Month: August 2011

Republican Candidates Completely Walk Away from Balanced Approach

“Just making sure everyone at home and everyone here knows that they all raised their hands. They’re all saying that they feel so strongly about not raising taxes that a 10 [spending cuts] to one [tax revenues] deal, they would walk away from,” Fox News host Bret Baier confirmed for the audience at the first Iowa Republican Primary debate.

With a simple raising of hands, the debate revealed that the entire Republican field would reject any sort of compromise measure that included revenue increases, even if such a compromise heavily favored spending cuts. Even a deal raising just one dollar in revenue for ten dollars in spending cuts is now off the table for the Republican candidates.

This no-compromise approach on taxes demonstrates that ultimately the winner of Thursday night’s Republican debate is Grover Norquist, whose no-tax pledge has become an absolute requirement which every Republican presidential candidate must religiously abide.

Republican Candidates Run Away from Previous Compromises

Not only did the candidates promise to not increase any taxes in the future, many of them ran away from their own record of raising taxes in the past.

During the debate, the Washington Examiner’s Byron York asked former Governors Tim Pawlenty, Mitt Romney, and Representative Michele Bachmann in turn about specific times that they had voted for or signed some form of a (gasp!) tax increase.

Each in turn, attempted to explain away their former support for the tax increases. Bachmann blamed Pawlenty for forcing her into a box, saying that she had to vote for the tax increase in order to support abortion restrictions. Pawlenty emphasized his high ratings from the CATO Institute and said that he regretted the cigarette fee he had agreed to in order to end a government shutdown. Romney did not dispute the specific incident brought up from his record, but he emphasized that he decreased taxes overall and that he had managed to get Massachusetts’s credit rating to be increased.

None of the candidates were willing to stand up and defend the core truth at issue: responsible lawmakers are sometimes required to make compromises based on the realities they face.

Each of these Republican candidates was forced at some point to make the responsible decision to vote for tax increases and defy Norquist’s absolutist pledge.

What makes these attempts to run away from their tax record particularly ironic is that both Romney and Pawlenty have long catered to anti-tax forces by advocating fiscally irresponsible policies.

Jon Huntsman Wrong on Flat Tax, Herman Cain Still Wrong on Repatriation

Although touting one’s opposition to any tax increase was the theme of the night, a couple candidates advocated their own problematic approaches to tax reform.

Former Utah Governor Jon Huntsman lauded his creation of a flat tax in Utah, saying that such an approach is “exactly what needs to happen in this country.” As Citizens for Tax Justice has noted before however, Huntsman’s flat tax made the state’s tax system even more regressive and lost an unexpectedly large amount of revenue, making it a case study of bad tax policy.

For his part, former CEO of Godfather’s Pizza Herman Cain had a moment of surprising candor when discussing the proposed repatriation holiday. When pressed on the failure of the 2004 repatriation holiday to create jobs, Cain admitted that he was “not concerned” with what actually happens to offshore corporate profits repatriated under the holiday, so long as the are back in the US. In other words, he does not care whether corporate tax breaks lead to job creation.

As we noted during the last debate, what Cain fails to realize is that a permanent or even temporary tax holiday on repatriated profits would ultimately incentivize companies to move more of their investment and jobs offshore.

Check out a complete transcript of the debate here

The Institute on Taxation and Economic Policy (ITEP) offers a series of Policy Briefs designed to provide a quick introduction to basic tax policy ideas that are important to understanding current debates at the state and federal level. This week, ITEP released four Briefs that provide an overview of basic tax policy ideas that help explain how all state and local taxes work.

· Tax Principles: Building Blocks of A Sound Tax System

· Tax Policy Nuts and Bolts: Understanding the Tax Base and Tax Rate

· How State Tax Changes Affect Your Federal Taxes: A Primer on the “Federal Offset”

· Introduction to ITEP’s Tax Incidence Analysis

As predicted, the bad news about Democratic Governor Andrew Cuomo’s infamous property tax cap is already starting to roll in as local governments begin to grapple with the law’s implications.

In the Town of Southhampton, for instance, the local comptroller told the town board that on top of several years of tough austerity measures, the cap will likely force another $5 million in cuts. Southhampton Councilwoman Bridget Fleming was so frustrated by the cuts that she accused the area’s state assemblyman of “essentially crippling” the town’s ability to provide services.

Over in Canadaigua, New York, school officials are worried that the cap may “severely  limit” their options in putting together next year’s budget. The Superintendent of Canandaigua Schools expressed his own frustration with the cap saying that it addresses “only a symptom” of the state’s fiscal challenges as it does not address decreasing state aid or the increasing costs of mandates coming from the state level.

Looking statewide, a recent report by the credit-rating agency Moody’s noted that the property tax cap could endanger local governments and school districts by putting “additional pressure on local government financial operations already strained by declining state aid, weakened tax revenue, high fixed expenditures and state-mandated services.” The report even pointed to the specific examples of the Town of Fishkill and Monroe and Rockland counties as the governments most in peril from the cap.

To avoid these eventualities, the Wall Street Journal reports that many local governments are devising ways to “stretch” loopholes to increase the amount of money they can raise. Peekskill city for instance is hoping to use two exemptions — one for pension costs and another for debt service — to  raise property taxes as much as 5.9%. The Cuomo administration, however, has disputed interpretations of the cap law that would allow for such extensive exemptions and argues that localities should focus more on cutting spending.

Meantime, the New York based advocacy group Community Voices Heard (CVH) has it right: they say that the best thing the state government could do to improve schools and other public services would be to extend the millionaire’s tax, a move Cuomo opposes.

The Institute on Taxation and Economic Policy concurs with CVH in its own report on how to fix New York’s education funding system, noting that a policy like extending the millionaire’s tax would not only make the state’s tax system more fair, but it could go a long way towards improving fiscal sustainability at the state and local level.

UPDATE 8/12/11: It appears there may now be a third path forward. The Tennessean reports that Gov. Haslam recently began negotiations with Amazon in order to have the company collect sales taxes. Such a deal would likely involve giving the company hefty subsidies.

Traditional “brick and mortar” retailers are becoming increasingly frustrated that Amazon.com and other online retailers aren’t collecting sales taxes owed on their customers’ purchases.  Online shopping makes up a significant (9%) and fast-growing share of all retail sales, and many online retailers are using their exemption from collecting sales taxes to expand that share. 

Against this backdrop, a group representing some of Tennessee’s most powerful retailers recently threatened to file suit if Amazon.com is not required to collect sales taxes – just like traditional sellers – when two new distribution centers in the state are up and running.

The saga in Tennessee began when former Governor Phil Bresden struck a backroom deal with Amazon while on his way out of office.  The deal reportedly included a promise that the Internet giant would not have to collect sales taxes in Tennessee, even if the company established distribution centers in the state (which by most accounts would constitute “physical presence” and therefore require that the company collect taxes).

But a regulation that would have cemented the deal failed to make it onto the books, and now Amazon is on less certain footing in claiming that it does not have to collect taxes because the new distribution centers are technically owned by a subsidiary, not Amazon itself.  This line of argument is basically identical to one the company tried to use in Texas, so far unsuccessfully.

At this point, there are two separate paths forward for making Amazon collect sales tax just like most other retailers.  First, lawmakers could pass legislation clarifying that the company is in fact subject to the state’s sales tax collection requirement.  Legislation that would have done exactly that stalled in the last session while its sponsors waited for legal guidance from the state’s Attorney General (he eventually confirmed that the legislation would have been constitutionally permissible).  The sponsors are apparently interested in pushing for the legislation again in 2012.

The second path would go through the courts.  The Retail Industry Leaders Association – which includes such heavyweights as Wal-Mart, Best Buy, and Home Depot – recently announced that it may file suit if the state does not force Amazon.com to begin collecting sales taxes once the company’s new distribution centers begin operating.  While details of the suit remain sparse, it would presumably try to show that Amazon.com does in fact have a physical presence in the state, all claims about “subsidiaries” to the contrary.  If the courts agree on that point, Amazon will likely be required to collect sales tax.  The legal requirement that sellers collect the tax is not optional and could only be waived through actual legislation, not just a secret agreement with the Executive Branch.

Ultimately, the legislative path is more straightforward than going through the courts, but if Amazon is able to scare enough lawmakers into opposing the legislation, it’s oddly reassuring to know that big box retailers are prepared to fight for a more even-handed application of the state’s sales tax laws.

Photo via Markuz and Brent Nashville Creative Commons Attribution License 2.0

House Democratic Leader Nancy Pelosi today appointed members to fill the three seats allotted to her for the 12-member “super committee” created under the recent debt deal.

Last December, all three voted against the “compromise” that extended the Bush tax cuts entirely, even for the richest Americans, for two years. All three also received high scores from CTJ’s legislative report card during the previous administration for opposing President George W. Bush’s regressive tax cuts.

Pelosi’s appointees are Xavier Becerra of California, James Clyburn of South Carolina, and Chris Van Hollen of Maryland.

This move by Pelosi provides needed reassurance to advocates of tax fairness. The six Republican members of the super committee have all taken Grover Norquist’s infamous “no new taxes” pledge. The Senate Democrats appointed to the committee have a more mixed record on taxes (see related post.)

Photo via Campus Progress Creative Commons Attribution License 2.0

Super Committee Should Either Focus Entirely on Revenue, or Simply Allow Automatic Sequestration to Go into Effect

Numerous surveys show that large majorities of Americans want Congress to address the deficit with a combination of spending cuts and tax increases. The first half of deficit reduction accomplished under the newly enacted debt deal will be entirely through spending cuts. This means that the second half of the deficit reduction — which is to be determined by a Congressional “super committee” — should be accomplished entirely by increased revenue. Responsible members of the super committee should walk away from any deal that falls short of this goal.

The super committee has many options to increase revenue, particularly by eliminating or reducing subsidies provided through the personal income tax and corporate income tax to business and wealthy investors. As CTJ director Bob McIntyre explained to the Senate Budget Committee in the spring, these tax subsidies cost a billion dollars a day.

If the super committee cannot agree on such revenue-raising measures, they should do nothing. The $1.2 trillion in automatic spending cuts that would result from the super committee’s failure to reach agreement are not the worst possible outcome. Half of the automatic spending cuts would come from defense spending (which has increased by 70 percent since 2001). If the super committee comes to an agreement that avoids the automatic cuts but lacks revenue increases, the consequences could be far worse. For example, the committee could choose to focus cuts instead on public services that working Americans rely on in order to protect powerful defense contractors.

Further, President Obama and responsible members of Congress will have another opportunity to take an anti-deficit stance at the end of 2012, when they can demand that the Bush tax cuts will either expire for the rich or expire entirely. The Bush tax cuts expire under current law at the end of 2012, and proponents of the tax cuts have no power to extend them without the support of President Obama and the Democratic leadership in the Senate.

The Budget Control Act

The Budget Control Act, signed into law last week to raise the debt ceiling, reduces the deficit and lifts the ceiling in two stages. First, caps on discretionary spending (both defense and domestic) are in effect and will save $900 billion over ten years. Second, a Congressional “super committee” of six Senators and six Representatives, divided evenly by party, must by Thanksgiving come up with measures to save between $1.2 trillion and $1.5 trillion over ten years. Whatever plan is approved by a majority of the committee could then be passed by a simple majority in the House and Senate and sent to the President.

If this process fails (or fails to save as much as $1.2 trillion) then automatic triggers will go into effect that sequester $1.2 trillion of spending (or the difference between what the super committee’s plan saves and $1.2 trillion) over ten years. The spending sequestered would be divided evenly between domestic and defense.

Republican Super Committee Members Pledge No Taxes. Will Democratic Members Start with Compromise?

There is no responsible way for Democratic members of the super committee to “compromise” without convincing Republicans members to violate their pledge. The United States is one of the least taxed countries in the industrial world. (Only Mexico and Chile collect less taxes as a share of their economy.)

The Democrats generally seem vastly more likely to cave on their core principles, given their recent agreement to raise the debt ceiling without any guarantee of increased revenues.

It’s true that Congress has a very difficult time providing immediate solutions when the political parties have irreconcilable worldviews. But there is a process to resolve that, and it’s called an election. And this process will work if voters know which lawmakers prioritize tax breaks for corporations and wealthy investors, and which lawmakers prioritize Medicare, Social Security, education and the other public services that working Americans rely on.

Photo via Gage Skidmore and The White House Creative Commons Attribution License 2.0

At the end of last week, Standard & Poor’s (S&P), one of the three major credit rating agencies, downgraded the credit worthiness of the United States for the first time and specifically stated that allowing the Bush tax cuts to expire for the wealthy would justify a return to the highest possible rating.

S&P’s report says that its “upside scenario,” which could allow the rating to be upgraded to “stable” “incorporates $950 billion of new revenues on the assumption that the 2001 and 2003 tax cuts for high earners lapse from 2013 onwards, as the Administration is advocating.”

S&P: The Broken Clock

Of course, S&P is right that allowing the Bush tax cuts to partially expire for the rich (at least) would improve our fiscal situation. But S&P’s accurate observation on this point is akin to the broken clock giving the correct time twice a day.

It’s worth pointing out that this is one of the rating agencies that convinced an awful lot of people that mortgage-backed securities were perfectly safe in the run up to the economic collapse that triggered bank bailouts by the Bush administration. Investors seemed entirely unconvinced by the report on Monday, when they traded in stocks and bought up the very Treasury bills that S&P claims now carry some risk of default. Some observers have even suggested that S&P’s downgrade is a threat to prod Congress and the Administration to undo the stricter regulations on credit rating agencies that were enacted as part of the Dodd-Frank financial reform.

Perhaps the most damning indictment of S&P’s report is the $2 trillion mistake that the Administration identified, which S&P responded to by simply changing the rational for its downgrade from an economic one to a political one. S&P told the Administration that the $2 trillion mistake did not substantially alter its conclusion. But as observers have noted, the report makes clear that ending the Bush tax cuts for the rich (which would only save $950 billion) would alleviate the need for the lower rating.

Stating the Obvious: Congress Is Dysfunctional and Held Hostage by the Tea Party

All that being said, the report’s conclusions about America’s politics are correct, if rather obvious. “The political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed,” the report admonishes. “The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy.”

Of course Congress is less effective than ever. In fact, it’s utterly dysfunctional. No legislation of any significance can be passed in the Senate without a supermajority of members in support, which has not been the case historically (contrary to what many believe). As a result, President Obama’s proposal to extend the Bush tax cuts entirely for all but the richest two percent failed to pass last year despite support from a majority of the House and a majority of the Senate.

Now Republicans have established that they will vote against any increase in the debt ceiling (which is comparable to refusing to pay a credit card bill after you knowingly made half your purchases on it) unless they receive major policy concessions that most Americans do not support.

Tea Party lawmakers are willing to hold the legislative process hostage. In fact, the Republican Senate leader now uses the words “hostage” and “ransom” to describe the party’s legislative strategy regarding debt ceiling negotiations. House Republican Whip Eric Cantor responded to S&P’s report by exhorting his party to hold firm against any proposal to raise revenue.

Despite the many shortcomings of S&P, last week’s downgrading of the U.S.’s credit rating ultimately is the Tea Party Downgrade.

The three Democratic Senators appointed by Harry Reid to sit on the “super committee” established under the debt deal voted for the President’s disastrous budget compromise in December of 2010 that extended the Bush tax cuts for another two years.

Sending these three in to negotiate with members who passed an anti-tax litmus test to get there is worrying.

How did the three perform on other tax votes? Senators John Kerry and Patti Murray have a record of voting against costly and regressive tax cuts, while Senator Max Baucus has a mixed record. 

Baucus actually received a failing score on CTJ’s legislative report card during the Bush years because of his support for many regressive tax cuts.  On the other hand, Senator Baucus led the charge in 2010 to end the Bush tax cuts for the rich.

All three of these Senators deserve credit for voting last year to extend the Bush tax cuts only for those earning below $250,000, which was, at least, better than the Republican proposal to extend the tax cuts entirely.

If these are the Senators charged with holding the line against no-revenue-no-way Republicans, then they’re going to need some reinforcements.  

On Sunday, 45,000 Verizon employees went on strike to protest the company’s push for employees to give back $1 billion in health, pension, and other contract concessions. What makes these demands particularly galling is that Verizon is both highly profitable and already a model of poor corporate citizenship.

Despite earning over $32.5 billion over the last 3 years, Verizon not only paid nothing in corporate income taxes, it actually received nearly $1 billion (the same amount as the concessions they are seeking) in tax benefits from the federal government during that time.

If Verizon thinks its employees should pay $1 billion more for their benefits, we think Verizon should pay A LOT more for the benefits it receives from the federal government.

In fact, if Verizon paid its corporate income tax at the official rate of 35 percent, it would have owed more than $11 billion (rather than negative $1 billion). This alone is enough to  avoid the recent cuts in the debt deal to student loan programs..

For its part, Verizon has disputed the claim that it does not pay enough in taxes. Their math however is misleading because it includes taxes that they will owe in the future, not those they actually pay in a given year.

Verizon’s tax dodging is now so infamous that it has become one of the primary targets of US Uncut, a grassroots organization dedicated to getting corporations to pay their fair share.

The Communication Workers of America (CWA), who is leading the strike along with the International Brotherhood of Electrical Workers (IBEW), also notes that while calling for a benefit cut from workers, the top 5 executives at Verizon received more than a quarter of a billion dollars in compensation over the last 4 years.

Given their record on taxes and compensation, it’s hard to believe Verizon will come around to being a good corporate citizen anytime soon, yet unions and the public alike need to keep up the pressure by asking Verizon: Can you hear us now?