Month: May 2011

Lawmakers and officials in the Obama administration are discussing plans to reform the corporate tax in a way that is “revenue-neutral,” meaning we would not collect any more tax revenue from corporations overall than we do today. In other words, while Congress is debating cuts in public services that working families rely on, there would be no attempt to get corporations to contribute more.

Organizations are invited to sign a letter urging Congress to take a very different approach. Congress should repeal corporate tax subsidies as a way to help reduce our budget deficit and protect public investments that create the healthy, educated workforce and sound infrastructure that will make our nation competitive.

See a PDF of the letter with the list of organizations currently signed on.

The deadline to join the letter is May 16, 5:00 p.m. EST.

Sign Letter on Behalf of Your Organization (do not sign if you are not authorized to do so on behalf of an organization)
Send Your Lawmakers a Letter on Your Own Behalf

For more detailed information, see the following:

CTJ’s op-ed in USA Today calling for corporate tax reform that raises revenue

CTJ’s report explaining why Congress should enact corporate tax reform that raises revenue

CTJ Director Bob McIntyre’s testimony on business tax subsidies before the Senate Budget Committee

This week CTJ wrote to ask the House Judiciary Committee to reject the so-called “Business Activity Tax Simplification Act” (BATSA). This legislation would make state and local taxes on businesses dramatically more complex, increase litigation related to business taxes, increase government interference in the market and reduce revenue to state and local governments by billions of dollars each year.

Read CTJ’s letter opposing BATSA.

A recent report from the Center on Budget and Policy Priorities goes into more detail about why BATSA is so problematic.

New York Times’ Headline, “Americans Favor Budget Cuts Over Raising Corporate Tax” Based on Misleading Poll

People who follow polling have known for some time that Americans tend to support cutting government spending in the abstract but are likely to respond very differently to proposals to cut specific programs. In fact, when faced with a choice between cuts in a particular government program or tax increases, Americans often prefer tax increases.

Sadly, this basic point was lost on the New York Times this week as it sought to gauge public support for increasing corporate taxes as a way to reduce the budget deficit.

Americans Love Cutting Government in the Abstract, Hate Cutting Specific Programs

An Ipsos/Reuters survey in early March demonstrates some of the common problems with polls on this topic. It included the following question: “The two main ways of reducing the budget deficit are to cut existing programs and to raise taxes. If you had to choose, which approach would you prefer?” Fifty-six percent responded that they would prefer to cut programs, while only 30 percent preferred raising taxes.

Of course, Congress does not have to choose between cutting spending or increasing taxes. It can (and is likely to) do both. This question presents a ridiculous hypothetical situation that no lawmaker will actually face. Only three percent of respondents said “both” in answer to this question, which is unsurprising given that “both” was not offered as an option. We know from other surveys that if the options include a mix of spending cuts and tax increases, a majority will choose that option.

The Ipsos/Reuters poll suggests that many of those respondents who chose spending reductions are not comfortable with many specific cuts that Congress could actually make. Those who said they preferred reduced government spending were given various options for programs to cut, and the only one garnering a majority was defense (at 51 percent). Only 28 percent wanted to cut Medicare and Medicaid, just 18 percent wanted to cut Social Security, and four percent chose “Other.” (Respondents were allowed to choose multiple options.)

When confronted with a specific proposal to raise taxes and specific proposals to cut any of the significant government programs, people tend to choose tax increases.

For example, an ABC News/Washington Post poll gave respondents several options for addressing the budget deficit. Seventy-two percent supported “Raising taxes on Americans with incomes over 250 thousand dollars a year.” Forty-two percent supported “Cutting military spending.” Only 30 percent supported “Cutting spending on Medicaid, which is the government health insurance program for the poor.” Only 21 percent supported “Cutting spending on Medicare, which is the government health insurance program for the elderly.”

The same ABC News/Washington Post poll also asked “Overall, what do you think is the best way to reduce the federal budget deficit — by cutting federal spending, by increasing taxes, or by a combination of both?”

About three-fifths of respondents chose a combination of both.

New York Times’ Misleading Article on Corporate Taxes and Public Opinion

None of this should come as any surprise to pollsters and people who write about public opinion and politics. So it’s disappointing to see The New York Times publish a distorted story under an even more distorted headline, based on faulty polling about the federal corporate income tax.

Some of the questions were straight-forward. For example, one of the poll questions reads, “Do you think American corporations pay more than their fair share in federal income taxes, less than their fair share, or is the amount American corporations pay about right?” A majority, 56 percent, said they’re paying less than their fair share, while only 11 percent said they were paying more. Twenty-two percent said “About right,” and 11 percent said “Don’t know.”

(Other surveys, such as the Gallup Poll, have found that an even larger number of Americans believe that corporations pay “too little.”)

Unfortunately, the Times survey also includes questions worded so poorly that they tell us virtually nothing about how Americans would feel about the real trade-offs that lawmakers must make when confronting the budget.

For example, one survey question reads “If you HAD to choose ONE, which would you prefer in order to reduce the federal budget deficit — raising taxes on corporations or cutting government spending?”

Unsurprisingly, survey respondents did what Americans always do — they chose unspecified spending cuts over tax increases.

Thirty-two percent chose “raising taxes on corporations,” while 64 percent chose “cutting government spending.”

Of course, as noted above, Congress does not have to “choose one” of these options, and we know from other surveys that most people prefer a mix of spending cuts and tax increases of some sort. 

The more interesting question, the question not asked in this survey, is whether respondents would favor cuts in Medicare and Medicaid over corporate tax increases, or perhaps cuts in nutrition programs or education programs over corporate tax increases.

Given that most people believe (according to this very survey) that corporations pay less than their fair share, it’s very hard to imagine that corporate tax increases would not be more popular than cuts in health care, nutrition or education.

Unfortunately, The Times made this misleading survey question the subject of the article’s headline, “Americans Favor Budget Cuts Over Raising Corporate Tax.”

Another survey question is quite blatantly a leading question. It reads, “Some people say the taxes on corporate profits should be increased to help reduce the federal budget deficit. Other people say taxes on corporate profits should be decreased to encourage American companies to create jobs and help them to compete globally. What do you think? Do you think taxes on corporate profits should be increased, decreased, or kept about the same?”

This wording presents a choice between increasing corporate taxes to “reduce the federal budget deficit” and decreasing corporate taxes to “create jobs.” Of course, Americans care more about creating jobs than they do about reducing the deficit, so the result is predictably skewed. Thirty-seven percent said corporate taxes should be increased (a surprisingly high figure given that the question was leading respondents to the opposite conclusion). Twenty-six percent said corporate taxes should be decreased, and 32 percent said they should stay the same.

We could imagine a question worded in a way that would achieve very different results. For example, a survey question might read, “Some corporate leaders say that reducing corporate taxes will help America’s corporations generate profits. Others say that the corporate tax loopholes in place today encourage corporations to shift their profits and jobs offshore and that closing these loopholes can help American workers while also reducing the deficit. What do you think?”

Indeed, respondents’ answers to another question in this survey suggest that they would need very little prodding to support raising taxes on corporations. The question reads “As far as you know, when corporations receive tax cuts, do you think the corporations use the savings mostly to create new jobs for American workers, mostly as dividends for shareholders and bonuses for executives, OR do they mostly reinvest it back into the corporation?”

Sixty-one percent said they go to dividends and bonuses, while just 4 percent said new jobs, 23 percent said it’s reinvested, and just 3 percent said it goes to a combination of these things.

Given that most people think corporations pay less than their fair share and spend most of their tax breaks on dividends and bonuses, a proposal to raise revenue from corporations by eliminating corporate tax loopholes would likely be popular, New York Times headlines notwithstanding.

Bucking the anti-tax, anti-government, cuts-only approach to state budget shortfalls embraced by most state leaders across the nation this year, Connecticut governor Dan Malloy signed a two-year state spending plan this week that raises $1.4 billion in new taxes to mitigate cuts to core services.
 
The tax package includes increases in personal income taxes for the state’s best-off residents, a new 30 percent refundable state Earned Income Tax Credit, a reduction in the state’s property tax credit, an increase and expansion of the sales tax, a new ‘Amazon’ tax, a corporate income tax surcharge, a lowered threshold for the estate tax, and increases in cigarette and alcohol taxes.

What makes Connecticut truly unique among the states in its revenue-raising approach this year was the care given to make the tax changes progressive and reform-minded rather than simply relying on quick or one-time fixes that postpone fundamental decisions and ignore the more significant structural and fairness flaws in state and local tax systems.

Very few businesses allow taxes to shape their business strategy as much as Amazon.com.  Amazon has shuttered a Texas warehouse, ended partnerships with businesses in at least three states, and sued the state of New York — all because of state tax laws it doesn’t like.  When the South Carolina House rejected a massive tax break package designed to lure Amazon.com within its borders last week, that state became just the latest victim of one of Amazon’s tax-induced temper tantrums.  

The drama in South Carolina all started when former Governor Mark Sanford and his Commerce Department told Amazon that they would try to score the company a lucrative tax break package in return for Amazon’s promise to build a distribution center in the state.  The most important component of that proposed package was an agreement that, despite having a physical presence in the state, Amazon.com would not be required to collect sales taxes on purchases made by South Carolina residents. 

Unsurprisingly, this proposal angered virtually every other retailer in the state, from “mom and pop” shops to Wal-Mart, all of which are quite sensibly required to assist South Carolina in collecting the sales tax owed on each sale they make.  

Last week, these retailers, working in combination with Tea Party activists (who, for once, actually recognized that “big government” can indeed extend its influence through new tax breaks), were able to defeat the legislation in the House in a lopsided 71-47 vote.  Gov. Nikki Haley helped contribute to the proposal’s defeat, rightly announcing that its passage would be “a slap in the face to every small business we have.”

Amazon responded by canceling millions in procurement contracts, removing South Carolina job postings from its website, and announcing that the million-square-foot distribution center currently under construction will probably be “put into mothballs” after its completion. 

Reaction to news of Amazon’s departure in the Palmetto State has understandably been mixed.  But South Carolina’s largest newspaper, The State, did run a nice editorial pointing out that “this doesn’t have to be a loss for our state in the long or even medium term.”  The editorial rightly argues that lawmakers should build on this development by limiting narrow tax giveaways, evaluating existing economic development programs, and investing in a skilled workforce and other broad-based quality-of-life initiatives that employers value.

South Carolina might get the last laugh if it follows the advice contained in this editorial.  Amazon is currently pursuing a business strategy that is far more concerned with state tax law than logic would dictate.  The vast majority of businesses very sensibly do not regard taxes as the be-all and end-all of a good business climate.  Many other factors, like the quality of a state’s workforce, roads, and public safety measures, are often much more important to a company’s bottom line. 

With more states growing tired of Amazon’s bullying and temper tantrums, it appears unlikely that a business strategy that regards taxes as an unbearable burden with no upside will remain profitable for long.

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?”

While almost every state faces revenue shortfalls due to the recession, North Dakota is one of the few to escape relatively unscathed, as a result of its oil revenue. In fact, North Dakota’s recently passed budget includes nearly half a billion dollars in tax breaks and increases general fund spending by more than 20 percent over the next two years.

The $489 million in tax reductions includes $341.8 million in local property tax relief, $120 million in personal income tax reductions, and $25 million in corporate income tax reductions.

Unfortunately, the $120 million in personal income tax reductions will not benefit those most in need. According to an analysis by the Institute on Taxation and Economic Policy, two-thirds of the income tax reduction will go to those making over $96,000, while only 5 percent will go to those making under $40,000.

The average tax cut for the richest one percent, those with incomes over $414,000, would be nearly $4,700. Only a third of those making under $24,000 will see any tax cut at all, and those who do will only receive about $18 over one year.

Republican lawmakers favored this regressive approach, even though North Dakota already has an extremely regressive tax system. As ITEP has noted before, taxpayers in North Dakota making less than $21,000 pay an average of 9.4 percent of their income in taxes, while those making over $406,000 pay only 4.3 percent of their income in taxes.

The North Dakota Economic Policy Project argues that a better approach to income tax reduction would have been for the state to enact a refundable state Earned Income Tax Credit (EITC). A state EITC equal to 10 percent of the federal EITC would only cost $17 million and would be specifically targeted to North Dakota’s low-income working families.

Ryan Taylor, the Democratic Minority Leader of the North Dakota Senate, also takes issue with cutting corporate income taxes by $25 million while many public services did not receive significant increases. In an op-ed for the Grand Folks Herald, Taylor asked, “Do we want to be a state that gives $25 million to corporations and countless more millions in the future by ignoring loopholes for oil companies, while leaving our children uninsured?”