CTJ Report: GOP’s Tax Cuts Are FAR More Targeted to the Rich than Payroll Tax Cut, But Both Parties Ignore a Better Option

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On Sunday, the second highest ranking Republican in the U.S. Senate, Jon Kyl, said, “The payroll tax holiday has not stimulated job creation. We don’t think that is a good way to do it.” Asked why he opposes letting the Bush tax cuts end for the rich or imposing a surcharge on millionaires while also opposing this particular measure to keep taxes low, he replied, “The best way to hurt economic growth is to impose more taxes on the people who do the hiring. As a result, the Republicans have said, ‘Don’t raise the existing tax rates on those who do the hiring.’”

In other words, keep taxes low for the rich. A new report from CTJ shows that the Bush tax cuts supported by Senator Kyl will provide $231 billion in benefits to the richest fifth of taxpayers in 2012 and just $3 billion to the poorest fifth of taxpayers during that same year.

The payroll tax cut proposed by President Obama and Senate Democrats is more evenly distributed but is not particularly progressive. The CTJ report shows that it would provide $83 billion to the richest fifth of taxpayers and $7 billion to the poorest fifth of taxpayers.

Most economists agree that government spending measures are the most effective way to put more money in the hands of consumers to spend and thereby reduce unemployment. But if lawmakers insist on using tax policy instead, they should enact tax cuts that are targeted to those low- and middle-income consumers who are likely to immediately spend any new money they receive.

The Senate Democrats’ payroll tax cut proposal, which would be offset by a surcharge on millionaires (see related story), won a majority of votes yesterday (50 Democrats and one Republican voted in favor) but was blocked by the remaining Senators. Republican leaders offered their own payroll tax cut that would be offset by cutting back federal government positions and pay, but this did not even receive support from a majority of Republicans in the chamber.

The CTJ report points out that a better option would be to revive the Making Work Pay Credit that expired at the end of last year, which has been discussed by some Senators but ignored by leaders of both parties.

The report finds that if the Making Work Pay Credit was in effect in 2012, the richest fifth of taxpayers would receive $11 billion while the poorest fifth of taxpayers would receive $7 billion, making it a less costly and more targeted tax cut.

CTJ Fact Sheet: Senate Couldn’t Bear Richest One-Fifth of One Percent Paying 2.1 Percent of Income to Create Jobs

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State-by-State Figures Included

The millionaire surcharge that would have offset the cost of Senate Democrats’ proposed payroll tax cut would have affected only one-tenth of one percent of taxpayers in the majority of states, and in no state would those affected pay more than an average of 2.5 percent of their income under the surcharge, as explained in a new fact sheet from CTJ.

Nationally, just 0.2 percent of taxpayers would be affected by the surcharge and those affected would pay 2.1 percent of their income, on average under the proposal.

The surcharge would be 3.25 percent of the portion of any taxpayer’s adjusted gross income (AGI) in excess of $1 million starting in 2013. This means that a taxpayer with AGI of $1.1 million in a given year would pay a surcharge equal to 3.25 percent of $100,000, which is $3,250 (less than one-third of one percent of the taxpayers’ AGI). Taxpayers with AGI below $1 million would be unaffected by the surcharge.

Of the 49 Senators who blocked the Democrats’ payroll tax proposal yesterday, the surcharge motivated many of them. Others blocked the proposal because they objected to the idea of a payroll tax cut in principle. Most Republican Senators actually voted against the version of the payroll tax brought to the floor by GOP leaders, which would have been offset with reductions in federal government jobs and compensation. (See related story about CTJ’s figures on the payroll tax cut.)

Barney Frank, Tax Fairness Champion

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Massachusetts Democratic Representative Barney Frank made waves on Monday with the announcement that he will not seek reelection in 2012. During his 30 years serving in the House of Representative, Rep. Frank has become well known for being the most prominent gay politician in the United States, his leadership role on the House Financial Service Committee during the height of the financial crisis, and his infamously cheeky remarks on a wide variety of different issues.

Rep. Frank is less known for his many years of service standing up for good tax policy. During the George W. Bush years for example, his record on working against the irresponsible Bush tax cuts earned him a straight A’s on our Congressional Report Card. In fact, just last year Rep. Frank stood up against pressure from Republicans and the White House to become one of the strongest Democratic voices opposing the deal that extended the Bush tax cuts for two more years.

Because of his strong advocacy over the years, we were proud to have Rep. Frank as an honorary chairman of our 30th Anniversary Celebration a couple years back. We could not think of any better way to honor Rep. Frank than to share two of our favorite quotes of his on tax policy:

  • “Tax cuts are fun, but I never saw a tax cut put out a fire. I never saw a tax cut make a bridge” Barney Frank, MSNBC, August 1, 2011
  • “Remember that our debt crisis began when someone decided to get the joint prize, Nobel Prize, for economics and fiction by putting forward the theory that you could finance two wars with five tax cuts. That’s what put us in the hole.” Barney Frank, CNBC, January 29, 2011

Photo of Barney Frank via World Economic Forum Creative Commons Attribution License 2.0

Cyber Monday ’11: Record Setting Online Shopping Robs States of Sales Tax Revenue

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Cyber Monday 2011 was the biggest online shopping day in the history of the Internet, shattering all previous years’ records. Online shopping the Monday after Thanksgiving was up 33% over last year, with consumers spending $1.25 billion on e-purchases.

Almost all states require local mom and pop stores, as well as big box retailers down the road, to collect sales taxes on the purchases you make.  But when it comes to out-of-state online retailers, states lack that power due to a 1992 Supreme Court ruling.

West Virginia, for example, has done the math and figures online shopping costs the state $100 million a year. A Florida lawmaker estimates Cyber Monday alone cost her state $40 million this year.

The convenience of online shopping is undeniable, but it’s impossible to overlook the glaring problem it presents for state sales tax collections, as highlighted by Cyber Monday. See our recent op-ed in New York Newsday for the whole story.

The federal government has been dragging its feet on requiring Amazon.com, Overstock.com and other online retailers to live up to exactly the same standard as brick and mortar stores.  But a Capitol Hill hearing this week is giving some hope that Congress will soon consider legislation that overrides the 1992 court ruling and paves the way for states to collect sales tax revenues.

There are big dollars at stake for state governments and a big price disadvantage for local businesses if the laws don’t change. State budgets are bearing the real burden of a three-year recession, and tax revenues lost to cyber shopping really add up.

For all of our sakes, let’s hope Congress acts quickly!

Photo of Shopping Online via USA.gov Creative Commons Attribution License 2.0