Month: June 2012

Wisconsin Governor Scott Walker survived yesterday’s recall attempt. Walker has often been described as courageous by his supporters, like New Jersey Governor Chris Christie, South Carolina Governor Nikki Haley and  Senator Ron Johnson and by ideological allies like David Denholm and Gary Bauer. 

Walker seems to think of himself as courageous, too. In his victory speech he reprised a theme he’s struck before, in which he becomes the bearer of a legacy that dates back to the founding fathers and “men and women of courage” throughout history “who stood up and decided it was more important to look out for the future of their children and their grandchildren than their own political futures.”  He stops just short of calling himself one such “leader of courage” but it’s clear that’s what he’s getting at.

And how does he display this courage? By picking on people nowhere near his own size.  People like the state’s working poor whose low wages can’t support a family and who rely on the Earned Income Tax Credit to make up some of the difference.  Walker cut that.  He also cut medical programs and property tax credits that the state’s poor and elderly depend on.

This is courage?

The state’s most influential, on the other hand, got all kinds of perks from their governor, like a widely abused tax loophole for corporations and a nice tax break on capital gains for investors.

Since when does it take courage to pander to people in power?

Walker has made consistently bad choices about who wins and who loses in Wisconsin, and his all out assault on public sector workers is just one part of that.

It seems unlikely that the post-election, temporary change in the state’s Senate will slow Walker’s relentless pursuit of his boilerplate conservative agenda, which he admitted has been frenetic.

Governor Walker fancies himself some kind of hero taking on powerful forces at great personal cost, but it’s well documented that the powerful forces are actually some of Walker’s biggest fans. Call it what you will, but you can’t call it courage.

In November 2010, Washington State voters reached an unfortunate verdict and passed Initiative 1053, a law which mandates that the legislature assemble a two-thirds “supermajority” for any legislation deemed to raise taxes.

These supermajority requirements are not only anti-democratic but make sustainable and fair tax reform difficult because they, in effect, require legislators to enlarge one tax loophole in order to diminish or eliminate another. That’s right: in this upside down world, closing a loophole is a tax increase, so you have to create a new one or cut a tax to offset any that you close.  In short, majority-plus requirements like Washington’s provide yet another incentive for politicians to convolute the tax code with special interest giveaways.

Until, that is, a judge decides such a law is not just dumb, but unconstitutional. And in a bit of good news, Washington State’s legislative supermajority requirement for raising taxes and closing tax loopholes was recently struck down by a superior court judge for “[violating] the simple majority provision” of the state constitution.

In his decision, Judge Bryce Heller stated that the framers of the Washington constitution were well aware of supermajority rules (they required them to amend or repeal voter-passed initiatives, for example), and therefore the simple majority rule on tax and other legislation was intended by those framers and can, therefore, only be changed with an amendment to the state constitution. 

State Attorney General Rob McKenna (and now Republican candidate for governor), who defended the initiative in court, pledged to appeal the decision directly to the state Supreme Court.

Aside from the legal questions at issue in this case, several organizations have recently pointed out the damaging fiscal effects of supermajority requirements. The lawmakers and education organizations that brought the suit are concerned that the law prevents a majority of lawmakers from sufficiently funding state services such as education and transportation. They also point out a state Supreme Court’s ruling from last year concluding that Washington State is not, in fact, meeting its constitutional obligation to fully fund basic public education.

Moreover, as the Washington State Budget & Policy Center wrote prior to the ruling, Initiative 1053 has prolonged the state’s recession “by forcing unnecessarily deep cuts to health care, education, and other job-creating investments.” The Center reports that the state’s budget has been cut by more than $10.6 billion over the past three years.

The DC based Center on Budget and Policy Priorities lays out how supermajority rules also force lawmakers to raise fees, tuition and other revenue devices not covered by the law, as well as depress capital investments (investors are less willing to buy bonds from states with such requirements). Furthermore, with so few votes necessary to dictate legislative outcomes—for example, the Washington rule required the objection of only 17 senators to derail any bill—supermajority laws “increase the power of extremists and special interests” who can hold hostage even popular legislation.

It’s all very common sense that the supermajority requirement be struck down. (One setback to this case might result from a recent vote in the state legislature that was politically designed to “prove” a supermajority can be achieved on tax issues. It’s complicated and you can read more about it here.)  With the AG’s appeal, the state Supreme Court will be taking up the case, and both sides are hoping for swift action: the plaintiffs want to see more funding for schools and see the democratic process restored, while the law’s opponents want to get on with the task of shackling the Evergreen State’s government.

Former President Bill Clinton told CNBC that extending all the Bush tax cuts past their scheduled expiration at the end of the year “is probably the best thing to do right now” to help Congress and the country “avoid the fiscal cliff” of expiring tax cuts and scheduled spending cuts. The former policy-wonk-in-chief did not endorse extending the cuts permanently, but said “I don’t have any problem with extending all of it now, including the current spending level.”

This is not helpful.

The term “fiscal cliff” sounds scary and implies a situation in which the budget deficit will dramatically worsen if no one intervenes.  But the undeniable fact is it would dramatically improve if Congress simply does nothing – and stops extending the tax cuts! In fact, the CBO has published yet another report indicating that the federal budget deficit would stabilize if not for the budget-busting legislation that most observers expect Congress to enact when it extends all kinds of tax breaks into 2013.  And the report confirms that the measure that would add the most to the deficit would be an extension of the Bush tax cuts.

Of course, it’s entirely true that Congress should set aside concerns about the budget deficit for the time-being and focus on job creation.  The thing is, this focus should lead to increasing federal spending, and NOT to tax cuts. As is often noted, most economists agree that spending measures would do more to stimulate job creation than making the Bush tax cuts permanent.

For example, the widely respected economist (and former adviser to John McCain) Mark Zandi has concluded that for every dollar of revenue the federal government would lose from making permanent the Bush income tax cuts, U.S. economic output would increase by only 35 cents. On the other hand, this private sector economist finds that for every dollar the federal government spends on increased food stamps, work share programs, or unemployment benefits, U.S. economic output would increase by $1.71, $1.64, and $1.55 respectively. Versus 35 cents. Tax cuts don’t work; spending does.

Extending the Bush tax cuts is not about protecting a fragile economy. At its worst, it’s about an ideology that most Americans reject, and at best, it’s passing the buck and kicking the can down the road and every other idiom we have for short-sighted and irresponsible fiscal behavior. Anyone with the clout, credibility and smarts of Bill Clinton knows that and should be making an unambiguous call for these disastrous tax breaks to expire, once and for all, at the end of this year.

(Photo courtesy PBS.org.)

Americans are living in communities with fewer teachers, firefighters and police officers.  They are facing larger class sizes, reduced trash pickup and less access to parks and libraries. That’s the gloomy conclusion of a new report from the Pew Charitable Trusts’ American Cities Project that acutely, painfully details the severe budget cuts local governments have made in response to declining revenues and their increasingly curtailed capacity to raise the revenues they need to keep things running.

While some local governments have responded to what Pew calls the “local squeeze” by raising property tax rates, the report notes that state lawmakers are forcing localities to make tough decisions and cuts by imposing restrictions on the growth of local property taxes. Nearly all states (46) have property tax restrictions (limiting a property’s assessed value or tax rate, for example) that prevent municipalities from even considering raising additional revenue to mitigate painful budget cuts.

Property tax revenue and aid from state governments together make up more than half of all local government funds, and they are declining – in tandem – for the first time since 1980. State aid to local governments declined by $12.6 billion in 2010, and would have fallen further if not for the infusion of federal stimulus funding. Even so, 37 states still had to cut aid to local school districts in 2011-2012.

In the past, recession-induced revenue declines have been buffered by a steady flow of property tax revenue. But with the housing market collapse and epidemic foreclosures, property tax revenue declined by $11.9 billion in 2010 (the first real drop in property tax revenue since 1995) and then by a further $14.6 billion in 2011.

As a result of diminished funds, reports Pew, localities are cutting back on some of government’s most basic services; New York State is one example of what the current struggle looks like, Minnesota is another. In total, local governments cut half a million public sector jobs between September 2008 and December 2011. Half of these jobs came from the education sector in the form of teachers, guidance counselors and support staff. It’s been noted that these local workforce reductions offset modest private sector job growth and have contributed to stubbornly high national unemployment rates.

Cities and counties have attempted to balance budgets through other kinds of cuts that once seemed unthinkable. Some have reduced the school week from five to four days. Others have stopped paying police officers. One municipality cut garbage collection entirely. The full report provides numerous and specific accounts of how local governments and communities from Phoenix, Arizona to Foley, Minnesota to Harrisburg, Pennsylvania have been hurt by the “local squeeze.”

And for more on the revenue side of the equation, see “The ITEP Guide to Fair State and Local Taxes” and ITEP testimony to Congress on how federal tax reform could help or hurt state and local budgets.

• The Institute on Taxation and Economic Policy talks back to the Wall Street Journal about its failure to cover the consequences of the new Kansas tax bill for the state’s working poor.

• Tomorrow Wisconsin Governor Walker will face a recall election. What’s his record on taxes? Taking from the poor and giving to the rich. 

• North Dakota Tax Commissioner Cory Fong comes out against a radical ballot initiative that would do away with the state’s property tax. The Commissioner writes that Measure 2 is risky, and will be destabilizing for North Dakotans. The vote is on June 12.

• Louisiana’s legislature appears to be nearing adjournment now that the House approved a nearly $26 billion budget for the next fiscal year. The budget, now sitting on Governor Jindahl’s desk, includes $270 million in “one-time money” scavenged from various programs to balance the budget.

• Read this op-ed in the Chicago Sun-Times from the CEO of the National Retail Federation calling for fairly taxing Internet sales and pointing out that “modern software, allowing sales taxes to be calculated as quickly and easily as shipping costs, renders” any remaining objections a so-called Amazon Tax obsolete.

In another example of Representation Without Taxation, on Thursday the House Ways and Means Committee reported out a bill that would repeal the medical device excise tax that was enacted as part of the Affordable Care Act and scheduled to go into effect next year. This week it goes to the floor for a vote which, according to the Associated Press, is largely a political maneuver which allows the House GOP to look like they’re fighting for jobs while conveniently unraveling funding for the Democrats’ health care reform; GOP leader John Boehner concedes the latter himself.

The medical device industry successfully lobbied to cut the rate down on the proposed excise tax, and now they are lobbying to repeal the tax entirely, threatening job losses, reduced innovation and higher costs – the usual corporate response to the suggestion of a tax.

And as usual, most of their claims are unfounded, indeed “not credible,” as a Bloomberg analysis concluded. Bloomberg and others cite one fundamental flaw in the industry’s own analysis: it ignores the increased profits from boosted demand for their product that will be created by the health care reform law.

Another (familiar) ploy the industry is using is hiding behind small businesses, communities and entrepreneurs, but the truth is that about 85 percent of the tax will be paid by very large firms like Johnson & Johnson, GE Healthcare, and Medtronic. Of course, it’s no coincidence that Medtronic, with its $16 billion in revenues last year, is located in the congressional district of the House bill’s sponsor, Rep. Erik Paulsen (R-MN).

While many healthcare companies pay substantial federal income tax, there are companies working to repeal the excise tax that happen to be long-time tax dodgers. For example, General Electric, the parent company of GE Healthcare, has paid an average 2 percent federal income tax rate over the last ten years. Our recent Corporate Taxpayers and Corporate Tax Dodgers study showed medical giant Baxter International had a 2008-2010 average federal income tax rate of negative 7.1 percent.

Curiously, Abbott Laboratories, the seventh-largest medical device manufacturer, has 32 offshore tax haven subsidiaries. That might explain why the company reports that it makes a lot of money in foreign countries, but generates losses in the U.S. – even though half of its revenues are here. Boston Scientific’s SEC filings suggest a similar strategy.

The medical device industry, which has been floundering for reasons of its own making, is squealing about a modest tax it’s likely to pass along to customers anyway. Directing more of its budget to innovation rather than lobbying might be a better solution for them, and for America’s health care consumers.

Oklahoma Governor Mary Fallin admitted last week that she and her allies had failed in their efforts to roll back the state’s income tax this legislative session, despite high hopes among supply siders that the tax would be not only cut but entirely repealed.  As The Oklahoman explains, however, both voters and businesses recognized that reducing taxes would mean further cuts in education and public safety piled on top of those already inflicted in recent years.  Public opposition aside, however, it did seem all too possible that Arthur Laffer (the Governor’s tax advisor) and his colleagues’ pitch that shredding the tax code would lead to economic rebirth was going to be enough to get an income tax cut through the legislature.

Over a half dozen tax cut plans were given serious consideration this year in Oklahoma, most of which would have, in fact, raised taxes on low-income families by repealing important tax credits, and all of which would have tilted Oklahoma’s overall tax system even more heavily in favor of the wealthy.  Some of the proposals, like the modified version of Arthur Laffer’s plan pushed by Governor Fallin, would have repealed the income tax entirely.

In the final days of the session, it looked like lawmakers had come to an agreement on a comparatively modest plan to cut the top personal income tax rate from 5.25 to 4.8 percent, and then possibly to 4.5 percent a few years later.  Noticeably absent from the proposal, fortunately, was any repeal of low-income credits— likely due in part to analyses by the Institute on Taxation and Economic Policy (ITEP) showing that repealing these tax credits would mean a significant tax increase for a large number of the state’s most vulnerable residents.

Instead, lawmakers hoped to pay for their proposed rate cuts with a combination of spending cuts, repealing various business tax credits and eliminating a handful of tax breaks for individuals.  Even then, however, analyses by ITEP and the Oklahoma Tax Commission showed that a significant number of low- and middle-income Oklahomans would see their taxes rise under the plan.  And just as the state’s largest newspaper editorialized about these revelatory analyses, support evaporated in the state House of Representatives.

As the Oklahoma Policy Institute explained last week, “The failure of every tax cut proposal that was debated this session is a victory for Oklahoma… We know, however, that this is just a brief intermission in a long battle over the right tax policy for Oklahoma.  We need to look with renewed seriousness at our outdated tax system and do away with unnecessary tax preferences. And we must improve tax fairness and not allow middle- and low-income families to shoulder a larger share of the load.” 

(Photo from NPR State Impact)