After days of wall-to-wall media coverage of its grotesquely misleading, edited clip of USDA official Shirley Sherrod speaking about race, Andrew Breitbart’s blog Big Government is targeting Citizens for Tax Justice.

Breitbart’s bizarre and extraordinary claim is that CTJ, ACORN, The New York Times, the Center for American Progress and a group called Clean Energy Works (of which we were previously unaware) are colluding to deceive the public about tax policies affecting oil and gas companies.  

Breitbart’s argument goes something like this. On July 3, the New York Times published an article saying that oil and gas companies get a whole lot of tax breaks. Then on July 9, CTJ published a report saying that oil and gas companies get a whole lot of tax breaks. Also on July 9, Clean Energy Works sent someone a strategy memo saying that the public needs to know that oil and gas companies get a whole lot of tax breaks.

As Breitbart sees it, surely this can be no coincidence! It doesn’t seem to occur to him that the tax breaks available for fossil fuel production have grown so outrageous — at a time when the world is concerned about carbon emissions and climate change — that hardly a week goes by without somebody somewhere criticizing them. Heck, even President George W. Bush criticized them.

To fill out the conspiracy a little more, Breitbart assumes that any organization that is associated with any of CTJ’s 21 board members, and any progressive organization with an employee cited in the New York Times article, is also involved in this coordinated plan to deceive the public.

Finally, Breitbart is simply wrong about the tax loopholes in question. He writes:

“The same day that Di Martino [of Clean Energy Works] released his memo, Citizens for Tax Justice (CTJ) released their own defective and dishonest hit piece, titled “What Oil and Gas Companies Extract from the American Public.”   The tax breaks referred to by Di Martino and the CTJ memo, in reality, are the same credits that every American company receives for taxes paid overseas to foreign governments on income earned abroad.”

Wrong. The CTJ report titled What Oil and Gas Companies Extract—from the American Public discusses the top 5 tax loopholes enjoyed by oil and gas companies. These breaks are not “the same credits that every American company receives for taxes paid overseas to foreign governments,” which seems to refer to the foreign tax credit. One of the five loopholes our report criticizes allows oil and gas companies to take the foreign tax credit for what are really royalties (not taxes) paid to foreign governments.

The other four loopholes discussed in the report are not related to the foreign tax credit. They include the deduction for “intangible” costs of exploring and developing oil and gas sources, “percentage depletion” for oil and gas properties, Congress’s decision to redefine “manufacturing” so that oil and gas companies can receive a deduction for domestic manufacturing, and another break for writing off the costs of searching for oil.

Now it’s true that there are some huge problems with the international tax system generally and it’s true that we are more than happy to use the energy industry as an example of those problems, even though they are not confined to the energy industry. CTJ’s recent report on oil drilling and taxes uses the example of Transocean to illustrate the problems with corporate inversions, transfer pricing schemes, and payroll tax avoidance, since Transocean has exploited all three. But this report makes clear that Transocean is just one example of many types of companies that are abusing the rules in these ways.

And, to be fair (although it’s not clear why we should be fair to Andrew Breitbart) the New York Times article did discuss both problems — tax breaks that are specific to oil and gas companies and tax avoidance schemes that are not limited to any particular type of company. But that doesn’t change the fact that oil and gas companies are particularly adept at finding ways to get out of paying their fair share to maintain the society that makes their enormous profits possible.

Given Breitbart’s track record, we’re not particularly surprised that we're being attacked by the blog Big Government. As Franklin D. Roosevelt once said, "I ask you to judge me by the enemies I have made."

A group of small business owners and investors released a report on offshore tax havens this week and launched a campaign to put an end to the tax avoidance that they facilitate.

The group, Business and Investors Against Tax Haven Abuse, explains that tax havens provide an unfair advantage to large chain retailers and financial companies over locally-owned retailers and community banks. Target, Best Buy, Citigroup, Goldman Sachs and other well-known corporations are able to shift profits to their subsidiaries in places like the Cayman Islands (where they do little or no actual business) to reduce or eliminate their U.S. taxes. Independent "mom and pop" retailers are at a huge disadvantage just because they don't have subsidiaries set up in foreign countries solely to reduce their taxes.

It's not just independent and locally-owned businesses that suffer. All honest taxpayers are being cheated, the report explains, because the huge U.S. multinational corporations that use tax havens are actually doing most or all of their actual business in the U.S., meaning they are benefiting from the American education system, legal system, highways and other types of infrastructure even though they are not doing their part to pay for these public goods and services.

A particularly interesting part of the report explains how tax havens also helped facilitate shady financial dealings that contributed to the financial collapse. It cites reports that Goldman Sachs was using subsidiaries in the Cayman Islands when it "peddled billions of dollars in shaky securities tied to subprime mortgages on unsuspecting pension funds, insurance companies and other investors when it concluded that the housing bubble would burst."

For too long, lawmakers have responded to efforts to end offshore tax avoidance as some sort of wild attack on the free market. Now that business people themselves are sounding the alarm, lawmakers should listen.

Several extremely wealthy Americans — those whose estates would likely be subject to the estate tax — have spoken out against Congress's failure to prevent the estate tax from disappearing this year. During a Wednesday teleconference sponsored by United for a Fair Economy, some very wealthy folks, including former Treasury Secretary Robert Rubin and Disney heiress Abigail Disney, urged Congress to restore the estate tax.

In his remarks, Rubin noted that "our country is on an unsustainable fiscal path" and that estate tax revenues could be used "to fund deficit reduction, additional public investment, or added assistance to those affected by the economic crisis." Billionaire hedge fund manager Julian Robertson said the economic and moral case for an estate tax was simple, calling on Congress to get the country's "house in order" and bringing the deficit down, which means tax increases. The fairest way to do that, Robertson said, is to tax "the least deserving recipients of wealth, which are the inheritors."

Following the death July 13 of Yankees owner George Steinbrenner, media reports have commented on the fact that the billionaire's heirs would be able to inherit the team free of estate tax. (The federal tax on the estates of millionaires has been repealed for one year in 2010.) Several stories have contrasted that result with the heirs of Miami Dolphins owner Joe Robbie and Chicago Cubs owner P.K. Wrigley, whose heirs reportedly sold the teams in order to pay the estate tax.

Those media reports say that the Robbie and Wrigley heirs had to sell the teams in order to pay the estate tax. But that isn't the real story.

To start, the sale of the Miami Dolphins had more to do with family infighting than taxes. Owner Joe Robbie left control of his estate (and the team) to three of his nine children. Not surprisingly, the other six didn't like how things were being run and filed a multi-million dollar lawsuit against the the executors. They reached a settlement designed to keep the team in the family "well into the 21st century," but the agreement soon fell apart and the heirs agreed to sell the team and split the proceeds.

The sale of the Cubs was not something that the heirs of owner P.K. Wrigley had to do. Four years after he died in 1977, the heirs sold the team, and this is usually reported as something they had to do to pay the estate tax. But there were any number of ways they could have paid the tax. The sale of the team raised only $20.5 million. The estate tax liability was estimated at $40 million which means that there was a net taxable estate of at least about $75 million. There were obviously other assets that could have been sold to pay the estate tax. The heirs chose to sell the team rather than any of the other estate assets, including any of their stock in the W. R. Wrigley, Jr. Company, the famous maker of chewing gum. (The company was acquired by Mars, Inc. for $23 billion in 2008, so we can bet the Wrigleys did pretty well.)

Remember that if a closely-held company (i.e., a company owned and run by members of the same family) makes up more than 35 percent of an estate, the tax code allows the related estate tax to be paid over 14 years. No heirs need ever sell the family business to pay the estate tax. In both of these cases, while the estate tax was a consideration, the teams were sold primarily for other reasons. The Wrigley and Robbie stories keep being trotted out mostly as a way for estate planners to scare their potential customers.

News reports that the Steinbrenner family has narrowly escaped a possible sale of the team to pay the estate tax are greatly exaggerated. The Steinbrenner estate, valued at $1.1 billion obviously has lots of assets with which to pay any tax. The estate probably also has the option of paying the tax over 14 years. So even if the estate tax is reinstated retroactively, we think it's safe to say the Steinbrenner family can keep the team if it wants to. Yankee fans can breathe a sigh of relief (or regret).

“Tax expenditures,” or special tax breaks targeted at particular activities or parties, are in desperate need of reform.  In a report released by CTJ last November we explained how the current political climate, as well as dysfunctional procedural rules in Congress, have created a situation in which lawmakers have become much too willing to rely on tax breaks to accomplish their favored goals.  Fortunately, a bill introduced by Rep. Mike Quigley (D-IL) just last week seeks to rein in some of the most destructive tendencies toward excessive tax breaks by counteracting the unwarranted advantages that tax breaks enjoy in the policymaking process.

While the first half of HR 5752 deals with general budget process reforms, it's the latter half of the bill with which CTJ is most interested.  Among the tax expenditure reforms contained in this part of the bill is a requirement that all tax expenditures be reviewed by CBO at least every four years.  Those reviews would result in a recommendation to Congress regarding what should be done with each tax expenditure, and in doing so would use many of the same criteria contained in the recently proposed “tax extenders study."  This requirement somewhat resembles a proposal put forth in CTJ's November 2009 report that the Executive Branch conduct these reviews as part of their regular assessments of government performance.

HR 5752 also seeks to encourage lawmakers to make use of these CBO reviews, and of a variety of other improvements in tax expenditure data required by the bill.  Specifically, HR 5752 would require that the tax-writing committees in both the House and Senate hold public hearings on the findings released by CBO.  The Treasury Department and OMB would also be required to provide comments on the reviews. 

More importantly, HR 5752 requires that any effort to enact a new tax expenditure (or enlarge an existing one) include a provision that would eliminate the tax expenditure at a point 10 years in the future.  This sunset requirement would eliminate the “auto-pilot” feature enjoyed by many tax breaks by requiring lawmakers to periodically reconsider whether these policies are effective, and to vote on whether or not to continue them.  While a 10-year sunset provision isn't the same thing as requiring regular reauthorization and reappropriation — as is done with discretionary spending — it is a meaningful step toward leveling the playing field between these two types of policies.

Another one of HR 5752's more important components is a requirement that bills enacting or expanding a tax expenditure receive approval not only from the tax-writing committee, but from the relevant subject-matter committee as well.  Under HR 5752, for example, the House Ways & Means Committee would no longer be given sole jurisdiction over the plethora of tax breaks given to energy companies.  Any bill seeking to expand upon such breaks would also have to receive approval from the House Committee on Energy and Commerce before being brought to the floor of the House.  By allowing other relevant committees a say in measures related to their specific areas of policy, the power of the tax-writing committees to legislate on almost any issue imaginable could be scaled back by HR 5752.

For more on HR 5752, see this release from Rep. Quigley's office.  And to see a comparison of tax expenditures and other spending programs in various policy areas, be sure to see this April report from CTJ.

On July 14, Douglas Holtz-Eakin, chief economic adviser for John McCain’s presidential campaign and former director of the Congressional Budget Office, gave written and oral testimony to the Senate Finance Committee concerning the Bush tax cuts. Because these tax cuts expire at the end of 2010, Congress must decide which portions of them to extend or make permanent, and which portions should expire as scheduled.

Holtz-Eakin argued for permanently extending the Bush income tax cuts for the rich, while dropping expansions in the Earned Income Tax Credit and Child Credit that benefit working class people. He also oddly asserted that raising revenue will not reduce deficits. He went on to repeat some common misconceptions about businesses and their reaction to tax rates.

The overall thrust of Holtz-Eakin’s testimony was that taxes need to be lower on the rich (to encourage them to work, save and invest) and higher on the poor (to encourage them to work).

A new report from Citizens for Tax Justice explains that, to make his case, Holtz-Eakin endorsed several myths about the Bush tax cuts.

Read the report.

A Washington Post editorial earlier this week declared, "Senate Republicans, committed as they are to preventing the debt from mounting further, can't approve an extension of unemployment benefits because it would cost $35 billion. But they are untroubled by the notion of digging the hole $678 billion deeper by extending President Bush's tax cuts for the wealthiest Americans."

Well, that's a little unfair, because Congressional Republicans actually want to increase the deficit by a full trillion dollars by extending the Bush tax cuts for the wealthy.

The $678 billion is just the cost of making the Bush income tax cuts for the richest two percent of taxpayers permanent. (President Obama and Republicans agree that they should be made permanent for the other 98 percent.) Republicans have also been pushing for years to make permanent Bush's repeal of the federal tax on the estates of millionaires. This would add over $300 billion during the first decade when its costs would be fully felt, compared to Obama's more restrained (but still awfully generous) proposal to cut the estate tax.

As the Post explains, Senate Republican Whip Jon Kyl recently said that the cost of new spending should be offset, but the revenue loss from tax cuts should not. According to Talking Points Memo, Republican Senator Judd Gregg explained that new government spending is "growing the government" and therefore should be offset, presumably with cuts in spending, but tax cuts should not be offset.

Of course, deficit-financed tax cuts have to be paid for one day, and that could be done through tax hikes. Congressional Republicans might believe that Congress will be forced to shrink government when revenues decline, but that obviously didn't happen after the Bush tax cuts were enacted.

Senate Republicans Bring Back Supply-Side Economics

But the real prize for articulating their position goes to Senate Republican Leader Mitch McConnell. When asked about this, he replied, "That's been the majority Republican view for some time, that there's no evidence whatsoever that the Bush tax cuts actually diminished revenue. They increased revenue, because of the vibrancy of these tax cuts in the economy."

That's right. The most powerful Republican alive believes that when Congress cuts taxes, the result is that revenues increase.

This is the extreme version of "supply-side economics." The basic idea behind this school of thought is that tax cuts can change incentives to invest so much that they result in huge economic growth, which results in increased incomes and therefore increased income tax payments that more than make up for the loss of tax revenue resulting directly from the tax cuts.

CTJ has already explored in great detail the empirical evidence against this idea, the people who promote it anyway, and the fiscal disasters that have resulted.

But don't take our word for it. President George W. Bush's own Treasury also concluded that tax cuts do not increase revenue or come close to paying for themselves.

Douglas Holtz-Eakin Contradicts McConnell

So have the Republicans obtained some new support for supply-side economics since then? Apparently not, since the Republican witness at Wednesday's Finance Committee hearing on the Bush tax cuts conceded that they did not pay for themselves.

Douglas Holtz-Eakin, former director of the Congressional Budget Office and an adviser to the presidential campaign of John McCain testified at the hearing in favor of making permanent all the Bush tax cuts (including those for the richest taxpayers). According to his written testimony (which he paraphrased during the hearing), making the tax cuts permanent would have a positive economic effect that would reduce the direct cost of the tax cuts by 22 percent.

We have no idea how he came to that figure. But Holtz-Eakin is the closest thing the Republicans have to a reasonable and credible economist who will promote their views. (Even though we think he's wrong about most of what he says, as we explained in the previous article.) Since Holtz-Eakin is the best economist the Republicans have on their side, one would think that Senator McConnell would get on the same page.

Yankees owner George Steinbrenner died last week, leaving a fortune estimated at $1.1 billion. He is the fourth billionaire to die this year — the only year since 1916 when there has not been a federal estate tax (it's currently scheduled to return in 2011). So even if the Yankees don't repeat as World Series champs, it's a very profitable year for the Steinbrenner family.

The opportunity to die without one's estate being taxed may disappear soon, however, as Congress appears finally ready to address the issue. On June 24, Senators Sanders (I-VT), Harkin (D-IA) and Whitehouse (D-RI) introduced estate tax legislation that would make permanent the $3.5 million exemption that was effective in 2009, with a progressive rate structure that would tax the taxable portion of estates over $10 million at 50 percent, over $50 million at 55 percent, and over $500 million at 65 percent. Yesterday, Congresswoman Linda Sanchez (D-CA) introduced the House version of this bill.

Earlier this week Senators Lincoln (D-AR) and Kyl (R-AZ) introduced their own estate tax legislation, which would reduce the rate to 35 percent and raise the exemption to $5 million ($10 million for couples).

Meanwhile, in the House, Representatives Thompson (D-CA) and Salazar (D-CO) have introduced estate tax legislation that would completely exempt farmland and would raise the exclusion for conservation easements to $5 million from its current $500,000. (See a report on all the reasons why this is a terrible idea.) One of the most alarming results would be that wealthy people start investing in farmland as never before, which could drive up prices for land and hurt genuine family farmers.

The Lincoln-Kyl proposal has been referred to the Senate Finance Committee with the pending small business jobs bill. Finance would need to find $80 billion in revenue offsets to cover the increased cost of their proposal compared to extending the rules in effect in 2009 (which is what President Obama proposes). Senators Lincoln and Kyl mask the true cost of their proposal by phasing in the cut in the estate tax over several years, meaning the $80 billion figure is misleadingly small.

With all the competing proposals and the lack of any clear consensus, it's anybody's guess where the estate tax will finally end up. But the estate tax holiday will soon be over.

Earlier this month the Louisiana Budget Project released a report on state income tax cuts that says "Louisiana’s fiscal chickens are coming home to roost." Put in a less entertaining way, Louisiana simply doesn't have enough revenue to meet the needs of Louisianans and this is likely to be the case for many years to come unless lawmakers act quickly.

One reason for the state's woes is the legislation enacted in 2007 and 2008 that repealed important parts of a 2002 tax reform, commonly referred to as the Stelly plan, after its sponsor, Rep. Vic Stelly. The plan eliminated the state sales tax on utilities, food, and medicine and imposed tax increases on the better-off. The package was initially revenue-neutral, but over time it would have created more revenue for the state.

The report finds, "The revenue loss caused by the Stelly rollbacks, coupled with the impact of the national economic downturn and shortfalls in mineral revenues, leave Louisiana with insufficient revenues to maintain services at current levels at a time of growing needs." LANO estimates, with ITEP's help, that if the Stelly provisions hadn't been repealed, the state might not have faced a budget shortfall in 2010.

Back-to-school time is just around the corner and with that comes the annual debate about sales tax holidays. States offering sales tax holidays typically won't collect sales tax for a specific number of days on items considered to be back-to-school items like school supplies, clothes, or even shoes. Of course, sales tax holidays do nothing to offset the regressivity of the sales tax the rest of the year, they are an administrative headache, costly for state governments, and very low-income people usually don't have the flexibility to shift their spending to take advantage of the holiday.

Despite recent headlines like "Illinois: Our very own Greece?" Governor Quinn signed legislation that allows the state to offer its first ever sales tax holiday for a ten day period in early August. The holiday is projected to cost the state between $20 and $67 million, which the state could certainly use right about now. It's hard to understand how offering this sales tax holiday is good fiscal policy.

In brighter news, Georgia is not having a sales tax-free holiday weekend this year. In a state facing its own budget crunch, the Speaker of the House said earlier this year, "What I hear Georgians say is they’d rather have their classroom teachers in the classroom teaching than have that sales [tax] holiday." This move is likely to save the state about $12 million.