Month: September 2011

CTJ, Heritage Foundation, Tax Foundation and Others AGREE that the 60 Former Hill Staffers Lobbying for Repatriation Amnesty Are Wrong

Bloomberg reports that the corporate coalition promoting a tax amnesty for offshore profits that U.S. corporations repatriate to the U.S. has hired 160 lobbyists, including an astounding 60 people who formerly served as staff to current members of Congress.

This breathtaking chart illustrates how everyone from President Obama’s former communications director to the Democratic Finance Committee chairman’s former chief of staff is now being paid by corporations to promote the repatriation amnesty.

Even more remarkable is that the organizations that study tax policy and agree on nothing have come to a consensus that this proposal should be rejected. Groups like Citizens for Tax Justice and the Center on Budget and Policy Priorities have been joined by the anti-tax Tax Foundation and the extremely conservative Heritage Foundation in opposing the proposal.

Naturally, the consensus ends there. For example, CTJ explains that the way to really fix our international tax rules is to remove the tax break that causes U.S. corporations to shift profits and operations overseas in the first place (“deferral”) while the Tax Foundation argues instead for permanently exempting offshore corporate profits from U.S. taxes. “However,” the Tax Foundation explains, “experience shows that the [repatriation] holiday has been ineffective policy.”  

The Heritage Foundation is similarly unimpressed with the proposal, saying:

“The issue here is not whether tax cuts are good or bad per se, but whether this particular tax cut would increase domestic employment and domestic jobs. Again, the answer is that it would not. . . Are these repatriating companies capital-constrained today? No, they are not. These large multinational companies have enormous sums of accumulated earnings parked in the financial markets already.”

Other organizations that have published analyses extremely critical of the proposal include the Economic Policy Institute, the Tax Policy Center, the Center on Budget and Policy Priorities, and the Center for Economic and Policy Research.

The proposed repatriation amnesty, which proponents call a “repatriation holiday,” would temporarily 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.

Here’s what we have said about this debate:

Data on Top 20 Corporations Using Repatriation Amnesty Calls into Question Claims of New Democrat Network

“The twenty companies that repatriated the most offshore profits under the temporary repatriation amnesty enacted by Congress in 2004 now have almost triple the amount of profits ‘permanently reinvested’ (i.e., parked) overseas as they did at the end of 2005.”

Call on Congress to Oppose the Amnesty for Corporate Tax Dodgers

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

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

3. The proposal 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 amnesty 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.

Here’s more from CTJ on the right way to fix our international tax rules:
Congress Should End “Deferral” Rather than Adopt a “Territorial” Tax System

In 2000, when the economy was strong and the state appeared to be flush with funding, Massachusetts taxpayers voted to incrementally roll back the personal income tax rate from 5.75 to five percent.  In 2002, the state legislature halted the rollback at 5.3 percent in response to an economic downturn with a provision that it could resume if revenues exceeded 2.5 percent growth.  The fiscal restraint inherent in this provision is admirable, but did not quite accomplish the legislature’s primary goal – preventing unaffordable tax cuts when the state can least afford them.

This year, it looks like the tax rollback will resume since revenues are expected to increase between 4 and 5 percent over 2010.  But these figures actually represent a decrease in revenue when compared to pre-recession levels.  In 2008, tax revenues were nearly $21 billion.  That number dropped to just over $18 billion in 2009, and increased incrementally to $18.5 billion in 2010.  This year’s projections put the state’s revenue at slightly over $20 billion, leaving the state less well-off than it was in 2008.

The pinch on the state’s budget has been felt by almost every Massachusetts resident.  Sweeping funding cuts in education, law enforcement, health care, housing, and transportation have increased the burden on low- and middle-income families year after year.  Facing a $1.9 billion budget gap in 2012, this fiscal year’s budget also includes drastic spending cuts.  The largest of these cuts include carving out $63.8 million from higher education funding, $316.7 million from MassHealth (the state’s Medicaid program), $56.8 million from transportation funding and $100.5 million from the budget for courts and legal assistance (primarily reducing the state’s indigent defense system).  “What I’ve seen in my district is continued cuts to education, environmental aid and affordable housing,” said State Senator Jamie Eldridge of Acton. “People are really talking about how the budget cuts that have already happened are very negative.”

Proponents of the tax rollback refer to the reduction from 5.3% to 5.25% as “miniscule.”  Yet for 2012, that reduction represents $114 million in lost revenue for the state.  Obviously, that is not enough to make up for the state’s $1.9 billion budget shortfall, but it could stave off further tuition spikes in the state university system and mitigate planned transit fare hikes. 

Massachusetts also has an opportunity to learn from its mistakes.  When the economy was flush in the early 90’s, Massachusetts dropped its tax rates, then spent years trying to fill in its budget gaps.  The same pattern has developed again, made worse by a deep and unrelenting recession.  Using the first glimpses of economic recovery as an excuse to lower taxes yet again is imprudent.  Instead, the state should use the revenue surplus to revoke a portion of the drastic cuts implemented in this year’s budget, or at the very least, retain the surplus to stave off future budget shortfalls.

Photo of Massachusetts State Senate Chambers via Cody Hanson Creative Commons Attribution License 2.0

This week, the Associated Press is reporting that some lawmakers in Olympia “have been quietly exploring the logistics of a special election in February 2012 that could ask state voters to raise taxes to help fill another budget shortfall.” 

This is a very promising development. Lawmakers from Washington State to South Carolina and any state with a budget crunch should be exploring straightforward revenue raising options like this. Balancing budgets by cuts alone undermines education, health care, public safety and the myriad of other important services that government provides its constituents.

A less promising development, meanwhile, is that Governor Christine Gregoire has called the legislature back for a special session in November with the goal of finding $2 billion in budget cuts, on the heels of $4.6 billion they already passed earlier this year.

The Washington State Budget and Policy Center (WSBPC)  reminds us that there is a lot at stake in this special session. Already, state agencies have submitted budgets that reflect 10 percent across the board reductions.  Some of the real life implications of these reductions would be: over 18,000 fewer students enrolled in community and technical colleges, the loss of health care for 25,000 children, and the elimination of food assistance for 14,000 low-income legal immigrants.

WSBPC gets it right when it says, “it doesn’t have to be that way.  Policymakers can and should raise additional resources through a combination of eliminating wasteful tax breaks and temporarily increasing general tax rates or sin tax rates.

Given the harsh spending cuts that are likely coming down the pike, it’s imperative that lawmakers and the public remain vigilant and explore revenue raising opportunities in both the legislature and through the initiative process.

Photo of Washington State Capitol via Alan Cordova Creative Commons Attribution License 2.0

The question from a Tea Party voter was this: “Out of every dollar I earn, how much do you think that I deserve to keep?”

It came during the Fox News and Google Republican presidential candidates debate last Thursday, and was directed at Minnesota Rep. Michele Bachmann.  It was her second crack at the question, so she’d had plenty of time to think it through. And her reply was this: “I think you earned every dollar. You should get to keep every dollar you earn.”

A few sentences later, however, the Congresswoman added, “Obviously, we have to give money back to the government so that we can run the government….”

The anti-tax orthodoxy has become so rigid that candidates like Bachmann, who also chairs the House Tea Party Caucus, must try to reconcile the position that no American should have to pay taxes even when they work for the government who collects those taxes and know perfectly that taxes are required to “run the government.”

Bachmann may have had the most telling (and head-exploding) tax policy moment during the last weekend’s three day series of major Republican presidential candidate events, but she was not alone among the candidates in stumbling over tax issues.

Former Utah Governor Jon Huntsman faced a tough question from the debate moderator Megyn Kelly who asked, “Is there any scenario under which you could side with the 66 percent of people who believe that it is a good idea to raise taxes on millionaires?” Despite his status as most moderate Republican candidate this season, Huntsman delivered the prefabricated anti-tax response: “This is the worst time to be raising taxes, and everybody knows that.”

Clearly, not “everybody” knows that. As Kelly’s question suggested, 66% of American’s support increasing taxes on the wealthy. Hewing to their anti-tax orthodoxy, Huntsman and the rest of the GOP field find themselves at odds with two thirds of the American public.

Former New Mexico Gov. Gary Johnson made his first major GOP debate appearance memorable by using his limited speaking time to call twice for replacing our current income tax system with the, so-called, Fair Tax, which is essentially a 30% national sales tax. As the Institute on Taxation and Economic Policy showed in its report on the Fair Tax, the plan is both unworkable and extremely regressive.

Although Gary Johnson is probably the most forthright in his support of the Fair Tax, at least half of the Republican field (and most notably current front-runner Texas Governor Rick Perry) have come out in favor of it. The one exception is former Massachusetts Governor Mitt Romney, who came out against the Fair Tax in the last debate, noting, quite sensibly and correctly, that it would cut taxes for the rich while increasing them on middle income families.

Former CEO of Godfather’s Pizza Herman Cain had a strong weekend, winning the Florida Straw poll with a surprising 37 percent of the vote. ABC News notes that his success was partially due to his ability to ‘strike a chord’ with his “9-9-9” tax plan, which he also touted proudly during the debate. His plan would replace the entire federal tax system with a 9 percent national sales tax, 9 percent income tax, and 9 percent business flax tax. As we’ve pointed out before, every aspect of this gimmicky and regressive plan would mean higher taxes on lower and middle income families and much lower taxes on the wealthy.

Former House Speaker Newt Gingrich took the debate as an opportunity to – and not for the first time – rewrite fiscal history by claiming that his ‘leadership’ led to four consecutive years of balanced budgets. We’ve said it once, we’ve said it twice, and we’ll say it again: sorry Newt, you never balanced the budget.

Watch this space for reviews of all things tax as the political campaign season kicks into high gear.

Oklahoma, like most states, has many hundreds of tax expenditures, a.k.a. “spending in the tax code.”  Actually the state offers about 450 special tax credits, deductions or exemptions designed to benefit a specific activity or purchase and, in most cases, the interest group behind it – usually in the name of economic development. There is a growing awareness that these tax expenditures, despite their high costs to the state, aren’t monitored very well.  In fact, no one seems to even know how much the state spends on them. In an attempt to rectify the situation, Oklahoma legislators have formed the Task Force for the Study of State Tax Credits and Economic Incentives. The Task Force is taking a hard look at the breaks, deductions and exemptions Oklahoma offers and asking whether the state really benefits from each of these costly expenditures in terms of economic development and the general public good.

The task force met over the summer and will continue to meet until they present their recommendations around the end of the year. After its first meeting, the Oklahoma Policy Institute reported some good news: “The meeting made clear that it will be a long and sometimes contentious process, but that this Task Force is serious about meeting the challenge. “ Legislators appear to be coming to terms with the difficult political reality that every tax credit or tax expenditure has supporters. State Rep. David Dank was recently quoted saying, “It never ends. The simple truth is that we could exempt almost everything from taxation. And then I suppose we could apply for a historic preservation tax credit to turn this state Capitol building into a casino or something because state government would be broke and out of business.”

The Oklahoma Policy Institute offers a superb report on tax expenditures in the state and recommendations for change. The Institute has long called on lawmakers to ensure that “the state is allocating public resources in the best possible fashion” and the Task Force, if successful, will bring Oklahoma closer to a smart, public interest tax code.  (As long as the chairs fail in their efforts to abolish the personal income tax, but that’s another topic.)

For more on tax expenditures and other games legislators play in the name of economic development read this ITEP brief. To read about the tax expenditure problem on the federal level take a look at this CTJ report.  And if you’re really into tax policy, you can follow the Task Force meetings here, where a local news consortium is live blogging every session! The next meeting is October 20th.

Photo of Oklahoma Capitol Dome via BJ McCray Creative Commons Attribution License 2.0

The DC Council voted on Tuesday to temporarily increase the marginal income tax rate on those making over $350 thousand a year from 8.5% to 8.95%, in a move that will raise an estimated $106 million in revenue over the next 4 years (when the measure will sunset).

Due to harsh economic times, the DC Council has faced a difficult task in balancing the District’s budget, causing it to make $108 million in cuts to critical human services support and other low income programs in the fiscal 2012 budget.

A modest tax increase on high income taxpayers may seem like a relatively straightforward step for the Council to take in a time of such austerity, yet the vote was highly contentious, with the measure just barely passed, seven to six

As part of the deal, supporters of raising taxes on high income earners agreed to undo a recently added tax code provision that progressive tax advocates liked.  Just this summer, the Council voted to start taxing the interest that individuals earn on non-DC municipal bonds they own, no matter how long ago the bond was purchased. The deal eliminates the retroactivity and means that only out of state bonds purchased after this year will no longer prove their District owners a tax break.  Although it also means a decrease in the amount of revenue generated, the elimination of the tax exemption on bond interest going forward will enhance the progressivity of DC’s tax system (just like it has for every other state).

DC’s tax increase on high income taxpayers is still only a small step toward making DC’s upside down tax system fairer. According the Institute on Taxation and Economic Policy’s Who Pays report, the middle 20% of taxpayers (those making between $33 and $57 thousand) pay on average 10.5% of their income in District income and other taxes, while the top 1% of taxpayers (those making over $1.5 million) pay an average of only 6.4%.

This small but positive step toward more progressive taxation builds on other smart revenue increases enacted by the DC Council in June, such as the implementation of combined reporting for businesses and setting budget limits on the value of itemized deductions.

For Immediate Release: September 22, 2011
Contact: Anne Singer, anne@ctj.org, 202-299-1066 x27

How 47 Governors Can Mitigate the Worsening Poverty in Their States:
Four Tax Reforms That Help the Working Poor

Washington, DC – With today’s Census data showing that 47 states now have more citizens living in poverty than a year ago, it is remarkable that four states (ME, MI, MN, WI) have recently raised taxes on the working poor by reducing targeted tax credits, and seven states (AK, AL, FL, MS, NV, TN, TX) offer no anti-poverty tax credits at all. Coinciding with the Census Bureau release of 2010 state level data on poverty, today ITEP releases its comprehensive state-by-state review of tax policies that can make the difference between falling behind and getting ahead for 46.3 million low income Americans.  The report, “State Tax Codes As Poverty Fighting Tools: 2011 Update on Four Key Policies in All 50 States,” is online at http://www.itepnet.org/poverty2011.php.

“Lawmakers try to leverage the tax code to do all kinds of things – lure business, reduce health costs – but too few use it to ease the effects of poverty,” said Matthew Gardner, ITEP’s Executive Director. “Our report shows each state what they’re getting wrong and how they can make it right.”

Among the resources state legislators and governors have at their disposal to improve the lives of their constituents, state tax codes offer four key policy tools lawmakers can easily implement to help lift families out of poverty: Earned Income Tax Credits; property tax “circuit breakers;” targeted low income tax credits; child-related tax credits.

A 2009 ITEP analysis shows that the lowest earning 20 percent of taxpayers paid 10.9 percent of their income in combined state and local taxes (income, property, sales, etc.). By contrast, the wealthiest one percent spent less than half that, just 5.2 percent of their income, on state and local taxes.  Even in states with graduated income taxes, heavy reliance on sales and excise taxes means than most states’ overall tax systems are more expensive for low income than for high income citizens.

“Targeted tax credits are like economic life lines for people who are struggling,” said Gardner. “The new Census report shows that now is the worst possible time for states to pare back these credits and makes it all the more urgent to implement them.”

“State Tax Codes As Poverty Fighting Tools” reviews four simple tax fixes and how they can be smartly designed and quickly implemented to reduce the proportion of income spent on taxes for those families and individuals state lawmakers choose to target. 

Founded in 1980, the Institute on Taxation and Economic Policy (ITEP) is a non-profit, non-partisan research organization, based in Washington, DC, that focuses on federal and state tax policy. ITEP’s mission is to inform policymakers and the public of the effects of current and proposed tax policies on tax fairness, government budgets, and sound economic policy. ITEP’s full body of research is available at www.itepnet.org.

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, with the unveiling of grim figures from the Census Bureau describing how poverty has increased in 47 states compared to last year, we are featuring updated policy briefs describing two critical anti-poverty tax policies. Both are immediately available to lawmakers at the state level seeking to mitigate the effects of poverty for their constituents.

• Reducing the Cost of Child Care Through Income Tax Credits
• Property Tax Circuit Breakers