A cynic might think it’s a little bit of theater we’re witnessing, political pantomime deliberately staged to make Republicans look like they’ve gone all reasonable and are willing to raise taxes.  Others see this week’s headlines as the meticulously orchestrated end game in a 30-year strategy laid out by Grover Norquist and his Americans for Tax Reform.  More likely it’s just a rush among journalists to tell a big story: Republicans are renouncing their fealty to Grover’s no-tax pledge and are ready to support tax hikes.

The media loves a good story, and this one is the stuff of drama. An awkward little man who rose to power as leader of an anti-government movement faces sudden mutiny, with his followers peeling off and his authority in question. In this story, Grover Norquist is part spurned lover and part emperor with no clothes.

We’re not buying it. Much as we love the idea of Grover losing his clout and credibility, there’s no evidence his followers (mostly Republicans, a few Democrats) have changed their minds about taxes. Even when they make noises about abandoning the pledge and embracing new revenues, they are nonetheless hewing to Norquist’s two-part pledge. Just listen to a few who’ve been making news with their allegedly new-found freedom:

Senator Bob Corker: “I’m not obligated on the pledge.  I made Tennesseans aware, I was just elected, the only thing I’m honoring is the oath I take when I serve, when I’m sworn in this January.” But, “[my] proposal includes pro-growth federal tax reform, which generates more static revenue… by capping federal deductions at $50,000 without raising tax rates.”

Senator Lindsey Graham: “I agree with Grover — we shouldn’t raise rates — but I think Grover is wrong when it comes to we can’t cap deductions and buy down debt…. I will violate the pledge, long story short, for the good of the country, only if Democrats will do entitlement reform.”

Senator Saxby Chambliss: "Times have changed significantly, and I care more about my country than I do about a 20-year-old pledge…. If we do it (Norquist's) way, then we'll continue in debt." But (he tweeted), “I’m not in favor of tax increases. I’m in favor of significant tax reform 2 lower tax rates & generate additional revenue through job growth.”

Rep. John Boehner: “….[R]aising taxes on the so-called top two percent – half of those people are small-business owners that pay their taxes through their personal income tax filing every year. The goal here is to grow the economy and to cut spending.  We’re not going to grow the economy if we raise tax rates on the top two rates.” And, “[w]e're willing to put revenue on the table as long as we're not raising rates.”

Rep. Tom Cole:  “I think we ought to take the 98 percent deal right now. It doesn’t mean I agree with raising the top two. I don’t.” And, “I signed that pledge; I'm honored to do it. I don't think in this case we would be breaking it by making what are temporary tax cuts permanent....I want to make all of them permanent, quite frankly. “

None of these Republicans characterized as leading the mutiny against Grover’s no-tax pledge is getting anywhere near raising taxes, in both senses that the pledge mandates.  It is often forgotten that support for making all the Bush tax cuts permanent amounts to another rate cut because by law, those rates are scheduled to all go up on January 1, 2013.  They may cap a deduction here or there, but that will be outweighed by the generous Bush era rate cuts they (and to a large extent, the President) promise for 2013.  And that’s exactly what the pledge they’ve all signed spells out:

ONE, oppose any and all efforts to increase the marginal income tax rates for individuals and/or businesses; and
TWO, oppose any net reduction or elimination of deductions and credits, unless matched dollar for dollar by further reducing tax rates.

Increasingly, too, the Republican House leadership is demanding revenue cuts. Where are the President’s cuts? What are the Democrats’ plans for entitlement reform? This is what Speaker Boehner is tweeting several times a day. And his lieutenant, Eric Cantor, remains clear his party is opposed to tax rate increases.

An organization like Americans for Tax Reform doesn’t spend  upwards of $24 million in one election cycle if it’s not serious about getting its way, and Grover Norquist is a serious man.  As he told Politico just this week:

“I want pro-taxpayer candidates to survive and thrive….. My goal is to have the Democrats also all take the pledge…. I'm not planning on losing the tax debate we're having right now, but the tax issue will be more powerful in 2014 and '16 than today.  It gets more powerful.”

Let’s don’t kid ourselves or help the deep pocketed anti-tax lobbying machine peddle more myths.  It’s a testament to Norquist’s thirty-year effort that four years into an historic economic crisis, a couple of closed loopholes looks like a win for the good guys.  It’s not a win. Let’s view it instead as a chink in the armor, though – and redouble our own efforts.

Image of Norquist courtesy Liberaland.

An Oklahoma Congressman who chaired the National Republican Congressional Committee is the first person in Washington to speak clearly about the debate over the looming expiration of tax cuts first enacted under President George W. Bush.

Politico reports that Rep. Tom Cole of Oklahoma has argued to fellow Congressional Republicans that voting for President Obama’s proposal to extend the Bush income tax cuts for income up to $250,000 (up to $200,000 for unmarried taxpayers) is clearly a vote for cutting taxes, not raising them, and therefore does not violate a no-tax-increase pledge promoted by Grover Norquist’s organization and signed by most Republican lawmakers.

In other words, the President’s approach is a tax cut, just not quite as big of a tax cut (particularly for the rich) as the Republican Congressional leadership has advocated so far. This is illustrated in the graph below, which is from CTJ’s recent reports on the competing approaches to these expiring tax cuts.

This issue has been muddled by both Republicans and Democrats in Congress and in the White House. For example, President Obama often refers to his proposal to extend the tax cuts for income up to $250,000 or $200,000 as a way to “raise revenue.”

But Rep. Cole is correct because the Bush tax cuts are temporary tax cuts that are specifically written to expire at a certain date. Any extension of part of those tax cuts is a new tax cut that reduces revenue, and is “scored” by the Joint Committee on Taxation and the Congressional Budget Office as a revenue loss.

President Obama’s approach would extend the Bush income tax cuts entirely for 98 percent of Americans and partially for the richest two percent of Americans. Rep. Cole is reported to argue that Congressional Republicans should settle right now for Obama’s proposal to extend the tax cuts entirely for 98 percent of Americans, before they expire, and debate the tax cuts for the richest two percent at a later date.

CTJ has long argued that President Obama’s proposal would extend far too many of the unaffordable Bush tax cuts, but Congress should enact his proposal for the short-term if it is the least irresponsible option being debated today. On the other hand, if anti-tax lawmakers in Congress refuse to follow Cole’s lead and instead block any tax bill that does not include an extension of all the tax cuts, then President Obama should simply allow all of the tax cuts to expire.

The logic used by most Congressional Republicans (not including Rep. Cole) is that allowing the expiration of a tax cut is the same thing as enacting a tax increase. But this logic is not applied consistently. While the Republican tax bills in the House and Senate would extend all the tax cuts first enacted under President Bush, they would allow the expiration of some expansions of the of the EITC and the Child Tax Credit that were first enacted under President Obama in 2009. That’s why the graph above shows that low- and middle-income groups would get slightly smaller average tax cuts under the approach of GOP Congressional leaders than they would get under Obama’s approach. (The difference is much more dramatic for the particular families affected.)

Somehow, followers of Grover Norquist don’t seem to consider the expiration of a tax cut to be a “tax increase” when only low- and middle-income people are affected. 

Kansas First Lady Mary Brownback has been appointed an unofficial advisor to a task force addressing childhood poverty in the state. The Hays Daily News predicts that this could lead to some uncomfortable conversations between Governor Sam Brownback and his wife, especially regarding the tax package he recently signed into law that raised taxes on low-income families. The editors suggest, “[m]aybe the first lady can ask why the governor and state legislature agreed to an unprecedented reduction in income tax rates while at the same time eliminating various tax credits, such as the food sales tax rebate and breaks for child care and renters.”

Monday was the biggest day ever for online shopping. “Cyber Monday” shoppers spent 30 percent more this year than last. The Illinois Retail Merchants Association and other brick-and-mortar business groups used Monday’s online shopping surge to remind shoppers and policymakers alike that sales taxes should be collected on Internet purchases just as on items purchased in traditional stores: “The tax is supposed to be paid. If someone orders something from an online retailer or a catalog retailer that doesn’t collect the tax, the customer owes the money to the state.”

It appears that the gap between Wisconsin’s rich and poor continues to widen. The bottom two fifths of the state’s residents actually saw their incomes decline while the top fifth – and especially the top one percent – saw theirs climb over the last 25 years. One solution to this problem, identified by the Center on Wisconsin Strategy and the Wisconsin Budget Project, is to reform the state’s regressive tax structure because currently, “state and local taxes in Wisconsin increase income inequality rather than reduce it.”

A recent policy brief from the Washington State Budget and Policy Center identifies eight strategies to rebuilding the state’s economy. One of the goals identified is implementing a “Productive, Equitable Revenue System” through modernizing the tax structure and making it more fair. Washington has the most regressive state tax structure in the country; low income people pay far more of their income in taxes compared to wealthy Washingtonians. If state policymakers want to rebuild their economy, improving their tax structure is a good place to start.

The collective investments the taxes we all pay allow us to make in our communities, our states and country.  Whether it’s providing public education, clean air and water, well-connected road and public transit systems, safe streets, affordable health care, or income supports for working families, taxes make a difference in all of our lives every day.  Our society is the product of generations of public investments that serve the common good.

That voters in so many states acted with an eye toward the future this November.  Michiganders rejected a constitutional amendment that would have made tax reform all but impossible.  Floridians opted not to strangle further revenue growth with a “TABOR” amendment.  New Hampshirites left the door open to a fairer tax system by not prohibiting any future tax on earned income. Oregonians decided to retain their estate tax and end the practice of giving corporations their taxes back when revenue growth is unexpectedly strong.  And Californians made an investment in their future by enacting a progressive revenue-raising package. And that nationally, we saw something of a watershed when Americans decided that after decades of tax cuts, it's time to start restoring some revenues.

That the earned income tax credit (EITC) is offered on the federal level, and that many states have followed in the federal government’s footsteps and adopted their own credit. Offering the EITC is an indication that policymakers of all political persuasions realize that Americans who work and pay taxes but still live at or near the poverty level are deserving of tax relief.

And of course, for our supporters and friends across the country – and around the globe – who make our work possible. We wish all of you, our readers, donors, friends and Tweeps, a very happy Thanksgiving!

We’ve known for a while that government subsidies and tax breaks for sports stadiums are a raw deal for taxpayers. But a new book by Harvard University urban planning professor Judith Grant Long reveals that the costs are worse than we thought. According to Long’s book, Public/Private Partnerships for Major League Sports Facilities, taxpayers spent over $31 billion in tax or direct subsidies for the 121 sport facilities in use in 2010, which is $10 billion more than the cost estimated by the industry itself.

Most of the difference between Long’s and industry calculations is explained by the industry’s failure to fully account for the cost of land, infrastructure, operations, and lost property taxes as part of the cost of stadium construction deals. When all factors are taken into account, cities bore, on average, 78 percent of the cost of the public-private (so-called) partnership stadium construction deals. Long found in some particularly egregious cases, such as Indianapolis’s Lucas Oil Stadium and Paul Brown Stadium in Cincinnati, the public’s share of the cost actually surpassed the entire cost of building the stadium because of these unaccounted for external costs to the city.

What do taxpayers get in return for the billions they have to pay in subsidies? Not all that much, frankly. As the watchdog group Good Jobs First has chronicled, the costs of new stadiums do not pay off in terms of economic growth or job creation. The primary reason for this is that these entertainment venues tend to redirect consumer spending from other activities rather than generating entirely new economic activity. Even if you accept that new stadiums do generate some jobs (rather than just shifting those jobs from other industries), they aren’t any bargain considering that they can cost taxpayers as much as $200,000 per job “created.”

Just this week, the Miami Marlins reinforced every bad stereotype of sports teams acting in bad faith when it traded away its best players – and its National League competitiveness – in order to reduce salary costs. The trades were made in spite of the explicit promise by the team’s owner that he would spend whatever it took to build a power house team as part of a sweetheart deal that will end up costing taxpayers an astounding $2.4 billion.

With the case against subsidizing stadiums with public dollars growing ever stronger, lawmakers need to finally put a stop to this ludicrous form of corporate welfare.

A non-partisan group called “TBD Colorado” spent much of 2012 talking to Coloradans about the state’s long-term problems, and now has some sensible things to say about the state’s tax policies. While light on specifics, TBD urges (PDF) lawmakers to consider raising more revenue for things like education and transportation, and said that the state’s tax base should be broadened “so that it more accurately reflects Colorado’s underlying economy.”

For Colorado lawmakers that want a more specific assessment of what’s wrong with the state’s tax system, the Bell Policy Center’s new infographic: “5 trends that explain why Colorado’s revenue resources are shrinking” provides some additional insights.  The problems facing Colorado are familiar to many states, including exempting sales taxes for services (PDF), the decline of the gas tax and recent federal tax cuts on which the state has piggybacked.

A comprehensive overhaul of Minnesota’s tax and budget system is in the works for 2013. Governor Mark Dayton and other state policymakers are looking at long-term solutions that will set the state’s revenues on a sustainable path now and into the future.  At a public forum this week, Revenue Commissioner Myron Frans said that the Dayton administration is looking for changes that will make the system “fair, simple and support a strong and growing economy."

A lot of attention has been given this past week to the passage of California’s revenue-raising ballot measure, Proposition 30.  But, the arguably more important election news from the Golden State is that when the dust settled, Democrats ended up with a supermajority in both houses, giving lawmakers the ability to tackle tax policy through the legislative process versus the ballot.  Senate leader Darrell Steinberg intends to make the most of the new makeup and will pursue tax reform in the coming year saying, “when we talk about revenue it ought to be in the context of tax reform, about broadening the base, about lowering rates, about creating a more competitive environment for business, and potentially bringing in more revenue.”

Utah lawmakers are looking at a proposal to double the sales tax applied to the purchase of food. They would couple the sales tax increase with two new refundable credits to offset the impact of the tax increase on low- and moderate-income families: a food credit (PDF) and state Earned Income Tax Credit (EITC) (PDF).  Generally, exempting food from a state’s sales tax base is a poorly targeted and costly policy since it makes the base much narrower, yields less revenue, and gives a large tax break to wealthier taxpayers who can easily afford to pay the sales tax on food.  Refundable credits of the nature being proposed in Utah are a less costly alternative that can be designed to reduce taxes for specific income groups.  

On Saturday, a stretch of the legendary I-495 Beltway encircling Washington, DC will grow from eight lanes to twelve.  But this modest expansion of the region’s famously inadequate transportation network isn’t designed to benefit everyone.  With so many federal and state lawmakers terrified to raise taxes for the public good, the Beltway’s new “express lanes” will be paid for in a different way—specifically, by the wealthier drivers who can afford to buy their way out of the congested lanes (Kia Lanes, perhaps?), and into these heavily tolled, so-called Lexus Lanes.

AAA Mid-Atlantic initially opposed the new Lexus Lanes, since by definition they only work when the rest of the transportation system is failing.  But an “acceptance of reality … about the sad state of transportation funding” led AAA to eventually change its mind and embrace the lanes on the grounds that they’re better than nothing.

Sad indeed.  The Institute on Taxation and Economic Policy (ITEP) has shown that much of our nation’s transportation funding woes can be traced back to the short-sighted design of federal and state gas taxes, and that there are straightforward ways to fix these glaringly broken taxes.  But raising and reforming the gas tax can be politically difficult, and thus here we are, with Band-Aid fixes like Lexus Lanes instead.

President and Lawmakers Should Resist Proposals to Extend Income Tax Cuts for $1 Million of Income

The idea that Democrats and Republicans might “compromise” by extending the Bush income tax cuts for the first $1 million a taxpayer makes is back in the news, and it’s still a terrible idea.

Bill Kristol, editor of the right-ring Weekly Standard, said on Fox News that Congressional Republicans should be willing to give in on taxes, at least when it comes to higher taxes on millionaires. That set off chatter among some political observers and media outlets that perhaps there was a room for a “compromise” with Congressional Democrats, some of whom have called for extending the Bush tax cuts for income up to $1 million, rather than $250,000 for couples and $200,000 for singles as proposed by President Obama.

Here’s why the idea is absurd: Obama’s approach to the Bush tax cuts is already a huge compromise for the many lawmakers who originally opposed the Bush tax cuts. Remember, President Obama’s proposal is to extend 78 percent of the Bush tax cuts (in terms of revenue). His proposal would extend the Bush income tax cuts entirely for 98 percent of Americans and partially for the richest two percent, and would extend much of the Bush estate tax cut so that only 0.3 percent of deaths would result in estate tax liability.

In May, House Minority Leader Nancy Pelosi floated the idea of extending the income tax cuts for up to $1 million of income. CTJ estimated that this would reduce the revenue savings from Obama’s approach to the income tax cuts by 43 percent. (This was later confirmed by the Joint Committee on Taxation.) We also found that people making over $1 million would get half of the additional tax cuts that would result from moving the threshold from $250,000/$200,000 to $1 million.

Married Couples Making $250k to $300k would Lose Just 2% of their Tax Cuts under Obama’s Approach. So Why Should We Extend Even More Tax Cuts?

People have asked us how extending the tax cuts for income up to $1 million could possibly help people who make over $1 million. The answer is that all of these proposals would extend reductions in income tax rates for all the income a taxpayer makes up to whatever threshold is being proposed. Obama’s proposal would extend the income tax cuts for the first $250,000 a married couple makes. That means that a married couple making $300,000 would only pay the higher, pre-Bush tax rates on $50,000 of their income (at most).

Similarly, Pelosi’s proposal (which she subsequently backed away from) would extend the income tax cuts for the first $1 million a family makes. That means that a family making $1.1 million would pay the higher, pre-Bush tax rates on just $100,000 of their income (at most).

Many people, including those who write about these issues and enact tax laws, have failed to appreciate this. Much of the debate has revolved around whether or not people who make $250,000 should be considered “rich” if they live in higher-cost areas. This debate is utterly beside the point because someone making $250,000 would not have to give up any of their tax cuts under Obama’s proposal.

In fact, a CTJ study found that married couples making between $250,000 and $300,000 would lose just 2 percent of their Bush-era income tax cuts under President Obama’s proposal. People making up to half a million dollars would keep most of their tax cuts.

Congresswoman Nita Lowey of Westchester, NY, is one of the Democrats who have made noises about moving the threshold from $250,000 to $1 million. Her comments on the issue reflect this lack of understanding.

Earlier this year, she told the Star Gazette that “If you are making $200,000 and are a fireman and a teacher, you are not feeling too rich with all the property taxes and all your expenses. But when you are making over $1 million, you ought to pay your fair share so we can support basic services in our communities.”

Even if Rep. Lowey’s district is some Bizarro World where fire fighters and teachers make $200,000 a year, they would not lose any portion of the Bush tax cuts under President Obama’s approach. And they certainly are not going to be helped by extending the tax cuts for even higher levels of income.

Leading up to the election, prominent Democrats like Rep. Chris Van Hollen, ranking member of the House Budget Committee, were pushing to renew the payroll tax holiday in 2013, an idea that seemed all but dead in Congress just weeks earlier. The renewed push for extending the payroll tax holiday came amidst reports that the Obama Administration is considering replacing it with a new version of the Making Work Pay Credit.

The shift in debate toward renewing or replacing the payroll tax holiday is driven by concerns over ending such economically stimulative measures while the economy is still relatively weak. Compounding these concerns, a recent analysis by JPMorgan concluded that the payroll tax holiday’s expiration would reduce consumer spending by $100 billion and would cut the nation’s overall gross domestic product (GDP) by as much as 0.6 percent.

Most economists agree that a policy putting money in the hands of low- and middle-income people is likely to have a greater stimulative impact for each dollar spent than a policy putting money in the hands of high-income people.

From this perspective, the Obama Administration would be right to favor the Making Work Pay Credit; it is much more progressive than the payroll tax holiday, considering that only 27 percent of the holiday’s benefits goes to the bottom 60 percent, compared to 50 percent of the making work pay credit’s benefits. In addition, replacing the payroll tax holiday would also allay concerns from powerful voices, like AARP, that continuing the holiday will endanger the Social Security Trust Fund over the long term by weakening its dedicated funding source.

It still may be difficult to weigh the benefits of short-term stimulus provided by these tax cuts against their long-term impact on the debt. But it’s important to keep in mind that extending the entirety of the Bush tax cuts would cost $322 billion, which is more than two and half times the projected cost of the payroll tax holiday ($121 billion) and more than five and a half times the projected cost of the Making Work Pay Credit.

If Congress departs from its annual tradition of steeply reducing the Alternative Minimum Tax (AMT), 57 percent of the tax will be paid by the richest five percent of Americans and 91 percent of the tax will be paid by the richest fifth of Americans. If Congress does reduce the AMT as usual, almost all of the tax will be paid by the richest five percent of Americans.

The AMT is one of the factors contributing to the hysteria in Washington about the so-called “fiscal cliff,” the point at which several tax cuts expire and several spending cuts go into effect at the end of this year. Lawmakers and observers often mistakenly portray the AMT as a tax that will affect middle-income Americans if it is not controlled.

The Washington Post reports that if Congress does not act, “the AMT is in line to affect about 33 million households in the 2012 tax year.” The paper also reports that as many as 60 million households could face filing delays because the IRS would have to update its forms and systems to determine who would be subject to the more expansive AMT.

But the vast bulk of actual AMT payments would come from a smaller number of very well-off Americans. CTJ’s fact sheet on the AMT shows that even if Congress fails to provide the usual AMT relief, the middle fifth of Americans would pay just one percent of the AMT. The bottom two fifths of Americans would pay virtually none of the AMT.

The AMT is a backstop tax designed to ensure that well-off Americans pay at least some minimum level of tax no matter how good they are at finding deductions, credits and loopholes that reduce their regular tax calculation. The exemptions in the AMT that keep most of us from paying it have never been indexed to rise with inflation, so Congress has increased them each year for the last several years.

More importantly, the Bush tax cuts reduced the regular income tax without making any permanent corresponding change in the AMT. In other words, most of the impact of an unrestrained AMT would be to limit the Bush tax cuts for well-off Americans. What would be so terrible about that?

There have been a lot of contradictory statements coming from Washington these days about how employment levels would be affected by President Obama’s proposal to allow the expiration of the Bush-era income tax rate reductions for the top two income tax brackets (only affecting income in excess of $250,000 for couples and $200,000 for singles). Republican House Speaker John Boehner continues to cite a discredited report claiming that 700,000 jobs will be lost, while several media outlets have recently reported that the Congressional Budget Office (CBO) found 200,000 jobs would be lost. Neither is right.

This is one of the confusing aspects of the debate over the so-called “fiscal cliff,” the term sometimes used to describe the point at which the Bush tax cuts are scheduled to expire, and some spending cuts are scheduled to take effect, at the end of this year.  

Boehner’s Bogus 700,000 Jobs Claim

Let’s start with the most outrageous claim — that of Speaker Boehner. Last week, we explained why his call to pursue tax reform along the model of the Tax Reform Act of 1986 was both disingenuous and not up to the task of addressing our current budget situation. During the same speech, Boehner mentioned an Ernst & Young report finding that “going over part of the ‘fiscal cliff’ and raising taxes on the top two rates would cost our economy more than 700,000 jobs.”

Citizens for Tax Justice explained, back in July, why the study Boehner cites (which was paid for by groups like the U.S. Chamber of Commerce and the National Federation of Independent Businesses) is bogus. To take just one example of the problems with the report, it assumes a labor supply response (the degree to which people work fewer hours in response to higher tax rates) that is nearly 10 times stronger than the non-partisan CBO assumes when it makes similar estimates on labor supply effects.

CBO’s Misunderstood 200,000 Jobs Figure

The most recent CBO estimates, which are claimed to show a potential loss of 200,000 jobs, are another story. One problem is that the CBO study examines the impact of delaying, for two years, the expiration of the Bush tax cuts (and some reductions in spending) which will occur under current law. One of CBO’s findings is that extending the income tax rate reductions for the top two tax brackets (the tax cuts for the rich that Obama would like to see expire) for two years will result in 200,000 more jobs than would exist if Congress allowed these tax cuts to expire.

But if Congress decides to delay the expiration of the Bush tax cuts for the rich for two years (or any amount of time), chances are extremely high that this delay will eventually become permanent rather than temporary. If President Obama caves to Republican demands to extend tax cuts for the rich now, when he seems to have a mandate from the voters to let them expire, why in the world would he do any better in the years to come?

And, permanently extending the Bush tax cuts for the rich, as Republican Congressional leaders ultimately want, would have negative long-term impacts because it would substantially increase the budget deficit and make it more difficult to make the investments that create jobs.

This is demonstrated by other CBO studies that examine the long-term impact of removing all the impacts of the so-called “fiscal cliff” permanently. A CBO report from August shows (in a table on page 37) that removing all the fiscal cliff impacts (by making the Bush tax cuts permanent and canceling the scheduled spending cuts) would reduce economic output (and thus jobs) by 2022. Gross domestic product would be down 0.4 percent and gross national product would be down 1.7 percent, compared to what would happen if Congress did nothing and simply allowed the fiscal cliff impacts to take effect. (And remember, two-thirds of the fiscal cliff’s impact on deficit reduction results from the expiration of tax cuts, rather than then spending cuts scheduled to take effect.)

Of course, the short-term does matter — we need to improve the economy right now! But even if we could be persuaded that extending the income tax cuts for income in excess of $250,000 could save 200,000 jobs in the short-term, we could think of many, many, more cost-effective ways to do this. The figures in the new CBO report show (in a table on page 7) that the cost difference between extending all the Bush tax cuts and extending all but the income tax cuts for the top two brackets would be $42 billion in 2013. Divided by 200,000, that comes to $210,000 per job saved.

In other words, CBO thinks we can save a job for every $210,000 that we give to people who make over $250,000 (or $200,000 for single taxpayers). We’re not sure how much it costs annually to help public schools hire back teachers laid off due to budget cuts, or to hire construction workers to build bridges, but we’re pretty sure it’s less than $210,000 each.

Actually, the same CBO report also shows that the cost of calling off the automatic cuts in defense and non-defense spending and the scheduled expiration of increased doctor payments from Medicare would be $64 billion by the end of 2013 and would make a difference of 800,000 jobs. Divide $64 billion by 800,000 and that comes to $80,000 per job saved. That sounds like a much better deal.

Enact Obama’s Proposal or Go Off the Fiscal Cliff

The biggest issue facing Congress right now is finding revenue to make the public investments that will help our economy and to reduce the deficit. Extending most of the Bush tax cuts, as President Obama proposes, is not a great way to achieve that, but it makes sense to enact Obama’s approach for one year to give lawmakers time to find better solutions. If anti-tax lawmakers block that approach and insist on enacting all the tax cuts, then Congress and the President should simply allow all the tax cuts to expire.

For Immediate Release: November 9, 2012

Obama’s Proposed Extension of the Bush Tax Cuts Is Costly, But Can Be Followed with Real Revenue-Raising Tax Reforms

Citizens for Tax Justice Responds to President’s Fiscal Cliff Remarks Today

Washington, DC -- Arguing that it would create certainty as he undertakes negotiations over the year-end fiscal cliff, today President Obama called on Congress to extend for another year most of the Bush-era tax cuts scheduled to expire at the end of this year under current law. He noted that such a bill has already been approved by the Senate and only needs the approval of the Republican-controlled House of Representatives.

“Deficit reduction is getting off to a terrible start, when the President’s opening offer to Republicans is a huge tax cut that will add $250 billion or more to federal borrowing in 2013 alone,” said Bob McIntyre, director of Citizens for Tax Justice.

Under the President’s approach, 78 percent of the cost of the Bush tax cuts would be extended through 2013, which is far too much. The Senate bill that the President has endorsed would extend for one year the Bush income tax cuts for the first $250,000 a married couple makes and the first $200,000 a single taxpayer makes. Most people don’t realize that this would allow taxpayers who make as much as half a million dollars a year to keep most of their Bush income tax cuts.

But Obama’s approach is certainly superior to the approach advocated by the Republican-led House, which would extend the tax cuts for all income levels, including the very richest Americans.

As the President said during his remarks today, voters want progressive revenue increases. Exit polls show that 60 percent of voters want taxes to go up for the people making over $250,000. An election night poll from Hart Research found that 62 percent of voters were sending a message that we should “make sure the wealthy start paying their fair share of taxes.”

If President Obama caves to the demand of House Speaker John Boehner that Bush-era income tax rate reductions must be extended even for the richest Americans, the President will have given up the enormous leverage he has gained following the election, and will have ignored the clear mandate the voters gave him to end tax cuts for the rich.

###

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

According to the official exit polls on Election Day a combined 60 percent of voters support increasing taxes, with 47 percent supporting an increase in taxes on those making over $250,000 and 13 percent supporting a tax increase on everyone. Barely one third of voters think no one’s taxes should be increased. This support for higher taxes reinforces the fact that only small minority (21 percent) support the disastrous spending cuts-only approach to deficit reduction, as represented by the debt ceiling deal.

Making the voters' views even more clear, an election night poll by Hart Research found that 62 percent of voters said that they were trying to send the message that the Congress should make sure the wealthy pay their fair share in taxes. In addition, the Hart poll found that 73 percent of voters said that Medicare and Social Security benefits should be protected from cuts.

This is important: while lawmakers in DC have been focused on deficit reduction over the last couple years, most voters do not share their concern. In fact, 59 percent told pollsters on Election Day that unemployment was the most important economic issue facing the country, which is almost four times the percentage of voters that said the deficit was the most important economic issue.

The results of these Election Day polls mirror a plethora of public polling over the past couple of years on how to handle deficit reduction. Earlier this year, for example, a Washington Post-ABC News poll found that as many as 72 percent of Americans support increasing taxes on millionaires. Making the public preference clear, former Reagan official Bruce Bartlett compiled 19 different polls during the debt ceiling fight last year showing there is wide support among Americans for raising taxes to deal with the deficit.

Taken together, the Election Day polls once again reveal the substantial gap between the kinds of policies that the public would like Congress to pursue and the policies it’s actually pursuing. To start, the fact that the public is more concerned about the health of the economy than about deficit reduction should make Congress reverse course and actually increase government spending and investment, which is several times more stimulative to the economy than making the Bush tax cuts permanent, i.e. permanently cutting taxes. Second, Congress should recognize that to the extent that deficit reduction is needed over the long term, the public heavily favors a balanced approach that includes significant immediate revenue increases and spending cuts, rather than the spending cuts-only approach favored by Congress in recent years. Voters told Washington to get real about taxes because voters themselves are realistic about revenues. The message couldn’t be more clear.

For years, conservatives and many moderates have believed that signing Grover Norquist’s no-tax pledge was a ticket to electoral success. Maybe it was, maybe it wasn’t. But on election night 2012, it began to look like the pledge was actually a liability as signatories to it were sent packing by voters in states from New Hampshire to Ohio to California. While the results are still coming in, at least 55 House incumbents or candidates and 24 Senators or Senate hopefuls who signed the pledge lost on Election Day.  That means in the next Congress, the number of pledge-signers will be 264 at most, down from 279, and Grover’s fans could potentially become the minority in the House, with only 216 seats, according to reports from Bloomberg (link not available).

Rather than a boon, in many Senate races signing Grover’s pledge turned out to be a burden this election year. In the Ohio Senatorial race for instance, Republican State Treasurer Josh Mandel attempted to portray himself as an independent and principled thinker, but this image was tarnished by the fact that he had signed the no-tax pledge. In fact, Mandel gave a pretty limp response to his opponent, Democratic Senator Sherrod Brown (who ultimately won the race), who pointed out during a debate that signing the pledge equaled “giving away your right to think.”

Similarly in Massachusetts, tax policy became the focal point of difference between Republican Senator Scott Brown and Democratic candidate Elizabeth Warren. During a debate between the candidates, Warren warned voters that “instead of working for the people of Massa­chusetts” Brown had “taken a pledge to work for Grover Norquist.” Such criticism helped voters see that he was not as independent from conservative influence and the Republican Party as he liked to portray himself in deep blue Massachusetts.

Earlier this year, the stranglehold of the no-tax pledge on the Republican Party and candidates was already showing signs of cracking as a substantial number of Republican candidates either refused to sign the pledge or repudiated their former fealty to it. Leading the charge, Virginia Republican Representative Scott Rigell advised fellow Republicans to not sign the pledge and ran explicitly on the platform of taking a balanced approach to deficit reduction. In contrast to many of his colleagues who lost running on the no-tax pledge, Rigell was easily re-elected to his House seat.

Moving forward, we expect more lawmakers will realize that taking a dogmatic anti-tax approach is not only bad policy, but that it’s also increasingly bad politics.

Picture of Norquist in a bathtub courtesy the New Yorker magazine. 

Speaker Boehner Uses Different Words to Repeat Unchanged Opposition to Giving Up Tax Cuts for the Rich

On Wednesday, Republican House Speaker John Boehner repeated his stance that his caucus would not approve any increase in tax revenue except for a revenue boost driven by economic growth that they claim will result from the sort of tax overhaul proposed by Mitt Romney.

Boehner attempted to present this position as a compromise, saying his caucus is “willing to accept some additional revenues” but then went on to say, “There’s a model for tax reform that supports economic growth. It happened in 1986 with a Democrat House run by Tip O’Neill, and a Republican President named Ronald Reagan.”

The Tax Reform Act of 1986 was projected by Congress’s official revenue-estimators to be “revenue-neutral.” The law ended many tax loopholes and special breaks, but used the revenue saved to offset reductions in rates, just as Mitt Romney claimed (but failed to demonstrate) his plan would do.

Nonetheless, Boehner argued that this sort of tax reform improves the economy so much that the resulting increased incomes lead to increases in the amount of tax revenue collected. He said that by “creating a fairer, simpler, cleaner tax code, we can give our country a stronger, healthier economy. A stronger economy means more revenue, which is what the President seeks.”

But the projections of revenue-neutrality in 1986 were correct. Several studies on the impacts of the 1986 reform were done by economists on all sides of the tax issue in the 1990s, and none found evidence that it expanded the entire economy in a way that would boost revenue as Boehner claims.

The 1986 reform did a lot of good, but it was revenue-neutral and it was very different from what Republicans have been talking about today. The 1986 reform enhanced fairness by ending tax breaks for investment income that allowed wealthy investors to pay lower effective tax rates than middle-income people, and these reforms were sustained for several years before these breaks were brought back into the tax code. But Congressional Republicans want to expand those breaks or at least make permanent the Bush-era provisions that expanded them (the 15 percent special top rate for capital gains and stock dividends).

The 1986 reform also made U.S. corporations collectively pay higher taxes, by closing loopholes and cracking down on offshore profit-shifting, largely by curbing “deferral” on taxes on U.S. profits that companies artificially shifted to tax havens (reforms that have largely been eroded since then). Higher corporate taxes made it possible to reduce personal income tax rates, while keeping some popular and useful personal tax deductions and credits. But Congressional Republicans, and sadly even President Obama, propose that the corporate part of tax reform should, by itself, be revenue-neutral (if not revenue-negative).

Curbing unwarranted tax breaks, as happened in 1986, is an excellent idea. But the revenues from such reforms should be used to make public investments or cut the deficit, not reduce tax rates. In fact, the highest priority of tax reform should be raising revenue — real revenue, not the voodoo-economics sort of revenue gains that Boehner mistakenly claims will come from tax-rate reductions.

Most people forget that President Reagan actually increased taxes substantially (and repeatedly) after his 1981 tax reductions failed to achieve the economic goals he had been told to expect by his “supply-side” advisers (whom Reagan fired). Congressional Republicans, who say they admire Reagan, should emulate his responsible later policies, rather than try to repeat his early (and admitted) mistakes.

Last night Americans in states from coast to coast cast their ballots on a wide range of tax and budget issues.  On the whole, they should feel proud of their choices.

Generally, just as voters nationally favored a presidential candidate who supports higher taxes on the best-off Americans and made tax fairness a centerpiece of his candidacy, when given the opportunity at the state level to raise taxes on, or reject tax cuts for, the wealthy, voters overwhelmingly were on the side of fairness. In California Governor Jerry Brown’s revenue raising plan, which increases income taxes on the richest Californians and raises the sales tax by a quarter cent, passed handily. Californians also voted to repeal a special billion-dollar tax break for multi-state corporations. In Oregon, voters shot down a measure that would have repealed the state’s estate tax and allowed family members to transfer property tax-free. Oregonians also voted to eliminate the state’s “corporate kicker” refund program. Instead of providing a tax rebate to corporate income taxpayers when total corporate tax revenues exceed expectations, now that excess revenue will be used to support K-12 education.

The vote on the Oregon “kicker” refund was part of a broader rejection of measures designed to strangle future revenue growth in the states.  Voters in Florida rejected both a “TABOR” style state tax limitation and a cap on local property tax increases. Michigan voters decisively rejected a measure that would have required a two-thirds vote of each legislative chamber to eliminate any tax break or raise any tax rate.  And New Hampshire voters opted not to ratify a constitutional amendment that would have handcuffed future lawmakers by banning them from ever enacting a tax on earned income (which the state does not currently levy).

Unfortunately, some lower-profile efforts to curb state revenue growth met with success.  Oklahoma slightly tightened an existing cap on its property tax, and Arizona created a new property tax cap. Washington voters also approved a statutory change requiring a supermajority vote of the legislature to raise taxes, though since the requirement is not enshrined in the state’s constitution it’s possible for lawmakers to work around it as they have similar limitations in the past.

Proposals to increase taxes that fall most heavily on middle- and low-income Americans, like the sales tax and cigarette tax, generally didn’t fare as well as the more progressive tax plan put before California voters. In Arizona and South Dakota, measures that would have increased the sales tax rate were rejected handily, and Missouri voters rejected a measure that would have hiked the cigarette tax. Arkansas voters, however, gave their approval to a half cent sales tax increase that state lawmakers had already passed.

Below is a complete listing of the results for the state tax ballot initiatives we’ve been following:

Arizona Proposition 204 FAILED
Proposition 204 would have made permanent a temporary 1 percent sales tax increase that voters approved in 2010, and that is scheduled to expire in mid-2013.

Arizona Proposition 117 PASSED
Proposition 117 limits property taxes by preventing the taxable assessed value of properties from rising by more than 5 percent per year.

Arkansas Issue #1  PASSED
Issue #1 amends the Arkansas constitution to allow for a temporary increase in the state’s sales tax to pay for large-scale transportation needs like highways, bridges, and county roads.

California Proposition 30 PASSED and Proposition 38 FAILED
Governor Jerry Brown’s revenue raising measure, Proposition 30, won handily while the rival revenue raising proposal was defeated.  Proposition 30 will raise significant revenue to stave off cuts to education through a tax hike on wealthy Californians and sales tax increase.

California Proposition 39  PASSED
California voters supported Proposition 39 which repeals a billion dollar tax break for multi-national corporations.

Florida Amendment 3 FAILED
Amendment 3 would have created a Colorado-style TABOR (or “Taxpayer Bill of Rights”) limit on state revenue growth, based on a formula tied to population and cost-of-living growth.

Florida Amendment 4 FAILED
Amendment 4 would have cut property taxes for businesses, non-residents, and Floridians with multiple homes by capping growth in the taxable value of their properties at no more than 5 percent per year.

Michigan Proposal 5 FAILED
Proposal 5 would have amended the state constitution to require a two-thirds vote in both the House and Senate to raise revenue either by increasing tax rates or eliminating special tax breaks.

Missouri Proposition B FAILED
Proposition B would have increased the state’s cigarette tax by 73 cents to 90 cents a pack.

New Hampshire Question 1 FAILED
Voters rejected Question 1 which would have enshrined a permanent ban on taxing earned income into the Granite State’s constitution.  New Hampshire is already one of nine states without a broad-based personal income tax.

Oklahoma State Question 758 PASSED
State Question 758 tightens the state’s property tax cap by limiting increases in home’s taxable assessed value to 3 percent per year, rather than the previous limit of 5 percent.

Oklahoma State Question 766 PASSED
State Question 766 creates a new exemption for certain corporations’ intangible property, such as mineral interests, trademarks, and software.

Oregon Measure 84 FAILED
Voters rejected Measure 84 which would have eliminated the state’s inheritance and estate tax and allowed for tax-free property transfers between family members.

Oregon Measure 85 PASSED
Voters approved Measure 85 choosing to eliminate Oregon’s “corporate kicker” refund program which provides a rebate to corporate income taxpayers when total state corporate income tax revenue collections exceed the forecast by two or more percent. Now, the excess revenue above collections will go to the state’s General Fund to support K-12 education.

Oregon Measure 79 PASSED
Measure 79 constitutionally bans the state from levying real estate transfer taxes and fees even though such taxes are currently nonexistent in Oregon.

South Dakota Initiated Measure #15 FAILED
Initiated Measure #15 would have raised the state’s sales tax by one cent, from 4 to 5 percent. The additional revenue raised would have been split between two funding priorities: Medicaid and K-12 public schools.

Washington Initiative 1185  PASSED
Initiative 1185 requires a supermajority of the legislature or a vote of the people to raise revenue.

If yesterday’s election was a referendum on taxes, what voters rejected was the tired oldargument that cutting taxes is good for an ailing economy, and that is a welcome development. For his part, President Obama has said winning would give him a mandate to raise revenue by ending the Bush tax cuts for the wealthiest Americans, one of his campaign promises. Republicans have said if he follows through on that promise, it will destroy any chance of the two parties working together in the coming years.

As we head into the lame duck Congressional session that begins next week and look ahead to 2013, let’s review the (frankly) uninspiring policy options both parties are proposing – proposing for a country where tax rates are at historic lows, income inequality is at historic highs, tax avoidance by the wealthy and corporations is epidemic and revenues are anemic.

Sadly, President Obama’s “balanced” fiscal plan comes up short.  Far from raising needed revenues or “raising taxes on the rich” as many describe it, the President’s plan actually cuts taxes dramatically for most Americans. If President Obama's plan to keep all but the high end Bush tax cuts in place is implemented, the lion's share of the unaffordable and unfair tax cuts pushed through by President George W. Bush more than a decade ago would remain in place for another year, through the end of 2013 – at a one-year cost of $250 billion or more.

Whether the President succeeds in getting a grand bargain that includes a one year extension of most of the Bush tax cuts, or we end up with the Republicans’ latest idea for a six month “bridge” across the fiscal cliff, what both parties are saying is that the time they buy with these bargains will be used to rewrite the tax code in a permanent way. And while we agree that some kind of tax code overhaul is necessary, any overhaul that fails to raise revenue and increase tax fairness is not worthy of the word “reform.” 

Our corporate tax system is currently in a shambles, with hugely profitable multinational corporations aggressively using shady tax dodges as well as tax breaks enacted by Congress to zero out their tax bills.  Unfortunately, most Democrats and Republicans are listening to corporate lobbyists’ complaints that the U.S. statutory corporate income tax rate of 35 percent is too high.  This complaint is largely baseless.  We studied most of the Fortune 500 corporations that were consistently profitable in recent years and found that they collectively paid just 18.5 percent of their profits in taxes, and many paid nothing at all.  Still, most plans for corporate tax reform from both sides of the aisle call for closing loopholes only to lower the rate, resulting in no new revenues for the Treasury. 

We acknowledge, however, that Democrats have articulated some encouraging goals. In Congress, for example, Senator Carl Levin is actively working to close loopholes that allow corporations to shift profits to offshore tax havens. And President Obama has indicated he wants to restrict the most egregious corporate loophole, the rule allowing corporations to “defer” paying taxes on their foreign profits (which are often U.S. profits artificially shifted offshore).  Contrasted with the Republican Party’s support of a territorial tax system that permanently widens that loophole and exempts all foreign profits, the President’s corporate tax framework looks progressive, even if it is woefully short on detail.

Our view, though, is that ending “deferral” entirely is the only road to real reform of the corporate tax. In this global economy, deferral is the massive hole in which our most profitable companies can legally hide their profits, even as those profits are at historic highs.  

And the personal income tax, with or without the Bush tax cuts in place, contains expensive and unwarranted loopholes that make it possible for wealthy investors to pay taxes at a lower rate than middle-income workers – as Warren Buffett has so helpfully illustrated.  There is a simple way to fix this, of course, and that is to tax capital gains and dividends the same way we tax income from salaries and wages.  Other provisions of the personal income tax (like tax breaks for charitable deductions on appreciated property and the “carried interest” loophole) can be reformed or eliminated so that they no longer provide tax shelters for the richest Americans.  But it’s the low rates on capital gains (and dividends) that overwhelmingly benefit the very wealthiest Americans, and tax reform that maintains a progressive federal income tax must end that special break.

Tax policy is often inscrutable, and one aspect that can complicate and thwart a constructive public discussion is the issue of which “baseline” or assumptions an analysis begins with.  For example, there are those who characterize the scheduled expiration of the Bush tax cuts as a tax increase.  Don’t believe them. Nor should you believe those who say that President Obama’s proposal to extend most of the Bush tax cuts would “raise revenue.” By law, the Bush tax cuts are still temporary and are set to expire at the end of this year.  Allowing them all to expire is not a tax increase, and the President’s approach to extending most of them would result in less revenue (and a much higher budget deficit) than we’d get if Congress just did nothing, let the Bush cuts (and scores of smaller temporary tax expenditures) expire and went home.

Indeed, Congress simply going home next month and allowing the Bush tax cuts to expire on January 1, 2013 would not be the worst result.  You hear people say that we can’t possibly allow all the Bush tax cuts to expire because they benefit low- and middle-income Americans who need help, especially right now. But this is no reason to enact a bill that also extends tax cuts for the rich, which are far larger, and that’s exactly what it would mean to extend the Bush tax cuts wholesale. We’ve estimated that if Congressional Republicans get their way and all the Bush tax cuts are extended, 32 percent of the benefits would go to the richest one percent of Americans and just one percent of the benefits would go to the poorest fifth of Americans. Under President Obama’s approach, 11 percent of the benefits of the extended tax cuts would go to the richest one percent of Americans and three percent of the benefits would go to the poorest fifth of Americans. Clearly Obama’s plan is the fairer one, though it’s hardly something to celebrate.

The White House and Congress will be working on a deal during the lame duck session to tide us over through 2013. If the only deal they can reach is a bad deal – one that preserves all those expensive Bush tax cuts – the President should reject that deal.  We believe the public would support him if he did.

While we aren’t enthusiastic about any of the short term deals we know of, we are hopeful that 2013 can bring positive change to our tax code if Congress follows some basic principles.  Like the historic tax reform of 1986, reform next year should close loopholes in the personal and corporate income taxes.  Unlike ’86, however, it should not be revenue-neutral.  Today, following decades of tax cuts, we have shrinking revenues and swelling deficits.  So the next tax overhaul must raise revenues sufficient to fund the government and provide services citizens deserve and depend on. Real reform will also leave the code fairer than it is today by closing loopholes that have slowly eroded the progressivity the federal income tax was designed to deliver. We know that when you include local and state taxes, lower and middle income Americans are, in fact, paying their fare share.  At Citizens for Tax Justice, our mission is advocating for those taxpayers, and we will continue to do so into 2013 as a still divided Congress and Democratic White House debate reform of the entire tax code.

A Missouri child advocacy group is planning on lobbying for an extension of the “Children in Crisis” tax credit during the upcoming legislative session.  But Missouri doesn’t need more tax breaks, even if they are designed with noble causes in mind. Instead, lawmakers should be looking at ways to sustainably raise enough revenue to adequately support children’s programs so they don’t have to resort to special tax breaks.

Some Wisconsin lawmakers continue to insist that Wisconsin’s progressive income taxes are too complex and unfair and that the best remedy is a flatter tax structure with a single rate. But this post from the Wisconsin Budget Project reminds us that moving to a flatter income tax structure “would benefit the biggest earners and could raise taxes for people in the working class.”  Flatter does not mean fairer.

In their brief arguing for increasing the state’s earned income tax credit, the Louisiana Budget Project (LBP) cites Institute on Taxation and Economic Policy (ITEP) data showing how the state’s tax structure asks low income families to pay more taxes as a share of their income than wealthier Louisianans. LBP advocates doubling the state’s current 3.5 percent tax credit saying, “the benefits for Louisiana families and children are proven.”

We’ve made the case for why tax breaks for big oil and gas companies should be repealed at the federal level, and now the Oklahoma Policy Institute has weighed in with their take on why state tax breaks for oil and gas should be jettisoned as well. According to the Institute, “Oklahoma’s oil and gas companies have ranked tax incentives as the least important factor affecting drilling decisions,” and offering these breaks is therefore unnecessarily “squeezing out resources for schools, roads, public safety, and other keys to long-term economic growth.”

A new report from Citizens for Tax Justice shows that the Making Work Pay Credit, a tax credit that was in effect in 2009 and 2010, is better targeted towards low- and middle-income families than the payroll tax cut in effect today, at half the cost. It is dramatically more targeted to these families than the Bush tax cuts, at just over a sixth of the cost.

Prominent Washington figures and media outlets have suggested in recent days that either the payroll tax cut might be extended or the Making Work Pay Credit might be revived to help the economy.

Read the report.

Local governments in Ohio have taken tremendous fiscal hits in recent years and now many are resorting to the ballot box to close their budget gaps. Next week Ohio voters will be voting on 194 school levies, including 123 for additional funding. According to the Columbus Dispatch this is “the highest percentage of new tax issues in a general election in at least the past decade.” Recently, the state cut aid to local governments from by more than a billion dollars and then eliminated the state’s estate tax, a key revenue source for cities and towns which brought in $230 million to local government coffers in 2010, for example.  Wendy Patton with Policy Matters Ohio wrote earlier this summer, “Gov. John Kasich and the General Assembly pushed the fiscal crisis down to local schools and communities.”  

Ohio is not the only state where local governments are turning to voters this year to approve new revenue in the wake of state aid reductions.  More than 1000  local governments across the country in more than a dozen states have tax or fee related questions on their November 6 ballots.

California voters will not only have to decide on two competing statewide tax increase measures, but will also likely face similar decisions at the local level.  Hundreds of measures will appear on local ballots including sales tax increases, school parcel taxes, and hotel tax hikes.  The revenue raised from these initiatives will be used for everything from schools to police and fire services to the upkeep of parks.

In a 60 Minutes interview after his 2011 tax returns were released, Republican presidential candidate Mitt Romney was asked if his federal income tax rate was fair.

CBS’s Scott Pelley: And you paid 14 percent in federal taxes. That's the capital gains rate. Is that fair to the guy who makes $50,000 and paid a higher rate than you did?

Romney: It is a low rate. And one of the reasons why the capital gains tax rate is lower is because capital has already been taxed once at the corporate level, as high as 35 percent.

Pelley: So you think it is fair?

Romney: Yeah, I think it's the right way to encourage economic growth, to get people to invest, to start businesses, to put people to work.

Mitt Romney is wrong, and so is the tax system that he defends. His proposals would make it even worse.

In defending his tax rate, Romney is relying on the double taxation argument – that it’s fair to tax capital gain and dividend income at a much lower rate than other income, like salaries and wages, because it’s already been taxed once at the corporate level.

Here are three reasons why the double-taxation argument is unconvincing:

Ÿ1) Much of the income qualifying for the low rate is not related to corporations
2) Even the income that is related to corporations may not have been previously taxed
3) Romney’s income in particular is not from corporate profits

For one thing, all kinds of income that didn’t come from corporations is taxed at the special low rate, such as profits from selling office buildings, corn futures and exotic sports cars. Romney’s own reported income is dominated by so-called capital gains that are really “carried interest” – compensation from managing Bain Capital, his leveraged-buyout firm, that he can restructure as investment income so it doesn’t get taxed like ordinary salary or wages. Romney also has millions in gains from hedge funds, bonds, and foreign corporations, none of which was subject to the U.S. corporate income tax.

Even when corporate dividends are paid to shareholders, it’s highly likely that the corporation hasn’t paid much tax on the income they use to cover those dividend payments. Take G.E., for example. Over the last decade the company has paid out $87 billion in dividends but paid an average federal income tax rate of just 1.8 percent.

Significantly, many of the companies managed by Romney’s Bain Capital aren’t paying income tax either. Sensata Technologies, for example, used to pay tax – before Bain loaded it up with debt and started moving its operations offshore. Now it doesn’t have any U.S. income to tax

But wait, defenders of low- or no-capital gains taxes say – the money Romney earned to make those investments was taxed when he earned it, and then the government taxes it again when the investments go up in value. Not true! Only the appreciation in the investments is taxed when you sell. The original investment isn’t taxed again.

When all is said and done, the low capital gains tax rate is a windfall for the wealthy. In 2013, it’s estimated that the share of capital gains going to the top five percent will be 83 percent. This low tax rate on capital gains and dividends is also the reason that Warren Buffett pays a lower tax rate than his secretary and that Mitt Romney pays a lower rate than the middle-income worker 60 Minutes asked him about.

Whether you make $60,000 or $60 million, if your income is from work you’ll pay more than twice as much federal income tax than someone whose income is from wealth, and you’ll pay payroll taxes on top of that.  Romney’s tax plan would make it even worse because he’s proposing to completely exempt up to $200,000 of interest, dividends, and capital gains from income taxes.

Now, this might sound great to a lot of middle-income Americans who have a little bit of investment income – saving the tax on their interest from the bank or on dividends from that mutual fund. But consider this: under Romney’s plan, an heiress or day trader with $200,000 of investment income but no salary or business income would pay zero federal income tax, while working Americans with that much income would pay plenty of tax on their salaries and wages.

Getting rid of the unwarranted tax breaks for wealthy investors and treating working taxpayers more fairly should be at the heart of real tax reform. But real tax reform is just the opposite of what Mitt Romney has in mind.