Month: September 2012

With just eight weeks to go until Election Day, Republican Presidential nominee Mitt Romney continues to channel former First Lady Nancy Reagan’s “Just Say No” campaign. Romney first said “no” to releasing more of his federal income tax returns and now he’s saying “no” to releasing details of his plans to change the tax code for the rest of us. But in the same way adults respond to a terrible-twos child with a serious case of the “No’s”, the adults are starting to demand better answers.

Only yesterday, editorials from both the New York Times and the Los Angeles Times took Romney to task over his and running mate Paul Ryan’s failure to explain to the American taxpayer just what they would do tax policy-wise. And the Washington Post was clear in its editorial that Americans deserve to know whether Romney plans to follow in the footsteps of former President George W. Bush, who “enacted tax cuts that plunged the nation into debt.”

Politico, meanwhile, reported that Republicans and movement conservatives (from George Pataki to the Wall Street Journal) are warning that the GOP ticket better come clean on its policy plans or risk losing the election. (Evidently believing that once voters hear about their plans to coddle the rich and soak everyone else they will sweep them to electoral victory.)

Two weeks ago, CTJ’s Bob McIntyre also called for Romney to stop stalling and level with the public about his secret tax plan. We, too, have written at length on the lack of math (serious or otherwise) coming from the top of the Republican ticket.

Romney’s refusal to release any more of his federal income tax returns tells us he doesn’t want people to know how he made his money. Is his refusal to reveal the details of how, if elected, he’d change the tax code an indication he doesn’t want you to know what might happen to your money?  

Census data released today shows that while the national poverty rate remained unchanged in 2011, record numbers of Americans are still living in poverty and median income dropped by 1.5 percent, making income supports for the working poor even more important. Also important in this political year when taxes are a major campaign issue are three basic facts: poor people pay taxes, tax credits are vital in mitigating poverty, and it’s not just the middle class and the rich who’ll be affected by tax policy changes currently under debate.

1) Poor people pay taxes.

Everyone who works pays federal payroll taxes. Everyone who buys gasoline pays federal and state gas taxes. People who shop in stores pay the sales taxes that most state and local governments impose. State and local property taxes affect everyone who owns or rents a home (landlords pass some of the tax on to renters). And of course, most states and many cities levy an income tax.

Among the ways of measuring “how much” taxes any given income group pays, two measures that are often overlooked provide important context: what portion of its income a group spends on all taxes, and whether a group’s share of total taxes paid matches its share of total income. These measures show that the overall U.S. tax system is just barely progressive when you combine all federal, state and local taxes.

Specifically, in combined federal, state and local taxes, the amount each group of American taxpayers spends is as follows (for 2011):

The lowest earning one fifth paid 17.4 percent of their income
The next lowest one fifth paid 21.2 percent of their income
The middle one fifth paid 25.2 percent of their income
The fourth one fifth paid 28.3 percent of their income
The next ten percent paid 29.5 percent of their income
The next five percent paid 30.3 percent of their income
The next four percent paid 30.4 percent of their income
The wealthiest one percent paid 29.0 percent of their income

Total taxes paid by each income group relative to that group’s share of total income is about the same for the very poor and the very rich:

– The share of total taxes paid by the richest one percent in 2011 was 21.6 percent; that group’s share of total income was 21.0 percent.
– The share of total taxes paid by the middle 20 percent in 2011 was 10.3 percent; that group’s share of total income was 11.4 percent.
– The share of total taxes paid by the poorest fifth last year was 2.1 percent; that group’s share of total income was 3.4 percent.

State tax systems are consistently regressive, and the progressive federal income tax plays a mitigating role. Focusing only on federal income taxes paid by different groups distorts and obscures the basic facts of our tax system.

2) As the value of direct government spending on TANF declines, the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) grow in importance.

The EITC was enacted in 1975 to encourage and reward work. It provides a needed earnings boost for growing numbers of under-employed and low wage heads of household. President Ronald Reagan called it “the best antipoverty, the best pro-family, the best job creation measure to come out of Congress.” It has long had near universal, bipartisan support and has been expanded under Presidents Reagan, Clinton, Bush, and Obama.  The Child Tax Credit was introduced in 1997 to help working families offset the cost of raising their children and has also been expanded with bipartisan support.

Today, the federal revenue spent on these two tax credits is comparable to, and in some cases greater than, revenue spent on other types of programs that lift families out of poverty or keep them from falling into poverty. 

Billions of Federal Dollars Spent on Income Support Programs in 2011:
Unemployment compensation – $117.2
Food and nutrition assistance – $95.7
Earned Income Tax Credit – $55.7
Supplemental Security Income – $49.6
Family & Other Support Assistance (incl.TANF) – $26.4
Child Tax Credit (refundable portion) – $22.7

The EITC is a tax credit equal to a percentage of earnings from work up to a certain limit. The percentage varies based on how many children the family has. In 2012:

– A family with one child receives a credit equal to 34 percent of earnings, up to a maximum credit of $3,169.
– A family with two children receives a credit equal to 40 percent of earnings, up to a maximum credit of $5,236.
– A family with three or more children receives a credit equal to 45 percent of earnings, up to a maximum credit of $5,891.
(For childless workers, the maximum EITC in 2012 is just $475.)

As a family’s income rises, the EITC is phased out. The credit is reduced by a fixed percentage for each dollar exceeding a relatively low level ($22,300 for married families with children and $17,090 for unmarried families with children in 2012).

One of the EITC’s most effective features is that it is refundable. A family can receive the full benefit of the credit in the form of a refund, even if it exceeds their income tax liability, so the EITC can function to offset other kinds of taxes, including those that fall most heavily on low income families, beyond the income tax (particularly consumption taxes).

The Child Tax Credit (CTC) is available to families earning $3,000 a year or more. It is equal to a maximum of $1,000 per child and largely benefits middle-income taxpayers, but the refundable portion of the CTC does benefit low-income families. The refundable portion of the credit equals 15 percent of earnings above a specific threshold, or $1,000 per child, whichever is less.

It is important to note, of course, that while these expenditures help low income households, middle and upper-income households benefit the most from tax expenditures such as the home mortgage interest deduction and the special low rate on capital gains.

3) The EITC and CTC benefits for 13 million families with 26 million children are at stake in current tax cut debates.

The EITC and the CTC were expanded as part of the 2001 Bush tax cuts and again under the American Recovery and Reinvestment Act of 2009; all of these provisions were then extended through 2012, (under the 2010 agreement to extend the Bush tax cuts for two years). The outcome of debates over the fate of the Bush tax cuts, in Congress and among candidates for federal office, affect these anti-poverty credits.

If only the Bush era provisions of these tax credits are preserved (as per a House bill passed this year):

– The EITC would cease to provide a higher percentage for families with three or more children;
– The EITC would begin to phase out at an income level $2,000 lower for married couples;
– Fewer families would be eligible for the CTC since eligibility would begin at $13,300 rather than $3,000 in annual income.

 Preserving the 2009 EITC provisions (as per a Senate bill passed this year):
–  Would save 6.5 million working families, with 15.9 million children, a total of $3.4 billion, an average of $530 per family.

Preserving the 2009 changes to the CTC:
–  Would save 8.9 million working families, with 16.4 million eligible children a total of $7.6 billion; an average of $854 per family.

In combination, preserving both of these 2009 provisions would save 13.1 million working families, with 25.7 million children, a total of $11.1 billion, an average of $843 per family.*

* The total number of families and children affected by the CTC expansion and the EITC expansion is less than the sum of the number affected by each of them because 18 percent of families that benefit would benefit from both.

SOURCES
Section 1) Citizens for Tax Justice, “Who Pays Taxes in America,” April 4, 2012, https://ctj.sfo2.digitaloceanspaces.com/pdf/taxday2012.pdf
Section 2) IRS, Internal Revenue Bulletin 2011-45, November 7, 2011, http://www.irs.gov/irb/2011-45_IRB/ar13.html#d0e1033, and FY 2013 Historical Tables, Budget of the U.S. Government, http://www.whitehouse.gov/sites/default/files/omb/budget/fy2013/assets/hist.pdf.Section 3) Citizens for Tax Justice, “The Debate over Tax Cuts: It’s Not Just About the Rich,” July 19, 2012, https://ctj.sfo2.digitaloceanspaces.com/pdf/refundablecredits2012.pdfSections 1 and 2 use figures from the Institute on Taxation and Economic Policy’s Microsimulation Tax Model, http://www.itep.org/about/itep_tax_model_simple.php.

For Immediate Release: September 10, 2012
Contact: Anne Singer, 202-299-1066, ext. 27

Romney’s Bad Arithmetic: CTJ Report Disproves Claim that Romney Won’t Lower Taxes for the Rich

Washington, DC – On Sunday, September 9, presidential candidate Mitt Romney appeared with David Gregory on NBC’s “Meet the Press” and discussed his tax plan, which his campaign website explains would extend the Bush tax cuts, lower all income tax rates by a fifth, and introduce additional tax breaks. Romney claimed that his tax plan would not result in lower taxes for the rich because it would eliminate loopholes that currently reduce the tax bills of the rich. But Romney refused to identify those tax loopholes, or “tax expenditures” as they are often called, that he would eliminate.

“Well, I can tell you that people at the high end, high-income taxpayers, are going to have fewer deductions and exemptions,” Romney told Gregory. “Those numbers are going to come down. Otherwise they’d get a tax break. And I want to make sure people understand, despite what the Democrats said at their convention, I am not reducing taxes on high income taxpayers.” He also said that, “[w]e’re not going to have high-income people pay less of the tax burden than they pay today.”

“The question is not whether the rich will get a tax cut under Romney’s plan,” said CTJ director Robert S. McIntyre. “The question is how big the break for the richest Americans will be. We estimate that millionaires would get somewhere between $250,000 and $400,000 on average in 2013 if the plan was in effect then, no matter how Romney fills in the gaps – which are many.”

A recent CTJ report concluded that if Romney’s plan was in effect next year, people making over $1 million would get an average tax cut of $250,000 even if these wealthy taxpayers have to give up all of the tax loopholes or tax expenditures that Romney has put on the table. (This average break of $250,000 includes about $146,000 that millionaires would receive on average if Congress extended the Bush tax cuts in effect today but made no other changes.)

In other words, for very high-income taxpayers, the value of the tax rate reductions and other new breaks spelled out in Romney’s plan far outweigh the value of all of their tax loopholes and tax expenditures – meaning it would be impossible for Romney to implement his plan without lowering their taxes substantially.

The CTJ report also found that if Romney implemented his plan without touching tax loopholes or tax expenditures, then people who make over $1 million would receive an average tax cut of $400,000. This scenario seems very possible given that Romney has failed to specify a single tax loophole or tax expenditure that he would reduce or eliminate.

The Tax Loopholes Romney Took Off the Table Are the Most Targeted to the Rich

As the CTJ report explains, millionaires would not get such a large tax break under Romney’s plan if he eliminated the many tax loopholes and tax expenditures for investment income in the tax code – but Romney has taken these off the table. For example, the special break for capital gains and stock dividends mostly benefits the richest one percent of taxpayers, but Romney’s campaign website says that his plan would “maintain current tax rates on interest, dividends, and capital gains.”

Meanwhile, Romney’s running mate, Congressman Paul Ryan, told George Stephanopoulos on ABC’s “This Week” that most tax loopholes go to the rich, ignoring the fact that he and Romney have pledged to keep the main tax loophole for the rich, the preferential rates for capital gains and stock dividends.

“Now the question is not necessarily what loopholes go,” Ryan said “but who gets them. High income earners use most of the loopholes. That means they can shelter their income from taxation.”

Actually, the capital gains and dividends break provides the most widely-used tax shelters for the rich, including the technique by which Mitt Romney and other private equity fund managers characterize their compensation as “carried interest,” which they claim is a type of capital gains, in order to cut their tax rate by more than half.

In October of 2011, CTJ director Robert S. McIntyre was the first observer to calculate that Romney’s tax rate was likely about 14 percent because most of his income is characterized as capital gains using the loophole for “carried interest.”

By leaving in place the lower rates for capital gains and stock dividends, Romney’s plan would leave in place the existing incentives to engage in these types of tax shelters.

* * *

Citizens for Tax Justice (CTJ), founded in 1979, is a 501 (c)(4) public interest research and advocacy organization focusing on federal, state and local tax policies and their impact upon our nation (www.ctj.org).

We were not very hopeful that the Democratic National Convention (DNC) in Charlotte would be any more enlightening about tax policy than its Republican counterpart in Tampa. In a previous post we criticized the drafters of the Democratic platform for tripping over themselves to celebrate tax cuts and failing to say much about finding new revenue beyond allowing the Bush tax cuts to partially expire for the richest two percent of Americans.

But the DNC turned out better than we expected. It wasn’t just Obama’s mocking the GOP stance on taxes and smaller government (deservingly) as a cure for everything: “Feel a cold coming on? Take two tax cuts, roll back some regulations, and call us in the morning.” Several DNC speeches were surprisingly specific and brought to light some important issues. The following are some highlights.  

Joe Biden Blasts Romney’s “Territorial” Tax

Governor Romney believes that in the global economy, it doesn’t much matter where American companies put their money or where they create jobs. As a matter of fact, he has a new tax proposal — the “territorial” tax — that experts say will create 800,000 jobs, all of them overseas.

Biden was citing a study estimating that adoption of a territorial tax system by the U.S. would create 800,000 jobs overseas, and that during a recession those jobs would likely come at the cost of U.S. jobs.

There are many, many reasons to oppose a territorial tax system, which would essentially exempt the offshore profits of U.S. corporations from U.S. taxes. We have explained in a fact sheet and in a more detailed report that a territorial system would increase the already significant incentives for corporations to move operations (and jobs) offshore, or to just disguise their U.S. income as foreign income by using complex transactions involving tax havens.

Bill Clinton Dismantles Romney’s Tax Plan

We have a big debt problem, we got to reduce the debt, so what’s the first thing he [Romney] says he’s going to do? Well, to reduce the debt, we’re going to have another $5 trillion in tax cuts, heavily weighted to upper-income people… Now, when you say, what are you going to do about this $5 trillion you just added on? They say, oh, we’ll make it up by eliminating loopholes in the tax code. So then we ask, well, which loopholes, and how much? You know what they say? See me about that after the election…

This is the defining feature of Mitt Romney’s tax plan — he simply refuses to tell us which loopholes he would reduce or eliminate to make up the cost of his 20 percent reduction of personal income tax rates and the other new breaks he proposes. This makes it impossible for organizations like Citizens for Tax Justice and the Tax Policy Center to say exactly what the impact will be on different income groups — and we’d be naïve if we didn’t think this was intentional.

Clinton went on about the three possible ways Romney would have to fill in the details of his plan.

One, they’ll have to eliminate so many deductions, like the ones for home mortgages and charitable giving, that middle-class families will see their tax bills go up an average of $2,000, while anyone who makes $3 million or more will see their tax bill go down $250,000. Or, two, they’ll have to cut so much spending, that they’ll obliterate the budget for national parks, for ensuring clean air, clean water, safe food, safe air travel. They’ll cut way back on Pell Grants, college loans, early childhood education, child nutrition programs… Or, three… They’ll go and cut taxes way more than they cut spending… and they’ll just explode the debt and weaken the economy.

Our own analysis of Romney’s plan found that people who make over $1 million would get an average tax break of $400,000 if Romney didn’t bother to reduce or eliminate any of the tax loopholes enjoyed by the rich. On the other hand, we found that even if he took away all of the loopholes enjoyed by the rich, the people making over $1 million would still get an average break of $250,000. Millionaires would get huge breaks no matter what because the benefit of Romney’s rate reductions would outweigh all the tax loopholes they enjoy.

For middle- and lower-income families, the loss of these tax loopholes or tax expenditures could exceed the gains from Romney’s promised rate reductions, and this would have to be the case if Romney is to offset the costs of his tax breaks as he promises. Otherwise, the spending cuts or deficit-explosion described by Clinton would occur.

An analysis from the Tax Policy Center, which provided the figures quoted by Clinton, came to the same sort of conclusion.

Eva Longoria: I Don’t Need Romney’s Tax Cut for Millionaires

OK, we know, we know, you don’t normally expect to hear anything enlightening about tax policy from a celebrity best known for her role on Desperate Housewives. But Longoria did articulate a point that hasn’t always been made clearly.

Mitt Romney would raise taxes on middle-class families to cut his own and mine. And that’s not who we are as a nation, and let me tell you why. Because the Eva Longoria who worked at Wendy’s flipping burgers, she needed a tax break. But the Eva Longoria who works on movie sets does not.

That sums up the idea behind progressive taxes. Tax breaks like the Earned Income Tax Credit (and to an extent, the Making Work Pay Credit that was in effect for a couple years) are the types of tax cuts that help people who needed it — people struggling to get by on low-wage work. Sadly most of the tax breaks enacted in recent years are the other type, the tax cuts that go to people like Eva Longoria today.

This is reminiscent of the conversation in 2008 between candidate Obama and Joe Wurzelbacher, aka “Joe the Plumber.” Joe said it was wrong to end the Bush tax cuts for high-income people because he hoped to be one of those people one day. Obama replied that Joe needs a tax cut now, while he’s working to get his business off the ground, and not after he’s making over $250,000 a year.

As part of the governor’s campaign to redistribute wealth to corporations and the state’s wealthiest citizens, Wisconsin lawmakers last year reduced the state’s Earned Income Tax Credit (EITC) for low income, working families.  Now, leading Republican legislators have signaled their intention to build on this tax hike for the poor by dramatically cutting income taxes for the best-off Wisconsinites next year.

To that end, a joint House-Senate committee convened a hearing on income tax reform this week that was generally understood to be designed to give cover to legislative leaders’ goal of replacing the state’s graduated income tax with a flat-rate income tax (thus undermining the most progressive feature of any tax system, the graduated income tax).

Matt Gardner, Director of the Institute on Taxation and Economic Policy, was one of four panelists invited to testify before this hearing, and neither he nor any of the witnesses offered meaningful support for the lawmakers’ plan. Gardner’s testimony pointed out that graduated income taxes (PDF) are the most sustainable long-run funding source available to states, and that moving to a flat rate income tax would actually slow revenue growth over time. Gardner also explained that the alleged “volatility” of this revenue source (e.g. revenues dip during economic downturns) is more a fiscal management problem than a tax problem. Most states maintain a rainy day fund that functions like a family savings account – it grows in good times and is there to help during bad times. Most states should also be significantly expanding their tax base by expanding the sales tax to services, modernizing their gas tax and closing loopholes in the personal and business tax codes. Gardner also reminded legislators that they should not consider relying on a broader sales tax to make up revenues lost to income tax cuts because sales taxes (PDF) are volatile in the short run as well as regressive, putting the heaviest burden on the lowest income households.

Instead, Gardner advised that the first step toward reforming Wisconsin’s income tax should be eliminating loopholes such as the state’s 30 percent capital gains tax break. Other panelists agreed.

It’s not necessarily what all of the lawmakers wanted to hear; we will learn when they return to session in January, 2013, if they decided to listen anyway.

In its 2012 Platform, the Democratic Party broadly calls for a tax system that asks “the wealthiest and corporations to pay their fair share,” while also taking “decisive steps to restore fiscal responsibility.” The actual policy proposals called for in the platform, however, are wholly inadequate to achieve either tax fairness or fiscal sustainability.

The Bush Tax Cuts

The most important platform plank on the individual side of the tax system is the call to allow the “Bush tax cuts for the wealthiest to expire,” which reflects President Obama’s proposal to allow the Bush tax cuts to expire for income over $250,000. Under the president’s proposal, 98.1% of Americans would continue receiving the entirety of their Bush tax cuts. It’s important to note that while the wealthiest Americans would lose part of their tax cuts under President Obama’s proposal, they would still receive generous tax breaks because any income up to $250,000 (or $200,000 for singles) would continue to be taxed at the low, Bush tax cut rates. As a result, the wealthiest 1%, for example, would get an average tax break of $20,130 in 2013.

It is also important to note that even this partial extension of the Bush tax cuts the president proposes would increase the deficit by an astounding $4.2 trillion over the next decade. To be sure, President Obama’s plan is much more fiscally responsible than a full extension of the Bush tax cuts, which would increase the deficit by $5.4 trillion. But fiscal responsibility will eventually require something bolder than simply extending most of the tax cuts that are responsible for most of the deficit.

Corporate Tax Reform

Turning to corporate taxes, the Democratic platform follows the misguided “Framework for Corporate Tax Reform,” introduced by President Obama earlier this year, which proposes to use the closure of corporate tax loopholes to pay for lower corporate tax rates. It also proposes an expansion of the research and manufacturing tax credits. What this framework gets right is a call to end the egregious loopholes and tax breaks that allow major corporations to pay an average effective tax rate of half the statutory rate, with many corporations paying nothing at all.

The problem is that instead of using the revenue raised by eliminating tax loopholes and breaks to fund desperately needed government investments and reduce the deficit, the Democratic platform, like the president’s framework, squanders the revenue on lower corporate tax rates and/or additional wasteful tax breaks. In other words, this kind of “revenue-neutral” corporate tax reform is not what the US needs; instead, we need revenue-positive reform.

Stuck in the Anti-Tax Mindset

The Democratic Party 2012 platform reveals a party deeply committed to the anti-tax mindset that historically is associated with the Republican Party. Rather than laying out the cold, hard truth about how the US needs to raise a substantial amount of revenue to meet its commitment to future generations, the Democratic platform seems an attempt to one–up Republicans on the virtues of tax cutting by touting the wide variety of cuts Democrats already enacted, and the massive amount they plan to extend. Given the enormous need for revenue to fund public investments and eventually reduce the deficit, a record of tax-cutting should be a source of embarrassment rather than pride or celebration.

More and more people are asking if Bain Capital’s tax avoidance strategies are more than merely aggressive. On August 23, Gawker.com released a staggering 950 pages of documents related to Bain, the private equity firm that Mitt Romney founded, that confirm a lot of what we had previously surmised, including the fact that the Bain private equity funds set up “blocker” corporations to help tax-exempt investors avoid the unrelated business income tax and help foreign investors avoid tax in the U.S. and in their home countries.

CTJ senior counsel Rebecca Wilkins summarized it for Huffington Post: “The Bain documents posted yesterday show that Bain Capital will go to great lengths to help its partners and its investors avoid tax. Beyond simply putting their funds offshore, the Bain private equity funds are using aggressive tax-planning techniques such as blocker corporations, equity swaps, alternative investment vehicles, and management fee conversions.”

The management fee conversions, detailed in several of the fund documents, do what they sound like they do: they convert some of the private equity firms’ annual management fees from clients, which would be taxed as ordinary income, into increased shares of partnership profits known as “carried interest”.  Carried interest is how these firms have structured their performance-based compensation from managing their clients’ investments, and carried interest is taxed at the special low rate at which capital gains are taxed. The management fee conversion is an effort to get yet another form of client compensation taxed at the capital gains rate, which is less than half the rate at which it would be taxed if it were ordinary income. These conversions save private equity firms’ partners millions of dollars in income taxes (the Bain partners alone have saved an estimated $220 million).

Colorado Law Professor Vic Fleischer, an expert on the taxation of private equity, quickly branded the management fee conversions as improper. “Unlike carried interest, which is unseemly but perfectly legal, Bain’s management fee conversions are not legal.”

It looks as though the New York Attorney General agrees. In July, weeks before the Gawker document dump, AG Eric Schneiderman served subpoenas on more than a dozen private equity firms, including Bain Capital.  The AG’s office is seeking documents related to whether the firms improperly converted management fees into additional carried interest, and running the investigation through its Taxpayer Protection Bureau. 

As controversial as private equity firm tax practices have become (thanks to Mitt Romney’s candidacy), we are likely to be hearing more about this investigation soon. Stay tuned.

Like the Republicans last week, Democrats are featuring governors at their national nominating convention. Because convention speakers are chosen as the parties’ ambassadors to new audiences during these TV spectacles, the state policy team at the Institute on Taxation and Economic Policy are providing quick sketches of current governors from both parties who have been leaders – for better and for worse – in state tax policy. Below are profiles of tonight’s speakers, in order of appearance, at the DNC in Charlotte, NC. (The Sept. 5 speakers are profiled here.)

Connecticut Governor Dan Malloy: Connecticut Governor Dan Malloy championed a balanced and sensible approach to his state’s budget crunch last year (his first in office) that put the Nutmeg State on a path to fiscal sustainability while also protecting critical and core public services that all Connecticut residents depend on.  Malloy’s budget raised substantial new revenue by asking his state’s wealthiest residents and highly profitable corporations to pay more, and by broadening the sales tax base to include more goods and services.  At the same time, Malloy cut taxes for the state’s poorest working families with the introduction of a significant refundable state Earned Income Tax Credit (EITC), a great example of how the tax system plays a key role in alleviating hardship and boosting incomes for low-income working families.  Governor Malloy (who earned CTJ’s Most Likely to Make the Rich Pay Their Fair Share award)   frequently refers to himself as the “Anti-Christie” in juxtaposition to the New Jersey Governor who has rejected even a temporary tax increase on Garden State millionaires passed by his legislature, but has had no qualms about increasing taxes on his poorest constituents.

Colorado Governor John Hickenlooper: Despite coming into office after defeating two anti-tax candidates, Governor Hickenlooper has done very little to fix Colorado’s devastatingly regressive tax system. In fact, he refused to support a Democratic backed ballot initiative to raise taxes, Proposition 103, that would have protected funding for public schools and universities in Colorado. One small step he has taken was signing legislation that ended the agricultural property tax loophole, which had somewhat famously allowed Tom Cruise to claim massive tax breaks for letting sheep occasionally graze around his mansion.

Governor Hickenlooper has the chance to be a great reformer, however, if he uses his signature TBD Initiative (a year-long series of town halls across the state) to make the case for repealing Colorado’s crippling TABOR law and enacting graduated income tax brackets.

Delaware Governor Jack Markell: As the newly elected chair of the National Governor’s association, Governor Markell will play a leadership role in setting the policy agenda across the states over the next year. This could be a very good thing if Governor Markell sticks to the principles laid out his Washington Post op-ed, which argued that providing robust infrastructure, education, and other critical government services are more important to job creation than lower taxes. Unfortunately, last year Governor Markell did not fully stand by these principles when he squandered the improved budget outlook of Delaware by signing a wasteful tax break for banks in the state.

In addition, while Governor Markell cannot be blamed for making Delaware one of the world’s worst tax havens, he has been complicit in maintaining the low tax rates and corporate opacity that have allowed this tax haven to thrive.

Montana Governor Brian Schweitzer (not yet scheduled): Governor Schweitzer has yet to come out strongly in favor of significantly improving Montana’s regressive tax structure.  He has advocated for reducing taxes on business equipment and offering property tax breaks for homeowners. There is a lot of room for improvement in terms of fixes necessary to the Montana income tax, which currently offers a costly deduction for federal income taxes paid (PDF) and a capital gains tax break — which both disproportionately benefit the wealthiest taxpayers. The Governor has missed an opportunity to come out squarely for repeal of these measures, but Schweitzer, who’s said he would boast about his state’s low taxes and strong finances during his DNC appearance, deserves credit for not squandering the state’s surplus on unjustified tax cuts, unlike governors in other states.

Like the Republicans last week, Democrats are featuring governors at their national nominating convention. Because convention speakers are chosen as the parties’ ambassadors to new audiences during these TV spectacles, the state policy team at the Institute on Taxation and Economic Policy are providing quick sketches of current governors from both parties who have been leaders – for better and for worse – in state tax policy. Below are profiles of tonight’s speakers, in order of appearance, at the DNC in Charlotte, NC.

North Carolina Governor Bev Perdue: Governor Bev Perdue took over leadership of the Tarheel state in 2009 during the worst economic recession in modern history, which had caused revenues to plummet and budget gaps to widen.  Perdue recognized the need for tax increases to be part of a balanced and sensible approach to solving North Carolina’s fiscal crisis.  The final budget adopted in 2009 included two temporary taxes – a one cent increase in the state’s sales tax rate and a personal income tax surcharge on the state’s wealthiest residents.  In 2011, revenues were still not fully recovered and Perdue proposed extending most of the temporary sales tax for another two years to prevent deeper cuts to education spending, but her proposal was blocked by the newly minted Republican majority in the state’s House and Senate.  She tried again in 2012, but was once again stopped in her tracks.  Perdue cannot be called the most progressive governor on taxes, but her strong commitment to public education gave her the courage to increase taxes early on and to later propose more, even in a politically challenging environment.  North Carolina Governor Bev Perdue announced earlier in the year that she is not seeking reelection for a second term in office.

Illinois Governor Pat Quinn: Illinois Governor Pat Quinn’s record on taxes is a mixed bag. While he’s shown leadership in terms of advocating for personal and corporate income tax increases and increasing the state’s personal exemption and Earned Income Tax Credit, the Governor has too often offered handouts to companies threatening to leave the state. Under this Governor’s watch, Illinois also stopped funding a property tax credit designed to specifically help low-income seniors and the disabled.  The Illinois tax structure is one of the worst in the country in terms of asking low-income people to pay far more than their fair share. So far, Governor Quinn has not stood up for real progressive policy changes and his piecemeal, situational approach to tax policy is only making his state’s tax code more complicated.

Rhode Island Governor Lincoln Chafee: Governor Lincoln Chafee, an independent, called for tax increases aimed at refilling Rhode Island’s depleted coffers during his election campaign in 2010.  Chafee made good on that promise and earned the A+ for Effort at Sales Tax Reform award in Citizens for Tax Justice’s Governors Yearbook.  In his first year in office, Chafee introduced a sensible tax reform package that would have modernized his state’s sales tax and raised revenue needed to mitigate spending cuts.  Chafee also supported changes to the Ocean State’s corporate income tax, including combined reporting, a smart rule that levels the playing field for small business by preventing multi-national corporations from sheltering profits in other states, as well as an improved corporate minimum tax.  Unfortunately, lawmakers rejected most of his proposal.  Chafee is one of only a handful of governors over the past two years to propose tax increases in order to restore investments or prevent deeper cuts in education, transportation, health care and other spending priorities.

Massachusetts Governor Deval Patrick: Massachusetts Governor Deval Patrick has spent his six years in office largely punting on tax policy for the Bay State.  With the exception of creating a Tax Expenditure Commission last year to examine the more than $26 billion in tax breaks the state hands out each year (which amounts to more money than the state is expected to take in this year!), Patrick has not proven himself to be a leader on improving his state’s tax system. Patrick has publicly supported making the state’s personal income tax more progressive by moving from a flat rate to a graduated rate, but also said he would not “pursue” it in his second term. The governor has supported some revenue increases in his two terms to prevent spending cuts, but mostly they have been  low-hanging fruit in the form of excise taxes (alcohol, tobacco, etc) or have relied heavily on the sales tax.  And last year, Patrick supported yet another annual sales tax holiday in his state despite admitting that he supported it, “frankly, not because it is particularly fiscally prudent, but because it is popular…. People want it.”

Maryland Governor Martin O’Malley: Last but definitely not least, Governor O’Malley has been one of the nation’s boldest leaders in standing up to anti-tax forces and protecting critical public programs, which is why Citizens for Tax Justice gave him the Defender of Public Services award in our 2012 Governors Yearbook. While many governors across the nation were continuing to slash public services in order to expand unsustainable tax breaks, Governor O’Malley bucked the national trend and ushered in a progressive tax increase that allowed Maryland to stop further cuts to education, health services and other crucial state government services. Continuing his record, Governor O’Malley has also shown his willingness to stand up for good policy – even if it’s unpopular – with his advocacy of a responsible increase in the gas tax to improve Maryland’s transportation infrastructure.