Oklahoma News



State News Quick Hits: Tax Breaks for Expensive Artwork and Apple Inc.



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Have you recently purchased a multimillion dollar piece of artwork (say, a $142 million Francis Bacon)? If the answer is yes, we have a great tax loophole for you. Rather than immediately bringing the piece of art home with you -- in which case you would be expected to pay use or sales tax on the purchase -- first loan it for a few months to a museum in a state that doesn’t have a use or sales tax. Museums in these states aren’t complaining about this “first use” exemption, which is found in many state tax codes, but taxpayers across the country should be. The buyer of the aforementioned Bacon painting will likely save $11 million in Nevada use tax by loaning it for 15 weeks to a museum in Oregon.

The most recent development in the income tax fight in Illinois comes from Chicago Mayor Rahm Emanuel, who ruled out a city income tax last week. Emanuel faces serious pension gaps in his municipal budget, which is why he is pushing for a $250 million increase in property taxes. But some, including Chicago Tribune columnist Eric Zorn and Center for Tax and Budget Accountability Executive Director Ralph Martire, think the mayor’s position is misguided and that a city income tax is worth considering. Regular Quick Hit readers will find Zorn’s and Martire’s arguments familiar: unlike property taxes, income taxes can be easily targeted at those most able to pay. ITEP’s own Matt Gardner was quoted in Zorn’s column, rebuffing arguments on the other side that a city income tax will drive people out of the city and kill jobs.

Arizona Governor Jan Brewer signed a pair of business tax cuts into law last week. In addition to a sales tax exemption for electricity used by manufacturers, she also signed a $5 million tax break that many expect will only benefit Apple, Inc. Regular readers may recall that Apple currently has billions of dollars stashed in foreign tax havens.

Oklahoma lawmakers have gone over a quarter century without approving an increase in their state’s gasoline tax, and have instead opted to fund transportation by redirecting money away from other areas of the budget. But that redirection of funds may have gone too far, as the Oklahoma Policy Institute explains that “Oklahoma’s transportation spending has grown considerably at a time when almost every other area of public services has seen cuts or flat funding.” Now lawmakers, at the urging of 25,000 Oklahomans who recently rallied at the state capitol, are considering legislation that would boost funding for schools by scaling back the amount of general fund money being spent on transportation.



State News Quick Hits: To Cut or Not to Cut?



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A battle over New York Governor Andrew Cuomo’s proposed property tax cuts is heating up, with protesters pouring into the New York State Capitol in Albany last week, a new TV ad hitting the airwaves, and the introduction of alternative tax cut plans from the Assembly and Senate. The governor’s plan would “freeze” property tax increases over the next two years by giving a refundable tax credit to homeowners for the amount of any increase in taxes over the prior year (and only to those living in jurisdictions complying with a 2 percent property tax cap and showing an effort to consolidate services with neighboring jurisdictions). In the third year, the freeze would be replaced with an expanded homeowner circuit breaker property tax credit and new renter’s tax credit. State legislators and many local leaders have voiced unease with the proposal. The Assembly’s plan would skip the freeze altogether and simply offer the homeowner and renter circuit breaker credits with less restrictions.

Illinois House Speaker Michael Madigan has called for a state constitutional amendment (PDF) to charge millionaires a tax surcharge and use the resulting $1 billion in revenue to fund public education. The proposal is likely the first of many attempts by both political parties to define the electoral turf prior to the gubernatorial election in November, which the Chicago Tribune has dubbed the “governor's race of a generation.” Current Governor Pat Quinn is running for re-election against Republican Bruce Rauner, who happens to be a multimillionaire. Even if the constitutional amendment doesn’t make it on the ballot (it would first have to be approved by supermajorities in the House and Senate), voters will face a stark choice on taxes: the state’s temporary income tax rate increase is set to decrease in 2015, and the two candidates will likely have different views on how to make up the lost revenue.

Most Oklahomans don’t want lawmakers to enact the income tax cut approved by the state Senate last month. A new poll reveals that when voters are told about the Institute on Taxation and Economic Policy’s finding that much of the tax cut will flow to the state’s wealthiest residents, 61 percent of voters oppose the plan compared to just 29 percent in support. Even among voters who aren’t told about this lopsided impact, less than half support the rate cut, and fewer people support the cut than did so last year.

Colorado spends roughly $2 billion per year on special tax breaks and a new law just signed by Governor John Hickenlooper (backed by the Colorado Fiscal Institute, among others) ensures that basic information about those breaks will continue to be made public going forward. Colorado’s Department of Revenue published the state’s first comprehensive tax expenditure report in 2012, and now the department is required to update that information every two years. Our partners at the Institute on Taxation and Economic Policy (ITEP) explain that “a high-quality tax expenditure report is a bare minimum requirement for even beginning to bring tax expenditures on a more even footing with other areas of state budgets.”



Film Tax Credit Arms Race Continues



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Tax credits for the film industry are receiving serious attention in at least nine states right now. Alaska’s House Finance Committee cleared a bill this week that would repeal the state’s film tax credit, and Louisiana lawmakers are coming to grips with the significant amount of fraud that’s occurred as a result of their tax credit program. Unfortunately for taxpayers, however, the main trend at the moment is toward expanding film tax credits. North Carolina and Oklahoma are looking at whether to extend their film tax credits, both of which are scheduled to expire this year. And California, Florida, Maryland, Pennsylvania, and Virginia lawmakers are all discussing whether they should increase the number of tax credit dollars being given to filmmakers.

The best available evidence shows that film tax credits just aren’t producing enough economic benefits to justify their high cost. While some temporary, relatively low-wage jobs may be created as a result of these credits, the more highly compensated (and permanent) positions in the film industry are typically filled by out-of-state residents that work on productions all over the country, and the world. And with film tax credits having proliferated in recent years, lawmakers who want to lure filmmakers to their states with tax credits are having to offer increasingly generous incentives just to keep up.

Saying “no” to Hollywood can be a difficult thing for states, but here are a few examples of lawmakers and other stakeholders questioning the dubious merits of these credits within the last few weeks:

North Carolina State Rep. Mike Hager (R): “I think we can do a better job with that money somewhere else. We can do a better job putting in our infrastructure … We can do a better of job of giving it to our teachers or our Highway Patrol.”

Richmond Times Dispatch editorial board: [The alleged economic benefits of film tax credits] “did not hold up under scrutiny. Subsidy proponents inflated the gains from movie productions – for instance, by assuming every job at a catering company was created by the film, even if the caterer had been in business for years. The money from the subsidies often leaves the state in the pockets of out-of-state actors, crew, and investors. And they often subsidize productions that would have been filmed anyway.”

Oklahoma State Rep. James Lockhart (D): According to the Associated Press, Lockhart “said lawmakers were being asked to extend the rebate program when the state struggles to provide such basic services as park rangers for state parks.” “How else would you define pork-barrel spending?”

Alaska State Rep. Bill Stoltze (R): “Some good things have happened from this subsidy but the amount spent to create the ability for someone to be up here isn't justified. And it's a lot of money … Would they be here if the state wasn't propping them up?”

Sara Okos, Policy Director at the Commonwealth Institute: “How you spend your money reveals what your priorities are. By that measure, Virginia lawmakers would rather help Hollywood movie moguls make a profit than help low-wage working families make ends meet.”

Maryland Del. Eric G. Luedtke (D): Upon learning that Netflix’s “House of Cards” will cease filming in Maryland if lawmakers do not increase the state’s film tax credit: “This just keeps getting bigger and bigger … And my question is: When does it stop?”

Picture from Flickr Creative Commons



State News Quick Hits: Tax Breaks for NASCAR and House of Cards



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Tax cut one-upmanship continues to be a major theme in the race to be Maryland’s next governor. As of right now, at least two gubernatorial candidates want to completely eliminate the state’s personal income tax–a revenue source that funds about half of the state’s spending on schools, hospitals, and various other services. In terms of how to pay for this massive cut, the best that Harford County Executive David Craig could come up with is a 3 percent across-the-board spending cut (that math seems a little fishy to us), while businessman and candidate Charles Loller seems to have bought into Arthur Laffer’s wild claims that tax cuts pay for themselves. But even if the cost of repeal weren’t an issue, it’s still the case that the personal income tax is an essential element of any fair and sustainable tax system, and should not be on the chopping block in any state.

Lawmakers in Iowa are poised to give NASCAR a $9 million tax rebate. The bill (PDF), which passed a key Senate subcommittee last week, would extend a five percent rebate for all sales tax collected at Iowa Speedway, a racetrack located about 30 miles outside of Des Moines. The sweetheart deal had originally required that the track be owned at least 25 percent by Iowans, but the Florida-based NASCAR company bought the track last year, prompting legislators to scramble to amend the law. (Racetrack owners are already the beneficiary of a notorious federal tax break, which is part of the group of tax “extenders” currently languishing in Congress.) It is unclear why NASCAR, a profitable company in its own right, needs the handout. It already owns the facility and has plans to host four races there in 2014. Some in the state are hoping that the rebate will be used to upgrade the track so that it can host a lucrative Sprint Cup race, but NASCAR has made no such promise.

Our colleagues at the Institute on Taxation and Economic Policy (ITEP) have seen a lot of attention directed toward their analysis of an Oklahoma proposal to cut the state’s top income tax rate–including two opinion pieces, a front-page news story, and a paid advertisement (PDF) taken out by the state’s former Governor. While the top rate cut proposed by current Governor Mary Fallin is extremely lopsided (contrast a $29 tax cut for a middle-income family with a $2,000+ tax cut at the top), it appears that the Senate has some interest in improving upon the bill. Rather than simply cutting the top tax rate and slashing public investments, the Senate’s tax-writing committee recently advanced a bill that pairs the cut with a very sensible expansion of the state’s income tax base: eliminating the nonsensical state income tax deduction for state income taxes paid.

House of Cards–a Netflix show about politicians making bad decisions–is trying to get Maryland’s politicians to make some bad decisions in real life. The Media Rights Capital production company says they’ll shoot the third season of their program elsewhere unless lawmakers direct more taxpayer dollars their way in the form of an expanded film tax credit. Upon learning of the threat, lawmakers on both sides of the aisle had some entirely appropriate reactions: “Is it possible that they would just leave after we gave them $31 million?” “We’re almost being held for ransom.” “When does it stop?”



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.



Oklahoma Shows How Not to Budget



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A fascinating analysis published by the Tulsa World reveals how a growing share of Oklahoma’s budget has been put on auto-pilot, and how other areas of the budget have suffered as a result.  Despite actually seeing an increase in tax revenues this past year, Oklahoma’s elected officials now have $170 million less to appropriate, and state agencies are bracing for potential cutbacks as a result.

The biggest offender here is one we’ve explained before: the growing trend of funneling general tax revenues toward transportation in order to delay having to enact a long-overdue gas tax increase.

A spokesman for Governor Fallin recently paid lip service to the problem, explaining that “the governor … believes … the more money we skim off the top of general revenue, the less flexibility the state has to respond to situational needs and concerns. We certainly don't want taxpayers to lose influence into how their money is used by their government.”  But when it comes time to talk specifics, Fallin stands firmly behind her decision to direct a growing share of the state’s limited revenues toward roads and bridges.

The Tulsa World details how the portion of formerly “general fund” spending now swallowed up by transportation has grown almost fivefold since 2007, and how more increases are planned in the years ahead.  It’s hard to see how that trend will ever be reversed unless Oklahoma lawmakers finally address the fact that their traditional source of transportation revenue—the gasoline tax—hasn’t been raised in nearly 27 years.



State News Quick Hits in Wisconsin, Illinois, Kentucky and Oklahoma



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The LaCrosse Tribune gets it right in this editorial titled, “Don’t Conduct Tax Talks in Private.” As we told you last week , Wisconsin  Governor Scott Walker asked Lt. Gov. Rebecca Kleefisch and Revenue Department Secretary Rick Chandler to host a series of roundtable discussions about the state’s tax structure. Unfortunately, the first invitation-only discussion happened behind closed doors. We couldn’t agree more with the Tribune that, “true tax reform deserves feedback and input from all Wisconsin citizens because while we may not all contribute to political candidates or align ourselves with political parties, we all pay taxes.” Now we hear that the Governor is interested in  income tax repeal. Let’s hope this debate doesn’t happen behind closed doors.

 

Illinois Governor Pat Quinn has come out in favor of reviewing tax breaks given to businesses over the last several years in order to see if they really had a positive impact on the state’s economy.  We’ve been critical of the Governor for offering such tax incentives to specific companies.  Reviewing those giveaways for effectiveness is long overdue.

 

In more good news for those of us concerned with the “race to the bottom” in which states are doling out massive tax incentives to businesses with little oversight, Archer Daniels Midland is set to announce that they will move their headquarters to Chicago without receiving any state or city incentives in return.


Kentucky Governor Steve Beshear is (again) committing himself to tax reform. He recently said in 

an interview, “Tax reform remains a top priority of mine, and I am hopeful that we can address it in some way in the upcoming session.”

The Oklahoma Supreme Court recently struck down a regressive and unpopular cut to the state’s top income tax rate that Governor Mary Fallin signed into law earlier this year.  According to the court, the bill containing the tax cut violated a provision in the Oklahoma constitution requiring each bill to be focused on a “single subject.”  In addition to cutting the state’s income tax, the bill would have also provided funding to repair the state’s Capitol building. 



Oklahoma Poised to Implement Tax Cut Voters Don't Want



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The Oklahoma legislature recently approved a cut to the state’s top personal income tax rate, at the urging of Governor Mary Fallin. When the plan is fully implemented in 2016, the state’s top tax rate will fall from 5.25 to 4.85 percent, at a cost to the state of $237 million per year.  While a slim majority (52 percent) of Oklahomans support the idea of an income tax cut in the abstract, that support evaporates (falling to 31 percent) once the plan is explained in more detail.

That detail is as follows. According to an analysis by our partner organization, the Institute on Taxation and Economic Policy (ITEP), roughly 4 in 10 Oklahomans—generally lower- and middle-income families—will receive no tax cut at all under the plan, while the average tax cut for a middle-income family will be just $30.  The wealthiest 5 percent of taxpayers, by contrast, will receive 40 percent of the benefits, with the state’s top 1 percent of earners alone taking home a tax cut averaging over $2,000 per year.

When these basic facts about the tax plan now on Governor Fallin’s desk were explained to a random sample of registered Oklahoma voters, 60 percent of them said they opposed it, with a full 47 percent describing themselves as “strongly opposed.”

Voters’ reaction was similar upon being informed that the plan will require reducing state services like education, public safety, and health care. This vital piece of information resulted in support for the tax cut dropping to just 34 percent, and opposition rising to 56 percent (with 44 percent “strongly opposed.”)

These polling results are backed up by interviews with Oklahoma citizens conducted by the state’s largest newspaper, The Oklahoman. One Oklahoma resident explains, for example, that “If [the tax cut] harmed education I don't want it. I have a niece that is a schoolteacher and I'd rather have more teachers than the little bit of money.” Another says that “It sounds like the rich are just getting richer.”

Meanwhile, the Oklahoma Policy Institute (OPI) explains that the plan isn’t just unpopular—it’s fundamentally irresponsible: “We have seen no evidence that Oklahoma will be able to afford a tax cut in [2015, when the first stage of the cut takes effect]. Indeed, we are already seeing signs of faltering revenue collections, with revenue falling below last year.” Concern about the sustainability of Oklahoma’s revenues is compounded by the possibility that “the state could be on the hook for as much as $480 million” in additional expenses if a court ruling against its tax break for capital gains is upheld. The Associated Press reports that when the impact of this court ruling is “combined with an estimated $237 million price tag for a tax cut approved by the Legislature this year and expected to be signed into law by Gov. Mary Fallin… the cost to the state could amount to 10 percent of the total state appropriated budget.”

Given these challenges, it’s hard to argue with OPI’s policy prescription: “Now that cuts are scheduled, the only responsible path forward is to pursue real tax reform that goes beyond the top income tax rate. To fund education and ensure a prosperous future for Oklahoma, we need real action to reign in unnecessary tax credits and exemptions that cost us hundreds of millions of dollars every year.”



Oklahoma Governor & Leadership Reach Regressive Tax Deal



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Oklahoma Governor Mary Fallin and legislative leaders recently announced their intention to repeal the state’s top personal income tax bracket, bringing the top rate down from 5.25 to 5.0 percent in 2015. The rate could be dropped even more by 2016 if a revenue growth target is hit. Our partner organization, the Institute on Taxation and Economic Policy (ITEP), analyzed the initial cut down to 5.0 percent when it was proposed earlier this year, and found that its benefits would be heavily tilted in favor of the state’s wealthiest taxpayers. This is despite the fact that Oklahoma’s high-income taxpayers already pay far less (PDF) of their income in state and local taxes than any other group.

ITEP found that almost two-thirds of the tax cuts distributed under this plan would flow to the wealthiest 20 percent of Oklahomans, while the vast majority of the state’s poorest residents would receive no tax cut at all.  Moreover, while a family in the middle of the income distribution could expect about $39 in tax cuts per year, Oklahoma’s most affluent taxpayers would receive tax cuts averaging $1,870 every year.

A new statement from the Oklahoma Policy Institute provides some important context for understanding the budgetary impact of this proposal (excerpt below).

Since 2008, Oklahoma public schools have endured the third largest budget cuts in the nation. Out of control tax breaks contributed to a collapse in revenue from oil and gas drilling. We still don’t know what will be the full cost of State Question 766 or what impact federal budget cuts will have on Oklahoma’s core services.

In this situation, it’s not the time for more tax cuts that would do little to help average Oklahomans, take $237 million from schools and other core services, and make Oklahoma more vulnerable to an energy bust or economic downturn. … Yet the proposal announced today would commit us to tax cuts two years from now, when we have no way of knowing what Oklahoma’s needs or economic situation will look like.

 

 

 



State News Quick Hits: Clergy Oppose Jindal Plan, Chamber of Commerce Supports Fallin Plan, & More



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Oklahoma Governor Mary Fallin’s proposal to repeal the state’s top personal income tax bracket is “gaining traction,” according to The Oklahoman.  The plan has already passed the House, and has the support of the state Chamber of Commerce. But the Oklahoma Policy Institute explains that this cut is stacked in favor of high-income residents: “the bottom 60 percent of Oklahomans would receive just 9 percent of the benefit from this tax cut, while the top 5 percent would receive 42 percent of the benefit.”  

Texas and Washington State are continuing to search for ways to make it easier to identify and repeal tax breaks that aren’t worth their cost.  The Texas Austin American-Statesman reports on a bill that “would put the tax code under the microscope, examining tax breaks in a six-year cycle similar to the Sunset process that evaluates whether state agencies are performing as intended.”  And the Washington Budget and Policy Center explains in a blog post how “all three branches of state government have taken, or are poised to take, actions that could greatly enhance transparency over the hundreds of special tax breaks on the books in Washington state.”

This Toledo Blade editorial gets it right about Ohio Governor Kasich’s plan to broaden the sales tax base to include more services: “There is merit, in theory, to expanding the sales tax to include more services. But the experience in states such as Florida — which broadened its tax base, then abandoned the effort as unworkable — suggests it should be done slowly and for the right reasons.” Broadening the sales tax base is good policy, but the Kasich plan is bad for Ohioans because overall the plan (according to an Institute on Taxation and Economic Policy analysis) increases taxes on those who can least afford it while cutting taxes for the wealthy.

ITEP is waiting for full details of Louisiana Governor BobbyJindal’s tax swap plan, but already clergy and ministers in the state are weighing in against the Governor’s plan to eliminate state income taxes and replace the revenue with a broader sales tax base and a higher rate. In this commentary, the Right Rev. Jacob W. Owensby, (bishop of the Episcopal Diocese of Western Louisiana), worries: “It is difficult to see how increased sales taxes will pass the test of fairness that we would all insist upon. Our tax system has lots of room for improvement. But relying on increased sales tax will not give us the fair system we need. Raising sales taxes will increase the burden on those who can least afford it.”



Five States Eyeing Regressive Income Tax Cuts: AR, IN, MT, OK, WI



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Note to Readers: This is the third of a six part series on tax reform in the states. Over the coming weeks, The Institute on Taxation and Economic Policy (ITEP) will highlight tax reform proposals and look at the policy trends that are gaining momentum in states across the country. Previous posts in this series have provided an overview of current trends and looked in detail at “tax swap” proposals.  This post focuses on personal income tax cuts under consideration in the states.

While not as dramatic as wholesale repeal of the income tax, five states this year are likely to consider regressive income tax cuts that will compromise their ability to adequately fund public services now and in the future.

In Indiana, Governor Pence campaigned last fall on cutting the state’s already low, flat personal income tax rate from 3.4 to 3.06 percent, and has shoehorned that idea into a budget proposal that also fails to help schools that are “still reeling from the cuts” enacted during the recent recession. The Institute on Taxation and Economic Policy (ITEP) found that Pence’s tax plan would primarily benefit the state’s most affluent residents: 56 percent of the benefits would go to the best-off 20 percent of Indiana residents, while one in three of the state’s poorest residents would see no tax cut at all.  The South Bend Tribune, among others, has urged lawmakers to “pass on this tax cut” because of its high revenue cost and the way in which it would add to the unfairness (PDF) already present in Indiana’s tax code.

In Oklahoma, Governor Fallin has significantly scaled back her tax cut ambitions from last year.  Rather than aiming for a fundamental restructuring of the income tax, the Governor has proposed simply repealing the state’s top personal income tax bracket, thereby cutting the state’s top rate from 5.25 to 5.0 percent.  The Oklahoma Policy Institute explains that this proposal “would take $106 million from Oklahoma schools, public safety, and other core state services without offering any way to pay for it.”  And ITEP’s new Who Pays? report shows that last time Oklahoma cut its top income tax rate, in 2012, the vast majority of the benefits (PDF) went to the highest-income taxpayers in the state.  Meanwhile, State Senator Anderson has once again proposed a dramatic flattening of the income tax that would actually raise taxes on most of the state’s lower- and moderate income residents.

In Montana, two different proposals for cutting personal income tax rates have been floated in recent weeks.  A House proposal to cut the bottom income tax bracket has already been defeated, with Democrats opposing it because of its revenue cost and some Republicans opposing the idea of tax relief for the poor, despite the disproportionate impact (PDF) the state’s tax system currently has on low-income families.  Meanwhile, a Senate bill to repeal the top personal income tax bracket and cut the next tax rate is still alive.  A small portion of the bill would be paid for through scaling back the state’s regressive preference for capital gains income and hiking the state’s corporate income tax rate.  Overall, however, the bill would reduce both the fairness of Montana’s tax system and the revenue it generates.

In Arkansas, the debate over the income tax has yet to heat up, but the House Revenue and Taxation Committee Chairman says he’s “very bullish” about the possibility of enacting a large tax cut, and other Republicans in the legislature are reportedly discussing options for cutting the income tax. 

Finally, in Wisconsin, rumors briefly swirled that there may be a push to eliminate the state’s income tax and replace it with a much larger sales tax, akin to what’s been proposed in Louisiana, Nebraska, and North Carolina.  Governor Walker, however, responded by saying that he will wait and see how those debates play out in other states before deciding whether to advocate for such a change in 2015.  In the meantime, the Governor says he will propose what he claims will be a “middle-class” tax cut of about $340 million.  Assembly Speaker Robin Vos is hoping for a proposal of at least that size.  The Governor’s budget proposal is due out on February 20, and by then we should have a better idea of whether the plan will actually be aimed at middle-income Wisconsinites, as well as its true price tag.



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: Massachusetts Movie Subsidies, Oklahoma Short on Transit Funds, and More



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Massachusetts taxpayers now have a better idea of where $171 million of their tax dollars are going.  Thanks to legislation enacted in 2010, the state’s Department of Revenue just issued its first-ever report identifying recipients of so-called economic development tax credits.  The biggest winner in 2011 was Columbia Pictures, which received $11.6 million Bay State tax dollars for a movie that, ironically, depicts a teacher trying to raise money for his under-funded public school.

Then there’s the fraudulent use of film tax credits, which is a whole other thing!

Revenue to fund bridge repairs is falling short in Oklahoma, so Governor Mary Fallin signed a bill this week that takes money away from education and other general fund services to cover the costs.  The move follows similar actions taken last year in Nebraska, Utah and Wisconsin (and almost in Virginia).  Oklahoma has gone 25 years without raising its gas tax—the state’s traditional source of transportation revenue.  That’s longer than any state except Alaska.

Calling all Kentuckians! Here’s a chance to make your pitch for tax fairness to the Blue Ribbon Tax Commission, which holds public hearings through the summer.



Oklahomans Reject Laffer Plan, Preserve Their Income Tax



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Oklahoma Governor Mary Fallin admitted last week that she and her allies had failed in their efforts to roll back the state’s income tax this legislative session, despite high hopes among supply siders that the tax would be not only cut but entirely repealed.  As The Oklahoman explains, however, both voters and businesses recognized that reducing taxes would mean further cuts in education and public safety piled on top of those already inflicted in recent years.  Public opposition aside, however, it did seem all too possible that Arthur Laffer (the Governor’s tax advisor) and his colleagues’ pitch that shredding the tax code would lead to economic rebirth was going to be enough to get an income tax cut through the legislature.

Over a half dozen tax cut plans were given serious consideration this year in Oklahoma, most of which would have, in fact, raised taxes on low-income families by repealing important tax credits, and all of which would have tilted Oklahoma’s overall tax system even more heavily in favor of the wealthy.  Some of the proposals, like the modified version of Arthur Laffer’s plan pushed by Governor Fallin, would have repealed the income tax entirely.

In the final days of the session, it looked like lawmakers had come to an agreement on a comparatively modest plan to cut the top personal income tax rate from 5.25 to 4.8 percent, and then possibly to 4.5 percent a few years later.  Noticeably absent from the proposal, fortunately, was any repeal of low-income credits— likely due in part to analyses by the Institute on Taxation and Economic Policy (ITEP) showing that repealing these tax credits would mean a significant tax increase for a large number of the state’s most vulnerable residents.

Instead, lawmakers hoped to pay for their proposed rate cuts with a combination of spending cuts, repealing various business tax credits and eliminating a handful of tax breaks for individuals.  Even then, however, analyses by ITEP and the Oklahoma Tax Commission showed that a significant number of low- and middle-income Oklahomans would see their taxes rise under the plan.  And just as the state’s largest newspaper editorialized about these revelatory analyses, support evaporated in the state House of Representatives.

As the Oklahoma Policy Institute explained last week, “The failure of every tax cut proposal that was debated this session is a victory for Oklahoma… We know, however, that this is just a brief intermission in a long battle over the right tax policy for Oklahoma.  We need to look with renewed seriousness at our outdated tax system and do away with unnecessary tax preferences. And we must improve tax fairness and not allow middle- and low-income families to shoulder a larger share of the load.” 

(Photo from NPR State Impact)



Quick Hits in State News: Too Business-Friendly in Michigan & Florida, A Caution on Fracking, and More



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  • Florida Governor Rick Scott is attending grand openings of 7-Eleven® stores but a columnist at the Orlando Sentinel observes that “if incentives and low corporate tax rates were working, Florida wouldn't rank 43rd in employment.”  It’s a common sense column worth reading.
  • As another massive tax cut for Michigan businesses continues to make its way through the legislature, the Michigan League for Human Services chimes in with a report, blog post, and testimony on why localities can’t afford to foot the bill for state lawmakers’ tax-cutting addiction.
  • Bad tax ideas abound in Indianas gubernatorial race.  Democratic candidate John Gregg wants to blast a $540 million hole in the state sales tax base by exempting gasoline; he claims he can pay for it by cutting unspecified "waste" from the budget. And Gregg’s Republican opponent, Mike Pence, doesn’t seem to have any better ideas.  So far he’s only offered a "vague proposal" to cut state income, corporate, and estate taxes – without a way to pay for those cuts.
  • Kansas lawmakers are feverishly working to meld differing House and Senate tax plans into a single piece of legislation. Governor Sam Brownback has endorsed an initial compromise which includes dropping the top income tax rate and eliminating taxes on business profits. Earlier in the week the Legislative Research Department said the plan would cost $161 million in 2018 and new state estimates say the price tag is more like $700 million in 2018.  Senate leaders have said that they aren’t likely to approve a tax plan that creates a shortfall in the long term. Stay tuned....
  • Finally, a USA Today article should give pause to lawmakers hoping that drilling and fracking for natural gas leads to a budgetary bonanza.  It explains how the volatile price of natural gas is creating headaches in energy-producing states like New Mexico, Oklahoma, and Wyoming where a dollar drop in the commodity’s price means a budget hit of tens of millions.


Red and Blue States' Commissions Agree on Need to Get Real About Costs of Tax Breaks



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In a span of less than two weeks, commissions in two very different states – Massachusetts and Oklahoma – have issued remarkably similar recommendations on how to deal with the slews of special tax breaks that evade scrutiny and accountability year after year, budget after budget. As CTJ has pointed out, state budget processes are essentially rigged in favor of tax breaks (loopholes, subsidies) and as a result it’s become far too easy for lawmakers to enact (and extend) tax giveaways for virtually any purpose imaginable.

In Massachusetts, the Tax Expenditure Commission just released eight recommendations designed to deal with this very problem.  According to the Commission, lawmakers should clearly specify the purpose of all tax breaks (or “tax expenditures”) so that analysts can begin evaluating their effectiveness on an ongoing basis and providing realistic policy recommendations to lawmakers.  The Commission further urged that those evaluations be carefully timed to coincide with the state’s normal budget process, and even suggested that some tax expenditures be scheduled to sunset (or expire) so that lawmakers are forced to debate those breaks after the evaluations are complete and the facts are out.

In Oklahoma, the Incentive Review Committee recently released its set of recommendations dealing with one category of tax expenditures in particular: those ostensibly aimed at spurring economic development.  As in Massachusetts, the Oklahoma Committee said that lawmakers need to more clearly articulate the purpose of tax breaks, and that evaluations of those breaks should be done in a rigorous and ongoing fashion. One of the Oklahoma Committee’s more important recommendations might sound obvious at first, but it’s actually often overlooked: good evaluations take time and resources, and the state should adequately fund whichever department is charged with completing the evaluations.

Jon Stewart hilariously skewered the phrase “spending reductions in the tax code” as another way of saying taxes need to be raised. These tax commissions (as well those in Minnesota, Missouri, and Virginia), tasked with realistically assessing state budgets, are forcing Americans to recognize that spending through the tax code exists and that it requires the same level of scrutiny as spending through government programs, as previously outlined by CTJ.



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



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: Tax Myths Take Hits in OK and TX



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  • A letter in the Tulsa World highlights the work done by the Institute on Taxation and Economic Policy (ITEP) to expose the flaws in Arthur Laffer’s recent “research” on the economic benefits of income tax repeal.  The letter also reports on similar critiques of Laffer’s work that were made by a number of prominent economists speaking at an event hosted by the Oklahoma Policy Institute.  Our favorite?  Ken Olson at Oklahoma State University explains that Laffer’s work "does not constitute economic analysis in any real sense. As a consequence, its suggestions should be ignored as economics."
  • Opponents of progressive taxation often point to Texas as evidence that shunning the personal income tax can lead to economic growth.  But the Center on Budget and Policy Priorities (CBPP) explains that Texas’ success is due to factors largely outside the control of state lawmakers, like natural resources, immigration, trade, and the availability of plenty of land for development.  It’s a point that should be obvious, but it’s also one that we’ve found ourselves having to remind people of quite frequently as of late


Transportation Funding Debacles Around the Country



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Our nation’s gas tax policy is horribly designed, and the consequences have never been more obvious at either the federal or state levels.  Construction costs are growing while the gas tax is flat-lining, and the resulting tension has made even routine transportation funding debates too much for our elected officials to handle.  Just last week, President Obama signed into law the ninth temporary, stop-gap extension of our nation’s transportation policy since 2009, and numerous states are similarly opting to kick the proverbial can down the crumbling road.

Much of our collective transportation headache arises from our “fixed-rate” gas taxes that just don’t hold up in the face of rising construction costs.  The federal gas tax hasn’t been raised in over 18 years, and most states have gone a decade or more without raising their tax.  There’s no doubt that we’re long-overdue for a gas tax increase, but political concerns have kept that option largely off the table.  In addition to the embarrassing federal Band-Aid fix just signed into law by the President, here’s what we’re seeing in the states:

The Michigan Senate has voted to permanently take millions in sales tax revenue away from health care, public safety, and other services in order to complete basic road repairs.  But as the Michigan League for Human Services explains, the state would be much better off modernizing its stagnant gas tax.

Both the Oklahoma House and Senate have voted to raid the general fund as a result of lagging gas tax revenues.  These proposals are very similar to the one under consideration in Michigan, and when fully phased-in they would divert $115 million away from education and other services in order to improve some of the state’s wildly deficient bridges.

Luckily, Virginia lawmakers didn’t agree to Governor McDonnell’s proposal to raid the general fund in a manner similar to what’s being considered in Michigan and Oklahoma.  But they also failed to enact a much smarter proposal passed by the Senate that would have indexed the state’s gas tax to inflation.  It looks like rampant traffic congestion will remain the norm in Virginia for the foreseeable future.

Iowa and Maryland appear likely to follow Virginia’s lead and do nothing substantial on transportation finance this year.  Iowa House Speaker Kraig Paulsen says that after much talk, a gas tax increase is not happening.  And while Maryland Governor Martin O’Malley is trying hard to end almost two decades of gas tax procrastination in the Old Line State, it doesn’t look like the odds are on his side.

Connecticut lawmakers aren’t just continuing the status quo, they’re actually making it worse.  Connecticut is among the minority of states where the gas tax actually tends to grow over time, since it’s linked to gas prices.  But the Governor recently signed a hard “cap” on the gas tax that prevents it from rising whenever wholesale prices exceed $3.00 per gallon.  Lawmakers in North Carolina briefly considered a similar cap last year, but as the Institute on Taxation and Economic Policy (ITEP) explains, blunt caps are very bad policy and there are much better options available.

For more on adequate and sustainable gas tax policy, read ITEP’s recent report, Building a Better Gas Tax.

Photo of Governor Martin O'Malley and Sunoco Gas Station via  Third Way and MV Jantzen Creative Commons Attribution License 2.0

 



Quick Hits in State News: A Compromise for Maryland, Common Sense in Kansas, and More



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Whatever comes of rumors that Governor Haley might face tax fraud charges, a modified income tax cut has passed out of South Carolina’s House Ways and Means Committee. Perhpas due to ITEP’s analysis, which found that the poorest South Carolinians would see their taxes increased under the legislation, it was modified to at least spare the poorest South Carolinians from new taxes.

Check out yesterday’s post from the Wisconsin Budget Project showing that diminishing revenues are a "purple problem" because taxes keep getting cut no matter who's in power.

The personal income tax has been under threat of repeal for most of this year in Oklahoma, but the Oklahoman reported yesterday that the Chair of the House Taxation and Revenue Committee says it’s unlikely full repeal will come to fruition.  A cut in the top tax rate, however, still appears likely so they’re still buying the economic snake oil.

Here is a commonsense editorial from the Kansas City Star advocating for the taxing internet purchases and the streamlined sales tax agreement.  

This week, Progressive Maryland came out with their compromise plan designed to bridge the gap between the personal income tax increases passed by the state House and Senate.  The plan was analyzed with the help of the Institute on Taxation and Economic Policy (ITEP), and would raise needed revenues while actually reducing the unfairness of the state’s regressive tax system.

 



Quick Hits in State News: Enlightened Editorials in Oklahoma and Nebraska, and More



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The Tulsa World takes a look at the growing list of reasons to oppose an income tax cut in Oklahoma, including arguments being made by education groups, businesses, retirees, real estate developers and lawmakers themselves.  As the World puts it, basic public services already “haven't been protected for years and as a result are decimated by recent cutbacks. Protecting them should mean restoring some funding, but that's not how tax-cutters see things.”

The Maryland House and Senate have each passed budgets containing progressive personal income tax increases that roughly hew to the Governor’s original blueprint.  As the Maryland Budget and Tax Policy Institute points out, the Senate plan raises more revenue from across the board increases, while the House plan raises less and targets the state’s highest-income residents.  The differences between these two plans will be worked out in the days ahead.

This great editorial in the Lincoln Journal-Register (Nebraska) calls the newly formed Open Sky Policy Institute “an informed new voice” in Nebraska’s public policy debates. The editorial also shares some of the Institute’s numbers (compliments of ITEP) making the case that “the number of dollars the tax cut would put into the pockets of higher-income Nebraskans dwarfed the amount that would go to low- and middle-income Nebraskans” under a plan the governor has proposed.



Oklahoma Lawmakers Bent on Cutting Taxes for the Rich



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Oklahoma lawmakers are intent on taking an axe to the state’s only major progressive revenue source: the personal income tax.  Last week the Oklahoma House and Senate passed a variety of bills cutting or repealing the tax, and negotiations on a final package could begin in as little as two weeks.

As the Institute on Taxation and Economic Policy (ITEP) and the Oklahoma Policy Institute (OKPolicy) have pointed out, all of the proposals being considered would greatly increase the unfairness of Oklahoma’s tax code without benefiting the state’s economy.

But from a political perspective, perhaps the biggest obstacle standing in the way of Arthur Laffer’s agenda is how to pay for deep cuts to (or total elimination of) a tax that provides one-third of all state revenue.  Originally, lawmakers were optimistic that they could repeal special business tax breaks, breaks for senior citizens, and tax credits for the poor in order to partially fund a large cut in the state’s top tax rate.  But lobbyists representing senior citizens and businesses have talked many lawmakers out of that approach.  The more likely outcome now might be a slightly scaled-back package paid for with deep spending cuts and higher taxes on the poor.

The final outcome is far from certain, but it will likely be ugly as long as lawmakers continue to ignore the reality that income tax cuts won’t help the state’s economy, and that Oklahoma’s richest taxpayers already face an effective tax rate equal to just half of what the poor pay.

Photo of Oklahoma Capitol Dome via BJ McCray Creative Commons Attribution License 2.0



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



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

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

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

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



New Report: Arthur Laffer's Bad Data Misleads Lawmakers



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In an attempt to bolster income tax repeal efforts in states like Oklahoma, Kansas, and Missouri, supply-side economist Arthur Laffer recently teamed up with an Oklahoma-based group to perform an analysis that predicts huge economic gains as a result of cutting state personal income taxes.  A new report from the Institute on Taxation and Economic Policy (ITEP) shows, however, that the analysis is fundamentally flawed.

Bear with us as we guide you through a few methodological weeds.

At issue here is what’s called a regression analysis – a statistical tool used to explain the relationship between one set of variables and another.  In this case, Laffer has attempted to explain how state income tax rates affect economic growth, and, according to Laffer’s regression, the effect is enormous. He shows an inverse relationship between taxes and growth. That is, the lower the tax rates, the greater the economic growth.  Repealing Oklahoma’s income tax, he therefore predicts, will more than double the rate of personal income growth and state GDP growth, and create 312,000 jobs in the process.

If this sounds too good to be true, that’s because it is.

As ITEP’s new report explains, Laffer performs a data sleight of hand to produce his result.  He includes federal tax rates in an analysis supposedly aimed at explaining a state tax system. And as it turns out, this decision hugely distorts the results.  It allows him to include in his overall “tax rate” figures the Bush tax cuts – which caused a 4.1 percent drop in the top federal tax rate.  At the same time, his measure of economic growth just happens to be taken from the early 2000’s, when the country was climbing out of the post 9/11 recession. That is, the economic growth indicators were improving just as the Bush tax cuts were going into effect.

Laffer essentially creates a bogus measure (federal and state tax rates combined) and maps it onto an exceptional moment in economic history.  This allows him to create the illusion that cuts in state tax rates between 2001 and 2003 fueled economic growth later in the decade.  If the analysis is refocused on just state tax rates, the findings fall apart entirely, as the regression no longer shows any relationship between state tax rates and economic growth.

But Laffer’s analysis is plagued by more problems than these.  Also notable, as covered in an earlier report from ITEP, is its complete failure to measure the impact of other factors, from sunshine to oil production, that contribute to state economic growth.  The flaws in Laffer’s analysis are so fundamental that its findings cannot be taken seriously. 

ITEP’s two companion critiques of why Arthur Laffer’s analysis should not be trusted can be found here.

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



Quick Hits in State News: Radical Move to Eliminate Oklahoma's Income Tax, Ballot Madness in California, and more



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Oklahoma’s Governor Mary Fallin finally unveiled her plan for eliminating the state income tax.  Full elimination would take a number of years, but low-income families are likely to be hit hard right away when various refundable credits are repealed.  The Institute on Taxation and Economic Policy (ITEP) plans to conduct a full analysis as soon as sufficient details are made available.

One Michigan lawmaker wants to take money away from Medicaid, education, and other programs to cover the cost of maintaining the state’s roads – costs that the state’s long stagnant gas tax can’t keep up with.  This is not the only such proposal to redirect money to cover up for lawmakers who lack the political courage to raise their state’s gas tax. Nebraska, Utah, Wisconsin, Virginia, and Oklahoma have proposed or enacted similar raids that ITEP warned of in its recent report, Building a Better Gas Tax.

The Colorado legislature is debating a boondoggle of a bill which would create a sales tax holiday the first weekend in August.  The facts are getting out that these events are expensive and don’t benefit the people who need them most.

The Virginia-Pilot has an excellent editorial on the efforts of some lawmakers to ramp up the level of scrutiny applied to billions of dollars in special interest tax breaks.  As the Pilot points out, Richmond is increasingly forcing cities and counties to pick up costs the state can’t cover, yet lawmakers threw away $12.5 billion in corporate tax breaks without any evidence they are helping Virginians.

Two tax increase initiatives appear headed for California’s November ballot that Governor Jerry Brown fears will undermine support for his own initiative to temporarily raise the sales tax and income taxes on wealthier Californians.  The competing measures are both permanent and superior in terms of fairness: a “millionaire’s tax” backed by labor groups who say it will raise $6 to $10 billion for education; and a $10 billion personal income tax hike on all Californians except for low-income families, backed by a wealthy civil rights attorney. But with three tax increasing options on the ballot, there’s a good chance the measures will cancel each other out, leaving California still in a fiscal wreck.

Photo of Jerry Brown via Randy Bayne  and Creative Commons Attribution License 2.0

 

 



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:



Oklahoma's Newest Tax "Reform" Plan Mirrors National Trend; Grim Details in New Analysis



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Lately, one of the biggest priorities of both conservative state lawmakers and Republican presidential candidates has been the reduction or elimination of the income tax.  But a new analysis of one such plan receiving consideration in Oklahoma should give pause to backers of this “reform.”

According to ITEP, over half of Oklahoma households would actually see their tax bills rise under a plan put forth by The Oklahoma Task Force on Comprehensive Tax Reform (heavily stacked with business interests), and low-income families would face the largest tax increases relative to their income.  Upper-income families, by contrast, would enjoy a bonanza, with the richest one percent taking home over $2,800 in tax breaks per year.

These are the predictable results of a plan that cuts Oklahoma’s top income tax rate and pays for it by eliminating some of the state’s most important and progressive tax credits and exemptions.

We’re usually big supporters of wiping out special tax breaks, but only when it’s done fairly.  And as the numbers above make clear, the Task Force’s plan is far from fair.  It does away with proven low-income provisions like the Earned Income Tax Credit (EITC) and the sales tax relief credit, and it scraps important and very popular breaks like the child tax credit and even the personal exemption.  Meanwhile, itemized deductions, which disproportionately benefit the richest families in Oklahoma – or any state, – are left largely untouched (except for the long-overdue elimination of the ridiculous and rare state income tax deduction for state taxes paid).

The Oklahoma plan is just the latest manifestation of a broader conservative tax platform that thinks the working poor are getting off too easy, and the rich deserve to see their tax rates slashed.  ITEP’s analysis makes a case study of Oklahoma under this disastrous plan; are other legislators listening?



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



What Are The Costs and Benefits of Oklahoma's Myriad Tax Breaks? No One Really Knows.



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Oklahoma, like most states, has many hundreds of tax expenditures, a.k.a. “spending in the tax code.”  Actually the state offers about 450 special tax credits, deductions or exemptions designed to benefit a specific activity or purchase and, in most cases, the interest group behind it – usually in the name of economic development. There is a growing awareness that these tax expenditures, despite their high costs to the state, aren’t monitored very well.  In fact, no one seems to even know how much the state spends on them. In an attempt to rectify the situation, Oklahoma legislators have formed the Task Force for the Study of State Tax Credits and Economic Incentives. The Task Force is taking a hard look at the breaks, deductions and exemptions Oklahoma offers and asking whether the state really benefits from each of these costly expenditures in terms of economic development and the general public good.

The task force met over the summer and will continue to meet until they present their recommendations around the end of the year. After its first meeting, the Oklahoma Policy Institute reported some good news: “The meeting made clear that it will be a long and sometimes contentious process, but that this Task Force is serious about meeting the challenge. “ Legislators appear to be coming to terms with the difficult political reality that every tax credit or tax expenditure has supporters. State Rep. David Dank was recently quoted saying, “It never ends. The simple truth is that we could exempt almost everything from taxation. And then I suppose we could apply for a historic preservation tax credit to turn this state Capitol building into a casino or something because state government would be broke and out of business.”

The Oklahoma Policy Institute offers a superb report on tax expenditures in the state and recommendations for change. The Institute has long called on lawmakers to ensure that “the state is allocating public resources in the best possible fashion” and the Task Force, if successful, will bring Oklahoma closer to a smart, public interest tax code.  (As long as the chairs fail in their efforts to abolish the personal income tax, but that’s another topic.)

For more on tax expenditures and other games legislators play in the name of economic development read this ITEP brief. To read about the tax expenditure problem on the federal level take a look at this CTJ report.  And if you’re really into tax policy, you can follow the Task Force meetings here, where a local news consortium is live blogging every session! The next meeting is October 20th.

Photo of Oklahoma Capitol Dome via BJ McCray Creative Commons Attribution License 2.0



Arkansas & Oklahoma: "No New Taxes" Pledge Trumps Democracy for Grover Norquist



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You may have heard of the "no new taxes" pledge, which is promoted by the extreme anti-government organization, Americans for Tax Reform (ATR), and its leader, Grover Norquist. What you may not know is that the pledge bars lawmakers from allowing voters to choose for themselves whether or not to raise taxes. At least that's the latest word from Norquist, who is apparently the sole adjudicator of the meaning of the pledge.

In Arkansas, four legislators who signed the pledge are defending their vote to allow Arkansans to decide whether to increase the state’s diesel fuel tax by five cents per gallon. There's an argument to be made that legislators really ought to make these types of decisions on their own. After all, isn't that what they're paid to do? But this is not the sort of criticism that Arkansas lawmakers are hearing these days.

Instead, the criticism is coming from Grover Norquist and ATR. Business Week reports that several legislators actually voted against HB 1902 because they feared the wrath of Norquist.

What many lawmakers probably thought was a political gimmick when they signed onto it has clearly become a ridiculous obstacle to rational, representative government, as lawmakers become fixated with the opinions of Norquist rather than the opinions of their constituents.

And it hardly helps policymaking when lawmakers are tied to simple, black-or-white dogmas that they feel forced to carry to any and all extremes. Elected officials are put in office so they can, in the words of one of the legislators taking heat, “consider all bills based upon their individual merits.”

Oklahomans are asking questions about the “no new taxes pledge” as well. Recently Grover Norquist said that Oklahoma policymakers supporting a hospital provider fee would violate the “no new taxes” pledge.

A recent blog post from the Oklahoma Policy Institute (OPI) asks simple, yet important questions. “When lawmakers sign a pledge, who are they working for?... Should they adhere to the dictates of outside groups that always take the most simplistic and extreme stance on their particular issue, regardless of the context for Oklahomans?”

OPI also discusses members of Congress and their controversies concerning ATR's pledge. When Senator Tom Coburn said that he was in favor of eliminating ethanol tax subsidies and using the revenue to pay down the national deficit, Norquist said that this position was in violation of the tax pledge.

Coburn responded, “The pledge to uphold your oath to the Constitution of the United States? Or a pledge from a special interest group who claims to speak for all of American conservatives, when in fact they really don’t?”

As OPI puts it, “Leaders now have a choice: do they represent Grover Norquist, or do they represent Oklahoma?”



Super Bowl Ad about Taxes from Corporate Astroturf Group



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The last place you would ever expect a discussion of tax policy is in the sea of Super Bowl commercials about beer, cars, and Doritos, yet the organization Americans Against Food Taxes spent over $3 million to change that last Sunday.

The ad, called “Give Me a Break”, features a nice woman shopping in a grocery store,  explaining how she does not want the government interfering with her personal life by attempting to place taxes on soda, juice, or even flavored water. The goal of the ad is to portray objections to soda taxes as if they are grounded in the concerns of ordinary Americans.

But Americans Against Food Taxes is anything but a grassroots organization. Its funding comes from a coalition of corporate interests including Coca-Cola, McDonalds and the U.S. Chamber of Commerce.

It is easy to understand why these groups are concerned about soda taxes, which were once considered a way to help pay for health care reform. The entire purpose of these taxes is to discourage the consumption of their products. As the Center on Budget and Policy Priorities explains in making the case for a soda tax, such a tax could be used to dramatically reduce obesity and health care costs and produce better health outcomes across the nation. Adding to this, the revenue raised could be dedicated to funding health care programs, which could further improve the general welfare.

These taxes may spread, at least at the state level.  In its analysis of the ad, Politifact verifies the ad’s claim that politicians are planning to impose additional taxes on soda and other groceries, writing that “legislators have introduced bills to impose or raise the tax on sodas and/or snack foods in Arizona, Connecticut, Hawaii, Mississippi, New Mexico, New York, Oklahoma, Oregon, South Dakota, Vermont and West Virginia.”

It's true that taxes on food generally are regressive, and taxes on sugary drinks are no exception according to a recent study. It's a bad idea to rely on this sort of tax purely to raise revenue, but if the goal of the tax is to change behavior for health reasons, then such a tax might be a reasonable tool for social policy. We have often said the same about cigarette taxes, which are a bad way to raise revenue but a reasonable way to discourage an unhealthy behavior.

With so many states considering soda taxes and the corporate interests revving up their own campaign, the “Give Me a Break” ad may just be the opening shot in the big food tax battles to come.



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.



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.



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.



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



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

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

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

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

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

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

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

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

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

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

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

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



The Oklahoman Embraces Good Tax Policy Principles, But Can They Apply Them?



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State policymakers don't always get the advice they need to make informed policy decisions. Not so in Oklahoma, where a recent Oklahoma Policy Institute report presents lawmakers with a detailed list of the tax giveaways embedded in Oklahoma's tax system, suggests a set of principles for evaluating these loopholes, and urges the state to evaluate each of these "tax expenditures" as part of their budget-balancing process. The editorial board of The Oklahoman this week laudably expressed a similar view, calling for lawmakers to find "sensible new sources of revenues." Specifically, the board has embraced capping or eliminating any tax credits that are ineffective in accomplishing their intended purposes, which is exactly what OK Policy's report recommends.
 
The Oklahoman's position here is quite sensible, and represents a welcome reprieve from the all too common, yet irrational practice of addressing budget shortfalls by taking the knife to valuable spending programs, while giving the kid-glove treatment to spending that is done through the tax code. But The Oklahoman falls flat when given the chance to apply this important principle to one of the odder tax giveaways in the state's toolbox, a state income tax deduction for state income taxes. They complain that the state’s top income tax rate of 5.5 percent is “uncomfortably high,” and that any proposal that would affect upper-income taxpayers should therefore be rejected. But rejecting a tax base-broadener because the rates are too high is getting it exactly backwards. Tax Policy 101 says if you want to avoid increasing tax rates, you should make sure your tax base is sufficiently broad. Leaving aside the very contestable notion that a 5.5 percent top rate is "uncomfortably high", the fact is that eliminating the state income tax deduction would strengthen the Oklahoma income tax base in a way that would make it a more efficient revenue-raiser, and would reduce the likelihood that lawmakers will be forced to hike rates down the line.
 
The Oklahoman's unwillingness to see this basic inconsistency between principle and practice is all the more maddening because OK Policy has recently shown that eliminating this tax break could raise substantial revenues at little cost to low- and middle-income families, and because one other state, New Mexico, eliminated an identical tax break to help balance their budget earlier this year.
 
If The Oklahoman’s editorial board really wants to see “ineffective” tax breaks eliminated, it should become one of the most fervent supporters of eliminating an illogical state tax break that exists only because the state happens to have built its income tax rules on top of those in place at the federal level.



Oklahoma Group Proposes Eliminating Ridiculous State Income Tax Deduction for State Income Taxes



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This week the Oklahoma Policy Institute released a report urging, among other things, that one of the state’s more ridiculous tax breaks be eliminated — specifically, the state income tax deduction for state income taxes.  This deduction was created not as a result of careful consideration and debate among Oklahoma policymakers, but rather as an accidental side-effect of the state’s “coupling” to federal income tax rules.  And as the New Mexico Legislative Finance Committee politely points out, while the deduction may make some sense at the federal level, the rationale for providing it at the state level is “less clear.”

Citing figures provided by ITEP, the Oklahoma Policy Institute notes that only one out of four Oklahomans would be affected by eliminating this deduction, and roughly 58% of the overall tax hike would be borne by those richest 5% of Oklahomans.  This is a predictable result of the deduction only being available to itemizers.  In total, the state could collect an additional $118 million in revenue each year by eliminating the deduction — revenue that could go a long way toward preserving important public services.

State income tax deductions for state income taxes have been receiving a growing amount of attention.  Last year, Vermont limited its deduction to a maximum of $5,000, while just last week New Mexico Governor Bill Richardson signed a budget eliminating his state’s deduction entirely.  The Georgia Budget and Policy Institute (GBPI) also highlighted the benefits of eliminating this deduction in a policy brief released just a few weeks ago.

In total, seven states currently offer this deduction: Arizona, Georgia, Hawaii, Louisiana, Oklahoma, Rhode Island, and Vermont.  Eliminating the deduction in each of these states is long overdue.



State Budget Deficits Drive Greater Interest in Examining Tax Breaks



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State budget woes appear to be spurring an increasing amount of interest in re-examining state tax breaks.  The Governors of both Michigan and Idaho have taken steps to ramp up the scrutiny directed at their state’s tax breaks, while a new report out of Oklahoma and an editorial highlighting legislation in Georgia this week have urged similar actions.

In Michigan, the Detroit Free Press urged the adoption of Governor Granholm’s proposal to thoroughly analyze the merits of every tax break, and to saddle most breaks with sunset provisions that would force lawmakers to either debate and renew these breaks, or to let them expire.  This proposal would help to remedy the lack of scrutiny given to tax breaks because of their exclusion from the appropriations process.  Notably, the proposal’s use of sunsets as a mechanism for forcing review seems to resemble a law enacted in Oregon just last year.

In Georgia, the need for additional scrutiny of tax breaks is even more desperate.  Because the state lacks a tax expenditure report, Georgia lawmakers are not even aware of the full range and cost of special breaks that their tax system provides.  SB 206, which was endorsed by a Macon Telegraph editorial this week, would remedy this problem by finally requiring the creation of such a report.  The editorial rightly points out that the bill could be strengthened by requiring an analysis of each tax break’s effectiveness, but at this point, even simply producing a list of tax breaks and their costs would be a major step forward.  The Georgia Budget and Policy Institute has been pushing for the creation of such a report for many years.

Idaho governor Butch Otter has also shown some tentative interest in figuring out whether his state’s tax breaks are worth their cost.  While Governor Otter continues to hold out hope that the state’s revenues will rebound soon, he also recently directed the state’s Tax Commission to study sales tax exemptions in the event that closing some of those exemptions becomes necessary to fill the state’s budget gap next year.  If done carefully, the studies produced by the Tax Commission could provide a wealth of information on breaks that have so far received a relatively small amount of scrutiny.
    
The Oklahoma Policy Institute has also added to the progress being made on this issue with a new report outlining what should be done to scrutinize tax breaks in a systematic fashion.  Their report, titled “Let There Be Light: Making Oklahoma’s Tax Expenditures More Transparent and Accountable,” provides twelve specific recommendations for realizing this vision.  Among those recommendations are: improving the state’s existing tax expenditure report, sunsetting all tax incentives, requiring the extension of a sunsetting incentive to undergo a “performance review,” and developing a unified economic development budget.



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.



Rhode Island and Oklahoma Make Headlines for Making Recipients of Corporate Tax Breaks Accountable



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The Rhode Island Department of Revenue recently released its second annual "Tax Credit and Incentive Report," providing the names, addresses, and size of tax breaks received by Rhode Island businesses under six major tax incentive programs.  This report provides a valuable, and unusually detailed look at where over $82 million in state tax subsidies went during the 2009 fiscal year.  CVS, for example, benefited from over $12 million in special tax subsidies over a twelve month period, while the producers of the "Brotherhood" TV series raked in more than $5 million.  More states would benefit by sharing this type of information with their residents.

But while the "Tax Credit and Incentive Report" does provide a valuable source of raw data for Rhode Island residents and policymakers, the Department of Revenue has regrettably dragged its feet in implementing Phases Two and Three of Rhode Island's broader tax incentive accountability program.  Phase Two, which was supposed to have been completed in October 2008, will eventually detail the degree to which state tax incentives have met the job creation, wage, and benefit objectives for which they were created.  The Rhode Island Poverty Institute has rightly pointed out that "it is impossible to judge the usefulness of these tax credits without the information required in Phase Two of the law." 

Phase Three, which also has yet to be implemented, will require adding the tax credit information released by the Department of Revenue to the state's budget, so that these programs can be considered on a more equal footing with traditional spending programs and subsidies.

Oklahoma also recently made some headlines related to its tax incentive programs.  Last spring, the Oklahoma legislature approved new investment tax credits as a means of attracting Mercury Marine, a boat engine manufacturer, to the state.  Recently, Mercury Marine announced that despite the tax credits, it will be moving a significant number of jobs from Oklahoma to Wisconsin.  Since the legislation authorizing the tax credits explicitly allowed for the state to recover those credits in the event that something along these lines occurred prior to 2012, the company has agreed to refund the credits, with interest.  By tying the credits to some measure of performance on the part of Mercury Marine, Oklahoma was able to avoid a situation where the company could simply take the credits and run. 

Be sure to visit Good Jobs First for more on tax incentive best practices such as these.

 



Billionaire Oil Man & West Virginia Center on Budget and Policy Have Their Say about Tax Incentives



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Billionaire George Kaiser, head of Kaiser-Francis Oil Co., recently did something unusual for someone in his line of work. He told the truth about the subsidies that the oil and gas industry receives to the Oklahoma House Appropriations and Budget Committee. During his testimony, "Kaiser said he could "say unequivocally" that the tax subsidies in question have never influenced his companies' decisions to drill or restore any well in Oklahoma." Kaiser even joked, "In fact, I may lose my day job as a result of my testimony."

Kaiser focused his comments on the number of Oklahomans who could receive health care (125,000) and the raises that could be given to teachers ($1,300 each) if the state's priorities changed and the average $75 million in tax credits given to the energy industry over the last four years were put toward other priorities.

Business analysts know that if a company is making business decisions based on tax breaks, then the company isn't on very strong footing to begin with. But comments like these made by billionaire businessmen are quite helpful in cutting through the false claims made about taxes.

Speaking of ineffective subsidies, this week the West Virginia Center on Budget and Policy released an interesting report Money for Nothing: Do Business Subsidies Create Jobs or Leave Workers in Dire Straights? The report details cases of private West Virginia companies cutting jobs even after receiving taxpayer funded subsidies. Accountability and transparency are necessary to ensure that policymakers and the public aren't funding incentives that ultimately do no real good for West Virginia. The author suggests concrete steps that can be taken to ensure both accountability and transparency, including accessible subsidy disclosure, publishing outcome data, enacting claw-back provisions, and the creation of a unified state development budget.



Tax Amnesty: States' Lack of Self-Control Diminishes Tax Fairness



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Despite their obvious unfairness, tax amnesties are a tool frequently used by states during tough budgetary times. By waiving late fees and sometimes reducing the interest rate charged on overdue taxes, state policymakers can provide their state with a quick band-aid fix without having to make the much harder choice of raising taxes or cutting valued services. But penalizing similar taxpayers at different rates dependent only upon whether they decide to pay up during an amnesty period is plainly unfair. The problems associated with amnesties become even worse, however, as soon as a state establishes a habit of repeatedly offering amnesties during tough economic times.

With the possibility of another amnesty always on the horizon, delinquent taxpayers will think twice before settling their debts with the state during normal times, and at normal penalty rates. Creating multiple sets of penalties (one for normal times, and one, lower penalty when budgets shortfalls are projected) therefore reduces fairness by penalizing similar taxpayers differently based only on the timing of their payment, and can also reduce the effectiveness of enforcement efforts and the tax system broadly. These effects can continue long after the most recent amnesty period ends. (Note that this is very similar to the argument against allowing corporations to "repatriate" their profits to the U.S. at a lower rate, a proposal which was recently rejected at the federal level).

Despite the obvious problems, Maryland and New Mexico are both considering legislation to once again provide temporary tax amnesty programs some time in the coming months. New Mexico last provided an amnesty less than a decade ago, while Maryland's last amnesty came in 2001. After that 2001 amnesty, the Maryland comptroller's office noted that "repeated use of amnesties is likely to create cynicism among law-abiding taxpayers, and lessen the need for voluntary compliance with state tax laws, which is vital for our system of taxation". Should another amnesty be offered less than a decade after the 2001 amnesty, growth in taxpayer cynicism seems unavoidable, especially in light of the fact that a similar program offered in 1987 in the state was billed as a "once-in-a-lifetime" opportunity for delinquent payers.

Without a doubt, the momentum in favor of such programs is strong. Alabama is already in the mist of an amnesty period (the state last offered an amnesty in 1984). Massachusetts is currently in the process of deciding upon a date for its amnesty program (Massachusetts last provided amnesty in 2003). Connecticut's program is already slated to take effect on May 1st (Connecticut's last amnesty took place in 2002). And Oklahoma just recently closed its most recent amnesty period, just seven years after its 2002 amnesty.

In this environment, it is extremely important for state policymakers to not only oppose more amnesties, but also to convincingly state that another amnesty will not be offered any time in the near future. For states looking to responsibly close their tax gaps, stepping-up enforcement spending is often a route that can produce sizeable returns, and is undoubtedly much more fair than trying to get something for nothing by arbitrarily waiving penalties in an effort to boost voluntary "compliance". For more specific alternatives to the tax amnesty approach, take a look at these recent enforcement recommendations from Oregon's Department of Revenue.



Oklahoma: Desperate Times Call for... Completely Illogical Measures



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Oklahoma's Senate Finance Committee last week approved a bill that would drop the state's top income tax rate from 5.5 to 5.25 percent and that would remove groceries from the state's sales tax base. The proposal to cut the top income tax rate would reduce tax revenue by $44 million and exempting groceries from sales taxes would cost $245 million. With Oklahoma facing a $600 million budget deficit, why make these changes now?

The cut in the top rate was actually adopted several years ago, but was made contingent on state revenues meeting a target to ensure that the state could afford the tax cut. So, back then, lawmakers recognized that this tax cut would be expensive (though they ignored the fact that it is entirely regressive) and took steps to ensure the state could afford it. But now the state is not meeting that revenue target, the Senate Finance Committee wants to remove it and allow the tax cut to be implemented anyway. Will lawmakers actually approve this tax cut now that it is (by their own measure) unaffordable?

Similar questions could be posed about exempting groceries from the sales tax. To be sure, taxing those purchases is quite regressive, but Oklahoma has in place an income tax credit designed to mitigate the impact this policy has on low-income taxpayers. Since Oklahoma clearly can't afford a loss of tax revenue of this magnitude, why not build upon the income tax credit that's already in place -- an approach that would be less expensive and better targeted to those who need it the most? The Oklahoma Policy Institute has the details on this alternative means of helping Oklahomans struggling to make ends meet.



Proposed Change in Oklahoma Sales Tax Could Reduce Hunger



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A report released earlier this month by the Oklahoma Policy Institute offers policymakers in the Sooner State several ideas for negotiating one of the fundamental tensions in state fiscal policy: the inclusion of groceries in a state's sales tax base. On the one hand, including groceries in the base is consistent with the notion that the base for any tax should be as broad as possible. Including groceries in the sales tax base also generates considerable revenue -- in Oklahoma, doing so yielded over $300 million in 2007. On the other hand, taxing groceries is highly regressive. The poorest twenty percent of Oklahomans paid two and a half times as much in grocery taxes, relative to their incomes, as middle income taxpayers in 2007.

Rather than removing groceries from the sales tax base altogether, OK Policy observes that policymakers could expand the state's existing "grocery tax credit," either by raising the value of the credit itself or extending it to additional taxpayers. Such a change would be in line with the recommendations of last year's Oklahoma Task Force on Hunger. To see more of the Oklahoma Policy Institute's work, visit www.okpolicy.org.



Oklahoma: In the Future, Rethink the Past



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With the fall elections a scant two months away, it's never too early to think about the harsh realities and difficult choices that state lawmakers will face once they are sworn in.

As two new fact sheets from the Oklahoma Policy Institute suggest, top on the agenda of Sooner State legislators should be the reconsideration of some of the tax cuts enacted between 2004 and 2006. For instance, reductions in the top personal income tax rate put in place over the past several years have delivered an average tax cut in excess of $11,000 per year for the richest 1 percent of Oklahomans, yet have helped to suppress income tax collections to the point where they have grown by less than half a percentage point each year over the last two fiscal years. As OK Policy observes, those tax dollars, rather than flowing back to the wealthy few, could be devoted to critical public purposes, such as "addressing critical staffing shortages in [Oklahoma's] child welfare and correctional systems."



Poorly Reasoned and Poorly Targeted Property Tax Reductions are Gaining Steam



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This week in the Georgia House, lawmakers voted overwhelmingly (166-5) to approve property tax cuts, including the elimination of the state's car tax, that will cost the state more than $750 million when fully phased in. Republican Speaker Pro Tem Mark Burkhalter doesn't seem concerned with offsetting the lost revenue. Responding to concerns about the plan's price tag, he says, "It's very simple. You cut taxes, the economy grows. The economy grows, Georgians prosper. The best way to stem off any recession is to cut taxes. Not to clam up, go home and wait for the storm to pass." We've learned on the federal level that tax cuts simply don't pay for themselves, but clearly legislators in Georgia want to try their own experiment with this flawed (and dangerous) economic myth. The House-passed bill contains another misguided property tax change... a 2% cap on annual increases in a home's value for tax purposes (the cap would be 3% for businesses).

The Georgia Budget and Policy Institute issued a report adding up the costs of the state House's handiwork related to taxes this year and found that the tax bills passed this session would cost as much as $113 million in FY 2009, $473 million in FY 2010, and $798 million in FY 2011.

Coincidentally, the Oklahoma Senate passed a proposed constitutional amendment last week also dealing with caps on increases in a home's taxable value. In this case, the cap would be decreased from 5% to 3% (the 5% cap would remain intact for businesses). Assessment value caps of this sort have recently received much attention in Florida. The unfair way in which these caps provide the greatest relief to long-time residents (creating vastly different property tax bills between neighbors with similar houses) recently drove Florida residents to amend their constitution to patch over the problem in a very imperfect way.

Rounding out the recent trend in debating poorly reasoned property tax cuts is Arizona, where the House narrowly approved a measure to permanently repeal a portion of the property tax that is currently suspended. Allowing the tax to take effect again would raise about $250 million annually for the state, significantly reducing the projected $1.2 billion revenue shortfall for the current fiscal year. If the plan passes, cuts in public services could be the result.



Victory for Transparency in the Sooner State!



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Earlier this month, Oklahoma Governor Brad Henry (D) signed into law the "Taxpayer Transparency Act" which directs the Office of State Finance to "build a web site detailing virtually all expenditures of state funds, including state contracts and tax credits and incentive payments given to businesses." The proposal received widespread bipartisan praise. According to the Oklahoma Council of Public Affairs, 72 percent of Oklahomans support the creation of the website. Oklahoma Senator Tom Coburn has advocated for a similar website to monitor federal spending. The State Chamber of Commerce opposed this bill saying that the legislation, "will shine an unwanted light on those who invest in Oklahoma, and it will make it much more difficult to attract those investors." Undoubtedly the website will be a helpful tool for legislators, the public, and the media. Mark Thomas from the Oklahoma Press Association says this about letting the sunshine in on government spending: "If you want the people of Oklahoma to give you a tax break, go ahead and ask us, but don't expect us to keep it a secret."



All That Glitters Isn't Gold



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This week the Community Action Project blasted the decision by Oklahoma policy makers to use a temporary surge in revenue to justify permanent, unfair tax cuts. CAP says that when voting on the tax cut proposals, legislators did so "knowing only the short-term fiscal impact and without the information that could allow them to evaluate the long-term fiscal sustainability of their choices." The question before legislators now is whether or not to repeal the tax cuts that were scheduled to take place in 2008. Last fall, the Center on Budget and Policy Priorities published a study which takes a closer look at specific states that enacted tax cuts in 2006 and highlights the potential damages from "tax cuts on layaway."



Tax Credit for Stay at Home Moms?



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Oklahoma lawmakers in the House of Representatives are proposing a tax credit to benefit stay-at-home moms. The theory behind the proposal is that because the state offers a dependent care credit for costs incurred for child care expenses outside the home, stay-at-home moms should be given a similar credit for their work. This proposal brings up issues of discrimination (what about stay at home dads, grandparents?) and perhaps an even larger debate about whether or not the tax code should be used as a mechanism to promote family values. For a provocative article on this issue click here.



Business Turning Against TABOR



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



Oklahoma's Budget Brawl: How to Cut Income Taxes?



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In Oklahoma, Republican and Democratic leaders are feuding over how to dispose of the state's budget surplus, with Republicans pushing for cuts in the top income tax rate and Democrats pushing for an increase in the stand deduction. An analysis by Oklahoma's Community Action Project shows that the standard deduction would be a much better deal for most Oklahomans.

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