Report from CTJ: Congress Should End Oil & Gas Tax Breaks

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House Speaker John Boehner’s recent comment that Congress should “take a look at” repealing tax subsidies for large oil companies is well-founded.  A new report from Citizens for Tax Justice explains that these subsidies are a particularly poor use of taxpayer funds.

The oil and gas industry argues that their tax breaks encourage them to locate and extract more oil and gas, allowing the industry to increase supply and thus keep energy prices down below the level they would otherwise reach. But whatever one thinks of this argument, it totally falls apart when oil is selling at over $100 a barrel.

Read the report.

Florida Governor Rick Scott’s Anti-Tax Platform Largely Rejected

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We’ve all become accustomed to conservative lawmakers singing the praises of tax cuts nearly every time they open their mouths.  Florida Governor Rick Scott’s devotion to anti-tax dogma, however, is among the most extreme cases we’ve seen in recent memory.  Fortunately, it now appears very likely that the state’s conservative legislature will reject the vast majority of Scott’s anti-tax platform.

On Tuesday, the Florida legislature’s Republican leadership announced that they’ve come to a preliminary agreement on how to close the state’s budget gap.  The agreement is unbalanced, as it relies exclusively on spending cuts to cope with the revenue slump caused by the lingering economic downturn.  But the agreement does have one major upside: it does not include Governor Scott’s proposals to phase out the corporate income tax and drastically cut the property tax.

In recent weeks, Scott had tried to make his radical tax proposals more attractive by phasing out the corporate income tax more slowly.  This change would have allowed lawmakers to vote in favor of a massive tax cut, and to put off debating the most difficult spending cuts until some later date.  Still, even Scott’s less ambitious proposal was viewed by most Republicans legislators as too extreme.

The Republican chair of one key House committee referred to Scott’s continued insistence that the state slash taxes despite its weak fiscal situation as “just kind of odd.”  And Republican Senate President Mike Haridopolos questioned the wisdom of Scott’s “job creation” strategy,  saying “I’m in my 11th session now and I’ve had very few people come to me and say the reason they didn’t come to Florida was because of the corporate tax rate.”

Lawmakers have apparently agreed to set aside some money for corporate tax pork in an attempt to keep Scott happy enough that he won’t exercise his veto power.  But compared to the multi-billion dollar tax cut package Scott has been pushing, the size of the tax cuts currently under consideration are very small.

Still, the fact that tax cuts are being debated at all while the state cuts billions from education, health care, and other vital services demonstrates how wildly out of touch the Sunshine State’s legislature is.  In the future, lawmakers should undo some of these deep cuts to public services and offset the cost by raising the state’s very low taxes. While they’re at it, they can lessen the unfairness of a tax system that ITEP ranked the second most regressive in the nation.

Anti-Tax Activist, Author of Colorado’s “TABOR,” Arrested for Tax Evasion

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Douglas Bruce, author of Colorado’s Taxpayer Bill of Rights (TABOR), has been arrested for tax evasion. The indictment alleges that Bruce filed a false Colorado personal income tax return for 2005 and failed to file returns for 2006 and 2007 even though he had earnings during those years from his job as an El Paso county commissioner and had thousands of dollars of interest income.

The most serious charge could land Bruce in prison for up to six years and cost him fines up to $500,000.

TABOR has been widely documented as gutting Colorado’s ability to adequately fund public services.

Iowa Governor Chooses Corporations Over Iowans

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Iowa Governor Terry Branstad has made it very clear that he prioritizes corporations over working families. Earlier this week, the Governor vetoed a slight increase in the state’s earned income tax credit (EITC) from 7 to 10 percent of the federal credit. The EITC is one of the most effective and popular anti-poverty programs states can offer, but Branstad has insisted that Iowa’s “limited budget” requires a single-minded focus on slashing business taxes instead.

The Governor’s veto letter makes his reasoning crystal clear, saying “Iowa should instead focus its energies on improving our state’s long-term competitive tax position for new job creation.”  The letter goes on to explain that in Branstad’s mind, this means that corporate income taxes and commercial property taxes must be slashed.

In an effort to fulfill Branstad’s vision, legislation was introduced Wednesday that, when fully phased in, would allow businesses to shelter a full 40 percent of their property’s value from the property tax (by assessing commercial property at only 60 percent of its actual value for tax purposes). When fully implemented, the price tag for this measure is about $500 million.  

Many local officials are wary of the proposed change since local governments are heavily dependent on the property tax to fund their day-to-day operations.  The state has promised to replace the revenue localities are sure to lose as a result of this legislation, but most would prefer to have control over their own revenue streams. Making matters worse, House Ways and Means Committee Chair Thomas Sands has acknowledged that “the state doesn’t always honor its commitments.”  

The Governor has chosen to favor corporations over middle class Iowans. What remains to be seen is how far the state’s legislature is willing to go to give handouts to corporations while working families struggle.

Missouri’s Crumbling Corporate Tax System

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

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

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

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

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

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

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

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

New Hampshire Lawmakers Discuss Business Tax Breaks After Slashing Childcare and Higher Education

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Like most states, New Hampshire is faced with yet another budget shortfall to close in the upcoming fiscal year, this one at roughly half a billion dollars.  The New Hampshire House of Representatives approved a budget in March that closed the gap almost entirely through cuts in spending ($489 million total) including reductions in child-care assistance for low-income families and funding for the state’s university system.  Yet, incredibly, New Hampshire lawmakers are still considering a variety of proposals to cut business taxes.

This week, the New Hampshire Fiscal Policy Institute (NHFPI) published an informative brief explaining how various proposals to reduce the state’s two main business taxes would result in millions of dollars more in spending cuts. 

The brief also debunks myths that lawmakers have promoted to justify cutting business taxes. One is that the state’s business taxes are extremely high. (They are comparable to the national average.) Another is that business taxes influence business location decisions, and that lowering taxes on businesses would fuel economic growth. 

NHFPI also points out that the two business taxes lawmakers are considering reducing, the Business Profits Tax (BPT) and Business Enterprise Tax (BET), make up a relatively small share of the total taxes New Hampshire businesses pay.  The tax that represents the largest share, the property tax, could in fact increase as a direct result of cutting the BPT and BET.  

A state tax cut of any size would likely lead to reductions in funding for local aid, which would in turn force local governments to increase property taxes to pay for local services.



ITEP Data Helps Move Connecticut Budget Debate to a Fairer Outcome

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As previously noted, Connecticut is one of only a handful of states where state leaders have given serious consideration to raising revenue as part of a balanced solution to closing their budget gaps. 

In February, new Governor Dan Malloy (who calls himself the “Anti-Christie” referring to New Jersey’s notoriously conservative governor) released his budget proposal for fiscal year 2012. The plan would have closed roughly half of a $3 billion shortfall with a mix of new revenues from the personal income tax, sales tax, excise taxes, business taxes, and the estate tax. 

As of this week, the governor moved one step closer to enacting his vision for Connecticut when he reached an agreement with House and Senate leadership on his tax and spending packages.

Both chambers’ Finance and Appropriations Committees approved the revised budget plan on Thursday and the full House and Senate will take it up next week.  Not surprisingly, Republican lawmakers criticized the proposal and unsuccessfully offered a no-tax increase amendment that would have meant more than $1.4 billion in additional cuts to essential services.
One common criticism of the Governor’s original tax package was that it hit middle-income households the hardest.  While a new 30 percent refundable state Earned Income Tax Credit (EITC) ensured low-income households would not see a tax increase (and in some cases would receive a net tax cut), the proposed elimination of the state’s property tax credit would have disproportionally impacted middle-income households. 

As a result, an ITEP analysis found that middle-income households would have seen the biggest tax increase as a share of income under the Governor’s proposal.  Tied to that criticism, several key House and Senate members as well as the Better Choices for Connecticut coalition pushed for a more progressive tax package (equipped with an ITEP analysis of that plan) that would ask the state’s wealthiest households to pay for the largest share of the tax increase.
The revised package appears to have addressed these criticisms.  A scaled back version of the property tax credit would be restored and result in a smaller tax increase for middle-income households.  And, changes to personal income tax rates and a mechanism to recapture the benefits of lower tax rates will mean that the top 5 percent will pay more than under the Governor’s original plan.

The Connecticut tax package also includes several significant changes to the state’s sales tax including broadening the base to include several services and currently exempted goods, a new ‘Amazon’ law, a 7 percent tax on luxury goods, and a small rate increase from 6 to 6.25 percent. 

The governor’s original sales tax proposal was even more comprehensive, but several items (expanding the sales tax to include haircuts and boat repairs, an elimination of the sales tax holiday and elimination of exemption on auto-trade-ins) were left out of the revised package. 

Otherwise, the revised package mostly mirrors the original and includes tax increases on estates, cigarettes, alcohol, and corporate income.

Victory in South Dakota: Studying Tax Expenditures

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The South Dakota Legislature’s Executive Committee voted earlier this week to study the more than 100 sales tax exemptions that the state currently allows. Tax exemptions are one type of “tax expenditure,” or government spending through the tax code.

Tax expenditures have the same impact as cash grants from the government, but implementing them through the tax system makes them less visible — and makes lawmakers less accountable for justifying them.

South Dakota’s sales tax exemptions alone are estimated to cost over $500 million annually. Adding the cost of property tax and corporate tax expenditures would make that figure even larger. To put that figure in perspective, South Dakota’s general fund budget for fiscal year 2012 is just over $1 billion.

“We don’t know when they were put in place, how they were trended over time and if they continue to meet their initial intent,” said Joy Smolnisky, director of the South Dakota Budget & Policy Project.

This summer legislators will meet to review the exemptions and study whether or not they achieve any sensible policy goals. Let’s hope this initial study leads to the creation of a regularly published tax expenditure report. For more on the importance of tax expenditure reporting, see the Budget and Policy Project’s work on this important issue.

For more general information, see CTJ’s report on tax expenditures.

Louisiana Coalition: “Pushing a Rock Up Hill”

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Louisiana’s Better Choices for a Better Louisiana Coalition is taking on Governor Bobby Jindal and other legislative leaders who have said they aren’t interested in increasing taxes. The Coalition recently unveiled their plan to increase taxes by $900 million to help close next year’s budget gap, which is estimated to be $1.6 billion.   

Eddie Ashworth, director of the Louisiana Budget Project, acknowledges that getting the legislature to raise taxes will be difficult, saying “I think we’re definitely pushing a rock up the hill.”

Still, the Coalition’s balanced approach to the budget shortfall, raising taxes and cutting spending, should appeal to any lawmaker who has ever claimed the title of “moderate.” Also, one proposal included in the Coalition’s plan responds to the increasing momentum even in conservative circles for addressing spending in the tax code: a review of the state’s 400-plus tax exemptions, which cost about $7 billion annually.