Month: April 2012

On Tuesday, advocates for transparency scored a victory while tax evaders suffered a loss. The Treasury Department issued final regulations requiring banks to report to the IRS any interest payments made to foreign account holders in the same way they must report interest payments made to U.S. resident account holders. You’d think this sort of regulatory issue would be a pretty dull affair, but sparks flew over the last several months as opponents of the new rule accused Citizens for Tax Justice and the Obama administration of supporting dictators, kidnappers and terrorists.

The U.S. government taxes interest payments made to U.S. residents but not those made to foreigners, so before now it never bothered to require banks to report those interest payments made to foreigners. But the IRS proposed to change that rule in order to reduce tax evasion by Americans, both directly (by helping to identify Americans who evade U.S. taxes by posing as foreign account holders) and indirectly (by helping other countries enforce their tax laws so that they’ll help us enforce ours).

CTJ and the Financial Accountability and Corporate Transparency (FACT) Coalition continually expressed support for the regulations as they worked their way through the process, and CTJ’s Rebecca Wilkins testified before the Internal Revenue Service and the House Financial Services Committee in support of the rule. Sen. Carl Levin, a long-time crusader against tax haven abuse and chair of the Senate Permanent Subcommittee on Investigations also submitted comments. Levin’s committee has done ground-breaking investigative work on offshore tax evasion issues and chief counsel Elise Bean also testified in support of the proposed regulations.

At the House Financial Services Committee hearing in October, Republican Chairman Spencer Bachus read a letter from the Florida House delegation, which apparently is protective of its banks even when they facilitate tax evasion. Many people who live in unstable countries and have U.S. bank accounts, the letter argues, are “concerned their personal bank account information could be leaked to unauthorized persons in their home country government or to criminal or terrorist groups upon receipt from U.S. authorities, which could result in kidnapping or other terrorist actions…”

Wilkins explained that the IRS would only hand over information to foreign governments in response to a careful, limited request under a tax information exchange agreement. Even more important, Wilkins explained, is that the rule in effect until now actually helped criminals, corrupt government officials, terrorists and money launderers by allowing them to hide their money in the U.S.

The hearings made clear that supporters of the regulations were greatly outnumbered by the tax cheaters’ lobby, the politicians, and the bankers who benefit from facilitating tax evasion. We’re really glad that the IRS didn’t rewrite the regulations to please them.

Today we’re celebrating this rare win in our long fight for good tax policy and robust enforcement. But the real winners today are honest taxpaying citizens all over the world.

CTJ issued a one-page fact sheet that includes the information you need to understand the debates that will continue long after Tax Day. America is NOT overtaxed… Virtually all Americans, including the poorest Americans, are paying some type of tax… Wealthy Americans are NOT overtaxed… Some millionaires who live off their investments are paying a smaller share of their income in taxes than many middle-income people pay… U.S. corporations are NOT overtaxed… Tax cuts have not helped our economy…

Read the fact sheet.

Calling it “a far-out idea that would force Missourians to pay much more for groceries, homes and everything in between, while sparing wealthy citizens the need to pay income taxes,” the Kansas City Star editorial board bids good riddance to an income tax repeal proposal in Missouri.

Apparently not content with the massive business tax cut enacted last year, Michigan lawmakers are continuing to push to repeal the property tax on business equipment – a vital revenue source for local governments who can expect a net, permanent 19 percent revenue loss.

Instead of an immediate income tax cut that will cost significant revenue (that the state can’t afford),  Oklahoma lawmakers are contemplating a “trigger” plan tying cuts to year-over-year revenue growth that would eventually eliminate the tax altogether.  The Oklahoma Policy Institute explains that triggers are sold as a “responsible” way to cut taxes, “but it’s the opposite. It’s an attempt to avoid responsibility by putting the tax system on auto-pilot.“

An important study from the Pew Center on the States showing the lack of accountability in tax giveaways to business keeps getting good press. Here’s a piece from Illinois describing how, despite some very public giveaways to companies like Sears and the CME Group, the state lags in holding companies accountable for the tax breaks they receive.

This great article explains who actually pays Minnesota taxes. It cites data from Minnesota’s own tax incidence analysis report – a report that only a handful of states have the technology to develop, but is vital to understanding how taxes impact people of different income levels.

Rick Perry’s Texas has some of the lowest taxes in the nation and it trails the national average in important economic indicators.  But that’s not stopping Governor Perry from traveling the state promoting his new Texas Budget Compact, the center of which is an opposition to any new taxes or tax increases, which, he argues, will make the state stronger.  Politically, the compact is Perry’s effort to set the terms of election year debates, influence the next legislative session (eight months from now!) and assert his role as the Lone Star State’s conservative-in-chief.  In addition to opposing any new taxes, the Compact calls for: a Constitutional limit on spending tied to the growth of population and inflation; more program and agencies cuts; using the state’s Rainy Day Fund only for emergency purposes; making a temporary small business tax exemption permanent; and “truth in budgeting.”

Borrowing a page from anti-tax crusader Grover Norquist’s playbook, Perry said on Monday, “Each and every member of the Legislature or anyone aspiring to become a member of the Legislature should sign on.”  And right on the Governor’s website, individuals and lawmakers can sign on to the Compact: Yes, I stand with Governor Perry and I support his Texas Budget Compact. I want my state representatives in the Texas Legislature to sign on to Governor Perry’s Texas Budget Compact.

Asked specifically, however, whether or not he would be keeping track of who has signed on or not, Perry responded, “I’m not going to have a pledge for anybody to sign. People are either going to be for them or they’re not. There’s not a lot of gray area.” 

Regardless of Perry’s intentions, the Compact smacks of the kind of binding pledge that ties lawmakers’ hands and restricts their ability to do the jobs they were elected to do.  (Happily, more and more lawmakers who took Norquist’s pledge are abandoning it on these very grounds.)

But worse than distorting the political process, the principles Perry promotes in his Compact could wreak havoc on Texas if fully embraced. 

As Texas State Rep. Mike Villarreal said in a statement released in response to the Compact:

“Governor Perry loves to talk about his principles in the abstract, but he doesn’t want to discuss the disabled kids who lose health services when he won’t close corporate tax loopholes, or the students crowded into full classrooms when he won’t touch the Rainy Day Fund. After the deep and unnecessary education cuts that Governor Perry championed, it’s no surprise that his Compact doesn’t say a word about educating schoolchildren.

“The Governor doesn’t seem to understand that we must educate our children if we are going to build our economy and create jobs.”

News is that Rick Perry wants to run for president again in 2016. His hard line on taxes would certainly help him with his party’s base, even as it harms the state that already elected him.

Photo of Rick Perry via Gage Skidmore Creative Commons Attribution License 2.0

According to a CNN/ORC poll, one of many polls released around Tax Day 2012, a solid 68 percent of Americans said the current tax system benefits the rich and is unfair to ordinary workers. While this result is consistent with past poll results, a shocking number of lawmakers in Washington seem indifferent to the public’s hunger for more progressive taxes.

For example, one modest step toward tax fairness is the Buffet Rule, which would impose a minimum tax, equal to 30 percent of income, on millionaires in order to ensure that wealthy investors like Warren Buffett or Mitt Romney do not pay a lower tax rate than middle income Americans. Despite the fact that the Buffett Rule is favored by an overwhelming 72 percent of the American public, it was defeated in the US Senate on Monday and will likely not even come up for a vote in the House of Representatives.

Another tax day poll by Reuters/Ipsos found that 60 percent of Americans believe that tax revenues should play some part in deficit reduction efforts, while only 22 percent believe that spending cuts alone are the solution. This poll also reflects Washington’s huge disconnect with the American public as last year’s deficit reduction deal resulted in trillions of dollars of spending cuts and not a cent of additional revenue.

Even in the arena of corporate tax reform lawmakers find themselves at odds with public sentiment. In its tax day polling, Gallup found that 64 percent of Americans believe that corporations pay too little in taxes, meaning that the public would clearly favor revenue-positive corporate tax reform. And yet Republican and Democratic leaders, including the President, are proposing revenue-neutral corporate tax reform instead.

Washington’s conservative intransigence on tax issues is not going unnoticed by the public. Grassroots movements are spreading in protest of the unfairness of our tax system and pushing for progressive change. Lawmakers will find it increasingly difficult to ignore their constituents, especially as it becomes clear that other types of deficit reduction proposals (cuts in Social Security, Medicare, services for children) are far less popular than progressive tax increases.

The Colorado Fiscal Policy Institute’s #proudtopay Twitter campaign gives people a chance to voice their support for the public services made possible by paying taxes.

Wade Gibson from Connecticut Voices for Children reminds us in this op-ed that taxes do a lot of good – even making Easter travel easier.

Michigan League for Human Services president, Gilda Jacobs, writes in The Detroit News about how public services benefit her personally, and why she’s proud to pay the taxes that fund those services.

Together NC, North Carolina’s broad revenue coalition, wants you to spend some time today watching two videos: “A Day without Government” and another highlighting Russell, the public investment super hound.

There are at least ten reasons to like Ohio’s income tax. Read Policy Matters Ohio’s reasons here.

Oregon Center on Public Policy tells The Forgotten Tax Day Story here.

Pennsylvania Budget and Policy Center has a whole tax day resource page including a petition to tell Pennsylvania lawmakers to close corporate tax loopholes and end special tax breaks before making harmful budget cuts.

Voices for Utah Children follows Sam the Eagle as he flies around the state highlighting the services taxes pay for.

The Wisconsin Budget Project answers the simple question “Who Pays Taxes?” in Wisconsin with an equally simple response (using ITEP data).

• Paying Taxes to the Boss explains how 2,700 companies in 16 states are pocketing their workers’ state income tax payments rather than handing them over to the government.  Good Jobs First examines this entirely legal tax giveaway in a recent report.
• Here’s an important op-ed about the consequences of a bill moving in the Minnesota legislature that would eventually eliminate state business property taxes – at a cost of $7 billion the state can’t afford.  Wayne Cox from Minnesotans for Tax Justice writes that the bill is “sort of like a family that doesn’t know how it is going to pay its bills and decides the solution is to quit one of its jobs.”
• Anti-tax activists were trying to exploit Missouri’s broken ballot initiative process, but now a judge has dealt an enormous blow to advocates of a disastrous plan to eliminate that state’s income tax; this radical scheme now has a slim chance of getting on the November ballot.
• This is a smart article from an Indiana paper describing a phenomena we’ve talked about before – fewer gambling revenues are generated when neighboring states open casinos and compete for the same customers.
• The Birmingham News cites a recent report from the Institute on Taxation and Economic Policy (ITEP) to help explain how the short-sighted design of Alabama’s gas tax has contributed to the state’s transportation funding problems.  The state’s Transportation Director sums it up: “we have both a financing mechanism and a gauge that is 20 years old … It doesn’t work and that is obvious.”

Senate Minority Blocks Even Minimal Tax Reform, Preserves Lower Effective Tax Rates for Millionaire Investors

Today, a minority of Senators demonstrated that they will filibuster even the most minimal step towards tax fairness.

The legislation, proposed by Senator Sheldon Whitehouse, would implement the Buffett Rule. It would not affect anyone except taxpayers who have incomes exceeding $1 million and yet manage to pay a smaller portion of their income in taxes than do many people who work for wages and salaries. Even the very basic step of requiring these millionaires to pay at least 30 percent of their income in income and payroll taxes proved too much for the Senate minority, which successfully filibustered this bill.

This legislation should be just the very beginning of the far more sweeping reforms that our tax system desperately needs. The main reason some millionaires pay low effective tax rates is that investment income is taxed at lower rates than other income under the federal personal income tax and is currently not touched at all by federal payroll taxes. The Buffett Rule would limit this tax preference for investment income for millionaires.

But ultimately Congress must go much further than the Buffett Rule. The way to truly make our tax system simpler and more efficient would be to completely repeal the personal income tax preference for investment income and tax all income at the same rates. This would raise over half a trillion dollars over a decade. Eighty percent of the resulting tax increase would be paid by the richest one percent of Americans, and 90 percent of the tax increase would be paid by the richest five percent of Americans. While the Wall Street Journal can be expected to call this tax reform “socialism” or “class warfare,” it was a major part of the tax reform signed into law by President Ronald Reagan in 1986.

Today we find that even the smallest step back to this Reagan-era policy is unacceptable for the Senate minority, who filibustered the Buffett Rule and apparently can be counted on to block anything resembling fair tax reform.

When CTJ analyzed Herman Cain’s 9-9-9 tax plan last year, we concluded it would cut taxes for the richest one percent by $210,000 on average and raise taxes for the bottom three-fifths of Americans by $2,000, on average if in effect in 2011. This did not surprise us, since the 9-9-9 plan incorporates elements of a “flat tax” and a national sales tax (often misleadingly called a “Fair Tax”) which are both far more regressive than our current tax system. We also concluded that the 9-9-9 plan would collect $340 billion less than our existing tax system in 2011 alone. What does surprise us is that people are still talking about the former pizza CEO’s tax plan, which is the focus of a two-day “Patriot Summit” that Cain is hosting today in Washington.

Today, Cain’s Revolution on the Hill will  roll out “the 9-9-9 educational campaign that will sweep the country in the Summer of 2012.” 

Flat tax and national sales tax plans vary, but they all would leave investment income – most of which goes to the richest Americans – untaxed. The “flat tax,” which is promoted by Dick Armey’s FreedomWorks, does not consist of one flat tax rate but actually two tax rates when you include the zero percent rate for investment income.

The national sales tax, which is promoted by the organization FairTax.org, is a straight-forward consumption tax, and this is likely to have the greatest impact on lower-income families who have no choice but to put all of their income towards consumption. (The other national, broad-based consumption tax you hear a lot about is a value-added tax, or VAT).

Cain is not the only presidential candidate to propose these types of radical changes to our tax system. Texas Governor Rick Perry flirted with both the flat tax and a national sales tax. Both Perry and Newt Gingrich eventually settled on a “flat tax” that would, like other flat tax proposals, exempt investment income from tax.

Watch this space for a look at other flat or fair tax proposals that surface during this election year.