket of tax incentives for businesses, check out Good Jobs First and this (PDF) policy brief from the Institute on Taxation and Economic Policy (ITEP).

Cartoon by Scott Santis, via Chicago Tribune.

As the back- to-school sales tax holidays season winds down, this Institute on Taxation and Economic Policy (ITEP) op-ed is a reminder that consumers and citizens “should not accept tax-free weekends as a replacement for the types of real reforms that clean out unnecessary breaks at the top and solve the problems that will still be there, long after this year's sales tax holidays have passed.”  

Arkansas Governor Mike Beebe has a message for Republican lawmakers bent on eliminating the state’s personal income tax: “If you’re going to eliminate the income tax, you better figure out where you’re going to get a couple billion just to stay where we are.”  The Arkansas Republican Party platform includes replacing the state’s personal income tax with what they call a “more equitable method of taxation.”  In Beebe’s words, “I don’t think there is more equitable… the income tax was designed to be more equitable than a flat, for example, sales tax.”

Now that Governor Jack Dalrymple has unveiled his tax cut plan, North Dakota voters (who rejected a ballot measure eliminating property taxes altogether in June) will hear from two gubernatorial candidates who want to cut property taxes, but in very different ways. While the incumbent, Dalrymple, would give across-the-board property tax cuts to every property owner (including profitable businesses and the wealthiest North Dakotans) and a token cut to older low-income adults, the Democratic challenger, Ryan Taylor, targets his tax cuts to homeowners and renters, with the largest cuts as a share of income going to low- and moderate-income taxpayers.  The Institute on Taxation and Economic Policy is working up a full analysis of the candidates’ competing tax plans, which have roughly the same revenue cost.

Colorado’s governor is inviting residents to participate in a series of town hall type meetings this year “designed to create informed and constructive conversations among Coloradans about some of the biggest issues facing the state.”  While the leadership of the initiative, called TBD Colorado, encourages citizen input in five pre-determined issue areas – education, health, state budget, state workforce, transportation – it turns out a lot of Colorado citizens want to talk about taxes.

As State Tax Notes reported (subscription), many attendees at TBD (and yes, it does stand for “To Be Determined”) meetings are expressing support for an increase in the state’s income tax rate. And with good reason: Colorado’s tax system is not providing adequate revenue to support essential public services. For example, while lawmakers patted themselves on the back for their most recent budget, it makes deep cuts to college and university funding and left already inadequate spending on K-12 education flat.

While raising the income tax rate would certainly increase revenue, it would not solve Colorado’s basic tax fairness problems. The fact is, Colorado is home to a devastatingly regressive tax system. (Because the state has a disastrous TABOR law, however, any improvements to Colorado’s tax system require a state-wide public referendum.) According to a recent study (PDF) from the Institute on Taxation and Economic Policy (ITEP), Colorado families in the bottom 60 percent of earners pay more than 8 percent of their income in state and local taxes, while those in the top 1 percent pay just half that (roughly 4 percent). (Check out the Colorado Fiscal Policy Institute, which provides more of exactly this kind of information.)

One reason Colorado’s tax system is so regressive is because it uses a single, flat income tax rate as opposed to a graduated rate that increases with income in the way the progressive federal income tax does. A progressive income tax is without question state policymakers’ best tool for crafting a fairer tax system. Without it, states like Colorado are forced to rely on sales and property taxes (both regressive) that shift an unjust share of the tax burden to low- and middle-income taxpayers. Furthermore, the lack of a progressive income tax rate makes it harder for a state to raise both adequate and sustainable levels of revenue.

Tax policy is also relevant to Colorado transportation, which is on the TBD agenda, because Colorado has not increased its gas tax in 20 years. Adjusting the tax to account for the rising cost of transportation construction, the real value of the Colorado gas tax has fallen 40 percent since 1990, which is costing the state some $300 million a year in lost revenues. Improvements to roads, bridges and other infrastructure not only create short term construction jobs but also support local businesses that rely on efficient transportation. (Modernizing the gas tax is one of “Four Tax Ideas for Jobs-Focused Governors” from ITEP.)

The TBD initiative will culminate in concrete policy recommendations for improving Coloradans’ “quality of life.” Economic growth, functioning government agencies and a level playing field for all income groups would all contribute to that quality of life, and can all be improved by upgrading the state’s tax system – starting with repeal of the TABOR law.

On Saturday morning, Republican Presidential Candidate Mitt Romney announced Wisconsin Representive Paul Ryan as his vice presidential running mate. Over the past six years, Citizens for Tax Justice has crunched the numbers and provided in-depth analysis on the succession of regressive budget plans proposed by Rep. Ryan as the former Ranking Member, and current chairman, of the House Budget Committee.

Below is a roundup of our reports and commentary on Rep. Ryan's current and past budget plans:

Top GOP Tax-Writer Proposes Fast-Track for Ryan Plan Tax Changes, Giving Millionaires Average Tax Cut of at Least $187,000 in 2014
- July 26, 2012

Starving the Census in the House GOP Budget: Penny Wise, and Dumb
- May 14, 2012

Ryan Budget Plan Would Cut Income Taxes for Millionaires by at Least $187,000 Annually and Facilitate Corporate Tax Avoidance
- March 22, 2012

CTJ Figures Used in Budget Debate Show Ryan Plan Would Give Huge Tax Cut to Millionaires
- May 26, 2011

Obama Blasts Ryan Budget Plan
- April 15, 2011

House Budget Chairman Paul Ryan's Goal Is to Shrink Government, Not the Deficit
- April 8, 2011

Rep. Ryan's House GOP Budget Plan: Federal Government Would Collect $2 Trillion Less Over a Decade and Yet Require Bottom 90 Percent to Pay Higher Taxes
- March 9, 2010

Update on House GOP Budget Plan
- April 2, 2009

House GOP Leaders' Budget Plan: Poor Pay More and Rich Pay Less Under Plan that Costs $300 Billion More Annually than President's Plan
- March 27, 2009

House GOP Tax and Entitlement Plan Would Raise Taxes on Four Fifths of Americans While Slashing Taxes on the Wealthy
- July 7, 2008

House GOP Pins Comeback Hopes on Social Security Privatization, Dismantling Medicare, and Slashing Public Services
- May 23, 2008

Republicans Call for Replacing Alternative Minimum Tax with Alternative Maximum Tax
- October 12, 2007

• The Boston Globe covers an important new report finding that: “Over the past 16 years [Massachusetts] has more than doubled the amount of tax breaks it provides businesses to spur economic development but has only a vague idea whether the incentives are worthwhile.”  The full report, from the Massachusetts Budget and Policy Center, has more data on the large and growing cost of these breaks, and urges the state to thoroughly evaluate whether these so-called “incentives” are the best use of Massachusetts taxpayers’ dollars.

• The value of Louisiana’s film tax credit is being seriously questioned.  According to the Louisiana Budget Project (LBP), the cost of the credit has ballooned in recent years, while producing little in the way of long-term benefits.  LBP finds that the state is paying a steep price of $60,000 for each job created by the credit, despite many of those jobs being only temporary.

• Low-income Garden Staters are feeling the pinch from Governor Christie cutting back the state’s Earned Income Tax Credit (PDF) – an effective, targeted tax reduction for low- and moderate-income workers.  According to a New Jersey Policy Perspectives analysis, at a time when the number of New Jersey families living below the poverty line has increased by 25 percent, the reduced EITC has meant that nearly 500,000 families have lost on average $200 a year.  State lawmakers have attempted to restore the credit to 25 percent of the federal version (Christie cut it to 20 percent in 2010) and even the governor included a restoration in his original budget proposal this year.  However, politics got in the way and Christie vetoed legislation to restore the EITC until lawmakers agree to his expensive tax cut plan that benefits the wealthiest New Jersey residents.

Photo of Chris Christie via David Shankbone Creative Commons Attribution License 2.0

When news broke last week that a Senator on the GOP vice presidential short list had introduced one of the dumbest, most opportunistic and transparently political pieces of tax legislation of all time, we wrote:

How, at a time when Congress faces vital decisions over the basic structure of our tax system, did the Senator identify the tax treatment of Olympic bonuses as a pressing issue? It turns out that Americans for Tax Reform (ATR) put out a press release saying that medal winners will face a tax bill of almost $9,000 if they win a gold medal.  Rubio’s spokesperson said that’s what caught Rubio’s eye. But the ATR numbers are complete bunk….

And then, in a facepalm moment to eclipse all others (for us, anyway), President Obama said this week that he would sign Senator Rubio’s utterly stupid bill exempting Olympic winnings from taxes if it reached his desk. The President’s spokesman said we should “ensure that we are doing everything we can to honor and support our Olympic athletes who have volunteered to represent our nation at the Olympic Games.”

The young Senator’s Olympic Tax Elimination Act, however, may not have such an easy journey to the President’s desk.  GOP Senator Tom Coburn’s office said, “If tax code gymnastics was an Olympic sport this idea might get a medal.  Like the carve outs for NASCAR, rum makers and electric motorcycles, tax earmarks are a tax increase for everyone who doesn't receive the benefit.”

In a more elaborate argument against this new bill, wonk blogger Matthew Yglesias makes the important point that “taxes aren’t supposed to be a cosmic judgment on the underlying worthiness of people’s activities.” They are supposed to raise revenues, but as long as Congress keeps using the tax system to dole out favors, hope for the kind reform we need are slim. “[P]oliticians have to be willing to actually articulate the benefits of a broad tax base—less evasion, less distortion of economic resources, the possibility of lower rates—and Democrats in particular need to be willing to make the case that public services are worth paying for.”

Best of all, here a CPA who happens to have prepared some Olympians’ returns explains the obvious. He identifies a massive loophole and notes that the bill, “as currently written, would exclude all of these bonuses from taxation.” By these bonuses, he means massive amounts of money from corporate endorsements (e.g. their picture on a box of Wheaties) Olympic medalists receive. And the bigger your endorsement, the bigger the tax break.

We’re’ rooting for common sense.

In a recent Wichita Eagle op-ed the Kansas Governor defended his harsh, regressive, and costly tax bill saying “our new pro-growth tax policy will be like a shot of adrenaline into the heart of the Kansas economy.” He is proud that he signed the largest tax cut in state history and claims that the state will still be able to provide for its neediest residents and provide “high-quality” education despite the fact that the tax bill he signed will take more than $760 million a year from state coffers.

The Governor’s op-ed may have been written in response to the heat he’s been getting since calling the bill “a real live experiment.” The conservative group Traditional Republicans for Commonsense writes (PDF) that the “’experiment’ will bankrupt our state and create a $2.7 billion deficit within five years.” In this op-ed, Bernie Koch from the Kansas Economic Progress Council writes that the legislation could actually discourage new businesses from locating to the state because the bill was so hastily written its implications for business are unclear.  He further notes that the bond credit rating organization Moody’s recently predicted “[n]o improvement in economic growth as a result of the tax cuts” in Kansas.

Brownback’s next public relations effort is a forum he’s hosting at a community college in Overland Park. He’s invited the self-proclaimed father of supply side economics and - his own tax policy advisor - Arthur Laffer, to join him, which is further evidence the governor is making no apologies about signing a law that many of his constituents deem irresponsible, at best.

It’s no secret that Indiana’s gubernatorial race has been a breeding ground for bad tax ideas this year.  So far on the tax front, the race has essentially been an endless barrage of promises regarding which taxes will be cut, and how deeply.

The most recent of these proposals comes from candidate Mike Pence, current U.S. Representative for Indiana’s 6th district.  Pence has proposed cutting the state’s flat income tax rate from 3.4 percent to 3.06 percent to provide an “across the board” tax cut for “every Hoosier.”  A new analysis from CTJ’s partner organization, however, shows that many Hoosier families won’t see any tax cuts at all under Pence’s plan, and that the cuts will hardly be distributed “across the board.”

Using its Microsimulation Tax Model, the Institute on Taxation and Economic Policy (ITEP) found that the largest tax cuts, by far, would be reserved for the state’s wealthiest taxpayers under Pence’s proposal.  While a typical middle-income family could expect their taxes to fall by about $102, the state’s richest one percent would receive a cut averaging $2,264.  Worse still, over half of all the tax cuts would flow to the best-off 20 percent of Indiana residents.

The story is dramatically different for the state’s poorest residents, however.  Looking at the lowest 20 percent of earners, the average tax cut would be just $18 per household, with about one-third of this group receiving no tax cut at all.  Many of these families are too poor to owe state income taxes, but they still pay significant amounts in sales taxes, excise taxes, property taxes, and other state and local taxes and fees.  In November 2009, ITEP found that the poorest 20 percent of Indiana households devote more of their household budgets to paying state and local taxes than any other income group.  Rep. Pence’s plan would do nothing to fix this fundamental inequity.

Of course, the broader issue is whether tax cuts should be a priority at all, given the uncertain budget situation created by recent taxpayer refunds, corporate tax cuts, and the repeal of the state’s inheritance tax.  Moreover, Indiana still has the lingering problem of how to pay for its transportation investments after revenue from leasing its toll roads runs out.  And the state also has yet to put money aside to expand its Medicaid program in order to take advantage of very generous federal matching dollars currently on the table.

Still, given all the talk coming from both sides of the aisle in favor of slashing Indiana taxes and the likelihood more cuts are in the state’s future, ITEP decided to ask a logical question: how difficult would it be to design a tax cut that’s fairer than what Rep. Pence has proposed? The answer?  Not very difficult.

By raising the state’s personal exemption (unchanged since 1963) from $1,000 to $3,400, Indiana lawmakers could provide larger tax cuts to most Indiana residents—relative to Pence’s proposed rate cut—at the same overall cost to the state.  Overall, 55 percent of Indiana residents would see a larger tax cut if lawmakers went with ITEP’s alternative of raising the personal exemption, rather than adopt Rep. Pence’s plan to cut the rate.  Just 33 percent of Indiana residents would be better off under Pence’s plan than under the exemption increase, while the other 12 percent would be unaffected by either proposal. 

The best part? Lower- and middle-income taxpayers would be the largest beneficiaries if lawmakers chose the personal exemption boost over the rate cut. (Not to mention that more cash in the pockets of lower income families provides a reliable economic boost.) If Hoosiers want a real “across the board” cut, it’s not the Pence plan they want, it’s ITEP’s.

For more detail, see ITEP’s new report: Most of Indiana Tax Rate Cut Would Flow to Upper-Income Taxpayers. 

New research from the Lincoln Institute of Land Policy shows “there is little evidence that property tax incentives [for businesses] actually work” to boost economic growth or create jobs, and that “the use of these tax incentives continues to reflect the triumph of hope over experience.”  Among other things, the Lincoln Institute notes that: property taxes are a very small part of doing business (less than 1 percent of costs for manufacturers); and, that incentives frequently reward businesses for behavior they would have undertaken anyway.

State revenue collections may be on the rise in many states, but the Rockefeller Institute has an important new report putting that trend in perspective: “After adjusting for inflation … state tax revenues are still 1.6 percent lower compared to the same quarter four years ago, in 2008.  Even in nominal terms, total tax collections in the first quarter of 2012 remained lower than the first quarter of 2008 in 21 states.”

Here and here, the Institute on Taxation and Economic Policy (ITEP) talks back about misguided sales tax holidays, and makes some news explaining how the holidays are a distraction from real tax reform that would make state tax codes fairer.

State revenues remain low, and there are historic, structural reasons for this as well as more short term reasons, including the recession. It is increasingly clear that states can no longer afford the tax-cutting agenda that politicians of all ideological stripes have promoted, which includes targeting the progressive, personal income tax.

The Institute on Taxation and Economic Policy (ITEP) continually combats the flawed logic and cherry picked data put out by Arthur Laffer and other “experts” who claim that income taxes stifle economic growth and must therefore be reduced.  ITEP’s latest effort to set the record straight is a concise new policy brief (PDF), The Progressive Income Tax: An Essential Element of Fair and Sustainable State Tax Systems.  It makes the case that in reality, “Not only do [income] taxes not harm economic growth, but the vital public investments that they make possible actually pave the way for better state economies.”  The income tax has an important role to play in tax fairness as well because it’s the only tax available to states that can meaningfully mitigate the unfairness of sales, excise, and property taxes, which take a larger bite out of working families’ budgets than from wealthier households. Read ITEP’s latest brief here (PDF).

Former Texas deputy comptroller, Billy Hamilton, explains why extreme proposals to repeal the property tax are a bad idea.  Among the reasons he cites: out-of-state property owners would get a massive tax cut, localities would lose control of their own finances, and the sales tax increase needed to fund repeal would be so large as to be both bad policy and bad politics.

Iowa filmmakers that benefited handsomely from the state’s now-suspended film tax incentive program have been rebuffed by the state’s Supreme Court, which rejected their claim that if their company financials were publicly released, it would cause them hardship. The Des Moines Register editorialized in favor of the decision, saying that: “Businesses that ask for the government to subsidize their ventures are in effect asking the taxpayers to share in the risk.  Those taxpayers have an interest in knowing if their investment is being spent properly.  Businesses should accept that as part of the deal, or they should look elsewhere for business partners.”

This weekend back-to-school shoppers in twelve states are gearing up for a political gimmick – a break from paying sales taxes known as sales tax holidays. This South Carolina editorial reminds policymakers and voters that these holidays aren’t a real solution to regressive taxes, “Lawmakers should get the state's sales tax house in order, not throw us a couple of short-term holidays.”

For someone who’s not interested in a high profile job like Vice President, Florida Senator Marco Rubio sure knows where the limelight shines. Earlier this week he introduced legislation that would create a new federal income tax break for the cash bonuses received by U.S. Olympic medalists. (It turns out that the United States Olympic Committee gives gold medal winners $25,000 cash bonuses, with smaller awards for silver or bronze.) With no apparent irony, Rubio issued a press release noting that the “tax code is a complicated and burdensome mess,” and then proposed a new tax break that would make it even more so.

How, at a time when Congress faces vital decisions over the basic structure of our tax system, did the Senator identify the tax treatment of Olympic bonuses as a pressing issue? It turns out that Americans for Tax Reform (ATR) put out a press release saying that medal winners will face a tax bill of almost $9,000 if they win a gold medal.  Rubio’s spokesperson said that’s what caught Rubio’s eye.

But the ATR numbers are complete bunk. Their calculations assume that a medal winner will pay tax at the 35 percent top rate, but less than one percent of Americans pay anything, even a dollar of income, at the 35 percent rate. (Politifact agrees, and rates ATR’s claim “mostly false.”) We can only think of a dozen or so gold medal winners who might, in fact, pay 35 percent on their gold medals: they are members of the US basketball team, and they are all millionaires. 

What Senator Rubio and his counterparts in the House are proposing is to add yet another exemption to our tax code, which is, of course, the main reason it’s so complicated – Congress insists on flagging more and more special types of income for special tax breaks.

If Rubio’s bill is really an honest attempt at tax reform rather than an attempt to capitalize on Olympics-related publicity, it’s actually doubly sad: not only did he get duped by misleading numbers from Grover Norquist, he also just doesn’t seem to understand that the “complicated and burdensome tax code” he bemoans will become even more so if his bill passes!

If, on the other hand, Rubio’s bill is the cynical grandstanding that it appears to be, it’s a real shame. As we've said elsewhere, our revenues are dwindling, the rich pay less and less in taxes every year and the tax code is a Rube Goldberg-ian mess. But it seems Senator Rubio is more interested in compounding these problems than solving them.

Photo from Politifact.com

Today, the Senate Finance Committee approved a package of provisions often called the "tax extenders" because they extend several tax cuts, mostly benefiting businesses. A new report from Citizens for Tax Justice identifies two of the "tax extenders" as particular problems, despite having arcane names that are unknown outside of the corporate tax world: the “active financing exception” and the “CFC look-thru rules.”

Read the report: Don't Renew the Offshore Tax Loopholes: Congress Should Kill the “Extenders” that Let G.E., Apple, and Google Send Their Profits Offshore

These two temporary rules in the tax code — which allow U.S. multinational corporations to park their earnings offshore and avoid paying tax on them — expired at the end of 2011. If Congress refuses to extend these expired provisions, many U.S. companies will have much less incentive to send their profits (and possibly jobs) offshore.

►  The active financing exception and the CFC look-thru rules make it easy for U.S. multinational companies to move income to offshore tax havens and avoid paying U.S. tax.

►  Income shifting by multinational corporations using offshore tax havens, including transactions facilitated by these two rules, cost the U.S. Treasury an estimated $90 billion per year in lost tax revenue.

Read the report for more details.

Federal efforts to fight consumer sales tax evasion facilitated by the likes of Amazon.com continue to make news.  Last week, the House Judiciary Committee held a hearing in which lawmakers appeared to agree on the need to empower states to enforce their sales tax laws even on purchases made over the Internet.  Specifically, the Committee heard testimony on legislation that would require out-of-state Internet retailers to collect and remit the sales taxes owed by their customers—just as big box stores and Mom & Pop shops alike have done for decades.

This week the Senate followed the House’s lead, with the Senate Commerce Committee holding a hearing to discuss similar legislation.  Influential state lawmakers, as well as many major retailers are backing these federal efforts.  And while it’s too early to guarantee any particular outcome (especially in an election year), it’s also clear that the federal government is taking this issue more seriously than ever.

Many lawmakers, like Rep. Bob Goodlatte (R-VA), are “completely sold on the fairness issue” of collecting sales taxes on all purchases regardless of whether they’re made online or at the local shopping mall.  But there are some holdouts who think the states should be forced to sit idly by while their sales tax bases shrink, their local businesses suffer, and the sales tax increasingly becomes an optional payment for anybody with an Internet connection.  Senator Jim DeMint (R-SC) falls squarely into this category.

This week, DeMint authored a Wall Street Journal opinion piece arguing that taxing online shopping would amount to an attack by “tax-hungry politicians” on “the essence of our democracy.”  As you might expect from such rhetoric, much of the piece is far-fetched.  Among other things, DeMint fears that improving the enforcement of state sales tax laws could lead to “talk of a streamlined national sales tax … with Washington taking a cut and destroying our nation’s healthy tradition of state tax competition.”  And throughout the piece, DeMint misses the mark by suggesting that states are trying to directly tax Amazon, eBay, and other online retailers, when in reality they’re only trying to involve those retailers in the collection of sales taxes already owed (but rarely paid) by their customers.

For more information, see this policy brief from the Institute on Taxation and Economic Policy (ITEP), as well as some of our previous coverage of this issue.

New reports from Americans for Tax Fairness, Citizens for Tax Justice and the National Women's Law Center demonstrate how public investments and taxpayers in each state would be affected by the competing approaches to the Bush tax cuts.

Americans for Tax Fairness is a coalition that includes Citizens for Tax Justice and other good government groups, think-tanks, small business associaitions and labor unions that have come together to raise awareness about the need for revenue to address the budget deficit and make vital public investments. We believe the first step is allowing the Bush tax cuts for the richest 2 percent of taxpayers to expire.

Read the State Reports from Americans for Tax Fairness

For Immediate Release: August 1, 2012

Sales Tax Holidays No Substitute for Tax Reform

Year Round Tax Breaks for the Rich Dwarf Annual Tax Holidays for Consumers

Washington, DC – Eighteen states will host sales tax holiday weekends in August this year at a cost somewhere north of $200 million. They are billed as offering relief to ordinary taxpayers, yet 11 of these 18 states also offer one or more special tax breaks for their most affluent residents which add up to an annual cost of more than $3 billion. Moreover, only one of these states (OK) provides a year-round sales tax credit for low income families to purchase necessities (a proven poverty-fighting tool).

“Year-round, state tax codes are notoriously hard on families near the bottom of the income ladder,” said Matthew Gardner, Executive Director of the Institute on Taxation and Economic Policy, “and a three-day holiday once a year doesn’t change that.  The real beneficiaries of the sales tax holidays are the politicians who get to act like they care about working families but don’t do any of the political heavy lifting real tax reform requires.”

Alabama offers a deduction for federal income taxes paid, at a cost of $516 million.
Arkansas offers a capital gains tax break that costs $53 million annually.
Florida offers a tax break on a particular kind of business income used by wealthy individuals that costs the state $1 billion a year..
Georgia allows a deduction for state personal income tax paid at a cost of $400 million a year.
Iowa offers the deduction for federal income tax paid at a cost of $642 Million.
Louisiana offers the federal personal income tax deduction at a cost to its treasury of $643 million a year.
Missouri allows the federal income tax deduction at a cost of $394 million.
New Mexico allows taxpayers a break on capital gains income at a cost of $48 million;
Oklahoma offers a deduction for state income tax paid at a cost of $100 million a year.
South Carolina allows a tax break on capital gains income which costs $115 million a year.
Tennessee’s estate tax repeal will cost $94 million a year in 2016 (after full phase in).

Even the other seven states that don’t have a gratuitous tax break for their wealthiest residents have overall tax systems that are regressive because they demand a much larger share from lower income households. “Governors who are serious about giving a break to working families in their states have sensible options for reforming their tax systems,” said Gardner. “None of them would break the bank but any of them, from the Earned Income Tax Credit to targeted sales tax credits, would make all the difference in a household budget.”

The number of states offering sales tax holidays is declining, and for good reasons. They are expensive and complicated to run for state revenue departments and for retailers. They exclude citizens who may need tax relief but have no back-to-school needs, such as seniors. They exclude consumers who lack the cash flow flexibility to time their shopping to a precise weekend. They also exclude retailers who sell products not on the somewhat arbitrary lists states devise. (E.G., New Mexico exempts prom dresses but not hair barrettes. Maryland exempts bridal veils but not tuxedos during its holiday, etc.)  ITEP’s two-page policy brief on sales tax holidays is at http://www.itep.org/pdf/pb17hol.pdf.

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