Month: February 2012

Note to Readers: Over the coming weeks, the Institute on Taxation and Economic Policy will highlight tax policy proposals that are gaining momentum in states across the country.  This week, we’re taking a closer look at proposals which would increase state revenues to pay for important public investments. 

Given the number of Governors calling for major tax cuts in their states, you’d think that states are suddenly awash in cash and well on the road to economic recovery.  But the reality is that very few states are back to where they were before the recession hit in terms of tax collections and public spending.  Many were limping along with federal stimulus funds, but now that’s dried up, too. Recognizing the need to begin restoring investments in education, transportation, and health care or prevent even more devastating cuts to these services, a handful of Governors have put tax increases on the table.  The proposals range from across-the-board rate increases to tax hikes only on the wealthiest, permanent to temporary changes, and plans that require only legislative approval to ballot initiatives for the public to decide.

California Governor Jerry Brown is taking his proposed tax increase to the voters in November.  In an effort to prevent damaging cuts to public education, Brown is asking wealthy Californians to pay more income taxes and everyone to chip in with a higher sales tax for the next five years.  A recent poll shows Californians are overwhelmingly on his side- more than 2/3rds of those surveyed support the Governor especially when the tax increases are linked to investments in education.

Maryland Governor Martin O’Malley included several revenue raising measures in his recent budget proposal to help close a $940 million gap.  Most notable is a plan to raise taxes on upper-income Marylanders through limiting the amount of itemized deductions and personal exemptions they are able to claim – a recommendation ITEP made last year.

O’Malley also proposed taxing internet transactions, digital downloads and increasing taxes on tobacco products and the state’s “flush tax.”  He recently announced a plan to apply the sales tax to gasoline rather than an increase in the designated gas tax to address transportation needs in the state.

Washington lawmakers are facing off on how best to address a $1 billion budget gap this year.  Governor Christine Gregoire is pushing for a temporary half-cent sales tax increase that would raise roughly $500 million, and to close the remaining gap with spending cuts.  At least two competing proposals, however, have emerged that would raise needed revenue and improve the fairness of the state’s tax structure.  The first is a one percent tax on corporate and personal income that would raise $500 million and allow for a reduction in the state’s sales and business-occupations taxes. Another plan would tax realized capital gains at five percent, raising between $215 million and $650 million a year. 

Given Washington’s restrictive rules on revenue-raising (a two thirds legislative supermajority is required to enact increases), any proposed tax increase will likely end up on a ballot (which a legislative simple majority can implement) for the voters to decide this Spring or Fall.

North Carolina Governor Beverly Perdue recently proposed reinstating most of a temporary sales tax increase that expired last year.  She wants to invest the $800 million the tax would raise in the state’s public schools, community colleges and universities, all of which suffered massive cuts over the past four years.

Massachusetts Governor Deval Patrick is promoting some revenue raising ideas he says are supported by the public.  His $230 million revenue package includes a 50 cent per pack increase in the cigarette tax (bringing the total to $3.01), increases on other tobacco products, expanding the bottle bill so that a wider range of beverages require a redeemable nickel deposit, and taxing candy and soda at the state’s 6.25 percent rate (both are currently exempt from taxation).

Rhode Island After failing to gain legislative support last year for his reform-minded and sensible tax plan, Governor Lincoln Chafee has offered up a hodgepodge of tax changes this year he thinks lawmakers can stomach.  Chafee’s$88 million tax package includes some modest expansion of the sales tax to items such as taxi and limousine rides and pet services.

Photo of Christine Gregoire via Studio 8, photo of Deval Patrick via Green Massachusetts, and photo Jerry Brown via Steve Rhodes Creative Commons Attribution License 2.0

Grassroots groups throughout the country have used Citizens for Tax Justice’s report “Corporate Taxpayers & Tax Dodgers,” to pressure lawmakers to clean up the tax code. Here’s a sample of what some groups have done in California, Massachusetts, Minnesota, Texas, and Washington.

California: A coalition of activist groups, including SEIU, the Teamsters, Good Jobs LA, and Occupy LA, rallied in Hollywood to protest FedEx’s less than one percent corporate tax rate over the last three years. Good Jobs LA explained that the $552 million in tax subsidies that FedEx received in 2010 alone could have been used to create over “1,000 jobs, contributed tens of millions for Medicaid and food stamp benefits, and added more than $11 million for education programs.”

Massachusetts: MassUniting and Occupy Boston rallied at the Boston headquarters of General Electric (GE), perhaps the most infamous tax dodger due to its astounding negative 45.3 percent tax rate. Many of the protestors carried signs reading “I Paid More in Taxes than General Electric.”

Minnesota: Minnesotans for a Fair Economy marked the beginning of the state’s legislative session by demonstrating against Wells Fargo, which received a shocking $17.9 billion in federal tax breaks wiping out its taxes for the last three years. The protestors emphasized that Minnesota legislators have continuously prioritized corporate tax breaks over critical investments in education.

Texas: The community group Good Jobs Great Houston took to the streets (and brought a pig along with them) to protest the “Dirty Thirty,” a group of companies that spend hundreds of millions of dollars to lobby Congress, yet pay nothing taxes. The protest took place outside the headquarters of Centerpoint Energy, which earned its place in the “Dirty Thirty” for the $1 billion in tax breaks it received over the past three years.

Washington: The advocacy group Working Washington held a rally against Wells Fargo’s corporate tax dodging at the bank’s Seattle corporate offices. To demonstrate their opposition to corporate tax breaks, the protesters brought along a giant check depicting the $17.9 billion in tax subsidies that Wells Fargo has received over the last few years.

Photos via Good Jobs LA and Good Jobs Great Houston

• Institute on Taxation and Economic Policy’s (ITEP) Executive Director, Matthew Gardner, carried the torch for progressive corporate income tax reform in New York during his visit to Albany this week. He briefed legislative staff and the press on ITEP’s recent report, Corporate Tax Dodging in the Fifty States, 2008-2010, which found that twenty profitable Fortune 500 companies paid no state corporate income taxes over the last three years, and 68 paid none in at least one of those three years.
• The Michigan League for Health and Human Services reminds Michiganders about the upcoming $1.6 billion in tax cuts for businesses that will be made up by raising taxes on low- and middle-income families and retirees. The League (with some help from ITEP) found that the poorest Michigan families will be hurt substantially by the upcoming changes compared to better-off taxpayers.
• New Hampshire Governor John Lynch is urging the legislature to restore the cigarette tax to $1.78. The Governor said in his State of the State address, “The cut in the tobacco tax was nonsensical. That money would have been better spent in our community college and university systems, for example.” One legislator called the legislature’s ten cent cut in the tax last year a giveaway to out-of-state tobacco companies.
• Last year, Wisconsin Governor Scott Walker proposed, and the legislature approved, freezing the state’s homestead property tax exemption. The Wisconsin Budget Project released a report this week showing that because the tax credit will no longer keep up with inflation, “working families and the elderly will be hit with a $14 million property tax increase over the next two years, and see their taxes continue to rise in later years.”
• Republicans in the Minnesota Senate are pushing a plan that would completely eliminate the state’s business property taxes and leave a “more than $800 million dollar hole in the general fund.” Democrats are fighting back, saying the bill will boost Wal Mart’s bottom line but won’t create any jobs.

On Tuesday, the Congressional Budget Office reported that the federal budget deficit will fall from $1 trillion this year to less than $300 billion over the next several years — but only if Congress can resist enacting budget-busting laws like another extension of the Bush tax cuts, which would more than double the projected deficit.

Budget experts have long known that our deficit would be largely under control if Congress would simply stop extending the Bush tax cuts. But this might be news to anyone who listens to lawmakers insisting that public services must be cut dramatically to balance the budget.

What these lawmakers really mean, but never say, is that public services would need to be slashed to pay for a further extension of the Bush tax cuts — despite the lack of any evidence that these tax cuts have helped America.

The CBO report shows that extending the Bush tax cuts through the next decade would cut revenues by $4.6 trillion over the next ten years, and cost an additional $0.8 trillion in interest payments on the national debt — thus adding a total of $5.4 trillion to the national debt!

In the face of these frightening numbers, Republicans in Congress want to extend all of the Bush tax cuts. The Democrats are not much better. President Obama has proposed to extend about 81 percent of the Bush tax cuts, and most Congressional Democrats have followed his lead. 

Even organizations that have the ostensible purpose of promoting a balanced federal budget fail to see that Congress could help the budget situation dramatically by simply refusing to pass any more tax cuts. For example, take this statement about the CBO report from the Committee for a Responsible Budget:

The good news is that under current law assumptions, the debt would become more manageable in the medium term. The bad news is that these policy assumptions are politically unrealistic, suboptimal, and not a long-term fix.

Why would the so-called “Committee for a Responsible Budget” first acknowledge that the government will approach budget balance if Congress does nothing, and then insist that Congress has to pass laws that take us off that path? What’s so “suboptimal” about allowing the Bush tax cuts to expire?

Their argument is that the economy will suffer if the tax cuts expire at the end of this year. The Republicans in Congress make a much more extreme claim, which is that the economy will suffer if any portion of the tax cuts ever expires.

None of this is supported by evidence. Expiration of the Bush tax cuts would allow taxes to return to the levels in place at the end of the Clinton years. If anyone is worried about tax policies that are “suboptimal” for the economy, they should not fear the tax rates that existed during the boom years that Clinton presided over. If we need further short-term stimulus next year, then there are far better, fairer and less costly ways to achieve it.

Sometimes, lawmakers and others claim they worry that low- and middle-income people will suffer if they have to pay Clinton-era tax rates again.

This is absurd. A fact sheet from CTJ shows who would benefit from another extension of the Bush tax cuts. The folks who are struggling the most in America today, the poorest fifth of taxpayers, would receive just 1.1 percent of the tax cuts in 2013. The bottom three-fifths of taxpayers would receive just 13.4 percent of all the tax cuts.

On the other hand, the richest five percent of taxpayers would receive 47.2 percent of the tax cuts, and the richest one percent alone would receive 31.3 percent of the tax cuts.

It’s reasonable to argue that the parts of the Bush tax cuts that go to low-income Americans should be made permanent, because they help people who truly need help. These include, for example, the provisions that expand the Earned Income Tax Credit and the refundable part of the Child Tax Credit.

But low-income tax breaks represent only a small part of the cost of overall Bush tax cuts. So Congress could and should extend those parts of the tax cuts that go to people who need them without busting the budget. If Congress instead sends President Obama another bill extending all or most of the Bush tax cuts, then he should get out his veto pen.

We can’t be the only ones left scratching our heads after reading a recent New York Times story headlined Second Year In, Republican Governors Moderate Tone.  After all, on the very same day an Associated Press story ran with the headline Emboldened GOP wants to abolish state income taxes.

So which is it? Moderate, or ready to abolish what’s left of fair tax structures in the states?

When it comes to taxes it’s the latter; governors across the country are looking to make state tax systems – already uniquely regressive – even worse. 

Politicians are generally reluctant to ruffle voters’ feathers in years that include contests to elect a president, fill 33 U.S. Senate seats, all 435 offices in the U.S. House, and numerous statewide offices, so this might explain the conciliatory tone the New York Times detects.  But in spite of that general reluctance, some governors’ plans for their states’ tax systems are anything but moderate.

The AP story covers some ground we’ve written about here and here.  In South Carolina, Republican Governor Nikki Haley wants to eliminate the corporate income tax and cut personal income taxes by collapsing the state’s current six tax brackets to three.

In Oklahoma, a legislative task force report states that the governor and legislators should be able to make Oklahoma a “no income tax state” in seven to 10 years. Governor Mary Fallin is poised to act on this recommendation and will likely support a reduction in the state’s personal and corporate income tax rates this year.

And in Kansas, under Republican Governor Sam Brownback’s radical tax proposal, Kansans earning less than $25,000 a year would pay an average of $156 more in income taxes while those making more than $250,000 would see an average cut of $5,200 a year. And here’s the kicker – these findings are actually from Brownback’s own Kansas Department of Revenue!

In fact, the Institute on Taxation and Economic Policy (ITEP) found that when you look at all the components of the Kansas governor’s plan, the bottom 80 percent of the state’s income distribution would collectively see a tax hike under the Brownback plan, while the best off 20 percent of Kansans would see substantial tax cuts.

All of these measures take tax systems that are already unfair and make them even worse. All of these measures do further harm to those who have little while further stuffing the pockets of those who have plenty. All of these measures erase revenues that help to pay for essential public services for each and every resident of the state.

None of these ideas are “moderate,” and all of these measures should fail.

Photo of Nikki Haley via Mary Austin and photo of Sam Brownback via KDOTHQ Creative Commons Attribution License 2.0