Month: December 2012

Since he first began running for President, Barack Obama has consistently proposed to extend almost four-fifths of the tax cuts first enacted under President George W. Bush, proposing to allow the expiration of just the one fifth of the tax cuts that go solely to the richest two percent of Americans. This was President Obama’s proposal to extend the tax cuts for income up to $250,000 for married couples and up to $200,000 for singles (PDF). To extend any more of these tax cuts for the richest two percent of Americans is entirely unwarranted and fiscally irresponsible.

Our latest report estimates the revenue impact of the President’s proposal to extend the Bush tax cuts for income up to $250,000/$200,000 and to reclaim a fraction of the lost revenue by limiting the savings from deductions and exclusions for high-income Americans. Compared to what would happen if Congress extends the Bush income tax cuts and makes no other changes, this would save $1.4 trillion. Compared to what would happen if Congress does nothing and lets the Bush tax cuts expire, this would lose $2.4 trillion.

That report also illustrates the impact of President Obama’s recent proposal which became public on December 17, and which is the same except that the income threshold for higher tax rates on ordinary income would be raised from $250,000/$200,000 to $400,000. If the limit on deductions and exclusions is still included, this would save 85 percent as much revenue as the President’s original, $1.4 trillion proposal. If the limit on deductions and exclusions is not included, the report finds this would save just 49 percent as much as Obama’s original, $1.4 trillion proposal.

Today, several news reports indicate that the deal taking shape in Washington would raise less revenue than the President’s December 17 proposal. There are reports that the threshold for higher income tax rates would be $400,000 for singles and $450,000 for married couples, and that this $450,000/$400,000 threshold would also apply to higher income tax rates on capital gains and dividends. (The President’s December 17 proposal would still have allowed higher rates to go into effect for capital gains and dividends for income in excess of $250,000/$200,000.)

Further, it is unclear whether or not any limit on deductions and exclusions is included in the deal taking shape now. This means that the proposal could save considerably less than half as much revenue as the President’s original, $1.4 trillion proposal.

In addition to this, lawmakers want to address the Bush-era estate tax cuts, which also expire tonight. The President has long proposed to make permanent the estate tax cuts that were in effect for one year, in 2009. CTJ has criticized this proposal because it asks only a tiny fraction of the wealthy to pay any estate tax. (CTJ’s figures show that only 0.3 percent of deaths in 2009 resulted in federal estate tax liability.)  There are reports that the deal taking shape would extend an even larger estate tax cut, one much closer to the estate tax cut that was in effect for 2011 and 2012.

CTJ’s most recent reports on other components of the New Year’s Eve tax deal taking shape are online at:

Capital Gains and Dividends
Alternative Minimum Tax (AMT)
EITC and Child Tax Credit
State-by-State figures on Bush tax cuts

Congress should reject any deal that extends more of the Bush income tax cuts or Bush estate tax cuts than President Obama originally proposed to extend. America would be better off if Congress simply does nothing and allows the Bush income and estate tax cuts to expire completely. This would merely allow the tax rules to revert to those in place at the end of the Clinton administration. Given the economic prosperity experienced at the of the Clinton years, it’s difficult to believe that this more fiscally responsible approach will have a significant adverse effect on our economy. Of course, Congress should act to stimulate the economy so that the private sector creates more jobs, but almost any measure would be more effective in accomplishing this goal than extending more of the disastrous Bush tax cuts for the rich.

For years, groups like the US Chamber of Commerce and the National Federation of Independent Business (NFIB) succeeded in portraying the consensus position of the “small business community” as staunchly favoring lower tax rates on top income earners and corporations. The tax debate surrounding the so-called “fiscal cliff” has exposed the myth that these groups actually represent small businesses and shows that many of these large national groups have very different interests at stake.

The biggest pushback in recent days against the anti-tax agenda represented by the Chamber and NFIB has come from groups of small business owners who are fed up with having the position of “small business owners” misrepresented. In recent days, thousands of business owners and executives have signed on to a letter calling for the expiration of the Bush tax cuts for those making over $250,000 and arguing that only a small fraction of the wealthiest small business owners would even be affected by allowing this to occur. In addition, many small business leaders have signed on to a letter calling for corporations to contribute more to reduce the deficit as part of the fiscal cliff deal. The letter also calls for an end to the offshore tax loopholes that give larger multinational corporations a tax advantage over small businesses.

The reason so many small business owners are raising their voices is because they believe that raising revenue is critical to stopping spending cuts in education, health care, and infrastructure that are crucial to building a strong economy. Backing this up, a poll of small business owners by the Small Business Majority found that, by a 2 to 1 margin, small business owners believed that spending cuts would do more harm to the economy than higher taxes on the wealthy. As Brian McGregor, owner of the Silver Dollar Saloon in Montana and a supporter of allowing the tax cuts for the wealthiest to expire, put it, “What my business needs is customers – not more tax cuts for the rich.”

The growing opposition of small business owners has not done much to change the position of NFIB and the Chamber, which continue to push for more tax cuts for the wealthy and corporations. This is not all that surprising, since both groups have historically been more interested in promoting the Republican Party than the real preferences of the small business community. In fact, during 2012 the Chamber spent over $32 million (98% of its total spending on electioneering communications) supporting Republican candidates, while the NFIB spent $4 million (100% of its total spending on electioneering communications) supporting Republican candidates. This is especially striking considering that less than half of small business owners identify as Republican.

The intransigence of the NFIB and Chamber has become even more clear as other big business backed groups like the Business Roundtable and Fix the Debt have begun calling for a fiscal cliff deal that includes revenue increases. To be fair, however, many critics suspect that the Business Roundtable and Fix the Debt groups messaging may have more to do with cutting a backroom deal to lower corporate taxes, than in protecting small businesses. In fact, one recent study using data from Citizens for Tax Justice found that the companies backing the Fix the Debt campaign could directly benefit to the tune of $134 billion if such a deal included a move to a territorial tax system, while at the same time further disadvantaging small businesses that do not have offshore earnings.

The more small business owners speak out for themselves, rather than allowing corporate-backed national organizations to speak for them, the more lawmakers will realize that small businesses demand robust government investments and are hurt when multinational corporations are allowed to escape paying their fair share in taxes.

A new report from Citizens for Tax Justice finds that the “Plan B” tax proposal that House Speaker John Boehner plans to put to a vote in the House of Representatives would allow the richest one percent of Americans to pay $36,000 less in federal income taxes, on average, than they would pay under President Obama’s most recent proposal. 

Under Plan B, the poorest three-fifths of Americans would pay more in federal income taxes, on average, than they would pay under the President’s latest plan.

Read the report

The latest tax proposals from Speaker Boehner and President Obama show that their respective positions on taxes have moved very slightly towards each other.

President Obama’s major proposals for the personal income tax would have, in their original version, saved $1.4 trillion compared to what would happen if Congress extended the Bush tax cuts and made no other changes to the tax code. As illustrated in the table on the following page, the President’s latest proposal, which became public December 17, would save 85 percent of that amount. Meanwhile, Speaker Boehner’s Plan B would save 24 percent of that amount.

Compared to current law (compared to what would happen if Congress does nothing), both of these proposals would lose trillions of dollars over the next decade.

Following an election that left half the states with veto-proof legislative majorities, 39 states with one-party rule and more than a dozen with governors who put tax reform high on their agendas, 2013 promises to be a big year for changes to state tax laws, and that could end up being a good thing. From the National Governors Association to the State Budget Crisis Taskforce, there is widespread consensus that most states have been patching and punting for too long and their tax systems are no longer able to provide adequate and sustainable revenue to deliver services that citizens rely on.

But it could also be a bad thing. As an historic number of states gear up for major tax changes, we know that Grover Norquist is targeting the states and Arthur Laffer is getting some new clients. There needs to be a real policy discussion in the states that helps people understand there’s a smart way to do tax reform, that it can’t just mean cuts, and that reform has wide ranging, long term consequences.

Enter the Institute on Taxation and Economic Policy (ITEP), CTJ’s partner organization. They hosted a phone briefing on December 19, 2012 outlining challenges and solutions with a focus on state tax fairness, and going into greater depth on fifteen states most likely to undertake major tax overhauls in 2013 (CA, IA, KS, KY, LA, MN, MO, NC, NE, NY, OH, OK, OR, VA, WI). As the new legislative sesions get underway, ITEP will be monitoring proposals as they develop and will run them through the microsimulation model to see how their costs and benefits get distributed across different groups of taxpayers.

Right now, however, you can read over the briefing materials and listen to the 30 minute presentation from ITEP’s state policy experts. It’s all at this link.

Small Business Leaders Call for Ending Offshore Loopholes, Raising Revenues from Corporate Tax Reform

In a press conference this morning with Sen. Calr Levin (MI) and business leaders called for corporate tax reform that raises revenue and closes the loopholes that allow multinational corporations to avoid $100 billion a year in U.S. corporate income tax.

Amid news that corporate tax reform is part of the fiscal cliff talks, 626 small business owners have signed a letter sent by the American Sustainable Business Council, Business for Shared Prosperity, and the Main Street Alliance to Congress and the President today with a call for corporate tax reform that:

—Raises revenue rather than being “revenue-neutral,” so that “all businesses – large and small – contribute to the costs of government and the well being of the economy.”

—Ends the current incentives for multinationals to avoid tax by disguising U.S. profits as foreign profits and for shifting jobs and investments overseas.

—Levels the playing field so that multinational corporations aren’t paying lower tax rates than domestic companies and large businesses aren’t paying lower rates than small businesses.

A nationwide poll released earlier this year found that nine out of ten small business owners said offshore profit shifting by U.S. multinational corporations was a problem.

United for a Fair Economy (UFE) invites everyone who supports fair taxes to join a petition to Congress to enact a robust estate tax.

The petition drive was launched on Tuesday as UFE’s Responsible Wealth project convened a group of well-known policy and political luminaries supporting a stronger estate tax and billionaires who believe that their estates should be taxed upon their deaths. The group includes George Soros, Abigail Disney, Robert Rubin, President Jimmy Carter and others.

Richard Rockefeller (one of the Rockefellers) spoke about how public investments funded by taxes will improve the quality of life for his heirs in a way that his own money alone cannot.

“If the world I leave behind is one of gated communities, growing inequality and misery among the have-nots, downward mobility for the middle class, a degraded environment and a rotting social and physical infrastructure — then [my children’s] inheritance will be a shabby one — no matter how much money they get.”

The bill approved by Senate Democrats over the summer to extend most, but not all, of the Bush income tax cuts did not address the Bush estate tax cuts, which also expire at the end of this year. This is apparently because Senate Democrats themselves could not agree on how robust the estate tax should be.

The Bush tax cuts included the gradual reduction and eventual repeal (in 2010) of the estate tax. The “compromise” that President Obama signed that extended the Bush income tax cuts through 2012 does not repeal the estate tax altogether, but does set it at very low levels. Republicans and some Democrats in Congress want to extend these current rules, which exempt $5 million of an estate’s value per person, meaning a married couple can leave at least $10 million behind without triggering any estate tax. The taxable part of an estate is then taxed at a rate of 35 percent.

President Obama and many Democrats want to bring back the estate tax rules that were in place, for one year, in 2009, which exempted $3.5 million of an estate’s value per person (meaning $7 million for a married couple) and taxed the taxable part of an estate at 45 percent.

Citizens for Tax Justice has pointed out that even President Obama’s proposal (to reinstate the 2009 estate tax rules) would only tax an absurdly small number of estates. A 2011 report from CTJ shows that just 0.3 percent of deaths in 2009 resulted in estate tax liability. (The report also has figures for each state.)

The UFE petition recognizes this and calls for an estate tax that is more robust than what President Obama proposes, one that exempts $2 million of an estate’s value per person. The taxable part of an estate would be taxed at progressive rates, starting at 45 percent.

New CTJ Report: Fortune 500 Corporations Holding $1.6 Trillion in Profits Offshore

More Evidence that the Corporate Lobbyists’ Version of Tax “Reform” Should NOT Be a Part of Any Budget Deal 

A new report from Citizens for Tax Justice explains that among the Fortune 500 corporations, 290 have revealed that they, collectively, held nearly $1.6 trillion in profits outside the United States at the end of 2011. This is one indication of how much they might benefit from a so-called “territorial” tax system, which would permanently exempt these offshore profits from U.S. taxes.

Just 20 of the corporations — including household names like GE, Microsoft, Apple, IBM, Coca-Cola and Goldman Sachs — held $794 billion offshore, half of the total. The data are compiled from figures buried deep in the footnotes of the “10-K” financial reports filed by the companies annually with the Securities and Exchange Commission. 

Read the report.

The appendix of the report includes the full list of 290 corporations and the size of their offshore profits in each of the last three years, as well as the state in which their headquarters is located.

Corporate lobbyists and their allies in Congress are pushing for two changes that would benefit their investors but leave America worse off. Neither one of these should be included in any deal coming out of the so-called “fiscal cliff” negotiations.

Congress Should Reject a Revenue-Neutral Corporate Tax Overhaul

The first goal of the corporate lobbyists is an overhaul of the corporate tax that does not raise any revenue. Some corporations have stated that they would support closing corporate tax loopholes, but only if all the revenue savings is used to reduce the corporate tax rate. This would be a terrible waste of revenue at a time when lawmakers are considering cutting public investments that middle-income people rely on in order to reduce the deficit.

In May of 2011, a letter circulated by Citizens for Tax Justice was signed by 250 organizations, including organizations from every state, calling on Congress to close corporate tax loopholes and use the revenue saved for public investments and deficit reduction rather than lowering the corporate tax rate.

CTJ also has published a fact sheet and a detailed report explaining why corporate tax reform should be revenue-positive rather than revenue-neutral.

Unfortunately, the Obama administration endorsed a revenue-neutral corporate tax overhaul in the vague “framework” it released in February of this year. As lawmakers face real choices about whether to cut programs like Medicare, Medicaid, and education, we believe many will realize that demanding corporations contribute more to the society that makes their profits possible is more sensible.

Congress Should Reject a Territorial Tax System

The second goal of the corporate lobbyists is a transition to a “territorial” tax system, which would call off U.S. taxes on the offshore profits of U.S. corporations. As the new CTJ report explains, many of those profits are truly U.S. profits that have been made to look like “foreign” profits generated in tax havens through convoluted accounting schemes.

Citizens for Tax Justice has published a fact sheet and a detailed report explaining why Congress should reject a territorial tax system.

Thankfully, the administration has not endorsed a territorial tax system and Vice President Biden even criticized it during his speech at the Democratic National Convention. We hope that the President and his allies in Congress hold firm to this position. 

While we’re not regular listeners to Rush Limbaugh’s radio program, we caught the fact that Limbaugh cited data from our partner organization, the Institute on Taxation and Economic Policy (ITEP), during his monologue the other day. Not surprisingly, Limbaugh both misconstrues ITEP’s analysis and ignores basic economic realities.

Echoing a talking point circulating in conservative media that the tax code has no role in mitigating income inequality (and that somehow immigrants cause it), Limbaugh argued that, therefore, higher taxes on the rich cannot reduce income equality.  He said this is proven by simply making “a quick comparison of state inequality data and their corresponding tax codes.” He went on to assert that because California and New York have two of the most progressive tax systems but also some of the highest levels of income inequality, this means progressive taxes do nothing to reduce income inequality.

Honestly, it’s hard to know where to even start with breaking down this nonsense.

For one, Limbaugh must have overlooked the central conclusion of ITEP’s Who Pays report, which is that ALL state tax systems are regressive, meaning that even the most “progressive” state tax systems in the US still exacerbate income equality. Even in California, which Limbaugh claims has one of the most progressive tax systems (it doesn’t), 10.2 percent of family income for those in the bottom 20 percent is spent on state taxes, whereas only 9.8 percent of the top 1 percent’s income goes toward state taxes.

Another critical problem with Limbaugh’s monologue is that he did not actually do much analyzing, but instead opted to cherry-pick New York and California off the list of states with high levels of income inequality. By doing this, Limbaugh ignores the fact that Arizona and Texas have two of the most regressive tax systems and – what? – also happen to top of the income inequality list. To actually support his point, Limbaugh would have had to compare the relative progressivity of different tax systems with their level of income inequality, an impossible task considering that ITEP does not actually rank the states according to progressivity. In addition, Limbaugh does not even consider the myriad of factors (besides immigration) that contribute to income inequality, such as  government safety net and income supports, the types of jobs available and their wage levels, or the presence of industries, like finance, that generate unusually high wealth.

One last fatal flaw is that Limbaugh utterly ignores the reality that progressive taxes straightforwardly take more money from the wealthy and redistribute that money more evenly to the population through government services, which, for obvious reasons, affects income inequality. The fact is that basic economic logic and decades of economic analysis have shown that lower taxes on the rich directly increase income inequality. As a definitive study by the non-partisan and widely respected Congressional Research Service (CRS) puts it, “lowering top marginal tax rates has the effect of further increasing the disproportionate amount of income earned by the wealthiest of the wealthy.” Similarly, the OECD’s economic analysis of the US earlier this year found that our failure to implement a more progressive federal tax code was a critical factor in making the US the fourth most unequal country in the developed world and that this must be reversed in order to stave off even high income inequality.

Next time Rush Limbaugh wants to use ITEP numbers, he should check with us first – we’d be happy to enlighten him!