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“Tax expenditures,” or special tax breaks targeted at particular activities or parties, are in desperate need of reform. In a report released by CTJ last November we explained how the current political climate, as well as dysfunctional procedural rules in Congress, have created a situation in which lawmakers have become much too willing to rely on tax breaks to accomplish their favored goals. Fortunately, a bill introduced by Rep. Mike Quigley (D-IL) just last week seeks to rein in some of the most destructive tendencies toward excessive tax breaks by counteracting the unwarranted advantages that tax breaks enjoy in the policymaking process.
While the first half of HR 5752 deals with general budget process reforms, it's the latter half of the bill with which CTJ is most interested. Among the tax expenditure reforms contained in this part of the bill is a requirement that all tax expenditures be reviewed by CBO at least every four years. Those reviews would result in a recommendation to Congress regarding what should be done with each tax expenditure, and in doing so would use many of the same criteria contained in the recently proposed “tax extenders study." This requirement somewhat resembles a proposal put forth in CTJ's November 2009 report that the Executive Branch conduct these reviews as part of their regular assessments of government performance.
HR 5752 also seeks to encourage lawmakers to make use of these CBO reviews, and of a variety of other improvements in tax expenditure data required by the bill. Specifically, HR 5752 would require that the tax-writing committees in both the House and Senate hold public hearings on the findings released by CBO. The Treasury Department and OMB would also be required to provide comments on the reviews.
More importantly, HR 5752 requires that any effort to enact a new tax expenditure (or enlarge an existing one) include a provision that would eliminate the tax expenditure at a point 10 years in the future. This sunset requirement would eliminate the “auto-pilot” feature enjoyed by many tax breaks by requiring lawmakers to periodically reconsider whether these policies are effective, and to vote on whether or not to continue them. While a 10-year sunset provision isn't the same thing as requiring regular reauthorization and reappropriation — as is done with discretionary spending — it is a meaningful step toward leveling the playing field between these two types of policies.
Another one of HR 5752's more important components is a requirement that bills enacting or expanding a tax expenditure receive approval not only from the tax-writing committee, but from the relevant subject-matter committee as well. Under HR 5752, for example, the House Ways & Means Committee would no longer be given sole jurisdiction over the plethora of tax breaks given to energy companies. Any bill seeking to expand upon such breaks would also have to receive approval from the House Committee on Energy and Commerce before being brought to the floor of the House. By allowing other relevant committees a say in measures related to their specific areas of policy, the power of the tax-writing committees to legislate on almost any issue imaginable could be scaled back by HR 5752.
For more on HR 5752, see this release from Rep. Quigley's office. And to see a comparison of tax expenditures and other spending programs in various policy areas, be sure to see this April report from CTJ.
On July 1st, Representative Bill Delahunt (D-MA) introduced the Main Street Fairness Act, the latest legislative attempt to close the unfair tax loophole that has let internet companies off the hook for tens of billions in unpaid sales taxes.
With so many states facing severe budget deficits, state governments are desperate to collect the unpaid sales taxes on purchases from out-of-state internet and catalogue retailers. According to the definitive study by researchers at the University of Tennessee, the loss in sales tax revenues due to the loophole allowing internet and catalogue retailers to avoid sales taxes could range anywhere from $8.6 to $9.92 billion in 2010 and could shoot up to nearly $34 billion from 2010 to 2012. The NCSL provides a useful interactive map highlighting the revenue loss due to the loophole in each state. Unfortunately, the loss will only increase going forward as internet sales continue to become a larger and larger portion of total sales.
Delahunt’s legislation would fix the loophole by allowing states that join the Streamlined Sales and Use Tax Agreement to collect sales tax and use taxes on out-of-state retailers. Joining the agreement entails simplifying and standardizing state sales and use tax codes in order to make the system less unwieldy for out-of-state retailers. Already 23 states are part of the agreement, with many more taking steps toward standardization. In addition, the bill would exempt many small businesses and provide some funds to help with the cost of compliance.
For decades, state governments have been trying to collect sales taxes from these retailers. A 1992 Supreme Court ruling in Quill v. North Dakota made the task almost impossible by preventing state governments from requiring sellers to collect sales taxes unless the seller has a physical presence in the state. The Court ruled that states can require companies without physical presence within their borders to collect sales taxes only if given permission by a law enacted by Congress. Delahunt's bill would provide that permission.
For Joe Rinzel, Vice President for State Government Relations for the Retail Industry Leaders Association, the issue presented by the loophole is really about “fairness for both businesses and consumers.” As a brief by the Institute on Taxation and Economic Policy explains, the loophole is inherently unfair because it provides a distinct advantage to online retailers over community stores, which have to collect sales taxes. Compounding this, the failure to tax internet sales places a disproportionate burden on consumers who (for economic or other reasons) do not use the internet for shopping.
Despite the need for federal legislation, Mike Zapler reports that states are trying to act on their own. New York attempted to get around the Supreme Court Ruling by redefining what constitutes a physical presence in New York. Taking a different approach, Colorado passed a law requiring out-of-state retailers to provide the states with the names and items bought from residents. In both cases, the laws were immediately met with lawsuits from industry supporters.
The passage of Delahunt’s Main Street Fairness Act would serve to stop the harm done to ‘brick and mortar’ retailers by the ending the loophole while providing desperately needed revenue to state governments.
Demagoguery and the issue of illegal immigration are no strangers, so it's no real surprise to see a new report from the Federation for American Immigration Reform (FAIR) that makes extravagant claims about how much illegal immigrants cost US taxpayers each year. The report's headline — that nationwide, illegal immigrants cost $100 billion a year more in public services than they pay in federal, state and local taxes — has so far been deservedly ignored by pretty much everyone except a cadre of right-wing blogs and anti-immigrant electoral candidates. But it's worth briefly paying attention to, if only to appreciate the utter shoddiness of the research behind this headline.
As the Tax Foundation has already noted, the report appears to have misplaced $9 billion in immigrants' Social Security taxes through a single math error. But the mistakes keep on coming when you look at the state and local tax estimates in the report.
It would come as news to residents of most states to know that their spending on clothing, utilities, transportation, housing and food was completely exempt from sales taxes. Yet FAIR makes this simplifying (and transparently wrong) assumption about every state, and cheerfully asserts that a typical immigrant consumer ultimately finds only 10 percent of their spending subject to sales tax. The report also assumes that undocumented immigrants neither smoke nor drink nor drive cars. It also ignores business sales taxes, which generally represent more than a third of the sales taxes falling on consumers.
The debate over US immigration policy already sheds more heat than light, and this week's FAIR report only makes this problem worse.
A new report from Citizens for Tax Justice examines the amount of government "spending" done through the tax code in the form of special breaks and loopholes known as tax expenditures. The figures in the report illustrate that tax expenditures are a significant portion of federal spending and cannot be ignored as Congress addresses the budget deficit.
Read the report.
A simple example of a tax expenditure might be a break that Congress enacts in the corporate tax, giving a particular group of companies a benefit totaling $10 billion. The effect is the same as if Congress simply provided a subsidy through direct expenditures of $10 billion for those companies. Either way, the companies are $10 billion richer and there is $10 billion less to fund public services. In other words, other taxpayers who did not receive the special break have to pay for it through increased taxes or reduced public services.
Members of Congress often focus on discretionary expenditures, not because they make up most government spending but because they are politically easier to limit. In fact, the figures in this report show that discretionary expenditures are less significant than tax expenditures in many spending categories. The other problem with fixating on discretionary expenditures is the fact that most of them are for defense — and yet calls for capping discretionary expenditures are always limited to “non-defense” spending.
Conservative pundits and media outlets have seized upon an estimate that 47 percent of taxpayers owe no federal income tax for 2009. This statistic has morphed into the claim by conservatives that “47 percent of all Americans don’t pay any taxes.”
The conservative pundits are wrong. It’s true that many taxpayers don’t pay federal income taxes, but they still pay federal payroll taxes (and some federal excise taxes) and also pay state and local taxes. Most of these other taxes are regressive, meaning they take a larger share of a poor or middle-class family’s income than they take from a rich family. This largely offsets the progressivity of the federal income tax.
A new report from CTJ estimates that the share of total taxes (federal state and local taxes) paid by taxpayers in each income group is quite similar to the share of total income received by each income group in 2009.
Read the report.
The tea partiers are sure to make their voices heard (loudly) today. There are plenty of things you can do to let Congress know that fairness doesn't mean continuing the Bush policies of slashing taxes for wealthy individuals and corporations. Here are examples of what you can do:
1. Sign a petition circulated by Wealth for the Common Good calling on Congress to end the Bush-era tax cuts for wealthy Americans.
2. Call your members of Congress using a toll-free number provided by Bread for the World and tell them to make permanent the improvements President Obama made in the Child Tax Credit and EITC for low-income families.
3. Participate in the Tax Wall Street Day of Action organized by Jobs with Justice. Their website includes a list to help you find an event near you.
Find more events and information about Tax Day.
The 2009 federal income taxes that come due on April 15 have been cut for nearly all working Americans, including Americans at all income levels, by the Recovery Act signed by President
Obama last year. But no one seems to be aware of this. Recent polls indicate that the vast majority of Americans think that the President either raised taxes or left them the same for 2009.
CTJ has new state-specific reports that aim to clear up this widespread misunderstanding. They show that the President cut taxes for working people at all income levels for 2009 and they show who was helped by each individual tax break.
Read the fact sheet and report for your state.
Americans know that taxes are necessary to fund the services government provides like roads, schools, and social security. We contribute so that our country can build and maintain the necessary infrastructure and public goods and provide a safety net for all of us. At the same time, Americans think that the wealthiest among us aren't paying their fair share.
And yet those who support the previous administration's policies of slashing taxes for the rich will be very effective in making their voices heard on Tax Day. They have a message that sounds appealing (usually involving lower taxes with no negative repercussions) and a network of supporters with plenty of cash to amplify their message.
The following list describes how you can cut through the nonsense and stand up for tax fairness this April 15.
CTJ: Obama Cut Taxes for 98 Percent of Working Americans
CTJ has a new fact sheet showing that President Obama has cut taxes for 98 percent of working Americans in 2009. State-by-state reports are included. Polls show that the vast majority of people think that Obama either raised their taxes or left them the same for 2009, and these publications aim to clear up that widespread misunderstanding.
US PIRG: How Much Tax Havens Cost Ordinary Americans
The U.S. Public Interest Research Group reminds taxpayers that, while we do our duty and file our taxes, there are corporations and individuals out there who shirk this responsibility by using offshore tax haven countries to hide assets. On April 15, U.S. PIRG is sponsoring post office demonstrations and releasing a new report Tax Shell Game: What Do Tax Dodgers Cost You? They are encouraging folks to send in post cards to their Members of Congress to send a message to Washington that the American people deserve a better system.
Jobs with Justice: Tax Wall Street Day of Action
Jobs with Justice is organizing a Tax Wall Street Day of Action on April 15th. They are calling on supporters to deliver letters to national banks and collect petition signatures at local post offices as Americans stop by to mail their tax returns. The petition will ask Congress to tax Wall Street speculation.
UFE: Take the Tax Fairness Pledge
United for a Fair Economy has created the Responsible Wealth Tax Fairness Pledge where you can estimate your savings from the Bush tax cuts and pledge them to an organization that works for tax fairness. By the end of 2010 the Bush tax cuts will have cost more than $2.5 trillion in revenue that could have been used for critical investments in education, infrastructure or to reduce the deficit.
Are You Tired of the Tea Party? Join the Other 95%
President Obama cut taxes for 95 percent of working Americans (or 98 percent, if you count AMT relief) in 2009. But only 12 percent know it. Join the "other 95 percent" and say "Thanks for our tax cut, President Obama."
Or Join the Coffee Party
Tired of the tempest in a teapot, Coffee Party USA was started to encourage folks to "get together and drink cappuccino and have real political dialogue with substance and compassion." You can join the movement or start your local chapter here. Their motto: Wake Up and Stand Up.
IPS: More About the Way the World Is
The Institute for Policy Studies offers an analysis of the federal income tax system that seems more like two different systems: one for the wealthy and powerful and another one for the rest of us. Their paper includes analyses of the "flat tax," the national debt, and the myths about tax cuts for the wealthy allegedly spurring the economy.
CBPP on the Tax Foundation Tax Freedom Day Report: If Only We Were Rich
The Center on Budget and Policy Priorities has published a report refuting the oft-quoted numbers from the Tax Foundation about how many days people work each year just to pay their federal income taxes. As CBPP points out, the analysis is heavily skewed by the amount of income tax paid by the wealthy. Eighty percent of U.S. households pay tax at a lower rate than the Tax Foundation's estimated "average" federal obligation.
Wealth for the Common Good: Shifting Responsibility
Wealth for the Common Good has released a report Shifting Reponsibility: How 50 Years of Tax Cuts Have Benefited America's Wealthiest Taxpayers detailing how America's highest earners have seen their taxes drop by as much as two-thirds over the last 50 years. The trend of "asking less from those with more" has contributed to perhaps the greatest income inequality the U.S. has ever seen. The report calls for various measures to mitigate this dangerous trend and restore revenue to the federal treasury.
NPP: Where Did Your 2009 Federal Income Tax Dollars Go?
The National Priorities Project has released a report Where Do Your Tax Dollars Go - Tax Day 2010 showing how federal tax dollars were spent in 2009. Out of every dollar, 26.5 cents goes for military-related spending, 13.6 cents goes to pay interest on the debt, and only 2 cents goes towards education.
CAP: Why Cutting Discretionary Spending Won't Solve Our Budget Imbalance
The Center for American Progress has developed an interactive pie chart to help you learn about the federal government's discretionary spending, including whether cuts in those programs will really help reduce the federal deficit. Look at What is Non-Defense Discretionary Spending here.
UFE: How Will the States Close Their Budget Gaps?
United for a Fair Economy's Tax Fairness Organizing Collaborative just published a report Solutions that Work for Main Street: Progressive Guidelines for Closing Recessionary State Budget Gaps." The report identifies pragmatic principles for closing state budget gaps in ways that enhance economic recovery, ongoing stability, and more widely shared prosperity. Also see their report Leaving Money on the Table showing that residents in states that rely heavily on the sales tax instead of an income tax pay much more federal income taxes as a result.
CTJ: Don't Believe the Hype About the Rich Paying All the Taxes
On Tax Day, you'll hear anti-tax people say that the rich are paying a disproportionate share of taxes. They're wrong. When you look at the tax system as a whole, including federal, local, and state income, payroll, excise, and sales taxes, the system is just barely progressive. A CTJ analysis shows that when you include those taxes, effective tax rates are almost flat.
This week, the United States Congress and President Obama gave us another reason to be proud that we are Americans. On Tuesday, the President signed into law a major health care overhaul. Yesterday, the House and Senate both approved a second bill that completes the job.
Events like this — the creation of Social Security, the passage of the Civil Rights Act, the first manned visit to the moon, comprehensive health care reform — don't happen very often. We feel privileged and awed to belong to a generation that has witnessed this sort of change.
There is work ahead to ensure that the health care reform is implemented properly and improved upon. And the reform itself must be protected from opponents who already call for its repeal.
But in the years to come, we will look back and remember this as the time when our health care system stopped being a black spot on the nation's conscience and started to grow into another reason to love this country.
This legislation to extend health insurance to 32 million Americans and protect Americans who already have insurance from the industry's abuses was nearly thwarted by several disputes over issues both real and imaginary, and some of these disputes were over taxes.
For thirty years, Citizens for Tax Justice has argued that the Americans who benefit the most from the educated workforce, infrastructure, stability and other public goods provided by government are those Americans who have made fortunes in this dynamic country. It is entirely reasonable that the richest Americans pay taxes at higher effective rates, particularly to finance concerted action to resolve the problems that threaten to unravel our society.
Over the last several years, lawmakers have moved dangerously far from that ideal. The tax cuts enacted during the previous administration went disproportionately to the wealthy investor class. The massive bailout for financial institutions enacted under the previous administration only seemed to shovel more benefits to the same wealthy investor class.
When it came time for Congress to consider how to finance health care reform, progressives demanded that the wealthy pay their fair share. Congress answered that call by reforming the Medicare tax, the one significant tax that we already have to pay for health care. It will be transformed from a regressive tax to a progressive tax that no longer exempts the income of wealthy investors.
The new health care legislation has many imperfections, and yet it undeniably is a vast improvement over the status quo. Tax policy is not the centerpiece of this reform, but disputes over tax policy could have sunk it altogether.
We applaud the House and Senate for working through these disputes and putting the public interest above special interests.
We hope that the lawmakers who supported reform like the way success feels. We hope that members of Congress realize that they're good at making history, and they should do it more often.
Read about How Health Care Was Reformed (and Financed Partly with a Progressive Tax)
So who exactly are these "Tea Party" folks who have been protesting health care reform? We leave it to others to report on their more shocking behavior. But we'll consider the concept of "TEA" (taxed enough already) that seems to drive their world view.
David Frum (the scholar recently fired from the American Enterprise Institute for excessive honesty) sent interns into the tea party crowd to ask them some questions about taxes.
The accuracy of their responses was pretty dismal. When asked how much a family earning $50,000 a year pays in federal income taxes, the average answer was about $10,000. What's the real answer? After deducting the standard deduction and personal exemptions, a family of four owes only $1,965 in federal income taxes.
When asked whether federal taxes are higher, lower, or the same since President Obama took office, more than two-thirds of the group thought they were higher. The reality is that they are lower by every measure. For that working family, last year's stimulus bill reduced their federal income tax by $800.
As we reported last tax day, misconceptions about the level of federal income taxes are particularly common among those with anti-tax views.
New data from the IRS show that in 2007 the richest 400 taxpayers in America increased their incomes by 31 percent over the previous year, increased their share of total income in America, and paid an even lower effective tax rate than ever before.
Writing for Tax Analysts, David Cay Johnston finds that the average income of the richest 400 grew from $263.3 million in 2006 to $344.8 million in 2007. Meanwhile, their effective income tax rate fell from 17.17 percent in 2006 to 16.62 percent in 2007.
As usual, a major cause of the low effective tax rates is the preferential rate for capital gains and stock dividends, which are taxed at a top rate of 15 percent instead of the top rate of 35 percent that applies to other income for the very rich. Capital gains made up 66.3 percent of income for the top 400 in 2007, up from 62.8 percent in 2006.
The data seem to highlight the need to allow the Bush tax cuts, which cut the top rate for capital gains and stock dividends to 15 percent, to expire as scheduled at the end of 2010.
The report released last week by Citizens for Tax Justice on the President's budget argued that Congress should at least allow the Bush tax cuts to expire for the rich (which Obama defines as married couples with incomes above $250,000 and unmarrieds with income above $200,000) and should enact at least as many revenue-raisers as the President proposes.
A new report from Citizens for Tax Justice explores the tax proposals included in the federal budget outline that President Obama submitted to Congress on February 1. Like the budget he submitted last year, it is a vast improvement over the policies of the Bush years and continues to outline a progressive reform agenda.
But, also similar to last year, the President’s budget could be greatly improved with more aggressive policies to raise revenue. Over the coming decade, the President proposes to cut taxes by $3.5 trillion. We include in this figure the cost of extending most of the Bush tax cuts and relief from the Alternative Minimum Tax (AMT) as well as additional tax cuts that President Obama proposes.
His budget would offset a portion of this cost with provisions that would raise $760 billion over a decade by limiting the benefits of itemized deductions for the wealthy, reforming the U.S. international tax system and enacting other reforms and loophole-closing measures.
The report concludes that the federal government should collect at least as much revenue as the President proposes in order to avoid larger budget deficits. There are two bare minimum requirements for Congress to achieve this. First, Congress must not extend any more of the Bush tax cuts than President Obama proposes to extend. Second, Congress must raise at least as much revenue as President Obama has proposed ($760 billion over ten years) through loophole-closers and new revenue measures.
Late last year, CTJ published a report examining the lack of scrutiny directed toward tax expenditures, and the repeated promises to address this problem made by past Administrations. Unfortunately, the President’s most recent budget proposal shows no signs of progress on this issue. As CTJ points out in an op-ed in today’s Sacramento Bee: “for the second year in a row, the Obama administration has chosen [in its budget] to simply copy-and-paste the Bush administration’s language on this issue, complete with all the same promises about what will be done at some point over the ‘next few years.’”
Read the op-ed.
