Missouri News



Missouri Lawmakers Relentless in Quest to Cut Taxes for the Wealthy



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The anti-taxers are at it again in Missouri. The House and Senate for the second time in as many years passed a bill that would lower taxes on the wealthiest Missourians and reduce taxes on business income.

Fully aware Missouri Gov. Jay Nixon doesn’t support these irresponsible cuts, the Republican lawmakers behind this plan aren’t resting on their laurels; they’re working to drum up enough support to override an anticipated veto.

This tax cut package (Senate Bill 509) would eliminate the state’s top income tax bracket and introduce a 25 percent deduction for business income; It also includes a token exemption for low-income Missourians. A Missouri Budget Project report, using data from our partners at the Institute on Taxation and Economic Policy (ITEP), found that the poorest 20 percent of Missourians would see a tax cut of just $6 while the top one percent of families would see an average tax cut of $7,792.

Interestingly, at least one legal expert notes the bill’s language may be fatally flawed by not just eliminating the top tax bracket (which starts at $9,000), but actually doing away with taxes on income over $9,000. Such a drafting error would effectively end the state’s income tax. It would also balloon the bill’s price tag from $620 million to $4.8 billion.

The Governor hasn’t yet vetoed the bill and is instead allowing time for more administrative review. But his feelings on the bill are pretty clear. In a statement released Tuesday he said, “With the simple stroke of my pen, this bill would separate Missouri from every state in the nation – as the only one unable to meet even the most basic obligations to its people.”

This isn’t the first time Missouri legislators have tried to give the wealthy a tax break at the expense of everyone else.  In 2013, Gov. Nixon vetoed a regressive tax cut package passed by Republican lawmakers that would have cost the state $700 million annually. In his veto message the Governor called the legislation an “ill-conceived, fiscally irresponsible experiment that would inject far-reaching uncertainty into our economy, undermine our state’s fiscal health and jeopardize basic funding for education and vital public services.”

Last year, in a victory for tax justice advocates, his veto withstood an attempted override by the legislature.  Stay tuned as this debate over bill language, state funding, and fairness play out once again.



State News Quick Hits: Potholes Making Headlines, a Tax Battle Truce and More



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With pothole season well under way, our partner organization, the Institute on Taxation and Economic Policy (ITEP), has been in the news quite a bit recently for its research on the need for more sustainable federal and state gasoline taxes. USA Today ran a story this week featuring quotes from ITEP staff and six different infographics based on ITEP data that explain where state gas taxes are, and aren’t, being raised.  In addition, ITEP’s Carl Davis appeared on both CBNC and NPR’s Marketplace to talk about the gas tax.

The Missouri legislature is poised to offer Kansas a truce in the never-ending battle to shower Kansas City-area companies with tax credits. Both the Missouri Senate and House recently passed similar bills that would ban state tax incentives for companies that agree to move from the Kansas side of the Kansas City border (Wyandotte, Johnson, Douglas, or Miami counties) to the Missouri side (Jackson, Clay, Platte, or Cass counties). It seems Missouri has finally realized that tax breaks used to lure companies across the border — otaling $217 million between both states in recent years by one estimate — don’t actually create new jobs for the region’s residents and would be better spent on much needed public services. The one catch: the Missouri bill would only go into effect if Kansas agrees to a similar ceasefire within the next two years.

Perhaps this is the year that Utah will establish a state Earned Income Tax Credit (EITC). A bill creating the much-heralded working family tax credit was passed out of the House Revenue and Taxation Committee last month. Last year, a similar bill was passed by the full House, but stalled in the Senate. This year’s bill, which is again sponsored by Representative Hutchings, would give over 200,000 low-income Utahns a refundable tax credit worth 5 percent of the federal EITC, or roughly $113 on average. But one change from last year’s bill is that the credit will not go into effect until Utah is allowed to start collecting sales tax from online shoppers — something that won’t happen until Congress passes legislation granting the states that power. Such a bill has already passed the U.S. Senate and is supported by President Obama, but it is still pending in the U.S. House.

While a full solution to the problem of uncollected sales taxes on online shopping will have to come from the federal government, Hawaii’s House of Representatives wants to chip away at the problem by expanding the number of online retailers that have to collect sales tax right now. Under a bill backed by the state Chamber of Commerce, retailers partnering with Hawaii-based companies to solicit sales would have to collect sales taxes on purchases made by their Hawaii customers.  This move to apply the state’s sales tax laws more uniformly to both online retailers and traditional brick-and-mortar stores would be one step toward a more modern sales tax in the Aloha State.



Missouri: Done Deal? Let's Hope Not



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Last year, Missouri Governor Jay Nixon, a Democrat, vetoed a regressive tax cut package passed by Republican lawmakers that would have cost the state $700 million annually. In his veto message the Governor called the legislation an “ill-conceived, fiscally irresponsible experiment that would inject far-reaching uncertainty into our economy, undermine our state’s fiscal health and jeopardize basic funding for education and vital public services.” In a victory for tax justice advocates, his veto withstood an attempted override by the legislature.

But, last week, Nixon reached a flawed tentative agreement with Republican State Senator Will Kraus to reduce the top individual income tax rate by half of one percentage point, but only if certain budget conditions are met. Half of the tax cut is contingent on the state bringing in $200 million in revenue growth and fully funding the state’s schools. The other half would be triggered by legislation that lowers the cap on two tax credits: one for low-income housing development and the other for historic building preservation. If all the contingencies are met, the Governor’s proposal would cut taxes by roughly $400 million a year, less than half of what Republicans in the legislature are asking for ($928 million a year when fully phased in), but still a significant tax cut.

In terms of fairness, an Institute on Taxation and Economic Policy (ITEP) analysis published in a brief from the Missouri Budget Project (MBP) found that reducing the top rate to 5.5 percent overwhelmingly benefits the wealthiest Missourians. In fact, ITEP found that 76 percent of the tax reduction would fall to the wealthiest 20 percent of Missourians. The impact by income group of this tax cut clearly illustrates that the wealthier do better under this proposal, Missourians in the top 1 percent, those with average incomes over $1.094 million – would receive a tax cut averaging $3,779 per year. In contrast, the average Missouri family with incomes from $33,000 - $52,000 would receive just a $47 tax cut per year, about enough to buy one hamburger each month. And the lowest income Missourians, those with incomes under $18,000, would get zero benefit.

In terms of adequacy, MBP rightly notes that over the long term there is no guarantee that school funding won’t be cut, “there are no ongoing protections for funding of public education.” There is a long history of states promising to hold services harmless and failing to do so.

Of course, there is a better way. Missouri’s Governor and lawmakers could work together to cut taxes for those who can least afford them and further invest in schools, healthcare and transportation by asking the wealthy to pay more. Let’s certainly hope this “deal” isn’t done.



A New Wave of Tax Cut Proposals in the States



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Note to Readers: This is the third of a five-part series on tax policy prospects in the states in 2014.  Over the coming weeks, the Institute on Taxation and Economic Policy (ITEP) will highlight state tax proposals that are gaining momentum in states across the country. This post focuses on proposals to cut personal income, business, and property taxes.

Tax cut proposals are by no means a new trend.  But, the sheer scope, scale and variety of tax cutting plans coming out of state houses in recent years and expected in 2014 are unprecedented.  Whether it’s across the board personal income tax rate cuts or carving out new tax breaks for businesses, the vast majority of the dozen plus tax cut proposals under consideration this year would heavily tilt towards profitable corporations and wealthy households with very little or no benefit to low-income working families.  Equally troubling is that most of the proposals would use some or all of their new found revenue surpluses (thanks to a mostly recovering economy) as an excuse to enact permanent tax cuts rather than first undoing the harmful program cuts that were enacted in response to the Great Recession.  Here is a brief overview of some of the tax cut proposals we are following in 2014:

Arizona - Business tax cuts seem likely to be a major focus of Arizona lawmakers this session.  Governor Jan Brewer recently announced that she plans to push for a new tax exemption for energy purchased by manufacturers, and proposals to slash equipment and machinery taxes are getting serious attention as well.  But the proposals aren’t without their opponents.  The Children’s Action Alliance has doubts about whether tax cuts are the most pressing need in Arizona right now, and small business groups are concerned that the cuts will mainly benefit Apple, Intel, and other large companies.

District of Columbia - In addition to considering some real reforms (see article later this week), DC lawmakers are also talking about enacting an expensive property tax cap that will primarily benefit the city’s wealthiest residents.  They’re also looking at creating a poorly designed property tax exemption for senior citizens.  So far, the senior citizen exemption has gained more traction than the property tax cap.

Florida - Governor Rick Scott has made clear that he intends to propose $500 million in tax cuts when his budget is released later this month.  The details of that cut are not yet known, but the slew of tax cuts enacted in recent years have been overwhelmingly directed toward the state’s businesses.  The state legislature’s more recent push to cut automobile registration fees this year, shortly before a statewide election takes place, is the exception.

Idaho - Governor Butch Otter says that his top priority this year is boosting spending on education, but he also wants to enact even more cuts to the business personal property tax (on top of those enacted last year), as well as further reductions in personal and corporate income tax rates (on top of those enacted two years ago). Idaho’s Speaker of the House wants to pay for those cuts by dramatically scaling back the state’s grocery tax credit, but critics note that this would result in middle-income taxpayers having to foot the bill for a tax cut aimed overwhelmingly at the wealthy.

Indiana - Having just slashed taxes for wealthy Hoosiers during last year’s legislative session, Indiana lawmakers are shifting their focus toward big tax breaks for the state’s businesses.  Governor Mike Pence wants to eliminate localities’ ability to tax business equipment and machinery, while the Senate wants to scale back the tax and pair that change with a sizeable reduction in the corporate income tax rate. House leadership, by contrast, has a more modest plan to simply give localities the option of repealing their business equipment taxes.

Iowa - Leaders on both sides of the aisle are reportedly interested in income tax cuts this year. Governor Terry Branstad is taking a more radical approach and is interested in exploring offering an alternative flat income tax option. We’ve written about this complex and costly proposal here.

Maryland - Corporate income tax cuts and estate tax cuts are receiving a significant amount of attention in Maryland—both among current lawmakers and among the candidates to be the state’s next Governor.  Governor Martin O’Malley has doubts about whether either cut could be enacted without harming essential public services, but he has not said that he will necessarily oppose the cuts.  Non-partisan research out of Maryland indicates that a corporate rate cut is unlikely to do any good for the state’s economy, and there’s little reason to think that an estate tax cut would be any different.

Michigan - Michigan lawmakers are debating all kinds of personal income tax cuts now that an election is just a few months away and the state’s revenue picture is slightly better than it has been the last few years.  It’s yet to be seen whether that tax cut will take the form of a blanket reduction in the state’s personal income tax, or whether lawmakers will try to craft a package that includes more targeted enhancements to provisions like the Earned Income Tax Credit (EITC), which they slashed in 2011 to partially fund a large tax cut (PDF) for the state’s businesses. The Michigan League for Public Policy (MLPP) explains why an across-the-board tax cut won’t help the state’s economy.

Missouri - In an attempt to make good on their failed attempt to reduce personal income taxes for the state’s wealthiest residents last year, House Republicans are committed to passing tax cuts early in the legislative session. Bills are already getting hearings in Jefferson City that would slash both corporate and personal income tax rates, introduce a costly deduction for business income, or both.

Nebraska - Rather than following Nebraska Governor Dave Heineman into a massive, regressive overhaul of the Cornhusker’s state tax code last year, lawmakers instead decided to form a deliberative study committee to examine the state’s tax structure.  In December, rather than offering a set of reform recommendations, the Committee concluded that lawmakers needed more time for the study and did not want to rush into enacting large scale tax cuts.  However, several gubernatorial candidates as well as outgoing governor Heineman are still seeking significant income and property tax cuts this session.

New Jersey - By all accounts, Governor Chris Christie will be proposing some sort of tax cut for the Garden State in his budget plan next month.  In November, a close Christie advisor suggested the governor may return to a failed attempt to enact an across the board 10 percent income tax cut.  In his State of the State address earlier this month, Christie suggested he would be pushing a property tax relief initiative.  

New York - Of all the governors across the United States supporting tax cutting proposals, New York Governor Andrew Cuomo has been one of the most aggressive in promoting his own efforts to cut taxes. Governor Cuomo unveiled a tax cutting plan in his budget address that will cost more than $2 billion a year when fully phased-in. His proposal includes huge tax cuts for the wealthy and Wall Street banks through raising the estate tax exemption and cutting bank and corporate taxes.  Cuomo also wants to cut property taxes, first by freezing those taxes for some owners for the first two years then through an an expanded property tax circuit breaker for homeowners with incomes up to $200,000, and a new tax credit for renters (singles under 65 are not included in the plan) with incomes under $100,000.  

North Dakota - North Dakota legislators have the year off from law-making, but many will be meeting alongside Governor Jack Dalrymple this year to discuss recommendations for property tax reform to introduce in early 2015.  

Oklahoma - Governor Mary Fallin says she’ll pursue a tax-cutting agenda once again in the wake of a state Supreme Court ruling throwing out unpopular tax cuts passed by the legislature last year.  Fallin wants to see the state’s income tax reduced despite Oklahoma’s messy budget situation, while House Speaker T.W. Shannon says that he intends to pursue both income tax cuts and tax cuts for oil and gas companies.

South Carolina - Governor Nikki Haley’s recently released budget includes a proposal to eliminate the state’s 6 percent income tax bracket. Most income tax payers would see a $29 tax cut as a result of her proposal. Some lawmakers are also proposing to go much farther and are proposing a tax shift that would eliminate the state’s income tax altogether.



What to Watch for in 2014 State Tax Policy



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Note to Readers: This is the first of a five-part series on tax policy prospects in the states in 2014.  This post provides an overview of key trends and top states to watch in the coming year.  Over the coming weeks, the Institute on Taxation and Economic Policy (ITEP) will highlight state tax proposals and take a deeper look at the four key policy trends likely to dominate 2014 legislative sessions and feature prominently on the campaign trail. Part two discusses the trend of tax shift proposals. Part three discusses the trend of tax cut proposals. Part four discusses the trend of gas tax increase proposals. Part five discusses the trend of real tax reform proposals.

2013 was a year like none we have seen before when it comes to the scope and sheer number of tax policy plans proposed and enacted in the states.  And given what we’ve seen so far, 2014 has the potential to be just as busy.

In a number of statehouses across the country last year, lawmakers proposed misguided schemes (often inspired by supply-side ideology) designed to sharply reduce the role of progressive personal and corporate income taxes, and in some cases replace them entirely with higher sales taxes.  There were also a few good faith efforts at addressing long-standing structural flaws in state tax codes through base broadening, providing tax breaks to working families, or increasing taxes paid by the wealthiest households.

The good news is that the most extreme and destructive proposals were halted.  However, several states still enacted costly and regressive tax cuts, and we expect lawmakers in many of those states to continue their quest to eliminate income taxes in the coming years.  

The historic elections of 2012, which left most states under solid one-party control (many of those states with super majorities), are a big reason why so many aggressive tax proposals got off the ground in 2013.  We expect elections to be a driving force shaping tax policy proposals again in 2014 as voters in 36 states will be electing governors this November, and most state lawmakers are up for re-election as well.

We also expect to see a continuation of the four big tax policy trends that dominated 2013:

  • Tax shifts or tax swaps:  These proposals seek to scale back or repeal personal and corporate income taxes, and generally seek to offset some, or all, of the revenue loss with a higher sales tax.

    At the end of last year, Wisconsin Governor Scott Walker made it known that he wants to give serious consideration to eliminating his state’s income tax and to hiking the sales tax to make up the lost revenue.  Even if elimination is out of reach this year, Walker and other Wisconsin lawmakers are still expected to push for income tax cuts.  Look for lawmakers in Georgia and South Carolina to debate similar proposals.  And, count on North Carolina and Ohio lawmakers to attempt to build on tax shift plans partially enacted in 2013.  
  • Tax cuts:  These proposals range from cutting personal income taxes to reducing property taxes to expanding tax breaks for businesses.  Lawmakers in more than a dozen states are considering using the revenue rebounds we’ve seen in the wake of the Great Recession as an excuse to enact permanent tax cuts.  

    Missouri
    lawmakers, for example, wasted no time in filing a new slate of tax-cutting bills at the start of the year with the hope of making good on their failed attempt to reduce personal income taxes for the state’s wealthiest residents last year.  Despite the recommendations from a Nebraska tax committee to continue studying the state’s tax system for the next year, rather than rushing to enact large scale cuts, several gubernatorial candidates as well as outgoing governor Dave Heineman are still seeking significant income and property tax cuts this session.  And, lawmakers in Michigan are debating various ways of piling new personal income tax cuts on top of the large business tax cuts (PDF) enacted these last few years.  We also expect to see major tax cut initiatives this year in Arizona, Florida, Idaho, Indiana, Iowa, New Jersey, North Dakota, and Oklahoma.

    Conservative lawmakers are not alone in pushing a tax-cutting agenda.  New York Governor Andrew Cuomo and Maryland’s gubernatorial candidates are making tax cuts a part of their campaign strategies.  
  • Real Reform:  Most tax shift and tax cut proposals will be sold under the guise of tax reform, but only those plans that truly address state tax codes’ structural flaws, rather than simply eliminating taxes, truly deserve the banner of “reform”.

    Illinois and Kentucky are the states with the best chances of enacting long-overdue reforms this year.  Voters in Illinois will likely be given the chance to convert their state's flat income tax rate to a more progressive, graduated system.  Kentucky Governor Steve Beshear has renewed his commitment to enacting sweeping tax reform that will address inequities and inadequacies in his state’s tax system while raising additional revenue for education.  Look for lawmakers in the District of Columbia, Hawaii, and Utah to consider enacting or enhancing tax policies that reduce the tax load currently shouldered by low- and middle-income households.
  • Gas Taxes and Transportation Funding:  Roughly half the states have gone a decade or more without raising their gas tax, so there’s little doubt that the lack of growth in state transportation revenues will remain a big issue in the year ahead. While we’re unlikely to see the same level of activity as last year (when half a dozen states, plus the District of Columbia, enacted major changes to their gasoline taxes), there are a number of states where transportation funding issues are being debated. We’ll be keeping close tabs on developments in Iowa, Michigan, Missouri, New Hampshire, Utah, and Washington State, among other places.

Check back over the next month for more detailed posts about these four trends and proposals unfolding in a number of states.  



State News Quick Hits: 2014 Off to Rocky Start



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2014 is just a few days old, and already it’s not off to such a happy start in terms of tax fairness:

This editorial in the Kansas City Star predicts that in Missouri, “[m]any state lawmakers, and their constituents, found 2013 to be a taxing legislative session. But it may pale in comparison to what’s ahead in 2014.” Republican legislators aren’t going to give up on “tax reform” after their failure to override Governor Jay Nixon’s veto of an extreme tax plan last year. Instead, those lawmakers are pledging to propose another round of income tax cuts and potentially a ballot initiative if the tax cuts can’t be passed through the legislative process.

The proliferation of state film tax incentives among states seeking to siphon off Hollywood production spending has been widely criticized. But the fact that some in California are now contemplating enacting film tax breaks to prevent a home-grown industry from leaving the state is a stark reminder that the “race to the bottom” in state corporate income taxes will leave every state poorer.

January 1st marked the beginning of a new, highly regressive era in North Carolina tax policy.  An array of tax changes went into effect which will further shift the responsibility for paying for North Carolina’s public investments away from wealthy households and profitable corporations onto the backs of middle- and low-income families.  Most notable among the changes includes the collapse of the state’s graduated personal income tax structure which was replaced with a flat rate of just 5.8% and allowing the state’s Earned Income Tax Credit to expire. Lawmakers who championed the tax package have falsely claimed for months that every North Carolina taxpayer will benefit from the changes.  As  ITEP and the NC Budget and Tax Center have repeatedly pointed out (and NC fact-checking reporters and the NC Fiscal Research division have substantiated), many families will pay more.  

This week, the Small Business Development Committee in the Wisconsin Assembly heard a bill about two proposed sales tax holidays. The first two-day holiday would be held in early August and would suspend the state’s 5 percent sales tax on computers and back-to-school items. The other two-day holiday would take place in November and be available for Energy Star products. Thankfully the proposal seems to be getting mixed reviews. Senate Majority Leader Scott Fitzgerald views the proposal as a gimmick and he couldn’t be more right. For more information read ITEP’s Policy Brief.



State News Quick Hits: Wisconsin Tax Policy Round Tables, Unpopular Tax Cuts in Kansas, and More



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Governor Scott Walker says that one of his goals is to lower taxes for all Wisconsinites. He’s asked Lt. Gov. Rebecca Kleefisch and Revenue Department Secretary Rick Chandler to host a series of roundtable discussions about the state’s tax structure. Regrettably, transparency clearly isn’t another one of the Governor’s goals as the first roundtable discussion was closed to the public (and press) and only business leaders were invited.

In “race to the bottom” news, Missouri lawmakers approved a 23-year, $1.7 billion package of tax cuts for Boeing in an attempt to lure the manufacturer to the state. Missouri is one of twelve states vying for the opportunity to make the new 777X passenger jets. As we have explained, Missouri seems eager to repeat the mistakes of of Washington State, which recently provided Boeing with the largest state tax cut in history, at $8.7 billion.

It turns out that Kansas’ recent tax cuts aren’t just 
bad policy.  They’re also unpopular.  The income tax cuts, sales tax hikes, education cuts, and social service cuts that resulted from Governor Brownback’s tax plan are all opposed by a majority of Kansans, according to polling highlighted in The Wichita Eagle.

Due to the extensive changes to North Carolina’s personal income tax starting in 2014, the state’s Department of Revenue has 
asked all employers to distribute new state income tax withholding forms to their employees.  The need for a new form has unfortunately led to a lot of confusion and some really inaccurate press coverage on the regressive and costly tax “reform” package enacted this year.  Some articles mistakenly reported that everyone will get an income tax cut (and thus a little more money in their paychecks next year), but we know this is not the case.  The loss of the state’s Earned Income Tax Credit, personal exemptions (despite a higher standard deduction), and numerous other deductions and credits will negatively impact many working North Carolina families and seniors living on fixed incomes.  And, these stories all failed to point out that while income taxes may be going down for some, sales tax on items including movie tickets, service contracts and electricity will be going up in 2014.



Missouri Lawmakers to Washington: We'll See Your $8.7 Billion, And...



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When Washington State lawmakers approved a record $8.7 billion in tax breaks for Boeing and other aerospace companies last month, many observers hoped that the unprecedented scale of the new tax cuts—which will last through 2040—might open policymakers’ eyes to the folly of the “race to the bottom” that will eventually result from ever-increasing corporate giveaways. But Missouri Governor Jay Nixon’s eyes remain firmly shut. Nixon has called a special legislative session to urge the Missouri legislature to approve tax cuts totaling $1.7 billion , also geared toward Boeing and other aerospace companies.

Nixon’s professed hope is that the tax breaks will entice Boeing to produce their 777X commercial aircraft in Missouri. But Boeing’s own taxpaying behavior suggests that for some, the “race to the bottom” may already be over: a recent CTJ report found that over the past decade Boeing managed to avoid paying even a dime of state income taxes nationwide on $35 billion in pretax U.S. profits.



Jay Nixon's Proposed Truce Is Long Overdue



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For years, the economic border war between Missouri and Kansas has been the topic of discussion in those states’ respective statehouses. In a January report titled The Job-Creation Shell Game, Good Jobs First writes, “There is no jobs border war more intense these days than the one raging in the Kansas City metropolitan area...Both states unabashedly poach businesses from each other, aided by similarly structured tax credits that allow footloose companies to retain large portions of their employees’ state personal income tax.”

Now, it appears, Missouri Governor Jay Nixon is finally determined to change that.  Nixon recently told a business group that, “This so-called border war between our two states has gone on long enough” and described it as “bad for taxpayers … bad for our state budget, and it’s not good for our economy.”  Since making these statements, Kansas Governor Sam Brownback has indicated that he’s open to the idea of a truce, and the Kansas City Star explained how discussions surrounding how to implement such an agreement have been underway for more than a year.

In testimony before the National Conference of State Legislatures’ tax policy task force, the Institute on Taxation and Economic Policy (ITEP) made a strong case against the use of tax incentives to lure businesses: they often reward companies for activities they would have undertaken anyway; it’s difficult to ensure that their benefits remain entirely in-state; they often result in simply “poaching” jobs from one jurisdiction to another; and their costs can balloon far beyond what lawmakers anticipated.

The Kansas City border war is a particularly egregious example of many of these problems.  Cutting back on the wasteful use of incentives is the obvious first step that Missouri and Kansas lawmakers should take; the proposed truce would be immediately helpful to both Kansas and Missouri, and in the long run could help more states recognize that there are benefits to ending the tax incentive arms race.



State News Quick Hits: Missouri Legislature Fails to Override Governor's Tax Cut Veto and More



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Despite holding a supermajority in Missouri’s House and Senate, Republican lawmakers failed this week to muster enough votes to overturn Governor Nixon’s veto of their $700 million tax cut (which passed overwhelmingly in both chambers just a couple of months ago).  A misguided effort supporters touted as a way to keep up with neighboring Kansas, opponents of the measure accurately described it as little more than a big give away to the state’s wealthiest residents at the expense of vital public services, primarily K-12 education. Tally this one as a victory for state tax fairness and adequacy. And watch Governor Nixon, who’s getting national kudos for holding the line on this.

Florida Governor Rick Scott isn’t sure what policy agenda he wants to pursue in 2014, but he knows it has to involve more tax cuts of some kind. How’s that for original thinking?  In related news, Politifact recently chided the Governor for exaggerating the health of the state’s revenue collections, and for claiming that his policies had anything to do with the modest revenue growth Florida has seen.

The ink is barely dry on North Carolina’s regressive tax overhaul and yet lawmakers are already discussing fully eliminating the state’s personal income tax and replacing it with an even more regressive broader consumption tax in 2015. Senator Bob Rucho told a Washington Post reporter that he thinks the state will  “go to zero” with the income tax in a matter of time.  Speaker of the House and US Senate Candidate Thom Tillis agreed, “I think moving to a consumption-based model is something we all agree on.”

Wyoming lawmakers are considering raising the state’s tax on beer in order to pay for alcohol abuse programs. The 2 cent per gallon tax hasn’t been raised since 1935 and is currently the lowest in the nation.  After almost eighty years of neglect, it’s safe to say that the tax is probably in need of another look.



State News Quick Hits: Starving Government With TABOR, and More



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TABOR stands for Taxpayer Bill of Rights, but it’s really a destructive law that restricts tax and spending growth with the goal of starving government. Colorado has the most restrictive version of this kind of law and serves as a cautionary tale. The Colorado TABOR and its implications are described in a new policy brief from the Institute on Taxation and Economic Policy (ITEP).  In a nutshell, TABOR’s arbitrary limit on the size of government prevents states from meeting their evolving responsibilities as populations change, services become more expensive, and voters demand new public investments.

Texas Governor Rick Perry is headed to Missouri to stump for a regressive income tax cut that some legislators are trying to enact over Governor Nixon’s recent veto.  If Show Me State residents ignore Perry’s advice, who could blame them? The former presidential candidate’s own state’s tax system is one of the least fair in the country.  Only five states require their poorest residents to pay more in taxes than Texas.

Indiana’s property tax caps, which we’ve long criticized, are causing headaches for local lawmakers in Indianapolis who are facing pleas from law enforcement and other agencies for more funds. Coupled with the revenue slump brought on by the recent recession, officials are grappling with three choices: close their current budget gap by raising the city’s income tax; risk the city’s AAA credit rating by tapping its reserves; or enact even deeper cuts in public services on top of those already in effect.

It looks like taxes will be a hot issue in the 2014 Arkansas gubernatorial election.  Arkansas’ leading republican candidate, Asa Hutchinson, recently said he supported phasing out the state’s personal income tax, but offered no specifics for how he would replace the lost revenue.  Mike Ross, the leading Democratic candidate, took Hutchinson to task, reminding Arkansans that tax cuts come with a price: “So when you start talking about cutting taxes, unless you’re talking about shifting the burden to other taxes, you’re talking about laying off teachers, you’re talking about kicking seniors out of the nursing home.... It’s pretty simple math.”

 



State News Quick Hits: Ohio's Kasich Wants More Tax Cuts, Missouri's Nixon Wants Fewer - and More



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Not even a month after cutting personal income taxes and raising the state’s sales tax, Ohio Governor John Kasich is pledging to further lower the state’s top income tax rate to below 5 percent (the top rate was 5.925% before being dropped to 5.3% this year).  Speaking at a plastics plant last week, the Governor said, “we have momentum” with tax cuts, and expressed his belief that low taxes will draw more business to the Buckeye State.

Proponents of the $800 million regressive income tax cut package that was vetoed by Governor Jay Nixon last month are spending millions of dollars to convince lawmakers to override the veto. Missouri’s Chamber of Commerce is airing TV ads in support of the cuts and conservative political activist Rex Sinquefield (who has been a long-time funder of the anti-tax agenda in Missouri) has given more than $2 million to efforts to overturn the veto.  For his part, Governor Nixon is spending the summer trying to convince lawmakers and others that the veto should be sustained, particularly if they care about quality education.  At a St. Louis Chamber event Governor Nixon said, “members of the General Assembly can either support (the tax cut) or they can support education. They cannot do both.”

The Salt Lake Tribune reports on the growing chorus of support for raising taxes in Utah in order to pay for improvements to the state’s transportation infrastructure.  According to the Tribune, everybody from the state Chamber of Commerce to local governments and non-partisan think tanks has been “working to build a case that transportation tax hikes are overdue.”

A story in Kentucky’s Courier-Journal highlights some of the problems with paying for roads and bridges with tolls.  Drivers who happen to live or work close to a tolled bridge end up paying far more for infrastructure than those drivers who are lucky enough to have un-tolled routes available to them.  Moreover, low-income drivers are always affected most by tolls -- a fact that’s led some local lawmakers to begin discussing ideas like exempting drivers from tolls if their incomes are low enough to qualify for the Earned Income Tax Credit (EITC).

 



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



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

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

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

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

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

 



Veto is the Only Answer to Missouri Legislature's Tax Package



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The Missouri House and Senate have hammered out a hybrid version of the tax bills each chamber recently passed, but with luck, it will never become law.  When the Senate passed its version in March, we wrote:

This package is billed as Missouri’s answer to the radical tax package passed last year by Kansas Governor Brownback. Its sponsor explained, “I’m trying to stop the bleeding. I’m trying to stop the businesses from fleeing into Kansas,” and then invokes the kind of magical thinking that almost always results in a deficit. According to the Associated Press, State Senator Kraus predicted his plan would “create an economic engine in our state” that would generate enough new tax revenues to make up for the losses.”

The bill the legislature will now send to Governor Nixon is a regressive income tax cut package that includes: a reduction in the corporate income tax rate, a 50 percent exclusion for pass-through business income, an additional $1,000 personal and spouse income exemption for individuals earning less than $20,000 in Missouri adjusted gross income, and a reduction in the top income tax rate from 6 to 5.5 percent.

In order for the legislation to become law, Governor Jay Nixon will have to give his okay, but he has signaled he’s going to veto the legislation. Recently he said, "Taking more than $800 million — literally the equivalent of what you spend on higher education, or literally more than you have for all of corrections or mental health — is not the fiscally responsible approach.”  He reiterated that message again this week.

Assuming Nixon, a Democrat, does veto this expensive tax package (its annual cost will be upwards of $700 million), the Republican-controlled legislature will put an override on their agenda when they return in September for a special veto session.



State News Quick Hits: Tax Politics in Virginia, Tax Reform in Kentucky, and More



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In an excellent op-ed, Jason Bailey of the Kentucky Center for Economic Policy makes the case for real tax reform in Kentucky, and that means a tax code that can raise revenues to keep Kentucky thriving. He explains that after years of budget cuts and a sluggish economy, the Bluegrass State cannot make public investments needed to recover economically and get on a sustainable fiscal footing. Bailey lists the various stop-gap measures lawmakers have already deployed and concludes they are all out of tricks. With a good roadmap to reform available, Bailey writes, it’s time to begin that hard work.

This otherwise fine article in the St. Louis Post-Dispatch, about competing tax proposals in Missouri, provided online readers with a calculator – that utterly failed in calculating how those proposals would affect taxpayers. The state policy team at ITEP quickly responded with a Letter to the Editor pointing out that “the tax calculator omits some key information about who wins and who loses under these plans.”

Tax policy is taking center stage in Virginia’s gubernatorial race. Republican candidate Ken Cuccinelli is reportedly in the process of designing a major tax cut on which to campaign.  While precise details have yet to be announced, a 20 percent cut in the personal income tax and elimination of the corporate income tax altogether are under consideration. Watch this space for a full analysis of the plan’s impact on Virginians at different income levels once more details are announced.

The Center on Budget and Policy Priorities (CBPP) has a new report that clarifies a lot of misconceptions about the existence of fraud in the Earned Income Tax Credit (EITC). For starters, CBPP explains that most EITC overpayments “reflect unintentional errors, not fraud.”  On top of that, it turns out that IRS studies of EITC overpayments suffer from “significant methodological problems that likely cause them to overstate the actual EITC overpayments.”



Missouri's Kansas-Envy is Self-Destructive



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The Missouri House and Senate have each passed their own versions of a “race to the bottom” tax plan in a misguided effort to keep up with neighboring Kansas, where a radical tax plan that is eviscerating the state’s budget might actually be followed up by another round of tax cuts (currently being debated by the legislature).

Both the Missouri Senate and House plans would reduce income tax rates, introduce a 50 percent exclusion for “pass-through” business income, reduce corporate income tax rates, and increase the sales tax. The Senate plan is summed up in this St. Louis Post-Dispatch editorial, Missouri Senate Declares Class War Against Citizens.

The poorest 20 percent of Missourians, those earning $18,000 a year or less, will pay $63 a year more in taxes. Those earning between $18,000 and $33,000 a year will pay $129 more. The middle quintile — those earning between $33,000 and $53,000 a year — will pay $150 a year more. The fourth quintile ($53,000 to $85,000 a year) will pay $149 a year more. That’s a grand total of 80 percent of Missourians who will pay more and get less: crummier schools, higher college tuitions (because state aid will continue to fall) and less access to worse state services. The poor are used to this. It remains to be seen whether the middle class will put up with it.”


Despite the fact that similarly reckless tax proposals in other states have failed (Louisiana and Nebraska) or been scaled back (Ohio), it seems the proposals are moving forward in Missouri, thanks in large part to Americans for Prosperity. This national group uses state chapters to throw money at anti-tax, anti-government agendas its corporate funders like, and it has launched a “Bold Ideas Tour” to travel Missouri advocating for deep tax cuts as the state’s legislature approaches its closing date of May 17.

Governor Jay Nixon has vowed he will veto a tax cut bill of this magnitude, rightly saying, "Making a veteran with aches and pains pay more for an aspirin so that an S Corporation can get a tax cut does not reflect our values or our priorities. I have long opposed schemes like this one that would shift costs onto families because they reflect the wrong priorities and do not work.”

The Governor’s position is supported by multiple experts, including the Institute on Taxation and Economic Policy (ITEP), and it looks like Missouri could be a state where good information comes between the national anti-tax movement and their legislative agenda.



State News Quick Hits: Kansas Named Worst in the Nation for Taxes, and More



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This week Missouri is offering a sales tax holiday on energy efficient appliances. Not only are these holidays costly for state budgets, they are poorly targeted. That is, it’s generally wealthier folks who have the cash flow flexibility to time their purchases to take advantage of these holidays, when it’s poorer residents who feel the brunt of sales taxes in the first place. To learn more about why these holidays aren’t worth celebrating, check out The Institute on Taxation and Economic Policy’s (ITEP) policy brief here (PDF).

Here’s a great investigative piece from the Columbus Post Dispatch about the nearly $8 billion in tax code entitlements (aka tax expenditures) Ohio currently offers. The state needs to closely study these tax expenditures and determine if they are actually producing the economic benefits promised. Before debating extreme income tax rate reductions, Ohio lawmakers should also take a look at this ITEP primer on what a thoughtful, productive discussion of state tax expenditures looks like.

In this Kansas City Star article, ITEP’s Executive Director, Matt Gardner, talks about the fate of many radical tax plans this year in the states. “The speed with which these plans have fallen apart is as remarkable a trend as the speed with which they emerged,” he says. Kansas and its budget crisis have become a cautionary tale for other states considering tax cuts, but even the latest plans passed by the Kansas House and Senate are radical and could eventually lead to the complete elimination of the personal income tax.

Criticism of the tax cuts enacted in Kansas last year continues to mount.  We already wrote about Indiana House Speaker Brian Bosma’s caution that his state might become another Kansas, but now a number of media outlets have picked up on the fact that both the Center on Budget and Policy Priorities and the Tax Foundation called that Kansas tax cuts the “worst” (ouch!) state tax changes enacted in 2012.

Watch out, North Carolinians! It appears that Americans for Prosperity (AFP) is coming to town to the tune of $500,000 to pay for town hall meetings, “grassroots” advocacy and advertising all to support the dismantling of the state’s tax structure. Let’s hope the facts can defeat AFP’s cash.



Louisiana Tax Overhaul Collapse as Bellwether? We Can Only Hope.



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Last week we brought you news that Louisiana Governor Bobby Jindal was abandoning his plan to eliminate the state personal and corporate income taxes and replace the revenue with an expanded sales tax. Instead, the Governor asked the legislature to “Send me a plan to get rid of our state income tax.” But now the legislature is denying the Governor’s request.

House Ways and Means Committee Chair Representative Robideaux has asked his colleagues to “defer” the bills they already had in the works to repeal the state income tax, and he’s said that he won’t allow hearings on any income tax repeal bill, closing the door on any attempt to eliminate the state’s income tax. Robideaux said, “I think it’s probably dead for the session, right now, there’s probably income tax fatigue.”  Importantly, he also asks, “Is there a constituent base out there demanding repeal of the income tax?” The answer is that two thirds of Louisianans actually opposed the Governor’s plan for this tax swap, which happens to be about the same percentage of Louisianans who stand to lose the most if any such tax plan gets implemented.

Jindal’s failure is a victory for tax justice advocates and a may serve as a lesson for lawmakers in other states entertaining similarly radical tax ideas.

The St. Louis Post Dispatch, for instance, editorialized, “Louisiana's lawmakers realize what Missouri's don't: Income tax cuts are suicidal.” Missouri lawmakers are debating their own draconian tax plan that would roll back income taxes. The Post Dispatch continues, “What Louisiana has recognized is that the supposed benefits of cutting state income taxes are vastly overstated. The impact of service cuts is vastly understated. The effect is that rich people and corporations get richer. Everyone else gets poorer.”  

In another state, Georgia, income tax elimination has been debated for years, but this columnist with the Atlanta Journal Constitution is hopeful that the tax justice victory in Louisiana will lead to Georgia lawmakers reconsidering their own proposal, which eliminates the personal and corporate income tax for no good reason.

Tax plans similar to Jindal’s have hit road blocks in Nebraska and Ohio this year. Among the many reasons these plans fail, it seems, is that when people realize that they amount to unwarranted tax cuts for the rich that raise taxes for everyone else and probably bust the budget, too, common sense prevails and these ideas are defeated. 

We know that Louisianans dodged a bullet when the Governor’s plan fell apart.  And while it’s good news that a big reason was widespread concern over its fundamental unfairness, the fact is Bobby Jindal is not the only supply-sider committed to eliminating the income tax. So we savor the victory, yes, but also prepare for the next battle as similar plans are winding their ways through other state capitals.



Missouri Gaining on Kansas in Race to the Backwards Tax Plan



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The Missouri Senate preliminarily approved legislation that would slash the state’s revenues because it is stacked with tax cuts. Though a preliminary legislative step, it’s worth noting that if the law does get implemented, restoring the lost revenues would be nearly impossible given Missouri’s constitutional amendment restricting tax increases. The bill, originating in the state Senate, cuts the top personal income tax rate, reduces corporate income taxes, offers a tax deduction for pass-through business income and increases the personal exemption. The only tax increase is in the sales tax, which is any state’s most regressive revenue source.  

This package is billed as Missouri’s answer to the radical tax package passed last year by Kansas Governor Brownback. Its sponsor explained, “I’m trying to stop the bleeding. I’m trying to stop the businesses from fleeing into Kansas,” and then invokes the kind of magical thinking that almost always results in a deficit. According to the Associated Press, State Senator Kraus predicted his plan would “create an economic engine in our state” that would generate enough new tax revenues to make up for the losses.”

But the revenue losses -- which are certain -- are not justified. A report from the Missouri Budget Project, Racing to the Bottom: Senate Gives Initial Approval to Extreme Tax Cut Bill Which Would Devastate Missouri Services, Infrastructure, and the State’s Economy, using Institute on Taxation and Economic Policy (ITEP) data helps show that the biggest beneficiaries of this tax package are the wealthiest 1 percent who have an average income of over $1 million, and who will see an average tax cut of $8,253 if the legislation becomes law. Middle income families would generally break even, but lower income Missourians would experience a tax increase.  

The Missouri Budget Project points out the obvious: “To truly compete with Kansas and other states, Missouri must invest in its quality of life and what families and businesses need to thrive: strong schools to educate our children and provide a skilled workforce, quality transportation to get to school and work and bring companies’ products to market, and safe, stable communities.”



Quick Hits in State News: Even On Election Day, State Tax Debates Are In Full Swing



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

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


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

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



Quick Hits in State News: Tricks, Treats and Taxes!



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Happy Halloween to our readers!

In honor of the spookiest of all holidays, we want to start by sharing this recent Wall Street Journal piece called Meet One of the Super-PAC Men which profiles Missouri’s Rex Sinquefield, the masked financier behind of one of the scariest state tax policy proposals around -- eliminating Missouri’s income tax and replacing it with increased sales tax revenues.

Word is that fracking taxes, income tax cuts, bank “tax reform” and possibly privatizing the Ohio Turnpike could all be priorities for Ohio’s ghoulishly anti-tax governor, John Kasich. Given the Governor’s track record of supporting tax cuts above all else, we are more than a little afraid about what is to come in the Buckeye State.

Kansas Governor Sam Brownback recently proposed a “property tax transparency” plan which will prevent automatic property tax increases when property values rise. But this proposal leaves local governments who depend on the property tax at the mercy of a zombie math formula. Brownback’s plan should spook all the citizens who depend on local government services.

This one will send a shudder up the spines of supply-siders who want to cut taxes on businesses and the wealthy under the guise of economic development.  The Wisconsin Budget Project is reporting on a national poll which found that a “majority of small-business owners believe that raising taxes on the top 2% of taxpayers is the right thing to do.” On this issue, anyway, it looks as though the good goblins are giving Grover a run for his money!

 



Ballot Measures in Eleven States Put Taxes in Voters' Hands



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California is not the only state this election season taking taxing decisions directly to the people on November 6.  The stakes will be high for state tax policy on Election Day in nine other states with tax-related issues on the ballot. With a couple of exceptions, these ballot measures would make state taxes less fair or less adequate (or both).

Arizona

  • Proposition 204 would make permanent the one percentage point sales tax increase originally approved by voters in 2010.  The increase would provide much-needed revenue for education, particularly in light of the worsened budget outlook created by a flurry of recent tax cuts.  But it’s hard not to be disappointed that the only revenue-raising option on the table is the regressive sales tax (PDF), at a time when the state’s wealthiest investors and businesses are being showered with tax cuts.
  • Proposition 117 would stop a home’s taxable assessed value from rising by more than five percent in any given year.  As our partner organization, the Institute on Taxation and Economic Policy (ITEP) explains (PDF), “Assessed value caps are most valuable for taxpayers whose homes are appreciating most rapidly, but will provide no tax relief at all for homeowners whose home values are stagnant or declining. As a result, assessed value caps can shift the distribution of property taxes away from rapidly appreciating properties and towards properties experiencing slow or negative growth in value - many of which are likely owned by low-income families.”

Arkansas

  • Issue #1 is a constitutional amendment that would allow for a temporary increase in the state’s sales tax to pay for large-scale transportation needs like highways, bridges, and county roads. If approved, the state’s sales tax rate would increase from 6 to 6.5 percent for approximately ten years, or as long as it takes to repay the $1.3 billion in bonds issued for the relevant transportation projects. Issue #1 would also permanently dedicate one cent of the state’s 21.5 percent gas tax (or about $20 million annually) to the State Aid Street Fund for city street construction and improvements. It’s no wonder the state is looking to increase funding for transportation projects. ITEP reports that Arkansas hasn’t increased its gas tax is ten years, and that the tax has lost 24 percent of its value during that time due to normal increases in construction costs. Governor Beebe is supporting the proposal, and his Lieutenant Governor Mark Darr recently said, “No one hates taxes more than me; however, one of the primary functions of government is to build roads and infrastructure and this act does just that. My two primary reasons for supporting Ballot Issue #1 are the 40,000 non-government jobs that will be created and/or protected and the relief of heavy traffic congestion.”

California

  • Thus far overshadowed by the competing Prop 30 and 38 revenue raising proposals, Proposition 39 would close a $1 billion corporate tax loophole that Governor Brown and other lawmakers have tried, but failed to end via the legislative process.  Currently, multi-national corporations doing business in California are allowed to choose the method for apportioning their profits to the state that results in the lowest tax bill.  If Prop 39 passes, all corporations would have to follow the single-sales factor apportionment (PDF) method.  Half of the revenue raised from the change would go towards clean energy efforts while the other half would go into the general fund.

Florida

  • Amendment 3 would create a Colorado-style TABOR (or “Taxpayer Bill of Rights”) limit on revenue growth, based on an arbitrary formula that does not accurately reflect the growing cost of public services over time.  As the Center on Budget and Policy Priorities (CBPP) explains, Amendment 3 is ““wolf in sheep’s clothing” because it would phase in over several years, which obscures the severe long-term damage it would cause.  Once its revenue losses started, however, they would grow quickly. To illustrate its potential harm, we calculate that if the measure took full effect today rather than several years from now, it would cost the state more than $11 billion in just ten years.” The Orlando Sentinel's editorial board urged a No vote this week writing that voters “shouldn't risk starving schools and other core government responsibilities that are essential to competing for jobs and building a better future in Florida.”
  • Amendment 4 would put a variety of costly property tax changes into Florida’s constitution, including most notably an assessment cap (PDF) for businesses and non-residents that would give both groups large tax cuts whenever their properties increase rapidly in value.  Moreover, as the Center on Budget and Policy Priorities (CBPP) explains, “Amendment 4’s biggest likely beneficiaries would be large corporations headquartered in other states, with out-of-state owners and shareholders,” including companies like Disney and Hilton hotels.

Michigan

  • Proposal 5 would enshrine a “supermajority rule” in Michigan’s constitution, requiring two-thirds approval of each legislative chamber before any tax break or giveaway could be eliminated, or before any tax rate could be raised.  As we explained recently, the many flaws associated with handcuffing Michigan’s elected representatives in this way have led to a large amount of opposition from some surprising corners, including the state’s largest business groups and its anti-tax governor. Republican Governor Rick Snyder wrote an op-ed in the Lansing State Journal opposing the measure saying it was a recipe for gridlock and the triumph of special interests. Proposal 5 is also bankrolled by one man to protect his own business interests.

Missouri

  • Proposition B would increase the state’s cigarette tax by 73 cents to 90 cents a pack. The state’s current 17 cent tax is the lowest in the country.  Increasing the state’s tobacco taxes would generate between $283 million to $423 million annually. The Kansas City Star has come out in favor of Proposition B saying, “It’s not often a single vote can make a state smarter, healthier and more prosperous. But Missourians have the chance to achieve all of those things on Nov. 6 by voting yes on Proposition B.”

New Hampshire

  • Question 1 would amend New Hampshire’s constitution to permanently ban a personal income tax.  The Granite State is already among the nine states without a broad based personal income tax and proponents want to ensure that will remain the case forever. As Jeff McLynch with the New Hampshire Fiscal Policy Institute explains, a Yes vote would mean that “you’d limit the choices available to future policymakers for dealing with any circumstances, and by extension, you’re limiting choices for future voters.”

Oklahoma

  • State Question 758 would tighten an ill-advised property tax cap (PDF) even further, preventing taxable home values from rising more than three percent per year regardless of what’s happening in the housing market.  As the Oklahoma Policy Institute explains, “Oklahomans living in poor communities, rural areas, and small towns would get little to no benefit, since their home values will not increase nearly as much as homes in wealthy, suburban communities.”  And since many localities are likely to turn to property tax rate hikes to pick up the slack caused by this erosion of their tax base, those Oklahomans in poorer areas could actually end up paying more.  
  • State Question 766 would provide a costly exemption for certain corporations’ intangible property, like mineral interests, trademarks, and software.  If enacted, the biggest beneficiaries would include utility companies like AT&T, as well as a handful of airlines and railroads.  The Oklahoma Policy Institute explains that the exemption, which would mostly impact local governments, would have to be paid for with some combinations of cuts to school spending and property tax hikes on homeowners and small businesses.  And the impact could be big.  As one OK Policy guest blogger explains: “In 1975, intangible assets comprised around 2 percent of the net asset book value of S&P 500 companies; by 2005, it was over 40 percent, and the trend is likely to continue. If SQ 766 passes, Oklahoma will find itself increasingly limited in its ability to tax properties.”

Oregon

  • Measure 84 would gradually repeal Oregon’s estate and inheritance tax (PDF) and allow tax-free property transfers between family members.  If the measure passes, Oregon would lose $120 million from the estate tax, its most progressive source of revenue.   According to many legal interpretations of the measure, the second component - referring to inter-family transfers of property - would likely open a new egregious loophole allowing individuals to avoid capital gains taxes (PDF) on the sale of land and stock by simply selling property to family members.  Oregon’s Legislative Revenue Office released a report last week that showed 5 to 25 percent of capital gains revenue could be lost as a result of the measuring passing. The same report also found no evidence for the claim that estate tax repeal is some kind of millionaire magnet that increases the number of wealthy taxpayers in a state.
  • Measure 79, backed by the real estate industry, constitutionally bans real estate transfer taxes and fees.  However, taxes and fees on the transfer of real estate in Oregon are essentially nonexistent, prompting opponents to refer to the measure as a “solution in search of a problem.”
  • Measure 85 would eliminate Oregon’s “corporate kicker” refund program which provides a rebate to corporate income taxpayers when total state corporate income tax revenue collections exceed the forecast by two or more percent. Instead of kicking back that revenue to corporations, the excess above collections would go to the state’s General Fund to support K-12 education. Supporters of this measure acknowledge that a Yes vote will not send buckets of money to schools right away since the kicker has rarely been activated.  But, it is a much needed tax reform that will help stabilize education funding and peak interest in getting rid of the Beaver State’s more problematic personal income tax kicker.

South Dakota

  • Initiative Measure #15 would raise the state’s sales tax by one cent, from 4 to 5 percent. The additional revenue raised would be split between two funding priorities: Medicaid and K-12 public schools. As a former South Dakota teacher writes, “[w]hile education and Medicaid are important, higher sales tax would raise the cost of living permanently for everyone, hitting struggling households the hardest, to the detriment of both education and health.”  This tax increase is the only revenue-raising measure on the horizon right now; South Dakotans deserve better choices.

Washington

  • Initiative 1185 would require a supermajority of the legislature or a vote of the people to raise revenue. A similar ballot initiative, I-1053, was already determined to be unconstitutional. As the Washington Budget and Policy Center notes about this so called “son of 1053” initiative:  “Limiting our state lawmakers with the supermajority requirement is irresponsible, and serves only  to limit future opportunity for all Washington residents.”

 



Quick Hits in State News: Michiganders Pander, Associated Press Analyzes, and More



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  • The Detroit News’ editorial board recently criticized a plan to cut Michigan’s personal income tax rates which, despite its hefty $800 million price tag, managed to pass the state’s House.  The editors called it risky election year pandering.
  • Oregon is launching a pilot program to figure out how road and bridge repairs will be funded when cars no longer run on gasoline and drivers no longer pay the gas tax.  One possible solution is a tax directly on miles traveled rather than gallons consumed, but the last time the state tested that out, it “didn’t sit well with the public” because the GPS-like technology made people worry the government would be spying on them.
  • Rhode Island Governor Lincoln Chafee signed a state budget that includes a small foray into sales tax base expansion.  Starting July 1, taxi and limo rides and pet grooming services will be subject to the state’s seven percent sales tax rate, as will clothing and shoes costing more than $250.
  • The Associated Press offers a smart analysis of tensions within state Republican parties and their impact on a variety of state legislative activities, including tax policy debates. Written by a senior AP reporter in Missouri, it reveals (among other things) that moderate Republicans played a role in thwarting some of the more conservative members’ plans.


Are States Really "Racing" To Repeal Income Taxes?



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Arthur Laffer recently teamed up with Stephen Moore, his friend on The Wall Street Journal’s editorial board, to pen yet another opinion piece on the benefits of shunning progressive personal income taxes.  Most of the article’s so-called “analysis” is ripped from Laffer reports that we’ve already written about, but there was one new claim that stands out.  According to Laffer and Moore, “Georgia, Kansas, Missouri and Oklahoma are now racing to become America's 10th state without an income tax.”  If this is true, it’s news to us.  So let’s take a look at the most recent reporting on these states’ tax policy debates.

In Georgia, the state’s legislative session ended almost a month ago with the passage of a modest tax package.  Last year, Georgia lawmakers debated levying a flat-rate income tax, but that effort (which should have been easy compared to outright income tax repeal) failed and left lawmakers with little interest in returning to the issue.

The debate over the income tax debate in Kansas isn’t quite done yet, but the most recent news from The Kansas City Star is that “lawmakers say the tax reform package they'll consider next week almost certainly will fall far short of the no-income-tax goal.”

In Missouri, a number of media outlets are reporting that the push to get income tax repeal on the November ballot is all but over because a judge ruled that the ballot initiative summary that proponents of repeal proposed to put before voters was “insufficient and unfair.”

And in Oklahoma, what started as an enthusiastic push for big cuts or even outright repeal of the income tax has since been watered down into something less ambitious.  The most likely outcome is a cut in the top rate of no more than one percent, although lawmakers are still toying with the idea of tacking on a provision would repeal the income tax slowly over time (so the hard decisions about what services to cut won’t have to be made for a number of years).  But in any case, budget realities have left lawmakers in a position where they’re hardly “racing” to scrap this vital revenue source.

Photo of Art Laffer via  Republican Conference Creative Commons Attribution License 2.0



A Missouri Legislator Takes On A Costly Loophole



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Missourians can write off up to $5,000 in federal income taxes paid ($10,000 for married couples) on their state income taxes. Missouri is one of only six states that offer this deduction and it cost the state about $400 million in 2011. Calling it a “costly tax code luxury that produces no noticeable public benefit,” the St. Louis Post Dispatch blasted the deduction in an editorial today.

The editors also note that State Representative Jeanette Mott-Oxford recently offered an amendment to House Bill 1661 which would eliminate the deduction entirely, and that her legislation would significantly offset a crippling budget deficit which is projected to exceed $500 million next year.

In the House floor debate over her amendment, Representative Mott-Oxford cited the Institute on Taxation and Economic Policy’s Topsy Turvy: State Income Tax Deductions for Federal Income Taxes Turn Tax Fairness on its Head. This 2011 report found that 83 percent of the benefit of the deduction goes to the top 40 percent of taxpayers in Missouri while those in the bottom 20 percent receive zero benefit from it.

In spite of its $5,000 cap (which makes Missouri’s deduction somewhat less irrational than other states’), treating federal income taxes as a deductible expense is costing the state eight percent of its income tax revenues and the figure will rise if federal income taxes on the wealthiest filers also rise, according to ITEP’s study.

Her legislation faces a daunting political gauntlet it’s not likely to survive, but Missourians should thank Rep. Mott-Oxford for pushing them closer to the day when this loophole is finally eliminated.



Quick Hits in State News: Good Riddance to Missouri's Radical Tax Plan, and More



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Calling it “a far-out idea that would force Missourians to pay much more for groceries, homes and everything in between, while sparing wealthy citizens the need to pay income taxes,” the Kansas City Star editorial board bids good riddance to an income tax repeal proposal in Missouri.

Apparently not content with the massive business tax cut enacted last year, Michigan lawmakers are continuing to push to repeal the property tax on business equipment – a vital revenue source for local governments who can expect a net, permanent 19 percent revenue loss.

Instead of an immediate income tax cut that will cost significant revenue (that the state can’t afford),  Oklahoma lawmakers are contemplating a “trigger” plan tying cuts to year-over-year revenue growth that would eventually eliminate the tax altogether.  The Oklahoma Policy Institute explains that triggers are sold as a “responsible” way to cut taxes, "but it’s the opposite. It’s an attempt to avoid responsibility by putting the tax system on auto-pilot.“

An important study from the Pew Center on the States showing the lack of accountability in tax giveaways to business keeps getting good press. Here’s a piece from Illinois describing how, despite some very public giveaways to companies like Sears and the CME Group, the state lags in holding companies accountable for the tax breaks they receive.

This great article explains who actually pays Minnesota taxes. It cites data from Minnesota’s own tax incidence analysis report – a report that only a handful of states have the technology to develop, but is vital to understanding how taxes impact people of different income levels.

 



Quick Hits in State News: Anti-tax Fiasco in Missouri, Clock Runs Out in Maryland, and More



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We’ve written a lot about plans to eliminate Missouri’s income tax and boost the sales tax instead, spearheaded by anti-tax mastermind Rex Sinquefield.  He had hoped to put this radical plan before voters this November but the initiative’s advocates aren’t sure they can use the signatures they’ve gathered because of legal challenges.  The awful policy implications of the Sinquefield plan aside, this article explains how the ballot initiative process in Missouri has gone kablooey in recent years.   The 22 versions of the anti-income-tax initiative filed with the Secretary of State is in some ways an indictment of Missouri’s elected officials who have repeatedly refused to participate in serious tax reform debates.

With tax day just around the corner, Wisconsin Budget Project reminds us that working Wisconsinites who qualify for the Earned Income Tax Credit will actually see fewer benefits this year thanks to draconian cuts in the credit passed in the 2011-13 budget.

Maryland’s Senate President says that lawmakers “have an agreement” on a package of progressive personal income tax increases, but that they simply ran out of time to pass that package before last night’s midnight deadline.  Gov. O’Malley is expected to call a special session so that the increases can be enacted, but he has not done so yet.

Here’s a great read from The American Prospect that talks about the need to reform regressive state and local tax structures, citing ITEP research.



Quick Hits in State News: Tax Breaks For Business Plague Missouri, and More



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Last week Florida Governor Rick Scott signed into law legislation implementing a state sales tax holiday from August 3rd to the 5th even though these sales tax holidays are a real boondoggle for consumers (mostly PR for policymakers) and cost state treasuries needed revenues.

Will Missouri give tax credits to Ford for rehiring previously laid off employees? Read more about it in the Missouri Journal, which promises to follow up the story.

We’ve been closely following developments in the Kansas tax reform debate and here’s the latest update.  Last week, the conference committee began meeting to try to reconcile the differences between the House and Senate bill.  But compromise will have to wait until after spring break. The legislature adjourned and lawmakers won’t be meeting again until April 25. Read ITEP’s analysis of the Governor, House, and Senate plans.

Read here about an effort to end the Missouri Kansas tax credit border wars (a.k.a. race to the bottom).  Hoping to create jobs within their borders, both states have been “willing to pay for it with tax credits and other deal sweeteners” that businesses have exploited – without necessarily delivering on the jobs.

Photo of FL Governor Rick Scott via Gage Skidmore Creative Commons Attribution License 2.0



Quick Hits in State News: Tax Victory in Iowa, and More



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Here’s a huge tax fairness victory in Iowa. The state Senate voted unanimously to increase the Earned Income Tax Credit from 7 to 13 percent of the federal credit to help working families make ends meet.

Matt Gardner, Executive Director of the Institute on Taxation and Economic Policy (ITEP), blogs about lessons for Georgia from a new ITEP report on the economies of states with and without income taxes.  Gardner writes that Georgia lawmakers “wanting to join the non-income tax club are simply idolizing the wrong states.  Most states without income taxes are doing worse than average … and the states with the highest top tax rates are actually outperforming them.”

Also in Georgia, anti-tax guru Grover Norquist is weighing in on collecting taxes on internet sales, warning that it is a violation of his group’s “no new tax” pledge to vote for legislation requiring online retailers to collect sales taxes on purchases.  But the fact is, Georgians who shop online do, by law, have to pay the sales tax on those purchases if the e-retailer does not collect the tax, but the requirement is basically unenforceable.  Collecting taxes legally due is not a tax increase.

Missouri lawmakers are falling all over themselves to come up with revenues without “raising taxes” because the trust fund that pays for veterans’ services in the state is insolvent.  Silly “non tax” ideas being floated by legislators include casino entrance fees and a special lottery, which have already proven to be unsustainable revenue sources for veterans’ and other programs.  Missouri is notorious for its failure to tackle serious tax reform; will a backlog of military veterans in need of care give lawmakers incentive to do the right thing?

Bills in both the Iowa House and Senate are advancing that would finally raise the state’s long stagnant gas tax rate.  ITEP recently found that Iowa hasn’t raised its gas tax rate in 22 years, and that since that time the tax has lost $337 million in yearly value relative to rising transportation construction costs.



New Graphics: State Gas Taxes at Historic Lows, and Dropping



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There are few areas of policy where lawmakers’ shortsightedness is on display as fully as it is with the gasoline tax.  Now, with a series of twenty six new charts from the Institute on Taxation and Economic Policy (ITEP), you can see the impact of that shortsightedness in most states as shareable graphs.

Overall, state gas taxes are at historic lows, adjusted for inflation, and most states can expect further declines in the years ahead if lawmakers do not act.  Some states, including New Jersey, Iowa, Utah, Alabama, and Alaska, are levying their gas taxes at lower rates than at any time in their history.  Other states like Maryland, Oklahoma, Massachusetts, Missouri, Tennessee, Arkansas, and Wyoming will approach or surpass historic lows in the near future if their gas tax rates remain unchanged and inflation continues as expected.

These findings build on a 50-state report from ITEP released last month, called Building a Better Gas Tax.  ITEP found that 36 states levy a “fixed-rate” gas tax totally unprepared for the inevitable impact of inflation, and twenty two of those states have gone fifteen years or more without raising their gas taxes.  All told, the states are losing over $10 billion in transportation revenue each year that would have been collected if lawmakers had simply planned for inflation the last time they raised their state gas tax rates.

View the charts here, and read Building a Better Gas Tax here.

Note for policy wonks: Charts were only made in twenty six states because the other twenty four do not publish sufficient historical data on their gas tax rates.  It’s also worth noting that these charts aren’t perfectly apples-to-apples with the Building a Better Gas Tax report, because that report examined the effect of construction cost inflation, whereas these charts had to rely on the general inflation rate (CPI) because most construction cost data only goes back to the 1970’s.  Even with that caveat in mind, these charts provide an important long-term look at state gas taxes, and yet another way of analyzing the same glaring problem.

Example:



Trending in 2012: Destroying the Personal Income Tax



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Note to Readers: Over the coming weeks, ITEP will highlight tax policy proposals that are gaining momentum in states across the country. This week, we’re taking a closer look at proposals which would lessen a state’s reliance on progressive income taxes, often by shifting to a heavier reliance on regressive sales taxes. 

Georgia – A legislative proposal gaining traction in Atlanta would undercut the state’s reliance on the personal income tax – its only major progressive revenue source.  It would make up those revenues by raising the sales tax – every state’s most regressive source of revenue.  The plan also includes two other components that hit the poorest Georgians the hardest: taxing groceries and adding a dollar to the cigarette tax.  A sensible, comprehensive proposal from the Georgia Budget and Policy Institute is the template lawmakers should be following. It starts with fairness, ends with increased revenues and is all about modernization and reform. 

Kansas – If the expectations about Governor Sam Brownback’s proposed income tax changes are right, Kansas could have a hard time balancing its books. Tonight, the Governor, (who has received technical assistance from supply side guru Arthur Laffer), is expected to propose drastic reductions to state income tax rates.  Details on how the governor plans to make up the lost revenue haven’t been revealed, but his sidekick Laffer was recently quoted as saying, “It’s a revolution in a cornfield. Brownback and his whole group there, it’s an amazing thing they’re doing. Truly revolutionary.”

Kentucky –  Fresh off his reelection to the Governor’s office, Steve Beshear is expected to propose his own tax reform plan, but Representative Bill Farmer, who’s been itching to change Kentucky’s tax code for years, has already pre-filed his own tax overhaul bill, which would slash the state income tax, expand the sales tax base to include more services and lower the sales tax rate.  ITEP conducted an in depth analysis of an earlier Farmer proposal and found that his proposal would cost the state hundreds of millions of dollars and raise taxes on the poorest 20 percent of Kentuckians by an average of $138. We expect that his current proposal won’t do much to fix the state’s regressive tax structure either.

Missouri – Perhaps the most destructive proposal of this type gaining traction is Missouri’s mega-tax proposal, so called because it amounts to a massive consumption tax hike for ordinary Missourians. Proponents of the related ballot initiative that would eliminate the state’s personal income tax and replace that revenue by adding goods and services to the sales tax base are currently collecting signatures in an attempt to place the initiative on the ballot this November. Show-Me-Staters would be unwise to provide their signatures for this kind of campaign, however, because its passage would result in higher overall taxes for working families. Click here to see ITEP testimony on a similar proposal.

Oklahoma – Two seriously bad proposals that would increase the unfairness of Oklahoma’s tax system are currently under consideration. Working with (the aforementioned supply side guru) Arthur Laffer, the free-market Oklahoma Council of Public Affairs is proposing to eliminate the state income tax altogether. An ITEP analysis found that the bottom one-fifth of Oklahoma taxpayers -- those earning less than $16,600 per year -- would be paying on average $250 a year more in taxes, or about 2.5 percent more of their income. Similarly, the Tax Force on Comprehensive Tax Reform (dominated by business interests) suggests lowering the state’s top income tax rate and eliminating a variety of tax credits, many of which are designed to help low and middle income families. David Blatt, director of the non partisan Oklahoma Policy Institute recently said of the proposal, "This would hit hardest the poor and middle class families who are struggling most to make ends meet in a tough economy.”

Photo of Governor Steve Beshear via Gage Skidmore and photo of Art Laffer via Republican Conference Creative Commons Attribution License 2.0



Naughty States, Nice States: The Institute on Taxation and Economic Policy's 2011 List



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Naughty

Michigan’s legislature and Governor Snyder top the naughty list by giving away more than $1.6 billion in tax cuts for business and paying for it with tax increases on low-and middle-income working and retired families.

Florida continued to dole out more corporate pork this year, including a property tax break that happens to benefit huge commercial land owners, like Disney World and Florida Power and Light, and other corporations (that also happen to be major donors to the state’s Republican governor and legislative majority party).

Minnesota’s legislature missed an opportunity to do the right thing when it rejected a tax increase on the state’s wealthiest residents. The plan was proposed by Governor Dayton and supported by 63 percent of Minnesotans over the alternative, which was cuts to spending on education, health care and other vital public services.

Anti-tax activists in Missouri were hard at work again. This year they were collecting signatures for a ballot initiative that would eliminate the state’s personal income tax and replace it with a broadened and increased sales tax.

Nice

Connecticut’s Governor Malloy and the legislature adopted a $1.4 billion tax increase that improved tax fairness in the state and protected public investments like education and health care.  Most notably, the state added an Earned Income Tax Credit, a significant tax break for low-income working families.

District of Columbia lawmakers greatly reduced the ability of corporations to dodge their fair share of taxes by adopting combined reporting (which makes it harder to hide profits in other states) and a higher corporate minimum tax. The Council also temporarily increased taxes for individuals making more than $350,000 a year and limited itemized deductions, which are most often taken by high income filers.

Hawaii lawmakers also limited upside-down tax giveaways (itemized deductions) for their state’s richest residents and passed other tax changes to raise much needed revenue.

A Little Bit Naughty and Nice

New York’s Governor Andrew Cuomo reversed his campaign vow not to raise taxes and supported a tax increase on residents earning more than $2 million a year.   The plan, passed by the legislature, also included a tax break for those with income under $300,000.

However, New York lawmakers passed the governor’s cap on property taxes this summer, which is predictably creating crises and forcing dramatic cuts in local education, medical, and public safety services.

Illinois raised significant revenue earlier in the year through temporary personal and corporate income tax rate increases, all designed to stave off harsh spending cuts, but then turned right around and gave away hundreds of millions of dollars to Sears and CME, allegedly to keep them in the state.



Missouri's Failed Special Session Fiasco



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The St. Louis Post Dispatch calls Missouri’s special legislative session that just wrapped up a fiasco. We’ve written about this saga of a special session that started September 6 and was convened with the promise of helping spur the Show Me State’s economy.  But from the Governor’s misguided support for eliminating a credit that keeps seniors and the disabled in their homes, to the debacle of a plan to make the St. Louis airport a futuristic hub for freight between China and the Midwest, this special session was doomed by a growing skepticism among the state’s lawmakers that tax giveaways for businesses will help grow the state’s languishing economy. Sensibly, many lawmakers refused to accept new tax breaks unless procedures (such as sunsets) were put in place to make sure these tax breaks actually work.

Despite having clear majorities in the Senate (26-8) and House (105-54), the state's Republican lawmakers weren't able to get much done, and it’s one of those times that stalemate was actually a good thing. 

Photo of Missouri Capitol via David Shane Creative Commons Attribution License 2.0



Missouri Lawmakers Getting Cold Feet on Business Tax Subsidies



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In the past year, Missouri lawmakers have grown increasingly skeptical about the effectiveness of business tax breaks in encouraging economic development. But the bad news is that during an ongoing special legislative session, some lawmakers have been eager to enact massive new tax breaks for a proposed cargo hub, optimistically dubbed “Aerotropolis,” to be located at the St. Louis airport, which is meant to lure overseas cargo shippers to Missouri.

With no apparent irony, some lawmakers want to use the revenues from repealing existing ineffective tax subsidies to pay for the proposed new “Aerotropolis” package. Fortunately, the same lawmakers who have voiced their opposition to existing subsidies are building a critical mass of skepticism about the new proposal. As Senator Jason Crowell put it, "We've come to a pretty firm conclusion, I believe, that the Missouri Senate will partner with you to create jobs. It will not partner with you to subsidize activity that may or may not create jobs."

It’s looking like some scaled down version of the original package is what will pass this month’s special session.

One other promising development: so far, the circuit breaker that protects low income and senior renters has survived, and efforts to repurpose that modest program’s costs for more business tax breaks have so far failed.

Photo via AFL CIO Creative Commons Attribution License 2.0



It's Not Just State Taxes, Municipal Taxes Are Lopsided Too



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A recent Kansas City Star editorial, “KC’s taxes especially burdensome for the poor” argues for reforming that city’s tax structure. The article cites Tax Rates and Tax Burdens in the District of Columbia – A Nationwide Comparison put out by the D.C. government. This annual study takes a close look at the major taxes levied by large cities and, by creating hypothetical profiles of different kinds of households, it ranks their impact on individual family types with variations for income, filing status, available deductions, etc.

Kansas City, Missouri doesn’t fare very well in the report. In fact, the city’s tax structure asks low-income residents to pay more than their fair share. Kansas City does have a recently reinvigorated Citizens Commission on Municipal Revenue tasked with improving the city’s “financial problems and [to] ensure continuing city growth.” The findings of the D.C. report should play a large role in informing the Commission and improving the city’s tax structure.

The Kansas City Star should be commended for opining that, “the commission needs to focus on the already high tax burden on Kansas Citians — particularly on low-income residents.”

While Citizens for Tax Justice works largely on federal tax issues, and its partner, the Institute on Taxation and Economic Policy,  focuses on state tax systems, D.C.’s annual report on tax rates and burdens reminds us that there is important work to be done improving the tax structures of cities' too. 

For detailed profiles of state tax systems – which  are notoriously regressive and take more money, as a percentage of income, from the least well off families compared to the wealthiest – you can look at ITEP’s Who Pays? A Distributional Analysis of the Tax Systems in All 50 States.

Photo via Jimmy Wayne Creative Commons Attribution License 2.0



Job Incentive Package Isn't In Peril - Program for Missouri Seniors and the Disabled Is



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The St. Louis Post Dispatch gets it all wrong Missouri Governor Jay Nixonwhen they title a recent article: “Jobs incentives in peril as special legislative session begins in Missouri.” True, Missouri’s special session started this week and, along with moving the date of the presidential primary and repealing a new law regarding teachers and students on Facebook, taxes are on the table.

But the tax incentives supposed to spur employment and economic development aren’t in any real peril. The state of Missouri seems to be chugging along without these controversial incentives, one of which would cost the state $360 million in an attempt to make the St. Louis airport a hub for freight between China and the Midwest.

No, the state’s property tax credit, designed to specifically help low income renters who are seniors and/or disabled, is the program in real peril. Some in the legislature and now Governor Nixon are proposing to eliminate this credit entirely.  The revenue gain from eliminating the property tax credit for these renters is $57 million, by far the largest cut proposed in the legislation.  

Last year, Nixon’s Missouri Tax Credit Review Commission proposed eliminating the credit, saying the credit "doesn't really do anything.”  But tell that to a woman who’d been trying to prepare her meals on a camp stove.  Brenda Procter, a University of Missouri extension specialist in personal finance, tells of informing this client she could expect a $600 credit and “she almost crushed me with a hug. She said, Oh, my God, I can buy a stove.”

Yes, this is the program where lawmakers decided to go looking for big revenue savings while simultaneously pursuing dubious tax incentives to make St. Louis some kind of “aerotropolis.”

There is some evidence the sponsor of the repeal bill might be rethinking complete elimination of the credit, however.  Senator Chuck Purgason recently said: "Republicans are always portrayed as taking from the poor and giving to the rich, and we didn't want to do that.”

Let’s hope Missouri Republicans and the legislature as a whole defy that stereotype and do right by the state’s most vulnerable citizens.

Photo via Missouri News Horizon Creative Commons Attribution License 2.0



Kansas & Missouri: Front Line States in Battle over Tax Fairness



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Anti-tax lawmakers and activists in Kansas and Missouri continue to promote ideas to repeal their state income taxes and replace some of the revenue with a huge consumption tax. As ITEP’s Meg Wiehe explained in a recent Kansas City Star article, “A lot of education needs to happen around this issue. 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.”

ITEP’s written testimony on one such proposal in Missouri  explains that only the richest 5 percent of Missourians would see a tax cut if the state’s personal income tax was replaced with a broad based sales tax, leaving the other 95 percent to pay higher taxes.

The corporate-controlled, anti-government American Legislative Exchange Council (ALEC) says approvingly that “Kansas and Missouri are at the top of the list” of states considering such proposals. To ALEC, ITEP’s estimates aren’t devastating at all. They recently claimed that “the downside of the tax swap appears to be minimal, if not non-existent.”

As a recent Kansas City Star editorial, warns, “The blessing of the council, known as ALEC, raises a red flag.”

In Kansas, Governor Sam Brownback has long been a proponent of eliminating, or at the very least, drastically reducing the state’s income tax. The Governor’s budget director anticipates that his budget for the new fiscal year will show “some significant (income tax) cuts”.

Missouri lawmakers have tried for the past couple of years to pass legislation that would eliminate the income tax entirely, but the legislation has not successfully passed both houses of the legislature.

Since cooler heads prevailed in the legislature, mega-rich troublemaker Rex Sinquefield has filed 11 ballot initiatives with the Secretary of State’s office that all do basically the same thing — eliminate state income taxes and replace the revenue with a broader sales tax. 

It’s expected that Sinquefield will eventually fund signature-collection for one of these ballot questions. If enough signatures are gathered, Missouri voters would likely be asked to decide about this radical shift in November 2012.

The proposals in Kansas and Missouri threaten those states’ ability to provide core and critical services because they would result in permanently lower revenue, while also tilting each state’s tax system even more heavily in favor of the well-off.

Photos via KDOTHQ Creative Commons Attribution License 2.0



"Made in Missouri" Business Enticements Come at High Cost to Elderly Residents



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In September, Missouri lawmakers are expected to reconvene for a special session aimed at passing a jobs creation package to promote economic development. Legislation that increases corporate tax exemptions and general business incentives, though deeply flawed as policy, isn’t a novel concept.  Yet, leaders in Jefferson City are expected to do more than simply give money to corporations: lawmakers are actually planning to pay for these giveaways by revoking property tax credits for elderly and disabled renters.

The Associated Press reports that the legislation “would authorize tax breaks to attract international shippers to Lambert-St. Louis International Airport.... It also would create incentives for science and technology companies, computer-based data storage centers and big-time amateur sporting events. And it would revamp existing programs so Missouri could offer incentives to retain companies being enticed by other states – a provision particularly intended counteract Kansas' efforts to lure companies from Kansas City, Mo.”

Of course, there is little evidence that these giveaways will actually produce jobs for Missourians, or expedite business decisions to expand in the Show Me State.

But, it’s been demonstrated repeatedly that programs like low income property tax circuit breakers, which mitigate the cost of property taxes, do produce results – and make an enormous difference in the budgets of low income folks.

Missouri lawmakers should take a serious step back and reexamine their intentions.  Taking property tax credits away from elderly renters to pay for dubious breaks for corporations isn’t a legacy lawmakers can feel proud of.

Photo via Tim 7423 Creative Commons Attribution License 2.0



Missouri and Minnesota: Attacking Anti-Poverty Tax Breaks



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In Missouri and Minnesota, property tax “circuit breakers” ensure that property taxes do not take more than a limited percentage of income from taxpayers of modest means. As ITEP has explained, it is widely accepted that property taxes are passed on by landlords to renters in the form of higher rents, which is why these circuit breakers are usually available to renters, as well as homeowners. However, lawmakers in these two states have tried to change that.

Effort to Take Credit from Renters Fails in Missouri

In Missouri, a victory for tax fairness came in the form of inaction. The Missouri legislature ended its session on May 13th without passing legislation that would have eliminated the property tax credit for renters. Making the property tax “circuit breaker” unavailable for renters would have left thousands of low-income families and individuals unable to claim the credit.

The measure would have cut off $57 million in critical tax relief for individuals making less than $27,500 a year, in the name of budget austerity.

Supporters of the circuit breaker tax credit questioned the legislature’s priorities, as it sought to end this benefit for low-income individuals while showering a single air freight facility with as much as $33.4 million annually in tax credits.

New Proposal in Minnesota

Even as a temporary victory was won in Missouri, the Minnesota’s legislative tax conference committee is proposing to cut the state’s renter’s credit by a proposed $186 million next year.

According to the Minnesota Budget Project, under the proposal, seniors and people with disabilities would face an average reduction in their credit of $190, while all other families would face an average reduction of $335. In fact, about 72,500 households would lose their refund entirely.

The move to eliminate the renter’s credit will be especially harmful in Minnesota, which already ranks dead last in rental affordability among low-wage workers.

Circuit breaker property tax credits are one of the most effective ways to use the tax system to reduce poverty. During a recession, states should be considering ways to enact or expand these credits, rather than scaling them back.



Missouri's Crumbling Corporate Tax System



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Earlier this week, Missouri Governor Jay Nixon signed into law legislation that will gradually phase out the state’s corporate franchise tax.

The tax is levied on either the total assets of a company or the value of its paid up capital stock, and it generated about $88 million in needed revenue in 2010. 

In 2009 the legislature took steps to make sure that small businesses wouldn't be affected by the tax, exempting any firm with assets under $10 million. This means that the principal beneficiaries of this year's repeal legislation will be the very biggest corporations.

The Missouri Budget Project responded to the franchise tax news, saying "it's extremely disappointing that the state would eliminate a source of revenue while facing a general revenue shortfall approaching $700 million.”

The elimination of the corporate franchise tax puts enormous pressure on the state’s only other major tax on corporations — the corporate income tax. Sadly, the corporate income tax isn’t very robust either. Compared to other state corporate income taxes, Missouri's is already the lowest in the country as a share of gross state product.

Because there is no public disclosure of Missouri corporate income tax payments, it's impossible to know how specific companies are using loopholes to avoid the Missouri tax. But the tax information in some companies' public filings makes it obvious that they are successfully avoiding state taxes generally.

For example, Missouri-based Monsanto is paying less than zero dollars in state corporate income taxes nationwide. In 2010, when Monsanto reported $1.2 billion in pretax U.S. profits, it says it received a nationwide state income tax rebate of $1 million. These figures beg questions about the effectiveness of state taxes on corporations, particularly in Missouri, where Monsanto is based.

With the demise of Missouri's franchise tax, these questions should become even more urgent for Missouri policymakers who care about a fair and sustainable revenue stream.



Missouri Voters Give Equivalent of Standing Ovation to Earnings Taxes in Kansas City and St. Louis



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In news that will warm the hearts of tax justice advocates across the country, Missouri voters in Kansas City and St. Louis overwhelmingly approved ballot initiatives to keep their 1 percent local earnings taxes.

This is a huge blow to wealthy campaign financier Rex Sinquefield, who bankrolled the campaign against these taxes. The St. Louis earnings tax passed with 88 percent of the vote and Kansas City voters approved the tax by a 3-to-1 margin. It’s not every day folks so clearly come out and voice their support for taxes and the vital services they fund.

Mayors of both cities appeared to be gleeful following the election results. St. Louis Mayor Francis Slay said, "I was confident that the people of St. Louis would do the right thing for the future of the city if they were armed with the facts. Regardless of what anyone thought of the earnings tax, it would have been irresponsible to get rid of it without a viable alternative to replace it."

Kansas City, Mayor-elect Sly James said, "It means that this city is going to continue to try and become as efficient as possible, but we're not going to have to do it with one hand tied behind our backs.”



Do Twitter and Red Lobster Need Local Tax Breaks?



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Elected officials in California and Florida face unprecedented fiscal challenges at both the state and local levels. Yet rather than working to reduce their budget shortfalls, policymakers in each state are doing their best to dig their budget holes deeper by offering new company-specific tax breaks to keep footloose corporations from moving their operations elsewhere.

A front-page article in today's New York Times offers some insights into this seemingly irrational behavior. Focusing on the battle between Kansas and Missouri lawmakers over the future headquarters of movie-theater chain AMC Entertainment, the article describes a system of extorting tax breaks that is viewed by everyone involved — from lawmakers to the beneficiaries of the tax breaks — as a pointless zero-sum game.

AMC's chief executive officer, poised to receive lavish tax handouts from the two states, wonders aloud "whether this is an appropriate role for government to be playing," and a lawyer whose job involves seeking out tax breaks for corporate clients describes it as "horrible public policy."

This situation won't be news to anyone who's followed the work of Greg LeRoy and the folks at Good Jobs First over the years. LeRoy's "Great American Jobs Scam" provides an excellent summary of the cottage industry of site location consultants that has emerged to facilitate the "economic war between the states" that the Times article describes. But the battle over AMC is only one example of egregious tax giveaways from the past week.

In Florida, Darden Restaurants (parent company of the Red Lobster and Olive Garden restaurant franchises) is pushing for new tax breaks. The Orlando Sentinel reports that this Fortune 500 company, which generated $7.1 billion in global sales during its most recent fiscal year, is pushing for legislation that would allow the millions in corporate income tax credits it already receives in Florida to be applied to its sales tax liability. This would save the company as much as $5 million.

Fortunately, the tax legislation has stalled as its key sponsor, Republican State Representative Chris Dorworth, read the ‘revelation’ in the Orlando Sentinel that his own tax break legislation would only apply to Darden Restaurants. He then decided he could not support his own legislation as written.  

Meanwhile, San-Franciso-based Twitter has played tax break hardball with city officials for months, threatening to move to Brisbane if it does not receive substantial tax breaks. Despite facing a tough $350 million deficit and dramatic cuts to health services, the San Francisco Board of Supervisors capitulated to Twitter’s demands this week, passing a $22 million payroll tax break for the company on Tuesday. Roxanne Sanchez, the president of Service Employees International Union Local 1021, opposed the measure, saying, “It’s a taxpayer handout to a $10 billion company at a time we’re cutting basic city services.”

As today's Times article reminds us, corporate tax breaks all too often create benefits for one jurisdiction at the direct expense of another, with no net benefit for the US economy overall. And tax breaks targeted to a specific company set an especially dangerous precedent. As an editorial in the San Francisco Guardian put it, “once you go down the path of caving in to corporate blackmail, it never ends.”



New ITEP Report on States With Deductions for Federal Income Taxes Paid



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Earlier this week, the Institute on Taxation and Economic Policy released a new report, Topsy-Turvy: State Income Tax Deductions for Federal Income Taxes Turn Tax Fairness on its Head.  The report highlights an unusual tax break that currently exists in only six states (Alabama, Iowa, Louisiana, Missouri, Montana, and Oregon): a state income tax deduction for federal income tax payments.  Collectively these states stand to lose over $2.5 billion in tax revenues in 2011 due to these tax breaks, with losses ranging from $45 million to $643 million per state.

Unfortunately, the high price tag of this tax giveaway yields remarkably little benefit to low-and middle-income families.  In states where the deduction is uncapped, the best off 1 percent of taxpayers enjoy up to one-third of the benefits from this provision, while the top 20 percent enjoy up to 80 percent of the benefits.  Wisely, several states have eliminated or scaled back this expensive and poorly targeted deduction in the last few years.  North Dakota, Oklahoma, and Utah have all eliminated the deduction, and Oregon lawmakers voted recently to further limit their deduction.

Deductions for federal income taxes seriously undermine the adequacy and fairness of state income taxes. These deductions also leave state budgets vulnerable to changes in federal tax law.  As the recession lingers and states look to enhance their long term fiscal solvency, elected officials in states with a deduction for federal income taxes paid have a real opportunity to close fiscal shortfalls in a way that has minimal impact on low-and middle-income families.

Read the Report



Missouri: Good, Bad, and the Really Ugly



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There’s a lot happening lately in the world of tax justice (or injustice as the case may be) in Missouri. Here’s a quick roundup:

The Good: Anti-Poverty Tax Policy

This week a bill to introduce a 20 percent refundable Earned Income Tax Credit (EITC) was heard before the House Committee on Tax Reform.  Representative Jeanette Mott Oxford and her thirty-five cosponsors should be congratulated for presenting this bill. 

ITEP’s written testimony on behalf of the bill made it clear that “eighty percent of the benefits would go to the poorest forty percent of Missourians — exactly the income groups who pay the largest share of their income in Missouri taxes under current law.”

In their testimony, the Missouri Budget Project said, “A state EITC could benefit as many as 440,000 Missouri families and is also proven to be a valuable economic stimulus, generating economic activity that would reach every corner of Missouri.”

State tax structures illustrate state priorities. If Missouri's legislators prioritize generating economic activity and making the tax system fair for working families, they should pass HB581.

The Bad: Ballot Measures to Starve Local Governments

Early next month voters in Kansas City and St. Louis will be asked to decide if their cities should continue to have an earnings tax. If the voters in Kansas City reject their 1 percent tax on earnings levied on those who live or work in Kansas City, the city will lose approximately $200 million a year by the time the earnings tax is fully repealed, a staggering 40 percent of the city’s general fund revenue.

Last year, Missouri voters approved a law that bars Kansas City and St. Louis from continuing to have these earnings taxes unless they are approved by the cities' voters. (The measure also blocked other local governments from adopting an earnings tax.) The ballot measure was largely bankrolled by Rex Sinquefield, an ideological, wealthy financier known for supporting conservative causes.

Now, the groups battling for and against these major city revenue sources are entering the final push. The Kansas City Star recently explained that the anti-earnings tax folks aren’t being honest. “Earnings tax opponents continue to highlight this statement on their website: 'Cutting the e-tax would only require an annual 1.5 percent cut out of the budget over the next 10 years.' We’ve been over this before, but it bears repeating: This statement is misleading and, worse, the critics know it but refuse to acknowledge the truth.”

The Ugly: Income Tax Repeal

In even worse news, Missouri’s Mega Tax Bill, HJR 8, passed both the House Tax Reform and Rules Committees and is expected to be debated on the floor of the House any day. The legislation would create a constitutional amendment to eliminate the state’s individual and corporate income taxes as well as corporation and bank franchise taxes, and replace the revenue with an expanded sales tax.

There are currently nine ballot initiatives that, if enacted, would make a similar radical change to the state’s tax structure. In a previous analysis of similar legislation, ITEP found that the bottom 95 percent of the income distribution would see a tax hike if the Mega Tax Bill were to become law, while the richest five percent would see tax cuts. It's hard to get any uglier than that.



Riding a Tax Justice Roller Coaster in Missouri



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Huge changes to Missouri's tax system are being debated, ranging from terrible ideas (repeal of the main business tax and replacing the income tax with an enormous sales tax) to excellent (making the state's tax structure more progressive than it is now).

In bad news, the state Senate has voted to gradually phase out the state’s corporate franchise tax. This is a tax that was established in 1917 and is levied on the greater of either the total assets of a corporation or the value of its paid up capital stock.  Now it’s up to the House of Representatives to see if it will follow suit and eliminate this tax, which in fiscal year 2009 brought in $83 million for the state. In even worse news, the so-called "Fair Tax" continues to move forward. This proposal would eliminate the state's income tax and replace the revenue with a broader sales tax. The latest news we reported was that the State Auditor couldn’t estimate what the sales tax rate would need to be to make the proposal revenue-neutral.

Despite the lack of such basic information, the legislature approved the various versions of the ballot initiative (which would all basically do the same thing) for the 2012 ballot. Meanwhile, efforts are still underway to enact the "Fair Tax" through the legislature, without a ballot measure.

On a much brighter note, Representative Jeanette Mott Oxford (D-St. Louis) and 23 co-sponsors have filed HB 637, which would modernize the state’s income tax rates and brackets, eliminate the state’s deduction for federal income taxes paid, and introduce a per-person refundable credit.  The bill would make the state’s tax structure more progressive while also providing much needed revenue. This legislation is a bright light in the darkness of Missouri's tax debate.



If the State Auditor Can't Estimate It, Then It's Very Likely Too Radical a Shift



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In what is surely a blow to anti-taxers and so-called “fair tax" advocates, Missouri State Auditor Tom Schweich recently said that the impact of ballot initiatives to eliminate the state’s income tax and replace the revenue with an expanded sales tax cannot be estimated.

Through a Freedom of Information Act request, the Kansas City Star determined that “Schweich’s office said the impact on state revenues could not be determined because there are too many actions required by lawmakers and too many uncertainties about how consumers will respond to the new tax.”

One of the largest questions about these initiatives is what the sales tax rate would need to be to ensure that this radical shift is revenue-neutral. Despite the Auditor’s misgivings about offering an estimated rate, ITEP and others have. For example, a recent ITEP analysis based on legislation from last year found that the rate would need to be more than 11 percent. Jim Moody, a lobbyist who used to be Governor John Ashcroft's Commissioner of Administration, found that the sales tax rate would need to be more than 12 percent. He went further, calling the ballot initiatives “fiscally untenable” and suggested that they would “either bankrupt the state or, in the alternative, bankrupt the poor and the working lower- and middle-income classes.”

Tax rate estimates aside, if the State Auditor can’t estimate the impact of this radical change to the state’s tax structure, that should be the first clue that perhaps this ballot initiative, bankrolled by millionaire anti-taxer Rex Sinquefield, isn’t in the best interest of most Missouri families or businesses.



To States Trying to Lure Illinois Businesses: It's Not Just the Tax Rates, Stupid



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We recently brought you news of policymakers in Illinois voting to temporarily increase their corporate and personal income tax rates. The state’s flat rate income tax will increase from 3 to 5 percent until 2015. In 2015 the income tax rate will fall to 3.75 percent, and in 2025 the rate will fall to 3.25 percent. Corporate income taxes were also increased from 4.8 percent to 7 percent until 2015, when the rate will drop to 5.25 percent. In 2025, the corporate income tax rate will fall back to 4.8 percent.
 
For tax justice advocates and other folks worried about the state’s fiscal solvency (lawmakers passed the tax package in order to help deal with a $15 billion deficit) the tax increase was welcome news. In a bit of a twist, some public officials and lobbying groups from other states seem elated by the legislation too and hope that businesses will leave Illinois for their state.
 
In fact, Wisconsin Governor Scott Walker issued a statement saying, “Wisconsin is open for business.  In these challenging economic times while Illinois is raising taxes, we are lowering them.  On my first day in office I called a special session of the legislature, not in order to raise taxes, but to open Wisconsin for business.”

New Jersey Governor Chris Christie’s administration launched a campaign to lure Illinois businesses to the Garden State. An ad recently placed in the (Springfield) State Journal Register reads "Had enough of outrageous tax increases? We're committed to fiscal responsibility and lower taxes." And, according to the St. Louis Post Dispatch, the Missouri Chamber of Commerce and Industry's website says: "(We're) looking at ways to position Missouri to take advantage of our neighboring state's economic misfortune." There is even a movement afoot in Indiana to lower their state corporate income tax to lure Illinois businesses.

Illinois Governor Quinn’s response to Christie’s campaign was pretty direct. He recently said, “I don’t know why anybody would listen to him [Governor Christie]. New Jersey’s way of balancing the budget is not to pay their pension payment, not to deliver on property tax relief that was promised, to fire teachers, to take an infrastructure project — building a tunnel that had already been started — and end it and have to pay money back to the federal government.”
 
Despite these efforts to lure Illinois businesses we haven’t seen businesses packing up their computers and moving to other states. The reason is simple: There is much more to business location decisions than a state’s tax rate.

The overall business climate, education of the work force, quality infrastructure, and a variety of other factors determine a corporation’s location. Let’s not forget that revenue generated from the tax increase won’t just be flushed down the toilet — the money raised will help to fund the social and physical infrastructure that businesses need to thrive, including police, fire protection, and education.

As Paul O’Neill, former Bush Treasury Secretary and Alcoa executive, put it: “I never made an investment decision based on the tax code...” As the president of the Illinois Chamber of Commerce said, “I do not think there's going to be some immediate exodus to Missouri. Businesses don't operate that way.” States can bicker back and forth about whose state has the best business climate, but focusing only on corporate and personal income tax rates is silly and shortsighted.



The Specter of the So-Called "Fair Tax" Rises Again in Missouri



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According to the St. Louis Post-Dispatch, the push to pass so-called “Fair Tax” proposals in Missouri is "gaining steam" as billionaire Rex Sinquefield and his organization, Let Voters Decide, work to get these proposals on the ballot next year.  The goal is to use the threat of ballot initiatives to press lawmakers to pass “Fair Tax” legislation.

The move is the latest by Sinquefield and his organization (who backed the disastrous Proposition A which passed last year) to force a highly regressive measure on Missourians. It should come as no surprise that Republicans in the state are seriously considering the proposal. As CTJ has noted before, you can "follow the money" and find that Rex Sinquefield donated significantly to statewide Republican candidates, including contributing $200,000 to Speaker Steve Tilley who ran unopposed for his seat.

The specific legislative proposals, HJR-56 and SJR-29, would essentially replace all of Missouri’s income taxes by both increasing the rate of the sales tax as well broadening the base of the sales tax so that it applies to services.

As the Institute on Taxation and Economic Policy (ITEP) demonstrated in its testimony to a Missouri Senate committee in January, the legislation would cut taxes only for the Top 5% of income earners in Missouri, while significantly hiking taxes on the other 95% of Missourians. This translates into a $154 average increase for the lowest 20% of taxpayers, with the average tax cut for the top 1% reaching over $25,000.

On top of all this, the Missouri Budget Project notes in a recent statement that if the proposed sales tax rate is capped at 7% as reported, then the plan would result in billions of dollars of lost revenue.

If the initiative passes, “critical programs that represent the state’s investment in its workforce, such as education, transportation, and health services would face further cuts, endangering the state’s economic recovery, ” according to the Missouri Budget Project's Executive Director, Amy Blouin.

Unfortunately, Missouri is not the only state to consider “Fair Tax” legislation. Kentucky State Representative Bill Farmer recently proposed to repeal the state's income taxes and increase the sales tax. Once again, ITEP has demonstrated how this proposal would also be highly regressive and fail to produce adequate revenue.

As many states consider dramatic overhauls to their tax systems, it is important to stay vigilant as various disastrous “Fair Tax” proposals, like those in Kentucky and Missouri, pop up throughout the country.



New Report from ITEP: The Good, the Bad, and the Ugly: 2010 State Tax Policy Changes



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For a review of the most significant state tax actions across the country this year and a preview for what’s to come in 2011, check out ITEP’s new report, The Good, the Bad, and the Ugly: 2010 State Tax Policy Changes.

"Good" actions include progressive or reform-minded changes taken to close large state budget gaps. Eliminating personal income tax giveaways, expanding low-income credits, reinstating the estate tax, broadening the sales tax base, and reforming tax credits are all discussed.  

Among the “bad” actions state lawmakers took this year, which either worsened states’ already bleak fiscal outlook or increased taxes on middle-income households, are the repeal of needed tax increases, expanded capital gains tax breaks, and the suspension of property tax relief programs.  

“Ugly” changes raised taxes on the low-income families most affected by the economic downturn, drastically reduced state revenues in a poorly targeted manner, or stifled the ability of states and localities to raise needed revenues in the future. Reductions to low-income credits, permanently narrowing the personal income tax base, and new restrictions on the property tax fall into this category.

The report also includes a look at the state tax policy changes — good, bad, and ugly — that did not happen in 2010.  Some of the actions not taken would have significantly improved the fairness and adequacy of state tax systems, while others would have decimated state budgets and/or made state tax systems more regressive.

2011 promises to be as difficult a year as 2010 for state tax policy as lawmakers continue to grapple with historic budget shortfalls due to lagging revenues and a high demand for public services.  The report ends with a highlight of the state tax policy debates that are likely to play out across the country in the coming year.



State Transparency Report Card and Other Resources Released



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

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

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

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

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

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



State Tax Code Spending Under Fire



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For years, both state and federal lawmakers have opted to forgo the hassles of the appropriations process in favor of enacting tax breaks — or “tax expenditures” — aimed at exactly the same goals.  The result has been a steady rise in tax code spending, and a corresponding decline in transparency and fiscal responsibility.  Recent developments in Missouri, Georgia, New Mexico, and Maine, however, indicate that at least some lawmakers are interested in getting a grip on this type of out-of-control spending.

In Missouri, the Tax Credit Review Commission, created by Governor Jay Nixon in July, finally issued its recommendations this week.  In addition to recommending the elimination of 28 tax credits and the reform of 30 more, the Commission also took the commendable step of proposing some broader reforms to the way Missouri lawmakers deal with tax credits.  Most notably, the Commission suggested sunsetting every state tax credit in order to force their review, and even proposed a schedule for sunsetting them in waves two, four, and six years from now.  This proposal closely resembles a reform enacted by Oregon in 2009.

In addition to sunsets, the Missouri Commission also proposed capping tax credits in order to reverse the explosion in tax credit spending the state has experienced in recent years.  In support of this proposal, the Commission notes that “as State revenues have declined and spending for other programs has been reduced, spending on the State’s tax credit programs has continued to grow.”  Finally, the Commission also recommends eliminating and/or reducing the ability of businesses to carry-back their tax credits to prior years’ tax bills, and enacting additional “clawback” provisions to ensure that companies only benefit from tax credits if they consistently meet all of the eligibility requirements.

The Georgia Council on Tax Reform and Fairness seems to be contemplating a similar path.  While the group’s report won’t be out until early January, the chairman has suggested sunsetting most tax exemptions on a five year schedule.  Hopefully, the final report from the Council will include this recommendation and enhance it further by bringing all tax expenditures — not just tax exemptions — within its scope.  The Council would also be wise to offer some specific ideas for ensuring that the debate over expiring tax provisions is sufficiently rigorous (like by implementing a complementary tax expenditure review system).

In Maine, a working group comprising various state agency heads recently came out with recommendations that are quite similar to those being considered in Missouri and Georgia.  While not advocating the use of sunset provisions, the group has suggested the creation of a review system similar to the one that exists in Washington State.  Multiple lawmakers have voiced support for the idea, though Maine’s recent switch from all-Democratic to all-Republican control could complicate things.

Finally, in New Mexico, the drive to review state tax code spending is coming not from a commission or working group, but from lawmakers themselves.  Back in 2007, New Mexico lawmakers passed a bill enacting a tax expenditure reporting requirement, only to be thwarted by Gov. Richardson’s veto.  As a result, New Mexico is one of just seven states without a legal requirement that tax expenditure reports be released on a regular schedule.  Now, the Albuquerque Journal reports that some lawmakers — including the Governor-elect — are pushing for enhanced disclosure and review of the state’s film tax credit, among other tax expenditures.

Hopefully, the difficult budgetary situations confronting each of these states will spur lawmakers to do what’s long overdue: finally get a grip on out-of-control tax code spending.



Bob Costas Gets His Cut of Missouri's Historic Rehabilitation Tax Credits



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As if things couldn’t get any worse after spending $1 billion more on tax credits than you intended, the St. Louis Dispatch this week published a new article explaining how a big chunk of Missouri’s tax credits don’t even end up benefiting their intended recipients.

Because the groups toward which many tax credits are targeted often don’t owe very much in taxes, a large share of business tax credits handed out in Missouri are ultimately sold to other companies (and rich people) in exchange for a direct payment.  The result of these sales, or “transfers,” is that oftentimes only 92 cents of every dollar spent by the state on historic tax credits, affordable housing credits, etc. actually goes toward the goal for which they were intended.

The rest ends up in the pockets of broadcaster Bob Costas, Build-A-Bear CEO Maxine Clark, Enterprise Rent-A-Car founder Jack Taylor, and other individuals or businesses that actually pay taxes.  The biggest purchaser of such credits in Missouri has been a utility company called Ameren Corp.  Amusingly, Ameren Corp. recently asserted that making money by purchasing historic rehabilitation tax credits actually “demonstrates our commitment to revitalizing the communities we serve.”  Sure it does.

Now, this phenomenon isn’t anything new, and it’s definitely not unique to Missouri.  In Oregon, for example, Wal-Mart has gotten a return on investment as large as 50 cents per dollar by purchasing gobs of energy tax credits from other companies.

Clearly, this is information lawmakers should keep close at hand when evaluating whether these programs are actually a good use of taxpayer dollars — as the Missouri Tax Credit Review Commission is doing right now.



Following the Money in Missouri



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As they say, elections have consequences, and for the state of Missouri, the term “consequences” is putting it mildly. Last year, a bill to eliminate the state’s income tax and rely more heavily on the sales tax passed the House, but didn’t go very far in the Senate. Things could turn out very differently during the next session.

In a post-election report, the Kansas City Star says “Missouri Republicans won historic and unprecedented majorities in the state House and Senate on Election Day. The party picked up 17 new seats in the 163-seat House, stretching its caucus to 106 members and a nearly veto-proof 65 percent of the body. In the Senate, the GOP will be even more dominant, with 26 of the chamber’s 34 seats.”  These results mean that the personal income tax will likely be on the chopping block again. Tax justice advocates may be interested in “following the money” to understand why this destructive proposal has become such a priority for elected officials in the state.

Speaker-elect Steve Tilley has said that this plan to weaken and undermine the state’s tax structure is one of his top priorities. Not surprisingly, this proposal is strongly supported by Rex Sinquefield (bankroller of Proposition A — which eliminated the right of local governments to have local income taxes). Sinquefield reportedly gave Speaker-Elect Tilley $200,000  in campaign contributions even though Tilley ran unopposed in both the primary and the general election.



Results of Tax-Related Ballot Initiatives



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Earlier this week, voters in states across the nation voted overwhelmingly against implementing major changes to their states’ tax codes. Voters in Massachusetts defeated an effort to slash the state’s sales tax, preserving much-needed revenue to fund education, public safety and other vital services. In Colorado, three anti-tax measures that would have wreaked havoc on the state’s budget were also soundly defeated. Washington State voters rejected a plan that would have created an income tax while rolling back other taxes.

In other states, big business successfully used its money to influence the outcomes of ballot measures on tax issues. Voters in Missouri and Montana passed initiatives designed to ensure that neither state could implement a tax on the transfer of real estate. Neither state currently has a real estate transfer tax, yet the real estate lobby spent millions trying to pass the initiatives. In Washington and Massachusetts, the beverage and alcohol industries poured millions of dollars into campaigns to see that sales taxes levied on their products were rolled back.

And in California, corporations spent millions to defeat a ballot measure that would have repealed several poorly-thought out corporate tax breaks. As the New York Times noted earlier this week, Fox News aired a critical piece on the ballot measure as part of their "War on Business" series, as parent company News Corporation gave $1.3 million to defeat the measure. Fox executives said they "didn't know" the parent company had made these contributions.

Unfortunately, voters in a number of states also ratified measures that will make it harder to raise revenues going forward. California and Washington each face tighter supermajority constraints on revenue-raising, Indiana voters enshrined property tax caps in their constitution, and voters in Massachusetts and Washington retroactively rejected small tax increases enacted by state legislatures in the past year.

Here are the results of initiatives we’ve been following.

Personal Income Tax

Washington: Initiative 1098 - FAILED
Initiative 1098 would have introduced a limited personal income tax applicable only to the richest Washingtonians, reduced the state property tax and eliminated the Business and Occupation tax for many businesses.

Colorado: Proposition 101 - FAILED
Proposition 101 would have reduced Colorado’s income tax rate and eliminated various fees resulting in an estimated loss of $2.9 billion in state and local revenue once fully implemented.

Business Tax Breaks

California: Proposition 24 - FAILED
Proposition 24 would have eliminated several business tax breaks enacted in 2008 and 2009 and would have increased state revenues by more than $1.3 billion.

Super Majority Voting Requirements

California: Proposition 25 - PASSED
California: Proposition 26 - PASSED

The passage of California’s Proposition 25 removes the current two thirds super majority requirement needed to pass the state budget (replacing it with a simple majority vote). However, Proposition 26 institutes a new super majority requirement for raising certain fees (classifying them as taxes, which still require a two thirds vote).

Washington: Initiative 1053 - PASSED
Initiative 1053 will ensure that all tax increases (no matter their size) be approved either by a two thirds majority in the legislature or a public vote of the people.

Earnings Tax

Missouri: Proposition A - PASSED
Proposition A requires voters to decide whether two local earnings taxes levied in St. Louis and Kansas City should exist and also prohibits other localities from levying a local income tax.

Sales Taxes

Massachusetts: Question 1PASSED
Massachusetts: Question 3 - FAILED

Question 3 would have cut the state’s sales tax rate from 6.25 to 3 percent, resulting in an annual revenue loss of $2.5 billion.  Question 1 removes the sales tax on alcohol, which was just added last year in order to raise $80 million for substance abuse programs.

Washington: Initiative 1107 - PASSED
Initiative 1107 repeals a recently enacted sales tax increase on a variety of goods including soda, bottled water, and candy.

Property Tax Exemptions

Missouri: Constitutional Amendment 2 - PASSED
This constitutional amendment fully exempts disabled prisoners of war (POWs) from paying property taxes.

Virginia: Question 2 - PASSED
Question 2 changes Virginia’s constitution to exempt disabled veterans and their surviving spouses from paying property taxes.

Property Tax Caps

Indiana: Public Question #1 - PASSED
The amendment to Indiana’s state constitution permanently limits property taxes to 1 percent of assessed value for owner occupied residences, 2 percent for rental and farm property and 3 percent for business property. These limits already existed in statute. This ballot measure simply makes them more difficult to repeal.

Colorado: Amendment 60FAILED
Amendment 60 would have taken away the ability of voters to opt out of Colorado’s TABOR limitations as they relate to property taxes and require school districts to cut property tax rates in half over the next ten years, replacing the lost revenue for K-12 schools with state funding.

Real Estate Transfer Fees

Montana: Constitutional Initiative 105 - PASSED
Initiative 105 prohibits the state from enacting any type of real estate transfer tax.  

Missouri: Constitutional Amendment 3 - PASSED
Amendment 3 prohibits the state from enacting any type of real estate transfer tax.

Government Borrowing

Colorado: Amendment 61FAILED
Amendment 61 would have prohibited or restricted all levels and divisions of government from financing public infrastructure projects (such as building or repairing roads and schools) through borrowing.

California: Proposition 22PASSED
Proposition 22 amends California’s Constitution to take away the state’s ability to borrow or shift revenues that fund transportation programs.



State Tax Issues on the Ballot on Election Day



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The stakes will be high for state tax policy on Election Day, with tax-related issues on the ballot in several states. With a couple of notable exceptions (a new income tax in Washington and rollback of corporate tax breaks in California), these ballot initiatives would make state taxes less fair or less adequate (or both).

Personal Income Tax

Colorado: Proposition 101 would reduce or eliminate various fees and immediately reduce the state’s income tax rate from 4.63 to 4.5 percent and eventually to 3.5 percent).  If passed, Proposition 101 will result in an estimated loss of $2.9 billion in state and local revenue once fully implemented.

Washington: Initiative 1098 would introduce a personal income tax, reduce the state property tax and eliminate the Business and Occupation tax for small businesses. If passed, this legislation would improve tax fairness in the state with the most regressive tax structure in the country.  For more read CTJ's Digest articles about this initiative.

Business Tax Breaks

California: Proposition 24 would eliminate several business tax breaks enacted in 2008 and 2009 and increase state revenues by more than $1.3 billion.  For more details on these tax breaks, read the California Budget Project's Budget Brief on the initiative.

Super-Majority Voting Requirements

California: Proposition 25 would remove the current two-thirds super-majority requirement needed to pass the state budget (replacing it with a simple majority vote), while Proposition 26 would institute a new super-majority requirement for raising certain fees (classifying them as taxes).  For more details on these initiatives, read the California Budget Project’s initiative summaries.

Washington: Initiative 1053 would, if approved, ensure that no tax increases (no matter their size) become law without either approval by a two-thirds majority in the legislature or a public vote of the people. The Washington Budget and Policy Center gives a helpful summary of the initiative and its potential impact.   

Earnings Taxes

Missouri: Proposition A, if approved, would require that voters be asked every five years to decide whether or not local earnings taxes levied in St. Louis and Kansas City should exist. (If voters then decide to not allow them, they will be phased out over a ten-year period). The Proposition would also exclude any other local government from levying its own earnings taxes. For more on Proposition A, read Missouri Budget Project’s fact sheet.

Sales Taxes

Massachusetts: Question 1 and Question 3
A diverse coalition of businesses, advocacy organizations, citizens groups and political leaders have joined together to defeat Question 3, an initiative that would cut the state’s sales tax rate from 6.25 to 3 percent, resulting in an annual revenue loss of $2.5 billion.  Question 1 would remove the sales tax on alcohol which was just added last year in order to raise $80 million for substance abuse programs.

Washington: Initiative 1107 would repeal the new sales taxes on a variety of goods including soda, bottled water, and candy. For more information, read CTJ's Digest article on the issue and the Washington Budget and Policy Center’s summary.

Despite the regressive nature of the sales tax, it's an important revenue source. Slashing it in either Washington or Massachusetts without replacing the lost revenue with another source would cripple the ability of those states to provide core services such as education and public safety to their residents.

Property Tax Exemptions

Missouri: Constitutional Amendment 2 would exempt fully disabled prisoners of war (POWs) from paying property taxes. Read Missourians for Tax Justice’s take on this issue.

Virginia: Question 2 would change Virginia’s constitution to exempt veterans and their surviving spouse from paying property taxes if the veteran is 100 percent disabled.

Property Tax Caps

Colorado: Amendment 60 would take away the ability of voters to opt out of Colorado’s TABOR limitations as they relate to property taxes.  Currently, voters can approve an increase in property tax rates above the constitutional limit which caps increases at the rate of inflation plus a small measure of local growth.  The amendment would also require school districts to cut property tax rates in half over the next ten years and replace the lost revenue for K-12 schools with state funding (an estimated $1.5 billion will be required from the state, meaning reductions will have to made to other services to support an increase in K-12 spending).

Indiana: Public Question #1 will ask Indianans to decide if their state's constitution should be permanently altered to limit property taxes to 1 percent of assessed value for owner occupied residences, 2 percent for rental and farm property and 3 percent for business property. Voters may find it helpful to read this brief from the Indiana Institute for Working Families.

Real Estate Transfer Fees

Missouri: Constitutional Amendment 3 would prohibit the state from enacting any type of real estate transfer tax. Missouri currently doesn’t levy any such tax.  Placing the question before voters is seen as a preemptive move by the Missouri Association of Realtors to ensure that the state can’t create a transfer tax.

Montana: Constitutional Initiative 105 would, if approved, prohibit the state from enacting any type of real estate transfer tax.  The state currently doesn’t levy such a tax. The Billings Gazette has weighed in on this Initiative.

Government Borrowing

California: Proposition 22 would amend California’s Constitution to take away the state’s ability to borrow or shift revenues that fund transportation programs.  For more information, read the California Budget Project’s brief on the initiative.

Colorado: Amendment 61 would prohibit or restrict all levels and divisions of government from financing public infrastructure projects (such as building or repairing roads and schools) through borrowing.



Ballot Round Up Continued



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California

Californians have a plethora of fiscal related ballot initiatives to vote on in November. 

In addition to Proposition 24 (ending business tax breaks), voters will be asked whether to impose an $18 vehicle fee to fund the state park system (Prop 21), amend the state Constitution to take away the state’s ability to borrow or shift revenues that fund transportation programs (Prop 22), allow for a simple majority legislative vote requirement for passage of the state budget (Prop 25), and reclassify certain fees as taxes meaning that legislative votes on fees would then require the now necessary two-thirds approval for passage of tax increases. 

The California Budget Project has published five informative budget briefs on the propositions that are very helpful tools for voters.

Massachusetts

In Massachusetts, a diverse coalition of businesses, advocacy organizations, citizens groups and political leaders have lined up to defeat Question 3, an initiative that would cut the state’s sales tax rate from 6.25 to 3 percent.  Opponents argue that the resulting annual loss of $2.5 billion from the proposed cut would cripple the state’s ability to provide core services such as education and public safety to Massachusetts residents.  Despite the depth and fundraising power of the opposing coalition, recent polling showed residents are pretty much split on whether or not the proposal is a good idea for the state. 

Missouri

This November, Missouri voters will be asked to make a judgment call on Amendment 2. If passed, this constitutional amendment would exempt fully disabled prisoners of war (POWs) from paying property taxes. Of course, everyone respects the sacrifice that POWs made, but this Amendment raises some important tax policy concerns.

First, should tax policies, especially ones that will assist so few people (estimates are that only 100 people would be impacted), really be written into a state's constitution?

Secondly, is it fair to single out a specific group of people and offer them a tax break? Missouri already allows countless exemptions and offers special treatment to a variety of taxpayers. Perpetuating this treatment of special groups violates fundamental tax fairness principles. In fact, most veterans already qualify for a special property tax credit.

We couldn't agree more with the Kansas City Star when it opines, "Disabled prisoners of war are deserving of honor. But changing property tax laws isn’t the way to do it."



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



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

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

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

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

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

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

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



Ballot Round Up



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Now that the primary election dust has settled and signature gathering deadlines have come and gone, we have a clear picture of the good and bad tax initiatives voters in a number of states will have an opportunity to support or oppose.  Over the coming month, the Tax Justice Digest will provide updates on tax-related ballot campaigns including links to the best resources to help voters understand what to expect when they hit the polls in November.

Indiana voters will soon decide if their state's constitution should be permanently altered to limit property taxes to 1 percent of assessed value for owner occupied residences, 2 percent for rental and farm property and 3 percent for business property. The state legislature has already approved this short-sighted measure twice.

Voters would find it helpful to read this brief from the Indiana Community Action Association which dispels false claims about the benefits of these property tax caps, including claims that all homeowners are likely to benefit, that having these caps in the constitution will prevent taxes generally from being raised, and that the caps are well-designed in the first place.

Missouri voters will be asked to decide on Proposition A and the fate of the city earnings taxes levied in Kansas City and St. Louis. If Proposition A is approved, voters will be asked every five years to decide whether or not these earnings taxes should exist. (If voters then decide to not allow them, they will be phased out over a ten year period). The revenue generated from these earning taxes represents about 30 percent of the cities' general fund budgets.

A key supporter (and bankroller) of the initiative, Rex Sinquefield, has said that the money "has to be replaced" if the earnings taxes are eliminated, but he doesn't actually say how that money will get replaced. "That was the reason that we proposed a 10-year phase-out," he says, "so you have a lot of time to figure this out."

If passed, the initiative would exclude any other local government from levying their own earnings taxes, further limiting the ability of local governments to raise funds in a progressive way. Missouri voters would be wise to take a step back and heed this warning from the St. Louis Post Dispatch editorial board: "The loss of (earnings tax) revenue would reverberate beyond the residents of St. Louis and Kansas City. Voters throughout both metropolitan regions would face increased uncertainty as their core cities struggled to find replacement revenue. As go the metro areas, so goes Missouri."

For more on the harmful ramifications of Proposition A, read this fact sheet from the Missouri Budget Project.

Washington State voters will soon have the rare opportunity to improve their state's tax and budget structure in a dramatic way. If Initiative 1098 passes, the state's property tax will be cut by 20 percent, the state's unique Business and Occupation tax will be eliminated for small businesses and a new income tax on the wealthiest of Washingtonians will become the law of the land. The Seattle Post-Intelligencer has endorsed I-1098 "as a big step toward tax fairness and reform, as well as a way of putting teachers into classrooms and poor families onto the state's Basic Health Plan. " ITEP's report Who Pays found that Washington has the most regressive tax structure in the nation and badly needs a tax reform of this sort.

Californians will have the opportunity to repeal three costly business tax breaks by voting to support Proposition 24, “The Tax Fairness Act”.  Enacted in 2008 and 2009, the three business tax cuts — elective single sales factor, tax credit sharing, and net operating loss carrybacks — are scheduled to go into effect in 2011 at an estimated cost of $1.3 billion.  As a new Budget Brief from the California Budget Project explains, these tax breaks benefit relatively few corporations and come at a time when the state can ill afford such a significant loss of revenue.  

In Colorado, most Democratic and Republican lawmakers are united in their opposition to three anti-tax initiatives on the state’s ballot which would drastically reduce state and local revenue and hinder the state’s ability to pay for education, health care, public safety, and other core services. 

Amendment 60 would require school districts to cut property taxes and replace the lost revenue. Proposition 101 would slash the state’s income tax and cut other fees. Amendment 61 would limit or disallow government borrowing.  A Colorado Legislative Staff analysis of the combined impact of the three measures found that the state would lose about $2.1 billion in revenue, while taking on $1.6 billion in K-12 education funding to make up for the local property tax cuts.  As a result, education spending would constitute nearly 99% of the state’s general fund budget.



New ITEP Report Examines Five Options for Reforming State Itemized Deductions



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The vast majority of the attention given to the Bush tax cuts has been focused on changes in top marginal rates, the treatment of capital gains income, and the estate tax.  But another, less visible component of those cuts has been gradually making itemized deductions more unfair and expensive over the last five years.  Since the vast majority of states offering itemized deductions base their rules on what is done at the federal level, this change has also resulted in state governments offering an ever-growing, regressive tax cut that they clearly cannot afford. 

In an attempt to encourage states to reverse the effects of this costly and inequitable development, the Institute on Taxation and Economic Policy (ITEP) this week released a new report, "Writing Off" Tax Giveaways, that examines five options for reforming state itemized deductions in order to reduce their cost and regressivity, with an eye toward helping states balance their budgets.

Thirty-one states and the District of Columbia currently allow itemized deductions.  The remaining states either lack an income tax entirely, or have simply chosen not to make itemized deductions a part of their income tax — as Rhode Island decided to do just this year.  In 2010, for the first time in two decades, twenty-six states plus DC will not limit these deductions for their wealthiest residents in any way, due to the federal government's repeal of the "Pease" phase-out (so named for its original Congressional sponsor).  This is an unfortunate development as itemized deductions, even with the Pease phase-out, were already most generous to the nation's wealthiest families.

"Writing Off" Tax Giveaways examines five specific reform options for each of the thirty-one states offering itemized deductions (state-specific results are available in the appendix of the report or in these convenient, state-specific fact sheets).

The most comprehensive option considered in the report is the complete repeal of itemized deductions, accompanied by a substantial increase in the standard deduction.  By pairing these two tax changes, only a very small minority of taxpayers in each state would face a tax increase under this option, while a much larger share would actually see their taxes reduced overall.  This option would raise substantial revenue with which to help states balance their budgets.

Another reform option examined by the report would place a cap on the total value of itemized deductions.  Vermont and New York already do this with some of their deductions, while Hawaii legislators attempted to enact a comprehensive cap earlier this year, only to be thwarted by Governor Linda Lingle's veto.  This proposal would increase taxes on only those few wealthy taxpayers currently claiming itemized deductions in excess of $40,000 per year (or $20,000 for single taxpayers).

Converting itemized deductions into a credit, as has been done in Wisconsin and Utah, is also analyzed by the report.  This option would reduce the "upside down" nature of itemized deductions by preventing wealthier taxpayers in states levying a graduated rate income tax from receiving more benefit per dollar of deduction than lower- and middle-income taxpayers.  Like outright repeal, this proposal would raise significant revenue, and would result in far more taxpayers seeing tax cuts than would see tax increases.

Finally, two options for phasing-out deductions for high-income earners are examined.  One option simply reinstates the federal Pease phase-out, while another analyzes the effects of a modified phase-out design.  These options would raise the least revenue of the five options examined, but should be most familiar to lawmakers because of their experience with the federal Pease provision.

Read the full report.

Tax credit reform has been a hot topic in Missouri for a few years now – and for good reason.  To be blunt, the state has been dishing out enormous, and growing, sums of money via tax credits with little oversight or control.  For example, when your state accidentally spends $1 billion more on tax credits than it intended, there's clearly a problem.

But despite the immensity (and obviousness) or Missouri's tax credit problem, the legislature has proven itself incapable of enacting meaningful reform.  Proposals from the Governor and prominent legislators to cap, scale back, consolidate, or sunset tax credits have received considerable media attention, but have consistently fallen short of being enacted into law.  Most legislators, it seems, are happy to ignore the rampant inefficiency of Missouri's tax credits (and muddle through the state's ongoing budgetary debacle without addressing them), just so long as they don't have to risk upsetting the multitude of lobbyists working to preserve these special tax giveaways.

In order to grease the wheels for reform in 2011, Missouri Governor Jay Nixon has taken the unoriginal step of creating a “Tax Credit Review Commission” to provide recommendations for making each of the state's 61 tax credit programs more efficient.  The Commission's work will almost certainly generate additional discussion and interest in tax credit reform, and hopefully will provide some useful data and analysis as well.  But simply creating this Commission does not constitute reform.

While tax credit reviews (or tax expenditure reviews more broadly) do have their place, they should be conducted on an ongoing basis more akin to the kind of regular scrutiny directed toward ordinary spending programs.  Moreover, if such reviews are conducted, appointing a semi-random collection of 25 businessmen, education officials, labor representatives, and lawmakers to spearhead the effort is hardly ideal.

It's unclear, for example, why prominent employees of Enterprise Rent-A-Car and Hallmark Cards, Inc. are the best candidates to conduct “critical analyses” of Missouri's tax law.  Or even more strangely, why one of the Commission's co-chairs should be part of a group of developers that has directly benefited from Missouri's tax credits (as reported by State Tax Notes, subscription required).  Talk about a conflict of interest.

To be fair, the Commission's membership does include some tax credit “skeptics” as well.  Republican State Sen. Matt Bartle, for example, recently admitted that “it’s no secret that I have come to believe that many, many tax credits do not yield the benefit that was promised.”  But including voices from “both sides” doesn't mean the Commission's structure makes sense.  Real reform will require either forcing the legislature itself to regularly review these programs (such as by making use of sunset provisions, as is done in Oregon), or by handing responsibility for such reviews over to impartial, expert government analysts (as is done in Washington State).

If all goes well, the Commission's work will hopefully spur reform not only of specific tax credit programs, but also of the broader systems in which lawmakers deal with these programs on an ongoing basis.  And if the latter type of reform is implemented well, the need for band-aids like the “Tax Credit Review Commissions” should be greatly reduced in the future.



State Governments Continue to Throw Money at Businesses with No Promise of Benefits in Return



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Despite continued fiscal woes that have forced states to cut billions of dollars in spending on education, health care, transportation, and public safety, North Carolina and Missouri became the latest states to pass expensive tax breaks in the hopes of luring, or retaining, business. 

Unfortunately, there is no evidence that these unaffordable tax breaks will lead to economic recovery and job creation.  The University of North Carolina’s Center for Competitive Economies recently surveyed companies to determine the importance and effectiveness of economic development incentives on their location decisions. Availability of a skilled workforce, quality infrastructure, and presence of community colleges and universities ranked much higher than special tax breaks (13th on the list).  Time and time again, research has shown that the most effective growth strategy for states is investing in education and public infrastructure, not special tax breaks for corporations.

During the final hours of North Carolina’s legislative session last week, state lawmakers passed a pair of bills that extended, expanded and created new incentives for specified industries and companies at a cost of more than $275 million over the next 5 years.  The most costly change was an expansion of the state’s refundable film production tax credit which raised the maximum amount of the credit that can be taken from $7.5 million to $20 million.  New credits were created for video game developers and businesses who locate in eco-friendly industrial parks.  Lawmakers also extended a tax credit program known as Article 3J that legislative staff and University of North Carolina researchers have found to be ineffective at job creation, and as recently as this spring they recommended it should be eliminated altogether.
 
The second bill was developed with specific corporations in mind (although they were not named in the legislation and have still not been publicly disclosed). Commerce officials say these corporations are considering North Carolina as a finalist for their new facilities and incentives were needed to “clinch the deal”.  The legislation grants special sales tax exemptions on electricity and machinery to two data centers, a turbine manufacturing facility, and a paper mill.  Recent news reports suggest such “struggling” corporations as Microsoft (working under the code name “Project Deacon”) and Fidelity are likely to be the parties to benefit from the special rules for the new data centers. 

Proponents of the tax breaks suggested they were needed for North Carolina to remain competitive and to spur economic recovery and job creation.  Yet, no industry listed in the second package will be required to meet a targeted employment level.  

Earlier this week in a special session called by Governor Nixon, Missouri lawmakers passed a $150 million incentives package for Ford Motor Company and its suppliers.  Without the incentives, lawmakers claimed Ford would close its assembly plant in Claycomo and 4,000 jobs would be lost.  But, there’s no guarantee that Ford will stay even with the special treatment and attention it received from Missouri lawmakers.  The special tax break was paid for by cutting pensions for newly hired state employees.

A recent report from the Missouri State Auditor’s Office reveals that the actual amount spent by Missouri on tax credit programs far exceeds the amount that policymakers, relying on official fiscal notes, expected to spend.  By comparing the original fiscal notes of 15 of Missouri’s largest tax credit programs to their actual costs, the State Auditor discovered that during the fiscal year 2005 through 2009 period, over $1.1 billion was spent on these credits beyond what had been projected. 

This was made possible, of course, by the fact that many of Missouri’s tax credits are essentially open-ended entitlement programs.  This is in sharp contrast to most other types of spending in the state, which are prohibited from exceeding the amount specified during the appropriations process.

The table on page 8 of the State Auditor’s study provides the gory details on how this over-spending occurred.  For example, while the fiscal note attached to the Historic Preservation credit led policymakers to believe that the state would devote roughly $71 million in state resources to this cause over the 2005-2009 period, the actual cost came in closer to $637 million — nearly 800% more than expected. 

To take another example, the state’s Brownfield Remediation/Demolition credit came it at over 2500% over budget (no, that’s not a typo) — costing a full $93 million, rather than the measly $3.5 million that was projected in the state fiscal note.

To be clear, these discrepancies are not so much a criticism of the accuracy of Missouri’s fiscal notes as they are an indictment of the budgetary mechanisms in place for dealing with such estimation errors.  Creating a new program from scratch will always bring with it enormous uncertainties; the responsibility of those who govern is to ensure that they have the tools in place for dealing with these uncertainties. 

As the State Auditor’s Office notes in its report, greater use of annual caps on tax credits, cumulative caps on credits, sunset provisions, and improvements in existing procedures for analyzing the benefits of tax credits could all greatly enhance the state’s ability to finally bring this unpredictable (and massive) spending back under control.

In addition to the report’s recommendations and its evaluation of the actual vs. projected size of tax credits, its discussion of a few tax credits that are already subjected to the appropriations process provides reason for hope among those who would like to see tax expenditures and direct expenditures put on a more even footing (pp. 10). 

Furthermore, another table in the report interestingly reveals that the vast majority of tax credits are not in fact administered by the Department of Revenue (pp. 6).  This information certainly bolsters the case of those in Missouri who would argue that many of these programs are little more than undercover spending disguised as “tax cuts.”

Since advocates of a national sales tax first unveiled their "Fair Tax" plan more than a decade ago, the most durable (and unfortunate) feature of this debate has been that its advocates have persisted in using misleading estimates of what the sales tax rate would have to be under their regressive scheme. The bill's authors routinely describe it as a 23 percent tax, but ITEP's widely-cited analysis has shown that, in fact, the national sales tax rate would almost certainly have to be somewhere north of 40 or even 50 percent.
 
Now this debate is playing out again at the state level, where the Missouri House has shown more than a polite interest in a plan that would repeal the state's personal and corporate income taxes and state sales tax, and create a new sales tax on virtually everything individuals buy, from new homes to your monthly rent to health care to day care. The plan's sponsors claim that it would raise enough revenue to pay for a gigantic sales tax rebate designed to offset the sales tax on spending up to the federal poverty line, while leaving the total revenue collected unchanged. According to the bill's sponsors, this could all be accomplished at the low, low sales tax rate of 5.1 percent.
 
House members liked this idea enough last year to actually pass a similar bill – even though the official fiscal note indicated that the numbers just didn't add up. Cooler heads ultimately prevailed in the Senate.

Now the idea is back, and its sponsors still insist that a 5.1 percent universal consumption tax can pay for a rebate and repeal of the personal and corporate income taxes.

But a new ITEP analysis shows that, in fact, the state sales tax would have to be more than 11 percent in order to make such a plan revenue-neutral – and the result would be a disaster for tax fairness.

ITEP's analysis, submitted as testimony before a House committee on Wednesday, shows that the poorest ninety-five percent of the income distribution would see a tax increase under this plan, while the very best-off five percent of Missourians would see a substantial tax cut. For more on this issue, visit the Missouri Budget Project.



It's Back... Missouri's Humongous Sales Tax Proposal



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Just last year we brought you news of the misguided proposal that would have eliminated Missouri's personal and corporate income taxes and replace that revenue with an expanded sales tax. The proposal, called by some the "Fair Tax," would create a mega sales tax that would supposedly have a lower rate, but would be levied on everything from rent to child care and even food (which is currently not taxed through the state sales tax).

Last year, the plan passed the House of Representatives, but failed in the Senate, which was a really good thing given ITEP's findings that the legislation would have meant a net tax increase for all income groups except the richest 5 percent. We also found that if the proposal was really going to be revenue-neutral (as proponents claim) while also providing a rebate to Missourians (which they also promise), the new average state and local sales tax rate would have to be 12.5 percent. That's nearly double the 5.11 percent proponents of the bill claim, and it's at least a third more than the sales tax rates of neighboring states.

Despite damning evidence from both ITEP and the Missouri Budget Project, proponents of the "Fair Tax" are at it again. This week both opponents and proponents of the legislation testified in the Missouri Senate, including Dr. Arthur Laffer, a rabid anti-taxer, who reportedly said, "I mean, all taxes are bad." Keep your eyes peeled on this state tax battle, which is likely to receive a lot of attention nationally.



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



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

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

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

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

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

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

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



Gubernatorial Hopefuls Talk about Income Tax Elimination Rather Than Real Solutions



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When someone demands that Congress abolish the federal income tax, we typically consider that a fairly extreme position. But then again, we don't run in the same circles as Georgia gubernatorial candidate John Oxendine, who feels that his peers in the anti-tax community are too wishy-washy if they don't also call for a repeal of state income taxes. 

He recently said, "I think it's very hypocritical for state officials to be running around bad mouthing the federal government for having an income tax when the state of Georgia does the same [thing]. As governor, I want to get rid of the state income tax." Oxendine thinks that states like Georgia must lead the way and eliminate their state income taxes.

In Georgia, inadequate tax revenue is a threat to justice -- quite literally, in the sense that the state is not able to carry out the basic administration of justice through its court system. As the Wall Street Journal reports, "the wheels of justice in Georgia are grinding more slowly each day" because "Cuts in spending for the state court system have led to fewer court dates available for hearings and trials, creating a growing backlog of cases."

Now, just three months into the state's fiscal year, already under-funded state agencies are being asked to cut another 5 percent from their 2010 budget. Now is likely not the time to eliminate the state's largest source of revenue.

Former Ohio Congressman John Kasich is running for Ohio Governor and is also promising to repeal the state's income tax. However, the severity of Ohio's budget situation has apparently provoked some caution. The Columbus Dispatch recently reported "Kasich also said that the state's dire budget situation would make it difficult to begin phasing out the state income tax in his first term." He apparently assumes that the state's current budget crisis is the last the state will ever face, freeing it to abolish a major source of revenue in the future.

Of course, abolishing a state's income tax is a terrible idea even in times of surplus because income taxes are fairer than any other type of revenue source. A recent ITEP report makes this point in analyzing a recent proposal in Missouri to eliminate corporate and individual income taxes and replace the revenue with an enormously expanded sales tax. The Missouri proposal (which was not enacted) would have effectively slashed state taxes for wealthy residents while sending the bill to working families who spend most of their income purchasing necessities.  



What Folks in Missouri Aren't Likely to Hear at "Fair Tax" Rally This Weekend: The Facts



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This weekend thousands of advocates for the wildly misnamed "Fair Tax" are expected to descend on Columbia, Missouri and hear from the likes of Neal Boortz and Joe Wurzelbacher, better known as "Joe the Plumber." We don't expect that this rally will inform Missourians that the proposal to eliminate corporate and individual income taxes and replace that revenue with sales taxes is likely to raise taxes on the poorest 95 percent of Missourians. Nor are attendees likely to learn that the sales tax rate necessary to make this a revenue neutral change isn't 5.11 percent (as often claimed), but a combined state and local tax rate of 12.5 percent.

Organizers of events like this have a difficult time acknowledging the real impact of the "Fair Tax" and instead focus on "simplicity" and the theoretical fairness of a sales tax. Luckily the press has delved a bit deeper into the issue and are pointing out the flaws in their proposal. For more on Missouri's so-called "Fair Tax" proposal, read ITEP's report.



"Fair Tax" Dead in Missouri But May Rear Its Head in Kentucky or South Carolina



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It's safe to assume that there will be a special legislative session in Kentucky this summer. After all, the Blue Grass state is expected to face a billion dollar shortfall for the fiscal year starting July 1. Governor Beshear claims

he hasn't committed to calling back the legislature or decided what topic he would even select for a special session, but everyone knows a shortfall this large isn't going away without further action. So a flurry of proposals are being discussed from progressive income tax reform to increased gambling and even the so-called "fair tax."

The infamous "fair tax" legislation, which proponents are pushing all over the country, would eliminate corporate and individual income taxes, replace the lost revenue with increased sales taxes on a wide range of services, and eliminate most current sales tax exemptions. Before going too far down this path,

Kentucky legislators should take a moment to look at how that same proposal has faired in other states just this year.

Missouri, "fair tax" legislation passed the House of Representatives but went nowhere in the Senate. An ITEP analysis found that this proposal would raise taxes on middle-income Missourians and require a much higher sales tax rate than advertised.

A similar fate is expected in South Carolina where similar legislation has been introduced in the House. Advocates in South Carolina are hopeful that the legislation won't get very far.

Kentucky lawmakers should quickly jump off the failed "fair tax" bandwagon and instead look for ways to improve their state's tax structure while also increasing state revenue.



Missouri House GOP Approves Massive Tax Increase on the Middle-Class, Tax Cuts for the Rich



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The So-Called "Fair Tax" Approved by Missouri House Would Raise Taxes for All Income Groups Except the Richest Five Percent

In the past month, the Missouri House of Representatives has acted like a spoiled child who really doesn't know what he wants. The esteemed body has voted to permanently reduce the state's income tax rates across the board by half of a percentage point (see ITEP's analysis of HCS for SB 71) and then separately voted to broaden the state's top income tax bracket and increase the costly and poorly targeted deduction for federal income taxes paid (see ITEP's analysis of HB 64).

Then, as if all that wasn't unfair or costly enough, the House decided to also approve the elimination of the individual and corporate income taxes altogether.

Yep, that's right, the full House of Representatives voted to simply eliminate a generator of roughly $5 billion and replace that revenue with a broad-based sales tax that exempts all business-to-business consumption.

Sound familiar? This legislation (HJR 36) is essentially the so-called "Fair Tax" proposal that anti-tax advocates have been pushing enthusiastically across the country. The Fair Tax proposal in Missouri, which would amend the state's constitution, would go before the voters if approved by the Senate.

Today ITEP joined in a release with the Missouri Budget Project highlighting analyses from both groups. ITEP's report concludes that HJR 36 would result in a net tax increase for all income groups except the richest 5 percent. It also finds that if the proposal is to be revenue-neutral (as proponents claim) and is to provide a rebate to Missourians (which they also promise), the new average state and local sales tax rate would have to be 12.5 percent. That's nearly double the 5.11 percent proponents of the bill claim, and it's at least a third more than the sales tax rates of neighboring states.

Missouri Budget Project's report finds that the additional sales taxes levied under HJR 36 would especially harm Missourians living on fixed incomes because they would apply to all services, including utilities, rent, medical care, food, prescription drugs, and child care -- most of which are things no other state makes subject to sales taxes.



Misery in Missouri: Regressive Income Tax Changes and Income Tax Elimination Both Pass the House of Representatives



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This has been a tough couple of weeks for tax fairness advocates in the Show Me State. Yesterday, the Missouri House of Representatives passed House Bill 64, a regressive and costly piece of legislation that does three things. First, it raises the starting point for the 6 percent top income tax bracket from $9,000 to $50,000 of taxable income. Second, it raises the dependent exemption from $1,200 to $1,600. Third, HB 64 increases the deduction for federal income taxes paid from $10,000 for married couples ($5,000 for single filers) to $15,000 for married couples ($7,500 for singles).

See ITEP's fact sheet, which estimates that this legislation would cost $311 million in 2007 if it was in effect in that year. We expect the cost of the legislation to increase in future years as income grows.

Worse than the huge revenue loss is the regressive impact of the bill. About 88 percent of the benefits from these three tax changes would go to the wealthiest 40 percent of Missourians.

But this week was a demonstration of responsible lawmaking compared to what went on in the Missouri Capitol last week, when the notorious, so-called "fair" tax reared its ugly head and passed the House of Representatives. Advocates expect the bill will go before the Senate Ways and Means Committee next week. The ridiculously named legislation would replace the state's individual and corporate income taxes with sales tax revenue generated from a massive base expansion (including adding food and prescription drugs back to the sales tax base) in a supposedly revenue neutral way.

When advocating in favor of the bill, legislators pointed to Tennessee as an example of a state that reaps benefits from not having much of an income tax. Clearly lawmakers haven't investigated many quality of life indicators in the Volunteer State. For example, Tennessee ranks 6th in infant mortality rates, 9th in percent of children living in poverty, and 4th in percent of senior citizens living in poverty. It's pretty obvious that income tax elimination isn't guaranteed to create a high quality of life. The one thing that income tax elimination is guaranteed to create is a more regressive and unfair tax structure. To read more about this legislation, see the Missouri Budget Project's brief.



CTJ and ITEP Say Good Bye to Tax Justice Champion



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On April 9, Missourians lost a steadfast leader for tax justice, while advocates for progressive taxes across the country lost a colleague whose energy and devotion to her principles were second to none. Pat Martin founded and continued to lead Missourians for Tax Justice up until her death. She was active in economic and social justice issues for most of her life and was integral in the fight to remove food from the state sales tax base. Her resolve and dedication were often tested in Missouri's difficult political landscape, but Pat never let the situation get her down. Instead, she fought even harder and asked others to do the same. Pat expected much of those she worked with and even more of herself in the pursuit of justice. We will certainly miss working with her. It's been said of Pat's death that "Missourians have lost a bright light" and so have we. Read more about Pat's remarkable life here.



The Economic Development Tax Credit Addiction



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It's hard to believe, but there may actually be a trend in state tax policy more prominent than increasing cigarette taxes. Business tax credits aimed at spurring economic development have been among the most popular ideas in statehouses scrambling for ways to reduce unemployment. Just last week, we described a plan in Minnesota to boost investment tax credits and a budget in California containing a few credits of its own. This week, proposals to do the same in Iowa, Kentucky, and Missouri are under discussion.

In Iowa, Republican lawmakers have suggested paying (via tax credit) half the salary of each new job created by private businesses. Oddly, because this payment would be administered through the tax code rather than as a direct grant, the debate has become confused to the extent that this policy has been labeled as a way to return to a "market-based, capitalistic system".

An excellent op-ed out of Kentucky helps clear things up a bit, noting that Gov. Beshear's proposed expansion of business tax incentives would be a costly, nontransparent, and likely ineffective way of encouraging job growth. The op-ed goes on to argue that a "broader" approach, including better targeted and more closely scrutinized spending programs, could do far more good than creating more tax credits.

Finally, as an expansion in economic development tax credits works its way through Missouri's legislature, the admission of at least one legislator that he is a "recovering tax credit addict" helped to shine some light on the unfortunate politics behind these types of tax credits. These programs can cost a state enormously, and are rarely defensible on principled tax policy grounds. Instead, they constitute a type of spending done through the tax code -- commonly referred to as "tax expenditures" -- which add complexity, shrink the tax base, require higher marginal rates, and offer little if anything in terms of making the system more responsive to individuals' and businesses' ability to pay.



Unfair Tax Debate Heats Up in Missouri



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Last week was a rough one for tax justice advocates in many states, but especially those working in Missouri. The House Committee on Tax Reform heard not one, but two bills attempting to eliminate to state's corporate income, individual income, and estate taxes. The revenue loss from eliminating these taxes would supposedly be raised from eliminating all sales tax deductions and exemptions. These bills were based largely on the propaganda of Americans for Fair Taxation, a group which supports the elimination of all taxes based on income.

The group's slogan for promoting these types of tax changes is "Freedom. Fairness. Savings," words which have nothing to do with the policies they promote. Relying more on consumption taxes rather than income taxes only ensures that poor families pay more in taxes as a share of their income than do wealthy families. The only people who save under these "fair tax" proposals are wealthy folks. The Missouri Budget Project was one of many groups who testified against these unfair and expensive proposals, arguing "that these bills undermine the principles of fairness and equity that should be the basis of our tax system."



Thought You'd Heard the Last of TABOR? Think Again



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The poorly named Tax Payer Bill of Rights (TABOR) is a cap on allowable spending enacted in Colorado in 1992. Since then, it has become clear that the measure demolished the state's ability to fund higher education, infrastructure and health care. Despite voters approving a ballot measure to suspend Colorado's TABOR for five years, the concept of a spending limit is still rearing its ugly head in both Maine and Missouri.

In Maine, the Heritage Policy Center has a revised TABOR proposal (a previous proposal was defeated by a vote of the people two years ago), which promises to combat the state's "overspending" problem while making it quite difficult for taxes to be raised. This November, Mainers will be asked to vote once again on the TABOR. Read the Maine Center for Economic Policy's report about the many serious problems with this proposal.

Meanwhile, a proposal to cap spending is making its way through the Missouri House of Representatives, which will serve as another test for the pro-TABOR forces. Read the Missouri Budget Project's warning about TABOR's impact on the state.



Three States Focus on Eliminating Regressive Deduction to Raise Much Needed Revenue



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We've recently highlighted a variety of progressive revenue raising options gaining serious attention in New York and Wisconsin. This week we bring you yet another idea that's recently been the subject of debate, though this one applies to fewer states. Those seven states still offering income tax deductions for federal taxes paid (i.e. Alabama, Iowa, Missouri, Montana, North Dakota, Louisiana, and Oregon), should immediately repeal, or at the very least dramatically scale back, that deduction.

The federal income tax deduction takes what is perhaps the best attribute of the federal income tax -- its progressivity -- and uses it to stifle that very attribute at the state level. Since wealthy taxpayers generally pay more in federal taxes than their less well-off counterparts, allowing taxpayers to deduct those taxes from their income for state income tax purposes is a gift to precisely those folks who need it least. And since most state income tax systems possess a degree of progressivity, those better-off taxpayers who face higher marginal tax rates are benefited even more by being able to shield their income from tax via this deduction.

Iowa Governor Chet Culver most recently drew attention to this problem while urging lawmakers this week to end the deduction. The idea has also recently garnered attention in Missouri, where ITEP recently testified on a bill that would, among other changes, eliminate the deduction. Finally, another bill making its way through the Alabama legislature seeks to end the deduction for upper-income Alabamians.

With three of the seven states that still offer this deduction considering its elimination, this is definitely one progressive policy change to keep an eye on.



Missouri Advocates Bucking the Trend



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If state tax budget shortfalls and regressive tax structures were a popularity contest, Missouri would be considered one of the cool kids. Like most states, Missouri has both an enormous shortfall and a regressive tax structure to contend with. The discussions in Missouri about ways to solve the state's fiscal mess (as in many other states) have mostly focused on program cuts.

But this week advocates from the Tax Justice for a Healthy Missouri Coalition bucked the status quo. A hearing was held by the House Tax Reform Committee on a bill, supported by the coalition, that would broaden Missouri's tax brackets, add new top tax rates, eliminate the state's deduction for federal income taxes paid and introduce a refundable credit targeted toward low- and middle-income folks.

The bill would also raise over a billion dollars. For a cash-strapped state that hasn't seen its top bracket change since 1931, this bill offers a chance to modernize the income tax, increase revenue, and make the tax structure fairer overall. It's rare that one piece of legislation has the ability to do so much good. For ITEP's testimony on this important legislation, click here.



Progressive Tax Reform Gaining Steam in Missouri and Kentucky



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Last week Missouri lawmakers joined Tax Justice for a Healthy Missouri and the newly formed Long Spoons Coalition to hold a press conference promoting HB 567, a bill that would modernize Missouri's outdated income tax structure (the top $9,000 bracket hasn't changed since 1931) and produce needed revenue while cutting taxes on average for the bottom 60% of Missourians. It's fine time that this sweeping legislation receives attention from policymakers and the press.

A progressive tax reform proposal is also in the news in Kentucky, where some lawmakers want to balance their state budget in a progressive way, combining revenue-raising options with tax cuts for low- and middle-income folks. The Kentucky reform plan includes an Earned Income Tax Credit, new top rates and brackets, and broadening the sales tax base. The bill's sponsor will be meeting with Kentucky Governor Steve Beshear about the bill's merits -- a meeting we hope goes well.



Numerous Other States Decide on Tax/Revenue Proposals



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

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

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

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

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

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

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



Missouri: The Bizarre Pairing of Education and Gambling



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Missouri may bring us another example of a "sin tax" that results in state government promoting the "sin." If Proposition A survives legal challenges, Missouri voters will be asked to approve the ballot initiative which would limit the number of Missouri casinos, raise the gaming tax to increase school funding, and eliminate the loss limit. There are a lot of competing interests represented by the initiative, which explains why there are legal challenges in the works against the proposal. It would increase funding for education, which pleases most people. It would limit the number of casinos, which pleases voters opposed to gambling. And it would let people lose as much as they want to lose, which pleases casinos and compulsive gamblers. Some may see this initiative as an odd collection of conflicting goals, while others might see it as a clever compromise. Either way, one issue left unresolved is the uncertainty over how much revenue could really be raised over the long-term in this manner. This uncertainty, along with the ethical issues involved, should prod Missouri lawmakers to see the limits in this type of quick fix and start considering a more adequate and progressive income tax.



Sales Tax Holidays: Free Swirlies for Everyone



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As we mentioned last week, this is the season for fiscally irresponsible sales tax holidays to purportedly give relief to working people on their back-to-school shopping. Sales tax holidays are a bad idea for the states' budgets and tax-payers alike. Low-income families probably cannot time their purchases to take advantage of a sales tax holiday, and it can be an administrative headache for retailers and government. Sales tax holidays are also poorly targeted to low-income individuals compared to other policy solutions such as low-income tax credits.

Now another group of states is ready to forgo needed tax revenue in exchange for a few dollars off the purchase price of various goods. These states include Alabama, Iowa, Missouri, North Carolina, Tennessee, and Virginia among others with holidays scheduled Friday through Sunday.

Meanwhile, a Birmingham News editorial points out that the sales tax holiday is a "gimmick" that has allowed state lawmakers to divert attention from their outrageously regressive tax code. Alabama is one of only two states that doesn't exempt or provide a low-income credit for its sales tax on groceries. If that were done, Alabama consumers would save far more money than they do on a three-day sales tax holiday (an average family of four would save about seven times as much). But instead of exempting groceries from sales taxes or raising the state's second-lowest in the nation income tax threshold, lawmakers pretend to help low-income Alabamians with a few tax-free shopping days a year.

Georgia's sales tax holiday began on Thursday and exempts articles of clothing costing less than $100, personal computers cheaper than $1500, and school supplies under $20. This week, the Atlanta Journal-Constitution mentioned some of the more amusing exemptions covered by that state's sales tax holiday. These exemptions include corsets, bow ties and bowling shoes. As the author noted, guys headed to their first day back in school "might combine the bow ties and bowling shoes, then just head straight for the restroom to collect their free swirlie." The article also mentions ski suits, highly unlikely to be big sellers in Georgia, and adult diapers, seemingly unrelated to the average family's back-to-school needs. Georgia lawmakers may want to revise their list of exemptions to concentrate on discounting necessities, or better yet, end this farce once and for all.



Missouri Puts Up Another Barricade Against Property Taxes



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Earlier this month Missouri Governor Matt Blunt signed into law legislation that could have disastrous effects on schools. The law essentially creates a new restriction on property taxes beyond the one that already exists. It requires localities to lower their property tax rates to offset increases in property tax assessments -- even if the rate is already below the existing rate ceiling. Missouri already has "rollback" procedures in place for localities that were already at the rate ceiling if assessed property values rose faster than inflation.

Even legislators who voted for this legislation understand that the new law will have a negative impact on the amount of money available for local schools. State Senator Frank Barnitz says, "I think that we will see funding improve to public education through our general revenue dollars, through our taxpayer dollars, and not necessarily see it only through property tax values." Only time will tell if lawmakers like Senator Barnitz are able to gain support for increased education spending on the state level, in the meantime locals may need to start preparing for a budget crunch.

In better news, this legislation also includes provisions that increase the state's well-targeted property tax credit. The credit operates like a circuit breaker and ensures that property tax cuts go to renters and homeowners for whom the property tax is most burdensome.



State Transportation Woes Have Common Thread



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North Carolina is suffering from an increase in the cost of asphalt. Asphalt is made of petroleum derivatives, and its cost has increased 25% since the end of 2006. This is causing the state to cut back on road repaving projects which are likely to cost more money to accomplish the longer they go unrepaired.

In Missouri, the state has a projected $1 billion transportation fund deficit. It is only expected to be able to meet 40% of obligations starting July 2009. In spite of this, all three major candidates for Missouri Governor pledge not to raise the state motor fuels tax. The two Republican gubernatorial contenders, Sarah Steelman and Kenny Hulshof suggest dedicating general funds revenue to transportation and privatizing some state roadways respectively.

Virginia is currently confronting a "growing bridge and road maintenance shortfall" which is depriving money from road construction. Governor Tim Kaine has recently released a proposal to raise vehicle registration fees and sales taxes on vehicles, while keeping the state fuel tax unchanged.

These states have in common a tendency to tinker around the edges of transportation funding policy while failing to address the taboo topic of gas taxes. The root cause of these transportation troubles is that the gas tax has been kept too low to finance the transportation needs in all these states.

Most states have a "per gallon" gas tax that leaves them unable to cope with rising costs of transportation as inflation erodes the value of the tax collected on each gallon. North Carolina's gas tax has been capped at 29.9 cents since 2006 due to pressure from anti-tax activist Bill Graham, although it was formerly readjusted to reflect price changes twice a year. Missouri has not raised its gasoline tax since 1996 and Virginia's gasoline tax has stayed constant since 1992. None of these states index their gasoline tax either to transportation costs or the general inflation rate.

Sometimes even a major crisis is not enough to get politicians to consider gas tax adjustments. Due to Iowa's recent flooding, Iowa's legislature is likely to convene an emergency session to confront their newly pressing infrastructure needs and find sources of funds for disaster recovery. Legislators rejected efforts to raise the gasoline tax earlier in the year to fill the $200 million highway maintenance deficit, opting instead to tinker around the edges and simply raise vehicle registration fees. But even now, the Iowa House Majority Leader considers a hike in the gasoline tax "an absolute, absolute last resort," with gas selling for $4/gallon.

Even a spectacular tragedy is sometimes not enough to get politicians to wake up. Before the August 2007 Minnesota I-35W bridge collapse, Governor Tim Pawlenty vetoed a bill raising the gasoline tax 7.5 cents per gallon, calling it "an unnecessary and onerous burden" as consumers were paying $3 per gallon for gasoline in May 2007. This was in a state that hadn't adjusted its gasoline tax in 19 years. Not even a bridge collapse and transportation funding shortfall of nearly $2 billion were enough to change the governor's position that gas taxes are anathema. Needed road and bridge repairs were being neglected, with obviously dire consequences. Fortunately, Minnesota lawmakers were finally able to override Governor Pawlenty's veto in February, raising the gas tax by 8.5 cents.

For many, there will never be a "right time" to raise the gas tax. It wasn't the right time at $2 per gallon in 2005 when Gov. Pawlenty first vetoed a gas tax increase, nor at $3 per gallon in 2007, nor now at $4 per gallon. In fact, it's never the "right time" to raise any kind of tax... no one wants to pay more than they have to. But sometimes in order fund vital services policymakers need to come together and bite the bullet as they did in Minnesota, even if it is politically difficult.

Opponents have sometimes successfully argued that raising the gasoline tax would be regressive and particularly damaging to the economy in such a car-dependent nation. But gas tax increases can be done in conjunction with progressive measures, such as raising the Earned Income Tax Credit and creating a refundable gas tax credit as was done in Minnesota and proposed in Virginia.



Minnesota Governor Misses the Memo on Property Tax Fairness



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Over the past few months, there's been a movement in Missouri to expand the circuit breaker program that benefits low-income property taxpayers. In addition, Indiana Governor Mitch Daniels recently signed legislation increasing his state's renter deduction. Clearly Minnesota Governor Tim Pawlenty didn't get the memo about the trend to help ease property tax burdens in targeted ways. Instead, Governor Pawlenty is proposing to reduce his state's renters' credit by 21 percent. The Minnesota Budget Project rightly points out that approving the Governor's proposal "would not only have a significant impact on ... low-income households, but also increase the regressivity of the property tax." As ITEP notes in its policy brief describing circuit breaker credits, whether such credits are designed to aid renters as well as homeowners is a critical consideration, since it's widely understood that some portion of the rent people pay consists of property taxes.

To read more about benefits of the Minnesota renters' credit, check out the Minnesota Budget Project's report here.



Gaffe by Republican Gubernatorial Candidate in Missouri on Undocumented Immigrants and Taxes



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A Republican candidate for Missouri Governor, State Treasurer Sarah Steelman, incorrectly told the Senate Pensions Committee that a study showed undocumented immigrants cause the state and federal government to lose between $242 and $449 million in income and payroll taxes. Later officials in her office acknowledged that she actually misinterpreted the study during her testimony.

Misinterpretation is one possible explanation. It's worth wondering why she was so ready to repeat the myth that undocumented workers don't pay taxes. Obviously, immigrants (documented or not) pay sales and property taxes and ITEP's own estimates show that about half of undocumented workers actually do pay taxes through regular payroll withholdings. If Ms. Steelman would like to be a little better informed (or a lot better informed) she can always read the Missouri Budget Project's report detailing how much state and local taxes are paid by undocumented workers in Missouri.



Border Conflict



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The Monty Python character expressed something that all politicians aspire to when he said, "To boost the British economy I'd tax all foreigners living abroad." Every elected official would prefer that any taxes be paid by someone who can't vote them out of office. It's not any different in Missouri, which recently triggered a war of words with its neighbor, Kansas.

Kansas Governor Kathleen Sebelius is becoming irritated about a seemingly arcane provision in a recent tax bill signed by Missouri Governor Matt Blunt. The provision does what all states would love to do: It raises taxes on people who work in the state but live and vote somewhere else. And for the Kansas residents who work in Kansas City, Missouri, that means their taxes have been raised by people unaccountable to them.

Earlier this year, Governor Blunt signed into law H.B. 444, an ill-advised bill that created a tax break for better off seniors who receive Social Security benefits. Included in this legislation is a provision ensuring that anyone who works in Missouri, but lives out of state will no longer be allowed to write off their out-of-state property taxes if they itemize on their Missouri income tax forms. This means that many workers who live outside of Missouri will pay higher Missouri income taxes. This is a good thing for Missouri, which is struggling to provide adequate health care and education.

But if you're a policymaker in neighboring Kansas you'd quickly understand that workers who live in Kansas will actually pay less Kansas income tax because they can claim credits for taxes paid to other states. Governor Sebelius asked Governor Blunt to repeal this provision, which she says amounts to a tax increase on nonresidents.

Seeing that shots were being fired at him from the other side of the border, Governor Blunt relented partially and said that he'll support the provision's repeal in the 2008 legislative session. But it's really not clear that the Missouri legislature would relent at all. "What obligation do we have to Kansas people? Why would we want to give them a break on Missouri taxes?" one Missouri legislator said publicly. Kansas Rep. Kenny Wilk, chairman of the House Taxation Committee, is vowing to retaliate unless Missouri acts soon. He said, "Missouri just needs to decide whether they want to do this the hard way or the easy way. We will respond to make sure we recoup all "and plus a bit more... of what we're losing."



How Not to Deal with the Property Tax Issue



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Property tax reform continues to make headlines in several states. Some Indiana property taxpayers are revolting against what they perceive to be an unfair system. Recently more than 3,000 Hoosiers signed post cards addressed to their state policymakers urging them to fix the state's property tax mess permanently. In fact, a legislative commission began hearings last month and Governor Mitch Daniels' appointed blue ribbon commission started work this week. The problems are that taxes are not based on a homeowner's ability to pay and that assessments are executed poorly.

One thought-provoking solution described in the Indianapolis Star is to closely study the property in the state that is not being taxed. Indiana, like most states, exempts nonprofit organizations and religious institutions from paying the property tax. In Marion County alone millions of property tax dollars could be collected if religious institutions paid property taxes. Estimates show there is $2.7 billion in property that goes untaxed in Marion County. Should churches and nonprofit organizations pay property taxes? It's probably the case that no politician in Indiana would seriously propose to tax churches, but the fact that some are contemplating such a move could startle legislators enough to enact real reform.

Are Rebates the Answer?

Indianans will receive locally-funded property tax rebates this winter, but those rebates aren't being greeted with much enthusiasm. Many question the motives of the legislators who approved these rebates. The Post-Tribune writes that instead of offering credits that would be applied to a homeowner's property tax bill directly, "The General Assembly instead decided property owners should receive checks in the mail, so they can see what their elected officials did for them this year."

This week Montana homeowners can begin to apply for a $400 state-funded property tax rebate. The rebates were a highly contested issue in the legislative session as Republicans pushed for permanent property tax cuts instead of the one-time rebates supported by Governor Brian Schweitzer. The Montana rebates shed light on a problematic aspect of property tax rebates and circuit breakers. Because states don't often know how much property tax a homeowner paid, it becomes the homeowner's responsibility to know about and apply for the credit.

Itemized Deductions on State Tax Are No Better

Another misconceived approach to property tax reform is the itemized exemption for property taxes, which is allowed for most states' income taxes. One problem with this is that in the low- and middle-income families hit hardest by property taxes typically don't itemize. Also, income tax deductions are an "upside-down" tax break, since deductions are worth more to the wealthy taxpayers who typically pay higher income tax rates. If property taxes are problematic for some families, offering a deduction that is largest for the wealthiest and not available at all to many middle-income families is certainly not the solution.

In the current skirmish between Missouri and Kansas discussed above, some Missouri legislators have asked why people should be granted such an itemized deduction for property taxes paid in another state (which certainly angers those who pay Missouri income taxes because they work in Missouri, even though they live in and pay property taxes in Kansas). But the better question is why should Missouri allow an itemized deduction for property even if its located in Missouri. The deduction probably does little to help those who could actually use some help.



Term Limits + Fiscal Policy = Bad Idea



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For economic and social justice advocates, Missouri's legislative session came to a welcome end last week. Pundits across the state started weighing in on what many have said was a "disappointing legislative session."

Term limits, which Missouri voters approved in 1992, may have played a role in the unwieldy session. Legislators are now restricted to serving eight years in the House and eight years in the Senate. In fact, the average legislative experience of a Missouri senator is 3.4 years. Term limits mean that there are few legislators with long-term legislative experience who can be called on to shepherd bills through the legislature and show new legislators the ropes. This year, lawmakers had to craft corrections to legislation that had already been sent to the governor while they raced to pass various unnecessary tax breaks. Wealthier seniors got a tax cut costing $154 million a year, and $103 million in credits were handed out for everything from beef to hybrid vehicles, while legislators failed to find time to restore cuts in healthcare and other needed services.

The impact of term limits also mean that when the full impact of the tax cuts passed this year take effect, many legislators will be out of office and won't have to deal with the budgetary consequences of their tax cut votes. Perhaps more so than in prior years, closed-door negotiations that don't involve the minority party are commons. Senator Tim Green said that special interests have a stronger influence now than ever before, "Political contributions and special interest groups have become the avenue of reason, not public policy. Special interest dictates what goes on in this body."



Assessing Missouri's Tax Treatment of Social Security Benefits



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ITEP Report: Assessing Missouri's Tax Treatment of Social Security Benefits

The Social Security tax cuts in House Bill 444 offer virtually nothing to most low-income retirees. This poorly targeted tax break shifts the cost of funding public services towards non-elderly taxpayers, many of whom are less well-off than the upper-income seniors benefitting from this exemption.



This Idea Should Have Been Retired: Poorly Targeted Tax Breaks for Social Security Benefits



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Missouri Governor Matt Blunt is expected to sign legislation that would remove Social Security benefits and publicly funded retirement income from the state's income tax base within six years for Missourians age 62 or older. These exemptions are limited to individuals with income of less than $85,000 and married couples with income of less than $100,000. Estimates are that the legislation will cost $125 million once fully phased in.

As the nation and Missourians age, common sense dictates that the cost of HB 444 is only going to grow over time and make it more difficult to fund services that seniors (and everyone else) count on. ITEP has found that only 28 percent of elderly Missourians, generally among the better off, would benefit from the proposal. Proponents of the legislation seem oblivious to this and continue to claim that any tax on Social Security benefits is "double taxation." To find out why this argument and others in favor of the bill are deceptive, read ITEP's new policy brief.



Multi-State Focus: Senior Tax Cuts



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Legislators in Missouri, Kansas, and Georgia are debating reducing taxes on seniors in their state. Lawmakers in Missouri and Kansas introduced legislation that would eliminate income taxes on Social Security benefits. On the surface, eliminating taxes on Social Security sounds like a wonderful idea. However, only a handful of states levy a tax on Social Security benefits and the Social Security Administration estimates that nationally about a third of current beneficiaries pay federal taxes on their benefits. Those who stand to gain the most from these proposals are better off seniors.

An ITEP analysis of the Missouri bill found that 72 percent of Missourians would receive no benefit from the proposal. Also, the bill carries a price tag of $100 million and the cost is likely to increase as Missourians age. For more on the Missouri proposal read the testimony presented by ITEP staff to the Missouri House of Representatives' Tax Reform Committee.

The Peach State already exempts Social Security benefits from their income tax and offers generous retirement income exclusions (totaling $35,000 of retirement income in 2009). But recently Governor Purdue introduced legislation that would completely eliminate tax on retirement income for Georgians 65 and over. Instead of turning to these poorly targeted tax cuts, legislators would do better to provide tax relief to those state residents with the least ability to pay - regardless of age considerations.

While the Democratic takeover of the House of Representatives (and apparently also the Senate) on Tuesday has has given new hope to advocates of progressive tax policies at the federal level, the results of ballot initiatives across the country indicate that state tax policy is also headed in a progressive direction.

In the three states where they were on the ballot, voters rejected TABOR proposals, which involve artificial tax and spending caps that would cut services drastically over several years. Washington State defeated repeal of its estate tax. Several states also rejected initiatives to increase school funding which, while based on the best intentions, were not responsible fiscal policy. Two of four ballot proposals to hike cigarette taxes were approved and the night also brought a mixed bag of results for property tax caps.

Taxpayer Bill of Rights (TABOR):
Maine - Question 1 - FAILED
Nebraska - Initiative 423 - FAILED
Oregon - Measure 48 - FAILED
Voters in three states soundly rejected tax- and spending-cap proposals modeled after Colorado's so-called "Taxpayers Bill of Rights" (TABOR). Apparently people in these three states had too many concerns over the damage caused by TABOR in Colorado. Property Tax

Caps:
Arizona - Proposition 101 - PASSED - tightening existing caps on growth in local property tax levies.
Georgia - Referendum D - PASSED - exempting seniors at all income levels from the statewide property tax (a small part of overall Georgia property taxes. (The Georgia Budget and Policy Institute evaluates this idea here.)
South Carolina - Amendment Question 4 - PASSED - capping growth of properties' assessed value for tax purposes. The State newspaper explains why the cap would be counterproductive.
South Dakota - Amendment D - FAILED - capping the allowable growth in taxable value for homes, taking a page from California's Proposition 13 playbook. (The Aberdeen American News explains why this is bad policy here - and asks tough questions about whether lawmakers have shirked their duties by shunting this complicated decision off to voters.)
Tennessee - Amendment 2 - PASSED - allowing (but not requiring) local governments to enact senior-citizens property tax freezes.
Arizona's property tax limit will restrict property tax growth for all taxpayers in a given district. South Dakota's proposal was fortunately defeated. It would have offered help only to families whose property is rapidly becoming more valuable, and those families are rarely the neediest. Georgia's is not targeted at those who need help but would give tax cuts to seniors at all income levels. The Tennesse initiative, which passed, is a reasonable tool for localities to use, at their option, to target help towards those seniors who need it.

Cigarette Tax Increase:
Arizona - Proposition 203 - PASSED - increase in cigarette tax from $1.18 to $1.98 to fund early education and childrens' health screenings.
California - Proposition 86 - FAILED - increasing the cigarette tax by $2.60 a pack to pay for health care (from $.87 to $3.47)
Missouri - Amendment 3 - FAILED - increasing cigarette tax from 17 cents to 97 cents
South Dakota - Initiated Measure 2 - PASSED - increasing cigarette tax from 53 cents to $1.53. While many progressive activists and organizations support raising cigarette taxes to fund worthy services and projects, the cigarette tax is essentially regressive and is an unreliable revenue source since it is shrinking.

State Estate Tax Repeal:
Washington - Initiative 920 - FAILED
Complementing the heated debate over the federal estate tax has been this lesser noticed debate over Washington Stats's own estate tax which funds smaller classroom size, assistance for low-income students and other education purposes. Washingtonians decided it was a tax worth keeping.

Revenue for Education:
Alabama - Amendment 2 - PASSED - requiring that every school district in the state provide at least 10 mills of property tax for local schools.
California - Proposition 88 - FAILED - would impose a regressive "parcel tax" of $50 on each parcel of property in the state to help fund education
Idaho - Proposition 1 - FAILED - requiring the legislature to spend an additional $220 million a year on education - and requiring the legislature to come up with an (unidentified) revenue stream to pay for it.
Michigan - Proposal 5 - FAILED - mandating annual increases in state education spending, tied to inflation - but without specifying a funding source. The Michigan League for Human Services explains why this is a bad idea.
Voters made wise choices on education spending. The initiative in California would have raised revenue in a regressive way, while the initiatives in Idaho and Michigan sought to increase education spending without providing any revenue source. Alabama's Amendment 2 takes an approach that is both responsible and progressive.

Income Taxes:
Oregon - Measure 41 - FAILED - creating an alternative method of calculating state income taxes. Measure 41 was an ill-conceived proposal to allow wealthier Oregonians the option of claiming the same personal exemptions allowed under federal tax rules and would have bypassed a majority of Oregon seniors and would offer little to most low-income Oregonians of all ages.

Other Ballot Measures:
California - Proposition 87 - FAILED - would impose a tax on oil production and use all the revenue to reduce the state's reliance on fossil fuels and encourage the use of renewable energy
California - Proposition 89 - FAILED - using a corporate income tax hike to provide public funding for elections
South Dakota - Initiated Measure 7 - FAILED - repealing the state's video lottery - proceeds of which are used to cut local property taxes
South Dakota - Initiated Measure 8 - FAILED - repealing 4 percent tax on cell phone users.



Tobacco Taxes are Back on the Ballot



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A voter initiative in Missouri to increase the cigarette tax by 80 cents is back on the November ballot. At first, the ballot was declared invalid after many of the signatures were disqualified. However, the Cole County Circuit Court has overturned that decision, and the voters will now decide the issue this fall. The initiative is joined at the polls this fall by similar measures in Arizona and California. Many of the proponents of these measures argue that they reduce smoking. However, cigarette taxes are very regressive, forcing low-income smokers to pay a much higher percentage of their income in cigarette taxes than high-income smokers. A 2005 policy brief by ITEP showed that cigarette taxes are ten times more burdensome for low-income smokers than for the wealthy.

Further, both Arizona and California plan to use the revenue generated by this bill to pay for public services unrelated to smoking. As Bruce Fuller, a professor of education and public policy at the University of California at Berkeley, points out: "Most will agree this is a regressive tax[...] We all like to beat up on smokers, but if the program truly benefits all families, including upper class, then you're taxing blue-collar people to pay for everyone." Reducing smoking rates is a laudable goal, but lawmakers must find a way to do so that is fair and equitable.

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