Month: February 2013

Note to Readers: This is the fifth of a six part series on tax reform trends in the states, written by The Institute on Taxation and Economic Policy (ITEP).  Previous posts in this series have provided an overview of current trends and looked in detail at “tax swaps,” personal income tax cuts and progressive tax reforms under consideration in the states.  This post focuses on one of the most debated tax issues of 2013: raising state gasoline taxes to pay for transportation infrastructure improvements.

States don’t tend to increase their gas tax rates very often, mostly because lawmakers are afraid of being wrongly blamed for high gas prices.  The result of this rampant procrastination is that state gas tax revenues are lagging far behind what’s needed to pay for our transportation infrastructure.  Until last week, the last time a state gas tax increase was signed into law was three and a half years ago—in the summer of 2009—when lawmakers in North Carolina, Oregon, Rhode Island, Vermont, and the District of Columbia all agreed that their gas tax rates needed to go up, albeit modestly in some cases.  (Since then, some state gas taxes have also risen due to provisions automatically tying the tax to gas prices or inflation.)

But Wyoming was the state that ended the drought when Governor Matt Mead signed into law a 10 cent gas tax increase passed by the state’s legislature.  And Wyoming is not alone.  In total, lawmakers in nine states are seriously considering raising (or have already raised) their gas tax in 2013: Iowa, Maryland, Massachusetts, Michigan, New Hampshire, Pennsylvania, Vermont, Washington, and Wyoming. And until recently, Virginia appeared poised to increase its gas tax, too.In addition to Governor Mead, Republican governors in Pennsylvania and Michigan and Democratic governors in Massachusetts and Vermont have proposed raising their state gas taxes despite the predictable political pushback that such proposals seem to elicit.  The plans under discussion in these four states are especially reform-minded since they would not just raise the gas tax rate today, but also allow it to grow over time as the cost of asphalt, concrete, machinery, and everything else the gas tax pays for grows too.

In New Hampshire, meanwhile, Governor Hassan has said that the state needs more funding for transportation and is open to the idea of raising the gasoline tax, among other options.  The state House is debating just such a bill right now.  The situation is similar in Maryland where Governor O’Malley, who pushed for a long-overdue gasoline tax increase last year, recently met with legislators to discuss a gas tax increase proposed this year by Senate President Mike Miller.  Washington State Governor Jay Inslee has also not ruled out an increase in the gas tax—an idea backed by the state Senate majority leader and the House Transportation Committee chair.  And in the Hawkeye State, Governor Branstad once described 2013 as “the year” to raise Iowa’s gas tax (which happens to be at an all-time low, adjusted for inflation), although he has since said that he would support doing so only after lawmakers cut the property tax.

Other states where gas tax increases have gotten a foothold so far this year include Minnesota, Texas, West Virginia, and Wisconsin, though it’s not yet clear how far those states’ debates will progress in 2013.

Across the country, no state has received more attention this year for its transportation debates than Virginia, where Governor Bob McDonnell kicked off the discussion by actually proposing to repeal the state’s gasoline tax.  But while Governor McDonnell’s idea was certainly attention-grabbing, it also failed to gain traction with most lawmakers, and the Virginia Senate responded by passing a bill actually increasing the state gasoline tax and tying it to inflation.  Since then, the preliminary details of an agreement being negotiated between House and Senate leaders are just now emerging, but early indications are that the legislature will try to cut the gas tax in the short-term, but allow the tax to rise alongside gas prices in the future.  The size of the cut will also depend on whether Congress enacts legislation empowering Virginia to collect the sales taxes owed on online purchases.

It’s good to see Virginia lawmakers looking toward the long-term with reforms that will allow the gas tax to grow over time.  But asking less of drivers through the gas tax today—when the state is facing such serious congestion problems—is fundamentally bad tax policy.  For more on the merits of the gas tax and the reforms that are needed to improve its fairness and sustainability, see Building a Better Gas Tax from the Institute on Taxation and Economic Policy (ITEP).

Former White House chief of staff Erskine Bowles and former Senator Alan Simpson, co-chairs of President Obama’s ill-fated fiscal commission, have a new proposal for a “grand bargain” to reduce the budget deficit. Their newest idea is to raise less revenue than they suggested in their original proposal and rely more on cuts in public services and public investments. They have absolutely no policy rationale for this whatsoever, but state quite explicitly that they are proposing a new plan to adjust for the political positions of President Obama and House Speaker John Boehner.

This might come as a surprise to the many observers of Bowles and Simpson, including many of their admirers in Congress, who believed the original Bowles-Simpson plan was based on policy rationales developed by technocrats who weren’t weighed down by the political baggage that hinders our elected officials.

The original Bowles-Simpson plan, approved by a majority of the commission members in 2010 but not by the super-majority that was needed under its rules to refer it to Congress, would have raised $2.6 trillion in revenue over a decade to reduce the deficit. It also would have cut spending by $2.9 trillion to reduce the deficit.

The new Bowles-Simpson plan would raise just $1.2 trillion to reduce the deficit, including revenue saved in the time that has passed between the two plans. (This includes roughly half a trillion dollars saved in the New Year’s deal from allowing tax cuts for the rich to expire plus additional revenue that Congress would need to raise.)

In a Washington Post interview, Erskine Bowles reminded the reporter that President Obama called for raising just $1.4 trillion in new revenue during debates over the fiscal cliff, and then explained, “being far out front of the president on revenues wasn’t something I wanted to do again.”

This all begs a question: If politicians feel they need leadership from an unelected panel (like the President’s Commission or the “super committee”) to address the budget in a technical way, but the technocrats leading those panels are simply finding the middle-ground between the positions of the politicians, then who exactly is leading? 

Background: The Misunderstood (Original) Bowles-Simpson Plan

The original Bowles-Simpson plan was often said to achieve one-third of its deficit-reduction from revenue increases, mostly from a tax reform that would raise $80 billion in 2015 alone and $180 billion in 2020 alone.

But, as the Center on Budget and Policy Priorities explains, the original Bowles-Simpson plan raises much more revenue if you hold it to the same accounting standards used for most budget plans in Washington today — including savings from allowing tax cuts for the rich to expire and measuring revenue impacts over a full decade. By this standard, the original Bowles-Simpson plan raises about $2.6 trillion in new revenue and achieves almost half of its deficit-reduction goal through new revenue rather than spending cuts.

You might think that achieving half of a given deficit-reduction goal through spending cuts and another half through revenue increases is a centrist position. But with the President continuously compromising in his efforts woo Congressional Republicans to make a deal, and the latter refusing any increase in revenue at all, Bowles and Simpson now perceive the “middle-ground” to be somewhere entirely different.

None of this is to say that the original Bowles-Simpson plan was great policy. It would have (by some mechanism that was never entirely clear) capped revenue at 21 percent of GDP, even though government spending had reached 22 percent of GDP even back in the Reagan years.

The President, meanwhile, is calling for one-half of the remaining deficit reduction to come from increased revenues — and that’s not enough. When you add up all the deficit reduction that has occurred since Bowles and Simpson first failed in their attempt to bring Washington together, and the remaining deficit reduction Obama proposes, only about a third of it would take the form of increased revenue. The rest would come from spending cuts. That’s not balanced at all.

Front Page Photo of Barack Obama meeting with Alan Simpson and Erskine Bowles via Cal Almond Creative Commons Attribution License 2.0

A new report from the Center on Budget and Policy Priorities (CBPP) outlines the anti-tax agenda of the American Legislative Exchange Council (ALEC) and ALEC scholar and economist, Arthur Laffer.  It explains the multitude of problems with their policy recommendations and the so-called research they produce to make the case for those recommendations.  The CBPP report builds on the Institute on Taxation and Economic Policy’s (ITEP) work debunking Arthur Laffer as it examines the “weak foundation of questionable economic and fiscal assumptions and faulty analysis promoted by ALEC and its allies.”

The DC Fiscal Policy Institute explains how closing corporate tax shelters has significantly improved the District of Columbia’s finances.  The city saw its strongest growth in corporate income tax collections in almost two decades, due in part to a reform called “combined reporting” (PDF) that makes it more difficult for companies to disguise their profits as being earned in other states, particularly those with low or no corporate income tax.

This Columbus Dispatch article cites academic research, policy experts and the Congressional Budget Office to examine Ohio Governor Kasich’s repeated assertion that tax cuts lead to jobs, including critiques that “when one dives deeper into the numbers, the correlation between income-tax cuts for small-business owners and more jobs is strained at best.”  The story also covers that larger supply-side economics debate, which the Institute on Taxation and Economic Policy (ITEP) has engaged with here and elsewhere.

Tax hikes on low- and moderate-income working families are under debate in both Vermont and North Carolina where lawmakers have proposed reducing the benefit of their states’ Earned Income Tax Credits (EITCs) (see this PDF on state EITC policy). Vermont’s Governor Shumlin wants to cut the EITC and redirect the revenue to child care subsidy programs. In North Carolina, lawmakers are advancing a bill that would cut the EITC from 5 to 4.5 percent of the federal credit and potentially let it expire altogether – a rejection of Washington’s recent five-year extension of a more robust federal EITC. A recent op-ed by Jack Hoffman at Vermont’s Public Assets Institute as well as a new brief from the North Carolina Budget and Tax Center both cite ITEP’s Who Pays data to make a case for why each state should maintain its EITC.

North Carolina’s newly-elected Governor, Pat McCrory, is keeping everyone guessing about his plans for tax reform in the Tarheel State.  During his state of the state address this week, McCrory said tax reform would be a priority of his administration but was short on specifics, saying only that he wants to lower rates, close loopholes and make North Carolina’s tax code more business friendly. The state’s Senate leadership has been touting a plan to eliminate the personal and corporate income taxes and replace the lost revenue with a higher sales tax and new business license fee.  It remains to be seen whether the Governor will follow the Senate’s lead or puts forth his own version of reform.

With the fiscal cliff deal passed and with lawmakers looking to replace the sequester, the Congressional Budget Office’s (CBO) newest budget and economic outlook provides the clearest picture yet of our new fiscal landscape. Here are the most important things you need to know from this wonky 77 page report:

1. The Fiscal Cliff Deal will increase the deficit by $4.6 trillion.

The media often portrayed the Fiscal Cliff deal as an effort to reduce the deficit and increase revenues, yet the CBO notes that the deal actually caused the projected deficit to rise from approximately $2.3 to over $6.9 trillion over the next decade. The fiscal cliff deal included about $4 trillion in tax cuts (compared to what was then “current law”).

2. The Fiscal Deal included $54 billion in corporate tax breaks.

According the CBO, the one-year extension of accelerated depreciation and a two-year extension of the so-called “tax extenders” for businesses reduced taxes on corporations by as much as $54 billion over the next decade. The decrease in corporate tax revenues (and even larger increase in the deficit as a result) could be far higher over the next decade if lawmakers do not allow these breaks to expire, but instead choose to keep extending them every year or two.

3. The level of federal debt will remain relatively stable over the next decade if lawmakers do nothing.

Despite the continued howls for more deficit reduction, the CBO projects that under current law the level of the federal debt will remain relatively stable over the next decade, with the debt actually dropping from 76.3 percent of GDP in 2013 to 76 percent of GDP in 2022. The increase in the deficit in past years was largely driven by the Bush tax cuts, weaker revenues from the economic downturn, economy recovery measures, and spending on the wars in Iraq and Afghanistan, rather than some unsustainable and permanent increase in government spending. 

While the debt is projected to be stable over the next decade, the CBO warns this assumes that lawmakers do not step in and increase the deficit by $2.5 trillion by extending the corporate tax provisions set to expire, repealing the sequester, or by holding constant Medicare payment rates without offsetting policies.

4. Job and economic growth are still well below where they could be.

The CBO estimates that the US unemployment rate will remain at the abysmal level of 8 percent throughout 2013 and that our economy will keep producing well below its potential until as late as 2017. Lawmakers could counteract the weak economic recovery, while staying fiscally responsible, if they were to repeal spending cuts or enact new stimulus programs and then pay for them by closing tax loopholes. Increasing government spending is much more stimulative to the economy than continuing expensive tax cuts for businesses, so this would have the effect increasing economic growth while making our tax code fairer and economically efficient.

If confirmed, Jack Lew, the President’s nominee for Treasury Secretary, will oversee IRS enforcement of tax laws and will oversee the development and analysis of tax proposals, among other things. It would therefore be reassuring if Lew did not seem unaware of what is going on in tax havens, and unaware of the problems with proposals to exempt corporations’ offshore profits from U.S. taxes.

Much has been made of the fact that Lew, who worked at Citigroup before serving as chief of staff to the President, had an investment in a fund registered in the Cayman Islands, a notorious offshore tax haven.

Lew told the Senate Finance Committee on Wednesday that the fund was set up by Citigroup, that he didn’t know where it was based, and that he lost money on it in any event.

Lew “Unaware of Ugland House” in the Cayman Islands

What’s actually alarming about Lew’s comments before the committee is that he didn’t even seem to understand the crisis in our tax system that the Cayman Islands and other tax havens are taking advantage of.

For example, Republicans on the committee told of how the fund in question was registered in Ugland House, a small five-story building in the Cayman Islands where over 18,000 companies are officially headquartered. Obviously, most of these “companies” consist of little more than a post office box. Profits are shifted from real business activities in countries like the U.S. into these “companies” in Ugland House. The profits can then be designated as Cayman Island profits, because the Cayman Islands has no corporate income tax.

Those of us who follow tax issues know that Ugland House has been discussed for years at Congressional hearings — although Wednesday’s hearing may be the first time that it was brought up by Republicans.

The Washington Post describes the back-and-forth during the hearing on this topic:

Lew argued that “the tax code should be constructed to encourage investment in the United States.”

“Ugland House ought to be shut down?” Grassley asked.

“Senator, I am actually not familiar with Ugland House,” the witness pleaded. “I understand there are a lot of things that happen there.”

Lew Unaware that Offshore Tax Avoidance, Not Just Tax Evasion, Is a Problem

Equally troublesome is Lew’s defense. “I reported all income that I earned. I paid all taxes due.”

This completely misses the point and misses the point of the debate over tax reform. No one has suggested that Lew committed tax evasion — the criminal act of hiding income from the IRS. The Cayman Islands and other tax havens are certainly used for tax evasion, but that’s not the issue here.

The much larger problem is that our tax system allows massive tax avoidance — practices that reduce taxes that are mostly legal, but in many cases should not be legal — and that tax havens like the Cayman Islands are exploiting this weakness.

Lew probably did pay all the taxes that were due under the tax laws as they’re currently written. The same is true of General Electric, Boeing, Pepco, Verizon, Wells Fargo and the dozens of corporations that paid nothing over several years because the tax laws allowed it. The scandal is not that laws were broken, but that the laws actually allowed this.

Is Lew Unaware that the Administration Has Rejected a “Territorial” Tax System — Or Does He Know Something We Don’t?

One Senator at the hearing asked Lew about the possibility of the U.S. shifting to a “territorial” tax system — which is a euphemism for a tax system that exempts the offshore profits of corporations.

Lew said “there is room to work together.” He said [subscription required] “We actually have a debate between whether we go one way or the other [towards a territorial system or a worldwide system], and we have a hybrid system now. It’s a question of where we set the dial.”

This is alarming for those who thought that the administration had already wisely rejected moving to a territorial system. As CTJ has explained in a report and fact sheet, U.S. companies now can “defer” (delay indefinitely) paying U.S. taxes on their offshore profits, which creates an incentive to use accounting gimmicks to make their U.S. profits appear to be “foreign” profits generated in a tax haven like the Cayman Islands. Under a territorial system, they would never have to pay U.S. taxes on offshore profits, which would logically increase the incentive to engage in such tax dodges.

A year ago, the Obama administration stated that it opposes a “pure territorial system.” CTJ pointed out at the time that a little more clarity is needed because probably no country has a “pure” territorial system, and the “impure” ones are facilitating widely reported tax avoidance in Europe and across the world.

That clarification seemed to arrive when Vice President Joe Biden went out of his way to criticize the idea of a territorial tax system at the 2012 Democratic convention, referring to a study concluding that it could cost the U.S. hundreds of thousands of jobs.

We hope that this is simply another case of Lew being uninformed, and not an indication that the administration may shift towards favoring a territorial system.

Last year at this time, CTJ predicted, based on Facebook’s IPO paperwork, the company would get a federal tax refund in 2012 approaching $500 million, and the company’s SEC filing this month tells us we were right: Facebook is reporting a $429 million net tax refund from the federal and state treasuries. And it’s not because they weren’t profitable. Indeed, Mark Zuckerburg’s little company earned nearly $1.1 billion in profits.

CTJ’s new 2-pager on what Facebook’s February 2013 SEC filing means is here.

Facebook’s income tax refunds stem from the company’s use of a single tax break, that is the tax deductibility of executive stock options. That tax break reduced Facebook’s federal and state income taxes by $1,033 million in 2012, including refunds of earlier years’ taxes of $451 million.

Of course, Facebook is not the only corporation that benefits from stock option tax breaks.  Many big corporations give their executives (and sometimes other employees) options to buy the company’s stock at a favorable price in the future. When those options are exercised, corporations can take a tax deduction for the difference between what the employees pay for the stock and what it’s worth (while employees report this difference as taxable wages).  On page 12 of our 2011 Corporate Taxpayers and Corporate Tax Dodgers report, we discuss how 185 other large, profitable companies have exploited the stock option loophole.

Note to Readers: This is the fourth of a six part series on tax reform in the states. Over the coming weeks, The Institute on Taxation and Economic Policy (ITEP) will highlight tax reform proposals and look at the policy trends that are gaining momentum in states across the country. Previous posts in this series have provided an overview of current trends and looked in detail at “tax swap” and personal income tax cut proposals.  This post focuses on progressive, comprehensive and sustainable reform proposals under consideration in the states.

State tax reform proposals are not all bad news this year.  There are some good faith efforts underway that would fix the structural problems with state tax codes, rather than simply dismantling or eliminating entire revenue sources and calling it “reform.”  Proposals in Minnesota, Kentucky, Utah, and Massachusetts would improve the fairness, adequacy and sustainability of those states’ tax systems through various combinations of base broadening, tax breaks for low- and moderate-income families, and increases in the share of taxes paid by wealthy households. Other states to watch include Nevada, California, New York and Hawaii, though the specific proposals that will be considered in these states have yet to be fully fleshed out.

Minnesota Governor Mark Dayton recognizes that his state’s tax structure is in need of an overhaul and is looking at long-term solutions that will set the state’s revenues on a sustainable path now and in the future.  As he sees it, the current system is fraught with problems. It does not reflect the modern economy in many ways. It has shifted the responsibility for funding government to those with the least ability to pay. It is out of balance due to its heavy reliance on property taxes.  And, it is riddled with expensive and ineffective tax breaks that make the state’s revenues less sustainable.  Out of all the high-profile state tax reform plans unveiled this year, Governor Dayton has put forth the best example of a comprehensive and progressive tax reform proposal.  It will make Minnesota’s tax code more fair, adequate, and sustainable.  The Governor’s plan includes: broadening the sales tax base to services and using some of the additional revenue to lower the state’s sales tax rate; reducing property taxes; adding a new personal income tax bracket for the state’s wealthiest taxpayers; and closing corporate tax loopholes.  The plan also raises more than $1 billion a year to boost investments in public education and restore structural balance to the state’s budget.

Kentucky Governor Steve Beshear signaled his support for overhauling the Bluegrass State’s tax code in his State of the State address in early February and indicated he would be looking to the recommendations from his appointed Blue Ribbon Tax Commission as a starting point for a proposal.  With a few exceptions, the Commission’s recommendations (released in December) were courageous and forward-looking, including a proposal to expand the sales tax base to services (PDF) while simultaneously adopting an Earned Income Tax Credit (EITC) (PDF) to offset the impact on low-income working families.  The recommendations also included broadening the personal income tax base by limiting itemized deductions for wealthy households, lowering the very large exclusion for pension income (and phasing it out for high wealth retirees), and lowering personal income tax rates.  Like the Minnesota plan, if taken as a whole, the Kentucky Tax Commission’s recommendations would shore up state revenues over the long term and more immediately raise revenue for current needs.

Utah lawmakers are looking at a proposal to raise the sales tax rate applied to groceries and couple that change with two new refundable credits to offset the impact on low- and moderate-income families: a food credit (PDF) and a state EITC (PDF).  While less comprehensive than the proposals under consideration in Minnesota and Kentucky, an ITEP analysis found that the Utah plan would reduce the regressivity of Utah’s tax code (PDF).  In other words, low-income working families would ultimately pay less of their income in taxes while upper-income families would pay slightly more.  Simply exempting food from state sales taxes (or taxing it at a lower rate) is a poorly targeted and costly policy that narrows the tax base and extends the break to wealthier taxpayers who don’t need it. Therefore, refundable credits of the kind Utah is considering are a smart, less costly alternative that can be designed to reduce taxes for specific groups of taxpayers in need of relief.

Massachusetts Governor Deval Patrick’s FY14 budget included a tax package that will boost revenues now and in the future and make slight improvements to the fairness of the state’s tax system. While many governors this year are looking to replace progressive income taxes with regressive sales taxes, Governor Patrick wants the Bay State to do the reverse and rely more on the personal income tax and less on the sales tax.  His plan would raise the state’s flat personal income tax rate from 5.25 to 6.25 percent, double the personal exemption, and eliminate more than 40 personal income tax breaks that tend to benefit the wealthiest families.  The sales tax rate would drop from 6.25 to 4.5 percent and computer software, soda, and candy would be newly subject to the tax.  He also recommends a $1 increase to the cigarette tax. Governor Patrick’s plan would raise close to $2 billion when fully phased in. The Campaign for Our Communities coalition praised the proposal, saying that it “creates growth and opportunity through long-term investments in education, transportation and innovation funded by making our tax system simpler and fairer.”

During his State of the Union Address, President Barack Obama reiterated the principle that the United States must prioritize getting rid of tax loopholes for the wealthiest individuals and most profitable corporations in order to ensure that everyone is paying their “fair share” to reduce the deficit. While in principle it’s hard to argue with this approach, the tax policy agenda the President laid out during his speech does not go nearly as far as it should both in terms of deficit reduction and correcting the inequities in our tax code.

Buffett Rule Not Enough to Ensure Fairness
For example, during the speech President Obama called for a tax code that would ensure that “billionaires with high-powered accountants” do not pay a lower tax rate that their “hard-working secretaries.” His proposal to accompany this principle has been the so-called “Buffett Rule,” which would require everyone making over a million dollars to pay a minimum effective tax rate over at least 30 percent.

But this would still leave in place the preferential rate on capital gains and dividends that is the primary reason that wealthy investors like Warren Buffett have such low effective tax rates. A better approach would be to end the special treatment of capital gains and dividends, which would both raise more revenue and deal with the core issue of fairness.

Truly Ending Offshore Corporate Tax Dodging Requires More
Turning to corporate taxes, President Obama said that we need a tax code that “lowers incentives to move jobs overseas and lowers tax rates for businesses and manufacturers that are creating jobs right here in the United States of America.”

To start, rather than calling for a measure that simply “lowers incentives,” Obama should address the problem at its root, by repealing the rule allowing corporations to defer – indefinitely – taxes on their offshore profits.  (Those profits, of course, are often artificially shifted offshore with the goal of avoiding taxes.) This exact reform was recently introduced in both the House and Senate in the “Corporate Tax Dodging Prevention Act.”

Corporate Tax Reform Must Raise Revenue

In addition, while it’s great that President Obama is proposing to get rid of a myriad of corporate tax breaks, it is not entirely clear that he intends to wisely use the revenues it would generate. His 2012 corporate tax framework, for example, calls for the revenue generated by closing loopholes to be spent on lowering the overall corporate tax rate and even expanding some of the breaks for manufacturers (which really don’t warrant the special treatment); this proposal to keep corporate tax reform revenue-neutral meant that corporations would continue to pay a low effective corporate tax rate overall and have no positive impact on the budget.

In his State of the Union Speech, however, he implied that corporate tax reform should also result in revenues to help bring down the deficit, and this more recent rhetoric about using the revenues for deficit reduction is certainly promising. What should come next is a clear rejection of revenue-neutral corporate tax reform and an explicit commitment to boosting corporate tax revenues in order to fund investments that benefit all Americans, including the consumers that keep corporations profitable.

Balanced Approach? Spending Cuts for Deficit-Reduction Have Already Been Enacted

Addressing the sequestration cuts scheduled to kick in March 1, President Obama used the State of the Union address to reiterate his commitment to include a mix of revenues and spending cuts as part of a “balanced approach” to deficit reduction, saying we should not “make deeper cuts to education and Medicare just to protect special interest tax breaks.” Citizens for Tax Justice has noted (as did the President in his speech) that the last several rounds of deficit reduction have already relied primarily on spending cuts.  Logically, then, to achieve true “balance” in reducing the deficit, the sequester should be replaced almost entirely by revenue increases.  That makes the President’s offer of more cuts unwarranted.

If enacted as is, the tax ideas President Obama outlined in his State of the Union address would be important steps towards reducing the deficit and improving the fairness of our tax system. If enacted following legislative compromise, they would likely be much smaller steps. But in any event, the President’s articulated goals would still leave gaping inequities in our tax code, and not do enough to ensure that we have the resources to make critical investments in our long term economic health. 

For months, Idaho lawmakers have been seriously considering repealing the personal property tax on business equipment.  If enacted, repeal would cost local governments and public schools over $140 million a year, and would likely force cuts in public services and increases in property taxes on other taxpayers.

The single biggest winner under repeal would be Idaho Power, held by IDACorp, which will reportedly see its taxes fall by $10.5 to $15.3 million per year if repeal is enacted.  A new report from our partner organization, the Institute on Taxation and Economic Policy (ITEP), helps put this costly tax proposal into perspective by looking at the state income taxes being paid (or not) by the plan’s largest beneficiary.

According to IDACorp’s financial disclosures, the company earned $623 million in U.S. profits over the last five years (2007-11) but paid nothing in state income taxes to the states in which it operates.  In fact, the company’s effective state income tax rate across all states was actually negative.  IDACorp received $7 million in tax rebates from the states between 2007 and 2011, giving it an effective tax rate of negative 1.1 percent for the five year period as a whole.

The proposed repeal of the personal property tax in Idaho would leave the state corporate income tax as the main means by which companies like IDACorp contribute to the public investments that allow them to do business and generate profits. Before lawmakers take such a step, they should at least know whether the state corporate tax is working to begin with. In Idaho and virtually every other state, however, neither elected officials nor the tax-paying public have access to this kind of information. Obviously, they should (PDF).

Read the report