Month: April 2015

Tax day is the perfect opportunity for legislators, the media, and taxpayers to be reminded who pays (and who doesn’t pay) taxes, how tax dollars are spent and about current tax policy debates raging in the states. The following is a compilation of tax day resources from the states:

Arizona: Through their blog, the Children’s Action Alliance wished everyone a “Happy Tax Day” and shed light on the important issue that “many corporations and higher income families owe little or no state income taxes.”

Calfornia: Right in time for Tax Day the California Budget and Policy Center released a new report Who Pays Taxes in California? The report highlighted ITEP data as well as the need to create a state Earned Income Tax Credit and better target existing credits to low income families.

Iowa: The Iowa Policy Project shared ITEP’s Who Pays? findings to shed light on the regressivity of the state’s tax structure

Georgia: The Georgia Budget and Policy Institute reminded Twitter followers to be thankful for the services that taxes pay for through #ThanksTaxes, they were interviewed by an NRP affiliate, and had their income tax materials prominently displayed on their website.

Michigan: The Michigan League for Public Policy put together this creative map showing what taxes pay for.

New Jersey: New Jersey Policy Perspective took the day to remind folks of three “takeaways” regarding taxes in the state. First, that all New Jerseyans pay taxes (with a link to ITEP’s Who Pays data), that corporations are often getting big tax breaks, and that taxes are an investment that provide opportunities.

North Carolina: The North Carolina Budget and Tax Center hosted a tax tweet on Tax Day so folks could share how their tax dollars are working in North Carolina. Followers were urged to share their thoughts using #thanktaxesnc

Texas: The Center for Public Policy Priorities (CPPP) shared this recent blog post to remind Texas taxpayers who pays state and local taxes. Also CPPP used Tax Day to shed light on a the tax debate there reminding lawmakers that Texas can’t afford tax cuts.

Washington: The Washington State Budget and Policy Center released a post It’s Tax Day! Let’s Talk About Washington’s Tax System. Since the state has the most regressive tax structure of them all, there is certainly a lot to say!

Wisconsin: The Wisconsin Budget Project creatively travelled and tweeted around the state with Casey Badger to show how tax dollars go to fund investments that Wisconsinites enjoy. They also published This Tax Day, Remember that Taxes Make Investments in a Strong Economy Possible.

We are still collecting tax day information and media. Already we know that ITEP’s Who Pays data have been cited in the Washington Post, a Dallas Morning News op-ed, an LA Times column, articles in the Topeka-Capital Journal and Mother Jones and in an editorial in the Wilmington Star (NC).

Idaho legislators ended their session very early on Saturday morning without enacting a regressive flattening of the state’s income tax.  Instead, lawmakers agreed to simply raise the state’s gas tax by 7 cents (the first increase in 19 years) and boost vehicle registration fees by $21.  Unfortunately, the bill also redirects some general fund dollars away from other core public services to spend on roads and bridges instead—but that feature of the law will lapse after two years.  Assuming Governor Butch Otter signs this legislation, Idaho will become the 7th state to raise or reform its gas tax in 2015.

The Florida House passed a $690 million package of tax cuts last week that now awaits approval by the Senate. The package of cuts closely resembles the proposal floated by Gov. Rick Scott in January and includes a cut in the communications services tax as well as tax cuts targeted at “small businesses, college students, military veterans, farmers, gun clubs, school volunteers, high-tech research, widowed and disabled homeowners.” Dissenting legislators argued that the impact of the revenue losses from the tax cuts would outweigh the benefit for most Floridians.

Following Up:
Alaska: While proposals to institute an income tax face an uphill climb, Alaska’s revenue problems continue to worsen. The state’s oil production tax is set to produce the least amount of revenue in its four decade existence, and state senators voted to repeal the state’s film tax credit program to save money.  

States Starting Session This Week:
Louisiana (Monday)

States Ending Session This Week:
Maryland (Monday)

North Carolina legislators are moving ahead with plans to double down on fiscally-ruinous income tax cuts less than two years after enacting a significant tax cut package that was heavily tilted to the Tarheel state’s richest residents. Senate Bill 526 would reduce the personal income tax rate from 5.75 to 5.5 percent, replace the standard deduction with a zero percent tax bracket for the first $20,000 of income, and reduce the corporate income tax from 5 to 4 percent. Worse, the bill would eliminate revenue benchmarks passed in 2013 that would have prevented corporate income tax cuts if revenue collections didn’t reach a certain level. All told, the tax cuts would cost at least $1.4 billion in revenue over the biennium. Currently, North Carolina faces a $271 million shortfall.

Luckily, opponents of the tax cut plan continue to sound the alarm. Alexandra Sirota of the Budget and Tax Center (BTC) blasted the proposed income tax cuts, saying previously-enacted cuts “have undermined the state’s ability to invest in infrastructure, in research and development at public universities and in many other public services that underpin a strong economy.” Sirota pointed out that some lawmakers who back further income tax cuts have sought to hedge their bets by securing more sales tax revenue for their districts – an implicit admission that revenue growth is unlikely to occur.

A recent BTC report found that the evidence gleaned from tax cuts passed in North Carolina in 2013 disprove the arguments that tax cuts create growth and attract businesses. While the state’s job growth since December 2013 has been slightly stronger than the national average, personal income and hourly wage growth in North Carolina have both trailed the nation. The report also cites an ITEP analysis which found that the 2013 tax cuts overwhelmingly benefited the wealthy and profitable corporations, and that the 2015 plan would send another $2,000 back to the top one percent of earners. 

Advocates aren’t the only ones condemning the plan. An editorial in The Charlotte Observer chides state lawmakers for their attempts “to fund the fiction that giving ‘job creators’ more money is good for North Carolina. Doing so ignores history, which shows there’s no link between lowering state taxes and economic growth. That’s because businesses spend money when they can make money, not simply because the government gave them more of it.”

Just over a month before announcing his run for president, Sen. Marco Rubio released a tax reform plan that provides trillions in deficit-busting tax cuts for the wealthy and corporations.

Some news outlets lauded the plan as a moderate approach on tax issues that stands in contrast to the supply-side tax cut plans of previous GOP presidential candidates. The only explanation for such misguided praise is that the plan, while top-heavy, also includes some tax cuts for middle-income Americans.  

Like many radical, rightwing tax plans before it, Sen. Rubio’s plan calls for elimination of taxes on capital gain and dividend income and movement toward a territorial corporate tax system. These two changes would lavish multinational corporations and the wealthiest Americans with trillions of dollars in additional tax breaks over the next decade.

In spite of these old hat ideological tax proposals, some commentators claim Sen. Rubio’s plan diverges from the supply-side plans of years past. Perhaps they are focused on the provision that would increase the child tax credit, taking it from a maximum of $1,000 to $2,500. In other words, Sen. Rubio’s plan attempts to make the massive tax cuts for the rich more palatable by also throwing a bone to low- and middle-income taxpayers.

The problem with this approach is that you can’t tax cut your way to economic growth and also pay for the nation’s basic priorities. Even with the tiny handful of revenue-raising offsets outlined in the plan, it would likely lose trillions of dollars in revenue over the next decade, ballooning the deficit to unsustainable levels or requiring draconian cuts in public investments.

Supporters of Sen. Rubio’s tax reform plan have attempted to use fantastical math to paper over gigantic revenue loss by arguing that the plan will cause such a surge in economic growth that it will more than pay for itself over the long term. Top-heavy tax cuts leading to economic growth is a familiar refrain that has been repeatedly disproven. The math of Sen. Rubio’s allies is so fantastical however, that even conservative economist Laurence Kotlikoff said that it would “not pass muster as an undergraduate’s model at a top university.”

Sen. Rubio’s newest tax deform plan is a much larger version of his gimmicky tax proposals of years past. In each case, he attempts to get credit for touting tax cuts, while at the same time hiding the real cost of his proposals. The crucial difference this time around is the sheer scale of the damage his tax reform plan would do to tax fairness, public programs and the U.S. economy if it were ever enacted. 

All eyes will be on former Secretary of State, and now presidential candidate, Hillary Clinton as she sets out a policy agenda during the opening months of her campaign. While in recent years Clinton has not gotten into the nitty-gritty of tax policy, she does have a long voting record on these issues as a senator from New York, as a presidential candidate in 2008 and as a major public figure. Taken together, Clinton has frequently shown a willingness to take a stand for tax fairness but has never fleshed out a clear agenda on these issues and has occasionally embraced regressive or gimmicky tax policies.

Record as Senator from New York

In a 2006 report card, Citizens for Tax Justice gave Clinton a “B” overall for her votes on five important pieces of tax legislation passed between 2000-2006. She received four “A” grades for her votes against the Bush cuts and a 2006 proposal to permanently repeal the estate tax. She received an “F” for her vote in favor of the “American Jobs Creation Act of 2004,” legislation that we nicknamed the 2004 Corporate Tax Giveaway Bill.

Clinton was one of 69 Senators who voted for the disastrous American Jobs Creation Act, which included a repatriation holiday for corporations. This holiday turned out to be a debacle. The lavish tax breaks it gave to multinational corporations did not lead to any job creation and gave companies a green light to stash even more of their profits offshore to avoid taxes in hopes of receiving another holiday in the future.

These votes show that when it came to major pieces of tax legislation, Clinton largely and rightly rejected the disastrous Bush tax cut agenda. We noted in 2005 that Clinton was relatively outspoken in her criticism of Bush’s tax policy approach.

One gimmicky tax policy proposal that then Sen. Clinton embraced, along with Sen. John McCain, would have temporarily lifted the gas tax in the summer of 2008. This proposal would have provided families with very little relief (maybe enough to fill half a tank of gas), while at the same time it would have done real damage to the Highway Trust Fund. In other words, it was a shortsighted proposal that would have generated some positive headlines without providing much benefit.

Record as 2008 Presidential Candidate

During the 2008 Democratic primary, Clinton frequently stood up, at least rhetorically, for making our tax system more progressive overall. In one particularly poignant exchange on tax fairness, Clinton noted that it’s unfair for wealthy billionaires like Warren Buffett to pay a low tax rate and that “we’ve got to get back to having those with the most contribute to this country.” Putting a bit of substance behind this rhetoric, Clinton came out strong against the carried-interest loophole and repealing tax subsidies for oil companies during the 2008 campaign.

At the time, Clinton was unwilling to take the bigger step of advocating that investment income be taxed at the same rate as labor income. When pressed during a debate as to whether she would increase capital gains taxes, Clinton said that if she raised it all she would only raise it to 20 percent, well below the rate for ordinary income.

While running for president, Clinton also advocated repealing the Bush tax cuts for those making over $250,000. While this was very much in line with President Barack Obama and the Democratic Party more generally, this policy also meant extending about three-quarters of the Bush tax cuts and adding trillions to the deficit. Even so, sticking to the $250,000 threshold would have been better than the ultimate deal that President Obama cut (and Clinton may have cut as well), which only repealed the Bush tax cuts for those making over $450,000.

Recent Controversies

In 2014, Clinton ran into some trouble over statements she made about her own tax rate and tax planning efforts.

On tax planning, it was reported that she had engaged in a standard, but notably problematic, form of estate tax avoidance using a pair of qualified personal residence trusts. The good news is that Clinton has long supported policies to strengthen the estate tax, including advocating in 2008 to restore the tax to its 2009 exemption level of $3.5 million.

On her own tax rate, Clinton said that she pays an ordinary tax rate “unlike a lot of people who are truly well off.” Critics jumped on the fact that she implied that she is not well-off, but missed her broader and correct point that she pays a significantly higher tax rate than many other wealthy individuals who receive most of their income through investments.

Looking Forward to 2016

Although her presidential campaign officially begins Sunday, Clinton has been making all kinds of statements across the country touching on policy issues. Although her statement relating to tax issues have come in broad strokes so far, they have hinted toward a progressive approach to tax issues for the campaign. For example, in October, Clinton noted that handing out tax breaks to corporations that “outsource jobs or stash their profits overseas” does not help grow the economy. Hopefully, this and similar statements are indicative of Clinton’s desire to make ensuring that corporations and the wealthy are paying their fair share in taxes an important part of her candidacy going forward. 

Momentum is building in California for the passage of a state Earned Income Tax Credit (EITC) for low-income workers. Two bills, Assembly Bill 43 and Senate Bill 38, would create a new, refundable state EITC. AB43 would provide a state credit equal to 15 percent of the federal credit for working families with children, and 60 percent of the federal credit for workers without children (the federal EITC for childless workers is significantly less generous than the credit for workers with children). AB43 would also provide a more generous EITC for working families with children under age 5, at 35 percent of the federal credit, in order to support children in their early development. SB38 does not include the provision for families with young children, but is more generous to childless workers; under this bill, families with children would receive 30 percent of the federal credit, while childless workers would receive 100 percent of the federal credit. An ITEP analysis finds that both bills would benefit a significant portion of working families and would improve outcomes for childless workers, who receive little support from other public benefit programs.

A bill in Alaska could impose a state income tax for the first time in 35 years. HB 182, sponsored by Rep. Paul Seaton, would introduce a state income tax equal to 15 percent of an individual’s federal income tax and would apply to some capital gains earnings as well. Seasonal workers would not be exempt from the tax, which Seaton projects would bring in $600 million annually. Revenues are an increasing concern in Alaska, which relies heavily on the volatile oil and gas industry to fund government services and has no state-level income, sales or property taxes. While the bill’s reception has been lukewarm, Rep. Seaton argued that the people should have a stake in funding government. He also argued that an income tax would be easier to collect than a sales tax. Another proposal from Rep. Click Bishop would institute an “education tax” of $100 on those making at least $10,000 a year, $200 for those making between $50,000 and $100,000 a year, and $500 for those making $500,000 or more.

Following Up:
Kansas: A new poll found that 69 percent of Kansans oppose using funds from the highway trust fund to close the state’s budget gap, and 95 percent said infrastructure investment should be a top priority. Gov. Brownback has proposed directing $2.1 billion from the transportation fund over 10 years to pay for his income tax cuts.

New Jersey: State newspapers have reported that Gov. Chris Christie’s privatization of the New Jersey lottery may have helped supporters of the governor. Gtech, the firm that operates the lottery, hired a law firm and a public relations company headed by men close to Christie to make the privatization deal happen. Gov. Christie privatized the state lottery over the objection of the state legislature and without a public bidding process.

Nevada: Legislators in the state Assembly advanced a plan out of committee that they say is an alternative to Gov. Brian Sandoval’s proposed expansion of the state’s business license fee. The Assembly plan would raise the rate of the Modified Business Tax (MBT) instead, from 1.17 percent to 1.56 percent. Proponents of this plan argue that it would be easier to calculate and a more predictable revenue stream, while opponents note that the MBT only covers 4 percent of state businesses and disproportionately falls on labor intensive companies.

Kansas’s fiscal woes have become the stuff of legend. Thanks to disastrous income tax cuts championed by Gov. Sam Brownback, the state government repeatedly has been forced to slash spending. The projected revenue shortfall for the fiscal year beginning in July is $600 million.

The budget crisis is so bad that some school districts have been forced to end the school year early. Yet Kansas lawmakers are wasting time tackling trumped-up problems around how poor people use their meager but much-needed cash benefits.

Just last week, the Kansas legislature passed a bill that would limit the daily amount of money TANF recipients can withdraw from an ATM to $25. The bill would also ban recipients from withdrawing benefits at ATMs in movie theaters, casinos, nail salons, and pools. The maximum amount of time Kansas can receive TANF benefits would be reduced from 48 to 36 weeks, a stingy amount of time for families struggling to find employment or gain the skills necessary to be self-sufficient. The measure also bans those who fail a required drug test from ever receiving welfare benefits.

All of this is reasonable only in a world where pernicious stereotypes about poor people are true. The fact is poor communities have few resources. A nail salon may provide the closest ATM. Furthermore, Kansas’s drug testing program has turned up 11 positive results out of 2,783 applicants since it began in 2014, at a cost of $40,000 (similar programs in other states, like Florida and Tennessee, have also been unproductive). Poor people are no more likely than the general population to use illegal drugs, and if the .004 percent rate of positive drug tests in Kansas is any indication, they actually have a lower likelihood than the general population.

The Kansas measure is likely to fail in its stated goals since the legislation will not prevent the behavior lawmakers seek to curtail. It will, however, make it harder for poor people to live their daily lives. One state senator told the Wichita Eagle that some of her constituents rely on TANF benefits to pay rent, and that the $25 ATM limit will make it harder to manage money. The small daily withdrawal limit will increase the amount of ATM fees that TANF beneficiaries must pay, cutting into the purchasing power of their already-meager benefits. But banks will win in the form of more frequent ATM fees.

Policies like the ones in Kansas increase costs and make outcomes worse. Since 2011, TANF enrollment has dropped by half in Kansas, despite the rate of children in poverty increasing in the state during the same period.

The reduced welfare rolls are no accident. Research shows the best way to build communities and strengthen families is through strategies that increase employment and opportunity, but Kansas lawmakers have taken the more expedient, less rational route of making the TANF program so onerous that it’s too difficult to enroll. One supportive opinion writer argues that the law “isn’t designed to hurt the poor, but to make their poverty uncomfortable.” But trying to make poverty more uncomfortable so that people move out poverty is like trying to put out a house fire with kerosene.

This brings us to the ulterior motive shared by state legislators and Gov. Brownback: state coffers are dry thanks to their tax cuts, they have a budget to balance, and Kansans on public assistance make an easy target.

To be fair, Kansas isn’t the only state to use TANF money for other needs. Misery, after all, loves company. But Kansas, thanks to its regressive tax cut “experiment,” is a particularly galling example. Recently, Gov. Brownback doubled down on his support for zeroing out the state’s income tax, claiming a shift to consumption taxes would create more growth. It’s the same old song he sang when he asked for income tax cuts in the first place, and the growth never came. The governor backed up his talk by suggesting regressive cigarette and alcohol tax increases to shore up the budget gap caused by his giveaway to the wealthy and corporations.

So in Kansas, low-income working families get it coming and going. State lawmakers have cut taxes for the well-off and increased taxes that fall more heavily on middle- and low-income Kansans. Meanwhile, they’ve made programs designed to help lift Kansans out of poverty less effective to save money. Taking from those who have the least seems to be of the foundation of Gov. Brownback’s entire economic development strategy.

Time and again, lawmakers enact restrictions on safety net programs that serve no purpose other than distracting voters from real problems that lawmakers don’t want to deal with. But politicians find it politically convenient to blame the poor for wasting tax dollars and making poor decisions. They would be better served by looking in the mirror.