Month: August 2012

Colorado’s governor is inviting residents to participate in a series of town hall type meetings this year “designed to create informed and constructive conversations among Coloradans about some of the biggest issues facing the state.”  While the leadership of the initiative, called TBD Colorado, encourages citizen input in five pre-determined issue areas – education, health, state budget, state workforce, transportation – it turns out a lot of Colorado citizens want to talk about taxes.

As State Tax Notes reported (subscription), many attendees at TBD (and yes, it does stand for “To Be Determined”) meetings are expressing support for an increase in the state’s income tax rate. And with good reason: Colorado’s tax system is not providing adequate revenue to support essential public services. For example, while lawmakers patted themselves on the back for their most recent budget, it makes deep cuts to college and university funding and left already inadequate spending on K-12 education flat.

While raising the income tax rate would certainly increase revenue, it would not solve Colorado’s basic tax fairness problems. The fact is, Colorado is home to a devastatingly regressive tax system. (Because the state has a disastrous TABOR law, however, any improvements to Colorado’s tax system require a state-wide public referendum.) According to a recent study (PDF) from the Institute on Taxation and Economic Policy (ITEP), Colorado families in the bottom 60 percent of earners pay more than 8 percent of their income in state and local taxes, while those in the top 1 percent pay just half that (roughly 4 percent). (Check out the Colorado Fiscal Policy Institute, which provides more of exactly this kind of information.)

One reason Colorado’s tax system is so regressive is because it uses a single, flat income tax rate as opposed to a graduated rate that increases with income in the way the progressive federal income tax does. A progressive income tax is without question state policymakers’ best tool for crafting a fairer tax system. Without it, states like Colorado are forced to rely on sales and property taxes (both regressive) that shift an unjust share of the tax burden to low- and middle-income taxpayers. Furthermore, the lack of a progressive income tax rate makes it harder for a state to raise both adequate and sustainable levels of revenue.

Tax policy is also relevant to Colorado transportation, which is on the TBD agenda, because Colorado has not increased its gas tax in 20 years. Adjusting the tax to account for the rising cost of transportation construction, the real value of the Colorado gas tax has fallen 40 percent since 1990, which is costing the state some $300 million a year in lost revenues. Improvements to roads, bridges and other infrastructure not only create short term construction jobs but also support local businesses that rely on efficient transportation. (Modernizing the gas tax is one of “Four Tax Ideas for Jobs-Focused Governors” from ITEP.)

The TBD initiative will culminate in concrete policy recommendations for improving Coloradans’ “quality of life.” Economic growth, functioning government agencies and a level playing field for all income groups would all contribute to that quality of life, and can all be improved by upgrading the state’s tax system – starting with repeal of the TABOR law.

Updated 3/10/2015

On Saturday morning, Republican Presidential Candidate Mitt Romney announced Wisconsin Representive Paul Ryan as his vice presidential running mate. Over the past eight years, Citizens for Tax Justice has crunched the numbers and provided in-depth analysis on the succession of regressive budget plans proposed by Rep. Ryan as the former Ranking Member, and current chairman, of the House Budget Committee.

Below is a roundup of our reports and commentary on Rep. Ryan’s current and past budget plans:

Another Ryan Budget Gives Millionaires Average Tax Cut of At Least $200,000 – April 2, 2014

Paul Ryan’s Latest Budget Plan Would Give Millionaires a Tax Cut of $200,000 or More – March 13, 2013

Top GOP Tax-Writer Proposes Fast-Track for Ryan Plan Tax Changes, Giving Millionaires Average Tax Cut of at Least $187,000 in 2014
– July 26, 2012

Starving the Census in the House GOP Budget: Penny Wise, and Dumb
– May 14, 2012

Ryan Budget Plan Would Cut Income Taxes for Millionaires by at Least $187,000 Annually and Facilitate Corporate Tax Avoidance
– March 22, 2012

CTJ Figures Used in Budget Debate Show Ryan Plan Would Give Huge Tax Cut to Millionaires
– May 26, 2011

Obama Blasts Ryan Budget Plan
– April 15, 2011

House Budget Chairman Paul Ryan’s Goal Is to Shrink Government, Not the Deficit
– April 8, 2011

Rep. Ryan’s House GOP Budget Plan: Federal Government Would Collect $2 Trillion Less Over a Decade and Yet Require Bottom 90 Percent to Pay Higher Taxes
– March 9, 2010

Update on House GOP Budget Plan
– April 2, 2009

House GOP Leaders’ Budget Plan: Poor Pay More and Rich Pay Less Under Plan that Costs $300 Billion More Annually than President’s Plan
– March 27, 2009

House GOP Tax and Entitlement Plan Would Raise Taxes on Four Fifths of Americans While Slashing Taxes on the Wealthy
– July 7, 2008

House GOP Pins Comeback Hopes on Social Security Privatization, Dismantling Medicare, and Slashing Public Services
– May 23, 2008

Republicans Call for Replacing Alternative Minimum Tax with Alternative Maximum Tax
– October 12, 2007

• The Boston Globe covers an important new report finding that: “Over the past 16 years [Massachusetts] has more than doubled the amount of tax breaks it provides businesses to spur economic development but has only a vague idea whether the incentives are worthwhile.”  The full report, from the Massachusetts Budget and Policy Center, has more data on the large and growing cost of these breaks, and urges the state to thoroughly evaluate whether these so-called “incentives” are the best use of Massachusetts taxpayers’ dollars.

• The value of Louisiana’s film tax credit is being seriously questioned.  According to the Louisiana Budget Project (LBP), the cost of the credit has ballooned in recent years, while producing little in the way of long-term benefits.  LBP finds that the state is paying a steep price of $60,000 for each job created by the credit, despite many of those jobs being only temporary.

• Low-income Garden Staters are feeling the pinch from Governor Christie cutting back the state’s Earned Income Tax Credit (PDF) – an effective, targeted tax reduction for low- and moderate-income workers.  According to a New Jersey Policy Perspectives analysis, at a time when the number of New Jersey families living below the poverty line has increased by 25 percent, the reduced EITC has meant that nearly 500,000 families have lost on average $200 a year.  State lawmakers have attempted to restore the credit to 25 percent of the federal version (Christie cut it to 20 percent in 2010) and even the governor included a restoration in his original budget proposal this year.  However, politics got in the way and Christie vetoed legislation to restore the EITC until lawmakers agree to his expensive tax cut plan that benefits the wealthiest New Jersey residents.

Photo of Chris Christie via David Shankbone Creative Commons Attribution License 2.0

When news broke last week that a Senator on the GOP vice presidential short list had introduced one of the dumbest, most opportunistic and transparently political pieces of tax legislation of all time, we wrote:

How, at a time when Congress faces vital decisions over the basic structure of our tax system, did the Senator identify the tax treatment of Olympic bonuses as a pressing issue? It turns out that Americans for Tax Reform (ATR) put out a press release saying that medal winners will face a tax bill of almost $9,000 if they win a gold medal.  Rubio’s spokesperson said that’s what caught Rubio’s eye. But the ATR numbers are complete bunk….

And then, in a facepalm moment to eclipse all others (for us, anyway), President Obama said this week that he would sign Senator Rubio’s utterly stupid bill exempting Olympic winnings from taxes if it reached his desk. The President’s spokesman said we should “ensure that we are doing everything we can to honor and support our Olympic athletes who have volunteered to represent our nation at the Olympic Games.”

The young Senator’s Olympic Tax Elimination Act, however, may not have such an easy journey to the President’s desk.  GOP Senator Tom Coburn’s office said, “If tax code gymnastics was an Olympic sport this idea might get a medal.  Like the carve outs for NASCAR, rum makers and electric motorcycles, tax earmarks are a tax increase for everyone who doesn’t receive the benefit.”

In a more elaborate argument against this new bill, wonk blogger Matthew Yglesias makes the important point that “taxes aren’t supposed to be a cosmic judgment on the underlying worthiness of people’s activities.” They are supposed to raise revenues, but as long as Congress keeps using the tax system to dole out favors, hope for the kind reform we need are slim. “[P]oliticians have to be willing to actually articulate the benefits of a broad tax base—less evasion, less distortion of economic resources, the possibility of lower rates—and Democrats in particular need to be willing to make the case that public services are worth paying for.”

Best of all, here a CPA who happens to have prepared some Olympians’ returns explains the obvious. He identifies a massive loophole and notes that the bill, “as currently written, would exclude all of these bonuses from taxation.” By these bonuses, he means massive amounts of money from corporate endorsements (e.g. their picture on a box of Wheaties) Olympic medalists receive. And the bigger your endorsement, the bigger the tax break.

We’re’ rooting for common sense.

In a recent Wichita Eagle op-ed the Kansas Governor defended his harsh, regressive, and costly tax bill saying “our new pro-growth tax policy will be like a shot of adrenaline into the heart of the Kansas economy.” He is proud that he signed the largest tax cut in state history and claims that the state will still be able to provide for its neediest residents and provide “high-quality” education despite the fact that the tax bill he signed will take more than $760 million a year from state coffers.

The Governor’s op-ed may have been written in response to the heat he’s been getting since calling the bill “a real live experiment.” The conservative group Traditional Republicans for Commonsense writes (PDF) that the “’experiment’ will bankrupt our state and create a $2.7 billion deficit within five years.” In this op-ed, Bernie Koch from the Kansas Economic Progress Council writes that the legislation could actually discourage new businesses from locating to the state because the bill was so hastily written its implications for business are unclear.  He further notes that the bond credit rating organization Moody’s recently predicted “[n]o improvement in economic growth as a result of the tax cuts” in Kansas.

Brownback’s next public relations effort is a forum he’s hosting at a community college in Overland Park. He’s invited the self-proclaimed father of supply side economics and – his own tax policy advisor – Arthur Laffer, to join him, which is further evidence the governor is making no apologies about signing a law that many of his constituents deem irresponsible, at best.

It’s no secret that Indiana’s gubernatorial race has been a breeding ground for bad tax ideas this year.  So far on the tax front, the race has essentially been an endless barrage of promises regarding which taxes will be cut, and how deeply.

The most recent of these proposals comes from candidate Mike Pence, current U.S. Representative for Indiana’s 6th district.  Pence has proposed cutting the state’s flat income tax rate from 3.4 percent to 3.06 percent to provide an “across the board” tax cut for “every Hoosier.”  A new analysis from CTJ’s partner organization, however, shows that many Hoosier families won’t see any tax cuts at all under Pence’s plan, and that the cuts will hardly be distributed “across the board.”

Using its Microsimulation Tax Model, the Institute on Taxation and Economic Policy (ITEP) found that the largest tax cuts, by far, would be reserved for the state’s wealthiest taxpayers under Pence’s proposal.  While a typical middle-income family could expect their taxes to fall by about $102, the state’s richest one percent would receive a cut averaging $2,264.  Worse still, over half of all the tax cuts would flow to the best-off 20 percent of Indiana residents.

The story is dramatically different for the state’s poorest residents, however.  Looking at the lowest 20 percent of earners, the average tax cut would be just $18 per household, with about one-third of this group receiving no tax cut at all.  Many of these families are too poor to owe state income taxes, but they still pay significant amounts in sales taxes, excise taxes, property taxes, and other state and local taxes and fees.  In November 2009, ITEP found that the poorest 20 percent of Indiana households devote more of their household budgets to paying state and local taxes than any other income group.  Rep. Pence’s plan would do nothing to fix this fundamental inequity.

Of course, the broader issue is whether tax cuts should be a priority at all, given the uncertain budget situation created by recent taxpayer refunds, corporate tax cuts, and the repeal of the state’s inheritance tax.  Moreover, Indiana still has the lingering problem of how to pay for its transportation investments after revenue from leasing its toll roads runs out.  And the state also has yet to put money aside to expand its Medicaid program in order to take advantage of very generous federal matching dollars currently on the table.

Still, given all the talk coming from both sides of the aisle in favor of slashing Indiana taxes and the likelihood more cuts are in the state’s future, ITEP decided to ask a logical question: how difficult would it be to design a tax cut that’s fairer than what Rep. Pence has proposed? The answer?  Not very difficult.

By raising the state’s personal exemption (unchanged since 1963) from $1,000 to $3,400, Indiana lawmakers could provide larger tax cuts to most Indiana residents—relative to Pence’s proposed rate cut—at the same overall cost to the state.  Overall, 55 percent of Indiana residents would see a larger tax cut if lawmakers went with ITEP’s alternative of raising the personal exemption, rather than adopt Rep. Pence’s plan to cut the rate.  Just 33 percent of Indiana residents would be better off under Pence’s plan than under the exemption increase, while the other 12 percent would be unaffected by either proposal. 

The best part? Lower- and middle-income taxpayers would be the largest beneficiaries if lawmakers chose the personal exemption boost over the rate cut. (Not to mention that more cash in the pockets of lower income families provides a reliable economic boost.) If Hoosiers want a real “across the board” cut, it’s not the Pence plan they want, it’s ITEP’s.

For more detail, see ITEP’s new report: Most of Indiana Tax Rate Cut Would Flow to Upper-Income Taxpayers. 

New research from the Lincoln Institute of Land Policy shows “there is little evidence that property tax incentives [for businesses] actually work” to boost economic growth or create jobs, and that “the use of these tax incentives continues to reflect the triumph of hope over experience.”  Among other things, the Lincoln Institute notes that: property taxes are a very small part of doing business (less than 1 percent of costs for manufacturers); and, that incentives frequently reward businesses for behavior they would have undertaken anyway.

State revenue collections may be on the rise in many states, but the Rockefeller Institute has an important new report putting that trend in perspective: “After adjusting for inflation … state tax revenues are still 1.6 percent lower compared to the same quarter four years ago, in 2008.  Even in nominal terms, total tax collections in the first quarter of 2012 remained lower than the first quarter of 2008 in 21 states.”

Here and here, the Institute on Taxation and Economic Policy (ITEP) talks back about misguided sales tax holidays, and makes some news explaining how the holidays are a distraction from real tax reform that would make state tax codes fairer.

State revenues remain low, and there are historic, structural reasons for this as well as more short term reasons, including the recession. It is increasingly clear that states can no longer afford the tax-cutting agenda that politicians of all ideological stripes have promoted, which includes targeting the progressive, personal income tax.

The Institute on Taxation and Economic Policy (ITEP) continually combats the flawed logic and cherry picked data put out by Arthur Laffer and other “experts” who claim that income taxes stifle economic growth and must therefore be reduced.  ITEP’s latest effort to set the record straight is a concise new policy brief (PDF), The Progressive Income Tax: An Essential Element of Fair and Sustainable State Tax Systems.  It makes the case that in reality, “Not only do [income] taxes not harm economic growth, but the vital public investments that they make possible actually pave the way for better state economies.”  The income tax has an important role to play in tax fairness as well because it’s the only tax available to states that can meaningfully mitigate the unfairness of sales, excise, and property taxes, which take a larger bite out of working families’ budgets than from wealthier households. Read ITEP’s latest brief here (PDF).

Former Texas deputy comptroller, Billy Hamilton, explains why extreme proposals to repeal the property tax are a bad idea.  Among the reasons he cites: out-of-state property owners would get a massive tax cut, localities would lose control of their own finances, and the sales tax increase needed to fund repeal would be so large as to be both bad policy and bad politics.

Iowa filmmakers that benefited handsomely from the state’s now-suspended film tax incentive program have been rebuffed by the state’s Supreme Court, which rejected their claim that if their company financials were publicly released, it would cause them hardship. The Des Moines Register editorialized in favor of the decision, saying that: “Businesses that ask for the government to subsidize their ventures are in effect asking the taxpayers to share in the risk.  Those taxpayers have an interest in knowing if their investment is being spent properly.  Businesses should accept that as part of the deal, or they should look elsewhere for business partners.”

This weekend back-to-school shoppers in twelve states are gearing up for a political gimmick – a break from paying sales taxes known as sales tax holidays. This South Carolina editorial reminds policymakers and voters that these holidays aren’t a real solution to regressive taxes, “Lawmakers should get the state’s sales tax house in order, not throw us a couple of short-term holidays.”