Month: May 2012

• Florida Governor Rick Scott is attending grand openings of 7-Eleven® stores but a columnist at the Orlando Sentinel observes that “if incentives and low corporate tax rates were working, Florida wouldn’t rank 43rd in employment.”  It’s a common sense column worth reading.

• As another massive tax cut for Michigan businesses continues to make its way through the legislature, the Michigan League for Human Services chimes in with a report, blog post, and testimony on why localities can’t afford to foot the bill for state lawmakers’ tax-cutting addiction.
• Bad tax ideas abound in Indiana’s gubernatorial race.  Democratic candidate John Gregg wants to blast a $540 million hole in the state sales tax base by exempting gasoline; he claims he can pay for it by cutting unspecified “waste” from the budget. And Gregg’s Republican opponent, Mike Pence, doesn’t seem to have any better ideas.  So far he’s only offered a “vague proposal” to cut state income, corporate, and estate taxes – without a way to pay for those cuts.

• Kansas lawmakers are feverishly working to meld differing House and Senate tax plans into a single piece of legislation. Governor Sam Brownback has endorsed an initial compromise which includes dropping the top income tax rate and eliminating taxes on business profits. Earlier in the week the Legislative Research Department said the plan would cost $161 million in 2018 and new state estimates say the price tag is more like $700 million in 2018.  Senate leaders have said that they aren’t likely to approve a tax plan that creates a shortfall in the long term. Stay tuned….

• Finally, a USA Today article should give pause to lawmakers hoping that drilling and fracking for natural gas leads to a budgetary bonanza.  It explains how the volatile price of natural gas is creating headaches in energy-producing states like New Mexico, Oklahoma, and Wyoming where a dollar drop in the commodity’s price means a budget hit of tens of millions.

Much of the spending that Americans see in their daily lives is the work of state and local governments, which build the roads, bridges and schools, and hire and train the teachers and police officers. In many ways, the most overlooked aspect of the debate over federal tax reform is the ways in which Congress might help — or seriously hinder — state and local governments from raising the revenue needed to pay for these public investments.

In response to a hearing held on this topic by the Senate Finance Committee, ITEP’s executive director Matthew Gardner submitted written testimony exploring this point. The testimony explains, for example, that the federal income tax deduction for state and local taxes has many justifications that do not apply to other tax expenditures. It also explains that President Obama’s Build America Bonds program would improve upon an existing federal subsidy (for state and local governments that borrow to finance capital investments) so that it will no longer provide a windfall to high-income individuals and corporations.

The testimony also addresses proposals to regulate state and local taxing power. Some of these proposals would facilitate efficient and fair tax collection (like the Marketplace Fairness Act, which is geared towards solving the internet sales tax problem). Others would simply restrict taxes and make taxes more complicated at the behest of corporate lobbyists (like the so-called “Business Activity Tax Simplification Act”).

While these proposals and details might sound awfully arcane, they ultimately will influence issues that are very central in our daily lives — like the class size in your neighborhood school or the length of your commute on local roads and highways.

In a span of less than two weeks, commissions in two very different states – Massachusetts and Oklahoma – have issued remarkably similar recommendations on how to deal with the slews of special tax breaks that evade scrutiny and accountability year after year, budget after budget. As CTJ has pointed out, state budget processes are essentially rigged in favor of tax breaks (loopholes, subsidies) and as a result it’s become far too easy for lawmakers to enact (and extend) tax giveaways for virtually any purpose imaginable.

In Massachusetts, the Tax Expenditure Commission just released eight recommendations designed to deal with this very problem.  According to the Commission, lawmakers should clearly specify the purpose of all tax breaks (or “tax expenditures”) so that analysts can begin evaluating their effectiveness on an ongoing basis and providing realistic policy recommendations to lawmakers.  The Commission further urged that those evaluations be carefully timed to coincide with the state’s normal budget process, and even suggested that some tax expenditures be scheduled to sunset (or expire) so that lawmakers are forced to debate those breaks after the evaluations are complete and the facts are out.

In Oklahoma, the Incentive Review Committee recently released its set of recommendations dealing with one category of tax expenditures in particular: those ostensibly aimed at spurring economic development.  As in Massachusetts, the Oklahoma Committee said that lawmakers need to more clearly articulate the purpose of tax breaks, and that evaluations of those breaks should be done in a rigorous and ongoing fashion. One of the Oklahoma Committee’s more important recommendations might sound obvious at first, but it’s actually often overlooked: good evaluations take time and resources, and the state should adequately fund whichever department is charged with completing the evaluations.

Jon Stewart hilariously skewered the phrase “spending reductions in the tax code” as another way of saying taxes need to be raised. These tax commissions (as well those in Minnesota, Missouri, and Virginia), tasked with realistically assessing state budgets, are forcing Americans to recognize that spending through the tax code exists and that it requires the same level of scrutiny as spending through government programs, as previously outlined by CTJ.

The history of states subsidizing professional sports stadiums with taxpayer dollars is long and, increasingly, controversial. Maryland provided nearly one hundred percent of the financing for the Orioles’ and Ravens’ shiny new facilities in the 1990s. In 2006, the District of Columbia subsidized the Washington Nationals’ new stadium at a cost to taxpayers of about $700 million.  And even though most stadiums are, in the long run, economic washes at best, losers at worst, there are still politicians willing to throw money at them.

Minnesota legislators, for example, are currently grappling with how to fund a new stadium for the Vikings in response to threats that the franchise may leave the state.  But before the legislature gives away nearly a billion dollars, State Senator John Marty raises some excellent points about the math, and morals, behind the proposed taxpayer subsidies for the stadium:

“The legislation would provide public money in an amount equivalent to a $77.30 per ticket subsidy for each of the 65,000 seats at every Vikings home game. That’s $77 in taxpayer funds for each ticket, at every game, including preseason ones, for the next 30 years.… Public funds can create construction jobs, but those projects should serve a public purpose, constructing public facilities, not subsidizing private business investors. The need to employ construction workers is not an excuse to subsidize wealthy business owners, especially when there is such great need for public infrastructure work.” 

In  Louisiana, the House of Representatives has gone ahead and approved a ten-year, $36 million tax subsidy  to keep the state’s NBA team, the Hornets, in New Orleans until 2024. Some are asking if the state can really afford it given a $211 million budget gap.  Representative Sam Jones noted that while the state has cut health and education spending, it still found a way to come up with millions of dollars to help out the ”wealthiest man in the state.” That would be Tom Benson, owner of not only the Hornets but the legendary New Orleans Saints football team, whose net worth is $1.1 billion dollars.

In California, however, a different scenario is unfolding. Sacramento Mayor Kevin Johnson just abandoned negotiations with owners of the city’s NBA team, the Kings.  The Kings organization was unwilling to put up any collateral, share any pre-development costs, or commit to a more than a 15 year contract; this would have left the city shouldering all the costs – and all the risks – for developing the $391 million downtown facility.  Mayor Johnson said he’d offered everything he could to the team and it still wasn’t enough, so he pulled the plug. 

Given the high cost and low return (including in terms of jobs) that sports facilities generate, more leaders should follow Minnesota’s Marty and Sacramento’s Johnson and stand up for the taxpayers who pay their salaries.

(Thanks to Field of Schemes and Good Jobs First for keeping tabs on these subsidies!)

Remember the Tea Party? Well, freshman Kentucky Senator Rand Paul is living up to his reputation as the darling of the Taxed Enough Already movement that shook the 2010 elections. 

Rand Paul, son of Libertarian firebrand and GOP presidential candidate Ron Paul, is currently blocking the Senate’s ratification of an amendment to the US-Swiss tax treaty, apparently worried about the right of tax evaders to financial privacy. He says the language is too “sweeping” and might jeopardize US constitutional protections against unreasonable search and seizure. But as one former Treasury Department official said, Paul’s move “smacks of protecting financial secrecy for those who may have committed criminal tax fraud in the US.”

The US and Swiss governments renegotiated their bilateral tax treaty as part of the 2009 settlement of the UBS case. That case charged the Swiss mega-bank UBS with facilitating tax evasion by US customers. Under the settlement agreement, UBS paid $780 million in criminal penalties and agreed to provide the IRS with names of 4,450 US account holders.

Before it could supply those names, however, UBS needed to be shielded from Swiss penalties for violating that country’s legendary bank-secrecy laws. The renegotiation of the US-Swiss tax treaty addressed that problem by providing, as most other recent tax treaties do, that a nation’s bank-secrecy laws cannot be a barrier to exchange of tax information.

Many tax haven countries were hiding behind their bank secrecy laws to deflect requests for account holder information, and the IRS and Justice Department have been investigating 11 Swiss financial institutions on criminal charges of facilitating tax evasion.

The Senate must ratify the treaty changes – which is normally a routine procedure.

By blocking the ratification, Senator Paul is holding up the exchange of information in the UBS case (and others) and hampering IRS efforts to crack down on tax evasion by Americans.

Tax evasion by individual taxpayers is estimated to deprive the US Treasury of as much as $70 billion per year (corporate offshore tax avoidance is estimated to cost the Treasury an additional $90 billion per year).

Given Senator Paul’s obvious concern about the deficit, he might have a hard time explaining to honest American taxpayers how he justifies protecting tax evaders with Swiss bank accounts as the deficit grows ever larger.

Photo of Rand Paul via Gage Skidmore Creative Commons Attribution License 2.0

• Kansas Governor Brownback’s insistence on steep tax cuts has met more resistance.  A group called Traditional Republicans for Common Sense has come out against  even a watered down version of Brownback’s vision in the legislature. One of the group’s members (a former chair of the state’s GOP) said, “Now is not the time for more government intervention. Topeka needs to stay out of the way and make sure proven economic development tools – like good schools and safe roads – remain strong so that the private sector can thrive.” 

• Stateline writes about the problems with “the spending that isn’t counted” – meaning special breaks that lawmakers have buried in state tax codes.  The article highlights efforts in Oregon and Vermont to develop more rational budget processes where tax breaks can’t simply fly under the radar year after year.  CTJ’s recommendations for reform are in this report.

• In this thoughtful column, South Carolina Senator Phil Leventis writes, “I have been guided by the principle that government should invest in meeting the needs and aspirations of its citizens. This principle has been undermined by an ideology claiming that government is the cause of our problems and, accordingly, must be starved.” He praises tax study commissions and says being “business friendly” cannot be the only measure of state policy.

• An op-ed from the Pennsylvania Budget and Policy Center (PBPC) calls on lawmakers to address the issue of rampant corporate tax avoidance, and to do so responsibly. It raises concerns that legislation currently under consideration to close corporate loopholes could be a “cure worse than the disease.”  The legislation takes some good steps but is paired with business tax cuts that could cost as much as $1 billion over the next several years.  PBPC argues for a stronger and more effective approach to making corporations pay their fair share such as combined reporting, which makes it harder for companies to move profits around among subsidiaries in different states.

• Just four days after Amazon agreed to begin collecting sales taxes in Nevada in 2014, the company announced a similar agreement with Texas that will take effect much sooner – on July 1st.  As The Wall Street Journal reports, “With the deal, the Seattle-based company is on track to collect sales taxes in 12 states, which make up about 40% of the U.S. population, by 2016.”

Picture from Flickr Creative Commons.

Political leaders love to claim fealty to the idea of “loophole-closing” tax reform, but refuse to provide details on the specific tax breaks they would eliminate. As we’ve recently noted, House Budget Chair, Rep. Paul Ryan, is one of the worst offenders when it comes to punting on specific tax breaks he’d eliminate. President Obama has also avoided naming closeable loopholes in his outline for corporate tax reform. Yes, lawmakers are glad to pose convincingly as advocates of tax reform without assuming any of the political risks involved with real loophole-closing reforms.

Earlier this month, presidential candidate Mitt Romney took a welcome departure from this pattern, signaled by the headline, “Romney Specifies Deductions He’d Cut.”  The presumptive GOP nominee told a Florida audience that his plans for tax reform included eliminating the second home mortgage interest deduction for high earners.

This is a perfectly sensible reform, and is one that many tax reform advocates on both sides of the aisle (most recently, President Bush’s tax reform commission) have agreed on.  It also allows us to take Romney’s tax proposals a bit more seriously, since he has said he plans to cut income tax rates by 20 percent and pay for it with (as yet unspecified) loophole-closing reforms.

A few days later, however, Romney’s campaign backed away from this reform after Newt Gingrich accused him of surrenderring to “class warfare rhetoric of the Left.” This and other pushback from within his own party led one Romney surrogate to explain it this way: the candidate “was just discussing ideas that came up on the campaign trail” with some friendly donors.

This strategic retreat may make sense politically (think of all the second homes in battleground states), but it also puts Romney’s tax plan squarely in talk-is-cheap territory—asking all the easy questions but answering none of the hard ones.

Photo of Mitt Romney via Dave Lawrence Creative Commons Attribution License 2.0