Month: March 2015

Having roundly ignored President Barack Obama’s budget proposal for fiscal year 2016 when it was introduced in February, Republican leaders in the House of Representatives are poised to introduce their own budget blueprint next week. The big question is whether new Budget Committee Chair Tom Price (R-GA) will follow in the footsteps of outgoing Chair Paul Ryan, who in recent years made a habit of releasing budget blueprints that were all hat and no cattle.

Ryan’s plans typically called for taking bold steps to reduce the federal budget deficit by eliminating tax “loopholes,” but were utterly silent on the question of whose ox should be gored in this process. By answering the easy questions (how far income tax rates should be cut) and refusing to even touch the hard ones (which loopholes should be closed), Ryan’s budget plans made budget-busting, highly regressive tax proposals the main topic at budget time each year.

Representative Price now has a valuable opportunity to depart from Ryan’s irresponsible approach to budgeting. If the committee’s new leaders are truly committed to achieving deficit reduction in a sustainable way, Price’s plan should:

1) Answer the hard questions first. Cutting income tax rates is simply not affordable unless congressional tax writers can first put together a well-defined plan for eliminating specific tax breaks, rather than vaguely calling for “closing loopholes.”

2) Raise new revenues through corporate tax reform. Our corporate tax raises less, as a share of the economy, than almost every other developed democracy. Corporate tax reform is of vital importance—but it must be done in a way that focuses on eliminating unwarranted tax breaks and increasing the yield of the tax. Revenue-neutral tax changes would miss an important opportunity to restore our nation’s fiscal balance.

3) Don’t leave states—and drivers– in the lurch. Last year’s House Budget plan was silent on how to deal with the looming shortfall in the Highway Trust Fund, the nearly-depleted funding source that is supposed to pay for repairs and improvements to our vital, but crumbling, highway system. By refusing to take the obvious step of increasing the federal gas tax for the first time in two decades, Ryan’s budget forced states to fend for themselves in their efforts to maintain roads and highways.

This is the third post in our series outlining state tax trends being debated during 2015 legislative sessions.  Our previous two posts focused on tax shifts and tax cuts.

MARCH 19 UPDATE: The list of states has grown to ten now that a 6 cent increase was signed into law in South Dakota (taking effect April 1).  Utah is poised to become the eleventh state once Governor Herbert signs a bill raising the tax by 5 cents and tying it to gas prices (effective January 1)..

A little over a month ago, we identified a dozen states seriously considering raising their gas taxes in 2015 to better fund their deteriorating transportation infrastructure.  Since then, Iowa lawmakers enacted and implemented a 10-cent increase in gas and diesel tax rates, effective March 1.  Iowa’s step forward makes it the ninth state to either raise or reform its gas tax in just over two years.  Starting with Wyoming’s approval of a 10-cent gas tax hike in February 2013, we’ve seen gas tax increases or reforms enacted in jurisdictions as varied as Maryland, Massachusetts, New Hampshire, Pennsylvania, Rhode Island, Vermont, Virginia, the District of Columbia, and now Iowa.  We expect that this list will grow by the time states’ 2015 legislative sessions come to a close.

The Leaders: Aside from Iowa, these six states have made the most progress toward gas tax reforms or increases this year by passing a bill through at least one legislative chamber.

• The Georgia House overwhelmingly approved a bill that reforms the gas tax by indexing it to rise alongside both inflation and fuel efficiency, as we’ve recommended in the past.  Now attention shifts to the Senate.
• Michigan lawmakers have approved gasoline and sales tax increases, but we’ll have to wait until May 5 to see if voters sign off on those changes.
• In North Carolina, the Senate passed a bill that would raise the state’s tax on wholesale gas prices from 7 to 9.9 percent.  The bill would also pare back a gas tax cut scheduled to take effect this July due to falling gas prices and would prevent further declines in the future.  The House, on the other hand, approved a less sustainable bill that would not raise the wholesale gas tax rate and would only put a temporary stop to scheduled gas tax rate cuts.  For his part, Gov. Pat McCrory is assuming the Senate’s permanent gas tax “floor” will take effect to help balance his proposed budget.
• The South Dakota Senate approved the first bill filed this year (SB1), which raises the state’s gas tax by 2 cents per year.  The bill that the House is poised to vote on would put a stop to those increases after 3 years—effectively capping the increase at 6 cents per gallon.
• In Utah, both the House and Senate passed gas tax legislation this week.  The Senate bill would raise the current fixed-rate gas tax by 9 cents per gallon, while the House prefers a more sustainable reform that would allow the tax to rise alongside gas prices in the future.
• And in Washington State, the Senate approved an 11.7 cent gas tax hike, phased in over three years.

Other Developments: While the gas tax debate hasn’t advanced quite as far in these seven states as of yet, each still has a real shot at reform in 2015.

• Discussions of a gas tax increase in Idaho are ongoing.
• Kentucky lawmakers may not be talking about boosting the tax that drivers currently pay at the pump, but there is a lot of interest in stopping a 5.1 cent tax cut scheduled to take effect on April 1 as a result of falling gas prices.
• Following Governor Jay Nixon’s urging that Missouri legislators consider raising the state’s 18 year old gas tax rate, at least two bills have been filed doing exactly that.
• Nebraska’s unicameral legislature is giving serious thought to a 6-cent gas tax hike that’s being pushed by a lawmaker with a reputation for being a tax-cutting conservative.
• Influential lawmakers in New Jersey are continuing to talk about raising the gas tax, but Gov. Chris Christie and some legislators are indicating that tax increases are off the table.  Not much has changed since our last post on the subject, but there is still talk that anti-tax politicians may change their tune if a gas tax hike on New Jersey drivers is paired with tax relief for heirs to large fortunes, in the form of repeal of the state’s estate tax.
• South Carolina lawmakers are having ongoing discussions over plans to enact a flat gas tax hike, or to reform the tax to rise alongside inflation or gas prices.  Unfortunately, Gov. Nikki Haley is continuing to insist that any reform to the state’s severely outdated gas tax rate should be paired with an even larger cut in the state’s personal income tax—a rare progressive feature of a tax system that already tilts in favor of high-income taxpayers.  South Carolinians, however, appear to be less hung up on the idea of tying a personal income tax rate cut to gas tax reform.  As long as South Carolina’s gas prices stay lower than in neighboring states, most South Carolinians support raising the gas tax to fund infrastructure repairs.
• Vermont is considering to a 2-cent gas tax increase that would help offset the costs associated with cleaning up roadway run-off into the state’s waterways.

The Procrastinators: The chances of gas tax reform this year have dimmed somewhat in at least two states that we initially saw as likely reformers.

• A sizeable budget surplus in Minnesota has reduced the some lawmakers interest in raising the gas tax.  Minnesota House leadership now says that transportation needs can be met with existing revenues, at least this year.
• Tennessee Gov. Bill Haslam thinks that gas tax reform is needed, but says that he won’t be ready to put in the effort needed to pursue that reform until next year. 

For more information on state gas taxes, take a look at the new gas tax section of ITEP’s website.

The head of a consortium of businesses that includes multiple profitable companies that consistently pay no or abysmally low federal taxes has been tapped to testify Wednesday at a Senate Budget Committee hearing on the “Benefits of a Balanced Budget.”

Former Michigan Gov. John Engler heads the Business Roundtable and is the hearing’s lead witness. It’s not clear whether the long-term decline of our corporate income tax—and the budget deficits this decline has helped create—will be a topic of conversation at the hearing, but if it comes up it’s pretty clear what Engler will say. The Roundtable has been among the loudest voices calling for cutting the corporate tax rate from its current 35 percent. We have noted previously that the Roundtable’s position is based on erroneous claims that U.S. corporations are paying uncompetitively high tax rates domestically.

Yet it’s hard to see just what the Roundtable members have to complain about. One prominent member of the Roundtable is Xerox, a company that has long featured prominently in our regular surveys of Fortune 500 corporate tax avoidance. As it happens, Xerox released its 2014 financial report last week. The report suggests that Xerox shouldn’t be too worried about our corporate tax rate being too high, since it has been phenomenally successful at avoiding it. The company reported $629 million in pretax 2014 U.S. earnings, and it didn’t pay a dime in federal income tax on those profits. In fact, the company received a tax rebate of about $16 million last year.

And 2014 was no anomaly. Over the past five years, the company has paid an effective tax rate of just 5.4 percent on $3.6 billion in U.S. profits.

Xerox is not alone in undercutting the Roundtable’s case for corporate tax cuts. Our February 2014 magisterial survey of tax avoidance by profitable Fortune 500 corporations found that the Business Roundtable’s membership is riddled with tax avoiders: American Electric Power paid zero income taxes in three of the five years between 2008 and 2012. FedEx had two zero-tax years in the same period, as did Honeywell and International Paper. General Electric avoided all income taxes in three of five years. Goldman Sachs only managed to zero out its income taxes in one of five years—still an impressive feat given that in their zero-tax year, it reported $4.8 billion in U.S. profits. And Boeing and NextEra Energy topped them all by paying no income tax in four of five years, despite being consistently profitable in each of those years.

Few would disagree with the idea that deficit reduction is a worthy goal. But John Engler and the Business Roundtable seem not to realize that their tax avoidance is a real impediment to achieving this goal. One can only hope that the Senate Budget Committee can convince them to help achieve the “Benefits of a Balanced Budget” by actually paying their fair share of income taxes. 

The theory that tax cuts for the affluent will eventually trickle down to everyone else is shopworn, yet supply-side adherents keep promising the public that the rich can have their tax cuts and the rest of us will eat cake too.

Despite 35 years of data showing this to be false, the notion has seduced enough policymakers to keep the lights on at Art Laffer’s house.

At least 10 states have tax cut proposals in motion that, unlike the tax shifts we reviewed previously, will not offset cuts by raising other taxes but by raiding surpluses or reducing spending. The overwhelming majority of these proposals will reduce taxes for the best off while doing nothing or little for everyone else, making a regressive tax landscape worse.  Gov. Asa Hutchinson’s overhaul of his state’s income tax and Mississippi Gov. Phil Bryant’s proposal to introduce a state Earned Income Tax Credit (EITC) would actually benefit low- and moderate-income families, but most of the other proposals would lead mainly to benefits for the wealthy.

Over time such tax cuts exacerbate income inequality and stymie opportunity for the masses. Taxes and spending are on a balance scale. Top-heavy tax cuts and their purported economic benefits do not trickle down a rolling hill; they tip the scale in favor of the rich while depriving states of necessary revenue to adequately fund basic services, including education, public safety, infrastructure health and other priorities. Below are some pending proposals:

Arkansas: Gov. Asa Hutchinson fulfilled his campaign promise of passing a middle class tax cut. The governor’s plan introduces a new income tax rate structure for middle income Arkansans. To help pay for the measure the capital gains exemption was reduced from 40 to 50 percent. Using data from ITEP, Arkansas Advocates for Children and Families explains that the taxpayers who benefit from capital gains exemptions are wealthier families.

Florida: Once again, Florida Gov. Rick Scott is pushing lawmakers to enact an unusual hodgepodge of tax cuts.  Under his proposal, taxes on cable TV and cell phone usage would drop by 3.6 percentage points, manufacturing machinery and textbooks would both be exempted from the sales tax, the corporate income tax exemption would be raised from $50,000 to $75,000, and yet another back-to-school sales tax holiday would be held this summer.  The overall cost of this package would be roughly $700 million, and while it’s too early in the session to gauge the chances of passage, there is apparently some skepticism toward the plan in the state legislature.

Idaho: The big tax shift sought by some Idaho lawmakers is off the table for now, but Gov. Butch Otter made clear all along that he prefers a straight-up cut to the state’s corporate income tax rate, and its top personal income tax rate, from 7.4 to 6.9 percent.  Our analysts recently found that such a tax cut would make Idaho’s decidedly regressive tax system even more unfair.  More than three out of every four dollars in personal income tax cuts would flow to the wealthiest 20 percent of households, and members of the top 1 percent would see an average tax cut of over $3,500 each year.  These cuts would come on top of a very similar package of regressive income tax reductions enacted in 2012.

Mississippi: Lawmakers in the Magnolia State can’t seem to get enough of tax cut proposals. In addition to the tax shift proposal passed by the House recently (and written about here), lawmakers are debating a variety of tax cutting measures, which include decreasing personal and corporate income tax rates, introducing a nonrefundable EITC, and eliminating the corporate franchise tax.

Montana: The Montana legislature has approved a bill that would cut personal income tax rates across the board and reduce state revenues by roughly $42 million per year.  ITEP analyzed similar, earlier versions of the cut and found that high-income households would be the largest beneficiaries and that low-income and middle-income taxpayers, who currently face the highest overall state and local tax rates, would receive little or no benefit.  Governor Steve Bullock is likely to veto the plan because of its impact on the state’s ability to fund vital public services.

Nebraska: With the sheer number and diversity of tax cut bills circulating in Nebraska this winter, it seems certain some cut will be enacted.  Much of the focus so far has been on reducing property taxes, a stated priority of newly elected Gov. Pete Ricketts.  Property tax proposals include creating a new refundable, targeted property tax circuit breaker credit for homeowners and renters, introducing a local income tax to reduce reliance on property taxes for school funding, hiking the sales tax rate to pay for a bump in a statewide property tax credit, and increasing personal and corporate income tax rates to pay for property tax cuts. State business leaders, however, have made it clear that income tax cuts are their main concern, and Governor Ricketts has not ruled out the possibility.  One plan being floated would reduce personal and corporate income tax rates over eight years, giving the biggest benefits by far to the richest Nebraskans.

North Carolina (updated 4/6/2015): Two years after North Carolina enacted a sweeping tax cut package, state lawmakers have returned this year with more tax cutting plans that will bust the budget to benefit wealthy residents and profitable corporations.  Senate Republicans have unveiled another round of personal income tax cuts that cost more than  $1 billion when fully enacted and would slash millions of dollars in corporate income taxes. There has also been talk of reducing taxes on capital gains income, restoring items eliminated in 2013 including a deduction for medical expenses and historic preservation tax credit.  What makes these proposals even more egregious is the state’s anticipated revenue shortfall of almost $300 million this year. Lawmakers were forced to close a $500 million revenue gap last year with deep spending cuts after underestimating the steep cost of the tax cuts passed in 2013.  

North Dakota: Just a few short months ago, North Dakota lawmakers were giddy about the idea of using booming oil and gas tax revenue to pay for an elimination or significant reduction of the state’s personal income tax.  But as gas prices plummeted, reality set in and the House approved a scaled back proposal – a 10 percent across-the-board reduction in personal and corporate income tax rates (Gov. Dalrymple also proposed a 10 percent personal income tax cut).  North Dakota lawmakers enacted similar plans in 2011 and 2013, slowly chipping away at the two taxes.

Tennessee: In what’s becoming an annual tradition, multiple Tennessee lawmakers have proposed (subscription required) repealing the state’s “Hall Tax”—a modest 6 percent income tax on interest, dividends, and capital gains income.  As we showed in our recent Who Pays? report, the Hall Tax is a rare progressive bright spot in a tax system that tilts overwhelmingly in favor of affluent households.  Fortunately, leaders in the state’s House and Senate are reportedly unenthused by the idea since Tennessee’s wealthiest households recently benefited from cuts in estate, inheritance, and gift taxes.  And while it’s discouraging that the governor isn’t making principled tax fairness arguments against these proposals, he is very skeptical that the state can afford to get rid of the Hall Tax right now.

Texas: Lawmakers in the Lone Star State hope to enact a tax cut package that would cost about $4 billion over a two year period.  Governor Greg Abbott’s top priority is cutting the business franchise tax, and he has said that he will veto any budget that does not include such a cut.  So far, the main options for reducing business franchise taxes include cutting the rate from 1 to 0.85 percent or raising the exemption from $1 million to $4 million.  The governor would also like to see school property taxes cut, and the Senate seems happy to go along with that idea.  Options currently under discussion include raising the $15,000 homestead exemption to $33,625, or converting it to equal 25 percent of home value.  As we explain in this policy brief, the percentage-based option is less fair than a flat-dollar exemption.  But it’s also important to keep in mind the context provided by Dick Lavine of the Center for Public Policy Priorities: “There’s better uses of this money … than tax cuts.”

Massachusetts Gov. Charlie Baker unveiled his budget last Wednesday, and while it calls for some distressing cuts to state services it also includes a worthy tax policy shift that would help working families. The governor wants to double the state’s Earned Income Tax Credit over three years. Currently, low-income families with three or more children can receive up to $937 under the credit; Baker’s proposal would increase this figure to $1,873. To pay for the EITC expansion, Gov. Baker would phase out the state’s film tax credit, which state reports have found to be inefficient and a waste of taxpayer money. One Department of Revenue report concluded that in 2012 the majority of credits went to just three movies, at a cost of $60.1 million. Attempts to curb the film credit by Baker’s predecessor Deval Patrick were unsuccessful.

Some Texas municipalities fear that state officials have pushed through too many tax cuts, according to a recent Bloomberg Business article. The disconnect, according to some political observers, arises from the popularity of conservative messages around taxation at the state level and the focus on providing services at the local level. While state spending has fallen – Texas is ranked 48th in per-capita spending according to the Kaiser Family Foundation – local governments have borrowed to pick up the slack. According to figures from the state government, local borrowing has increased by 75 percent since 2005 to fund public works necessary for managing economic and population growth.

A South Carolina lawmaker has a new plan that he says will raise an additional $800 million for roads and highways in the state. State Sen. Ray Cleary’s bill would increase the gas tax by 10 cents and index it to inflation, raise the sales tax cap on car purchases from $300 to $1,400, close some sales tax exemptions, and increase fees for licensing and registration. He estimates the changes will cost South Carolina drivers $65 more each year on average. Cleary’s plan would raise revenue, while a proposal offered by Gov. Nikki Haley would result in a net revenue loss. Haley called for an increase in the gas tax coupled with an income tax cut in her state of the state address earlier this year.

Following Up:
Pennsylvania: Gov. Tom Wolf’s budget proposal met mixed reviews from state editorial boards. The Pittsburgh Post-Gazette though his budget was unrealistic and partisan, while The Philadelphia Inquirer called his plan ambitious and a necessary departure from his predecessors.

Mississippi: House Speaker Philip Gunn used a bizarre biblical analogy to assert that his plan to eliminate the state income tax would not lead to lost revenues. Opponents of his plan remain unconvinced.

Florida: House and Senate leaders appear to be on a collision course over balancing the state budget, jeopardizing Gov. Rick Scott’s proposals to cut taxes and increase education spending.

Things We Missed:
Massachusetts Gov. Charlie Baker released his budget last Wednesday – read it here.

Governors’ Budgets Released This Week:
Rhode Island Gov. Gina Raimondo (Thursday)

States That Will End Legislative Session This Week
Arkansas (Thursday)
Utah (Thursday)
West Virginia (Saturday)
Wyoming (Monday)

Pennsylvania Gov. Tom Wolf unveiled his budget proposal this week, delivering his state of the state address before a joint session of the state legislature. Wolf’s proposal would largely shift the responsibility for funding  public education from local property taxes to the state sales and income tax. The flat personal income tax rate would increase from 3.07 to 3.7 percent, and the sales tax rate would rise from 6 to 6.6 percent and would apply to additional goods and services. These changes would bring in an additional $3.9 billion in general fund revenue, most of which would be dedicated to reducing property tax bills by an average of $1,000 per household. About $540 million in new revenues would go to public schools and universities. Wolf also proposed a new severance tax on oil and gas extraction that would replace the state’s one-time impact fee on drilling new wells, with new revenues also earmarked to public education. In a bid to gain bipartisan support, Wolf also proposed significant corporate income tax cuts paid for by closing loopholes and continuing former Gov. Tom Corbett’s plan to phase out the state’s capital stock and franchise tax. (Stay tuned to the Tax Justice Blog for our take on the plan.)

Alabama Gov. Robert Bentley presented his budget proposal to the state legislature this week under the cloud of a $700 million deficit. The governor proposed $541 million in tax increases across eight areas, including the corporate and individual income taxes, excise taxes on tobacco products, and sales and rental taxes for cars. The cigarette tax would increase by 82.5 cents per pack, with commensurate increases for other tobacco products, bringing in $205 million in additional revenue. Increasing the tax rate on automobile sales and rentals from 2 to 4 percent would increase revenues by $231 million. The governor’s finance director assured legislators that the proposed changes would still leave Alabama near the bottom in rankings of tax revenues per capita, but Bentley’s plan will do little to address the regressive nature of the state’s tax system.  (Stay tuned to the Tax Justice Blog for our take on the plan.)

Florida Gov. Rick Scott was the third governor to give a state of the state address today, pitching a combination of tax cuts and spending increases to leery legislators. Scott touted his “Keep Florida Working” budget proposal, which includes $673 million in tax cuts from a variety of sources, including the tax on communication services, sales taxes on college textbooks, and taxes on businesses and manufacturers. The bulk of the cuts — $470.9 million in lost revenue – come from decreasing the tax rate on communication services (cell phones, cable, and satellite television) by 3.6 percent. Scott also pushed for more education funding and a tuition freeze on postgraduate education at state universities.

A new report from the North Carolina Budget and Tax Center reveals that tax cuts pushed by Gov. Pat McCrory (who is expected to release his budget plan this week) and the state legislature have hurt economic growth by starving the state of needed revenues. According to the report, if tax levels in the state were at pre-recession levels, North Carolina would have $3.2 billion additional dollars to invest in early childhood education, access to higher education, anti-poverty measures for senior citizens, affordable health care, wage subsidy programs and court access. The Budget and Tax Center also points out that even though middle- and low-income families saw their overall tax responsibility increase, the massive cuts for wealthy individuals left the state with an annual $1 billion budget gap.

States Starting Session This Week:
Alabama (Tuesday)
Florida (Tuesday)

State of the State Addresses This Week:
Alabama Gov. Robert Bentley (watch here)
Florida Gov. Rick Scott (watch here)
Pennsylvania Gov. Tom Wolf (watch here)

Governors’ Budgets Released This Week:
Alabama Gov. Robert Bentley (read here)
Pennsylvania Gov. Tom Wolf (read here)
North Carolina Gov. Pat McCrory (Thursday)

Mississippi lawmakers are playing a game of one-upmanship when it comes to tax proposals, but the biggest losers could be taxpayers if lawmakers enact one of the more ill-advised plans.

Last week, after just two hours of debate, the Mississippi House passed a bill that would phase out the state’s personal income tax. If passed, the bill could gradually eliminate nearly a third of state revenues. Despite the hollow promises of tax-cut advocates, eliminating the income tax would do nothing to improve employment or economic opportunity in the state.

The new bill, championed by House Speaker Philip Gunn, is the latest example of state lawmakers’ zeal to change the state tax code. Gov. Phil Bryant and Lt. Gov. Tate Reeves have also offered tax cut plans, though their measures are more moderate than the House proposal. Bryant wants to create a non-refundable Earned Income Tax Credit for low- and moderate-income Mississippi families, while Reeves wants to implement a package of income and business tax cuts and eliminate the state’s corporate franchise tax.

Opponents of Gunn’s income tax elimination have derided the plan as “lunacy,” and it is a hard accusation to dispute. Losing its second-largest source of revenue would be a devastating blow for the state, particularly because the effect of any spending cuts would be concentrated on the most vulnerable Mississippians. While the bill does not include any program cuts or new taxes to offset lost revenue, they would surely be necessary.

Supporters of eliminating the income tax are using the widely disproven claim that cutting taxes will boost economic growth, and therefore state revenue. A look at Kansas provides a cautionary tale: lawmakers passed deep income tax cuts using the same rubric only to slash spending later, and now the state’s conservative governor is proposing regressive consumption tax hikes.

Eliminating Mississippi’s state income tax would do little to support working and low-income families since most of the benefits would accrue to the wealthy. ITEP data shows that 65 percent of the tax cut would go to the top fifth of earners, and that the top one percent of earners would get an annual average tax cut of $20,000 if the policy were fully implemented.

Supporters believe they have answered the complaints of critics by including growth triggers in their proposal. Each phase in the income tax elimination could only proceed in years when state revenue grows by at least 3 percent. In reality, the triggers only expose their cynicism. Revenue growth in the state has slowed over the past 15 years, from 7.22 percent annually in 2000 to about 3.5 percent recently. The culprits for declining revenue growth are rising income inequality and a dampened economy, which cut into the sales tax revenues that Mississippi relies upon heavily. In fact, revenue growth from 2010 to 2013 was driven by income and corporate tax collections – the same sources that some state leaders want to cut. Supporters of eliminating the income tax either know this information and are pushing triggers to look “responsible,” or they don’t know this information and are dangerously ignorant of state finances.

Mississippi has been the poorest state in the nation across a variety of measures since at least 1931. Today, the median net worth of a Mississippi household is half the median net worth of the average American household, and the state fares poorly on indicators related to poverty – life expectancy at birth, educational attainment, employment, and obesity, among others. The people of Mississippi sorely need economic growth, but because their leaders rely on tax cuts as an economic development strategy no growth is forthcoming.

The true drivers of growth – workforce quality and new markets for goods and services – have seen systematic under-investment, leaving Mississippi underdeveloped. A strong workforce and economic climate aren’t cheap, and more tax cuts will just move the state further backward. It’s a shame that today’s leaders will repeat past mistakes, but it was Faulkner who wrote, “The past is never dead. It’s not even past.”

Notorious tax dodger GE recently released its annual financial report and the only thing eye-raising about the company’s paltry 0.9 percent federal income tax rate is that it’s marginally higher than the 0.4 percent average rate it paid over the past decade.

Released without fanfare late in the afternoon last Friday, GE’s latest annual report shows the company enjoyed $5.8 billion in pretax U.S. profits in 2014, but paid just $51 million in federal income taxes. In other words, GE remains a champion tax dodger. Whether it can continue to avoid taxes may depend upon what Congress decides to do about one of the misguided tax breaks that helps make GE’s tax avoidance possible, a tax break that expired at the end of last year.

The tax break in question, the “active financing exception,” has come back from the dead before.  Repealed as part of the loophole-closing Tax Reform Act of 1986, Congress temporarily reinstated the active financing exception in 1997 after fierce lobbying by GE and other multinational financial companies. Since then, lawmakers have extended it numerous times, usually for one or two years at a time and often retroactively.

This tax loophole allows American corporations to indefinitely defer paying U.S. taxes on their offshore profits, but there is a general rule (often called “subpart F” in reference to the part of the tax code that spells it out) that corporations cannot defer U.S. taxes on dividends, interest or other types of “passive” income. That’s because these types of income are easy to shift from one country to another to avoid taxes. The “active financing exception” is an exception to subpart F. As a result of this “exception,” companies like GE can indefinitely avoid paying taxes to any nation on much of their financing income, by claiming that they earned the profits in in offshore tax havens.

The active financing exception has been repeatedly extended as part of the so-called “extenders” —   legislation that Congress enacts every couple of years to continue a package of (ostensibly temporary) tax breaks for business interests, and is one of dozens of “extenders” that expired at the end of 2014.

GE won’t disclose just how valuable the active financing rule is to its bottom line. But when the tax break was set to expire in 2008, the head of the company’s tax department infamously went down on one knee in the office of the Ways and Means Committee chairman Charles Rangel to beg for its extension. In GE’s annual reports to shareholders, it notes that “[i]f this provision is not extended, we expect our effective tax rate to increase significantly.”

It’s hard to know what “significantly” means to a company that pays virtually nothing in federal income taxes. But at a time when both President Barack Obama and Democrats in the House are proposing sensible strategies for increasing taxes on the financial sector, it’s worth remembering that the active financing exception plays a significant role in the ability of many large U.S.-based financial institutions besides GE to pay low effective U.S. tax rates.

With the lobbying power of GE and the financial services industry, it will sadly be no surprise if congressional lawmakers ride to the rescue of low-tax multinationals once again. But the $5 billion a year price tag of the “active-financing exception” should be a good reason for Congress to sit on its collective hands and let this tax giveaway stay dead. GE will undoubtedly survive if its tax bill goes up a bit.

A decade and a half ago, the federal government was running a surplus, the economy was humming along, poverty had continually declined for the previous seven years, and the Republican candidate for president essentially told the nation we could cut taxes and maintain the status quo.

Today, the Republican-led Senate Finance Committee held a hearing on tax fairness featuring none other than Larry Lindsey, the architect of the Bush tax cuts, as the chief witness. This is quite alarming since the Bush tax cuts did more to undermine tax fairness and adequacy than any other legislation since 1981. The nation is still reeling from its effects.

It may be hard to believe now, but when then-presidential candidate George W. Bush put out his tax plan, in late 1999, Lindsey argued that the proposed tax cuts would make the tax system fairer.

“Governor Bush’s tax cuts would reduce income taxes for all Americans,” he said, “but would especially benefit lower and middle-income families. . . . More affluent Americans also receive a tax cut, but they will also shoulder a larger portion of the federal income tax…. The result is an income tax burden that is fairer.”

But this was pure sophistry. The Bush/Lindsey plan was designed to lower the progressive personal income tax while leaving untouched other, more regressive taxes levied by the federal government. Since these other taxes, including payroll and excise taxes, capture far more income from working low-income families, reducing their relatively low personal income taxes didn’t make much of a dent in their overall federal tax load. But because the personal income tax is the primary federal tax paid by the best-off Americans, even a 10 percent cut would dramatically reduce their tax bill. Put another way, the Bush tax cuts resulted in the best-off Americans paying a slightly smaller share of a much smaller pie, with close to half of the tax cuts going to the best-off one percent.

Lindsey also used gimmicks to make the Bush tax cuts look far less expensive than they actually were. When Bush announced his plan, Lindsey and others pegged the 10-year cost at $1.3 trillion. But, as CTJ’s tax policy team discovered, it turned out that Lindsey’s policy team had found a way to shave hundreds of billions off the apparent cost of the Bush plan by designing it in a way that would force 20 percent of Americans to pay the Alternative Minimum Tax (AMT), a backstop tax designed to prevent tax-dodging by high-income Americans. So, Bush proposed to dole out large tax cuts to almost, but not quite rich families, and then quietly take a big chunk of them back through the AMT.

Of course, no one thought for a minute that Congress would actually allow the AMT to swallow the upper middle class, and in fact, Congress fixed that problem soon after it passed the Bush tax cuts. But this ruse helped Lindsey and the Bush administration to low-ball the cost of their tax plan by about 25 percent.

In addition, many of Bush’s proposals were to be phased in over half a decade or more, the full impact of the tax cuts on federal revenues was muted. But in 2004, the phase-ins were sped up. As a result, the supposed $1.3 trillion ten-year tax cut turned out to cost twice as much as originally billed.

Maybe Senate Finance Committee Republicans are looking to Lindsey to help them repeat the chicanery that helped get the Bush tax cuts enacted. If so, everyone should be worried, since he was very good at hiding the truth back then.