August 2011 Archives

Kansas City Star: Momentum grows to swap income tax for sales tax in states

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Original Post

August 21, 2011

By DAVE HELLING

Talk about a tax break.

While all the attention this summer was focused on the federal debt and tax policy in Washington, some lawmakers and activists closer to home were quietly moving toward achieving a long-term goal: eliminating income taxes in Missouri and Kansas.

“The time has come,” said Jonathan Williams, director of tax and fiscal policy for the American Legislative Exchange Council, a national conservative group advising leaders in both states. “Of all the states considering this, both Kansas and Missouri are at the top of the list.”

Opponents of the plan in both states say they’re working to stop any effort to phase out the state income tax in exchange for a higher, broad-based sales tax. They argue that swapping the income tax for a sales tax would mean a multibillion-dollar shift in the tax burden from wealthy taxpayers to the middle class and poor.

But they also acknowledge that momentum is growing and may be difficult to stop.

“There’s no question about it,” said Missouri Sen. Jolie Justus, a Kansas City Democrat. “And people who are concerned about this proposal, which from what I’ve heard is most mainstream Missourians, should be talking about how to counter it.”

The push is slightly different in the two states.

Some Kansas lawmakers said they expect the administration of Gov. Sam Brownback to propose in January a phaseout of the income tax as part of a broader budget package. Brownback’s budget director, Steve Anderson, recently said he expects that next year’s spending blueprint will show “some significant (income tax) cuts.”

Dave Trabert, president of the Kansas Policy Institute, a conservative think tank, also predicted a renewed legislative debate over the tax swap.

“I think it’s going to be a major focal point in the 2012 session,” Trabert said. “If your focus is on what’s doing best for taxpayers … it’s something you should be running toward, not away from.”

Missouri’s income tax repeal effort, however, will probably be centered on the ballot box, not legislative chambers.

A representative of Let Voters Decide — the same group that spent more than $11 million to force earnings tax repeal votes in Kansas City and St. Louis — earlier this month filed papers to begin a petition drive aimed at putting income tax repeal on the November 2012 ballot.

The group’s constitutional amendment would phase out the income tax by 2016 and order the General Assembly to replace it with a capped sales tax.

“The downside of the tax swap appears to be minimal, if not nonexistent,” the American Legislative Exchange Council said in a report titled “The Missouri Compromise,” which promoted the income-tax-for-sales-tax trade.

The study conceded that repealing the individual income tax would blow a huge hole in the budgets of Missouri and Kansas. The tax currently provides roughly two-thirds of Missouri’s general fund and half of the general fund in Kansas — more than $8 billion combined.

Backers of the effort argue they would replace that revenue by raising sales tax rates, although such a move alone would probably not cover the entire deficit. Tripling Missouri’s sales tax rate to more than 12 cents on the dollar, for example, would still leave the state with much less revenue than the income tax and sales tax combination now provides.

The Let Voters Decide petition doesn’t come close to tripling the rate. Instead, it would broadly cap the state sales tax at 7 cents on the dollar once the income tax goes away in 2016, with an additional 3 cents on the dollar set aside for use by local governments.

But supporters maintain the states could solve that problem by cutting spending or — more likely — broadening the sales tax to cover hundreds of goods and services that are now exempt.

“We would have to expand the base,” said Marc Ellinger, a spokesman for Let Voters Decide, pointing to Tennessee as a good example of a neighboring state that doesn’t tax income but does tax sales.

Census Bureau figures show how it might work. Missouri collected $799 in individual income taxes per person in fiscal year 2009 and $852 per person in sales taxes a year earlier, a total of $1,651.

Meanwhile, Tennessee residents paid $1,452 in state taxes per person. But census figures show virtually all of it came from the state’s 7 percent sales tax — the fifth-highest sales tax collection rate in the nation. (Missouri’s basic sales tax rate currently is 4.225 percent.)

Opponents of income tax repeal argue that those numbers show the true impact of such a move. It dramatically shifts the tax burden away from the wealthy and onto people who buy goods and services.

“A lot of education needs to happen around this issue,” said Meg Wiehe, state tax policy director for the Washington-based Institute on Taxation and Economic Policy. “If you move to a consumption-based tax, the vast majority of taxpayers would likely pay more in taxes than they are under the income tax, except for the wealthiest.”

Repeal opponents also note that applying a sales tax to service providers such as lawyers and architects could harm places such as Johnson County, where service industries now thrive.

“Repealing the income tax in my mind doesn’t make a lot of sense,” said Kansas Rep. Mike Slattery, a Mission Democrat.

But supporters of repeal think they can answer those objections. The Missouri petition, for example, expands the sales tax to cover services, then lists a page and a half of services that would be constitutionally exempt from the levy. Among them are embalmers, child care providers and real estate appraisers.

The measure also would exempt food stamps, some medicine and most energy from the sales tax, among other things, while capping the sales tax on food at 5.5 cents per dollar.

In Kansas, the higher sales tax probably would not apply to business-to-business service transactions, Williams said. That could mean an individual hiring a lawyer would pay a sales tax on the bill, but a company hiring the same lawyer would not.

The complicated tradeoffs could confuse taxpayers, at least at first, critics say, and could lead to massive growth in barter and the underground economy.

They point out that voters and lawmakers in other states have rejected the income-tax-for-sales-tax swap once the full effect is understood. In 2008, for example, Massachusetts voters rejected an income tax phaseout.

Still, that record hasn’t deterred supporters of the idea. They say tax fairness is only part of their argument. Sales taxes, they contend, are easier to collect and would allow people to pay less taxes by buying fewer things.

And they say ending the income tax would encourage businesses to locate in Missouri and Kansas, providing jobs to the unemployed and boosting the states’ economies almost overnight.

“The income tax is a killer of jobs,” Williams said. “The best type of welfare the government can give is a good-paying job.”

The Missouri amendment would need roughly 145,000 valid petition signatures from six congressional districts to qualify for the 2012 ballot. If that happens, competitive pressure on Kansas to debate the idea is likely to grow, political observers say.

That means residents in both states may be asked — in an election year — to pick their poison: income tax or sales tax.

“It’s going to put every statewide candidate on the hook to take a position,” said longtime Missouri Republican consultant John Hancock. “And that will amplify the volume greatly.

 

Milford (MA) Daily News: Stopa: Warren Buffett should keep his cash

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Original Post

August 21, 2011

Warren Buffett is mad as hell about being "coddled" by the government and he's not gonna take it anymore.

In a recent New York Times oped, Warren Buffett, the primary shareholder and CEO of Berkshire Hathaway ("the mega-conglomerate with a down home feel"), lamented that though "our leaders" had asked for shared sacrifice, "when they did the asking, they spared me" (and Buffett's rich friends as well).

Buffett considers it unconscionable that, as the CEO of a company that makes most of its money in capital gains, he too may pay his taxes at the capital gains rate, rather than at the higher individual income rate, and he argues that as a start on our long national road back from the brink of fiscal perdition, it is essential to increase taxes immediately on all of those making over $1 million per year, as well as to increase taxes on dividends and capital gains.

Leaving aside the fact that Buffett appears intent on dragging some of his poorer cousins down with him if he sets the cutoff at a piddling one million dollars, the "Oracle of Omaha" demonstrates in his oddly plaintive piece, that a savant in the world of investing may have no more comprehension of how the American economy works than any number of Hollywood luminaries (Matt Damon leaps to mind).

Therefore I present three reasons why Mr. Buffett's proposals are precisely the wrong approach to turning our economy around to prosperity. These reasons suggest in turn that Buffett (a) overestimates his significance in the economy, (b) underestimates his value to it and finally, (c) has either forgotten or perhaps never fully known the feeling of aspiration to be, someday, a very rich man.

Reason number one: there aren't enough Warren Buffetts out there to make much of a dent in our fiscal problems. According to the IRS, in 2008 approximately 320,000 people made over a million dollars a year. The Citizens for Tax Justice estimated that if their federal income taxes were raised to an astounding 45 percent, and if the income tax for those making $1 billion or more was raised to 49 percent, the additional federal revenues over 10 years would be about $900 billion. Given that the 2011 deficit alone is $1.6 trillion, raising taxes on the rich is more of a moral imperative (as one Democrat said to Eric Cantor: "some people just make too much money") than a practical remedy.

Reason number two: Warren Buffett knows how to use his money much better than the government does. Berkshire Hathaway (BH) makes money by buying and selling companies. The value of BH doubled in six years from 2002 to 2008. Every dollar that Buffett and his company invests provides capital to the company issuing the equity to expand and, yes, create jobs.

Buffett does not keep his personal money in a mattress (as far as I know). Buffett's money is either invested or spent and, in particular the part of it that is invested is put into the companies which best satisfy people's evolving demand. Were it not so, Buffett would not make as much money as he does.

Milton Friedman once pointed out that in every non-fraudulent exchange in a free economy, both parties leave the exchange believing that they are better off than they were before the exchange. When Warren Buffett makes a million dollars, the rest of us make a million dollars as well.

By contrast, as one example, in the first installment of the Obama Administration's stimulus program, roughly $90 billion, or 10 percent overall, went into the research, development or actual generation of wind power which at its best today is twice the cost of other more standard forms of power.

Finally, reason number three: Americans want to be just like Warren Buffett. People who are held captive in their ossified class system, like many of those in Europe, endure their work, obsess over vacation and envy and despise the rich. Americans, who still cherish the American Dream, obsess over work, endure their vacations and expect that the rich, deep down inside, are probably pretty much just like they are. They know that the top 50 percent of American taxpayers pay roughly 97 percent of all income taxes. Tax the rich more and you make the road which they envision as their future steeper.

So Mr. Buffett, thank you sir for offering to pay a larger share of our government's expenses. Thank you for opening your wallet (and that of your poor cousins) to fund this administration's goals for social engineering and control. But please put your wallet away. We feel the money is a lot safer with you.

Michael Stopa of Holliston is a former candidate for Congress.

 

 

Huffington Post: Texas Tax System Heavily Burdens Poor Residents

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Also featured in Huffpost Hill Digest on August 19, 2011

Original Post

August 19, 2011

by Laura Bassett

During his presidential campaign announcement speech last week, Texas Gov. Rick Perry lamented the "injustice" that nearly half of all Americans -- the poorest half -- "don't even pay any income tax." But in Texas, the tax burden is disproportionately shouldered by those families living below the poverty line, newly-released data from the Census Bureau show.

While Texas is generally considered a low-tax state since it doesn't impose a personal income tax, a new analysis by the Institute on Taxation and Economic Policy finds the state's tax laws are actually "redistribute income away from ordinary families and towards the richest Texans."

Taxes paid by the poorest 20 percent of Texas households -- those with incomes averaging $11,200 a year -- are actually the fifth highest in the nation, even though none of those households make enough money to owe federal income tax.

"With poverty rates on the rise, the Texas tax system is actually pushing families further into poverty," said Meg Wiehe, ITEP's State Tax Policy Director.

According to the Tax Policy Center, three-fourths of the 46 percent of U.S. households that pay no federal income tax earn $30,000 or less per year. But those families pay the same share of gasoline taxes, payroll taxes, excise taxes, property and sales taxes as the wealthy, so they end up paying the government a larger percentage of their incomes.

Texas, in particular, is "extremely imbalanced" in its reliance on sales and property taxes, the report concludes. Even without having to pay income tax, the poorest fifth of Texans ended up paying about 12 percent of their income in taxes in 2009, ITEP reports. The wealthiest 1 percent of Texans paid only 3 percent of their income in state and local taxes.

Still, Perry appears concerned that the rich are carrying too much of the nation's financial burden.

"Spreading the wealth punishes success," he said during his announcement speech on Saturday, "while setting America on a course to greater dependency on government."

The distribution of wealth in America at the end of 2009 was the most unequal it's ever been, with the wealthiest 1 percent of U.S. households having 225 times the net worth of the median household.

A Perry spokesperson did not immediately return requests for comment Friday.

Reuters: US Needs to Reform Tax Code, GE CEO Says

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Original Post

August 19, 2011

by Scott Malone

* Would welcome elimination of loopholes with rate cut

* Sees Germany, U.K, Japan as tax models

* "Rubbish" that gov't could do more to spur investment

HANOVER, N.H., Aug 18 (Reuters) - The United States needs to reform its corporate tax code and should consider eliminating all loopholes that allow companies to pay less than the statutory rate, General Electric Co (GE.N)'s chief said.

The largest U.S. conglomerate would accept the elimination of loopholes "in a heartbeat" if it was coupled with a lowering of the statutory 35 percent rate, Jeff Immelt told a group of students on Thursday.

"Corporate tax in this country needs to be reformed," Immelt said at Dartmouth College, in Hanover, New Hampshire. "Stuff that the deficit commission came up with, which was a lower corporate tax rate ending every loophole, is what we would take, with a territorial system, we would take in a heartbeat. The fact is I'd take Germany's or Japan's or the U.K.'s corporate tax policy today, sight unseen, without any dispute, I would take any of those tax policies today."

A so-called Congressional "super committee" is working on a way to find another $1.2 trillion in cuts from the nation's budget over the next decade, terms that were part of the recent deal to raise the U.S. debt limit and avoid a default. Existing tax breaks for businesses and individuals cost the government some $1 trillion per year, but Republicans may agree to cutting those if the move is coupled with a reduction in the top tax rates for companies and people.

Immelt also acknowledged the criticism the world's largest maker of jet engines and electric turbines came under this year for its recent low tax rate. A study released in June by the left-leaning research group Citizens for Tax Justice found that GE had an effective tax rate of negative 61.3 percent in 2010, making it one of at least eight big U.S. companies to record a tax benefit rather than a bill for the year.

"GE has paid tens of billions of dollars in taxes over the last decade," he told the crowd at the Ivy League university where he played football as an undergraduate. "Our technique for paying low taxes in 2009 and 2010 was writing off $32 billion (in losses) at our financial service business. I don't recommend it."

Troubles at the GE Capital arm contributed significantly to the company's woes during the financial crisis that sent its shares to 18-year lows in early 2009. They have since rebounded to almost three times their crisis level and closed at $15.34 on Thursday, down 5.5 percent on a day the U.S. stock market dropped sharply.

'RUBBISH' THAT UNCERTAINTY HAMPERING INVESTMENT

Immelt, who leads a panel advising the Obama administration on job creation, said he puts little stock in talk that the government could do more to encourage companies to invest and lower the nation's persistently high unemployment rate.

"A lot has been said that business isn't investing because of uncertainty. I think that's rubbish," the 55-year-old CEO said. "The government couldn't do anything to make me invest and believe me the rest of the world isn't that stable either. We've made our own choices that we're going to keep investing regardless of what happens in Washington."

But in an uncharacteristically animated moment, he blasted critics who contend that companies like GE that do much of their sales outside the United States are hurting the economy. He noted that GE sells 90 percent of its jet engines abroad but manufacturers all of them in U.S. factories.

"That's not taking jobs out of the United States, that's what we have to do," Immelt said. "We've gotten this psychotic thing that anybody that does business outside the United States is a heathen, anti-American ... I don't understand why we're rooting against companies that are out there competing because we're creating good jobs here." (Reporting by Scott Malone, editing by Bernard Orr)

Fox Business: Sales Tax Holidays: Not All that Meets the Eye

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Original Post

August 17, 2011

by Kathryn Glass

There are very few situations in life that are truly a win-win, but the idea of a week of shopping sans sales tax seems like a scenario with little downside.

On the surface, it is difficult to devise a disadvantage for a tax break on back-to-school shopping. Retailers love sales tax holidays because they drive store traffic, shoppers like the idea of getting a deal on school supplies and politicians like looking as though they are working to give their constituents a tax break. Yet think tanks are solidly of the opinion that these sales taxes holidays are not good tax policy.

“You don’t find a lot of unanimity in opinions on policy issues, but sales tax holidays is one issue where it’s really hard to find someone who thinks this is good policy,” says Matthew Gardner, the executive director for the Institute on Taxation and Economic Policy (ITEP), a non-partisan tax research organization. “For everyone except the lawmakers, the benefits [of these tax holidays] may be an illusion.”

Indeed, the ITEP and the Tax Foundation, a non-partisan, DC-based think tank, both released research in July suggesting sales tax holidays are not the break they seem to be.

Many of the proponents of the sales tax claim it’s a progressive tax cut, meaning it directly benefits low-income and middle-income families with children. This argument posits that because low-income families spend a greater percentage of their income on necessities, such as school supplies, a sales tax break benefits them more than high-earning families.

Gardner argues that this is not necessarily the case.“If you cut sales taxes in almost any way, it’s going to benefit low-income families a bit more. The difficulty is that because sales tax holidays happen on one weekend or one week a year, the people who can take advantage of this have enough discretionary that they can afford to buy that very weekend.”

In other words, the people who would actually benefit most from a tax holiday usually buy things only when they can afford to, not when there’s a specific, state-sanctioned week, thus a sales-tax holiday would most benefit high-income families with the discretionary income to time their purchases. Gardner also cites anecdotal evidence that when sales tax is eliminated, retailers do not cut their prices as much as they would normally would to lure in customers, meaning even less cost benefit is actually passed back down to the consumer.

Mark Robyn, an economist with the Tax Foundation, says that sales tax holidays are burdensome, and if state governments really want to give their constituents a tax break, they should consider lowering sales taxes altogether. Or better yet, just reduce income taxes.

“It’s a gimmick; I mean if you want to give low-income people a $10-$20 tax cut, just reduce the income tax level,” Robyn says. “The problem is no one would care. They would say, ‘oh, great, you cut my income tax by $20,’ but everyone just loves that sales tax holiday.”

Despite claims against their merits, these breaks remain popular; in 2010 a record 19 states held sales tax holidays. However, the popularity of these tax breaks may be fading as many states continue to struggle with widening budget deficits in the wake of the recession. In Maryland, tax-free week started last Sunday, and despite the state’s own $1.1 billion budget gap expected for next year, political support for the holiday is strong.

“The tax free holiday benefits the retail stores in Maryland, which provide 70% of the jobs in our state. Most importantly, it helps the citizens, many who have been hammered by the recession, to get a little relief,” said Peter Franchot, comptroller for the state of Maryland in an email to FOXBusiness.com. “Our retailers have been so hurt by the ongoing recession that the $10 million we could lose in tax revenue is, in my opinion, more than paid off by shopping by consumers that week and return visits after that."

Maryland also happens to neighbor Delaware, a state that never has a sales tax, and proponents of the sales tax holiday argue that it helps to stem losses from consumers crossing the border to do their shopping. Robyn argues that the cost to implement a week-long sales tax holiday outweighs the potential benefits.The government must make sure that retailers comply by the rules of the holiday and retailers have to train staff and make adjustments so that they can correctly follow the rules.

Furthermore, the argument that consumers are likely to spend more than they otherwise would, thanks to the tax savings is flawed, argues Robyn. She says research supports that a tax holiday really amounts to a shift in the timing of the purchases, underscoring the fact that the policy does not have a huge net benefit for the economy.

West Virginia used to have a sales tax holiday but recently eliminated it. West Virginia Governor Earl Ray Tomblin and the state legislature opted not to renew the sales tax holiday, but rather to reduce sales tax on food purchases. The state has reduced taxes on food purchases from 6% to 3% and plans to eliminate all taxes on food sales by 2013.

“The state as a whole, we’re in a surplus, so we’re able to provide tax relief, but just in a different way,” says Danny Forinash, public information officer for the West Virginia state tax department. “We do realize a lot of consumers and businesses like the concept [of a sales tax holiday], but the governor is promoting general tax relief, rather than for a certain period of a few days or weeks.”

Ultimately, state governments may have to cut out tax holidays, as budget issues continue to remain at the forefront. Robyn said he’s not opposed to tax cuts, just the way these tax holidays are implemented.

“My point is that there is a good and bad way to cut taxes,” Robyn says. “The more rules there are in the tax policy and the more it affects people and businesses behavior, the poorer the tax policy it is, generally.”

Gardner hopes that state governments will take a more serious look at the costs and benefits of sales tax holidays before deciding whether or not they should offer them to constituents, since even though the holidays are popular, the benefits are unproven.

“The problem right now, of course, is that states face a very challenging fiscal environment,” Gardner says. “Hardly anybody can afford to cut taxes right now, so you can certainly see a scenario where lawmakers will look for ways that are highly visible and don’t cost much so they can get the biggest bang for their tax cut buck.”

 

Baltimore Brew: "We're in the fight of our lives here," Verizon strikers say

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Original Post

August 17, 2011

by Joe Tropea and Fern Shen

A DJ pumped out upbeat tunes to a crowd of about 250 red-shirted Verizon workers picketing at the company’s Hunt Valley facility on Monday, but the striking workers heard one bit of news that was anything but jolly.

“You will get letters today saying your health insurance ends at the end of the month,” Bill Dulaney, president of Communications Workers of America Local 2101, told the crowd.

Dulaney said he received his letter Monday informing him that – as one of the approximately 45,000 Verizon workers from Massachusetts to Virginia participating in a strike against the global communications giant since Aug. 7 – he would soon be losing his health coverage, pension benefits, life insurance and other benefits.

“They didn’t cancel scabs’ health insurance,” Dulaney said later, in a phone interview with The Brew. “They’re trying to scare the hell out of everybody. We’re in the fight of our lives, here.”

Still, he said, the workers’ resolve will not be shaken, in part because so much is at stake.

“We’re fighting for jobs – good middle class jobs,” he said. “The middle class is basically going away” because workers have been accepting concessions like the ones Verizon is seeking, he said.

Verizon spokeswoman Sandra Arnette, meanwhile, describes the workers’ current health benefits package a “Cadillac healthcare plan” and said economic realities, as customers move from landlines to cell phones and Skype, make the company’s requested concessions necessary and fair.

“The union contracts that expired,” Arnette said, via email, “were the product of a bygone era when our name and our business were different.”

A Standout Contract, Under Attack?

Verizon’s landline workers have been walking picket lines in Baltimore, Maryland and across the northeastern U.S. – in the nation’s biggest strike since 74,000 General Motors workers went out for two days in 2007. About 35,000 of the Verizon strikers are represented by the CWA; about 10,000 are represented by the International Brotherhood of Electrical Workers.

In contract talks that broke down earlier this month, Verizon has been asking for a dramatic package of concessions, among them the loss of about $6,000 in yearly health benefits, union leaders say.

That’s a big change for workers who under the current contract have “a lot of co-pays,” Dulaney said, but don’t “pay anything out of our paychecks” for health benefits.

That loss of health benefits and other givebacks in the proposed contract would net Verizon annually about $1 billion, or $20,000 per worker, according to the unions.

“They’re reducing sick time to no more than five days a year, they’re eliminating overtime caps, and they’re getting rid of pensions” for future employees, Dulaney said. (Current employees, under the company’s proposal, would have their pension contributions frozen.)

“There used to be a requirement they couldn’t make you work more than 35 miles from where you work now. They’re taking that away,” he said. “They’re taking away certain holidays (Martin Luther King Day and Memorial Day.) I can go on and on.” Job security provisions would also be eliminated under the proposed contract.

The other reason workers are resisting these concessions and walking picket lines during dire economic times, as Bill Barry sees it, is that they know the company “has plenty of money.” Barry is director of labor studies at Community College of Baltimore County.

Verizon has been a profitable company, with a net income of $6.9 billion in the first six months of this year. According to The New York Times, Verizon spent $258 million over the last four years in salaries, bonuses and stock options for just five of its top executives. And according to a June 2011 Citizens for Tax Justice report, the company paid no corporate income taxes in the 2008 to 2010 period. (Also, according to that report, Verizon has received $1 billion in tax benefits from the federal government during that time.)

Just how flush the company is has been a bone of contention, as this prominent section of a Verizon press statement suggests.

“The unions have incorrectly asserted that Verizon made a profit of $10 billion last year. Our profit last year was $2.5 billion, most of which is from the non-unionized portion of our business,” the statement said.

The statement also took issue with The Times’ report on top executives’ compensation, saying most of it “only will be provided if the executives meet or exceed financial and operational objectives and high shareholder returns.”

On the flip side, the unions dispute management’s portrayal of workers as overcompensated. Here’s how The Times described this part of the war of words:

“Verizon says its unionized employees are well paid, with many field technicians earning more than $90,000 a year, including overtime, with an additional $50,000 in benefits. Union officials say the field technicians and call center workers generally earn $60,000 to $77,000 a year before overtime and that benefits come to far less than $50,000 a year.”

Dulaney sees the spin campaign – “trying to portray us as whiners” – as a form of “union-busting.”

“These are the kinds of benefits and contracts that used to be standard,” he said. In Barry’s view, “this is really an epic struggle to hold the line.”

Keeping up the Pressure

In picket locations in Maryland and elsewhere, clashes between replacement workers and picketers have produced some physical confrontations and even alleged injuries.

“Some of the guys are being brushed aside by the managers coming in their cars,” Dulaney said, noting that “it happened here,” at the picketing on Old Court Road.

The Verizon contract would "push us back 50 years in our bargaining," said Bill Dulaney, of Communications Workers of America. (Photo by Bill Hughes.)

The Verizon contract would "push us back 50 years in our bargaining," said Bill Dulaney, of Communications Workers of America. (Photo by Bill Hughes.)

(Local sites for picketing include 2815 Druid Park Dr., 99 Shawan Rd. in Hunt Valley, 320 Saint Paul Place, 7807 Fitch Lane off Rossvile Blvd., 5305 Old Court Rd. in Randallstown and 6810 Dogwood Rd. in Woodlawn.)

The company, meanwhile, has alleged that that there have been 143 acts of sabotage to telephone facilities since the strike began and now the FBI is reportedly investigating the allegations because “critical infrastructure” is being threatened.

The union says it doesn’t condone sabotage; Verizon says it doesn’t condone replacement workers knocking into strikers with their cars.

In Hunt Valley, two workers on last week’s picket line talked about another major point of contention in the labor-management clash: the question of whether the Verizon’s “wireline” division is sagging and whether that justifies the company’s hard line on the contract.

Verizon says the non-union wireless side of the company has been profitable while the wireline businesses, (which include home and business telephone landlines as well as the FiOS services) have seen declines in their customer base and profitability as customers use fewer landline phones.

“Businesses still need landlines and many of the losses are being replaced by FIOS, which we happen to install,” said Steve Glenn, cable splicer, Local 2100 member, and Verizon employee of 14 years.

“The side of the company that built wireless is the landline side,” Tom Hier added.

“And it’s not just in people’s homes. The traffic cameras on the beltway, we put those in,” said Hier, a cable splicer and Local 2100 member. “Copper lines are going to be around forever.”

Glenn and Hier, who both identified themselves as conservative-leaning Republicans, stressed that they are grateful to have their jobs.

“I work 60 to 70 hours a week, and I love my job,” Glenn said. “But now they want to take more money for less [health] coverage for my family and take away overtime pay.”

Without some extra compensation, he said, “guys aren’t going to do that when you get a late night call and you have to show up, and it’s freezing cold out. Maybe the first couple of times they will. It’s the customer who’s going to suffer.”

KETK TV News (Texas): Gas Tax Expiring

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Original Post (and video)

August 16, 2011

by Roger Gray

Most of us know that gasoline is taxed by both the state and federal governments. When you buy a gallon of gas, both Uncle Sam, and Uncle Sam Houston take a bite. But what if the federal tax just went away? Given the divisions in Congress these days, it’s a possibility.

The state of Texas fuel tax adds 20-cents to a gallon of gas. That figure was set in 1991 and hasn’t been raised since.

The federal fuel tax is 18.4-cents a gallon, and it was raised under Presidents Reagan, Bush – one, and to its current level under President Clinton back in 1993.

It began in 1932 and goes into the Highway Trust Fund for maintenance of the highway system and mass transit projects. And it expires on September 30.

“I don’tmind paying the gas tax If it goes toward roads and highways,” says Smith County Republican Party Chair Ashton Oravetz.

In normal times, it is no big deal, but then again, neither is the debt ceiling. And as we just found out, these aren’t normal times.

“It’s been extended numerous times in the past and always had bipartisan support,” says Carl Davis, Senior Analyst with Citizens for Tax Justice.

“Urban people say, well if we’re going to go for an increase in the gas tax, then part of it should go to urban transit,” Oravetz declared. “ And to me, that’s wrong.”

“Every person that’s using mass transit is taking another car off the road,” Davis responded. “And so that’s providing a very distinct benefit to drivers.”

But even if Congress removed it, would you see the difference at the pump?

When re-authorization of the Federal Aviation Administration was delayed, the federal aviation tax was not collected. Well…not collected by Uncle Sam.

“I don’t expect this to translate directly into an 18.4-cent drop at the pump,” Davis told KETK

Most expect the tax to be renewed, but not without a fight.

“You’d think if there would be any tax that Republicans would like it would be this one. But you still hear a surprising amount of opposition to it,” Davis said.

“I would be in favor of renewing it with no diversions, because that to me is critical,” Oravetz concluded.

Fiscal Times: Warren Buffett: Stop Whining and Write Uncle Sam a Check

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Original Post

August 16, 2011

by Michelle Hirsch

Billionaire investor Warren Buffett has spent the last few months calling on his wealthy business compadres to eschew their coveted tax breaks and lead the charge to increase their own taxes and help rescue the indebted U.S. Treasury. Most don't know that Buffett can actually put his money where his mouth is by simply writing a check.

"My friends and I have been coddled long enough by a billionaire-friendly Congress," Buffett wrote in a New York Times op-ed. "People invest to make money, and potential taxes have never scared them off… Most [mega-rich people] wouldn’t mind being told to pay more in taxes…particularly when so many of their fellow citizens are truly suffering.”

Under Buffet’s proposal, Congress would allow the Bush tax cuts to expire for those who earn more than $1 million a year, and he would increase the taxes they pay on dividends and capital gains. Buffett would also eliminate the preferential tax rates that hedge fund managers get on a slice of their investment profits — so-called carried interest income. According to calculations from the Joint Committee on Taxation, the Congressional Budget Office and the Treasury, Buffett’s plan could yield as much as $500 billion in revenue for the federal government over the next 10 years.

Buffett is hardly the only fat cat begging to be taxed more. You can add liberal financier George Soros, former Bear Stearns chairman Alan C. “Ace” Greenberg, and even Pete Peterson — who funds The Fiscal Times — to that roster of “tax me more” advocates. (A spokesperson for Bill Gates declined to comment on Buffett’s proposal.) Dozens of other wealthy Americans signed petitions from Wealth for the Common Good and Patriotic Millionaires for Fiscal Strength opposing those breaks.

Real estate mogul and publisher Mortimer Zuckerman told The Fiscal Times, "It's important that everyone pitch in and show that they're contributing to solving the fiscal crisis. But our economic problems cannot be solved by taxing the wealthy alone — 47 percent of Americans pay no federal income tax, and that has to change as well."

America could certainly could use those billions Buffett and his friends have offered. But it’s one thing to stand on a soapbox and quite another to actually open your wallet.

“Nothing is stopping Warren Buffett (or anybody) from making a donation to the Treasury if he feels he’s under-taxed,” tweeted Illinois Republican Rep. John Shimkus. Conservative political pundit Pat Buchanan struck a similar note on MSNBC’s "Morning Joe" yesterday. “I’m a little fed up with these people who come on with their big op-eds and admonitions. Why doesn’t he set an example and send a check for $5 billion to the federal government? He’s got $40 billion.”

He’s right. Buffett or anyone else can do just that. Anyone — wealthy financiers included — can make a tax-deductible charitable contribution to the Treasury’s “Gift to Reduce the Public Debt” program.

Some experts say Buffett and his cohorts are doing a service just by standing up in favor of raising taxes on the wealthy.

“Here’s a well-respected person arguing that we need more revenues and pointing out that people who can afford to supply it are people like him,” said Bob McIntyre, director of Citizens for Tax Justice, a left-leaning think tank. “He’s also pointed out that he’s paying a lower marginal tax rate than ordinary working people and that’s not fair, and by implication, accentuating that rich people understand that and don’t really need that money.

Nashua (NH) Telegraph: Leading Latinos: Hudson cardiologist struggles with injustice

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Original Post

August 16, 2011

by Simon Rios

EDITOR’S NOTE: This is the second in a five-day series of stories profiling leaders in Nashua’s Latino community.

Only a small percentage of Americans ever attain medical degrees, and even fewer hold unorthodox opinions on the origin of heart attacks. But Alejandro Urrutia, a native of Mexico and resident of Hudson for 22 years, has both.

He also takes a strong stance in favor of the estimated 11 million undocumented immigrants who reside in this country.

“This is not a plague,” Dr. Urrutia said in a recent interview at the Red Cross on Amherst Street. “These are human beings that are looking for better lives for their families. The same reasons our ancestors came here.”

“Just to use law enforcement as a solution for immigration,” Urrutia said, “that is a big mistake that costs a huge amount of money to the United States.”

Being a U.S. citizen and coming from an affluent background in Mexico, Urrutia has it easier than most immigrants. But he feels a moral imperative to use whatever privilege he has to stand with the undocumented.

Not only did he run for state representative in 2008 and 2010, he’s also a leading member of Hispano Vision, Latinos Unidos, the Granite State Organizing Project, and a state panel that reports to the U.S. Commission on Civil Rights.

“There are a lot of very qualified workers that are needed here in the United States, and that is why we need comprehensive immigration reform.”

He’s critical of the Obama administration for not doing enough to address the immigration issue, while respecting human dignity.

Yet, Urrutia still believes pro-immigrant Latinos should support Obama, and convince his administration to pursue a path to legalization for hard-working and law-abiding undocumented immigrants.

Urrutia said that with trade pacts such as NAFTA, American companies set up factories in Mexico to pay poverty wages, even by Mexican standards.

But it’s a contradiction that Mexican workers aren’t allowed to enter the United States as American money enters their country with minimal regulation.

Through his work, Urrutia aims to dispel what he sees as misconceptions about the immigrant population, such as the myth of the “anchor baby,” that crime is rife among undocumented immigrants or that they don’t pay taxes.

A recent study by the Institute on Taxation and Economic Policy showed that undocumented immigrants paid $11.2 billion in state and federal taxes in 2010. In spite of their contribution to Social Security and Medicare, they are not eligible to receive benefits.

“Another misconception is that undocumented immigrants come here to get benefits,” he said. “That’s not true. They don’t get any benefits.”

Urrutia traces his political beginnings back to Mexico City. In college he organized against the one-party rule of the Institutional Revolutionary Party and joined the student movement of 1968.

Expressing his belief that the movement was being infiltrated by anti-democratic elements, however, he was tracked down and beaten in the streets.

In Mexico, Urrutia studied cardiology under Dr. Demetrio Sodi Pallares, “the father of deductive electrocardiography.” But his political woes forced him to interrupt his residency in Mexico. He returned to the land of his fathers, Spain’s Basque country, where he witnessed the final year of Francisco Franco’s dictatorship. In Bilbao he did dual residencies in cardiovascular surgery and cardiology.

Urrutia later applied for postgraduate studies at the University of Miami and received his U.S. citizenship shortly afterward.

Though he works now with the Red Cross, Urrutia said U.S. medical regulations prevent him from working as a cardiologist.

“That is a problem that professional immigrants have here,” he said. Not having done his medical residency in the United States, he is not allowed to practice his specialty. Urrutia says there is a tremendous pool of immigrant talent that is going to waste for similar reasons.

There are other obstacles to his continuing to work in cardiology. His ideas about heart attacks conflict with the predominant knowledge in the field, which he thinks ignores potentially fundamental causes of the condition.

Urrutia aspires to do research to test his hypotheses, derived largely from the work of Dr. Sodi Pallares. He is currently seeking opportunities to make this happen, though funding is difficult to come by.

In spite of this, and in spite of two unsuccessful runs for the New Hampshire House, Urrutia’s political work continues.

He recently raised the issue of immigration enforcement at a meeting of Hudson’s Board of Selectmen, claiming the decision to cooperate with Immigrations and Customs Enforcement had created a welcoming environment for white pride demonstrators who choose to gather here each year.

“My town became very famous because of that contract with (Immigration and Customs Enforcement),” he said. “I want that to change. And I want my community to know more about immigration.”

He hopes the town will make a declaration against the annual rally.

“The Board of Selectmen should work with minorities, and state that the town of Hudson doesn’t welcome white supremacists. They have the right to be there, but the board doesn’t endorse them. They should also say that the town will not tolerate profiling on the part of the police.”

Washington Post: Rick Perry's warped tax 'injustice'

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Original Post

August 15, 2011

Opinion by Ruth Marcus

We’re dismayed at the injustice that nearly half of all Americans don’t even pay any income tax.”

— Texas Gov. Rick Perry, presidential candidacy announcement speech, Aug. 13

Really? Of all the ills in the world, of all the problems with the economy, all the difficulties with the tax code, this is the one that Rick Perry chooses to lament?

Perry’s statement conjures visions of America as Slacker Nation, where the overburdened wagon-pullers drag an increasingly heavy burden of freeloaders. His number is correct but, like other conservatives who have seized on the statistic, Perry draws from it a dangerously misleading lesson.

The nonpartisan Tax Policy Center estimates that 46.4 percent of households will pay no federal income tax in 2011. This is, for the most part, not because people have chosen to loaf. It’s because they are working but simply don’t earn enough to owe income taxes, based on the progressive structure of the tax code and provisions designed to help the working poor and lower-income seniors.

As the Tax Policy Center’s Roberton Williams has explained, “a couple with two children earning less than $26,400 will pay no federal income tax this year because their $11,600 standard deduction and four exemptions of $3,700 each reduce their taxable income to zero. The basic structure of the income tax simply exempts subsistence levels of income from tax.” 

Does Perry truly see this as an “injustice”? Does he believe his “dismay” should be alleviated by raising the tax burden on these households?

Consider: Of those households that do not owe income taxes, about a third earn $10,000 a year and a slightly smaller share earn between $10,000 and $20,000. More than three-fourths earn $30,000 or less.

In addition, the notion that these households pay no taxes is flat-out wrong. They pay — leaving aside state and local sales, income and property taxes — federal gasoline and other excise taxes and, most significantly, payroll taxes on every dollar they earn. These taxes are regressive. Everyone pays the same share, regardless of income, so they hit the poor hardest, and they counterbalance the progressivity of the income tax code.

Indeed, factoring in payroll taxes alone, the Slacker Nation picture looks very different. Two-thirds of the households that pay no federal income tax still ante up for payroll taxes. Fewer than one in five — 18 percent of all households — pay neither income nor payroll taxes. Nearly all of these are elderly (10 percent) or have incomes below $20,000 (7 percent.)

Assuming that Perry isn’t worked up about Slacker Grandmas, the relevant “slacker share” — people who are supposedly comfortably ensconced on that wagon the rest of us are pulling — is in single digits rather than “nearly half.”

And, of course, they pay other taxes. An analysis by the Congressional Budget Office, taking into account all federal taxes, found that in 2007 even the poorest one-fifth of households, with average income (including government benefits) of $18,400, paid 4 percent of their income in federal taxes. By contrast, the middle fifth (average income $64,500) paid 14 percent of income and the top fifth (average income $264,700) 25 percent.

In short, the wealthy pay a greater share of their income in taxes — but the poor don’t, as Perry implies, pay nothing.

About those rich people: Perry seems to believe it is wrong to ask more of them. “ ‘Spreading the wealth’ punishes success while setting America on course for greater dependency on government,” he said.

Perry needn’t worry. In the past several decades the wealth hasn’t been spread so much as concentrated — at the top. The share of total income going to the top 1 percent of income earners more than doubled from 9 percent in 1970 to 23.5 percent in 2007. (The Great Recession has since narrowed the gap.)

And while, as noted above, the rich pay a greater proportion of their income in taxes, the share of total taxes paid by the richest Americans is commensurate with their share of national wealth.

Examining the total tax burden — state, federal and local — Citizens for Tax Justice calculated that the top 1 percent of households (average income, $1.3 million) earned 20.3 percent of income and paid 21.5 percent of taxes in 2010.

The tax code is studded with a costly bevy of deductions and preferences — mortgage interest, employer-sponsored health insurance, retirement savings — that benefit wealthier taxpayers over those with modest incomes. If Perry wants to go after injustice in the tax code, he’ll find ample targets. Failing to tax poor people enough isn’t among them.

Truthout: The Verizon Strike as the Next Wisconsin

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Original Post

August 13, 2011

by Mark Engler

The picket lines are up. This past weekend 45,000 Verizon workers on the East Coast, represented by the Communications Workers of America (CWA) and the International Brotherhood of Electrical Workers (IBEW), went on strike. The cause of the strike was the company’s attempts to win massive concessions from the unions. Verizon argued that the employees should give up gains they had won over many years of struggle and negotiation in previous contract fights.

As the Wall Street Journal put it, “Verizon Communications Inc. is seeking some of the biggest concessions in years from its unions.” Demands include the weakening of health-care benefits, cuts in pensions, reduced job security, and elimination of paid holidays such as Martin Luther King, Jr. Day. This despite the fact that the company reported billions in profit last year, and that, in the words of New York Times reporter Steven Greenhouse, “Verizon’s top five executives received a total of $258 million in compensation, including stock options, over the last four years.” The unions argue that Verizon has made some $20 billion in profit in the same time period, and Citizens for Tax Justice has pointed out that the company has done so while paying little to nothing in corporate income taxes.

Without a doubt, this is a conflict of national significance. As Bob Master, CWA District 1 legislative and political director, explained Wednesday in a conference call with supporters,

This is an enormously profitable company, which we believe is trying to take advantage of an anti-union environment and, in a sense, to replicate at a giant private-sector corporation what the governors of Ohio, New Jersey, and Wisconsin have been trying to do to the public sector. Our members feel very strongly that we need to draw a line here.

The parallel to Wisconsin is apt for several reasons. First, like the Republican elected officials in their attacks on unionized schoolteachers and other public employees, Verizon is taking aim at one of the last bastions of the American middle class. As a main strategy in its public relations, the company is trying to stoke resentment about the fact that the CWA and IBEW workers actually have living-wage jobs. It is hoping that “I don’t have a pension, why should they” logic will carry the day.

Accordingly, on Wednesday Verizon took out a full-page ad in the Philadelphia Inquirer suggesting that a typical employee makes $80,600 in annual pay and $42,000 in benefits. The union disputes this claim, contending that salaries are generally in the $60,000 to $77,000 range, and that benefits are less costly than the company would suggest. But, regardless, the debate over numbers misses some critical questions: What’s wrong with workers sharing in the profits of a healthy corporation? Isn’t that the way our economy is supposed to work?

(On a side note, it’s always a treat when companies plead poverty at the negotiating table and then turn around and spend big bucks on media spots, anti-union consultants, and pricey PR firms—but that’s another story.)

The fate of 45,000 middle-class jobs is a big deal for all of America. Last month, the entire U.S. economy had a net gain of only 117,000 jobs. Not only is that for the whole country, it represents a pretty decent month given the numbers from the past year. Furthermore, almost all of the new jobs now being created are low-wage. Given these realities—and the fact that concentrating all wealth in the hands of the rich is a very bad strategy for creating the kind of demand the economy needs to rebound—what happens to the Verizon workers is a matter of broad public concern.

Bob Master is right that Verizon’s aggressive bargaining stance, like Governor Scott Walker’s public-sector power grab, is the product of a political climate in which corporate interests feel they can do whatever they want to working people, and employees will have no recourse. The Verizon strike is unfortunately akin to Wisconsin in that it is a defensive battle—an effort to stop tragic rollbacks in previously established standards of fair employment.

The background for the contract dispute is that Verizon is now making most of its profits from its wireless services. While a small number of wireless technicians are involved in the strike, that part of the company is mostly non-union. In an ideal world, CWA and IBEW would be able to “bargain to organize,” balancing any concessions at the negotiating table for current union members with agreements that the company will remain truly neutral and allow workers at Verizon Wireless to make their own decision about whether or not to unionize. But this is not an ideal world. Like in Wisconsin, labor and its allies face a difficult fight merely to stave off the worst of a rabidly anti-union assault.

That said, there is a case for hope. The mass protests in Madison earlier this year gave some cause for optimism that a new type of energetic, broad-based, community-labor mobilization might become a lasting force in that state’s politics—and become a model for movements in other parts of the country. Wisconsinites’ success this week in recalling some Republican State Senators (although not as many as hoped) suggested that the struggle will be a long one, but that progressive efforts could have some real legs.

As for the strike, all those who have been wondering when working America will be fed up enough to finally stand up and fight should not sit this one out. If the Verizon strike becomes a rallying point in this country for a movement against runaway corporate power and for a fairer economy, it could have much broader implications than what contract terms are ultimately hammered out for those now walking the picket lines. That these workers are not rolling over in the face of company insistence on concessions is important and courageous. And they deserve widespread support.

AOL Daily Finance: The True Cost of State Sales Tax Holidays

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Original Post

August 12, 2011

by Sheryl Nance-Nash

'Tis the sales-tax-holiday season, when states give the gift of tax-free shopping for clothing, computers and other back-to-school supplies.

It seems like a good thing: Take a little pressure off the pockets of cash-strapped parents, make retailers smile and make politicians look good for supporting tax relief.

But as states grapple with huge budget deficits, the debate is on over whether states should be more like Scrooge than like Santa.

Last year, Illinois passed legislation creating a sales tax holiday. Now the state is sitting on the sidelines because it "just cannot afford it this year," according to State Sen. Toi Hutchinson (D-Chicago), who was the chief sponsor of the state's holiday last year.

What It Costs

It's expensive to be generous. When states give up their portion of the sales tax, they give up much-needed revenue for a weekend or, in some cases, for up to a week. Massachusetts will see a revenue reduction of $20 million to $25 million, projects Sujit CanagaRetna, senior fiscal analyst with the Council of State Governments. That's not far-fetched considering that last year's loss was about $20 million, according to Tom Astore, tax director at Rodman & Rodman.

Another example is North Carolina. According to press reports, the state department of revenue last year estimated that it gave up $14.5 million during the its back-to-school tax holiday and $1.7 million during its November tax holiday for Energy Star appliances.

"Our sales-tax holiday results in the loss of $12 million each year, money that could support early childhood education or improve the educational attainment level of the state's young work force -- both of which were cut this year because of the failure to take a balanced approach to closing the budget shortfall," wrote Alexandra Forter Sirota, director of the North Carolina Budget and Tax Center, a public-interest organization, in The News & Observer. "The sales-tax holiday simply further undermines the adequacy of the revenue system to support shared investments."

Administering the sales-tax exemptions also creates significant red tape. Retailers and revenue departments, as well as local governments, must monitor and document the distinction of eligible and ineligible products, for example. In her opinion piece, Sirota calls for better, long-term solutions that will lead to real improvements in the state's revenue system.

Some States End the Holidays

In 2011, 17 states will conduct back-to-school sales tax holidays, down from a peak of 18 states in 2010, according to Mark Robyn, staff economist and co-author of the Tax Foundation's, Sales Tax Holidays: Politically Expedient but Poor Tax Policy.

The dip is not surprising. "Any effect on revenue must be a consideration for lawmakers, especially in light of the flailing economy," says Carol Kokinis-Graves, a state tax analyst for CCH.

Several states considered canceling their sales-tax holidays for that reason. "Texas broached the topic, but as far as I know, Illinois was the only state that cancelled it," CanagaRetna says. Aside from school supplies, some states also include Energy Star appliances, hurricane-preparedness products, firearms and hunting supplies in their sales-tax holidays.

Most states have to balance their budgets, and -- in this past fiscal year -- most have had to cut millions from public schools, universities, health services and municipal budgets, Matt Gardner, executive director of the Institute on Taxation and Economic Policy (ITEP) tells DailyFinance. That's left many states scrambling to keep police on the beat and public pools open, he says. "A governor might say they can absorb, for example, the $20 million hit to the budget, but $20 million would buy a lot of new textbooks, keep a lot of social workers on staff to protect kids and help a lot of seniors afford their property taxes."

Why Many Lawmakers Can't Say 'No'

With millions at stake, why don't the states just say no? "By and large, dropping the sale tax holiday is considered a "tax" and given that raising taxes is so politically radioactive, policymakers in most states have continued with the holiday," CanagaRetna says.

Critics say those good intentions may be sorely misplaced and downright fiscally foolish. Furthermore, the sales-tax holiday may be more hype than help.

"It allows politicians to pretend they are doing something helpful for working families and for their state's businesses, but there just aren't reliable numbers out there backing up this claim," Gardner says.

The Tax Foundation's key findings in its report concluded that sales-tax holidays do not promote economic growth or significantly increase consumer purchases. The evidence shows that they simply shift the timing of purchases and that some retailers raise prices during the holiday, reducing consumer savings.

"Some economists have questioned whether customers are actually saving money, as retailers have an incentive to hold the line or prices (no discounts or sales) during holiday periods. This may be why retailers tend to like sales-tax holidays and advocate for holding them," says Ron Alt, senior research associate with the Federation of Tax Administrators.

Then there's the matter of which customers benefit most. "The only consumers who benefit from sales-tax holidays are the ones who have the money at hand to shop on the designated weekend. If you are in a household living, literally, paycheck to paycheck, you go shopping when you have money in the bank, not when some politician tells you it's fun," Gardner says.

Is There a Better Way?

"I think the state should study the net effect of this tax holiday along with a comprehensive review of our entire tax code, says North Carolina State Sen. Richard Stevens (R-Wake County). "It is time to review this holiday."

Sirota writes about what she says would likely help North Carolina: "Extending the sales tax to include purchases of services, as well as goods, would include more business activity and ensure revenues keep pace with our growing economy. The best tool to achieve greater equity in the tax system is a strong state Earned Income Tax Credit. The EITC reaches 800,000 primary wage earners across the state who are paying a greater share of their incomes in taxes, primarily through the sales tax, than higher-income households. Strengthening and increasing the value of the state's EITC should be a top priority of policymakers."

ITEP has a few ideas of its own to help working families make ends meet. ITEP is looking for permanent reforms, including targeted tax credits which it says are more cost-effective because they ensure the benefit goes specifically to taxpayers.

Targeted sales-tax credits help compensate for the relatively high cost of basic necessities for lower-income households. Using Bureau of Labor Statistics data, ITEP estimates that while the wealthiest families spend only one-sixth of their income on items that are subject to sales taxes, low-income families spend three-quarters of their income on taxable purchases. Households in the middle spend about half of their income on taxable items. Put differently, a 6% sales tax amounts to roughly a 1% income tax rate for families in the highest income brackets, a 3% tax on middle-income families and a 4.5% tax on the poorest families.

"This is what makes the flat sales tax a textbook case of a regressive tax," Gardner said in a prepared statement. "A dollar costs a poor person more than it costs a rich person." Targeted sales tax credits generally give a flat dollar amount for each family member and are available only to taxpayers with income below a certain threshold. Eight states currently provide sales tax relief in this form, according to ITEP.

If retailers and hard-pressed consumers do benefit in any significant way from sales-tax holidays, the burden is on lawmakers to demonstrate those benefits – and the costs, ITEP says. "There is sexy tax policy and popular tax policy, and then there is good tax policy," Gardner says. "Sales tax holidays are popular. Targeted tax credits and Internet-transaction taxes are decidedly unsexy, but they are great policy."

Baltimore CityBizList: Tax Flight Debate Is One-Sided, Professor Says

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Original Post

by Len Lazarick

August 12, 2011

Professor Roy Meyers, the government budgeting expert at UMBC, says the focus of our ongoing stories and comment strings "on the flight/plight of the millionaires is a bit one-sided."

Meyers is afraid that the discussion of Maryland's tax structure will go down the sorry path of the national debate, in which "conservatives in power ... have supported their blanket opposition to tax increases with arguments that are absurdly simplistic."

The professor quite rightly points out that the study that started the whole discussion last Friday, "Tax flight is a myth," does not say that no millionaires will leave a state if their marginal rates go up. Some will leave, but most will stay, pay their taxes, bringing a state millions more in revenue than it might lose from the departures.

"That a few millionaires might be tipped to declaring residence in Florida by a 1% increase in their marginal tax rates is not materially relevant in the accounting sense," Meyers said.

He also points out that Florida housing "can be snatched up ... for a song." The study, by the way, also noted that there has been a net out-migration of residents from Florida in the past two years, far exceeding any flight from Maryland.

Florida taxes very regressive

The professor also sent along some fact sheets from the Institute on Taxation and Economic Policy that show Florida has a far more regressive tax code, meaning people at the bottom of the income ladder pay a higher percentage of taxes than people at the top. Meyers admits the sheets "were produced by a liberal tax advocacy group, but they follow the standard estimating conventions for calculating tax incidence that are commonly used in the peer-reviewed National Tax Journal."

A few things jump out in the fact sheets on Florida and Maryland, which we've attached. (The sheets, by the way, are only "for non-elderly taxpayers," so we're not looking at people who move to the Sunshine State after they retire.)

First, average incomes in Maryland are higher than Florida. No surprise, since we hear about Maryland's high incomes all the time. The only segment of the population where that's not true is the very rich. The average income for the top 1% in Florida is $2.4 million a year; in Maryland, it is a mere $1.4 million.

Those very rich pay just 2.1% of their incomes to Florida (after federal deductions), while the super-rich in Maryland pay 6.2% of their incomes. That 4% difference is a significant chunk of change for someone making $1.4 million - $56,000, enough to pay the mortgage on a million-dollar second home.

For the lowest fifth of the income scale (less than $17,000 in Florida, less than $22,000 in Maryland), the Floridians fork over 13.5% of their incomes, while Marylanders pay 9.9%. That's because Florida, which has no income tax, relies more heavily on sales and excise taxes, which take 9% of the income of the poorest.

For the next fifth, the percentage of taxes in Maryland and Florida is close. The top 60% of the population in Florida - which is those making more than $29,000 - pay a lower percentage of their incomes in taxes compared to Marylanders, 2 to 4% less.

Bottom line: yes, taxes are lower in Florida, especially for those making the highest incomes.

In that context, Maryland's tax structure is "fairer."

Benefits from Maryland taxes

What do you get for those higher taxes, if Gaver feels he is being "punished" for his financial success? As other unsympathetic commenters have pointed out, Gaver is likely to have benefited from the same taxes that chafe him.

"Was any of that financial success due to his location in Maryland?" Meyers asks. "Did his proximity to federal government agencies help him build his IT consultancy with the government? Were his IT employees trained in Maryland's public schools and universities? Were any of his real estate developments assisted by governments...?" Were there any tax breaks and so on?

"While I honor the hard work and risk taking of America's entrepreneurs, ‘self-made' fortunes often receive more government assistance than many are willing to admit" Meyers said.

I am not going to ask Mark Gaver the questions Professor Meyers suggests, mainly because I think the businessman has subjected himself to more attention and abuse than he is entitled to.

As Jay Hancock pointed out his Sun blog that highlighted our story, it is hard to get "somebody who moved because of Maryland's high taxes to go on the record. Maryland tax flight is real, but most folks changing their residence to Florida or Virginia don't want to be quoted in the paper, for obvious reasons." We got a shout out from the Post's Michael Rosenwald as well.

Both online articles produced a long string of comments, many of which are none too kind to Gaver, who it must be emphasized is not "retiring" to Florida. He is 50 and is likely moving his business there as well.

CLARIFICATION: My faithful liberal reader Steve Lebowitz points out the relative Gaver cites in the article couldn't have possibly gained her large refund through the earned income tax credit.

That's was my interpretation of the number Gaver told me about this single mom getting back $2,000 more in a federal refund than she paid in taxes. The businessman used it to illustrate his objection to the "redistribution of wealth."

I have not seen this woman's private tax return, and I assumed she used the EITC. It's very possible that she benefited from other tax provisions. I have no idea, and I'm not going to ask Gaver to reveal any more details he may know about the tax return of a relative who is also an employee. It is irrelevant to the topic of tax flight because of high state income taxes, and maybe I should have left it out of the story completely. Both will pay the same federal taxes in either state.

WMNF's Radioactivity: How much do Americans pay in taxes?

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(Original Post)

How much do Americans pay in taxes?

Citizens for Tax Justice's Senior Counsel Rebecca Wilkins discussing tax fairness and the distribution of taxes with WMNF 88.5's Robert Lorei.

08/11/11

Rebecca Wilkins Discussing Tax Fairness with Robert Lorei on WMNF 88.5's by taxjustice

Huffington Post: Dick Durbin: Sacrificing Social Security, Recovery?

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Original Post

August 9, 2011

by Curtis Black

Now that the debt ceiling crisis is behind us -- and as its disastrous effects, possibly a new recession, unfold -- it's time to take a look at Senator Richard Durbin's role in shifting the debate away from the jobs crisis and legitimizing attacks on Social Security.

In the midst of the crisis, Durbin and the so-called Gang of Six senators unveiled their deficit reduction proposal, claiming a $4 trillion reduction over ten years. It would reduce Social Security benefits, cut Medicare and Medicaid heavily, and cap discretionary spending. The "gang" proposed immediate cuts of $500 billion.

The Durbin gang's plan claimed to raise revenues by $1 trillion by closing loopholes and ending deductions, while reducing the top tax rate on millionaires from 35 percent to as low as 23 percent. New revenues would be dedicated solely to reducing taxes or paying off debt.

Progressives roundly and rightfully condemned the proposal. The Congressional Progressive Caucus called it "a terrible plan" and vowed to oppose it. Senator Bernie Sanders, citing "major cuts in Social Security," called the plan "a disaster for working people and their families, for the elderly, for the sick, for children and for low-income people" -- while "the tax rates will be lowered for the wealthiest people and the largest, most profitable corporations."

When Sanders said Social Security (which has nothing to do with the federal deficit) should not be part of a deficit reduction deal, Durbin disagreed, saying, "I think Bernie is going too far."

The Raw Deal

The Center for America's Future called Durbin's plan a "raw deal" that will increase unemployment and income inequality and cripple the government's ability to get the economy moving. The plan shows "how divorced Washington is from the struggles that Americans face," said Robert Borosage of CAF.

The plan includes "immediate and significant cuts to Social Security benefits" and "virtually guarantees devastating cuts" further down the road, said Nancy Altman of the Strengthen Social Security coalition. The plan would reduce Social Security benefits by $112 billion over the next decade, she said. Remember all those promises by Durbin and others not to touch current beneficiaries?

And those vaunted revenue increases? Getting Republicans to sign on to higher revenues and defense cuts was supposed to be the Gang of Six miracle. Not so much, according to Citizens for Tax Justice. Minus a "deceptive accounting gimmick," the plan actually reduces revenues, CTJ said. In fact, the group said, it actually increases the deficit!

The plan also increases incentives for U.S. corporations to move jobs overseas and hide their profits in offshore tax havens, said CTJ, which previously gave Durbin a 100 percent favorable rating on his voting record.

Durbin's plan leaves untouched the most regressive loophole in the tax system -- the reduced capital gains rate, which taxes income on stock and bond earnings at a lower rate than wages and salaries, ensuring that "the richest Americans [will continue to] pay a lower rate of taxes than their chauffeurs," said CAF. (The "loopholes" it would target are those that help the middle class -- the home mortgage deduction, the exemption on employer health care.)

Dean Baker of the Center for Economic Policy and Research pointed to "huge tax breaks for some of the wealthiest people in the country." Under Durbin's plan, he said, a retiree in her 90s getting $15,000 a year would end up losing $1,000 annually, while JPMorgan/Chase CEO Jaime Dimon, earning $20 million a year, will save as much as $3 million a year on his tax bill.

In Denial

Durbin accused his "friends on the left" (watch your back when you hear that phrase) of being in "denial" about the severity of the deficit and the danger of Social Security insolvency.

But it's Durbin who is in denial. He certainly knows the facts of the matter: that Social Security currently has a $2.6 trillion surplus; that it has no connection to the federal deficit, being funded entirely by payroll taxes; and that its long-term problems could most easily and fairly be fixed by raising the cap on payroll taxes, so the wealthy pay their fare share.

He knows that the federal deficit was caused not by Social Security or Medicare: it was caused by the Bush tax cuts; by pointless wars in Iraq and Afghanistan costing trillions of dollars; by rising health care costs, fed by insider deals with insurers and Big Pharma; and by the recession, which cut revenues and raised costs dramatically.

And if he doesn't, he certainly should know that cutting federal spending now will increase unemployment and stall recovery, and that getting the economy going again -- which will require federal action, since no other sector is up to the task -- is the only realistic way to reduce the deficit.

What is Durbin doing? He says he wants to ensure that progressives have "a seat at the table." That's fine if it means progressive principles will be represented there. But Durbin seems to have compromised on even his own minimal stated principles; he told WBEZ his goal was protecting the safety net and progressive taxation. Much less did he stand for a progressive response to the immediate economic crisis: a serious jobs program.

Liberal cover

Durbin is providing liberal cover for attacks on Democratic programs. Indeed, shortly after the Gang of Six plan was unveiled, President Obama embraced it -- and went on to propose $650 billion in cuts to Social Security, Medicare, and Medicaid, including raising the age of Medicare eligibility to 67.

There's little doubt Durbin was tasked by the Obama administration with pushing deficit reduction, and chosen precisely because of his liberal credentials. (He's played this role previously, on Obama's ill-fated deficit reduction commission, the subject of a previous post.) Obama has disastrously chosen to focus on the debt crisis, to the exclusion of the real crisis, the jobs crisis, which is at the root of the soaring deficit.

As Elizabeth Drew explains, this is part of a campaign strategy to attract independents. (It's a bad strategy, too, since independents care more about jobs than the deficit.) Bill Daley is serving as Obama's Andrew Mellon.

In doing this, Obama has -- disastrously -- empowered the Tea Party. He's taken up Tea Party rhetoric in an attempt to co-opt their issue, but ended up playing entirely on their turf. Obama began focusing on the deficit early in his term, and he's been emphasizing it for over a year. And it was Obama who insisted the debt ceiling deal include a "grand bargain" on deficit reduction.

James K. Galbraith argues that the debt deal got the president exactly what he really wanted -- locked-in domestic spending cuts, a path to severe cuts in Social Security, Medicare and Medicaid, and no tax increases.

Now Obama wants to "pivot" to jobs -- but he's just negotiated a deal that makes serious action on jobs virtually impossible. Instead he'll turn to Wall Street-favored free trade deals. (Much more real was his pivot between a realistic approach to Social Security as a candidate, and a sudden focus on "entitlement reform" as president-elect.)

Smart Politics

The smart politics would be progressive politics -- to maintain consistently that the immediate issue is not a debt crisis but a jobs crisis; that the economic collapse makes Social Security more important and less expendable than ever; and that containing health costs means expanding Medicare, not contracting it.

In fact, as Robert Reich and CAF's Dave Johnson point out, polls consistently show the American people support taxing the rich, creating jobs, and maintaining Social Security and Medicare. And even Larry Summers -- even Ben Bernanke! -- say an austerity program at this time is going to damage economic recovery.

Durbin has enabled Obama in this politically and economically disastrous approach.

Durbin described the Gang of Six plan as a middle ground between the supposed extremes of the Ryan budget plan and President Obama's proposals. But both those approaches accept the Wall Street/Beltway analysis that government spending is the problem. When Obama said "everything is on the table," he meant Social Security and Medicare, because he'd already taken jobs programs off the table.

The real alternative, which actually reflects the American mainstream, was the People's Budget of the Congressional Progressive Caucus; somehow no one at the table brought it up.

In the debt ceiling negotiations, Durbin was an early proponent of the congressional "Super Committee," now tasked with cutting an additional $1.2 trillion from the deficit by December, with automatic cuts built in if Congress doesn't approve the committee plan. Social Security, Medicaid and Medicare are squarely in the sites of the Super Committee. Strengthen Social Security calls the deal "a recipe to raid Social Security."

Russ Feingold explains how the committee's setup -- the plan gets an up-or-down vote in Congress, no extended debate, no amendments, no filibuster -- makes cuts to Social Security a virtual certainty.

No Worries

If Durbin were a Republican betraying his party's principles, the Tea Party would be all over him. As it is, he has little to worry about. Progressives have established little leverage over Democratic politicians.

Robert Borosage argues this is due to "money politics and the passivity of the Democratic base." Progressive groups, including weakened labor unions, must compete for influence within the party with well-funded corporate Democrats. And they seem to value their access a lot -- a place in the "veal pen" where they can enjoy being cursed out by the likes of Rahm Emanuel. It's the old "seat at the table" syndrome.

"Progressives need to learn not so much from the Tea Party as from their own history and build an independent movement to stand with working Americans," argues Borosage, whose CAF is part of the American Dream Movement:

Unlike the Tea Party fringe, a progressive movement has the advantage of mobilizing Americans around values and the policy priorities that are supported by a broad majority. It can organize to hold legislators in both parties accountable, demanding that they stand up for the many, not the privileged few.

Today, a range of groups are doing just that, calling on members to inundate Congress with demands that Medicare and Social Security be protected, and that the rich pay their fair share of any deal. The challenge for the movement is whether it can gear up to run its own challengers in Democratic primaries against incumbents who are more responsive to their contributors than their constituents.

"People who adhere to the core Democratic values Obama has abandoned need a strategy for stronger resistance," writes William Greider. "To be blunt, progressives have a pick a fight with their own party."

Though Durbin has clearly been in Washington too long, he is not likely to get a serious primary challenge. (It's a shame that a senator who's considered unbeatable doesn't use his strength to push things in a progressive direction; and instead lends his good name to legitimize the Beltway consensus.)

But he should certainly hear from his constituents, the people who need the jobs, Social Security and Medicare, early education programs and college grants and nutrition assistance -- all of the programs that real people need and that Durbin has traded away, while boasting of his "pragmatism."

And perhaps Senator Durbin should rethink his relationship to an administration that

Virginian-Pilot: Back-to-school shoppers hit stores for tax holiday

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Original Post

August 6, 2011

by Carolyn Shapiro

Rich Tourville stopped Friday morning at JCPenney at Greenbrier Mall to pick up a birthday present and back-to-school clothes for his son, who will turn 5 on Sunday.

The Chesapeake dad didn't realize he would save the 5 percent Virginia sales tax on those items. The state's sixth annual sales tax "holiday" began Friday and continues through Sunday. It allows consumers to buy school items that cost $20 or less and clothing and shoes priced $100 or less without paying sales tax.

"I had no idea until I walked into the store," said Tourville, 35. The tax break would prompt him to buy more than the backpack, sneakers and shirts already in his hands, he added. "Might as well knock it out while I'm here."

Tourville stood in the department store surrounded by parents more savvy about the tax savings - mostly moms shopping with children for clothes. Many said they headed to the mall to take advantage of the tax holiday.

Tonia Thomas, with two growing boys in need of new shoes as frequently as every six months, watches for the sales tax holiday every year, she said. "It's a help right now," she said. "Any type of savings we can get, even if it's a dollar, is worth it."

Thomas, 44, was out of work for more than two years. She landed a new job with Sentara Healthcare in January, she said, but that didn't stop the Virginia Beach mom from keeping a firm grip on expenses.

She bought new sneakers for 14-year-old Tyler for $80 but returned them after finding the same pair for $65 in another store. Tyler liked a shirt he saw for $23, but his mother nixed that in favor of less-expensive versions.

"They're on sale for $5.99 today," said Thomas, who spends about $500 each school year for Tyler and his brother, Malcolm, 10. "We'll get four for that same price."

Signs reading, "Wow! Tax free," peaked out from behind posted prices on much of JCPenney's boys and girls clothing. Over the loudspeaker, store manager David Mattox announced the tax savings and other deals for that weekend.

"We continue to see more and more customers come out and take advantage of the savings and the tax-free" event, Mattox said Friday just after the store opened.

Virginia launched its first sales tax holiday in August 2006. Retail Alliance, the trade group for the region's merchants, and other retailers lobbied hard for the holiday in hopes that it would prompt consumers to start their back-to-school shopping early and spend more. In passing the legislation, General Assembly members said they wanted to help consumers afford the things they need to send their children to school.

The Institute on Taxation and Economic Policy, a research organization that provides information for policymakers, put out a news release last week arguing that more affluent families, not the low-income consumers who need it most, glean greater benefits from state sales tax holidays simply because they spend more.

Instead of sales tax breaks, the institute endorses income tax credits for purchases of basic necessities, which account for a larger percentage of a low-income family's budget than for a wealthy consumer's budget.

Many JCPenney shoppers Friday agreed that the savings is small, though it helps.

Leslie Russell came to the department store Friday morning to find a backpack and clothes for her daughter Kelsey, 10, and get the no-tax benefit on those, she said. The 38-year-old Chesapeake mom shops year-round for clothes and school items to spread out the expense and has saved more money at other times of year, she said.

"I think some things go up during tax free," Russell said. "And I know they do a lot of good sales before now."

Minneapolis Star Tribune: To fix the deficit, first wise up about accepted wisdoms

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Original Post

August 6, 2011

by Eric Wieffering

Last week's vote to raise the debt ceiling left the United States facing the worst of all worlds: the prospect of a weaker economy and the likelihood of higher debt levels, since the planned spending cuts will not offset the surging cost of entitlement programs.

So, rather than instill confidence, the budget measure contributed to the spasm of selling that has gripped Wall Street and other world markets in recent weeks.

Now a joint congressional committee has until Thanksgiving to come up with $1.5 trillion in deficit reduction. In theory, this is a chance to get things right.

Will it happen? Probably not, and only if everyone takes a deep breath and abandons many of the talking points and outright fallacies that have shaped, and to some degree poisoned, the substance and tone of the debate to date.

Here's my partial list of the acceptable conventional wisdoms that should be ditched because they are, at best, misleading if not flat-out wrong.

ACW: The budget can be fixed by slashing frivolous items that most people won't notice.

Reality: Almost 60 percent of the federal budget is sucked up by entitlement programs such as Social Security, Medicare and Medicaid. These budget amounts are determined by formulas set decades ago, and are the primary reason government spending is out of control.

Why this matters: If entitlement programs are off-limits, all cuts must come from discretionary spending, including defense. If the military is off-limits, that limits cuts to departments and programs that currently comprise about 15 percent of the total federal budget, such as the FBI, the Drug Enforcement Agency, the National Park Service and the National Institutes of Health. Cutting those programs to the bone won't offset the growth in entitlement spending. The upshot: Everything has to be on the table if we really want to get spending under control.

ACW: The Bush-era tax cuts benefited only the rich.

Reality: Just about everyone saw their tax rates go down, with some of the biggest declines coming among lower-income groups. Joint filers with a taxable income of $65,000 are now in the 15 percent tax bracket, versus the 28 percent bracket in 2000.

Why it matters: The last across-the-board federal tax increase occurred in 1993. The Bush tax cuts lowered rates for everyone, but those in the top two brackets still pay more than they did in 1992. Raising only their taxes may be unfair, and it would do little to reduce the deficit.

ACW: The United States has the highest corporate taxes in the world. This tax on "job creators" partly explains why the unemployment rate remains persistently high.

Reality: Only partially true. The top federal tax rate of 35 percent has been in place since 1993 and is one of the highest in the developed world. But the U.S. tax code has so many loopholes that most companies pay far less, and many of the biggest companies pay nothing.

A Government Accountability Office study released in 2008 found that more than half of all U.S. companies paid no federal income taxes in at least one of the seven years studied. Earlier this year, the research firm Capital IQ, in a study performed for the New York Times, found that 115 firms in the S&P 500 paid a total corporate tax rate -- both federal and otherwise -- of less than 20 percent over the past five years, and that 39 of those companies paid a rate of less than 10 percent.

An analysis by Citizens for Tax Justice, meanwhile, found that 12 large companies that had combined profits of $171 billion over the past three years had an effective federal tax rate of negative 1.15 percent, thanks to a dizzying array of loopholes, shelters and special tax breaks.

Why it matters: Tax simplification was on the table at one point during the budget discussions and should be brought back. Eliminating deductions and loopholes would help pay for lower corporate rates, which would make the U.S. more competitive for domestic firms and foreign firms considering expansion options. Instead of stashing cash abroad in foreign subsidiaries, where it is exempt from U.S. tax collectors, U.S. firms might expand at home. That would mean more jobs.

ACW: The U.S. national debt has increased more under Obama than any other president in recent history.

Reality: Not true. In percentage terms, the national debt increased faster under Ronald Reagan than any other president of the past 50 years: 187 percent. In second place was President George W. Bush. During his eight-year watch, the national debt rose by $5 trillion, or almost 88 percent. During Obama's time in office it has increased by almost $4 trillion, or roughly 35 percent. If he wins a second term, the national debt would have to almost double to more than $30 trillion for Obama to take the crown rom Reagan.

Why it matters: The U.S. economy has a lot of moving parts, many beyond the influence or reach of the party that controls the White House. For example, 10 of the last 11 recessions began when a Republican occupied the White House. Concluding that Democrats do a better job of managing the economy based on this fact is no more accurate than holding President Obama responsible for all our current woes.

 Every president and Congress inherits some economic forces that have been years in the making. We would be better off if they spent more time working together to confront and solve problems and less time assigning blame.

Bill LuMaye Show: What Is the Liberal's View on Taxes

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(Original Post)

What Is the Liberal's View on Taxes

Steve Wamoff, Legislative Director for Citizens for Tax Justice and author of "America's Tax System is Not as Progessive as You Think."

August 8, 2011

Steve Wamoff Discussing Progressive Taxes with Bill LuMaye on WPTF 680 by taxjustice

Dollars and Sense: Jobs, Deficits, and the Misguided Squabble over the Debt Ceiling

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Original Post

August 8, 2011

by Todd Koechlin

These are obviously very grim economic times. One in six Americans who would like full-time work is unable to find a full-time job. Millions of Americans have lost their homes, and many millions more are “underwater”—they owe more than their homes are worth. The pain has been felt by nearly every household in the United States. Some have been hit harder than others. The unemployment rate for African Americans is double the rate for whites; since 2007, the median wealth of Black and Hispanic households has fallen by more than half. (Sabrina Tavernise, Recession Study Finds Hispanics are Hit the Hardest July 26th, 2011) The distributions of wealth and income in the United States—the most unequal among industrialized countries before the crash of 2008—have become more unequal.

In the midst of all of this suffering, U.S. corporate profits are at an all-time high. In 1980, the richest 1% of income earners in the United States claimed about 12% of all income; in 2008, they earned nearly one quarter of all income. The share of the top .1% has increased even faster. (See Huffington Post, Income Inequality is at an all-time high” (report on the work of UC-Berkeley Economist Emmanuel Saez). ; Paul Krugman, The Death of Horatio Alger, January 5th, 2004; Joseph Stiglitz Of the 1%, by the 1%, for the 1%, May, 2011; Emmanuel Saez Striking it Richer: The Evolution of Top Incomes in the US, July 10th, 2010) The U.S. economy and the human beings it ought to serve are suffering, first and foremost, from a jobs deficit. Closing this gap—creating and facilitating the creation of good jobs—should be the very top priority of Congress and the White House. At this point, it is not. Indeed, Republicans (enabled by President Obama) are currently doing what they can to make things worse.

The absurd squabble over the debt ceiling and the national debt is distracting, destructive, and almost entirely beside the point. The budget deficit is not the most pressing economic problem facing the United States—not by a long stretch. Whatever comes of these negotiations, it will not address the jobs deficit, and it will not improve the lives of the overwhelming majority of U.S. families. Indeed, it is likely to make things worse.

Let’s be clear: the Republican approach to the economy and the budget is deeply misguided, wrong-headed, mean-spirited, and irresponsible. Their approach is as familiar as it is appalling: more tax cuts for the rich; more tax cuts for corporations; and cuts in social programs, including Medicare and Social Security. This tack is unconscionable. It is also bad economic policy, that is, it will not promote growth and it will not create jobs. Nobel Prize winner Paul Krugman is exactly correct when he concludes that “the G.O.P... has gone off the deep end.”

President Obama’s approach is less troubling for sure, and clearly preferable to the appalling Republican strategy. But this is a very low bar. President Obama has, unfortunately, embraced the faulty premise that deficit reduction should be a top priority. As a result, the President is prepared to make substantial spending cuts at precisely the wrong moment—when the economy needs demand, and people need help. And, alas, Mr. Obama has demonstrated a disturbing willingness to pursue cuts in Medicare and Social Security.

An intelligent response to this crisis has to reflect an understanding of its causes. Cutting spending during a recession is like blood-letting an anemic patient, or invading Iraq in an attempt to disempower Osama Bin Laden.

Our best hope on this issue is that the President and Congress will be forced to “kick the can down the road.” We can only hope that whenever we re-encounter the can, saner heads will prevail—or, more to the point, that the balance of political forces will have changed enough that we won’t have to endure a repeat performance.

Some good ideas and some bad ideas about the economic crisis, economic policy, and the federal budget

1. Cutting spending in the middle of a recession is a terrible idea. It will destroy jobs, and undermine the economy’s already feeble momentum. Intelligent spending—extending unemployment benefits, block grants to states and municipalities, spending on green infrastructure, and keeping college affordable, for example—will create jobs today, lighten the load of those who are in the most economic trouble, and facilitate growth and competitiveness in the long run. Serious, enforceable, well-funded efforts to liberate home owners from their enormous debt burden would help to re-ignite consumer spending and the housing market.

This is indeed the worst crisis since the Great Depression. How did and why did the Great Depression finally come to an end? After nearly a decade of mass unemployment (peaking at 25%), the U.S. government increased its debt financed spending massively to pay for the War; that is, it ran enormous budget deficits. War spending put people to work; these newly employed workers spent their income, and this spending created jobs for others. In fact, during the war, the U.S. economy suffered from labor shortages. The U.S. government and corporations actively recruited women into professions and trades that had previously been off limits—women in large numbers “manned” the factories and shipyards.

An implication of this argument and this history is that the primary problem facing the U.S. economy is not the budget deficit. Indeed, in the short run, substantial budget deficits are likely to accelerate the recovery.

The National Debt is often characterized as “a burden to future generations.” In fact, deficit spending—and the long run growth and opportunities that it can facilitate—can be a gift to our children and grandchildren. Debt financed investments today can leave them with a more prosperous, productive, sustainable economy, an economy that can provide them with educational, economic and personal opportunities that would not otherwise have been possible.

Notice, also, that, during a period of economic stagnation, budget deficits and government spending can be good for business. Rising demand means rising revenues, and this provides businesses with an incentive to hire workers. With adequate demand, it will be profitable for many businesses to increase hiring.

2. The current debt ceiling “crisis” is utterly unnecessary; it is an irresponsible political maneuver by the Republicans. Since 1962, the debt ceiling has been raised 74 times (including 18 times under President Reagan). With one exception—Newt Gingrich’s government shut down in 1995—this has been trivial and routine. If Congress simply voted to raise the debt ceiling—allowing the Treasury to pay its bills, as it is mandated to do by the Constitution—there would be no crisis. If the Republicans want to make changes in economic policy or shrink the federal government that is their prerogative. But this is not a reasonable or responsible way to make policy. It is an especially irresponsible way to make major decisions about the government’s long-standing commitment to provide health coverage and minimal economic security to elderly Americans.

3. The Republicans do not care about reducing the deficit. Their objective is to cut taxes—especially for the rich—and dismantle what’s left of the New Deal. Indeed, they have a long history of enthusiastically supporting enormous budget deficits and squandering surpluses (see the presidencies of Reagan and George W. Bush). Representative Paul Ryan’s proposed ten-year budget—which got unanimous support from House Republicans in April—proposes trillions in tax cuts (over ten years), cuts which will overwhelmingly benefit corporations and the rich. Note: tax cuts do not reduce deficits! Ryan’s plan also includes massive cuts to programs that benefit the poor and the middle class (most notably Medicare and Medicaid). According to the non-partisan Congressional Budget Office (CBO), Ryan’s plan would reduce the deficit by $155 billion over 10 years—a meager $15 billion per year. The Republican plan is rooted in politics, ideology, and mendacity. There is no evidence at all that it is rooted in a commitment to “fiscal responsibility.”

4. Taxes in the United States are extraordinarily low. Taxes in the United States are lower (as a share of GDP) than any other industrialized country. As a share of GDP, U.S. corporate taxes are lower than every industrialized country but Iceland. Tax rates for corporations and the wealthy have fallen substantially over the past 30 years. In the three decades following World War II—when taxes on the wealthy and corporate profits were considerably higher—the U.S. economy performed better: higher average growth rates, lower average rates of unemployment, and a much more equal distribution of income. Tax cuts for the rich are unfair, and trickle-down economics—the notion that giveaways to corporations and the rich will stimulate growth and employment—simply does not work. (For wonderfully illustrative charts about this, see Ten Charts that Prove the US is a Low-Tax Country, June 10th, 2011; US is one of the Least Taxed Countries June 30th, 2011 )

5. If political pressures compel us to focus on the deficit at this moment, our first step should be to tax the rich more heavily. Refusing to extend President Bush’s tax cuts (which will expire in 2013) for the top 5% income earners would raise government revenue by more than two trillion dollars over ten years. Spending cuts (if we must) should be back loaded—that is, they should occur disproportionately down the road, so that they do not undermine our efforts to get out of the current economic malaise.

6. The U.S. federal budget deficit (and the National Debt) is not analogous to overspending by a household. The U.S. government—despite a National Debt that is $14 trillion and growing—will not go bankrupt. Budget deficits can be problematic for sure; but at this moment, the benefits of debt financed government investment overwhelm the costs. (More on this below.)

7. Republicans have been working diligently to disempower the Government’s ability to regulate Wall Street’s excesses, and protect consumers. Their current target is the brand new Consumer Financial Protection Bureau. If they are successful, another financial crisis is inevitable.

8. This economic crisis is a devastating indictment of neoliberalism, the free market ideology that has framed economic policy debates since Ronald Reagan. The financial meltdown of 2008 revealed (yet again!) that financial markets do not regulate themselves. The deep and ongoing recession that followed reflects the fact that depressed economies do not have a reliable mechanism for restoring full employment, prosperity and growth. The “Invisible Hand” cannot do it alone. In early 2009, many of us imagined that this ideology was on its last legs. Even Alan Greenspan—the once legendary Federal Reserve Chairman, the “Maestro” of monetary policy, and a devoted protégé of the libertarian icon Ayn Rand—acknowledged before Congress that the model on which his worldview and policy recommendations had been premised—the view that unfettered markets (including financial markets) are efficient and stable—had failed. Of course it had! How could anyone continue to argue that laissez faire works? How indeed! But bad ideas can be resilient—especially when they are promoted by well-funded think tanks.

The Logic of a Recession: What happened to all of the jobs?

The catalyst to this current economic disaster was an unregulated financial system that ran amok—as unregulated financial systems inevitably do. Financial panics and crises are a chronic part of let-it-rip capitalism. If financial markets are not regulated adequately, this tendency will eventually manifest itself. The historical record is overwhelmingly clear about this.

The financial system crashed in October, 2008—although the strains had been mounting for years. Major financial institutions failed; housing prices collapsed and foreclosures spiked; the Dow Jones Industrial Average fell by nearly half, and banks stopped lending money. Investors panicked—with good reason. Consumers, spooked by shrinking retirement accounts, plummeting home prices, layoffs, a pervasive sense of economic chaos and, of course, declining incomes, cut their spending. The U.S. economy shed nearly two million jobs over the last third of 2008, and another four million in 2009.

The essential logic of a recession is not terribly complicated. When businesses experience declining demand, they shed workers (or decelerate hiring). These laid-off workers in turn cut their spending, because they must. In some cases, their increasingly nervous neighbors begin to reduce their spending also—they put off buying a new car, taking a trip, or re-modeling the kitchen. This thus the process accelerates—car dealerships, airlines, hotels, and contractors (etc.) are forced to lay workers off. These newly unemployed workers spend less, and so on. Tax revenues fall, forcing state and local governments to fire teachers, cops, and to cut social spending when it was needed most. At some point, apparently healthy businesses begin to worry that their demand projections are overly optimistic; many decide to put off investment in plant and equipment. Because of this “multiplier” process, “shocks” to the economy have the potential to accelerate. According to a recent Wall Street Journal article:

The main reason U.S. companies are reluctant to step up hiring is scant demand, rather than uncertainty over government policies, according to a majority of economists in a new Wall Street Journal survey (Phil Izzo, “Dearth of Demand Seen Behind Weak Hiring,” WSJ, July 18th, 2011)

Insufficient demand explains the Jobs Deficit, not “high” corporate taxes, not regulation, not immigration, not “uncertainty” about taxation and regulation, not President Obama’s health care plan, nor his allegedly flawed leadership. Spending by the private sector—consumers and businesses—is not, at this moment, up to the job of ensuring full employment. So the government needs to provide demand.

The Federal Reserve can facilitate private spending (demand) by keeping interest rates low. The federal government can generate demand by (a) spending (including grants to strapped state and municipal governments); (b) working to reduce the debt overhang constraining homeowners, and/or (c) lowering taxes on the middle class and extending unemployment benefits (the middle class and the poor spend a greater share of their income, and so tax cuts for the middle class are more effective than tax cuts for the rich).

Again, the U.S. economy emerged from the Great Depression because the Government spent like mad. “Future generations” (Baby Boomers, their kids, and their grandchildren) benefited enormously from this debt financed spending, because they inherited a more prosperous, productive economy, an economy that provided them with educational, economic and personal opportunities that would not otherwise have been possible. Deficit spending—and the long run growth that it can facilitate—can be a gift to our children and grandchildren.

Let me be completely explicit: an intelligent response to this crisis will lead to larger budget deficits in the short term. Budget deficits and government debt are potentially problematic but, at this moment—as in 1939—the benefits of deficit spending overwhelmingly exceed the costs.

Burdening Our Grandchildren? Why a Smart Deficit is a Gift to Future Generations

The commonplace assertion that budget deficits are a “burden to our grand-children” is both vague and deceptive, in large part because it fails to acknowledge that deficit spending today can—if done wisely—provide enormous benefits to us, our neighbors, our children and our grandchildren.

The U.S. government finances its deficits (the difference between revenue and spending) by borrowing. Generally speaking, it borrows by selling bonds—which are essentially IOUs (with interest) from the U.S. Treasury to bondholders (lenders). The Government borrows from many sources—individuals, pension funds, banks, foreign governments—and it pays these lenders back with interest.

There is a tendency to think that borrowing is inherently problematic, that it implies that we are “living beyond our means.“ But this is a dangerously narrow understanding of debt. Individuals borrow money all the time—to finance homes, cars, appliances, and college educations. Businesses borrow money to finance investment in equipment, technology, and research and development; many businesses have lines of credit with their suppliers, and this often works for both parties. Municipalities commonly undertake “bond issues” to finance school construction and other “capital’ projects.

Sometimes, of course, borrowing is a bad idea. But borrowing can also allow a family, a business, or a government to make useful and/or productive purchases that otherwise would not be possible. Is borrowing a problem? It depends on what the borrowing is for, and it depends on the capacity of the borrower to repay the debt.

Government spending can improve the quality of our lives. Government spending pays for schools, environmental protection, parks and other public spaces, food and drug safety, public colleges and universities, fire and police protection, infrastructure, consumer protection, and health and income security in old age, to name just a few. Beyond the provision of these beneficial services, the government can create (and facilitate the creation of) jobs. When the economy is stagnant, an important benefit of borrowing is that it can lead to job creation.

So, we have a choice. We can limit the growth of the national debt by firing school teachers, cops, firefighters and mine inspectors; cutting health care coverage for the poor and elderly; ignoring our long run energy issues, defunding our public schools, and forcing states to raise tuition at our public universities ...and destroying millions of jobs. Or we can borrow money to support these services while, at the same time, preserving and creating jobs. The Republicans pretend that cutting the budget is a magic bullet—more jobs, and less debt. But this is utterly wrong.

In 1939, the U.S. National Debt was about $40 billion. By 1945, it had grown by a factor of six to $259 billion dollars. The benefits of this borrowing were enormous. First, it allowed the Allies to defeat the Nazis (something that would have been more complicated if Congress were constrained by a Balanced Budget Amendment). Second, this debt financed increase in government spending facilitated economic growth and employment. The U.S. economy was more productive by far in 1945 than it otherwise would have been. A rich country with a moderate debt burden is, by any reasonable measure, preferable to a moderately rich country with no debt. Deficit spending allowed the United States to avoid six more years of massive waste—that is, unemployment. This was undoubtedly a very wise investment.

This does not imply that budget deficits are always wise. Again, it depends on what the government does with the money. For example, budget deficits soared under President George W. Bush. This stunning increase in debt was a terrible mistake, in my view, because the borrowing was used to finance massive tax cuts for the rich, and two expensive, ill-advised wars. (President Bush’s policies, by the way, have had a much larger effect on the deficit than President Obama’s time-limited fiscal stimulus.) In contrast to Bush’s folly, borrowing for job creation and mortgage relief during an historic economic downturn is a good idea. (For a breakdown of deficits under Bush and Obama, see James Fallows, The Chart that Should Accompany all Discussions of the Debt Ceiling, July 25th, 2011)

Government debt can be problematic, for sure, but it is not analogous to household debt. The U.S. government will not go bankrupt—it has never missed a debt payment and, unless Congress impedes its ability to meet its obligations for political reasons, it never will. That is, the U.S. government’s “capacity to repay” is enormous. No one who understands the basics of government finance believes that bankruptcy is an issue for the U.S. government (although deficit hawks often suggest that it is, sometimes disingenuously, sometimes out of ignorance). The U.S. government has run budget deficits in all but five years since 1961 (four of them under President Clinton). Sometimes it made sense, other times it did not. (See also the short appendix to this essay, "The National Debt is not like your credit card debt")

Why are budget deficits problematic? Deficits can cause inflation. They can also put upward pressure on interest rates, and these higher interest rates, by making borrowing more expensive, can restrict the accessibility of capital to businesses and households, which can be a drag on investment and growth. Over the long term, this sort of chronic under-investment can be substantial, as can its effects on our living standards down the road. (For the wonks and/or economics majors among you, economists refer to this as “crowding out,” as in government borrowing may crowd out private borrowing and investment). It is worth worrying about, for sure.

The “good news” is that, in this depressed economy, interest rates are extraordinarily low. Inflation is also a minor concern; indeed “deflation” is arguably a greater threat.( For an excellent critical assessment of the “costs” of deficits, see Robert Pollin, Austerity is not a solution: why the deficit hawks are wrong, Nov/Dec, 2010.) At this moment in time, borrowing is especially easy and cheap because there are lots of potential investors sitting on big piles of cash and, further, in a depressed economy there are relatively few attractive alternatives—especially for risk averse investors.

All of this is to say that the potential benefits of deficit spending during a recession are great—it is by far the most effective way to address the jobs deficit; and borrowing can help us to deliver the goods and services on which many Americans depend, especially during a recession. (Paul Krugman No, We Can’t? Or Won’t?, July 11th, 2011)And at this moment in history, the “costs” of the deficit—its potential effects on inflation and interest rates are all but non-existent.

When the economy recovers sufficiently—when the Jobs Deficit has been resolved—relatively large budget deficits will probably no longer make sense. But until then, cutting spending is a terrible idea. I repeat: cutting spending during a recession is like blood-letting an anemic patient. The Republican “jobs program” starts with massive dismissals of teachers and other public sector employees. That won’t work.

The content of this spending is important, of course. A detailed proposal is beyond the scope of this short paper. This said, it is clear that Congress should pass another economic stimulus package—several hundreds of billions of dollars at least. This package ought to include generous grants to state and municipal governments, investments in green infrastructure, urban jobs programs, extended unemployment benefits, and more generous financial aid for poor and middle class college students. (Readers who are interested in what this might look like should look at Robert Pollin’s excellent 18 million Jobs by 2012, February 18th, 2010)

The great John Maynard Keynes was (and is) right: unregulated, let-it-rip capitalism is prone to financial crises; capitalism has no reliable mechanism for resolving a jobs deficit, and the free market generates intolerable levels of inequality. In contrast, the Republican Party, the Neoliberals, the “Efficient Market” theorists and other fetishizers of “The Market” are wrong. Please spread the word!

Appendix: The National Debt is not like your credit card debt

A government that issues bonds (i.e. borrows money) denominated in a currency that (a) it has the power to create and (b) is recognized as a reliable currency, does not need to worry about default (as a household or business does).

The U.S. Treasury can borrow from a long line of willing lenders, who are happy to lend to the U.S. government because there is so little risk. Indeed, raising the debt ceiling is important because it might undermine investors’ confidence that U.S. government bonds are essentially risk free. At this moment in time, borrowing is especially easy and cheap because (a) there are lots of potential investors sitting on big piles of cash and (b) in a depressed economy, there are relatively few attractive alternatives—especially for risk averse investors.

Unlike households and businesses, the U.S. government has no problem finding lenders because (a) it has the authority to tax and (b) it has the authority to create money and thus (c) it has little trouble finding willing borrowers. When investors have lots of other alternatives, the Treasury will likely have to pay a higher interest rate on its debt. But, again, they can always find a borrower.

And further, about half of the U.S. debt is owed to the Federal Reserve, which buys government bonds (i.e. lends to the government) with money that it creates. The Fed does not literally “print” money, but it does create it—essentially out of thin air. If I had the authority to tax my neighbors and, in a pinch, to print dollars, my credit limit would be higher.

This story generally surprises and troubles my students, in part because they have a notion that “printing money” leads to “hyperinflation”. As noted above, deficits can indeed cause inflation, and overly exuberant money creation will surely make inflation more likely. Thankfully, the Board of Governors of the Fed understands this, and so the Fed uses its power to create money with caution; indeed, sometimes too much caution. The proof of the pudding is in the data: over the past 30 years—during which time large deficits been common, and the Fed has routinely used its power to “monetize” debt (by creating money)—inflation has been low and stable (in 2009 prices actually fell slightly; in 2010, the inflation rate was 1.6%).

I understand that this can be a little hard to accept—creating money to facilitate a government’s borrowing appears to be irresponsible and unsustainable. But in the U.S. case—and for most of the world’s rich countries—it has not been a problem. In fact, it has played a key role in facilitating prosperity and growth over the post-World War II era.

I also understand that “money creation by the Fed” feeds into a theme in the Conservative narrative. Governments spending without limit! Creating money out of thin air! Imperiling future generations (and the value of the dollar)! I accept this intellectual discomfort—but this does not change the fact that these concerns are essentially unfounded and wrong. And this understandable misunderstanding should certainly not be the basis of economic policy—any more than discomfort with Darwin should lead schools to teach our kids that the earth is six thousand years old. That is an essay for another day.

The U.S. national debt is also different from the “foreign debts” that have regularly thrown many countries into financial and economy crisis (forcing many of them to run to the IMF because they are unable to pay their debts). These debts, generally, are denominated in dollars and other hard currencies. Banks (and the IMF) require repayment in hard currencies. A government in hock to Western banks cannot raise the money it needs by taxing its citizens; nor does it have the power to create dollars. And these “limitations” make it harder to attract private lending on reasonable terms. In cases like these, default is a very real and dangerous possibility.

Sources: Center for American Progress, “Ten Charts that Prove the US is a Low Tax Country,” June 10th, 2011; Citizens for Tax Justice, “US is one of the least taxed countries,”June 30th, 2011; Emmanuel Saez, “Striking it Richer: The Evolution of Top Incomes in the US,” July 10th, 2010; Huffington Post, “Income Inequality is at an all-time high” (report on the work of UC-Berkeley Economist Emmanuel Saez);. James Crotty, “The Great Austerity War: What Caused the Deficit Crisis and Who Should Pay to Fix It?” Political Economy Research Institute (PERI), June, 2011; James Fallows, “The Chart that Should Accompany all Discussions of the Debt Ceiling,” June 25th, 2011; James R. Horney, “Ryan Budget Plan Produces far Less Deficit Cutting than Reported” Center for Budget & Policy Priorities, April 11th, 2011; Joseph Stiglitz, “Of the 1%, by the 1%, for the 1%,”, May, 2011; Paul Krugman, “No, We Can’t? Or Won’t?,” July 11th, 2011; Paul Krugman, “The Death of Horatio Alger,” January 5th, 2004; Robert Pollin, “18 Million Jobs by 2012,” Feburary 18th,2010; Robert Pollin, “Austerity is not a solution: why the deficit hawks are wrong,”, Nov/Dec, 2010.; Sabrina Tavernise, “Recession Study Finds Hispanics are Hit the Hardest,” July 26th, 2011

 

 

Charlotte Observer: Who wins at sales tax holiday?

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Original Post

August 7, 2011

by Eleanor Kennedy

Shoppers flocked to stores Saturday for sales tax holidays in both North and South Carolina.

For Shon Clark, it's the best time to shop. The Concord resident and father of four spent close to $300 at Northlake Mall in Charlotte to get his children ready for school and treat himself to a few items he said he normally wouldn't buy.

"It benefits people with kids," Clark said. "It's been a great shopping experience."

Cathy Gallagher of Concord wasn't shopping for any back-to-school items, but she still came out for the weekend deals.

"I definitely ... try to take advantage of it," she said.

While shoppers like Clark and Gallagher enjoyed their savings, some critics question the weekend's value.

The N.C. Department of Revenue estimates it will lose $14.5 million in sales taxes over the weekend. Although that's not a lot of money compared to the state's $19 billion budget, Meg Wiehe, the state policy director for the Institute on Economic and Tax Policy in Washington, D.C., says it's money the state may need.

"One could argue that every little bit matters," Wiehe said, citing cuts to early childhood education and Medicaid in the state's most recent budget.

Some shoppers agree with the critics' arguments. Steve Walker of Belmont used the tax-free weekend to do most of his son's back-to-school shopping. But even though he's happy about the money he saved, he says he's not sure tax holidays are good for the state.

"Right now, where we are, it's probably not a good idea to be having these things," Walker said.

Critics also say the weekend doesn't do enough to help those hurt most by taxes.

The tax holiday is "not effective at addressing fundamental problems with our revenue system," said Alexandra Sirota, director of the N.C. Budget and Tax Center in Raleigh.

"Because it's offered to everyone, (the tax holiday) really doesn't address the fact that low-income people pay more of their income in sales tax," Sirota said.

Sirota and others say targeted relief programs - like the state earned-income tax credit, which returns some taxes to low-income individuals and families - are more effective ways to relieve the tax burden on low-income families.

"There's a right way to cut taxes and a wrong way," said Mark Robyn, an economist at the Tax Foundation in Washington, D.C., adding that besides being overly broad, sales tax holidays can be complicated for businesses.

"Sales tax holidays are the epitome of bad tax policy," he said.

The Tax Foundation reported that 17 states will hold tax holidays in 2011, down from 19 last year. N.C. Sen. Richard Stevens, R-Wake, recently suggested the state might not want to continue the program.

But analysts say it's unlikely the weekends will end.

"It's good politics," Robyn said. "Politicians like anything that's very visible, very tangible, that people can experience."

N.C. Rep. Ruth Samuelson, R-Mecklenburg, said in an email that tax-free holidays help pump money into the economy.

"These holidays show us that tax rates have an impact on spending behavior," Samuelson said. "Lower the rate and people spend more."

USA Today: Critics say states should discontinue tax holidays

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Original Post

August 6, 2011

by Jayne O'Donnell

The back-to-school sales tax holidays that start Friday in many states may be popular with politicians and retailers, but critics say revenue-starved states should abandon them.

Seventeen states plan to give shoppers a break on sales taxes for school-related purchases this season. Massachusetts and Arkansas added a holiday for the first time, while Illinois dropped its holiday this year.

Illinois State Sen. Toi Hutchinson, a Democrat who was chief sponsor of the state's holiday last year, says Illinois "just cannot afford it this year."

Massachusetts Gov. Deval Patrick, a Democrat, acknowledged last week that his state decided to have a sales tax holiday "not because it's particularly fiscally prudent but because it's popular," the Boston Globe reported.

New York was the first state to enact a back-to-school sales tax holiday in 1997. Other states soon followed, sometimes to keep residents from crossing state lines to shop in states with tax holidays. National Retail Federation CEO Matthew Shay says the holidays "bring people into stores like few other promotions." Studies have shown, however, that the holidays simply shift the timing of purchases consumers already planned.

The tax holidays can help consumers reap "a modest windfall," says Carol Kokinis-Graves of tax publisher CCH. But she warns consumers to watch out for exceptions, such as exclusions for athletic wear.

The Tax Foundation and the Institute on Taxation and Economic Policy say the holidays mostly benefit wealthy families. Low- and middle-income families don't have the discretionary income or time to shop only on the tax holidays, the groups contend.

The Tax Foundation says states should simply cut sales taxes if they want to give consumers a break. Policy think tank ITEP says states should instead offer sales tax credits to consumers who need them the most. To get the credits, eligible consumers would have to ask for them on their tax returns.

A sales tax credit could be designed to target the low- and middle-income families lawmakers want to help, says ITEP's Matthew Gardner.

"The striking thing about sales tax holiday laws," Gardner says, "is that policy people all over the ideological spectrum agree they're a dumb idea."

Counter Punch: Up the Revolution

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Original Post

July 24, 2011

by Michael Winship

We went to Mount Vernon in Virginia a few weeks ago. It was the first time I'd been to George Washington's family estate since a whirlwind day tour of Washington, DC, when I was a high school freshman. Our guide then was a fast-talking cabdriver who interlaced his rapid-fire wisecracks with an impressive command of facts and figures, many of which may even have been correct.

Today, the Washington plantation, once in sorry shape, has been beautifully restored, from mansion to slave quarters. At two, state-of-the-art visitor and education centers, sightseers can learn all about the great man's life and times, including a sound and light presentation on battles of the American Revolution that features howling wind and falling "snowflakes" -- tiny bits of soapsuds pumped into the theater -- when Washington crosses the Delaware.

The whole thing isn't run by the National Park Service, as you might have expected, but by a private, nonprofit organization, the genteelly named Mount Vernon Ladies' Association (MVLA), which raises money from ticket sales, food, souvenirs and money from individuals, foundations and corporations.

A lot of money. According to the MVLA's most recent annual report, "In 2010, 47,242 individuals, corporations, and foundations contributed more than $17 million to the Mount Vernon cause." With George Washington a favored Founding Father of the American right, no small amount of those funds have come from such conservative contributors as the Heritage Foundation, the F.M. Kirby Foundation, the Richard and Helen DeVos Foundation, the Mars family of candy bar fame, and newspaper publisher Richard Mellon Scaife.

Conservative screenwriter Lionel Chetwynd scripted the introductory film at the site's orientation center. And during her recent bus tour, Sarah Palin had paid a visit just a couple of weeks before our arrival, writing on her website that daughter Piper mentioned to her how hard Washington must have worked "to keep that farm going." Stephen Colbert responded, "It's true. I cannot imagine how hard he worked, with no help other than his African volunteers."

A quick perusal of Mt. Vernon's annual report reveals that its many corporate funders include the Ford Motor Company, Toyota, the Distilled Spirits Council of the United States, Altria (formerly Philip Morris), Coca Cola, the American Gas Association, PricewaterhouseCoopers, M&T Bank, Stanley Black & Decker and BAE Systems -- the massive, British-based defense contractor that last year pled guilty to criminal charges related to bribery allegations and paid almost $450 million in penalties to the United States and Great Britain. (Wonder what the George Washington of slaughtered cherry tree and "I cannot tell a lie" fame would make of that?)

In fairness, they all have helped preserve a beautiful historic landmark, but as I looked at their names, I couldn't help but think that they and their big business colleagues could perform an even greater patriotic service to America by working to create more jobs.

Naive? Not really. After all, as of last week, as per the website Zero Hedge and data analysts Capital IQ, 29 public companies -- including Bank of America, JP Morgan Stanley, Goldman Sachs, GE and Warren Buffett's Berkshire Hathaway -- each have more cash on hand than the US Treasury. And as Citigroup's Peter Orzag, former director of Obama's Office of Management and Budget wrote on July 13, we need to be "as bold as we can." Says he, "The right policy response is a combination of more aggressive attention to bolster the job market now and much more deficit reduction enacted now to take effect in a few years."

So why not make a sacrifice bigger than a nice hefty grant to Mount Vernon or the historic location of your choice and commit instead to finding employment for at least some of the 14.1 million out of work? After all, the Republicans keep telling us these corporations and their rich executives and stockholders need every last one of their outlandish tax breaks -- because they're job creators!

Yeah, right. In May, when Fortune magazine released this year's list of America's top 500 companies, its editors wrote, "The Fortune 500 generated nearly $10.8 trillion in total revenues last year, up 10.5%. Total profits soared 81%. But guess who didn't benefit much from this giant wave of cash? Millions of U.S. workers stuck mired in a stagnant job market... we've rarely seen such a stark gulf between the fortunes of the 500 and those of ordinary Americans."

In June, a report from Northeastern University's Center for Labor Market Studies found that since the economic recovery began two years ago, "Corporate profits captured 88 percent of the growth in real national income while aggregate wages and salaries accounted for only slightly more than one percent." It goes on to declare, "The absence of any positive share of national income growth due to wages and salaries received by American workers during the current economic recovery is historically unprecedented. The lack of any net job growth in the current recovery combined with stagnant real hourly and weekly wages is responsible for this unique, devastating outcome."

The report concludes that in this jobless, wageless recovery, "The only major beneficiaries of the recovery have been corporate profits and the stock market and its shareholders."

A new study conducted for The New York Times by the executive compensation data firm Equilar found that the median pay for top executives at "200 big companies" last year was $10.8 million: "That works out to a 23 percent gain from 2009." The richest one percent makes almost 25 percent of the nation's income. The Center on Budget and Policy Priorities notes that the United States has the worst income inequality of the 24 industrialized nations that belong to the Organization for Economic Cooperation and Development -- more horrendous, in fact, than Pakistan and Ethiopia.

And yet a recent headline on CNBC's website reads, "Firms Have Record $800 Billion of Cash But Still Won't Hire." Maybe they've never heard the Bible's exhortation that to whom much is given, much is expected, a sentiment well understood by George Washington, who gave up the life of a gentleman farmer -- twice -- to come to the aid of his fledgling nation.

Just a couple of days before Washington crossed the Delaware during that bleak Christmas of 1776, with real ice, wind and snow -- no soap suds -- Thomas Paine famously predicted that "The summer soldier and the sunshine patriot will, in this crisis, shrink from the service of their country." Today's corporate giants, blinded by greed, oblivious to the despair around them, are doing much the same. That can't last.

By the way, all those complaints about corporate tax rates and hanging on to their precious loopholes, subsidies and Bush tax cuts? The Center [Citizens] for Tax Justice, a nonprofit research and advocacy group, finds "the U.S. is already one of the least taxed countries for corporations in the developed world" -- as a percentage of GDP second only to, wait for it, Iceland. Up the revolution.

Michael Winship, senior writing fellow at Demos and president of the Writers Guild of America, East, is the former senior writer of Bill Moyers Journal on PBS.

New York Times: On Death and Taxes

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Original Post

August 4, 2011, 6:55 pm

Opinion by MARK BITTMAN

We’ve come to accept that 10 to 15 percent of ground turkey is contaminated with salmonella. You think that doesn’t have consequences?

Willie Neuman reminds us that they do, in today’s piece about the massive recall by Cargill. (37 million pounds. Are you kidding me? Two ounces for every American, man, woman and child.)

If you cook ground turkey or anything else to 165 degrees Fahrenheit you’ll kill the salmonella. But if you put the tainted food on your cutting board beforehand or you don’t wash your hands immediately after handling it, or if you cross-contaminate in any number of other ways — you can imagine — you can cook the burgers to 165,000 degrees and it won’t matter. Are people supposed to become food safety experts in their own homes? Doesn’t it make more sense to make the food products safe in the first place?

I never thought — not for a moment — that when I began writing opinion pieces for the Times I’d be writing about food safety practically every single week. But I now realize I could. And that’s tragic — at least one person has died from eating this tainted turkey — and disgusting and disappointing because this is fixable. Not, however, if corporations are allowed to make their own rules, as I wrote yesterday.

We need federal money to pay the agencies in charge of protecting us not only from dangers to our food supply — the F.D.A., U.S.D.A., and so on — but from the blind profit motive of corporations. This brings us to the subject of taxes, and while — for the time being at least — I’ll leave the broader topic of the past weeks’ Republican travesties in the capable hands of Krugman, Dowd, and Nocera (you should read each of these columns when you get a chance), I want to paraphrase a mostly one-way conversation between me and a friend of 50 years whom I used to consider a centrist (and he was). Now his common sense, quite constitutional approach makes him sound like a flaming radical.

Mostly, this was in response to a criticism of my tax bad food/subsidize good food story in the Sunday Review, which drew the ire of “libertarians” and others claiming that this was some kind of ridiculous notion, since the government shouldn’t “tell” us what to eat.[1]

My friend’s comments:

“Taxing foods that are proven to hurt society as a whole by raising healthcare costs is not the same as telling people what to eat. No one is saying “you can’t eat McDonald’s fries” — just pay a tax for the privilege of costing your fellow citizens more later.[2]

“Freedom demands responsibility. It’s the oldest cliché. Your freedom to swing your fist stops at the end of my nose.[3]

“All of this is so fundamental it could get missed. But there are three possibilities:

Government gets involved in all areas of choice, legalizing some, outlawing some, and taxing some.

No government involvement. No infringements on my “freedom.” This is the Tea Party position as I understand it. It’s absurd. That’s not society, but the jungle.

The government and the people who elect it decide on a case-by-case basis: Here are the areas where the government should govern for the common good; here are the areas where the government should not govern. One size does not fit all.”

“Some (mostly Republicans) seem to think that unfettered individuals always make the best decisions. Some (mostly Democrats) believe individuals do not always make the best decisions — that some people are not equipped and must to a certain extent be taken care of, and/or that sometimes our joint decisions are more valuable for most of us than when we act as individuals.[4]

“Some (mostly Republicans) seem to feel that less capable people should be left to die in the streets to get their inferior genes out of the survivor pool.[5] But though, yes, we are individuals, we are more importantly also members of the collective citizenry: we curtail our own limitless wants for the good of the whole. [6]

“We can probably agree that individual freedom is sacred and should not be infringed up to the point that my freedom is also your pain. Democrats think there are more necessary times to infringe than do Republicans. It would be nice if citizens were educated enough to make informed decisions and postpone gratification — to serve as adults in society. But we know we are not all well-educated and we know we are mostly weak willed. (Christians even believe man is fallen.)

“This would be O.K. if it did not also hurt others. That’s where individual freedom must be mitigated by some government paternalism.

“So. If people do not make healthy food choices, I can’t see why it’s wrong to have them pay a tax to offset the future cost to their fellow citizens of their decisions.”

It’s said that taxes, like death, are inevitable. Some deaths — those from toxic foods produced industrially — can be eliminated. Some of that elimination will take money; that money must come from taxes: there is no other way.[7]

Taxes, obviously, are not just about food but about everything from health care to roads to education to social security, and so on. Almost everyone, on both the left and the right, agrees that our current tax codes are unfair.

How so? You might glance at this chart from Citizens for Tax Justice, which shows that the United States is one of the least taxed countries in the developed world. So we’re hardly overtaxed, by global standards at least; rather, we’re incorrectly taxed: it’s no news that corporations and the super-rich [8] pay way too little. I’d argue that everyone except for those with really low incomes probably pay about the right amount. The point is that the total isn’t enough, and the question is how is the shortfall made up? Massive cuts hurt everyone but the rich. Tax reform — which should mean higher taxes for some, lower for some, and more fair for all — is a far better road than slashing-and-burning programs that serve us all well, programs that might, for example, keep people from being poisoned by their food.

The Center For American Progress believes that tax reform should be built on four principles: eliminating the bias against labor income and in favor of unearned income (that is, if you make your money because you already have money, you probably pay lower taxes than those who make their money by actually working; that’s not fair); making sure that tax breaks help low-income people as much as they help the rich; simplifying the tax code, which would ultimately raise more money from the rich and eliminate the alternative minimum tax, which burdens the poor and middle class; and raising enough money (which would allow us the pain [9] of the debacle of the last few weeks).

The fact that this kind of discussion is barely happening breaks my heart, just as it breaks my heart that we can’t make a lousy turkey burger safe.

Daily World (LA): Analyst says tax holiday not prudent

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Original Post

August 5, 2011

BATON ROUGE — State officials say the sales tax holiday today and Saturday only costs the state $3.7 million, but the director of the Louisiana Budget Project says that money has to come from somewhere.

Louisiana's sales tax holiday Friday and Saturday is one of the most generous in the nation, said LBP director Edwards Ashworth in a news release.

"A sales tax holiday is ill-timed and irresponsible at a time when our leaders are making significant cuts to critical services," Ashworth said. "This is just one more giveaway that contributes to Louisiana's fiscal crisis, jeopardizing funding for education, health care, and infrastructure."

The $3.7 million in revenue lost will ultimately have to be offset elsewhere in the budget, either through spending cuts or higher taxes, the LBP director said.

He recommends that Louisiana follow the example of Georgia and suspend such holidays.

"Though not politically popular, this would be a prudent step in Louisiana's fiscal future," Ashworth said.

Ashworth cites a policy brief by the Institute on Taxation and Economic Policy, a non-partisan research organization, which says sales tax holidays put a strain on states' budgets and are too temporary to significantly change the regressive nature of a state's tax structure.

Over the past decade, a growing number of states have been offering similar breaks to families with children before the school year begins.

But Louisiana's tax holiday is much broader, exempting from state sales taxes the first $2,500 of consumer goods purchased for personal use.

Proponents exaggerate the benefits of sales tax holidays for working families, he says. Unlike wealthier families, low-income families do not have the luxury of shifting the timing of their purchases to coincide with a sales tax holiday.

Advocate Tribune (MN): Guest Editorial: Taxes are a Pandora's box

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Original Post

August 5, 2011

Opinion-Editorial by C. Ford Runge

The game of chicken between the White House and the Republican-controlled House of Representatives over deficit reduction and the debt ceiling has resembled Minnesota's earlier budget struggle and shutdown -- although it has global economic implications that the Minnesota imbroglio did not.

In both cases, Republicans have made opposition to new taxes their touchstone. In this they show little originality. Taxes have been unpopular since Rome was imperial.
But government services are not free, and taxes are the means by which they are made possible. The question is: How can taxes be structured in ways that are fair and efficient and create improved incentives?

To suggest that taxes will cease as an instrument of fiscal policy, or that they will not increase in the face of irresponsible deficits run up by the Congress and the administration, is delusional.
Nonetheless, Republicans claim that any new taxes will "kill jobs," because U.S. businesses are already overtaxed. If they had glanced at their own Congressional Research Service's report of March 31, "International Corporate Tax Rate Comparisons and Policy Implications," they would learn that the United States had an effective tax rate in 2008 of 27.1 percent, slightly less than the 27.7 percent weighted average among industrialized nations' as a whole.

Even stalwart Republican economists such as Martin Feldstein and Gregory Mankiw, according to the July 13 New York Times, favor raising taxes by closing loopholes.

Republicans' feigned horror at the prospect of new taxes masks a dirty secret. The trouble is not just about raising taxes but about opening them to discussion at all.

The old taxes are so skewed in favor of the already rich that to open them to scrutiny would reveal a box unnerving even to Pandora, and especially damaging to the vast majority of Republicans who have pledged fealty to Grover Norquist and his no-new-taxes manifesto.

At both the state and federal level, tax exemptions and special arrangements for favored corporations result not just in tax avoidance but in actual transfers from state and federal coffers to companies and individuals.

These "negative taxes" are subsidies paid to some of the biggest companies in the nation. No one likes paying taxes, but who wants an open discussion when the tax system pays you?

Let's get specific. In June, Citizens for Tax Justice, a Washington watchdog group, released a partial list from a major forthcoming study of effective tax rates paid by Fortune 500 companies.

The 12 corporations analyzed were American Electric Power, Boeing, Dupont, Exxon Mobil, FedEx, General Electric, Honeywell, IBM, United Technologies, Verizon, Wells Fargo and Yahoo. From 2008 through 2010, these companies together reported $171 billion in pretax profits, but as a group, their federal income taxes were a negative $2.5 billion. In other words, they were collectively subsidized.

Eight of these firms reported negative taxes, including Minnesota's Honeywell International, with three-year profits of $4.9 billion and federal taxes of a negative $34 million. Wells Fargo, with $49 billion in profits, received a net tax benefit of $681 million. GE was the largest net negative taxpayer from 2008-2010, with $7.7 billion in profits and $4.7 billion in negative taxes.

Forbes magazine (hardly the Socialist Worker) noted that the explanation is often that these corporations transfer tax liability across international operations, so that the final accounting shows U.S. divisions operating at a loss.

Christopher Helman, a Forbes financial analyst, noted in an April 2 article that General Electric has two divisions: General Electric Capital and everything else -- engines, power plants, etc.
Over the last two years, GE Capital's risky lending has generated major losses in the United States ($6.5 billion in 2009), while its overseas operations showed healthy profits ($4.3 billion in the same year). U.S. losses, according to Helman, both balance out overseas gains and allow GE to defer taxes on overseas income indefinitely.

Even so, if the domestic side of these companies is losing money, should they receive compensation from the U.S. Treasury?

At the state level, Minnesota companies can also transfer gains out of state, costing Minnesota taxpayers millions of dollars in annual revenues.
It is one thing to argue that taxes interfere with the capacity of businesses to grow and invest. This is undoubtedly true. Tax-free treatment would be blissful for businesses (and very bad for society).

But it is quite another thing to realize that growth and investment by already rich companies have been subsidized by taxpayers, many with modest incomes. This is because the tax system has become rigged to shift wealth and income from the bottom to the top, a fact that Grover Norquist and his minions would prefer that you not learn. Now you know.

C. Ford Runge is a Distinguished McKnight Professor of Applied Economics and Law at the University of Minnesota. This article was first published in the Star Tribune.Ad

Watagua (NC) Democrat: Talk of town hits ceiling

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Original Post

August 5, 2011

Editorial

Much maligned, criticized, celebrated and congratulated, the one consistent about the federal debt ceiling increase is that it’s the water cooler talk of the moment in Watauga County and beyond. A roundup of statements taken from some of the more influential water coolers:

• We are relieved that Congress has acted on a bipartisan agreement to address the debt ceiling and prevent default to ensure that seniors will continue to receive their Social Security checks and have access to health care. — AARP CEO A. Barry Rand

• We are concerned by the requirement for additional defense cuts negotiated by a proposed bipartisan “super-committee” of 12 members of Congress. — Aerospace Industries Association

• This agreement starts us on a path forward to restoring market confidence while putting our nation on a path toward long-lasting fiscal responsibility. — American Council of Life Insurers

• Our goal will be to recommend savings that will make the most sense for our members and retain the most integrity for the farm programs that serve America’s farm and ranch families. —  Bob Stallman, President, American Farm Bureau Federation

• More taxes would slow down this critical engine of growth, jeopardizing the 9.2 million U.S. jobs our industry supports and the $86 million a day in taxes, royalties and other payments it delivers to our government. — American Petroleum Institute President and CEO Jack Gerard

• There are no easy options. The deal was designed to make people come together on this very controversial and divisive issue. But the same philosophical concerns are still going to be there as the process moves along. — Sander Lurie, American Pharmacists Association adviser

• We are greatly concerned that the amount of cuts already included in the deal will be most devastating for those on fixed incomes, who rely on government programs such as housing assistance, food stamps and home heating assistance, just to meet basic day-to-day needs. — Allan J. Jacobs, B’nai B’rith International president

• This is an important and positive step toward a more sustainable fiscal footing for the nation. Now, we must turn our attention to get the economy moving. — Ivan Seidenberg, Chairman of Verizon and Chairman of Business Roundtable

• The assault on Social Security, Medicare and Medicaid must be met with strong Democratic resistance. — Campaign for America’s Future’s co-director Roger Hickey

• The so-called “Budget Control Act” that President Obama signed into law to increase the federal debt ceiling and reduce the federal budget deficit marks the second time the Obama administration has capitulated on tax policy to the most extreme elements in Congress, those who are least in touch with the American people and most willing to risk economic disaster to get their way. — Citizens for Tax Justice

• The draconian cuts passed are likely to mean more people out of work, more people drinking poisoned water and breathing polluted air and a slower transition to a clean energy economy. It makes no sense to cut programs for the poor while we continue giveaways to oil and gas corporations and other polluters. — Friends of the Earth President Erich Pica

• As the deficit reduction process moves forward, we urge members of Congress to consider the impact of their decisions on people with HIV disease and other medically vulnerable populations. — HIV Medicine Association

• That goal has been achieved, but nobody should believe that this is more than a stopgap measure. The culture of spending in Washington must fundamentally change going forward. — R. Clarke Cooper, executive director of Log Cabin Republicans
By agreeing to unprecedented spending cuts without additional revenues — not even modest tax increases on the wealthiest billionaires and corporations — lawmakers have set in motion a series of events that are almost certain to result in devastating cuts to the safety net programs that protect the most vulnerable women and families. — Debra L. Ness, president, National Partnership for Women & Families

• Moving forward, members of Congress must remember the heavier a burden our conservation programs are forced to bear in the short term, the higher a risk we face in the long term — not just in higher public health costs, but in jeopardizing the wildlife and special places that generations of Americans have protected and handed down to their children and grandchildren. — Larry Schweiger, president and CEO of the National Wildlife Federation

• There is still much to be done to fix the country’s long-term debt and deficit problems —including reforming the tax code and bending the curve of entitlement spending — and this bipartisan legislation moves us closer to achieving those goals. — U.S. Chamber of Commerce President and CEO Thomas J. Donohue

• The deal reached by Congress and the Administration to raise the U.S. debt ceiling is a bad deal for workers. Congress has failed to offer leadership toward job creation. This legislation threatens the social safety net that seniors, children and the unemployed rely on. Even worse, leadership has capitulated to extreme demands that will further threaten the economic security of regular working people. — United Food and Commercial Workers International Union President Joseph Hansen

• The most recent budget deal would likely be most devastating to communities least able to afford them: women and families hardest hit during the economic downturn. — Women’s Legal Defense and Education Fund

The Hill Congress Blog: Proud to invest in America

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Original Post

August 5, 2011

by Paul Egerman

I love America, and have proudly invested in America. I have invested by building successful businesses employing thousands of American workers. And I have invested in our country by paying taxes.

But our nation loses $100 billion a year to tax dodging by some of our largest corporations and wealthiest people. That’s a trillion dollar hole in our national treasury over the next decade unless we act now to plug it.

Tax dodging companies are disinvesting in our country – not investing in it.

Many U.S. multinational companies use a gimmick called “transfer pricing” – shifting patents to their offshore subsidiaries, for example – in order to pretend they've earned their profits in a tax haven like the Cayman Islands, Bermuda or Luxembourg, even though their operations there may be little more than a mail box. What they’re really doing is transferring their U.S. profits offshore and transferring their tax responsibilities to the rest of us.

In this global version of a shell game, corporations move their profits to offshore shell company subsidiaries; the U.S. parent company reports to the IRS that they've made almost no profits, or even lost money on their U.S. operations. These companies are passing the buck to other taxpayers and robbing our national treasury of funds we need.

It sickens me that businesses like mine responsibly paid taxes at the rate of 35 percent on millions of dollars in profits while companies like GE would pay zero percent on billions of dollars in profits. Even worse, they had so many tax loopholes and tax subsidies that Uncle Sam actually owed them money. From 2008 to 2010, GE had $7.7 billion in pretax U.S. profits and $4.7 billion in tax refunds, giving it a negative 61.3 percent tax rate, reports the tax experts at Citizens for Tax Justice.

We need to ask what kind of country we want to have and who is going to pay for it.

I have been fortunate to live the American Dream. I know my success is due to many factors. I know, for example, as a software entrepreneur, that I would have had no business at all without the government assistance I received for my college education, or the government research that led to the Internet.

It’s obscene that computer and internet companies like Google, Microsoft, Apple and Cisco are part of a coalition clamoring for a tax holiday to “repatriate” profits they shifted to tax havens to avoid U.S. taxes.

It’s obscene that so many members of Congress are willing to legislate austerity for American workers, small businesses and retirees while leaving the door open for big corporations to dodge taxes through tax havens.

We all benefit from public services, infrastructure and research paid for by tax dollars – education and public transportation, the Centers for Disease Control and food safety inspections, roads, bridges and waterways, the Small Business Administration and economic development programs, police and courts, and the public safety nets, from unemployment insurance to food stamps, that so many depend on in these hard economic times.

Instead of reducing our debt by cutting vital services, we need to close two big tax deficits - the tax haven deficit and the deficit from the Bush tax cuts for the affluent. Each is worth a trillion dollars over the next decade.

The Stop Tax Havens Abuse Act introduced recently in Congress by Senator Carl Levin (D-Mich.) and Rep. Lloyd Doggett (D-Texas) would close the loopholes that reward those who disinvest in America and dodge taxes to unfairly boost their corporate treasuries. It should be a no-brainer solution in deficit reduction.

It is simply outrageous that we would ask unemployed and disabled Americans and Medicare and Social Security recipients to sacrifice more while continuing to shower tax savings on millionaires and billionaires who have a larger share of the nation’s income than any time since the 1920’s.

It’s time for Congress to plug the loopholes that allow our largest corporations to avoid billions of dollars in taxes, and it’s time for Congress to ask our wealthiest individuals, including people like me, to also pay our fair share of taxes. After all, American corporations and wealthy individuals should be proud to support our country and invest in its future.

Paul Egerman, a software entrepreneur, is co-founder and former CEO of the medical information technology company eScription.

National Post (Canada): Are the rich paying more than their share in the U.S.?

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Original Post

August 5, 2011

by Kelly McParland

All good situation comedies produce spin-offs, so it should come as no surprise that the wildly popular laugh-a-thon know as the U.S. debt debate has led to a comic sideshow, now playing under the working title “Who pays more taxes?”

The argument is tied to the increasingly popular assertion that “half of all Americans don’t pay taxes.” The notion that America’s wealthiest citizens already pay a disproportionate share of the country’s costs was one of the main reasons for the Republicans’ refusal to consider a tax hike as part of the compromise deal reached on the debt argument.

It’s true that the wealthiest 10% pay almost half the country’s total income tax take. In 2009, Taxpayers with incomes over $140,000 coughed up 49.1%, including state, federal and local taxes, according to the Institute on Taxation and Economic Policy. The highest earners, the 1% who made an average of $1.3 million, paid 22% of the bill all on their own.

That bugs Democrats, who don’t like the notion that rich people are already doing their share, which implies that the other 90% of Americans are deadbeats just along for the ride.

The Huffington Post rushed out a piece (illustrated inevitably with a stock shot of some supposed plutocrat guzzling champagne) revealing that some rich people pay no tax at all!

New tax data from the Internal Revenue service shows that in 2009, incomes fell, unemployment claims rose, and the U.S. economy shed nearly two million taxpayers. And of the 235,413 taxpayers who earned $1 million or more in 2009, 1,470 of them paid no taxes.

Good heavens. That means that slightly over one-half of one percent of millionaires are getting away with murder. That’s … hardly any! One certainly hopes none of these bums hail from among the glitzy media and Hollywood crowd pledged to support the Democratic party so favoured by Ms. Huffington. People in the film business don’t use tax loopholes do they? Al Gore wouldn’t even think of taking advantage of the many tax breaks offered for alternative energy projects. Would he?

Democrats are on firmer ground in denouncing the claim that some people pay no taxes at all. Almost everyone with an income pays tax in some form. But about half of all taxpayers are excluded from paying federal tax on their income for one reason or another. Ezra Klein, the prolific economic columnist at the Washington Post, breaks down the reasons, and finds that it’s not due to loopholes or over-generous breaks for special interests, but mainly results from policies to protect the elderly and low-income groups.

About half the people who pay no federal tax are excluded just by using the basic deductions for subsistence-level income, and for dependents. The other half are mostly kept off the rolls by measures for senior citizens and low-income working families. A few take advantage of reduced taxes and deductions available for capital gains and dividends, but those obviously apply mainly at the top end of the income scale.

Yet another study, by Citizens for Tax Justice, argues that low-income earners may get a break on federal taxes, but make up for it in state and local taxes. The lowest earners receive about 3.5% of the country’s total wealth, and pay about 1.9% of the taxes, it says. The richest earners pay 22% of the taxes, but also hog about 20% of the wealth. They also calculate that taxpayers earning over $1.3 million a year pay almost the same percentage of their income in federal, state and local taxes (30.8%) as people earning in the range of $66,000 (28.5%).

So everyone can make their case with carefully-chosen figures, which leads to the inevitable conclusion that everyone in America is already shouldering their fair share and nothing can be done. Which obviously isn’t true. For one thing, there’s the fact the U.S. continues to let people deduct the interest from their mortgages, even on a second home. Can you imagine the effect on the deficit if Ottawa started subsidizing people who buy cottages or ski chalets? Apart from being a prescription for national insolvency, it’s a ridiculous deduction: People waste the benefit of the break by buying a bigger and more expensive house, while builders — knowing the government is footing part of the bill — charge more to allow for it, driving up house prices.

Eliminating it would hurt those who are wealthy enough to buy homes. But it would also eliminate a major distortion from the tax code. Republicans are against distortion. But they’re in favour of home ownership. That’s what makes playing “Who Pays More Taxes?” such fun.

Fiscal Times: Corporate Taxes: Wake up, Small Business!

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Original Post

August 5, 2011

by Karen Hube

Many executives of big public companies have shared their ideas about corporate tax reform in hearings before policy makers lately. Just last week, the CEOs of Wal-Mart, Kimberly Clark, CVS and PMC-Sierra said they are willing to give up corporate tax breaks in exchange for lower tax rates. Higher-ups at Procter & Gamble, Siemens USA, The Boeing Company and Perrigo Pharmaceuticals are among others who have had their say.

But what about the little guys?

Non-publicly traded companies that are structured as so-called pass-through entities -- which are S corporations, partnerships and sole proprietors (LLCs) -- have been notably absent from the conversation.

This is no small omission. While most people probably have never heard of them, pass-throughs make up more than 90 percent of all U.S. businesses, and collectively account for about 40 percent of business revenue. “Business in America is generally conducted through partnerships and S corporations,” said Donald Williamson, executive director of the Kogod Tax Center at American University in Washington.

President Obama and Congress just signed off on major debt ceiling legislation which mandates a new joint committee to make recommendations for overhauling the federal tax code by Thanksgiving. If changes are made to the corporate tax code without addressing pass-throughs, “these kinds of businesses may see their taxes go up,” warns Robert McIntyre, director of the Institute on Taxation and Economic Policy.

Pass-throughs were originally designed to help make small businesses more competitive. These entities don’t pay corporate taxes – only C corporations, which are primarily public companies, do that. In pass-throughs, business income is taxed at individual income tax rates. But pass-through entities are tangled up in the corporate tax system because they get the benefit of corporate tax deductions and credits.

The top rate is 35 percent in both the corporate and individual income tax systems. So if the corporate tax rate is lowered from 35 percent and major corporate tax deductions are eliminated, pass-throughs would be at a major disadvantage. For many of them, deductions would disappear or shrink, yet their top tax rate would remain at 35 percent.

Some small- and medium-sized business owners are feeling uneasy about the possibilities for changes in the tax code looming on the horizon. “The success of the economy comes from the success of businesses of all sizes and structures. Not enough attention is paid to pass-through entities, period,” says Ray Monteleone, founding partner of Paladin Global Partners, a business consulting firm in Fort Lauderdale, Fla., that has two partners and four employees, and is set up as a partnership.

Monteleone says he also fears that rather than overhauling and simplifying the tax code, Congress will make piecemeal changes that will only increase the complexities. “Complexity is basically an indirect tax,” Monteleone says. “If I have to pay an advisor, attorney, CPA, or consultant to sort through everything, my outflow of cash still goes up. Instead of paying Uncles Sam I’m paying someone else.”

The main benefit of a pass-through is that it avoids the double taxation that C corporations must contend with. C corporations get taxed on income, and then -- when that money is distributed in dividends to shareholders -- it is taxed again.

“Many tax experts say that as lawmakers address the corporate tax code, they must also address the flaws in rules on pass-through entities. For example, it used to be that only small businesses with no more than 10 shareholders were able to be pass-throughs. But rules were relaxed through the 1990s and now the structure is possible for companies with up to 100 shareholders.

This is not only a departure from the original purpose of the pass-through entity – to help small businesses compete – it upends the level paying field for larger pass-throughs and their public competitors.

“Owners of a corporation who are also shareholders are paying tax at 35 percent, then getting dividends and capital gains out at 15 percent. Why is it okay for their competitor with partners to be taxed at the owners’ income tax bracket and never pay anything more?” asks Clint Stretch, director of legislative affairs at Deloitte & Touche.

Early this year, Obama raised the idea of taxing any firm with more than $50 million in revenues as a C corporation, “but there’s no conversation about that now,” Stretch says.

Another knock on the pass-through structure is that it invites fraud that is difficult for the Internal Revenue Service to detect. By underreporting income and overstating deductions, the IRS estimates that S corporations, partnerships and other pass-throughs account for $22 billion of uncollected taxes each year. Clearly lawmakers have some delicate work to do, to not only reform the system, but keep it fair.

During a June hearing before the House Ways and Means Committee, Rep. Sander Levin, D-Mich., the ranking member, said that in corporate tax reform, “the inevitable consequence is a shifting of the burden of the current level of taxation, and there will be winners and losers.”

Maybe so, but let’s hope lawmakers can minimize the imbalance for the sake of raising levels of employment and getting the economy back on track.

Durham (NC) Herald-Sun: A break from tax holidays

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Original Post

August 5, 2011

EDITORIAL

Let's take a holiday from the sales tax holiday.

That was a daring thing for any politician to say -- voters do so love their tax loopholes -- but on the lips of a Republican, it was practically radical.

Sen. Richard Stevens, R-Wake, was among the state legislators who not only agreed to balance the 2011-2012 budget on cuts alone, but also adamantly refused to extend the temporary 1-cent sales tax increase that ended in June.

In other words, Stevens, who started his career in Durham's finance department, is not a wet-eyed revenue hound, constantly snuffling pockets and purses in the hope of a windfall.

So, how does a politician like that get to a position like this:

"I would say probably postpone the [tax holiday] program for the short term and evaluate it," Stevens told WRAL. "What does it mean for the economy of the state versus what does it mean for the loss of revenue? If it's more loss of revenue than gain, we ought not to continue the program."

How sensible.

As Stevens and other state legislators surely know, the state's Department of Revenue estimates that it washed its hands of $14.5 million during last year's pre-school tax holiday in August, and another $1.7 million during the November tax holiday for Energy Star appliances. (North Carolina, once on the tax holiday bandwagon, whipped the horses to a gallop.)

That's cash that could come in handy (although, we note with a moue of regret, not as handy as the $1.2 billion-with-a-B that would have come from extending the 1-cent sales tax).

The particularly galling thing, noted by both Stevens and the brains at the non-partisan Institute on Taxation and Economic Policy in Washington, D.C., is that tax holidays don't inspire new spending -- they just shift the timing of purchases.

"There is sexy tax policy and popular tax policy, and then there is good tax policy," said Matthew Gardner, the ITEP's executive director. "Sales tax holidays are popular. Targeted tax credits and Internet transaction taxes are decidedly unsexy but they are great policy."

It's not enough, though, to cancel the sales tax holiday (a move that will, among other things, really annoy retailers who count on a good boost in the third quarter).

North Carolina can have lower sales taxes and still pull in the same revenue -- but to do that, the General Assembly has to get serious about tax reform and try to create a level playing field so that brick-and-mortar stores can compete with Internet vendors, retailers and manufacturers aren't shouldering a higher tax burden than service-based outfits, and North Carolinians pay a lower tax rate across a wider range of businesses.

North Carolina's present tax system "is antiquated, to put it bluntly," Stevens said during an interview with The Herald-Sun. "There are probably $2 billion worth of tax, call them what you want to, exemptions, exceptions, loopholes. They're all over the place.

"We've put half a dozen on the table and talked about them. Of course the folks who have a special allegiance to those provisions were protesting.

"You're going to have to do it in a comprehensive manner in my opinion. And, in my opinion, make it revenue neutral to the state in the short term so you're not raising money in the process, you're just making it fair moving forward."

If the General Assembly can put in the work and enact real tax reform -- well, then they will deserve a holiday.

 

 

San Francisco Chronicle: Biotechnology Tax Breaks Gain Backers While Congress Cuts Debt

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Original Post

August  3, 2011

(Bloomberg) -- It isn't the best time to be looking for a tax break from Congress as lawmakers focus their fiscal attention on reducing the U.S. budget deficit.

That hasn't stopped a bipartisan group of seven House lawmakers, including three who are members of the tax-writing Ways and Means committee, from backing legislation that would give new tax benefits to biotechnology, pharmaceutical and medical-device companies.

"Even in times of fiscal constraints, it is extremely important for us to create the environment for job creation," Representative Allyson Schwartz, a Pennsylvania Democrat and a sponsor of the measure, said about the timing of the bill. "This is very focused on what is a growth industry that does need incentives," she told Bloomberg Government in a phone interview.

The legislation would offer businesses in the area of "life sciences" a choice of two tax breaks: one is a credit of 40 percent for the first $150 million of research. That is double the current 20 percent research and development tax credit.

The other would be the opportunity to bring home to the U.S. up to $150 million annually in overseas profits at a low tax rate of 5.25 percent, with the requirement that the money be used to hire scientists or invest in research.

Repatriating Profits

Companies are subject now to a top marginal rate of 35 percent when repatriating overseas profits.

Both options could be renewed annually for five years.

Schwartz said the tax breaks are necessary because life sciences companies face increasing foreign competition and a weak U.S. economy that has imperiled the survival of young companies.

"I've talked to a number of start-ups who say they've struggled to maintain their solvency," said Schwartz, whose Philadelphia-area district is home to a division of New Brunswick, New Jersey-based health-care giant Johnson & Johnson.

The tax credit is targeted to smaller firms while the repatriation provision is expected to attract companies large enough to have overseas operations. Companies could switch between repatriation and tax credits in different years.

An analysis of the legislation prepared for a coalition of businesses and research institutes backing the plan estimates the bill would cost the U.S. Treasury $2.5 billion in forgone revenue over five years and $7.3 billion over 10 years.

The same report estimated that the legislation has the potential to create 580,000 jobs.

Job Creation

The tax holiday component is a relatively inexpensive way to promote job growth because it focuses on overseas profits that wouldn't be repatriated to the U.S. without a lower tax rate, said Brian Munroe, vice president for government relations for Chadds Ford, Pennsylvania-based Endo Pharmaceuticals Holdings Inc.

"Nobody believes that money's coming back" unless the tax rate drops, Munroe said.

A 2004 tax holiday has been criticized because much of the repatriated money was spent on dividend buybacks and other non- employment items.

Munroe said the bill contains provisions aimed at ensuring that funds brought back to the U.S. at low tax rates would be used for research and not diverted for other uses.

Research Spending

Under the House bill, and a companion Senate version introduced by Pennsylvania Democrat Robert Casey, repatriated funds must be kept separate from other company accounts and the company must certify that its research spending has increased from previous years.

While sponsors say the bill targets small and midsized companies, members of the business coalition supporting it include large multinational companies that also are eligible for the tax break.

The legislation was sharply criticized as a wasteful subsidy to business by Steve Wamhoff, legislative director of Citizens for Tax Justice, a Washington tax policy research group that advocates curbing corporate tax breaks.

Wamhoff said the tax subsidies would pay for research that would be done in any case, even without the tax break.

'Money Is Fungible'

"You can't tell a corporation what to do," Wamhoff said in a phone interview. "Money is fungible."

The life sciences proposal has political heft behind it in Congress. The main sponsor, Devin Nunes, a California Republican, along with co-sponsors Pennsylvania Republican Jim Gerlach and New Jersey Democrat Bill Pascrell Jr., are members of the tax-writing Ways and Means Committee, to which the measure has been referred.

The bill is being considered amid signs that after a long slump, venture capital is beginning to flow back into biotechnology firms.

Munroe said the intensity of competition from Singapore, China, India and other growing economies justifies using tax policy to reinforce private sector efforts to expand biotechnology and related industries.

Daily Kos: A Trillion Dollar Tax Robbery Looms: Numbers Shenanigans or Ignorance

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Original Post

by Tasini

August 3, 2011

Sometimes numbers are a bitch. Because they expose ugly truths that we either choose to ignore or don't understand. We better get this one straight in the next few months or the bi-partisan cuts just shoved down the throats of the American people will pale in comparison to what will come post 2012.

To start, it is inevitable, in my view, that the president will cave on the extension of the Bush tax cuts at the end of the year. That's his track record, as the Citizens for Tax Justice points out:...

Read the rest at Daily Kos

Op-Ed News: Obama Gave More than Republicans Expected, Got Less Than They Offered

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Original Post

August 2, 2011

OPINION by Ralph Nader

The headlines came quickly after President Obama concluded the deficit-debt deal with the Republicans Sunday evening. There were few shades of gray. The New York Times editorial was titled "To Escape Chaos, a Terrible Deal: Democrats won almost nothing they wanted except avoiding default."

It was truly, as the Times pointed out, "a political environment laced with lunacy." But don't blame it all on the Republican "mad dogs" on Capitol Hill playing chicken with the economic plight of the American people and its wobbling economy. It was President Obama who surrendered.

In one of the most inept episodes of Presidential-Congressional relations, Mr. Obama managed to give the Republicans more than they expected and leave the Democrats with less than the Republicans offered. The Republicans never expected Mr. Obama to give in entirely on tax increases on the wealthy, on the reviled oil industry giants and other corporate tax escapees. The Republicans even agreed to $800 billion in new revenue over ten years. Obama fumbled the ball day after day, and with the August 2 debt ceiling deadline looming, he fell to the extortionists. Unlike Presidents Roosevelt, Truman, Eisenhower, Kennedy, Johnson, Nixon, Ford, Carter, Reagan, Bush, Clinton and Bush II, who routinely expected and got debt ceilings raised without conditions.

President Obama's disaster began months ago when he agreed to tie raising the debt ceiling to a grand bargain with the Republicans regarding deficits and revenues instead of demanding a debt ceiling raise while he was caving on extending Bush tax cuts for the wealthy. That immediately gave the "fanatic" Republicans a veto power over the "establishment" Republicans in Congress. And fanatics don't blink. Especially those fanatics who, elected last year, say they don't care about being re-elected.

So Obama accepted about $2.5 trillion in spending cuts over the next decade, got no revenue producing tax increases and therefore made it nearly impossible to create a public works jobs program to uplift a sliding economy.

With economic indicators registering more trouble in recent days for American workers, Mr. Obama has no cards left. Interest rates cannot be driven any lower by the Federal Reserve. He didn't get even a renewal of the extension of unemployment benefits. Consumer spending -- 2/3rds of the economy, is stagnant. Without consumer demand, new investment is sluggish. Unemployment is rising, and without jobs, workers can't increase their consumer spending. State, local and federal government spending cannot increase under the yoke of the just agreed-upon cuts. The weaker dollar may increase exports a little, but the U.S. still has a continuing massive trade deficit, especially with China. Europe's financial problems will curb orders of U.S. goods and services.

So what can Mr. Obama do? He can propose a public works program, paid for by the tax increases on the wealthy and the corporations. Both are getting richer. The large corporations are reporting very good second quarter profits further disconnecting their affluence from that of their workers and labor in general. He could, if he wanted, make a very strong case for repairing America's infrastructure and bring the soldiers back from Iraq and Afghanistan, as a majority of the American people and the most mayors of our cities desire.

First, however, he has to take the offensive by showing that the bulk of the deficits since 2002 were caused by the Bush tax cuts, mostly for the wealthy, and Bush's two wars. Obama also has to hold the Republicans accountable for their hostage-taking of the American economy so they cannot impede public works proposals in an election year.

Amazingly, as a Harvard-trained lawyer, he was quick to compromise from the get-go. Consequently, he painted himself into a corner. So, since he is not a leader, maybe he can become a pleader.

Given that non-financial companies are sitting on two trillion dollars of inert cash and other liquid assets, maybe he can appeal to these companies to disgorge ten percent in immediate special dividends to their long-parched shareholders who are, after all, their owners. Loosening the executive locks on this hoard of money would provide $200 billion for more likely spending in the market place. Companies like Apple, Google, Cisco, Intel and Microsoft alone are sitting on well over $200 billion cash. To these coddled, indentured U.S. companies he can invoke President John F. Kennedy's challenge--"Ask not what your country can do for you, ask what you can do for your country."

Second, he can plead with those very profitable corporations that have benefited from the government bailout, or pay little or no federal income taxes, to voluntarily contribute to a public works fund.

Companies like GE, Verizon, Exxon Mobil, Boeing, IBM, Wells Fargo, DuPont, American Electric Power, FedEx, Honeywell, Yahoo, United Technologies as a group made $171 billion in U.S. profits over three years and paid zero federal income tax with a $2.5 billion negative advantage. And that, says Bob McIntyre, director of Citizens for Tax Justice, is "just the tip of an iceberg of widespread corporate tax avoidance."

Is such pleading just Pollyannaish? Maybe. But it will resonate with the American people's sense of injustice. Those feelings of indignation can reverberate and cause members of Congress to start remembering who sent them to Washington. Last I heard, corporations don't have a single vote.

Reuters Insider VIDEO: Interview With CTJ Director Bob McIntyre

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CTJ Director, Bob McIntyre gives Reuters a 5-minute, wide ranging interview on tax issues facing the country including the prospects for reform. 

"We need to get substantive tax reform as part of the solution to the budet deficit problem, because that's what half the problem is. Our revenues are down to historically low levels, and that's largely due to the Bush tax cuts, the corporations not paying hardly anything in taxes. We need to fix those things. And if we do it it will make the task of cutting the deficit a lot less painful for most Americans."

Watch the Video

Politico: Expiring Gas tax may be next battle on Hill

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Original Post

August 2, 2011

by Byron Tau and Ben Smith

In normal times, renewing the federal excise tax on gasoline would be another routine vote in Congress.

But as the past month of rancorous and intensely partisan debate about raising the debt ceiling has shown, the times are anything but normal.

And with most of the 18.4-cent tax per gallon of gasoline set to expire Sept. 30, renewing the tax could be the next political controversy to spark a brawl in an ever more deeply divided Capitol Hill.

Congress has already come to the brink of a government shutdown and is only now wrapping up an eleventh-hour compromise to save the country from a first-ever default. A legislative dispute has even temporarily shuttered the Federal Aviation Administration. With the level of partisan vitriol and anti-spending sentiment at an all-time high, some advocates are worried that the nation’s highway fund will be the next victim — while some conservatives sense an opportunity.

“The White House is going to make a move to renew it. We’ll see — but there will be Republicans who will be resistant to that.” said Doug Heye, former spokesman for the Republican National Committee.

Gas prices, said Heye, are “really affecting families. If you have to drive 20 miles to work every day, those are real costs.”

With the debt debate paralyzing Congress, the expiring gas tax has been off the radar — so far off the radar that some are getting nervous. Procedural delays could cause the tax to lapse even if a sizable majority would vote for renewal, as with the FAA’s shutdown.

One transportation advocate who works on the issue told POLITICO that the relevant congressional committees barely seem aware the issue is pending and needs to be resolved.

“I was raising this issue because I consider it pretty important,” said Jack Basso, director of program finance and management for the American Association of State Highway and Transportation Officials, a lobbying group of state highway officials. “They really don’t understand that this thing is expiring.”

Already, a handful of conservative groups are eyeing the expiration as the next potential front in the spending and tax fight — including Grover Norquist’s influential Americans for Tax Reform group — but are mum about any potential legislative strategy.

“In general, ATR has always supported the idea of ending the federal tax on gas and having states pay for their own roads,” Norquist told POLITICO, but he declined to say whether he or his group plans to pressure congressional Republicans to let the excise tax expire.

“ATR would love to help begin such a dialogue,” he said.

“We’re monitoring the situation. I think that everyone on the Hill and most outside groups are pretty focused on the nation’s debt crisis,” said Barney Keller, spokesman for the conservative Club For Growth, who also wouldn’t say whether his group wants the tax to expire.

The federal Highway Trust Fund — the largest source of cash for mass transit and road improvements — is funded by the tax on fuel. In 2008, when high gas prices kept consumers away from the pump, the fund temporarily ran out of money, forcing Congress to appropriate an additional $8 billion to keep road projects on track.

Now, with many states facing budget shortfalls and cutbacks, it’s unclear whether states could assume a larger role in maintaining their highways. Experts say that an expiration of the gas tax would throw the nation’s transportation system into chaos.

“It’s the most important transportation funding source we have,” said Carl Davis, an analyst with the group Citizens for Tax Justice. “It would be absolutely devastating to that trust fund.”

The Obama administration has already called on Congress to preserve the nation’s current level of highway funding, telling POLITICO that it should be a nonpartisan issue.

“Extending surface transportation authorization, which has received bipartisan support, is crucial to America’s long-term prosperity, and we’re confident that lawmakers on both sides of the aisle can work together to protect our investment in transportation infrastructure in a fiscally responsible manner,” said Meg Reilly, spokeswoman with the Office of Management and Budget.

Indeed, in past years, renewals — and even increases — of the fuel tax have been fairly noncontroversial. White House and Congresses controlled by both parties have overseen increases and extensions of a tax on petroleum dating back to 1932.

The Reagan administration raised the tax in 1982, and former President George H.W. Bush supported another increase in 1990. Former President Bill Clinton initially proposed a sweeping new energy tax but abandoned those plans and raised the tax to its current level in 1993. The rising tax revenues and balanced budgets at the end of the Clinton years helped end the issue of further increases, but the tax was renewed in 2005 as part of a big transportation spending bill. An attempt to roll back the tax in 2000 failed to attract much attention on the Hill, and a proposed suspension when gas prices were soaring in 2008 also failed to gain traction in Congress. “Nobody’s wanted to increase it for a long time, but there hasn’t been a big push to decease it,” said Emil Frankel, a scholar with the Bipartisan Policy Center who has advocated raising the tax rather than abolishing it. “It has generally been extended without much debate. But the atmosphere is very different now.”

More policy-oriented conservative groups — even libertarian scholars — believe that the tax must ultimately be renewed.

“I have every expectation that will happen this time,” the conservative Heritage Foundation’s Ronald Utt said on renewing the tax. “If nobody has a bill to replace it, then they’ll have to.”

“It’s no question that it should not expire,” said Robert Poole, a transportation policy expert with the libertarian Reason Foundation. “There’s certainly good grounds for rethinking the federal role as it has evolved,” he told POLITICO. But “if it were to suddenly go away, it would be chaotic.”

News-Leader (MO): Facts repeatedly debunk supply-side economics

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Original Post

July 30, 2011

OPINION, Readers' Letters

With 65 percent of the American people believing that the rich should pay more taxes to help with the budget deficits and help balance our budget, why do Republicans keep pushing supply-side economics? It should be enough that the "tax-cuts grow the economy" has been repeatedly debunked by fact. President George H.W. Bush referred to President Reagan's supply-side theories as "voodoo economics," and both Presidents Bush and Reagan abandoned their tax-cut promises when faced with the resulting budget problems.

Since becoming president, President Obama has cut taxes including the largest single-year tax cut in history (source: Citizens for Tax Justice). When the Republicans iterate the mistakes Obama has made they should mention that the massive tax cuts were a failure! The definition of insanity is doing the same thing over and over expecting a different result. In the last 69 years the country has had two budget surpluses, one in 1969 the other during the Clinton administration. Both followed increases in the marginal tax rate. Clinton raised taxes on the wealthy and large corporations. The Republicans insists on cutting spending only, to balance the budget. They ignore well-understood business practice of increasing productivity and growing are the way to pay off debt.

Please call, email or write your elected official in Washington and let them know you support a rational solution to balancing the budget which includes increasing revenue as well as improving efficiency. You might also remind them how important Social Security, Medicare and Medicaid is to the families of your community.

Editor's note: According to Congressional Budget Office data there were federal budget surpluses in 1969 and 1998-2001.

Terry Bacon Nixa

La Crosse Tribune: Matthew Gardner: Anti-tax govs just getting started

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Original Post

July 31, 2011

COMMENTARY

Twelve new governors who ran on anti-tax platforms have now signed their first fiscal year budgets.

All of them will tell you they were elected with a mandate to get their state’s fiscal house in order, rein in government spending and cut taxes. Some of them will even tell you they view Chris Christie as their model — a “primo example” according to Wisconsin’s Scott Walker — of how a conservative governor governs.

This should alarm you.

Gov. Christie recently vetoed a widely popular and eminently sensible tax on New Jersey millionaires. This temporary tax, affecting a mere 0.2 percent of all households, would have generated about $500 million, primarily for public schools. In the same budget, Christie raised (yes, raised) taxes on his state’s working poor by cutting about $45 million from the Earned Income Tax Credit, which helps people working full-time in low-wage jobs to make ends meet.

Christie went on to shred the Democratic legislature’s budget, which paid for things such as police protection, a health care safety net and college tuition grants. Christie said no to all of it, insisting the state didn’t have the money.

And yet he managed to set aside $640 million ($365 million if you accept his revised math) he calls a “healthy and necessary” surplus — necessary to his career, maybe, but not healthy for his constituents.

New Jersey is one of more than 30 states that, in 2009, decided temporarily to boost some taxes to help make up revenues that were drying up with the recession. Even with those temporary infusions, states had to excise billions from their budgets to stay in the black. Those mostly two-year fixes have now expired, as have the federal stimulus dollars that kept many state budgets afloat.

Now, with hospitals, schools and police forces scarcely shadows of their former selves, and college tuition up as much as a 50 percent and even 100 percent since 2008, governors like Christie are hoarding surpluses while heaping burdens on average taxpayers, too many of whom remain un- or under-employed.

In Michigan, with its infamously precarious economy, freshman Gov. Rick Snyder delivered a particularly irrational budget. He slashed all kinds of spending, cut business taxes by well over a billion dollars, then reduced the state’s Earned Income Tax Credit by 70 percent, raising taxes on the state’s working poor by more than $260 million each year.

According to our analysis, the poorest 20 percent of Michiganders will be hit hardest by the package of tax hikes (including some on senior citizens) that Snyder pushed through. All to pay for allegedly job-creating tax cuts for business, even as the governor admits he “can’t guarantee” economy-boosting results.

Governors across the country have signed budgets like these, with excruciating cuts in government services, incomprehensible tax increases for low- and middle-income households and utterly mystifying tax breaks benefitting businesses and individuals with healthy portfolios.

Always in the name of “fiscal responsibility,” and often — astoundingly — with a surplus squeezed out.

In Ohio, for example, Gov. John Kasich signed a two-year budget that cuts about $630 million in aid that local governments rely on, $700 million from public schools and $340 million from nursing home care. At the same time, it eliminates the estate tax, which, with its various exemptions protecting farms and other family businesses, is a genuinely progressive and productive tax. In 2011 alone, it generated $230 million for Ohio localities and $55 million for the state.

In Wisconsin, the new budget takes $56 million from the pockets of the working poor by reducing the Earned Income Tax Credit, and gives $36 million to wealthy Wisconsin investors in the form of a capital gains tax break. And, because Gov. Walker’s budget cuts were especially hard on education, 354 teachers in Milwaukee alone got pink slips.

Like Christie, each of these governors left hundreds of millions of available funds (previous surpluses or projected revenues) unspent. They like to call it

“fiscally responsible,” but sitting on millions while raising the cost of living for low- and middle-income families and passing the buck to cities and counties is anything but fiscally responsible.

It is, however, politically profitable. A governor who balances the budget during an economic crisis, cuts taxes and shows off a shiny new surplus to boot is someone we can trust, right?

Wrong. And taxpaying citizens should not fall for this shell game. Last November, when we looked ahead to this budget year, we anticipated the worst. Ohio’s Kasich had campaigned on repealing the state’s entire personal income tax, while Florida’s Rick Scott and South Carolina’s Nikki Haley campaigned on the promise of repealing corporate taxes.

We were dreading flat-tax schemes and tax capping laws designed to choke off revenues into the future. But even though these new anti-tax governors didn’t get everything they wanted this year, if they get away with calling this fiscal responsibility, then next year, they just might.

 Matthew Gardner is executive director of the Institute on Taxation and Economic Policy.

 

MinnPost: The Glean

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Original Post

August 1, 2011

Morning Report (news roundup)

By Brian Lambert

By now, we know that a fact-based discussion of taxes is nearly impossible, given the split between the “reality-based” world and the other one. But U of M Economics professor C. Edward Runge drops in some familiar but useful statistics in a Strib commentary: “In June, Citizens for Tax Justice, a Washington watchdog group, released a partial list from a major forthcoming study of effective tax rates paid by Fortune 500 companies. The 12 corporations analyzed were American Electric Power, Boeing, Dupont, Exxon Mobil, FedEx, General Electric, Honeywell, IBM, United Technologies, Verizon, Wells Fargo and Yahoo. From 2008 through 2010, these companies together reported $171 billion in pretax profits, but as a group, their federal income taxes were a negative $2.5 billion. In other words, they were collectively subsidized. Eight of these firms reported negative taxes, including Minnesota's Honeywell International, with three-year profits of $4.9 billion and federal taxes of a negative $34 million. Wells Fargo, with $49 billion in profits, received a net tax benefit of $681 million. GE was the largest net negative taxpayer from 2008-2010, with $7.7 billion in profits and $4.7 billion in negative taxes.”

Tuscon Sentinel: Banks try to scuttle IDing foreign tax evaders

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Original Post

August 1, 2011

by Michael Hudson, Center for Public Integrity

Lawmakers with bank ties hope to block IRS plan to catch potential launderers.

Two House members who collected large campaign donations from the financial industry are pushing legislation to block an Internal Revenue Service plan to discourage foreign tax evaders and money launderers from stashing money in U.S. banks.

Legislation sponsored by Democrat Gregory Meeks of New York and Republican Bill Posey of Florida would stop the IRS from requiring American banks to report interest paid to foreign citizens who live outside the United States and have deposits in U.S. banks. In announcing the legislation, Meeks and Posey echoed the arguments of American bankers who say the IRS proposal could chase foreign capital away from the United States.

“At a time when our economy is experiencing a nascent recovery, the last thing we want to do is discourage foreign investment in the United States,” Meeks said in a statement. “We must protect America’s reputation as the best place in the world to invest and do business.”

Sen. Carl Levin, a Michigan Democrat who has investigated offshore tax abuses, told iWatch News that the legislation could undercut federal efforts to crack down on tax evasion and other financial misconduct.

As iWatch News reported in May, the United States serves as a major tax haven for affluent Latin Americans and other foreigners who want to move money from their home countries. Under U.S. law, citizens and foreigners who have “permanent resident” status in the United States must report their bank deposits and pay the IRS taxes on the interest they earn.

But foreigners who don’t live in the United States don’t have to report their U.S. bank deposits to the IRS. The one exception is Canadians, whose government has an information-sharing deal with Washington.

“It’s a mystery to me why any member of Congress would try to protect the anonymity of foreign bank account holders, when U.S. and Canadian account holders already have to disclose their account information to the IRS,” Levin said. “Foreign account holders should be treated the same as – not better than – U.S. citizens.”

Because “non-resident aliens” don’t have to pay U.S. taxes on money they stash in U.S. banks, requiring banks to report interest paid to them would not bring in more money for the Treasury. Supporters of the rule say, though, that it could help the United States increase revenues in the long run by fostering better cooperation with other nations, which in turn would help the IRS catch more U.S. citizens who are hiding money overseas.

“The United States has battled other countries for years to get the names of U.S. taxpayers with hidden accounts at their banks. We can’t turn around now and defend the concealment of foreign citizens with hidden U.S. accounts,” Levin said.

Posey and Meeks’ bill is likely to get substantial support in the Republican-controlled House. Florida’s entire House delegation has written to Treasury Secretary Timothy Geithner decrying the IRS move, as have a variety of other House members.

How the bill would fare in the Democratic-led Senate is another question.

Both of Texas’ Republican senators – Kay Bailey Hutchison and John Cornyn – have asked Geithner to withdraw the rule. But the bill is strongly opposed by Levin, who wields influence on matters involving financial corruption and tax evasion due to his status as chair of the chamber’s Permanent Subcommittee on Investigations.

Banks give generously

The legislative push to block the IRS comes amid a flurry of moves in the House aimed at reversing financial regulations and anti-corruption measures approved after the 2008 financial crisis.

With so many issues in play, banks have spent heavily on lobbying and political contributions. During the 2010 election cycle, commercial banks invested more than $56 million in federal lobbying and more than $22 million in political action committee and individual contributions to federal candidates, committees and parties, according to the Center for Responsive Politics’ Open Secrets database.

Meeks was the House’s second largest recipient of political contributions from financial and credit companies, garnering at least $85,000 from them for his reelection campaign in 2010, according to Open Secrets. During the two-year cycle, he raised at least $576,000 from the so-called “FIRE” sector, made up of finance, insurance and real estate interests. That represented more than half of the $1.1 million Meeks raised during the period, according to the database.

Posey received $251,000 from the FIRE sector during the 2010 cycle, nearly one-quarter of the roughly $1.1 million he raised. Among his top donors: American Bankers Association ($8,500), Fidelity Bank ($7,200) and Bank of America ($6,500).

Both Posey and Meeks are members of the House Financial Services Committee.

A third co-sponsor of new legislation, Republican Mario Diaz-Balart of Florida, received $71,000 from the FIRE sector during an election cycle in which he raised $739,000. Included in that was a $7,500 contribution from the American Bankers Association. Diaz-Balart is a member of the House Appropriations Committee.

Meeks and Diaz-Balart did not respond to questions from iWatch News.

A spokesman for Posey, George Cecala, said the lawmaker wants to make sure that small banks, which he described as the “lifeblood” of many communities, aren’t harmed by stricter regulations.

One of the hardest hit

U.S. bankers argue that well-off Latin Americans frequently move their money to the United States because they’re afraid of political corruption, kidnappings and other criminal behavior in their home countries.

“If you’re an investor from a country with massive human rights violations or a corrupt regime, chances are you want your personal bank account information held in confidence,” Posey said in a statement. “By imposing this new reporting requirement, those depositors will think twice about where they invest their money” and many will “invest elsewhere at a cost of billions of dollars to our economy.”

Posey’s spokesman, Cecala, told iWatch News that Florida would be one of the “hardest hit states” if the IRS went ahead with its planned federal regulation requiring banks to provide the IRS information about foreign depositors. “For nearly a century, the U.S. has sought to encourage foreigners to put their money to work in America,” Cecala said. “Having their money in U.S. banks makes more capital available for Americans and lowers interest rates.”

It makes no sense for the IRS the put the reporting rule in place without a doing “cost-benefit” analysis to determine what its impact could be, Cecala added. Posey, Meeks and 13 other members of Congress claimed in a May 16 letter to Geithner that the IRS plan would put “more than $10 trillion in passive foreign investment in the U.S. economy at risk.”

Rebecca Wilkins, an attorney for Citizens for Tax Justice, a Washington- based advocacy group, testified at an IRS hearing in May that the $10 trillion figure doesn’t accurately describe the volume of the bank accounts that would be affected by the reporting requirement. Less than $1 trillion of that amount, Wilkins asserted, is held in the names of individuals who would be subject to the reporting rule, adding that she believed “only those people who are evading taxes will move their money as a result of this regulation.”

Levin told iWatch News that there’s little evidence that requiring disclosure of accounts held by foreign citizens would cause a wholesale flight of foreign cash out of U.S. banks.

“Most foreign account holders are honest and have nothing to fear from the IRS proposal. The few who are hiding assets from their governments don’t warrant our help in concealing their accounts,” he said.

Reprinted by permission of The Center for Public Integrity.

Front Page Mag: Tax Code Blocks Jobs

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 MaOriginal Post

August 2, 2011

by Tait Trussell

Ignorance of accounting principles, along with left-imbued philosophy, are churning up a political storm against beneficial future tax policies for U.S. industry—policies that could create needed American jobs.

One left-wing advocacy group, calling itself Citizens for Tax Justice (CTJ) (a real stretch in the definition of justice) is engaged in a study of Fortune 500 companies with the wacky accusation that some of the world’s more respected corporations deliberately don’t pay income taxes.

Previewing its major study, CTJ recklessly claimed, in an analysis of 12 major corporations that they pay an “effective tax rate of negative 1.5 percent on $171 million in profits and reap $62 billion in tax subsidies.”

The outlandish analysis, CTJ claimed “serves to illuminate the current corporate tax debate in Washington, and demonstrates that real corporate reform—meaning higher taxes–is long overdue.”

A flurry of sensational news media accounts recently about taxes paid by large corporations have fired up a debate over the different ways a company’s profits and tax liabilities are given to shareholders on financial statements and what is reported on a company’s tax return to IRS.

The Ways and Means Committee in June continued its series of hearings at which Chairman Dave Camp (R-MI) said, “The Tax Code is preventing, not promoting, job creation. Our focus is on what actions must be taken to reform our Tax Code and make America a more attractive place to invest and create the jobs we need.”

At the hearing, a member of the committee, the habitually arrogant Rep. Fortney “Pete: Stark (D-CA) asked to have inserted in the record the release from the Citizens for Tax Justice.

One of those corporate tax pros testifying was James H. Zrust, tax vice president for the Boeing Company. For the past three years, Rep. Stark recounted in an acid tone, Boeing made ”about $10 billion, but had a negative tax rate.”

Zrust attempted to respond, but Stark kept interrupting him, asking questions dripping with sarcasm:

“How much lower tax do you need to survive, Mr. Zrust?”

“Let me tell you what this [reported negative tax payment] is attributable to…,” Zrust tried to say.

“I know what is attributable to,” Stark shot back, as if he were all-knowing.

Finally, Zrust explained that deductible expenses of production in recent years were attributable to new products, an expanding workforce and pension costs. When allowed to speak, Zrust explained that in future years Boeing would be paying considerable taxes as its aircraft were sold—probably “in excess of 33 percent.” Zrust also mentioned that 30 IRS agents work continuously at Boeing offices to keep watch on Boeing’s proper tax accounting.

Other corporate tax experts testified that the U. S. corporate tax rate is 15 percent higher than the average of OECD countries (the 30 high-income foreign industrial companies). The witnesses pleaded for a “level playing field” with foreign companies for taxation purposes.

In some cases, confusion arises and critics come to erroneous conclusions because of the difference between book accounting and tax accounting. It may be confusing to the naïve. But the difference is exploited by the political attack dogs.

As Tax Foundation Economist David Logan explains: Most activities accounted for on a corporation’s financial statement use the accrual method. When a firm receives payment for a product or service, it is immediately taxable income in the eyes of the IRS. But on the corporation’s financial statement, differing corporate accounting standards are set by the Independent Financial Accounting Standards Board (IFASB). These are known as Generally Accepted Accounting Principles (GAAP).

As a simple example, a magazine publisher sells a year-long subscription and receives $60. To the IRS, this is immediately taxable income in the current year. But for book accounting purposes the publisher, uses Generally Accepted Accounting Principles to insure uniformity of accounting. The publisher needs the subscription money to pay for the cost of producing each issue. So, there’s a difference between book and tax profit.

Likewise, when accounting for inventory, two principal methods are used for book and tax purposes: last-in, first-out (LIFO). And first-in, last-out). IRS says businesses using LIFO to account for inventory on tax returns must also use LIFO for reporting taxable income on financial statements, whereas U.S. GAAP allows business to claim income using either LIFO or FILO. U.S. corporations must keep two sets of books: one to comply with Generally Accepted Accounting Practices (which accurately convey the history, health, and prospects of a business), while IRS wants to collect revenue. Often the two methods produce different figures. But it doesn’t mean a business is skirting its taxes due.

Barack Obama's consistent solution to addressing the federal deficit is higher taxes. This in spite of what industry analysts say. For example, in the case of the standard whipping boy—the petroleum industry, increasing taxation on the petroleum industry, by taking away what the Administration calls “subsidies” would cost thousands of jobs, perhaps as many as 120,000 by 2014.

Those who delight in higher taxes inevitably want to end “tax subsidies” for oil companies. But these aren’t special breaks just for oil companies. All companies have “ordinary and necessary” tax deductions. Liberal Democrats see big oil as the donkey that should always have a tax “tail” pinned on it.

Now, any large corporation is automatically becoming a tax-dodging villain when taxes policies must be changed to create more work in our job-limp economy.

Forbes: Massachusetts State No. 17 With 2011 Sales Tax Holiday

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Original Post

August 2, 2011

by Ashlea Ebeling

Down to the wire — again. Massachusetts Gov. Deval Patrick signed legislation Aug. 1 making Massachusetts the 17th state to officially announce a back-to-school season sales tax holiday for 2011.

Massachusetts’ taxpayers don’t have much time to make their shopping lists. The holiday, where just about anything sold for $2,500 or less is exempt from the state’s 6.25% sales tax, is being held on Saturday August 13th and Sunday August 14th. It specifically includes Internet purchases on those days, even if the goods purchased are delivered later. (Stuff that remains taxable: cars, boats, meals out, and cigarettes).

Massachusetts’ holiday is one of the most generous in the nation in terms of big ticket items. Louisiana is the only other state with the general $2,500 or under per item threshold. Other states have high thresholds for computers, but low thresholds on clothing and footwear ($100 or less per item is typical). Massachusetts exempts most clothing and footwear priced at $175 or less from the state sales tax year-round.

The Massachusetts’ holiday saves shoppers an estimated $20 million a year. It is the state’s 7th holiday in 8 years (there was no holiday in 2009). Last year, Gov. Patrick signed the sales tax holiday law on July 31, the last day of the legislative session, giving taxpayers two weeks official notice before it started on Aug. 14th.

For technical information on the terms of the tax holiday from the Massachusetts Department of Revenue, click here.

While shoppers of all income levels can participate in the holiday and save, it’s the wealthy with flexibility to spend whenever they want who really stand to benefit. Snap up three laptops sales-tax-free for your three kids going back to school.

“Sales tax holidays tend to reward those with the most money to burn,” gripes Matthew Gardner, executive director of the Institute on Taxation and Economic Policy, which calls for targeted sales tax credits for low-income household in a newly released paper, “Sales Tax holidays: A Boondoggle”– available here.

For more on the national picture on state sales tax holidays, here

New Haven Advocate: Despite New Law, Poor Still F-ed, Rich Still Whining

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NB: CTJ Modified the original story's title, which can be found in the original article at the URL below.

Original Post

by Win Vitkowsky

August 2, 2011

Connecticut's wealthiest 1 percent still get a sweet deal on taxes, while the poorest 20 percent get screwed, according to a report released last month by CT Voices for Children. But the Washington, D.C.-based think tank that collected the data says things are better in Connecticut than practically anywhere else in country.

That's thanks to a new “earned income tax credit” the state just passed that was intended to close the disparity between how much the rich and the poor pay in taxes. There is already a federal tax credit for low-wage earners, but the policy enacted in the spring allows state residents to get refunds from state and local taxes, too.

Connecticut's poorest (based on an annual income of less than $26,000), pay 11 percent of their income in taxes. The state's wealthiest (based on an annual income of more than $1,355,000), pay 5.5 percent of their income, according to Joachim Hero, an analyst for CT Voices for Children.

“The lowest income residents still pay the most taxes,” Hero says.

But Meg Wiehe, of the national Institute on Taxation and Economic Policy, says Connecticut has gone from a state with one of the heaviest tax burdens on the poor to a state with one of the most progressive tax policies in the country.

“We look at all 50 states every year,” Wiehe says. “The last time we did that report was in 2009. The interesting thing was Connecticut fell into the top 10 states with the highest taxes on the poor. With the changes enacted in the spring, Connecticut would likely not make that list.”

Wiehe concedes the gap between what the poor pay and what the rich pay was closed by only about 1 percent.

“One percent is not insignificant. [But] I haven't seen a package like Connecticut's in years,” Wiehe says. “Most of the time it's politically convenient to raise sales taxes — which in effect is a tax on the poor — and reduce income taxes for the rich.”

Still, some say the state is moving in the wrong direction by closing the disparity.

Toni Boucher is a Republican state Senator who represents the very affluent 26th district in Fairfield County. She says although the earned income tax credit is very “compassionate and well-intentioned,” she fears it might kill jobs.

“It is taking money from one group and redistributing it to another,” Boucher says. “The more you tax [the top 1 percent], the less likely there will be enormous disposable income, which some will start businesses and employ people with.”

But Boucher and CT Voices for Children agree that sales taxes impact the income of the poor. Taxes on things like food, gas and clothing eat up a greater amount of low wage earners comes than they do the wealthy.

Copyright © 2011, New Haven Advocate