Month: July 2011

As Republican leaders met President Obama today to attempt to come to some agreement on raising the debt ceiling and reducing the deficit, the media has reported that Republicans are open to increasing revenue — but the details consistently seem to disprove this claim.

The New York Times reports that

“The president’s renewed efforts follow what knowledgeable officials said was an overture from [Republican House Speaker] Boehner, who met secretly with Mr. Obama last weekend, to consider as much as $1 trillion in unspecified new revenues as part of an overhaul of tax laws in exchange for an agreement that made substantial spending cuts”

But the article then goes on to say

“At a news conference on Thursday, Mr. Boehner, of Ohio, told reporters that “everything’s on the table, except raising taxes” on the American people, but he added that a tax overhaul that would close breaks and lower rates was part of the discussion.”

The Times reporters fail to notice that closing loopholes and lowering rates, with a result that does not “raise taxes,” is a description of revenue-neutral tax reform, which obviously does nothing to help reduce the budget deficit. How is this progress in negotiations over the deficit?

Last week, the Times ran an article with the headline, “2 Republicans Open the Door to Increases in Revenue.” The article explained that Senator John Cornyn (R-TX) said he was willing to close tax loopholes, but went on to say that any tax changes must be “revenue neutral,” meaning any reduction or elimination of tax loopholes must be accompanied by reductions in tax rates or some other type of tax cut so that the total amount of revenue would not increase.

The article also quoted Senator John McCain as saying he was open to some unspecified “revenue-raisers” but then also quoted him as saying, “The principle of not raising taxes is something that we campaigned on last November, and the result of the election was that the American people didn’t want their taxes raised and they wanted us to cut spending.”

In other words, the Times article is about one senator who is definitely not open to revenue increases and another who says nothing coherent at all about them.

Yesterday, the Washington Post added to the confusion by informing us that Eric Cantor, the House Republican Majority leader “signaled a new openness to raising taxes— at least for selected special interests.”

The article also quoted Cantor as saying, “But listen, we’re not for any proposal that increases taxes, and any type of discussion should be coupled with offsetting tax cuts somewhere else.”

In other words, Cantor is not open to raising taxes overall and therefore not open to raising revenue, which is the only way any tax changes would help reduce the deficit.

Republican leaders appear to be sticking to an ideological position opposing any increase in tax revenue. It’s a position that defies common sense in a country that is taxed far less than other industrial countries, and it’s a position that is opposed by large majorities of Americans in swing states. Why the press is trying to present GOP leaders as more reasonable is anyone’s guess.

Photo via Speaker Boehner Creative Commons Attribution License 2.0

Despite the fact that the move would actually increase the deficit by an estimated $3.4 billion, House Republicans voted to slash the IRS’s budget by $600 million.

Unlike most types of public spending, increased funding of the IRS actually reduces the deficit. In some cases a dollar of additional IRS funding can generate $10 of revenue. Because of this, the non-partisan National Taxpayer Advocate noted in her recent report to Congress that the IRS should be viewed as not part of the deficit problem, but rather “as part of the solution.”

Taking this perspective, the Obama Administration proposed earlier this year to increase the IRS’s budget from $12.1 billion to $13.3 billion, in a move that was expected to actually reduce the deficit.

A $1.1 billion increase in funding would help the IRS reduce the “tax gap,” the difference between the amount of taxes owed and the amount of taxes actually paid on time. The tax gap is estimated to be between $400 to $500 billion each year.

One recent article points out that “the biggest losers” in the failure to stop tax evasion “are America’s wage earners and salaried workers, who pay an estimated 99 percent of their taxes on time because their taxes are automatically withheld from their pay and reported by a third party, their employers.” These working people — the vast majority of Americans — must pay even more in taxes when others evade theirs.

Other than tax evaders, it’s unclear who the decrease in funding is supposed to benefit. It’s certainly not law-abiding businesses or individuals, who according to a report by the law and lobbying firm K&L Gates would actually face higher compliance costs if the cut in funding is enacted.

CTJ’s director, Bob McIntyre, addressed IRS enforcement a few years ago before the Senate Budget Committee. Just returning the IRS to the staffing levels of a decade ago, he said, would require a 50 percent increase in the IRS enforcement budget. Taking this a step further, McIntyre noted that, given the increase in tax sheltering in recent years, it may be necessary to double the resources for tax enforcement in order to keep up with tax evasion.

If lawmakers are serious about reducing the deficit, then reforming and dramatically increasing (rather than decreasing) funding for the IRS is one place to start.

Photo via alykat Creative Commons Attribution License 2.0

The House Judiciary Committee approved the so-called “Business Activity Tax Simplification Act” (BATSA), H.R. 1439 today.

Corporate lobbyist pushing this bill make the deceptive argument that simplification will result from limiting state and local governments to taxing only those businesses that have a “physical” presence in the state.

The “physical presence” standard doesn’t make any sense in the internet age, when we all buy so many goods and services from companies that do not have physical facilities in our state but still benefit from the state and local services that make commerce possible.

In any event, BATSA does not create a “physical presence” standard anyway because it has so many loopholes allowing large corporations with lobbying clout to avoid state and local taxes even though they have what any rational person would call a “physical presence” in the jurisdiction.

In May, CTJ sent a letter to the subcommittee handling the bill, explaining that we oppose BATSA because it would:

1. make state and local taxes on businesses dramatically more complex,

2. increase litigation related to business taxes,

3. increase government interference in the market and

4. reduce revenue to state and local governments by billions of dollars each year.

Read CTJ’s letter opposing the misnamed “Business Activity Tax Simplification Act” (BATSA).

Call both your Senators and your member of the House of Representatives at the toll-free number below and tell them:

“Oppose the amnesty for corporate tax dodgers, which corporate leaders call a ‘repatriation holiday.’ This giveaway to corporations should not be part of the deal on raising the debt ceiling or any other legislation.”

Call this number to be connected to your members of Congress.

1-888-907-8574

Here’s why this is important.

A “repatriation holiday,” which has been proposed by some Republicans and Democrats in Congress, would remove all or almost all U.S. taxes on the profits that U.S. corporations bring back to the U.S. from other countries, including profits that they shifted to offshore tax havens using accounting gimmicks and transactions that only exist on paper.

If you want to give your lawmakers’ staffs more information, you can also tell them that:

1. Another repatriation holiday will cost the U.S. $79 billion in tax revenue according to the non-partisan Joint Committee on Taxation.

2. Another repatriation holiday will cost the U.S. jobs because it will encourage corporations to shift even more investment offshore.

3. The repatriation holiday is an amnesty for corporate tax dodgers because those corporations that shift profits into tax havens benefit the most from it.

4. Congress enacted a repatriation holiday in 2004, and the benefits went to dividend payments for corporate shareholders rather than job creation, according to the non-partisan Congressional Research Service. Many of the corporations that benefited actually reduced their U.S. workforce.

For more information, see the recent post from Citizens for Tax Justice on one senator’s repeated flip-flops related to the repatriation holiday.

Thanks to AFSCME for providing the toll-free number to enable constituents to get in touch with their members of Congress regarding this critical issue.

In the final hours before the state’s new fiscal year was to begin, Iowa lawmakers agreed on a two year, nearly $6 billion, budget plan. The new budget was heavily debated during the state’s third longest legislative session. The state’s budget is now balanced for the next two fiscal years, and compromise on some key issues was reached.

For example, the Press-Citizen reports that Democrats agreed to freeze school spending for the current fiscal year and then to increase funding by two percent in 2013. Republicans agreed to provide $59 million for the state’s preschool program, more than they originally proposed.

In the case of costly cuts to corporate property taxes, however, no final agreement was reached; and that is a victory for tax justice advocates.

Governor Terry Branstad wanted to drastically reduce corporate property taxes. His proposal would have allowed 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 was about $500 million. 

House Republicans weren’t willing to go that far, offering to shelter 25 percent of a property’s value. Senate Democrats were only interested in allowing targeted tax credits instead of across the board cuts. Ultimately, Iowa policy makers weren’t able to come to any sort of agreement.

But then, when it comes to handouts for corporations, that’s not such a bad thing.

Photo via Gage Skidmore Creative Commons Attribution License 2.0

The American Legislative Exchange Council (ALEC), working with Arthur Laffer and Stephen Moore, has updated its “state economic competitiveness index.”  The authors claim that the index analyzes how well state lawmakers are using fifteen “policy levers … that can make their state a desirable location” for individuals and businesses.

The study contains numerous absurdities and arbitrary features that could be picked apart in a longer article (for example: levying an estate tax, regardless of its size, is for some reason assumed to be exactly three times more damaging than failing to require a supermajority vote in the legislature in order to raise taxes).

But the more important problem is that the ALEC study makes almost no effort to evaluate the quality of public services provided within a state’s borders.  Virtually everyone agrees that good schools, adequate police protection, and an efficient transportation network are central to what makes a place a “desirable location” to live and work.  But none of these factors can boost a state’s “competiveness” score under the ALEC index.

In fact, it’s even worse than that.  Since more than half of the “levers” relate to keeping taxes low, adequately funding public services can actually hurt a state’s “competitiveness.”  And since states also lose points for every public employee living within their borders, most new laws designed to reduce class sizes, increase police patrols, or hire additional road construction workers will also hurt a state’s desirability and competitiveness, according to ALEC.

Unfortunately, the problems with this report aren’t just confined to its data and methodology.  As with previous editions of this study, a significant portion of its text was simply copied-and-pasted from the Wall Street Journal’s editorial page (one of the authors is on the Journal’s editorial board).  Most notable is the section on Oregon’s “missing” millionaires – a virtual carbon copy of a December 2010 editorial that ITEP and others thoroughly debunked on more than one occasion.

Ultimately, the authors have done little more than count the number of conservative priorities achieved in each state, and tack on some boilerplate anti-tax rhetoric that we’ve all seen before. “Rich States Poor States” is about as serious as the TV miniseries that inspired its name.

Lower the tax rate…or else.  Continued threats from Illinois business lobbyists warning that businesses will leave the state have forced the Illinois state legislature to order a joint House-Senate Revenue Committee to review Illinois’s corporate tax structure.  Companies like Caterpillar and the Chicago Mercantile Exchange continue to complain about the corporate tax rate and threaten to skip town and find another state to do business in if the committee doesn’t respond with dramatic rate cuts.

Illinois Senate President John Cullerton says the committee will not only look at corporate tax rates, but will also consider reducing corporate subsidies and special exemptions to ensure any change in the rate won’t reduce the overall corporate tax revenues.

Many businesses have come out in support of eliminating loopholes, not surprisingly most of which pay the full statutory corporate tax rate.  David Vite, president of the Illinois Retail Merchants Association, said that “the most important thing is to have a fair structure that makes Illinois efficient and as attractive as it can possibly be so we can get more businesses here to spread the burden of running the government more broadly.”

A myth that the corporate tax rate is the primary factor in business decision-making just won’t die.  A recent CTJ article showed that business executives consider taxes low on their list of priorities.  The tax rate is just one small factor that businesses take into consideration when deciding what state will give them the best chance to be profitable.  As Doug Whitley, President and CEO of the Illinois Chamber of Commerce said, “robust economic activity also requires sustained and significant investments in transportation infrastructure…educational opportunities that ensure a quality workforce and support retraining when required.”  The fact is, these investments all cost money, and if corporations are going to benefit from them they should contribute to their funding, just as individual Illinois taxpayers do.

Similarly, when a family is looking for a place to settle down, low taxes are pretty low on their list of priorities.  They want to know about the educational system, the community, and whether or not this is a good place to raise their children. Everything that makes a community  appealing to that family is supported by the tax base.

You wouldn’t expect a family to uproot itself and move to another state simply because they could save a couple hundred dollars in taxes next year.  Why would a corporation?

Lost in this tax debate are the vital public services that support the growth of the private sector.  Corporate taxes are simply one cost of doing business.  This is not to mention that all of these complaining companies have failed to mention the extraordinary financial and logistical costs of moving an entire business to another state.

We can always expect business leaders to call for rate cuts that would fatten their profit margins, but we shouldn’t expect Illinois’ elected officials to believe they’re acting in the public interest.

Photo via spudart Creative Commons Attribution License 2.0

On June 30, Ohio Governor John Kaisch signed into law a $56 billion, two-year budget that includes painful cuts to many public services including education. That didn’t stop the governor and legislators from finding room to give tax breaks to the wealthy. 

Ohio’s biggest revenue drop and boon for the state’s wealthiest taxpayers will come from the repeal of the state’s estate tax.  Ohio law held that estates worth more than $338,333 would be taxed before it was distributed to heirs or beneficiaries.  That’s less than 10 percent of all decedents’ estates in the state. Unfortunately, the loss of this highly progressive tax in Ohio will probably be made up through increases in regressive local taxes.  A recent CTJ article highlighted the need for an estate tax.  Eighty percent of the tax revenue from estates goes to local governments, which amounted to $230.8 million in FY 2011.  Coupled with other cuts in public services including education, local governments will really be feeling the pain this fiscal year.

A last minute addition to the budget is a new tax break for investors of Ohio small businesses worth up to $100 million a year, dubbed “InvestOhio.”  While supporters of the law claim it will spur job creation, there a few important details that suggest Ohio may just be wasting badly needed revenue.  Qualified investors will receive a tax credit, but nothing in the law requires that investment to contribute to job creation. Furthermore, the law may be subsidizing investing activity that would’ve happened anyway.  State Representative Mike Foley put it succinctly: “It’s basically just a giveaway to rich people.”

Perhaps the most telling part of the budget is what was left out. A common-sense law that would have required a review of Ohio tax expenditures (deductions, credits, and exemptions) worth $7 billion a year was removed from the final budget.  This sunshine provision would have allowed lawmakers to openly review and report on the success (or lack thereof) of tax policies annually.  By stripping the review law, the conference committee undermined the legislature’s authority, and demonstrated to Ohioans that accountability and transparency are too easily sacrificed in favor of narrow special interest groups.