Nevada News



A Reminder About Film Tax Credits: All that Glitters is not Gold



| | Bookmark and Share

Remember the 2011 Hollywood blockbuster The Descendants, starring George Clooney? Odds are yes, as it was nominated for 5 Academy Awards. Perhaps less memorable were the ending credits and the special thank you to the Hawaii Film Office who administers the state’s film tax credit – which the movie cashed in on.

Why did a movie whose plot depended on an on-location shoot need to be offered a tax incentive to film on-location? The answer is beyond us, but Hawaii Governor Abercrombie seems to think it was necessary as he just signed into law an extension to the credit this week.

Hawaii is not alone in buying into the false promises of film tax credits. In 2011, 37 states had some version of the credit. Advocates claim these credits promote economic growth and attract jobs to the state. However, a growing body of non-partisan research shows just how misleading these claims really are.

Take research done on the fiscal implications such tax credits have on state budgets, for example: 

  • A report issued by the Louisiana Legislative Auditor showed that in 2010, almost $200 million in film tax breaks were awarded, but they only generated $27 million in new tax revenue. According a report (PDF) done by the Louisiana Budget Project, this net cost to the state of $170 million came as the state’s investment in education, health care, infrastructure, and many other public services faced significant cuts.

  • The Massachusetts Department of Revenue – in its annual Film Industry Tax Incentives Reportfound that its film tax credit cost the state $200 million between 2006 and 2011, forcing spending cuts in other public services.

  • In 2011, the North Carolina Legislative Services Office found (PDF) that while the state awarded over $30 million in film tax credits, the credits only generated an estimated $9 million in new economic activity (and even less in new revenue for the state).

  • The current debate over the incentive in Pennsylvania inspired a couple of economists to pen an op-ed in which they cite the state’s own research: “Put another way, the tax credit sells our tax dollars to the film industry for 14 cents each.”

  • A more comprehensive study done by the Center on Budget and Policy Priorities (CBPP) examined the fiscal implications of state film tax credits around the country. This study found that for every dollar of tax credits examined, somewhere between $0.07 and $0.28 cents in new revenue was generated; meaning that states were forced to cut services or raise taxes elsewhere to make up for this loss.

Not only do film tax credits cost states more money than they generate, but they also fail to bring stable, long-term jobs to the state.

The Tax Foundation highlights two reasons for this. First, they note that most of the jobs are temporary, “the kinds of jobs that end when shooting wraps and the production company leaves.” This finding is echoed on the ground in Massachusetts, as a report (PDF) issued by their Department of Revenue shows that many jobs created by the state’s film tax credit are “artificial constructs,” with “most employees working from a few days to at most a few months.”

Second, a large portion of the permanent jobs in film and TV are highly-specialized and typically filled by non-residents (often from already-established production centers such as Los Angeles, New York, or Vancouver). In Massachusetts, for example, nearly 70 percent of the film production spending generated by film tax credits has gone to employees and businesses that reside outside of the state. Therefore, while film subsidies might provide the illusion of job-creation, they are actually subsidizing jobs not only located outside the state, but in some cases – outside the country.

While a few states have started to catch on and eliminate or pare back their credits in recent years (most recently Connecticut), others (including Maryland, Nevada, Pennsylvania, and Ohio) have decided to double down. This begs the question: if film tax credits cost the state more than they bring in and fail to attract real jobs, why are lawmakers so determined to expand them?

Perhaps they’re too star struck to see the facts. Or maybe they, too, want a shout out in a credit reel.



State News Quick Hits: Missouri Puts the Brakes on Too Many Tax Cuts, and More



| | Bookmark and Share

Congress hasn’t even granted states the power to collect sales taxes owed on online shopping, but already Tennessee lawmakers are discussing how they might squander the money.  On the heels of inheritance tax, gift tax, sales tax, and interest and dividend tax cuts, Governor Haslam says he’s open to the idea of cutting taxes even further if the state sees a bump in revenue from passage of the Marketplace Fairness Act.  So far the Governor has said he wants to proceed cautiously, but Tennessee lawmakers have guzzled their share of  tax cut snake oil lately.

Uh oh! Watch out for income tax cuts in Iowa in 2014. Already Governor Terry Branstad is looking to next year and potentially reducing income taxes. He recently said, "I think it’s very likely we’ll be looking at reducing the income tax further. When I became governor, the income tax rate in Iowa was 13 percent. We now have it down to 8.98 percent, plus we have full federal deductibility…Remember, the top federal tax is 38.5 percent, so the effective rate in Iowa is only about 5.5 percent. We’d like to see that go lower."

In refreshing news, late last week Missouri Governor Jay Nixon vetoed a radical tax package passed by the legislature that included: a reduction in the corporate income tax rate, a 50 percent exclusion for pass-through business income, an additional $1,000 personal and spouse income exemption for individuals earning less than $20,000 in Missouri adjusted gross income, and a reduction in the top income tax rate from 6 to 5.5 percent. The Governor called the legislation an “ill-conceived, fiscally irresponsible experiment that would inject far-reaching uncertainty into our economy, undermine our state’s fiscal health and jeopardize basic funding for education and vital public services.” Stay tuned. The legislature is expected to come back in September for a veto session during which it’s likely legislators will try to override the Governor’s veto.  

Last week, the Nevada Legislature passed AB 1 (PDF), a bill that changes how the state will handle tax abatements for new or expanding businesses. Under current law, the state grants partial abatement of property taxes, business taxes, and sales and use taxes to a business that locates or expands in the State and has 75 employees, or invests $1 million in capital into the state (businesses in smaller counties can qualify with 15 employees or a $250,000 investment). The new bill would lower the employee requirements to 50 in larger counties and 10 in smaller counties. The Institute on Taxation and Economic Policy (ITEP) reminds us that these kinds of tax incentives are costly and their real impact hard to measure, to say the least.

The Connecticut House of Representatives passed a bill, HB 6566 (PDF), which would require public disclosure of specific details about state economic assistance and tax credits for businesses. The bill would call for the creation of an online database that lists information such as the name and location of the recipient, the number of jobs created or retained, and the amount and detailed nature of the tax subsidy. This bill came only a few weeks after a report was released by Good Jobs First that documented how costly economic development subsidy programs often lack any kind of public transparency. “Despite its widespread practice, this use of taxpayer funds remains controversial,” the report said, “but the absence of good information makes it impossible for citizens to weigh the costs and benefits to their communities.” The bill now heads to the State Senate for consideration.

 



State News Quick Hits: Nicolas Cage Lobbies, Massachusetts Raises Revenues and More



| | Bookmark and Share

The Ohio Senate is considering a fiscal 2014-15 budget that includes a $1.4 billion business tax cut. The cut – which would exempt a full $375,000 in business income from the income tax – is similar to a widely-criticized plan enacted by Kansas last year. As Policy Matters Ohio explains, however, none of the tax cuts under consideration (including the Governor's) will help Ohio’s economy: “They are bad for low- and moderate-income Ohioans, and slash revenue Ohio needs to support our economic success and improve our quality of life.”

On May 23, the Massachusetts Senate approved a fiscal 2014 budget that would generate $430 million in new tax revenues, in part by extending the sales and use tax to some computer-related services, raising the gas tax by 3 cents, and increasing tobacco excise taxes.  Differences between the Senate budget and a broadly similar plan passed by the State House will now be worked out by a six-member conference committee.

If he ever decides to leave Hollywood, Nicolas Cage might have a future ahead of him in lobbying. After Cage visited Nevada, the state Senate approved a $20 million tax break for filmmakers. Unfortunately for Nevadans, however, film tax credits have been shown time and time again to be ineffective at spurring economic growth.

The Virginia Commonwealth Institute discusses the problems with lawmakers’ recent decision to cut the state’s gas tax by roughly 6 cents per gallon.  As the Institute explains: “gas taxes are not to blame for high and volatile gas prices… [and] Virginia’s gas tax, which has been a steady 17.5 cents per gallon since 1987, was failing to produce enough resources to fuel adequate investment in our infrastructure.” The same is generally true nationwide.

 



Mid-Session Update on State Gas Tax Debates



| | Bookmark and Share

In a stark departure from the last few years, one of the most debated state tax policy issues in 2013 has been the gasoline tax (PDF).  Until this February, it had been almost three years since any state’s lawmakers approved an increase or reform of their gasoline tax.  That changed when Wyoming Governor Matt Mead signed into law a 10 cent gas tax hike passed by his state’s legislature.  Since then, Virginia has reformed its gas tax to grow over time alongside gas prices, and Maryland has both increased and reformed its gas tax.  By the time states’ 2013 legislative sessions come to a close, the list of states having improved their gas taxes is likely to be even longer.

Massachusetts appears to be the most likely candidate for gas tax reform.  Both the House and Senate have passed bills immediately raising the state gas tax by 3 cents per gallon, and reforming the tax so that its flat per-gallon amount keeps pace with inflation in the future (see chart here).  In late 2011, the Institute on Taxation and Economic Policy (ITEP) found that Massachusetts is among the states where inflation has been most damaging to the state transportation budget—costing some $451 million in revenue per year relative to where the gas tax stood in 1991 when it was last raised.  Governor Deval Patrick has expressed frustration that legislators passed plans lacking more revenue for education—in sharp contrast to his own plan to increase the income tax—but he has also signaled that there may be room for compromise.

Vermont lawmakers are also giving very serious consideration to gas tax reform.  At the Governor’s urging, the House passed a bill increasing the portion of Vermont’s gas tax that already grows alongside gas prices.  The bill also reforms the flat-rate portion of Vermont’s gas tax to grow with inflation.  The Senate is now debating the idea, and early reports indicate that the package may be tweaked to rely slightly more on diesel taxes in order to reduce the size of the increase on gasoline.

Pennsylvania Governor Tom Corbett has also proposed raising and reforming his state’s gasoline tax.  While Pennsylvania’s tax is technically supposed to grow alongside gas prices, an obsolete tax cap limits the rate from rising when gas prices exceed $1.25 per gallon.  Corbett would like to remove that cap in order to improve the sustainability of the state’s revenues, and members of his administration have been traveling the state to explain how doing so would benefit Pennsylvanians.  While the legislature has yet to act on his plan, the fact that it has the backing of the state’s Chamber of Business and Industry is likely to help its chances.

In New Hampshire, the Governor has said she is open to raising the state gas tax and the House has passed a bill doing exactly that.  But there are indications that lawmakers in the state Senate might continue procrastinating on raising the tax, as the state has done for over two decades.

Nevada lawmakers are discussing a gas tax increase following the release of a report showing that the state’s outdated transportation system is costing drivers $1,500 per year.  ITEP analyzed a gas tax proposal receiving consideration in the Nevada House and found that even with the increase, the state’s gas tax rate (adjusted for inflation) would still remain low relative to its levels in years past.

Iowa lawmakers have been debating a gas tax increase for a number of years, and there may be enough support in the legislature to finally see one enacted into law.  The major stumbling block is that Governor Branstad will only agree to raise the gas tax if it’s part of a larger package that cuts revenue overall—particularly revenues from the property tax.  As we’ve explained in the past, such a move would effectively benefit the state’s roads at the expense of its schools.

Earlier this year, Washington State House lawmakers unveiled a plan raising the state’s gas tax by 10 cents per gallon and increasing vehicle registration fees.  Senate leaders are reportedly less excited about the idea of a gasoline tax hike, though there are indications they would consider such an increase if it were to pass the House.  While talk of a 10 cent increase has since quieted down, there are rumors that a smaller increase could be enacted.

Unfortunately, some states where the chances of gas tax reform once appeared promising have since begun to move away from the idea.  In Michigan, while the Governor and the state Chamber of Commerce have voiced strong support for generating additional revenue through the gas tax, neither the House nor the Senate appears likely to vote in favor of such a reform this year.  Meanwhile, the chances for a gas tax increase in Minnesota seem to have faded after the Governor came out against an increase and the House subsequently unveiled a tax plan that leaves the gas tax untouched.

Overall, 2013 has already been a significant year for state gas tax reform.  Both Maryland and Virginia have abandoned their unsustainable flat gas taxes in favor of a better gas tax that grows over time, just like construction costs inevitably will.  Hopefully, within the next few months, more states will have followed their lead.



State News Quick Hits: The Girl Scout Cookie Carve-Out, A Massachusetts Showdown, and More



| | Bookmark and Share

Idaho Senate leadership took a difficult stand on a high-profile issue in favor of good tax policy by refusing to give the Girl Scouts a special tax break on their famous cookies. Their counterparts in the Idaho House, however, weren’t nearly as principled, bowing to the pressure of some of the nation’s youngest tax policy lobbyists and voting 59-11 in favor of the special break. The Girl Scouts plan to return to the statehouse next year in hopes of convincing the Senate to support the new tax subsidy, which is like any other (PDF) subsidy.

Nevada lawmakers are debating whether they should join Maryland and Wyoming as the third state to raise its gasoline tax this year.  The Institute on Taxation and Economic Policy (ITEP) provides some important context with a new chart showing that even if the state’s gas tax were raised by 20 cents over the next 10 years (as the Senate is considering), the rate would still be below its historical average in value.

Texas business owners are pushing state lawmakers to repeal the state’s largest business tax, trotting out familiar arguments about the economic benefits of tax cuts. Fortunately, as the Austin American Statesman reports, “a $1.2 billion annual price tag ... appears to have doomed the effort.”

Massachusetts House lawmakers set up a showdown with Governor Patrick over transportation funding in the Bay State with the passage of their less ambitious revenue package this week. Governor Patrick’s budget includes almost $2 billion in new revenues to boost transportation and education spending raised primarily through increasing the personal income tax. The Governor’s plan also includes a sharp reduction in the state’s sales tax. The House package, by contrast, raises just over $500 million through increases in fuel and cigarette taxes as well as a few business tax changes. Governor Patrick threatened to veto any tax package from the House or Senate that does not raise significant revenue for both transportation projects and education.

(Photo courtesy Bitterroot Star)



State News Quick Hits: Tech Company Heads to "Hi Tax" California, Arkansas is Opposite World, and More



| | Bookmark and Share

Here’s some happy news: a recent poll finds that just 27 percent of Louisianans support Governor Bobby Jindal’s tax swap, and that’s before the Institute on Taxation and Economic Policy (ITEP) released its latest analysis showing that the poorest 60 percent of taxpayers in Louisiana would see a tax hike as a result of the Governor’s plan.

A robotics company based in Nevada recently decided to abandon the state’s allegedly “business friendly” environment in favor of Silicon Valley in California, where there are better trained employees and plenty of deep pocketed investors. Nevada does not levy a personal or corporate income tax, but as Romotive founder Keller Rinaudo explains: "It was not a short-term economic decision ... We have to find experienced roboticists, and that really only exists in a few places in the world, and California is one of them."

Maryland’s gas tax will be increased and reformed starting July 1 under a bill just sent to Governor Martin O’Malley by the state’s legislature.  This year’s increase will be something less than 4 cents per gallon, but the tax will now rise each year alongside inflation and gas prices, as recommended by ITEP. ITEP showed that even with the increase, Maryland’s gas tax rate will still remain below its historical average and be less than the state probably needs.

Here’s an interesting story in the Minnesota Star Tribune about how Governor Dayton’s tax plan would impact the wealthiest Minnesotans. While opponents resort to the usual tax-hikes-kill-jobs refrain, Wayne Cox of Minnesotans for Tax Justice notes, “Economists believe keeping teachers and firefighters on the payroll is at least three times more helpful to the economy than keeping income tax rates at the top the same.”

Tax cuts for opposite ends of the income spectrum are getting opposite treatment in Maine and Arkansas. This week, Maine lawmakers rejected a bill that would cut taxes on capital gains (which heavily benefits wealthy taxpayers) and approved an increase in the state’s Earned Income Tax Credit (EITC) (PDF), which amounts to a tax cut to low- and moderate-income families. But last week in Arkansas, a House panel approved a cut in taxes on capital gains while passing up an opportunity to enact a state EITC.



Quick Hits in State News: Kansas Republicans Oppose Tax Cuts, Tax Breaks Are Really Spending, and More



| | Bookmark and Share
  • Kansas Governor Brownback’s insistence on steep tax cuts has met more resistance.  A group called Traditional Republicans for Common Sense has come out against  even a watered down version of Brownback’s vision in the legislature. One of the group’s members (a former chair of the state’s GOP) said, “Now is not the time for more government intervention. Topeka needs to stay out of the way and make sure proven economic development tools – like good schools and safe roads – remain strong so that the private sector can thrive.” 
  • Stateline writes about the problems with “the spending that isn’t counted” – meaning special breaks that lawmakers have buried in state tax codes.  The article highlights efforts in Oregon and Vermont to develop more rational budget processes where tax breaks can’t simply fly under the radar year after year.  CTJ’s recommendations for reform are in this report.
  • In this thoughtful column, South Carolina Senator Phil Leventis writes, "I have been guided by the principle that government should invest in meeting the needs and aspirations of its citizens. This principle has been undermined by an ideology claiming that government is the cause of our problems and, accordingly, must be starved.” He praises tax study commissions and says being “business friendly” cannot be the only measure of state policy.
  • An op-ed from the Pennsylvania Budget and Policy Center (PBPC) calls on lawmakers to address the issue of rampant corporate tax avoidance, and to do so responsibly. It raises concerns that legislation currently under consideration to close corporate loopholes could be a “cure worse than the disease.”  The legislation takes some good steps but is paired with business tax cuts that could cost as much as $1 billion over the next several years.  PBPC argues for a stronger and more effective approach to making corporations pay their fair share such as combined reporting, which makes it harder for companies to move profits around among subsidiaries in different states.
  • Just four days after Amazon agreed to begin collecting sales taxes in Nevada in 2014, the company announced a similar agreement with Texas that will take effect much sooner – on July 1st.  As The Wall Street Journal reports, “With the deal, the Seattle-based company is on track to collect sales taxes in 12 states, which make up about 40% of the U.S. population, by 2016.”

Picture from Flickr Creative Commons.



Inching Towards An Online Sales Tax Policy



| | Bookmark and Share

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

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

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



Quick Hits in State News: Nevada Governor Earns Grover's Ire, and More



| | Bookmark and Share

Nevada Governor Brian Sandoval campaigned on a promise of no-new-taxes but is breaking that promise (for a second time!) with his plan to balance the Silver State budget.  In an effort to avoid deep cuts in education, Sandoval is once again supporting an extension of temporary sales, payroll, and car taxes originally enacted in 2009.  Grover Norquist calls Sandoval the poster boy for why candidates can’t just promise no-new-taxes, they have to sign his pledge; in fact, Sandoval is a good example of why they shouldn’t.

We’ve already written that Arthur Laffer’s claims about economic growth and income tax repeal are fundamentally flawed and that in fact “high rate” income tax states are outperforming no-tax states. Now, three respected Oklahoma economists have come out in agreement, and are offering their own critique of Laffer’s findings. This is great news given that Laffer’s work has been so central to lawmakers’ efforts to eliminate the state income tax – the most progressive feature of any state’s tax system.

This week the Maryland Senate voted to raise personal income taxes in order to offset the anticipated "doomsday cuts" in public services that would otherwise have to occur.  An analysis from the Institute on Taxation and Economic Policy (ITEP) showed that the bill would be generally progressive.  And in yet another bit of good news, a late amendment to the bill would enhance its progressivity even more, as Marylanders earning more than a half-a-million dollars will no longer be able to take advantage of the state’s lower marginal rate brackets.

The Wichita Eagle editorial board is watching the Kansas House and Senate take up tax reform, and they are worried. While they’re glad some lawmakers are dubious about “the suspect advice of Reagan economist Arthur Laffer,” the governor’s advisor, they don’t like a House plan that “makes permanent the punishing budget cuts of the past few years to education, social services and other programs.” They opine that “tax reform needs to make fiscal sense and broadly benefit Kansans,” and conclude that with the various and competing proposals right now, it’s anybody’s guess if that will be the outcome.



Warning to States: Don't Bet on Gambling Revenue



| | Bookmark and Share

Opposition to broad-based tax increases has caused state lawmakers to look, with increasing urgency, for additional revenue-raising opportunities outside of the income, sales and property taxes that form the backbone of most state tax systems. One of the most popular alternatives to those major revenue sources is state-sponsored gambling. But gambling revenues are rarely as lucrative, or as long-lasting, as supporters claim.

A recent Las Vegas Sun article, Nevada’s tax income from gaming well below other markets, shows clearly that gambling revenues aren’t a dependable revenue stream.  For many years, Nevada enjoyed a bit of a monopoly on the gaming market, but in recent years others states have begun to adopt their own forms of legalized gambling. Not surprisingly, “gaming latecomers have lured potential customers away from Nevada, and are now surpassing the Silver State in the tax dollars they generate for the state and local governments that sanctioned them.”

Nevada’s loss of gaming revenues is particularly dangerous because the state levies no corporate or personal income tax and is disproportionately reliant on gambling as a funding source.

Nevada’s tax structure problems don’t start or end with gambling, but it’s clear that as gambling revenues decline it’s going to become even more imperative that lawmakers come together to push for real tax reform that likely involves the implementation of a corporate and personal income tax.  

For more on the perils of state sponsored gambling read ITEP’s policy brief on the issue.

Photo of slot machines via Raging Wire Creative Commons Attribution License 2.0



Grover Norquist Loses Nevada



| | Bookmark and Share

Bucking his repeated "no new taxes" pledge, Republican Governor Brian Sandoval worked with Republicans and Democrats alike in Nevada to pass a $6.2 billion budget deal,  including the extension of $620 million in temporary tax hikes.

Sandoval is part of a growing trend of state leaders forced to renege on "no new taxes" pledges after hitting the brick wall of fiscal reality.  Lawmakers in other states have been similarly forced to reconsider irresponsible no new tax pledges after taking a more sober look at their state’s fiscal conditions.

What brought Sandoval back to reality was a Nevada Supreme Court decision, which ruled that the state government could not siphon off $62 million in funding from the southern Nevada sewer district. The ruling, which Sandoval called a “game changer,” created a new budget hole of about $656 million, since the budget counted on hundreds of millions of dollars from similar unconstitutional revenue grabs from local governments. This revenue hole could not be responsibly filled without the tax extensions. Nevada is actually one of many states where courts have played a critical role in upending the budget debate.

Sandoval's reversal represents a big loss for movement conservatives in Nevada, who lost their chance to dramatically cut Nevada’s services while making the governor they opposed look reasonable by comparison.

Unfortunately, even with the additional revenue, the final deal still included significant cuts such as the elimination of a $5.7 million property tax rebate program for low-income seniors.  In addition, the deal regrettably did not include the comprehensive sales tax reform proposal pushed by Democratic lawmakers.

On the plus side, Nevada’s legislative session also included two modest breakthroughs in the effort to increase the level of scrutiny and taxation of the state’s extraction industries. Despite the powerful influence of mining in the state, both houses of the Nevada legislature repealed constitutional provisions limiting taxes on mines to 5 percent of the net proceeds of minerals and raised $24 million in additional revenue by having the mining companies give up health care tax deductions.



Nevada Considers Sales Tax Reform



| | Bookmark and Share

Recognizing the dire fiscal straits faced by the state, Democratic lawmakers in Nevada are pushing for a $1.5 billion plan to reform the sales tax to raise revenue and avoid harsh cuts in public services.


One of the smartest parts of the plan would raise roughly $600 million in new revenues by expanding the state’s sales tax base to include services. Half of the revenue raised from sales tax base expansion would be used to pay for a reduction in the overall sales tax rate. The other half of the revenue would go towards addressing the state's budget gap. 

As the Institute on Taxation and Economic policy explains, applying the sales tax to services increases revenue and also makes the sales tax less economically distortionary.

A coalition of the Retail Association of Nevada and the Nevada Resort Association are looking to improve Nevada’s sales tax base in another way. They call for legislation requiring Amazon.com and other e-commerce companies to collect sales taxes on items sold to Nevadans. The measure could generate at least $16 million in much-needed revenue.

Bryan Wachter, the President of the Nevada Retailers Association, points out that the biggest victims of the failure to collect these taxes are the “mom-and-pop retail establishments” that face an “uneven playing field” as they have to collect sales taxes that e-commerce sites do not.

These proposals would be major steps in the right direction, but they're no panacea for Nevada. Even if the Democratic plan and e-commerce legislation is adopted, Nevada’s tax system will remain highly regressive and incapable of meeting the state's fiscal needs in the years to come.

To meet the long-term challenge of creating a more equitable and adequate tax system, the Progressive Leadership Alliance of Nevada (PLAN) recently released a plan entitled “Bridging the Gap”, which includes a state individual and corporate income tax, changes to the state’s extraction tax system and other key reforms.

 

 

 



Mining and Oil Lobbyists Extracting Major Benefits from States



| | Bookmark and Share

We've noted before that lobbyists for extractive industries extract billions of dollars out of taxpayer pockets through special tax loopholes and subsidies at the federal level. Unfortunately, this is true at the state level as well. Even when states face unprecedented budget shortfalls and are considering harsh spending cuts, petroleum and mining lobbyists are working hard to preserve and expand their tax subsidies.

One particularly egregious example is Nevada's Barrick and Newmont mining companies, which produce 90 percent of the gold in Nevada, worth over $500 million dollars. Recently, neither company reported any taxable income from their mines.

Interestingly, a Nevada State Tax Director recently admitted that the state has not even audited the industry for at least two years — and then entered into an ‘abrupt’ retirement.

Some legislators are proposing to limit tax deductions for mines to raise hundreds of millions of dollars. But Governor Brian Sandoval opposes the measure and it looks like proponents will not be able to overcome his veto.

In Alaska, oil industry lobbyists have found a friend in Republican Governor Sean Parnell, who is seeking to cut oil taxes and increase subsidies by at least $1.8 billion a year.

Governor Parnell says this will spur "investment" in the state. But the whole point of the tax is to ensure that oil profits result in investment in the state. As Democratic State Senator Bill Wielechowski explains, without the oil taxes, companies would take the billions in profits produced in Alaska and invest them in places like Venezuela or Ecuador. 

The new oil tax cuts do not come as a surprise to Democratic State Representative Les Gara, who contends that petroleum company representatives played a direct role in crafting the Governor’s legislation.

North Dakota seemed to have resisted extraction lobbyists when the State House rejected a measure strongly promoted by the energy industry. The state's current oil extraction tax is automatically reduced when the price of oil falls below $50 a barrel. The proposed measure would scrap that rule and instead reduce the tax as production increases.

Republican Majority Leader Al Carlson tried to ressurect the measure by sneaking the language into another oil bill without a proper hearing.

The Grand Forks Herald editorialized that the legislature must study the effect of the measure through a “neutral source” rather than relying on the “self-interested arguments from the oil industry.” Fortunately, the measure is being held up in the Senate, which will likely guarantee that the public will get to review the changes the energy industry is proposing.



State Transparency Report Card and Other Resources Released



| | Bookmark and Share

Good Jobs First (GJF) released three new resources this week explaining how your state is doing when it comes to letting taxpayers know about the plethora of subsidies being given to private companies.  These resources couldn’t be more timely.  As GJF’s Executive Director Greg LeRoy explained, “with states being forced to make painful budget decisions, taxpayers expect economic development spending to be fair and transparent.”

The first of these three resources, Show Us The Subsidies, grades each state based on its subsidy disclosure practices.  GJF finds that while many states are making real improvements in subsidy disclosure, many others still lag far behind.  Illinois, Wisconsin, North Carolina, and Ohio did the best in the country according to GJF, while thirteen states plus DC lack any disclosure at all and therefore earned an “F.”  Eighteen additional states earned a “D” or “D-minus.”

While the study includes cash grants, worker training programs, and loan guarantees, much of its focus is on tax code spending, or “tax expenditures.”  Interestingly, disclosure of company-specific information appears to be quite common for state-level tax breaks.  Despite claims from business lobbyists that tax subsidies must be kept anonymous in order to protect trade secrets, GJF was able to find about 50 examples of tax credits, across about two dozen states, where company-specific information is released.  In response to the business lobby, GJF notes that “the sky has not fallen” in these states.

The second tool released by GJF this week, called Subsidy Tracker, is the first national search engine for state economic development subsidies.  By pulling together information from online sources, offline sources, and Freedom of Information Act requests, GJF has managed to create a searchable database covering more than 43,000 subsidy awards from 124 programs in 27 states.  Subsidy Tracker puts information that used to be difficult to find, nearly impossible to search through, or even previously unavailable, on the Internet all in one convenient location.  Tax credits, property tax abatements, cash grants, and numerous other types of subsidies are included in the Subsidy Tracker database.

Finally, GJF also released Accountable USA, a series of webpages for all 50 states, plus DC, that examines each state’s track record when it comes to subsidies.  Major “scams,” transparency ratings for key economic development programs, and profiles of a few significant economic development deals are included for each state.  Accountable USA also provides a detailed look at state-specific subsidies received by Wal-Mart.

These three resources from Good Jobs First will no doubt prove to be an invaluable resource for state lawmakers, advocates, media, and the general public as states continue their steady march toward improved subsidy disclosure.

While blogging for the Wall Street Journal’s “Wealth Report”, Robert Frank recently highlighted a new study showing that the anti-tax crowd’s claims regarding “tax-driven wealth flight and wealth destruction may be exaggerated.”  Specifically, the study shows that despite all the fear the Journal tried to whip up regarding the “self-destructive” nature of raising state income tax rates on the wealthy, all of the states typically demonized as being “high-tax” actually saw the number of millionaires’ living within their borders rise substantially between 2009 and 2010.

The new study in question was released by Phoenix Marketing International, and shows that the number of households with more than $1 million in assets increased by 8.1% between 2009 and 2010. 

The study also shows that Hawaii, Maryland, New Jersey, and Connecticut have the highest concentration of millionaires in the country.  And despite the fact that each of these states recently raised their top income tax rate, each saw the number of millionaires living within their borders rise substantially between 2009 and 2010. 

Specifically, three of those states – Hawaii, Maryland, and Connecticut – saw their millionaire population grow at a rate even faster than the 8.1% national average.  New Jersey was only very slightly below average, having experienced a 7.4% gain in the number of millionaires between 2009 and 2010. 

On the flip side, two of the states experiencing the slowest growth in the number of millionaires – Florida and Nevada – levy no state income tax at all!

With this in mind, all the outrage exhibited by the Wall Street Journal Editorial Board regarding the “self-destructive,” “soak-the-rich theology” of “dedicated class warrior” and Maryland governor Martin O’Malley seems to have been very much off target.  After re-reading the Journal’s editorials, it does at least become clear why Frank labeled the debate “increasingly emotional.”

Interestingly, this isn’t the first time that the facts have run counter to the Journal’s (or Grover Norquist's) gloom and doom predictions regarding higher taxes on the rich.  Both CTJ and ITEP have in the past taken the time to point out the Journal’s factual errors and other exaggerations on this issue.  And in fact, Frank has even helped to highlight some of ITEP’s work in this area on at least one occasion.

One can only hope that the Journal will begin reading their own bloggers’ work and begin to temper their rhetoric next time around.  After all, as Frank’s blog post explains, “that demographics and economics matter more than taxes in increasing and retaining wealth may seem like an obvious point.”  But ultimately, we wouldn’t recommend holding your breath waiting for the Journal to acknowledge it.



New 50 State ITEP Report Released: State Tax Policies CAN Help Reduce Poverty



| | Bookmark and Share

ITEP’s new report, Credit Where Credit is (Over) Due, examines four proven state tax reforms that can assist families living in poverty. They include refundable state Earned Income Tax Credits, property tax circuit breakers, targeted low-income credits, and child-related tax credits. The report also takes stock of current anti-poverty policies in each of the states and offers suggested policy reforms.

Earlier this month, the US Census Bureau released new data showing that the national poverty rate increased from 13.2 percent to 14.3 percent in 2009.  Faced with a slow and unresponsive economy, low-income families are finding it increasingly difficult to find decent jobs that can adequately provide for their families.

Most states have regressive tax systems which exacerbate this situation by imposing higher effective tax rates on low-income families than on wealthy ones, making it even harder for low-wage workers to move above the poverty line and achieve economic security. Although state tax policy has so far created an uneven playing field for low-income families, state governments can respond to rising poverty by alleviating some of the economic hardship on low-income families through targeted anti-poverty tax reforms.

One important policy available to lawmakers is the Earned Income Tax Credit (EITC). The credit is widely recognized as an effective anti-poverty strategy, lifting roughly five million people each year above the federal poverty line.  Twenty-four states plus the District of Columbia provide state EITCs, modeled on the federal credit, which help to offset the impact of regressive state and local taxes.  The report recommends that states with EITCs consider expanding the credit and that other states consider introducing a refundable EITC to help alleviate poverty.

The second policy ITEP describes is property tax "circuit breakers." These programs offer tax credits to homeowners and renters who pay more than a certain percentage of their income in property tax.  But the credits are often only available to the elderly or disabled.  The report suggests expanding the availability of the credit to include all low-income families.

Next ITEP describes refundable low-income credits, which are a good compliment to state EITCs in part because the EITC is not adequate for older adults and adults without children.  Some states have structured their low-income credits to ensure income earners below a certain threshold do not owe income taxes. Other states have designed low-income tax credits to assist in offsetting the impact of general sales taxes or specifically the sales tax on food.  The report recommends that lawmakers expand (or create if they don’t already exist) refundable low-income tax credits.

The final anti-poverty strategy that ITEP discusses are child-related tax credits.  The new US Census numbers show that one in five children are currently living in poverty. The report recommends consideration of these tax credits, which can be used to offset child care and other expenses for parents.



More States Join the Majority in Producing Tax Expenditure Reports -- Only Seven Holdouts Remain



| | Bookmark and Share

And then there were seven.  With the enactment of a tax expenditure reporting requirement in Georgia late last week, only seven states in the entire country continue to refuse to publish a tax expenditure report — i.e. a report identifying the plethora of special breaks buried within these states’ tax codes.  For the record, the states that are continuing to drag their feet are: Alabama, Alaska, Indiana, Nevada, New Mexico, South Dakota, and Wyoming

But while the passage of this common sense reform in Georgia is truly exciting news, the version of the legislation that Governor Perdue ultimately signed was watered down significantly from the more robust requirement that had passed the Senate.  This chain of events mirrors recent developments in Virginia, where legislation that would have greatly enhanced that state’s existing tax expenditure report met a similar fate. 

In more encouraging news, however, legislation related to the disclosure of additional tax expenditure information in Massachusetts and Oklahoma seems to have a real chance of passage this year.

In Georgia, the major news is the Governor’s signing of SB 206 last Thursday.  While this would be great news in any state, it’s especially welcome in Georgia, where terrible tax policy has so far been the norm this year. 

SB 206 requires that the Governor’s budget include a tax expenditure report covering all taxes collected by the state’s Department of Revenue.  The report will include cost estimates for the previous, current, and future fiscal years, as well as information on where to find the tax expenditures in the state’s statutes, and the dates that each provision was enacted and implemented. 

Needless to say, this addition to the state’s budget document will greatly enhance lawmakers’ ability to make informed decisions about Georgia’s tax code. 

But as great as SB 206 is, the version that originally passed the Senate was even better.  Under that legislation, analyses of the purpose, effectiveness, distribution, and administrative issues surrounding each tax expenditure would have been required as well.  These requirements (which are, coincidentally, quite similar to those included in New Jersey’s recently enacted but poorly implemented legislation) would have bolstered the value of the report even further.

In Virginia, the story is fairly similar.  While Virginia does technically have a tax expenditure report, it focuses on only a small number of sales tax expenditures and leaves the vast majority of the state’s tax code completely unexamined.  Fortunately, the non-profit Commonwealth Institute has produced a report providing revenue estimates for many tax expenditures available in the state, but it’s long past time for the state to begin conducting such analyses itself.  HB355 — as originally introduced by Delegate David Englin — would have created an outstanding tax expenditure report that revealed not only each tax expenditure’s size, but also its effectiveness and distributional consequences. 

Unfortunately, the legislation was greatly watered down before arriving on the Governor’s desk.  While the legislation, which the Governor signed last month, will provide some additional information on corporate tax expenditures in the state, it lacks any requirement to disclose the names of companies receiving tax benefits, the number of jobs created as a result of the benefits, and other relevant performance information.  The details of HB355 can be found using the search bar on the Virginia General Assembly’s website.

The Massachusetts legislature, by contrast, recently passed legislation disclosing the names of corporate tax credit recipients.  While these names are already disclosed for many tax credits offered in the state, the Department of Revenue has resisted making such information public for those credits under its jurisdiction. 

While most business groups have predictably resisted the measure, the Medical Device Industry Council has basically shrugged its shoulders and admitted that it probably makes sense to disclose this information.  Unfortunately, a Senate provision that would have required the reporting of information regarding the jobs created by these credits was dropped before the legislation passed.

Finally, in Oklahoma, the House recently passed a measure requiring the identities of tax credit recipients to be posted on an existing website designed to disclose state spending information.  If ultimately enacted, the information will be made available in a useful, searchable format beginning in 2011.



Leaving Money On the Table



| | Bookmark and Share

Since the passage of the 1986 Tax Reform Act, federal tax law has given state lawmakers a clear incentive to rely on income taxes, instead of sales taxes, to fund public investments. This is because state income taxes can be written off by federal taxpayers who itemize their deductions, and sales taxes generally cannot. Even with temporary legislation in place that does allow a sales tax deduction, states that rely heavily on sales taxes — and not at all on income taxes — are essentially choosing to ignore what amounts to a federal "matching grant" for states that rely heavily on progressive income taxes.

A new joint report from ITEP and United for a Fair Economy's Tax Fairness Organizing Collaborative quantifies the cost of this choice in seven states that currently have no broad-based income tax — and that make up the gap by leaning heavily on the sales tax. The report shows that collectively, these seven states could reduce the federal taxes paid by their residents by $1.7 billion a year if they enacted a revenue-neutral reform that replaces sales tax revenue with a flat-rate income tax, and that the same states could save their residents $5.5 billion a year in federal taxes by enacting a similarly revenue-neutral shift to a graduated-rate progressive income tax.

Read the report.



New Jersey Finally Joins Majority of States Producing Tax Expenditure Reports



| | Bookmark and Share

Until this week, New Jersey was one of just nine states refusing to publish a tax expenditure report – i.e. a listing and measurement of the special tax breaks offered in the state.  Such reports greatly enhance the transparency of state budgets by allowing policymakers and the public to see how the tax system is being used to accomplish various policy objectives. 

Now, with Governor Jon Corzine’s signing of A. 2139 this past Tuesday, New Jersey will finally begin to make use of this extremely valuable tool.  Beginning with Governor-elect Chris Christie’s FY2011 budget, to be released in March, the New Jersey Governor’s budget proposal now must include a tax expenditure report.  The report must be updated each year, and is required to include quite a few very useful pieces of information.

The report must, among other things:

(1) List each state tax expenditure and its objective;
(2) Estimate the revenue lost as a result of the expenditure (for the previous, current, and upcoming fiscal years);
(3) Analyze the groups of persons, corporations, and other entities benefiting from the expenditure;
(4) Evaluate the effect of the expenditure on tax fairness;
(5) Discuss the associated administrative costs;
(6) Determine whether each tax expenditure has been effective in achieving its purpose.

The last criterion listed above is of particular importance.  Evaluations of tax expenditure effectiveness are extremely valuable since these programs so often escape scrutiny in the ordinary budgeting and policy processes.  Such evaluation can be quite daunting, however, and the Governor’s upcoming tax expenditure report should be carefully scrutinized in order to ensure that these evaluations are sufficiently rigorous.  One example of the types of criteria that could be used in a rigorous tax expenditure evaluation can be found in the study mandated by the “tax extenders” package that recently passed the U.S. House of Representatives.  For more on the importance of tax expenditure evaluations, and the components of a useful evaluation, see CTJ’s November 2009 report, Judging Tax Expenditures.

Ultimately, New Jersey’s addition to the list of states releasing tax expenditure reports means that only eight states now fail to produce such a report.  Those states are: Alabama, Alaska, Georgia, Indiana, Nevada, New Mexico, South Dakota, and Wyoming.  Each of these states should follow New Jersey’s lead.



ITEP's "Who Pays?" Report Renews Focus on Tax Fairness Across the Nation



| | Bookmark and Share

This week, the Institute on Taxation and Economic Policy (ITEP), in partnership with state groups in forty-one states, released the 3rd edition of “Who Pays? A Distributional Analysis of the Tax Systems in All 50 States.”  The report found that, by an overwhelming margin, most states tax their middle- and low-income families far more heavily than the wealthy.  The response has been overwhelming.

In Michigan, The Detroit Free Press hit the nail on the head: “There’s nothing even remotely fair about the state’s heaviest tax burden falling on its least wealthy earners.  It’s also horrible public policy, given the hard hit that middle and lower incomes are taking in the state’s brutal economic shift.  And it helps explain why the state is having trouble keeping up with funding needs for its most vital services.  The study provides important context for the debate about how to fix Michigan’s finances and shows how far the state really has to go before any cries of ‘unfairness’ to wealthy earners can be taken seriously.”

In addition, the Governor’s office in Michigan responded by reiterating Gov. Granholm’s support for a graduated income tax.  Currently, Michigan is among a minority of states levying a flat rate income tax.

Media in Virginia also explained the study’s importance.  The Augusta Free Press noted: “If you believe the partisan rhetoric, it’s the wealthy who bear the tax burden, and who are deserving of tax breaks to get the economy moving.  A new report by the Institute on Taxation and Economic Policy and the Virginia Organizing Project puts the rhetoric in a new light.”

In reference to Tennessee’s rank among the “Terrible Ten” most regressive state tax systems in the nation, The Commercial Appeal ran the headline: “A Terrible Decision.”  The “terrible decision” to which the Appeal is referring is the choice by Tennessee policymakers to forgo enacting a broad-based income tax by instead “[paying] the state’s bills by imposing the country’s largest combination of state and local sales taxes and maintaining the sales tax on food.”

In Texas, The Dallas Morning News ran with the story as well, explaining that “Texas’ low-income residents bear heavier tax burdens than their counterparts in all but four other states.”  The Morning News article goes on to explain the study’s finding that “the media and elected officials often refer to states such as Texas as “low-tax” states without considering who benefits the most within those states.”  Quoting the ITEP study, the Morning News then points out that “No-income-tax states like Washington, Texas and Florida do, in fact, have average to low taxes overall.  Can they also be considered low-tax states for poor families?  Far from it.”

Talk of the study has quickly spread everywhere from Florida to Nevada, and from Maryland to Montana.  Over the coming months, policymakers will need to keep the findings of Who Pays? in mind if they are to fill their states’ budget gaps with responsible and fair revenue solutions.



Who Pays? New ITEP Study Finds State & Local Taxes Hit Poor & Middle Class Far Harder than the Wealthy



| | Bookmark and Share

Read ITEP's New Report: Who Pays? A Distributional Analysis of Tax Systems in All 50 States

By an overwhelming margin, most states tax their middle- and low-income families far more heavily than the wealthy, according to a new study by the Institute on Taxation & Economic Policy (ITEP).

“In the coming months, lawmakers across the nation will be forced to make difficult decisions about budget-balancing tax changes—which makes it vital to understand who is hit hardest by state and local taxes right now,” said Matthew Gardner, lead author of the study, Who Pays? A Distributional Analysis of the Tax Systems in All 50 States. “The harsh reality is that most states require their poor and middle-income taxpayers to pay the most taxes as a share of income.”

Nationwide, the study found that middle- and low-income non-elderly families pay much higher shares of their income in state and local taxes than do the very well-off:

-- The average state and local tax rate on the best-off one percent of families is 6.4 percent before accounting for the tax savings from federal itemized deductions. After the federal offset, the effective tax rate on the best off one percent is a mere 5.2 percent.

-- The average tax rate on families in the middle 20 percent of the income spectrum is 9.7 percent before the federal offset and 9.4 percent after—almost twice the effective rate that the richest people pay.

-- The average tax rate on the poorest 20 percent of families is the highest of all. At 10.9 percent, it is more than double the effective rate on the very wealthy.

“Fairness is in the eye of the beholder.” noted Gardner. “But virtually anyone would agree that this upside-down approach to state and local taxes is astonishingly inequitable.”



The “Terrible Ten” Most Regressive Tax Systems

Ten states—Washington, Florida, Tennessee, South Dakota, Texas, Illinois, Michigan, Pennsylvania, Nevada, and Alabama—are particularly regressive. These “Terrible Ten” states ask poor families—those in the bottom 20% of the income scale—to pay almost six times as much of their earnings in taxes as do the wealthy. Middle income families in these states pay up to three-and-a-half times as high a share of their income as the wealthiest families. “Virtually every state has a regressive tax system,” noted Gardner. “But these ten states stand out for the extraordinary degree to which they have shifted the cost of funding public investments to their very poorest residents.”

The report identifies several factors that make these states more regressive than others:

-- The most regressive states generally either do not levy an income tax, or levy the tax at a flat rate;

-- These states typically have an especially high reliance on regressive sales and excise taxes;

-- These states usually do not allow targeted low-income tax credits such as the Earned Income Tax Credit; these tax credits are especially effective in reducing state tax unfairness.

“For lawmakers seeking to make their tax systems less unfair, there is an obvious strategy available,” noted Gardner. “Shifting state and local revenues away from sales and excise taxes, and towards the progressive personal income tax, will make tax systems fairer for low- and middle income families. Conversely, states that choose to balance their budgets by further increasing the general sales tax or cigarette taxes will make their tax systems even more unbalanced and unfair.”

Implications for State Budget Battles in 2010

“In the coming months, many states’ lawmakers will convene to deal with fiscal shortfalls even worse than those they faced last year,” Gardner said. “Lawmakers may choose to close these budget gaps in the same way that they have done all too often in the past—through regressive tax hikes. Or they may decide instead to ask wealthier families to pay tax rates more commensurate with their incomes. In either case, the path that states choose in the upcoming year will have a major impact on the wellbeing of their citizens—and on the fairness of state and local taxes.”



State Spending Done Through the Tax Code Needs to Be Reviewed



| | Bookmark and Share

A new report from Citizens for Tax Justice makes the case for a “performance review” system designed to evaluate the effectiveness of special tax breaks in achieving their stated goals. While CTJ's report primarily focuses on the importance of such a system at the federal level, most of its findings are equally applicable to the states.

The special breaks littered throughout state tax codes — or “tax expenditures,” as they are frequently called — are an enormous and often overlooked part of government’s operations.  Although the primary purpose of a tax system is to raise the revenue needed to pay for public services, every state, as well as the federal government, also uses its tax system to accomplish a variety of other policy goals. Encouraging job creation, subsidizing private industry research, and promoting homeownership are just a few of the countless ends pursued via special subsidies contained in state tax codes. Rather than having anything to do with fair or efficient tax policy, these tax credits, exemptions, and other provisions are actually much more akin to government spending programs — hence the term, “tax expenditures.”

A performance review system takes the commonsense step of asking whether these provisions are doing what policymakers intended of them. Under such a system, tax credits designed to encourage research and experimentation, for example, would be regularly examined to determine the amount of new research undertaken as a result of the credits. Shockingly, the vast majority of states, and the federal government, do not currently attempt to answer fundamental questions of this sort with any type of rigorous evaluation.

Among CTJ’s findings are:

— “Procedural biases,” such as the omission of tax expenditures from the authorization and appropriations processes, allow tax expenditures to slip by with a fraction of the scrutiny given to direct spending programs. State legislative systems requiring supermajority consent to “raise taxes” (or eliminate tax expenditures) are particularly biased in this regard.

— “Political biases,” such as the erroneous belief that government can take a “hands off” approach, or reduce its overall size by offering special tax breaks, also contribute to the current lack of oversight.

— A number of states have made strides in recent years to counteract these biases through performance reviews and other, similar means. Washington State’s efforts represent the most complete attempt at tax expenditure performance review yet to be undertaken in the United States. California, Delaware, Nevada, Oregon, and Rhode Island have also made attempts — with varying degrees of success — to enhance the level of scrutiny applied to their tax expenditures.

— The bleak state budgetary outlook makes the implementation of tax expenditure review all the more urgent. States, like the federal government, can no longer afford to deplete their resources with ill-advised and ineffective tax expenditures. By implementing a tax expenditure performance review system, states can pave the way for a reduction in tax expenditures by identifying those expenditures that are ineffective.

— A formal review system could also help to reconceptualize these provisions in the minds of policymakers, the media, and the public as spending-substitutes, rather than simply as tax cuts. This would further help reduce the rampant biases in favor of tax expenditure policy.

— The precise design of a tax expenditure review system is very important. States should be sure to include all taxes, and all tax expenditures within the scope of the review. Additionally, states should exercise care in selecting the criteria to be used in the reviews — Washington State’s criteria represent a good starting point from which to build. Other key design issues include choosing the appropriate body to conduct the reviews, timing the reviews to coincide with the budgeting process, allowing similar tax expenditures to be reviewed simultaneously, and attaching some type of “action-forcing” mechanism to the reviews so that policymakers must explicitly consider the reviews’ results.

— Tax expenditure reviews are necessary, though they may not be sufficient to correct for the biases in favor of tax expenditure policy. A tax expenditure performance review system can play a vital informational role either on its own, or alongside other, more aggressive tax expenditure control techniques such as sunset provisions or caps on tax expenditures’ total value.

Read the full report.

Read the 2-page summary.



Nevada Legislature Overrides Governor's Veto of Much Needed Tax Increases



| | Bookmark and Share

Nevada Governor Jim Gibbons broke a 144 year old Nevada record this session by vetoing a total of 31 bills sent to him by the state's legislature. One of those vetoes was of a much needed $781 million revenue raising package that increased the state sales tax, vehicle registration fees, hotel room taxes, and two business taxes and fees. Since Nevada lacks an individual or corporate income tax, the options for progressive tax reform were fairly limited. Legislators should be praised, however, for recognizing that balancing the budget by slashing state services alone would create undue hardship for too many Nevadans. And they deserve even more praise for confidently overriding that veto in less than 24 hours in both the Assembly and the Senate.

The Governor's veto was widely anticipated, given his signing of a ridiculous and short-sighted "no-new-taxes pledge". At the veto ceremony, Governor Gibbons provided onlookers with plenty of rhetoric regarding the "job-killing" and "economy-crushing" attributes inherent to any tax increase. Interestingly, however, some have suggested that the Governor's position may be more political posturing than actual conviction, as he didn't appear to have launched much of a lobbying effort to prevent his veto from being overriden.



CBPP Report on Tax Expenditure Reporting Encourages Smarter Thinking About Special Tax Breaks



| | Bookmark and Share

The Center on Budget and Policy Priorities recently released a very useful report summarizing tax expenditure reporting practices in the states, as well as methods for improving a typical state's tax expenditure report. For those unfamiliar with the term, a "tax expenditure" is essentially a special tax break designed to encourage a particular activity or reward a particular group of taxpayers. Although tax expenditures can in some cases be an effective means of accomplishing worthwhile goals, they are also frequently enacted only to satisfy a particular political constituency, or to allow policymakers to "take action" on an issue while simultaneously being able to reap the political benefits associated with cutting taxes.

Tax expenditure reports are the primary means by which states (and the federal government) keep track of these provisions. Unfortunately, most if not all of these reports are plagued by a variety of inadequacies, such as failing to consider entire groups of tax expenditures, or not providing frequent and accurate revenue estimates for these often costly provisions. Shockingly, the CBPP found that nine states publish no tax expenditure report at all. Those nine states Alabama, Alaska, Georgia, Indiana, Nevada, New Jersey, New Mexico, South Dakota, and Wyoming, undoubtedly have the most work to do on this issue. All states, however, have substantial room for improvement in their tax expenditure reporting practices.

For a brief overview of tax expenditure reports and the tax expenditure concept more generally, check out this ITEP Policy Brief.



PLAN's Plan



| | Bookmark and Share

Earlier this month, the Progressive Leadership Alliance of Nevada (PLAN) released a report called Fool's Gold The Silver State's Tax Structure: Inadequate and Inequitable. The report rightly reminds readers that, "Nevada doesn't have a spending problem. It has an income problem. Its tax system is structurally unsound. The foundation of our state is broken and cannot support what our citizens need."

Nevada's unique tax system has no income tax and relies heavily (too heavily) on regressive sales tax revenue. Couple this with an enormous $1.5 billion shortfall and it's clear that policymakers and activists should pay special attention to this report, which proposes a suite of revenue raising options including: a profits based business tax, closing costly deductions, an unearned income tax, and a traditional earned income tax.



The Elephant in the Room



| | Bookmark and Share

As the fiscal contagion spreads among the states, policymakers are clearly casting about for ways to close large and growing budget deficits. In Nevada, Governor Jim Gibbons may be open to tax increases in light of a shortfall that is projected to reach $1.8 billion over the next two and half years, but he has also floated the idea of 'voluntary' payroll reductions of 5 percent. New Hampshire faces an approximately $600 million budget gap over the same period, with lawmakers weighing such options as selling state properties, legalizing gambling, or deferring needed payments to the state pension fund. Florida may have to confront an eye-popping deficit of $6 billion over just 18 months, driving elected officials to think about raiding a variety of trust funds and imposing a 4 percent across-the-board cut in agency budgets.

Of course, these three states have more in common than difficult days ahead. They also share a steadfast refusal to levy a personal income tax. Rather than continue to cast about for half-measures and temporary fixes -- or, worse, policies that would undermine working families' already precarious economic situations -- policymakers in states like Nevada, New Hampshire, Florida, Washington, and Tennessee need to acknowledge the elephant in the room and consider whether the tax policies that brought them to this point are the ones that will carry them to a better future.



Numerous Other States Decide on Tax/Revenue Proposals



| | Bookmark and Share

Arizona voters wisely rejected Proposition 105, a proposal that would have placed a nearly insurmountable obstacle in the way of Arizona residents seeking to raise their own taxes through the referendum process.

Arkansas voters approved a measure to institute a state lottery. While the state could certainly use the additional revenue, Arkansans should be wary of funding their government through regressive revenue sources such as the lottery.

Maine residents rejected an increase in the alcohol and soda taxes to fund health care. While it's certainly a bad thing that these taxes are regressive (as well as unlikely to exhibit sustainable growth in the coming years), the ludicrousness of the fervent opposition this relatively minor tax created can be read about in this Digest article and this blog post.

Maryland residents also decided to secure additional revenues for their government via expanded gambling, in the form of 15,000 new slot machines. Check out this Digest article to learn about some of the problems with this proposal.

Missouri also attempted to increase its haul from gambling. Increased gambling taxes and the elimination of limitations on the amount of money one is allowed to lose were approved by voters this Tuesday. This Digest article explains how the proposal leaves much to be desired.

Minnesota voters decided to go through with a 3/8ths percent sales tax hike. While the environmental causes to which the funds will be dedicated are undoubtedly worthy, the regressive way in which voters decided to go about funding the projects (through the sales tax) is far from ideal.

Nevada residents voted to amend their constitution to require that all new sales and property tax exemptions be subjected to a benefit-cost analysis, and accompanied by a sunset provision that will force their reexamination in the future. While the proposal sounds good in theory, its requirements are relatively loose in practice. It will be up to Nevadans to carefully watch their representatives to ensure that the spirit of this law is adhered to. Learn more about this proposal here.



Ballot Update 2008: Nevada: A Toothless Proposal with Great Ideals



| | Bookmark and Share

The attention paid to Nevada's ballot situation declined dramatically when a Proposition 13-style cap was kicked off the ballot due to election law violations. But voters will face another interesting tax-related proposal in November. Question 3, placed on the ballot by the Nevada legislature, seeks to amend the state's constitution to require that any proposed exemption to property taxes, sales taxes, and use taxes be demonstrated to have some social or economic purpose. Additionally, the proposal seeks to require that all new exemptions also be enacted with an expiration date, or "sunset provision".

The first of these requirements (that a social/economic purpose be demonstrated) will likely change very little in practice. The proposal is sufficiently vague on what constitutes a social/economic interest that the legislature should have no trouble demonstrating such an interest for any exemption it desires to enact.

The second requirement (that all exemptions be written with sunset provisions) may be a bit better in terms of practical effect. Of course, since no limit is placed on when any specific exemption must sunset, the legislature can easily bypass this requirement for all practical purposes by writing the legislation to sunset at some date absurdly far into the future. But the goal is good in concept. By requiring that all exemptions be periodically reexamined (or face expiration), parties receiving benefits through tax exemptions will be treated in a manner more analogous to those who receive government benefits through direct spending. Unlike budgetary outlays, which are usually revisited every year of two, tax exemptions are often tucked into the tax law and forgotten about, only to continue benefiting the parties in perpetuity.

So while Question 3 won't do too much to shake up Nevada tax policy, hopefully it will spark some useful discussion in the state about enacting more meaningful reforms.



Ballot Initiatives: An Often Crooked Process



| | Bookmark and Share

The runup to the 2008 elections has given us plenty of reminders of why direct democracy is generally not the best approach to tax reform. In North Dakota, a typo in the language of a proposed tax cut may actually result in a tax increase for some families. In Nevada, the failure of supporters to properly file thousands of signatures in favor of an (ill-conceived) property tax cap resulted in that measure being thrown off the ballot.

But while both of these rather innocent mistakes are undoubtedly serious, neither is as serious as the rampant dishonesty often involved in the signature collection process. In Arizona, for example, a staggering 42% of signatures for a transportation ballot proposal this year were found to be invalid. In North Dakota, though problem wasn't quite as rampant, one signature collector this week was found guilty of faking potentially hundreds of signatures for their regressive income tax cut.

While there may be compelling reasons rooted in democratic theory for allowing citizens to take matters directly into their own hands, it is also important to remember the benefits of representative democracy. A badly written ballot proposal backed by thousands of fraudulent signatures is hardly an improvement over whatever flaws the legislative process may have. The problems with the initiative process illustrate that there are good reasons for having those who we have elected (and whose salaries we pay) writing our laws.



Nevada: Prop 13-Style Cap Kept Off Ballot Due to Election Law Violations



| | Bookmark and Share

Backers of Anti-Tax Measure Admit It Will Result in Major Cuts in Education

Anti-tax advocates in Nevada once again appear to have failed in their efforts to get a Proposition 13-style property tax cap onto the ballot. This is the third time in four years that the former Assemblywoman pushing the initiative has come up short -- and her group has now started to grasp at some fairly interesting straws in an effort to reverse that trend.

After failing to collect the required number of signatures needed in 2004 and 2006, this time a District Court judge ruled that the signature collectors had failed to comply with election law procedures for some 8,000 of the signatures they collected. After removing these signatures, the initiative is again well short of the number needed.

The backers of the plan have appealed the ruling to the state Supreme Court, though that effort is unlikely to change much since the ballots are already being printed (minus the property tax cap), and insufficient time remains to re-print them. Though the group backing the plan originally planned to appeal the ruling on the grounds that the relevant Nevada election laws are not sufficiently clear, with things appearing so desperate the group is now claiming that the District Judge who invalidated the signatures has a conflict of interest in the case. The conflict? His wife works as a "Reading Program Coordinator" with a Nevada public school system, and, like many in the education field, could lose a portion of her income, or even her job, if this irresponsible proposal is enacted.

In the words of the proposal's supporters: "Since Judge McGee's wife obviously has an... economic interest in the subject matter in controversy (her income), and the Judge knows it, Judge McGee was required to reveal possible or potential conflict of interest".

So who is this judge's wife? She's worked in the Washoe County School District for 27 years. During the first 14 years she taught grades K-2, and for the last 13 she's been a reading coordinator. Unfortunately for the anti-taxers, she's actually been officially retired for 5 years, though she continues to work with the district on a very limited basis. Though they were wrong on the facts, the anti-tax group's implicit admission here that their plan could force valued school employees to be let go is quite revealing.

Of course, such a scenario is not at all far-fetched. Prop 13 in California has had a significant role in the recent budget troubles plaguing that state. If a similar property tax cap were enacted in Nevada without offsetting increases in other taxes, similar budgetary troubles (accompanied by spending cuts in areas such as education) should be expected there as well.



New ITEP Report: State Tax Policy a Poor Match for Economic Reality in Key States



| | Bookmark and Share

Earlier this week, the Institute on Taxation and Economic Policy (ITEP) released a brief report using IRS data and revealing that the most unequal states in the country also happen to be states that lack the type of progressive tax provisions that could reduce this inequality and raise badly needed revenue. The most unequal states either don't have a personal income tax or have one in need of improvement. Consequently, these states are left with tax systems that, on the whole, are unsustainable, inadequate, and unfair over the long-run.

The IRS data show that, in 2006, ten states -- Wyoming, New York, Nevada, Connecticut, Florida, the District of Columbia, California, Massachusetts, Texas, and Illinois -- have greater concentrations of reported income among their very wealthiest residents than the country as a whole. Yet, the tax systems in these states generally ignore that very important reality. Of those ten states, four lack a broad-based personal income tax and three either impose a single, flat rate personal income tax or have a rate structure that all but functions in that manner. Three do use a graduated rate structure, but of these, two have cut income taxes for their most affluent residents substantially over the past two decades.

Given this mismatch, it should not be too surprising that over half of these states face severe or chronic budget shortfalls. After all, the lack of an income tax, the lack of a graduated rate structure, or moves to make the income tax less progressive all mean that a state's revenue system will not completely reflect the concentration of income among the very wealthy and therefore will not yield as much revenue.

Case in point: New York. As the Fiscal Policy Institute observes, over the last 30 years, the state has reduced its top income tax rate by more than 50 percent. Most recently, in 2005, it allowed to lapse a temporary top rate of 7 percent on taxpayers with incomes above $500,000 per year. Today, the state must confront a budget deficit of more than $6 billion for the coming year and more than $20 billion over the next three. New York residents seem to understand the disconnect between the enormous disparities of wealth in their state -- where the richest 1 percent of taxpayers account for 28.7 percent of reported income -- and the state's fiscal woes. A poll released this week shows that nearly 4 out of 5 people surveyed support increasing the state's income tax for millionaires. Hopefully, Governor David Paterson is listening. As it stands, he'd rather cap property taxes than ensure that millionaires pay taxes in accordance with their inordinate share of New York's economic resources.



Fair Tax Victory in Nevada



| | Bookmark and Share

There's some good news for state and national advocates fighting against harmful spending limits like the Taxpayer Bill of Rights (TABOR). Recently, a Nevada court ruled that the TABOR-like, Tax and Spending Control (TASC) initiative wouldn't be on the November ballot. The court rejected the initiative because TASC supporters failed to follow specific rules pertaining to the initiative process. Want to know more about the harmful impact of TABOR? Watch this excellent video from the Center on Budget and Policy Priorities.



Business Turning Against TABOR



| | Bookmark and Share

Kiplinger reports that business are expected "to mount pitched battles to defeat" TABOR-esque spending tax cap initiatives in Maine, Michigan, Montana, Nebraska, Nevada, and Oregon. In fact, there's a concerted effort forming in Oklahoma that is actually being lead by business groups. The Chairman of Tulsa's Chamber of Commerce was even quoted as saying that TABOR would be a "train wreck" for Oklahoma.

Archives

Categories