New Year, New Gas Tax Rates

| | Bookmark and Share

Residents of 10 states will see their gasoline tax rates change on Jan. 1, but the direction of those changes is decidedly mixed.  Five states will raise their gas tax rates when the clock strikes midnight, while the other five will cut theirs, at least for the time being.

Among the states with gas tax increases are Pennsylvania (9.8 cents), Virginia (5.1 cents), and Maryland (2.9 cents).  Each of these increases is taking place as scheduled under major transportation finance laws enacted last year.

North Carolina (1 cent) and Florida (0.3 cents) are also seeing smaller gas tax increases as a result of formulas written into their laws that update their tax rates each year alongside inflation or gas prices.

The states where gas tax rates will fall are Kentucky (4.3 cents), West Virginia (0.9 cents), Vermont (0.83 cents), Nebraska (0.8 cents), and New York (0.6 cents).  Each of these states ties at least part of its gas tax rate to the price of gas, much like a traditional sales tax.  With gas prices having fallen, their gas tax rates are now falling as well.

While some drivers may be excited by the prospect of a lower gas tax, these cuts will result in less funding for bridge repairs, repaving projects, and other infrastructure enhancements that in many cases are long overdue.  Because of this, Georgia Governor Nathan Deal recently signed an executive order preventing a gas tax cut from taking effect in his state on January 1.  And Kentucky is considering following Maryland and West Virginia’s lead by enacting a law that stabilizes the gas tax during times of dramatic declines in the price of gas.

But while states such as Kentucky may struggle to fund their transportation networks in the immediate wake of these tax cuts, these types of “variable-rate” gas taxes are still more sustainable than fixed-rate taxes that are guaranteed to become increasingly outdated with every passing year.  To that point, here are the states where gas tax rates will be reaching notable milestones of inaction on Jan. 1:

  • Iowa, Mississippi, and South Carolina will see their gas tax rates turn 26 years old this January.  Each of these states last increased their gas taxes on January 1, 1989.  
  • Louisiana will watch as its gas tax rate hits the quarter-century mark.  Its gas tax was last raised on January 1, 1990.  
  • Colorado’s gas tax rate will “celebrate” its 24th birthday on New Years Day, having last been increased on January 1, 1991.
  • Delaware will become the newest addition to the 20+ year club as it “celebrates” two decades since its last gas tax increase on January 1, 1995.

Gas tax rates need to go up if our infrastructure is going to be brought into the 21st century.  Jan. 1 may be a mixed bag in that regard, but it’s increasingly likely that things could change soon as debates over gas tax increases and reforms get under way in states as varied as Georgia, Idaho, Iowa, Michigan, New Jersey, South Dakota, Tennessee, Utah, and Wisconsin. 2014 in 852 Words

| | Bookmark and Share

A long time will pass before we forget the unintentionally ironic signs held up a few years ago during health care reform protests that read, “Keep Government out of Medicare.” The signs would have been humorous if they didn’t betray a deep disconnect between public services we all rely on and the tax system that makes them possible. And in truth, that disconnect is what makes talking taxes a tough sell at times. But we persist.

As highlighted in other blog posts, 2014 yielded state  tax fairness victories and some setbacks. Federal tax policy, unfortunately, continues to be an uphill battle as we face well-heeled lobbyists who are just as invested in reducing taxes for the wealthy and corporations as we are in pursuing fair tax policies that raise enough revenue to meet the nation’s critical priorities.

Supply Side Theory Debunked

Real-live experiments and expert analyses have repeatedly debunked supply side theories, including a May analysis by ITEP. Our targeted work in states helped beat back harmful tax proposals, including producing analyses of various state tax cut proposals that would disproportionately benefit businesses and the wealthy. In Tennessee, for example, a Grover Norquist/Koch brothers-backed effort to abolish the Hall tax, a state tax on capital gains and dividends, fortunately failed. The proposal would have been a boon to the state’s richest residents while starving local governments of resources necessary for essential public services, not to mention it would have made Tennessee’s tax system more regressive than it already is. 

We were among the first to raise the alarm in 2012 (and continued to do so through 2014) with analyses highlighting the negative short– and long-term implications of drastic tax cuts Kansas Gov. Sam Brownback’s showered on the wealthy and business. It remains important to keep up the drumbeat about the negative effects of top-heavy tax cuts since this trend is not unique to prairie and southern states. Ohio, Missouri, North Carolina and Wisconsin, to name a few, are all states that explored lopsided tax cuts in 2014.

The Gas Tax Needs Reform

The notion that there’s only an upside to tax cuts and no long-term implications (failure to raise enough revenue to fund critical priorities) makes a bitter pill for some to swallow when our analyses conclude that certain taxes should be raised. The federal gas tax, currently 18.3 cents a gallon, has remained at the same level since 1993, the first year of the Clinton Administration. And many states also have outdated gas taxes.  The tax is a critical source of funding for our nation’s transportation system, yet the tax is fundamentally flawed.

Corporate Tax Dodging

Our corporate tax is also deeply flawed because it allows profitable corporations to get away with paying little or no tax, depriving the nation of revenue necessary to adequately fund programs and services. The $2 trillion that corporations are stashing offshore, avoiding about $550 billion in taxes, is cause enough to call for closing loopholes in our tax code.

After pharmaceutical giant Pfizer and, later, major drug store chain Walgreen Co. announced plans to undergo corporate inversions, CTJ rang the alarm bells. These deals, of course, are a farce as they involve U.S.-based multinationals merging with or purchasing smaller foreign-based corporations and then filing paperwork and claiming they are no longer based in the United States. Pfizer’s deal ultimately failed and Walgreen reversed its decision in no small part due to public pressure. But other companies, including Burger King and Medtronic finalized deals.

While some members of Congress introduced legislation to stop this practice, it failed to gain any real traction. Eventually the Treasury Department announced a rule intended to prevent some inversions, but, as we noted, a rule helps but is not enough. A company’s decision to invert usually comes after a long history of tax dodging.

Even if the United States is not yet cracking down on corporate tax dodgers, foreign entities are beginning to scrutinize major corporations. The International Committee of Investigative Journalists released two major reports that highlighted how Luxembourg, one of 12 notorious tax havens, enables corporate tax dodging.

Giving Away the Store to Corporations

A piece of tax legislation that members of Congress managed to agree upon, however, was a $42 billion giveaway to corporations passed just before members adjourned. The bill mostly benefits business but includes some token giveaways to middle-class people that allow lawmakers to put the patina of middle-class tax breaks on it. The bill began as an $85 billion measure, then a $450 billion measure until it took its final form. Unfortunately, we’ll get to see this play out all over again in 2015 since the bill was largely retroactive and expires Dec. 31, 2014.

The Way Forward

The decisions that federal and state lawmakers make regarding taxes deserve scrutiny, particularly in this era of widening income inequality. The rising tide of public anger over corporate tax dodging and the abject failure of supply side experiments in states like Kansas lead us to hope that our continued fight for tax justice will lead to fairer tax policies in 2015 and beyond.

What to Buy the Discerning Policy Wonk in Your Life: The ITEP/CTJ Holiday Gift-Giving Guide

| | Bookmark and Share

Thumbnail image for Holiday-Presents.jpg

The holiday season is a time for good cheer, family togetherness, and pointless political arguments with your dearest loved ones over dinner and that fifth glass of red wine. These internecine battles are even worse when your great uncle revels in the minutiae of healthcare finance and your second-cousin just scored a fellowship at a tax policy think-tank. (Note: I apologize in advance to my family for ruining the mood with an extended discussion of economic development incentives.)

The best way to avoid a lengthy discursion on the merits of the Export-Import Bank is to buy your wonky relatives a gift good enough to buy you a few hours’ peace. Luckily for you, the nerds at ITEP have compiled this holiday guide to make your life easier!


We Are Better Than This: How Government Should Spend Our Money ($24 on Amazon): “Edward Kleinbard is one of the foremost expects in tax and budget policy, and his new book is definitely one of the best policy books released this year. While I do not agree with everything, the book provides a crucial picture of America’s fiscal state and thoughtfully lays out how lawmakers could create a more economically efficient and financially responsible government.” – Richard Phillips

Making Piece: A Memoir of Love, Loss and Pie and Ms. American Pie: Buttery Good Pie Recipes and Bold Tales From the American Gothic House ($19 and $21 on Amazon, respectively): “Seems like we are always fighting over the same revenue pie – education needs their slice, economic development, health and human services too. In that vein, I recommend these two books by author Beth Howard. The former talks about how pie making helped Beth deal with complicated grief following the death of her husband just hours before divorce papers were to be signed, and the latter is a book of her pie recipes. Howard makes a very convincing case that the world would be a better place if more people baked and shared pie together. Here’s hoping that as legislative sessions start there are more conversations about making the revenue pie bigger, and that folks from both sides of the political spectrum come together to enjoy some homemade goodness.” – Kelly Davis

 The Tax Shelter Coloring Book (How to Color Yourself Rich!) ($6 on Amazon): “Are you tired of kids coloring in the latest Disney character? Do you think that coloring should also help a family’s bottom line? If so, you need this classic coloring book in your life. It not only has lots of information about how to set up your financial arrangements for tax avoidance purposes, it also has plenty of pictures for children to color in!” – Richard Phillips

Richard Scarry’s What Do People Do All Day? ($10 on Amazon): “This book is a childhood classic, and the section on road construction can help you introduce complicated ideas around infrastructure financing to the budding policy nerd in your life.” – Rebecca Wilkins

The Settlers of Catan ($33 on Amazon): “This popular game is a perfect introduction to the world of insanely complicated German board games set in abstract agrarian economies. It is also the perfect way to start a conversation on the merits of taxing resource extraction to pay for road construction, if that’s your thing.” – Meg Wiehe

We’re Not Broke ($20 online): “There is no better overview of how multinational corporations are using their political clout and complex financial maneuvers to avoid taxes than this brilliant documentary, written and directed by Victoria Bruce and Karen Hayes. The movie dives right into how corporations like Google and Apple are able to avoid paying billions in taxes and leave everyday American taxpayers holding the bag.” – Richard Phillips

Titleist Pro V1 Golf Balls ($55 for a dozen on Amazon): “Golf balls, good novels, etc. Anything to make the wonks more human.” – Bob McIntyre

The Best and Worst State Tax Policies of 2014

| | Bookmark and Share

2014. It was the best of times; it was the worst of times. Our position didn’t prevail in every state, but the cause of tax justice and fairness for working families made significant gains in a number of places. Below, the best and worst tax policies of the past year:

The Best


Washington, DC takes the number one spot for enacting a progressive tax reform package this past summer. Unlike other jurisdictions that have used the guise of “reform” to cut taxes for the wealthy, the D.C. City Council cut the personal income tax rate for middle-class residents and expanded a number of provisions to assist working families, including the property tax circuit breaker and standard deduction. The council also expanded the city’s EITC for childless workers, one of the most effective strategies for lifting workers out of poverty and a longtime ITEP recommendation. The city partially paid for these reforms by broadening the sales tax base to include more services, limiting personal exemptions for better-off citizens, and making permanent its 8.95 percent income tax bracket on high-income earners.  Many additional changes are tied to revenue triggers, ensuring that the reform measures won’t wreck the city’s finances.

Washington Gov. Jay Inslee made sustainability and fairness the centerpiece of his 2015 budget proposal, announced this month. The proposal protects education spending and important services through a 7 percent capital gains tax on capital gains earnings above $25,000 per individual and $50,000 per couple. The governor also pledged to fund the state’s working families tax credit (the state’s Earned Income Tax Credit) through his proposed tax on carbon polluters, benefiting 450,000 Washington families. The proposal is the boldest by a Washington governor in some time.

Lawmakers in Minnesota and Maryland invested in provisions to give working families a lifeline. Minnesota expanded the property tax credit for homeowners and renters and increased the working family credit (the state’s EITC) and the dependent care credit. Maryland legislators expanded the refundable portion of the EITC, from 25 percent to 28 percent.

Alaska officials saw the light and decided to let their film tax credit expire five years early. The film tax credit has been notoriously ineffective in a number of states.

Vermont legislators increased homestead property taxes by 4 mills (cents per $100 of assessed value) and non-residential property taxes by 7.5 mills, while leaving rates unchanged for low and moderate-income taxpayers.


The Worst

Lawmakers in Wisconsin doubled down on their tax-cut fervor, reducing the bottom personal income tax rate from 4.4 percent to 4 percent and enacting another round of state-funded property tax cuts.

Voters in Tennessee permanently banned the state from enacting a broad-based personal income tax through a ballot measure that amends the state constitution, essentially tying the hands of future lawmakers and ensuring that the state’s tax system will remain among the most regressive in the nation.  Georgia voters approved an amendment to cap the state’s top personal income tax rate where it stands as of Jan. 1, 2015, which could lead to financial problems down the road and will prevent future Georgians from making needed investments.

Lawmakers in Missouri and Oklahoma enacted personal income tax cuts dependent on the state hitting revenue targets.  Oklahoma’s top personal income tax rate would drop from 5.25 to 4.85 percent while Missouri’s top income tax rate would drop from 6 to 5.5 percent; in Missouri, a new 25 percent exemption on pass-thru business income would be implemented.

Lawmakers in a number of jurisdictions – Washington, DC, Rhode Island, Maryland, Minnesota, and New York – increased the estate tax threshold, essentially giving the wealthiest residents in those states a huge, unnecessary tax break.

Florida lawmakers passed a hodgepodge of gimmicky sales tax holidays and exemptions for car seats, cement mixers, helmets, electricity bills, college meal plans and a host of legislator’s pet causes. The legislature also reduced the business franchise tax and cut motor vehicle fees, for a total of $500 million in lost revenue. 

CTJ Director Robert McIntyre: “Tax Extenders Bill a Tale of Corporate Influence”

| | Bookmark and Share

The 113th Congress concluded by passing a $42 billion, deficit-financed tax extender bill that mostly benefits businesses. CTJ’s director Robert McIntyre’s op-ed in The Hill argues that the tax package illustrates how savvy lawmakers can enact legislation that has almost no support from the general public. 

“These temporary tax provisions are a caricature of legislative backroom dealing and corporate influence. They include a tax credit for “research” defined so loosely that it includes the development of machines by Chili’s to replace staff in their kitchens and the development of new flavors by Pepsi. They include the “active financing exception,” a tax break for the offshore lending done by companies such as General Electric, a superstar at dodging taxes even by the standards of corporate America.”

Read the full op-ed.

Press Statement: $42 Billion, Deficit-Financed Tax Extenders Bill Is an Irrational Corporate Giveaway

December 16, 2014 09:49 PM | | Bookmark and Share

For Immediate Release: Tuesday, December 16, 2014

$42 Billion, Deficit-Financed Tax Extenders Bill Is an Irrational Corporate Giveaway

(Washington, D.C.) Following is a statement by Robert McIntyre, director of Citizens for Tax Justice, regarding the enactment of a $42 billion package of tax breaks that primarily benefit businesses.

“This Congress has been one of the least productive in history, yet it has found the resolve to provide $42 billion in tax cuts to subsidize soft drink companies for developing new flavors, to subsidize G.E. for lending overseas, and to subsidize investments that business owners say they will make regardless of what tax breaks are offered to them.

“Even if lawmakers believe we should use the tax code to encourage businesses to do all these things, surely none believe that this bill accomplishes that. This $42 deficit-financed temporary tax break package provides subsidies only for activities that companies carried out in 2014. When these tax breaks expire again in a few weeks as we ring in the New Year, we can only hope that lawmakers will make a resolution to end this wasteful habit.”

See CTJ’s detailed report on the tax extender bill for more information.


    Want even more CTJ? Check us out on Twitter, Facebook, RSS, and Youtube!

State Rundown 12/10: The Best Laid Plans (and Reports)

| | Bookmark and Share

houseofcards.jpgKansas Gov. Sam Brownback bowed to reality yesterday and unveiled his plan to close the state’s self-inflicted budget gap. In true Sam Brownback fashion, his solution is to stiff highway projects and pensioners rather than reverse his disastrous tax cuts. The plan has been criticized by state leaders on both sides, since keeping your state’s roads in poor condition and your senior citizens poor is bad for economic development. Brownback’s proposal also includes smaller, though significant cuts for early childhood education programs, further showing the governor’s willingness to rob Kansas’s future to pay for unnecessary tax cuts today.

A new report commissioned for Wisconsin Gov. Scott Walker by his lieutenant governor claims that the state’s high taxes and complex tax code are a drag on economic growth. While no recommendations are made within it’s pages, the report’s conclusion represents a consensus among state business and political leaders who were included in the meetings. Not surprisingly, this consensus leaves out the thoughts of advocates for public services, educators and other Wisconsinites who must have missed the invitation to the 23 meetings held across the state. Walker seems to be taking a page from Indiana Gov. John Pence’s playbook, after Pence held a tax reform conference this past summer open to Art Laffer and Grover Norquist, but not the public.

Meanwhile, Maryland legislators held a hearing recently to discuss the fate of its tax incentive program for film production, after a damning report showed the program brings in only 10 cents for every dollar spent. The bulk of the $62.5 million in credits went to just two shows, “Veep” and “House of Cards.” The credits first generated controversy early this year, when House of Cards threatened to stop production in the state unless lawmakers put up more money. This crisis was averted after Kevin Spacey agreed to schmooze with lawmakers and pose for photos at an Annapolis wine bar. Frank Underwood would be proud.

A new report from the North Carolina legislature’s top economist reveals that state revenues are $190 million short of what was previously projected (this is on top of a previous downgrade in revenue availability for the year by $200 million). Fiscal experts in the state say the gap was caused by weak individual income tax collections and falling paycheck withholdings in the wake of last year’s tax overhaul. ITEP and our allies at the North Carolina Justice Center have been sounding the alarm for months over the huge tax cuts passed for the wealthy, arguing that their cost was wildly underestimated. Let’s hope state lawmakers don’t make up for missing revenue by cutting crucial services and making things worse.

A report commissioned by a pro-business group claims that “tax reform” would boost business in Iowa. The state tax code, according to its authors, is too cumbersome and complex, leaving investors too confused to set up shop in the state. The Chamber Alliance, which commissioned the report, will lobby the state to simplify (read: fewer brackets) and reduce (lower rates) corporate and personal income taxes. Apparently the $4.4 billion in property tax cuts and $90 million in annual income tax relief passed by state legislators last year hasn’t been enough to make the state competitive.


Cutting the IRS Budget is a Lose-Lose for American Taxpayers

| | Bookmark and Share

The decision to further cut the Internal Revenue Service’s (IRS) budget by $346 million next year from its already low 2014 level is almost certainly the most ill-advised cut in the announced omnibus spending bill passed in the House of Representatives Thursday night and now moving forward in the Senate.

IRS budget cuts actually increase the budget deficit because they result in lower revenue collections. In fact, one study found that every dollar spent on the IRS’s enforcement, modernization and management system reduces the federal budget deficit by $200 and another report found that every dollar the IRS “spends for audits, liens and seizing property from tax cheats” garners $10 back.

The latest cut to the IRS comes on top of years of devastating budget cuts, with the agency’s budget already chopped by 14 percent between 2010 and 2014 (controlling for inflation). As a result, the IRS has cut its staff by 11 percent since 2010. These budget cuts have been enacted even as the IRS has to process more and more taxpayer information each year and to administer the distribution of billions in new tax credits as part of healthcare reform.

Given its increasing responsibilities and decreasing budget, it’s no wonder the National Taxpayer Advocate (NTA), a well-respected non-partisan IRS watchdog, said in its latest annual report that the IRS budget is one of the agency’s “most serious problems” and that the “IRS desperately needs more funding.” One area where the effects of the budget cuts are especially visible, according to the NTA, is in the customer service division, where only 61 percent of taxpayers seeking to speak with a customer service representative were able to get through.

The tragic thing about these budget cuts is that they have become politically self-reinforcing. For years, anti-tax conservatives have been happy to jump on any IRS misstep to justify punishing the agency with more budget cuts, which then makes the agency less able to function and more prone to precisely these same missteps.

Demonstrating this principle, many conservatives are using a new Treasury inspector general report showing that the IRS improperly paid out billions in child and earned income tax credits as a convenient prop to bash the IRS for “gross mismanagement” and “bureaucratic incompetence.” One point that these critics leave out is that this same report concludes that the IRS simply “does not have the resources nor does it have alternative compliance tools needed to adequately address the erroneous EITC payments identified.” In fact, Congress has failed to enact several Treasury and IRS proposals or provide funding that would enable the agency to reduce the error rate.

Taking these politically opportunistic attacks to their extreme, a recently released documentary  compared the IRS’s recent missteps to fascism and genocide in its advocacy for the IRS’s total abolition. The rhetoric of abolishing the IRS used to be the kind of irresponsible speech cordoned off to the political extremes. More recently, the Republican National Committee fundraised on the explicit promise that donating would help the party “Abolish the IRS,” though the committee never explained how it would go about paying for government without some equivalent agency to collect taxes. 

Besides the politicians, the only real beneficiaries of IRS cuts are the tax dodgers and cheats that will have even less reason to fear that they will be caught by the woefully inadequate tax enforcement. For example, the IRS commissioner recently noted (Subscription Required) that the agency simply does not have the capacity to take advantage of new international reporting requirements on multinational corporations to help with its corporate tax enforcement efforts. Failure of these enforcement efforts have left honest taxpayers holding the bag for an estimated $385 billion in unpaid taxes each year.

Rather than cutting the IRS’s budget, Congress should substantially increase its budget. A good start would be increasing its FY2015 budget by $1.5 billion, compared to the current proposed level in the budget deal, as President Obama proposed in his most recent budget. Such an increase would be a win-win for taxpayers since it would substantially decrease the deficit and at the same time improve the functioning of the IRS so that it can more fairly and effectively enforce the tax code. 

New Trove of Leaked Luxembourg Documents Point to Disney, Koch Industries Tax Schemes

| | Bookmark and Share

A month after the International Consortium of Investigative Journalists (ICIJ) revealed leaked documents demonstrating that Luxembourg allowed Pepsi, IKEA, FedEx and 340 other corporations to use the country as a tax haven, ICIJ has now announced new evidence that Disney, Koch Industries and 33 additional companies are also in the game.

The new trove of leaked documents shows that Disney and Koch Industries have, like the other companies, obtained private tax rulings from Luxembourg’s Ministry of Finance that bless complex business and accounting structures shifting profits from countries where actual business is done into Luxembourg, and then in some cases into other countries.

The revelations further demonstrate the need to end the U.S. tax code rule allowing American corporations to defer paying U.S. income taxes on profits that they report to earn offshore. The ability to defer these taxes for years or forever creates a powerful incentive for corporations to use accounting gimmicks to make it appear as though profits are earned in countries where they won’t be taxed — like Luxembourg, thanks to the private tax rulings it hands out like candy to big corporations.

Ernst & Young advised both Disney and Koch Industries to set up a financial subsidiary in Luxembourg that lends money to the other subsidiaries, which then send their profits in the form of interest payments to the lender in Luxembourg.

Disney’s lending subsidiary in Luxembourg reported 1 billion Euros in profits from 2009 through 2013 and paid just 2.8 million Euros in income tax to Luxembourg, for an effective income tax rate of less than one percent.

ICIJ explains that Disney may use the “check-the-box” loophole in U.S. tax law, which allows corporations to simply assert (by checking a box on a form) whether its foreign-owned entities are separate corporations or merely branches of the U.S. company. This would allow Disney to tell the IRS that its payment to the Luxembourg lender is a deductible interest payment to a separate company, even while the Luxembourg lender tells its own government that it’s merely a branch of Disney receiving an internal company payment, which is not taxable. The result is that the profit is not taxed in any country.

The lending exists only on paper and the financial subsidiary is a shell company. It and four other subsidiaries of Disney’s in Luxembourg are all housed in one residential apartment and have one employee.

Koch Industries’ private tax ruling from Luxembourg’s Ministry of Finance blesses a tax-dodging scheme for its subsidiary Invista, a company that produces Lycra-brand fiber and Stainmaster-brand carpets. Invista publicly says it is headquartered in the U.S., but Koch owns it through a holding company incorporated in the Netherlands.

A Luxembourg subsidiary called Arteva facilitates loans from one subsidiary of Invista to another. Arteva reported profits of $269 million from 2010 through 2013 and paid just $6.4 million in income taxes to Luxembourg over that period, for an effective income tax rate of just 2 percent. Its highest effective rate in any one of those four years was just 4.15 percent. Like Disney, Koch may have exploited the check-the-box loophole to pull this off.

One section of Koch’s private tax ruling explains how $736 million would be shifted from one subsidiary to another until an American branch would become “both the debtor and creditor of the same debt, which is canceled at the level of the American branch.”

A huge amount of complex planning goes into these tax avoidance schemes. The article notes that Ernst & Young’s office in Luxembourg racked up $153 million in revenue last year, probably by peddling these tax dodges. A lot of this scheming could be brought to an end if Congress enacted tax reform ensuring that all profits of American corporations, regardless of where they are earned, are taxed when they are earned. If Disney and Koch Industries could not defer U.S. corporate income taxes on profits booked offshore, they would have little incentive to use these tactics to make profits appear to be earned in Luxembourg or other countries.

Update on the Push for Dynamic Scoring: Will Ryan Purge Congress’s Scorekeepers?

| | Bookmark and Share

We explained in October that Rep. Paul Ryan was making noise about changing official estimates for tax measures to incorporate “dynamic scoring.” This approach assumes that tax cuts boost economic growth so much that they partly or completely pay for themselves.

Ryan’s call has only intensified since the election. Now the battlefront has expanded as organs of the conservative movement, like the Wall Street Journal and Grover Norquist’s Americans for Tax Reform have called for new leadership at the Joint Committee on Taxation (JCT), which scores tax measures, and the Congressional Budget Office (CBO), which scores spending measures.

There is simply no agreement among economists about how tax cuts affect the broader economy, which makes it impossible to incorporate such effects into an apolitical revenue-estimating process for Congress that is trusted by everyone. In fact, no one really knows whether cutting taxes encourages most people to work and invest more (because they get to keep more of their income) or less (because they can work and invest less and still achieve whatever after-tax income goal they have set for themselves).

But that has not stopped Douglas Holtz-Eakin, a former CBO director, from siding with Ryan. His logic is that the budget-estimating process incorporates all sorts of guesswork so lawmakers should be willing to accept even more guesswork and embrace dynamic scoring.

Nor has it stopped the Wall Street Journal from putting forward people such as  Steve Entin of the Tax Foundation to lead JCT.

Incidentally, in 2009 Citizens for Tax Justice blasted both Holtz-Eakin and Entin for reports they penned on the federal estate tax. Holtz-Eakin cherry-picked evidence to conclude that repealing the estate tax would create 1.5 million jobs. Entin concluded that estate tax repeal would magically increase revenue. To say these people have controversial views on the effects of tax cuts would be an understatement.

JCT always considers the effects of changes in tax policy on individual and business’s behavior. But only when it considers certain major tax legislation, such as Rep. Dave Camp’s tax reform plan, does JCT provide dynamic analysis, which considers possible impacts of the policy change on the size of the economy overall. Currently, this analysis provides a wide range of scenarios because no one can agree on which model and which assumptions are correct.

For example, Camp’s reform plan is, based on conventional revenue-estimating, revenue-neutral in the first decade. (It loses $1.7 trillion in the second decade, but that’s a different story.) The dynamic analysis provided by JCT provided eight different scenarios about the dynamic impact on revenue, ranging from a low of $50 billion to a high of $700 billion. Naturally Camp chose to highlight the version that speculated that dynamic effects would raise $700 billion over a decade and ignored the rest.

Sen. Rob Portman has introduced a so-called Accurate Budgeting Act that would require JCT to provide a single dynamic score for tax legislation. The House passed a similar bill in April. Given the range of uncertainty and lawmaker’s desire to clutch at whatever analysis presents the rosiest assessment of their proposals, this could warp the estimating process and cause a lot of misinformation.