Month: November 2012

If Congress departs from its annual tradition of steeply reducing the Alternative Minimum Tax (AMT), 57 percent of the tax will be paid by the richest five percent of Americans and 91 percent of the tax will be paid by the richest fifth of Americans. If Congress does reduce the AMT as usual, almost all of the tax will be paid by the richest five percent of Americans.

The AMT is one of the factors contributing to the hysteria in Washington about the so-called “fiscal cliff,” the point at which several tax cuts expire and several spending cuts go into effect at the end of this year. Lawmakers and observers often mistakenly portray the AMT as a tax that will affect middle-income Americans if it is not controlled.

The Washington Post reports that if Congress does not act, “the AMT is in line to affect about 33 million households in the 2012 tax year.” The paper also reports that as many as 60 million households could face filing delays because the IRS would have to update its forms and systems to determine who would be subject to the more expansive AMT.

But the vast bulk of actual AMT payments would come from a smaller number of very well-off Americans. CTJ’s fact sheet on the AMT shows that even if Congress fails to provide the usual AMT relief, the middle fifth of Americans would pay just one percent of the AMT. The bottom two fifths of Americans would pay virtually none of the AMT.

The AMT is a backstop tax designed to ensure that well-off Americans pay at least some minimum level of tax no matter how good they are at finding deductions, credits and loopholes that reduce their regular tax calculation. The exemptions in the AMT that keep most of us from paying it have never been indexed to rise with inflation, so Congress has increased them each year for the last several years.

More importantly, the Bush tax cuts reduced the regular income tax without making any permanent corresponding change in the AMT. In other words, most of the impact of an unrestrained AMT would be to limit the Bush tax cuts for well-off Americans. What would be so terrible about that?

There have been a lot of contradictory statements coming from Washington these days about how employment levels would be affected by President Obama’s proposal to allow the expiration of the Bush-era income tax rate reductions for the top two income tax brackets (only affecting income in excess of $250,000 for couples and $200,000 for singles). Republican House Speaker John Boehner continues to cite a discredited report claiming that 700,000 jobs will be lost, while several media outlets have recently reported that the Congressional Budget Office (CBO) found 200,000 jobs would be lost. Neither is right.

This is one of the confusing aspects of the debate over the so-called “fiscal cliff,” the term sometimes used to describe the point at which the Bush tax cuts are scheduled to expire, and some spending cuts are scheduled to take effect, at the end of this year.  

Boehner’s Bogus 700,000 Jobs Claim

Let’s start with the most outrageous claim — that of Speaker Boehner. Last week, we explained why his call to pursue tax reform along the model of the Tax Reform Act of 1986 was both disingenuous and not up to the task of addressing our current budget situation. During the same speech, Boehner mentioned an Ernst & Young report finding that “going over part of the ‘fiscal cliff’ and raising taxes on the top two rates would cost our economy more than 700,000 jobs.”

Citizens for Tax Justice explained, back in July, why the study Boehner cites (which was paid for by groups like the U.S. Chamber of Commerce and the National Federation of Independent Businesses) is bogus. To take just one example of the problems with the report, it assumes a labor supply response (the degree to which people work fewer hours in response to higher tax rates) that is nearly 10 times stronger than the non-partisan CBO assumes when it makes similar estimates on labor supply effects.

CBO’s Misunderstood 200,000 Jobs Figure

The most recent CBO estimates, which are claimed to show a potential loss of 200,000 jobs, are another story. One problem is that the CBO study examines the impact of delaying, for two years, the expiration of the Bush tax cuts (and some reductions in spending) which will occur under current law. One of CBO’s findings is that extending the income tax rate reductions for the top two tax brackets (the tax cuts for the rich that Obama would like to see expire) for two years will result in 200,000 more jobs than would exist if Congress allowed these tax cuts to expire.

But if Congress decides to delay the expiration of the Bush tax cuts for the rich for two years (or any amount of time), chances are extremely high that this delay will eventually become permanent rather than temporary. If President Obama caves to Republican demands to extend tax cuts for the rich now, when he seems to have a mandate from the voters to let them expire, why in the world would he do any better in the years to come?

And, permanently extending the Bush tax cuts for the rich, as Republican Congressional leaders ultimately want, would have negative long-term impacts because it would substantially increase the budget deficit and make it more difficult to make the investments that create jobs.

This is demonstrated by other CBO studies that examine the long-term impact of removing all the impacts of the so-called “fiscal cliff” permanently. A CBO report from August shows (in a table on page 37) that removing all the fiscal cliff impacts (by making the Bush tax cuts permanent and canceling the scheduled spending cuts) would reduce economic output (and thus jobs) by 2022. Gross domestic product would be down 0.4 percent and gross national product would be down 1.7 percent, compared to what would happen if Congress did nothing and simply allowed the fiscal cliff impacts to take effect. (And remember, two-thirds of the fiscal cliff’s impact on deficit reduction results from the expiration of tax cuts, rather than then spending cuts scheduled to take effect.)

Of course, the short-term does matter — we need to improve the economy right now! But even if we could be persuaded that extending the income tax cuts for income in excess of $250,000 could save 200,000 jobs in the short-term, we could think of many, many, more cost-effective ways to do this. The figures in the new CBO report show (in a table on page 7) that the cost difference between extending all the Bush tax cuts and extending all but the income tax cuts for the top two brackets would be $42 billion in 2013. Divided by 200,000, that comes to $210,000 per job saved.

In other words, CBO thinks we can save a job for every $210,000 that we give to people who make over $250,000 (or $200,000 for single taxpayers). We’re not sure how much it costs annually to help public schools hire back teachers laid off due to budget cuts, or to hire construction workers to build bridges, but we’re pretty sure it’s less than $210,000 each.

Actually, the same CBO report also shows that the cost of calling off the automatic cuts in defense and non-defense spending and the scheduled expiration of increased doctor payments from Medicare would be $64 billion by the end of 2013 and would make a difference of 800,000 jobs. Divide $64 billion by 800,000 and that comes to $80,000 per job saved. That sounds like a much better deal.

Enact Obama’s Proposal or Go Off the Fiscal Cliff

The biggest issue facing Congress right now is finding revenue to make the public investments that will help our economy and to reduce the deficit. Extending most of the Bush tax cuts, as President Obama proposes, is not a great way to achieve that, but it makes sense to enact Obama’s approach for one year to give lawmakers time to find better solutions. If anti-tax lawmakers block that approach and insist on enacting all the tax cuts, then Congress and the President should simply allow all the tax cuts to expire.

For Immediate Release: November 9, 2012

Obama’s Proposed Extension of the Bush Tax Cuts Is Costly, But Can Be Followed with Real Revenue-Raising Tax Reforms

Citizens for Tax Justice Responds to President’s Fiscal Cliff Remarks Today

Washington, DC — Arguing that it would create certainty as he undertakes negotiations over the year-end fiscal cliff, today President Obama called on Congress to extend for another year most of the Bush-era tax cuts scheduled to expire at the end of this year under current law. He noted that such a bill has already been approved by the Senate and only needs the approval of the Republican-controlled House of Representatives.

“Deficit reduction is getting off to a terrible start, when the President’s opening offer to Republicans is a huge tax cut that will add $250 billion or more to federal borrowing in 2013 alone,” said Bob McIntyre, director of Citizens for Tax Justice.

Under the President’s approach, 78 percent of the cost of the Bush tax cuts would be extended through 2013, which is far too much. The Senate bill that the President has endorsed would extend for one year the Bush income tax cuts for the first $250,000 a married couple makes and the first $200,000 a single taxpayer makes. Most people don’t realize that this would allow taxpayers who make as much as half a million dollars a year to keep most of their Bush income tax cuts.

But Obama’s approach is certainly superior to the approach advocated by the Republican-led House, which would extend the tax cuts for all income levels, including the very richest Americans.

As the President said during his remarks today, voters want progressive revenue increases. Exit polls show that 60 percent of voters want taxes to go up for the people making over $250,000. An election night poll from Hart Research found that 62 percent of voters were sending a message that we should “make sure the wealthy start paying their fair share of taxes.”

If President Obama caves to the demand of House Speaker John Boehner that Bush-era income tax rate reductions must be extended even for the richest Americans, the President will have given up the enormous leverage he has gained following the election, and will have ignored the clear mandate the voters gave him to end tax cuts for the rich.

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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).

According to the official exit polls on Election Day a combined 60 percent of voters support increasing taxes, with 47 percent supporting an increase in taxes on those making over $250,000 and 13 percent supporting a tax increase on everyone. Barely one third of voters think no one’s taxes should be increased. This support for higher taxes reinforces the fact that only small minority (21 percent) support the disastrous spending cuts-only approach to deficit reduction, as represented by the debt ceiling deal.

Making the voters’ views even more clear, an election night poll by Hart Research found that 62 percent of voters said that they were trying to send the message that the Congress should make sure the wealthy pay their fair share in taxes. In addition, the Hart poll found that 73 percent of voters said that Medicare and Social Security benefits should be protected from cuts.

This is important: while lawmakers in DC have been focused on deficit reduction over the last couple years, most voters do not share their concern. In fact, 59 percent told pollsters on Election Day that unemployment was the most important economic issue facing the country, which is almost four times the percentage of voters that said the deficit was the most important economic issue.

The results of these Election Day polls mirror a plethora of public polling over the past couple of years on how to handle deficit reduction. Earlier this year, for example, a Washington Post-ABC News poll found that as many as 72 percent of Americans support increasing taxes on millionaires. Making the public preference clear, former Reagan official Bruce Bartlett compiled 19 different polls during the debt ceiling fight last year showing there is wide support among Americans for raising taxes to deal with the deficit.

Taken together, the Election Day polls once again reveal the substantial gap between the kinds of policies that the public would like Congress to pursue and the policies it’s actually pursuing. To start, the fact that the public is more concerned about the health of the economy than about deficit reduction should make Congress reverse course and actually increase government spending and investment, which is several times more stimulative to the economy than making the Bush tax cuts permanent, i.e. permanently cutting taxes. Second, Congress should recognize that to the extent that deficit reduction is needed over the long term, the public heavily favors a balanced approach that includes significant immediate revenue increases and spending cuts, rather than the spending cuts-only approach favored by Congress in recent years. Voters told Washington to get real about taxes because voters themselves are realistic about revenues. The message couldn’t be more clear.

For years, conservatives and many moderates have believed that signing Grover Norquist’s no-tax pledge was a ticket to electoral success. Maybe it was, maybe it wasn’t. But on election night 2012, it began to look like the pledge was actually a liability as signatories to it were sent packing by voters in states from New Hampshire to Ohio to California. While the results are still coming in, at least 55 House incumbents or candidates and 24 Senators or Senate hopefuls who signed the pledge lost on Election Day.  That means in the next Congress, the number of pledge-signers will be 264 at most, down from 279, and Grover’s fans could potentially become the minority in the House, with only 216 seats, according to reports from Bloomberg (link not available).

Rather than a boon, in many Senate races signing Grover’s pledge turned out to be a burden this election year. In the Ohio Senatorial race for instance, Republican State Treasurer Josh Mandel attempted to portray himself as an independent and principled thinker, but this image was tarnished by the fact that he had signed the no-tax pledge. In fact, Mandel gave a pretty limp response to his opponent, Democratic Senator Sherrod Brown (who ultimately won the race), who pointed out during a debate that signing the pledge equaled “giving away your right to think.”

Similarly in Massachusetts, tax policy became the focal point of difference between Republican Senator Scott Brown and Democratic candidate Elizabeth Warren. During a debate between the candidates, Warren warned voters that “instead of working for the people of Massa­chusetts” Brown had “taken a pledge to work for Grover Norquist.” Such criticism helped voters see that he was not as independent from conservative influence and the Republican Party as he liked to portray himself in deep blue Massachusetts.

Earlier this year, the stranglehold of the no-tax pledge on the Republican Party and candidates was already showing signs of cracking as a substantial number of Republican candidates either refused to sign the pledge or repudiated their former fealty to it. Leading the charge, Virginia Republican Representative Scott Rigell advised fellow Republicans to not sign the pledge and ran explicitly on the platform of taking a balanced approach to deficit reduction. In contrast to many of his colleagues who lost running on the no-tax pledge, Rigell was easily re-elected to his House seat.

Moving forward, we expect more lawmakers will realize that taking a dogmatic anti-tax approach is not only bad policy, but that it’s also increasingly bad politics.

Picture of Norquist in a bathtub courtesy the New Yorker magazine. 

Speaker Boehner Uses Different Words to Repeat Unchanged Opposition to Giving Up Tax Cuts for the Rich

On Wednesday, Republican House Speaker John Boehner repeated his stance that his caucus would not approve any increase in tax revenue except for a revenue boost driven by economic growth that they claim will result from the sort of tax overhaul proposed by Mitt Romney.

Boehner attempted to present this position as a compromise, saying his caucus is “willing to accept some additional revenues” but then went on to say, “There’s a model for tax reform that supports economic growth. It happened in 1986 with a Democrat House run by Tip O’Neill, and a Republican President named Ronald Reagan.”

The Tax Reform Act of 1986 was projected by Congress’s official revenue-estimators to be “revenue-neutral.” The law ended many tax loopholes and special breaks, but used the revenue saved to offset reductions in rates, just as Mitt Romney claimed (but failed to demonstrate) his plan would do.

Nonetheless, Boehner argued that this sort of tax reform improves the economy so much that the resulting increased incomes lead to increases in the amount of tax revenue collected. He said that by “creating a fairer, simpler, cleaner tax code, we can give our country a stronger, healthier economy. A stronger economy means more revenue, which is what the President seeks.”

But the projections of revenue-neutrality in 1986 were correct. Several studies on the impacts of the 1986 reform were done by economists on all sides of the tax issue in the 1990s, and none found evidence that it expanded the entire economy in a way that would boost revenue as Boehner claims.

The 1986 reform did a lot of good, but it was revenue-neutral and it was very different from what Republicans have been talking about today. The 1986 reform enhanced fairness by ending tax breaks for investment income that allowed wealthy investors to pay lower effective tax rates than middle-income people, and these reforms were sustained for several years before these breaks were brought back into the tax code. But Congressional Republicans want to expand those breaks or at least make permanent the Bush-era provisions that expanded them (the 15 percent special top rate for capital gains and stock dividends).

The 1986 reform also made U.S. corporations collectively pay higher taxes, by closing loopholes and cracking down on offshore profit-shifting, largely by curbing “deferral” on taxes on U.S. profits that companies artificially shifted to tax havens (reforms that have largely been eroded since then). Higher corporate taxes made it possible to reduce personal income tax rates, while keeping some popular and useful personal tax deductions and credits. But Congressional Republicans, and sadly even President Obama, propose that the corporate part of tax reform should, by itself, be revenue-neutral (if not revenue-negative).

Curbing unwarranted tax breaks, as happened in 1986, is an excellent idea. But the revenues from such reforms should be used to make public investments or cut the deficit, not reduce tax rates. In fact, the highest priority of tax reform should be raising revenue — real revenue, not the voodoo-economics sort of revenue gains that Boehner mistakenly claims will come from tax-rate reductions.

Most people forget that President Reagan actually increased taxes substantially (and repeatedly) after his 1981 tax reductions failed to achieve the economic goals he had been told to expect by his “supply-side” advisers (whom Reagan fired). Congressional Republicans, who say they admire Reagan, should emulate his responsible later policies, rather than try to repeat his early (and admitted) mistakes.

Last night Americans in states from coast to coast cast their ballots on a wide range of tax and budget issues.  On the whole, they should feel proud of their choices.

Generally, just as voters nationally favored a presidential candidate who supports higher taxes on the best-off Americans and made tax fairness a centerpiece of his candidacy, when given the opportunity at the state level to raise taxes on, or reject tax cuts for, the wealthy, voters overwhelmingly were on the side of fairness. In California Governor Jerry Brown’s revenue raising plan, which increases income taxes on the richest Californians and raises the sales tax by a quarter cent, passed handily. Californians also voted to repeal a special billion-dollar tax break for multi-state corporations. In Oregon, voters shot down a measure that would have repealed the state’s estate tax and allowed family members to transfer property tax-free. Oregonians also voted to eliminate the state’s “corporate kicker” refund program. Instead of providing a tax rebate to corporate income taxpayers when total corporate tax revenues exceed expectations, now that excess revenue will be used to support K-12 education.

The vote on the Oregon “kicker” refund was part of a broader rejection of measures designed to strangle future revenue growth in the states.  Voters in Florida rejected both a “TABOR” style state tax limitation and a cap on local property tax increases. Michigan voters decisively rejected a measure that would have required a two-thirds vote of each legislative chamber to eliminate any tax break or raise any tax rate.  And New Hampshire voters opted not to ratify a constitutional amendment that would have handcuffed future lawmakers by banning them from ever enacting a tax on earned income (which the state does not currently levy).

Unfortunately, some lower-profile efforts to curb state revenue growth met with success.  Oklahoma slightly tightened an existing cap on its property tax, and Arizona created a new property tax cap. Washington voters also approved a statutory change requiring a supermajority vote of the legislature to raise taxes, though since the requirement is not enshrined in the state’s constitution it’s possible for lawmakers to work around it as they have similar limitations in the past.

Proposals to increase taxes that fall most heavily on middle- and low-income Americans, like the sales tax and cigarette tax, generally didn’t fare as well as the more progressive tax plan put before California voters. In Arizona and South Dakota, measures that would have increased the sales tax rate were rejected handily, and Missouri voters rejected a measure that would have hiked the cigarette tax. Arkansas voters, however, gave their approval to a half cent sales tax increase that state lawmakers had already passed.

Below is a complete listing of the results for the state tax ballot initiatives we’ve been following:

Arizona Proposition 204 FAILED
Proposition 204 would have made permanent a temporary 1 percent sales tax increase that voters approved in 2010, and that is scheduled to expire in mid-2013.

Arizona Proposition 117 PASSED
Proposition 117 limits property taxes by preventing the taxable assessed value of properties from rising by more than 5 percent per year.

Arkansas Issue #1  PASSED
Issue #1 amends the Arkansas constitution to allow for a temporary increase in the state’s sales tax to pay for large-scale transportation needs like highways, bridges, and county roads.

California Proposition 30 PASSED and Proposition 38 FAILED
Governor Jerry Brown’s revenue raising measure, Proposition 30, won handily while the rival revenue raising proposal was defeated.  Proposition 30 will raise significant revenue to stave off cuts to education through a tax hike on wealthy Californians and sales tax increase.

California Proposition 39  PASSED
California voters supported Proposition 39 which repeals a billion dollar tax break for multi-national corporations.

Florida Amendment 3 FAILED
Amendment 3 would have created a Colorado-style TABOR (or “Taxpayer Bill of Rights”) limit on state revenue growth, based on a formula tied to population and cost-of-living growth.

Florida Amendment 4 FAILED
Amendment 4 would have cut property taxes for businesses, non-residents, and Floridians with multiple homes by capping growth in the taxable value of their properties at no more than 5 percent per year.

Michigan Proposal 5 FAILED
Proposal 5 would have amended the state constitution to require a two-thirds vote in both the House and Senate to raise revenue either by increasing tax rates or eliminating special tax breaks.

Missouri Proposition B FAILED
Proposition B would have increased the state’s cigarette tax by 73 cents to 90 cents a pack.

New Hampshire Question 1 FAILED
Voters rejected Question 1 which would have enshrined a permanent ban on taxing earned income into the Granite State’s constitution.  New Hampshire is already one of nine states without a broad-based personal income tax.

Oklahoma State Question 758 PASSED
State Question 758 tightens the state’s property tax cap by limiting increases in home’s taxable assessed value to 3 percent per year, rather than the previous limit of 5 percent.

Oklahoma State Question 766 PASSED
State Question 766 creates a new exemption for certain corporations’ intangible property, such as mineral interests, trademarks, and software.

Oregon Measure 84 FAILED
Voters rejected Measure 84 which would have eliminated the state’s inheritance and estate tax and allowed for tax-free property transfers between family members.

Oregon Measure 85 PASSED
Voters approved Measure 85 choosing to eliminate Oregon’s “corporate kicker” refund program which provides a rebate to corporate income taxpayers when total state corporate income tax revenue collections exceed the forecast by two or more percent. Now, the excess revenue above collections will go to the state’s General Fund to support K-12 education.

Oregon Measure 79 PASSED
Measure 79 constitutionally bans the state from levying real estate transfer taxes and fees even though such taxes are currently nonexistent in Oregon.

South Dakota Initiated Measure #15 FAILED
Initiated Measure #15 would have raised the state’s sales tax by one cent, from 4 to 5 percent. The additional revenue raised would have been split between two funding priorities: Medicaid and K-12 public schools.

Washington Initiative 1185  PASSED
Initiative 1185 requires a supermajority of the legislature or a vote of the people to raise revenue.

If yesterday’s election was a referendum on taxes, what voters rejected was the tired oldargument that cutting taxes is good for an ailing economy, and that is a welcome development. For his part, President Obama has said winning would give him a mandate to raise revenue by ending the Bush tax cuts for the wealthiest Americans, one of his campaign promises. Republicans have said if he follows through on that promise, it will destroy any chance of the two parties working together in the coming years.

As we head into the lame duck Congressional session that begins next week and look ahead to 2013, let’s review the (frankly) uninspiring policy options both parties are proposing – proposing for a country where tax rates are at historic lows, income inequality is at historic highs, tax avoidance by the wealthy and corporations is epidemic and revenues are anemic.

Sadly, President Obama’s “balanced” fiscal plan comes up short.  Far from raising needed revenues or “raising taxes on the rich” as many describe it, the President’s plan actually cuts taxes dramatically for most Americans. If President Obama’s plan to keep all but the high end Bush tax cuts in place is implemented, the lion’s share of the unaffordable and unfair tax cuts pushed through by President George W. Bush more than a decade ago would remain in place for another year, through the end of 2013 – at a one-year cost of $250 billion or more.

Whether the President succeeds in getting a grand bargain that includes a one year extension of most of the Bush tax cuts, or we end up with the Republicans’ latest idea for a six month “bridge” across the fiscal cliff, what both parties are saying is that the time they buy with these bargains will be used to rewrite the tax code in a permanent way. And while we agree that some kind of tax code overhaul is necessary, any overhaul that fails to raise revenue and increase tax fairness is not worthy of the word “reform.” 

Our corporate tax system is currently in a shambles, with hugely profitable multinational corporations aggressively using shady tax dodges as well as tax breaks enacted by Congress to zero out their tax bills.  Unfortunately, most Democrats and Republicans are listening to corporate lobbyists’ complaints that the U.S. statutory corporate income tax rate of 35 percent is too high.  This complaint is largely baseless.  We studied most of the Fortune 500 corporations that were consistently profitable in recent years and found that they collectively paid just 18.5 percent of their profits in taxes, and many paid nothing at all.  Still, most plans for corporate tax reform from both sides of the aisle call for closing loopholes only to lower the rate, resulting in no new revenues for the Treasury. 

We acknowledge, however, that Democrats have articulated some encouraging goals. In Congress, for example, Senator Carl Levin is actively working to close loopholes that allow corporations to shift profits to offshore tax havens. And President Obama has indicated he wants to restrict the most egregious corporate loophole, the rule allowing corporations to “defer” paying taxes on their foreign profits (which are often U.S. profits artificially shifted offshore).  Contrasted with the Republican Party’s support of a territorial tax system that permanently widens that loophole and exempts all foreign profits, the President’s corporate tax framework looks progressive, even if it is woefully short on detail.

Our view, though, is that ending “deferral” entirely is the only road to real reform of the corporate tax. In this global economy, deferral is the massive hole in which our most profitable companies can legally hide their profits, even as those profits are at historic highs.  

And the personal income tax, with or without the Bush tax cuts in place, contains expensive and unwarranted loopholes that make it possible for wealthy investors to pay taxes at a lower rate than middle-income workers – as Warren Buffett has so helpfully illustrated.  There is a simple way to fix this, of course, and that is to tax capital gains and dividends the same way we tax income from salaries and wages.  Other provisions of the personal income tax (like tax breaks for charitable deductions on appreciated property and the “carried interest” loophole) can be reformed or eliminated so that they no longer provide tax shelters for the richest Americans.  But it’s the low rates on capital gains (and dividends) that overwhelmingly benefit the very wealthiest Americans, and tax reform that maintains a progressive federal income tax must end that special break.

Tax policy is often inscrutable, and one aspect that can complicate and thwart a constructive public discussion is the issue of which “baseline” or assumptions an analysis begins with.  For example, there are those who characterize the scheduled expiration of the Bush tax cuts as a tax increase.  Don’t believe them. Nor should you believe those who say that President Obama’s proposal to extend most of the Bush tax cuts would “raise revenue.” By law, the Bush tax cuts are still temporary and are set to expire at the end of this year.  Allowing them all to expire is not a tax increase, and the President’s approach to extending most of them would result in less revenue (and a much higher budget deficit) than we’d get if Congress just did nothing, let the Bush cuts (and scores of smaller temporary tax expenditures) expire and went home.

Indeed, Congress simply going home next month and allowing the Bush tax cuts to expire on January 1, 2013 would not be the worst result.  You hear people say that we can’t possibly allow all the Bush tax cuts to expire because they benefit low- and middle-income Americans who need help, especially right now. But this is no reason to enact a bill that also extends tax cuts for the rich, which are far larger, and that’s exactly what it would mean to extend the Bush tax cuts wholesale. We’ve estimated that if Congressional Republicans get their way and all the Bush tax cuts are extended, 32 percent of the benefits would go to the richest one percent of Americans and just one percent of the benefits would go to the poorest fifth of Americans. Under President Obama’s approach, 11 percent of the benefits of the extended tax cuts would go to the richest one percent of Americans and three percent of the benefits would go to the poorest fifth of Americans. Clearly Obama’s plan is the fairer one, though it’s hardly something to celebrate.

The White House and Congress will be working on a deal during the lame duck session to tide us over through 2013. If the only deal they can reach is a bad deal – one that preserves all those expensive Bush tax cuts – the President should reject that deal.  We believe the public would support him if he did.

While we aren’t enthusiastic about any of the short term deals we know of, we are hopeful that 2013 can bring positive change to our tax code if Congress follows some basic principles.  Like the historic tax reform of 1986, reform next year should close loopholes in the personal and corporate income taxes.  Unlike ’86, however, it should not be revenue-neutral.  Today, following decades of tax cuts, we have shrinking revenues and swelling deficits.  So the next tax overhaul must raise revenues sufficient to fund the government and provide services citizens deserve and depend on. Real reform will also leave the code fairer than it is today by closing loopholes that have slowly eroded the progressivity the federal income tax was designed to deliver. We know that when you include local and state taxes, lower and middle income Americans are, in fact, paying their fare share.  At Citizens for Tax Justice, our mission is advocating for those taxpayers, and we will continue to do so into 2013 as a still divided Congress and Democratic White House debate reform of the entire tax code.

A Missouri child advocacy group is planning on lobbying for an extension of the “Children in Crisis” tax credit during the upcoming legislative session.  But Missouri doesn’t need more tax breaks, even if they are designed with noble causes in mind. Instead, lawmakers should be looking at ways to sustainably raise enough revenue to adequately support children’s programs so they don’t have to resort to special tax breaks.

Some Wisconsin lawmakers continue to insist that Wisconsin’s progressive income taxes are too complex and unfair and that the best remedy is a flatter tax structure with a single rate. But this post from the Wisconsin Budget Project reminds us that moving to a flatter income tax structure “would benefit the biggest earners and could raise taxes for people in the working class.”  Flatter does not mean fairer.

In their brief arguing for increasing the state’s earned income tax credit, the Louisiana Budget Project (LBP) cites Institute on Taxation and Economic Policy (ITEP) data showing how the state’s tax structure asks low income families to pay more taxes as a share of their income than wealthier Louisianans. LBP advocates doubling the state’s current 3.5 percent tax credit saying, “the benefits for Louisiana families and children are proven.”

We’ve made the case for why tax breaks for big oil and gas companies should be repealed at the federal level, and now the Oklahoma Policy Institute has weighed in with their take on why state tax breaks for oil and gas should be jettisoned as well. According to the Institute, “Oklahoma’s oil and gas companies have ranked tax incentives as the least important factor affecting drilling decisions,” and offering these breaks is therefore unnecessarily “squeezing out resources for schools, roads, public safety, and other keys to long-term economic growth.”

A new report from Citizens for Tax Justice shows that the Making Work Pay Credit, a tax credit that was in effect in 2009 and 2010, is better targeted towards low- and middle-income families than the payroll tax cut in effect today, at half the cost. It is dramatically more targeted to these families than the Bush tax cuts, at just over a sixth of the cost.

Prominent Washington figures and media outlets have suggested in recent days that either the payroll tax cut might be extended or the Making Work Pay Credit might be revived to help the economy.

Read the report.