Month: May 2011

On Wednesday, May 25, Senator Kent Conrad, chairman of the Senate Budget Committee, delivered comments on the Senate floor about the budget, the deficit and why he rejects the House budget plan from Rep. Paul Ryan.

Senator Conrad cited new figures from Citizens for Tax Justice showing that taxpayers with income exceeding a million dollars would enjoy an average tax cut of at least $192,500 in 2013 if Congressman Paul Ryan’s budget plan was enacted. Taxpayers with income exceeding $10 million in 2013 would get an average tax cut of at least $1,450,650 under the Ryan plan.

Conrad explains the obvious math that a deficit problem isn’t solved by reducing revenues, and that it especially makes no sense to reduce revenues by cutting taxes for the super rich. His graphic illustrates the analysis CTJ provided. The Senate ulitmately voted against the House plan 57-40.

Watch Senator Conrad’s remarks below:

 Two states — Nebraska and Utah — recently enacted new laws diverting a sizeable chunk of their state sales taxes to transportation.  Education, human services, and other vital programs are expected to suffer as a result of this diversion.  Instead of siphoning off much-needed revenues from other areas of the state budget, these states should have boosted their traditional transportation revenue sources, most notably the gas tax.

In Nebraska, Governor Heineman reluctantly signed a bill last week that will divert 0.25 percentage points of the state’s 5.5 percent sales tax to road repair and construction.  Just two months ago, Heineman had called the same proposal “risky” and “unwise,” though the state’s improved revenue picture apparently caused him to abandon this position. 

A wide range of people, including both opponents of the bill and the bill’s sponsor, have pointed out that the inadequacy of Nebraska’s gas tax is to blame for the state’s unmet transportation needs. 

However, given the lack of real interest in raising the gas tax, lawmakers ultimately decided to meet those needs by simply prioritizing roads over education, public safety, and other services.

In Utah, a very similar law was enacted earlier this month when the state’s legislature narrowly overrode Governor Herbert’s veto of a measure redirecting up to $60 million in sales tax revenue to transportation each year.  Herbert had vetoed the bill out of concern for its impact on education funding, and on the state’s ability to be flexible in dealing with future budgetary challenges. 

An increase in Utah’s gas tax, which hasn’t been raised in fifteen years despite rising transportation costs, could have precluded the need to redirect such a substantial sum of money away from vital public services.

Making matters worse, an analysis from Utah Voices for Children points out that a significant amount of general fund revenues in Utah are already earmarked for transportation.  These earmarks, as well as additional borrowing, have allowed transportation spending to swallow up an increasing share of the state budget over the last five years, with spending on education, health, and environmental quality suffering as a result.

Unfortunately, this decline in other areas of the budget may not be an accident.  The Utah bill’s original sponsor, Sen. Stuart Adams, has reportedly touted the siphoning-off of revenue from other areas of the state budget as a major benefit, since it shrinks the size of programs he tends to dislike. 

Given that basically every state levies a gas tax that won’t keep pace with transportation cost growth unless its rate is periodically raised, this argument (whether made explicitly or not) will no doubt remain powerful among conservative lawmakers for years to come. 

Raising transportation-specific taxes and fees, while not always the most progressive solution, is no doubt preferable to allowing other areas of state budgets to be gutted in order to fund road repair and construction.

*MAY 28 UPDATE* Wisconsin Republicans are also working hard to redirect revenue away from schools and toward transportation.  The legislature’s budget committee recently voted, along party lines, to redirect $125 million in sales and income tax revenue to transportation in 2012, and to redirect 0.25% of such revenue to transportation in 2013 and each year thereafter.  It’s important to note that Wisconsin’s gas tax used to be indexed to inflation — which allowed it to grow alongside increases in transportation infrastructure costs.  Inflation indexing was eliminated in 2006.

Last week, ITEP testified in front of the Rhode Island House Finance committee on two bills.  One would close down some of the most egregious tax avoidance schemes available to multi-state corporations by mandating “combined reporting.”  The other would ramp up the level of scrutiny applied to Rhode Island’s tax code by requiring that new tax breaks (or “tax expenditures”) be created with a seven-year expiration date, and a specific plan for gathering vital performance data.

The first bill, H5738, would level the playing field between large corporations and mom-and-pop businesses by greatly reducing the ability of multi-state corporations to avoid taxes by artificially shifting income (on paper) to low-tax or no-tax states.  Specifically, H5738 would mandate what’s known as combined reporting, an accounting procedure that’s already required in a majority of states with corporate taxes or similar taxes. 

As ITEP points out in its testimony, combined reporting is already very common in New England.  Massachusetts, New York, and Vermont were each part of a larger wave of states that recently implemented this reform, while two other nearby states—Maine and New Hampshire—have required combined reporting for over two decades.

The other bill, H5737, would require that legislation creating a new tax break include four things: a statement of purpose, detailed performance indicators, data collection requirements, and a provision forcing the tax break to sunset within seven years.  According to ITEP’s testimony, this bill combines a variety of tax expenditure best practices already in use elsewhere around the country. 

For example, Washington State is particularly good about analyzing its tax expenditures in order to judge their efficiency and effectiveness.  Oregon and Nevada, on the other hand, now make use of sunset provisions in order to ensure that tax expenditures are not allowed to continue indefinitely without reconsideration by elected officials.  H5737 combines these two approaches, and in doing so has the potential to produce a framework for scrutinizing tax expenditures more closely than in any other state.

Read ITEP’s testimony on combined reporting in Rhode Island.

Read ITEP’s testimony on tax expenditure procedural reform in Rhode Island.

The ongoing recession, the expiration of two temporary taxes, and the end of federal recovery aid have left North Carolina with a $2.4 billion gap for next fiscal year.  The state’s Democratic governor, Bev Perdue, and the Republican-led legislature have taken very different approaches to plugging the gap. 

Governor Perdue’s budget plan, released earlier in the spring, balanced spending reductions (around $1.4 billion) with about $1 billion of additional revenue.  The primary means for raising revenue in her budget included extending three fourths of a temporary sales tax increase enacted in 2009 and set to expire this summer.  She also proposed reducing the state’s corporate income tax rate from 6.9 percent to 4.9 percent, a move Republican leaders have, surprisingly, not yet embraced.
 
Republican House and Senate leaders have adamantly opposed extending either the temporary sales tax or personal income tax surcharge, taking a cuts-only approach to the state’s fiscal problems.  In fact, they have proposed new tax cuts that would force them to reduce state spending beyond the $2.4 billion budget gap and far beyond the governor’s proposal.
 
The North Carolina Senate released its budget plan this week.  It includes around $550 million in tax cuts, once it’s fully phased-in, resulting in deeper cuts to education, public safety, and health care. 

Billed as a ‘Jobs Package’, it would cut personal income tax rates by 0.25 percentage points in each bracket and exempt the first $50,000 of small business income from the personal income tax for businesses with gross receipts under $850,000, at a cost of around $485 million.  The Senate would also eliminate the state’s estate tax for an additional loss of $72 million. 

The plan raises small amounts of revenue by eliminating a handful of random state tax expenditures such as the credit for oyster recycling and the sales tax holiday for Energy Star appliances. 

The House GOP’s budget plan, released earlier in the month, was short on tax package details other than sticking to the promise to allow the temporary taxes to expire.  However, rumors are swirling that their plan will be released soon and will likely closely mirror the Senate’s proposal. 

If these rumors are true, their plan would not only cut taxes for wealthy taxpayer and businesses, but would also increase taxes on working families by eliminating the state’s Earned Income Tax, Child Tax, and Child and Dependent Care credits.

House and Senate GOP leaders had made veiled promises to reform the state’s outdated and inadequate tax code this year.  Both hinted they would start by broadening the personal income tax base, moving from federal taxable income to federal adjusted gross income (AGI).  This move would eliminate costly tax breaks for the best-off taxpayers. 

The Senate’s plan does indeed move the starting point for calculating North Carolina income taxes to federal AGI, but the move is completely revenue-neutral and only meant as a way to simplify tax forms. This would do nothing to truly reform its narrow tax base.  Rather than walking through a series of calculations to add back the difference between the state and federal amounts for the standard deduction and personal exemption, under the plan, taxpayers would simply subtract the state amounts from federal AGI and still be allowed to take all of their federal itemized deductions (with the exception being the deduction for state income taxes).  Social Security income would also continue to be exempt from state taxation.

The North Carolina Budget and Tax Center said in a statement about the Senate budget plan that “these measures will do nothing to improve the upside-down nature of the state’s revenue system. North Carolina’s revenue system must provide adequate revenue for critical investments and must be fair and equitable.”

The Louisiana Senate is expected to debate a bill this week which would eliminate the state’s personal and corporate income taxes over a five-year period. By the time it’s fully phased in, the proposal would cost the state $4 billion annually.

The House Ways and Means Committee already approved separate measures to eliminate these same taxes. None of the legislation being discussed replaces the revenue that would be lost as result. Note that the state is already grappling with a $1.6 billion shortfall for the next fiscal year.

One might think that Governor Bobby Jindal, who signed into law several significant tax cuts and also signed Grover Norquist’s “no new taxes” pledge, is the driving force behind the proposals.

But the plan to eventually create a $4 billion dollar hole in the state’s budget is apparently too radical even for Jindal. The Governor’s spokesman said of the proposal, “We’re not going to take it seriously if they don’t put together a spending plan.”

Some critics of Jindal on the right argue that some of the tax cuts he signed into law were measures that he initially opposed but then took credit for after he caved in to pressure to support them. Let’s just hope that this time, anti-tax lawmakers really have found the limit of Jindal’s fiscal irresponsibility.

Republican Governor Sam Brownback and many conservative Republicans in Kansas are attempting to use the term “tax reform” to describe their efforts to reduce the equity and sustainability of Kansas’s tax system.  

Brownback has begun studying tax proposals with the ultimate goal of putting out a plan for a large tax overhaul. Brownback has stated that the goal of “reform” should be reducing income taxes.

This would mean cutting the only progressive tax in Kansas, which would further exacerbate Kansas’s already regressive tax system.

Brownback’s emphasis on income tax reductions comes after the Kansas State House of Representatives passed legislation which would have gradually repealed the state’s personal income tax and cut the corporate income tax in half. That effort stalled in the Kansas Senate, as even Republican lawmakers balked at its $739.4 million price tag over the next 2 years, before the reductions would even be fully in effect.

As has been widely noted, Kansas Republicans are divided on whether to take such a regressive and revenue-hemorrhaging approach. Republican State Senator Pete Brungardt, for instance, argued that the income tax is not the problem at all and that the state should consider reforming its sales tax.

Instead of focusing singularly on the income tax as Brownback desires, the Kansas Economic Progress Council argues that lawmakers should carefully evaluate the entire system of state and local business taxes with a special emphasis on the sales tax, which is frequently ignored in such discussions.

Recent articles in the New York Times and the Fiscal Times entertain the notion that President Obama’s income tax plan will result in unaffordable tax increases for families who make $250,000 a year. One theme of these articles is that in some parts of the country, $250,000 is really not very much to raise a family on.

A new report from CTJ explains that this is wrong on several levels:

1. If enacted in 2011, 84 percent of the revenue savings from Obama’s plan to partially end the Bush income tax cuts would come from people whose income exceeds $1 million annually.

2. A married couple whose income is exactly $250,000 would see no change in their income taxes under Obama’s plan. In fact, most married couples with incomes between $250,000 and $300,000 would see no change in their income taxes. On average, married couples in this group would lose just one percent of their Bush income tax cuts, under Obama’s plan.

3. Only 2.6 percent of taxpayers will even have adjusted gross income above $250,000 (or above $200,000 for unmarried taxpayers) in 2013. Congress should target this group for higher taxes.

4. The attempts to show that $250,000 is really not very much to live on prove nothing, other than how wildly out of touch reporters and opinion-makers are with the rest of America.

Read the report.

“I’m here to tell you that the sky is not falling,” began CTJ Senior Counsel for Federal Tax Policy Rebecca Wilkins as she testified Wednesday before Treasury and IRS officials in favor of new bank regulations to prevent tax evasion by foreigners.

Ten of the twelve witnesses were opposed to the regulations and predicted far-fetched consequences if the regulations are finalized, including massive outflows of capital from the U.S., failing banks, lost jobs, and even murder, extortion, and kidnapping.

The hearing was on proposed regulations that would require banks to report the interest income earned on deposit accounts held by nonresident alien individuals to the IRS in the same way that they report on U.S. customers.

The purpose of the new rules is to allow the IRS to collect information that may be turned over to foreign governments if requested under a Tax Information Exchange Agreement.

Although Wilkins addressed all of the arguments of the opponents, she concluded by saying, “This is really about tax evasion. Those who are opposed to the proposed rules have a vested interest in facilitating tax cheating. The stakes in tax evasion are very high and the forces in favor of maintaining the status quo are well-financed and very politically connected. But it’s the money of honest, tax-paying citizens of all countries that the tax cheats are stealing.”

See the complete testimony and our earlier report.