Month: September 2015

Way back in 1902, when the Oregon legislature passed the first law allowing ballot initiatives, the measure was seen as a progressive reform that would put power back into the hands of the many, rather than the few. Today, 24 states allow ballot initiatives, where proposals that gain a certain number of signatures on a public petition can be put before the voters. But while the process was initially promoted to make government more democratic and responsive to the will of the people, today the ballot initiative is often used the tie the hands of lawmakers and thwart the prerogatives of future generations with onerous requirements. These ballot proposals can be anything but progressive, serving the economic interests of the wealthiest citizens and businesses rather than addressing the needs of citizens as a whole.

Supermajority requirements and tax and spending limits, two frequently proposed ballot measures, are not designed to promote the well-being of states. They do the exact opposite by making it nearly impossible for lawmakers to properly fund public investments that benefit a state and its people. Supermajority initiatives increase the threshold needed for tax legislation to pass. Tax and spending limits, like Colorado’s Taxpayer Bill of Rights (TABOR), couple state spending to arbitrary factors instead of allowing lawmakers to actually debate and decide what the state needs. These measures tie the hands of lawmakers by limiting their ability to govern and undercut democracy.

Two ballot measures, one currently before voters in Washington and the other still in the planning stage in North Carolina, highlight the danger of adopting anti- tax measures at the ballot box.

The Supermajority Requirement and Washington

A Washington ballot initiative masterminded by anti-tax activist Tim Eyman would essentially force lawmakers to add a supermajority requirement for tax legislation to the state constitution. If the initiative is approved by voters, lawmakers have the choice of voting to amend the constitution to adopt the requirement or losing over $1 billion in needed state revenue.

The Washington State Supreme Court ruled supermajority initiatives (led by Eyman) unconstitutional in 2010 and 2013, arguing that such a measure “unconstitutionally amends the constitution by imposing a two-thirds vote requirement for tax legislation. More importantly, the Supermajority Requirement substantially alters our system of government, thus enabling a tyranny of the minority.”

Mr. Eyman, undeterred, crafted his latest initiative with an eye toward getting around the court’s ruling. Since only lawmakers can approve an amendment to the constitution, the initiative (I-1366) is designed to force lawmakers to approve the amendment or otherwise lose more than $1.4 billion in revenue annually via an automatic one-cent decrease in the state sales tax.  If voters approve this initiative in November, lawmakers’ ability to govern would be restricted either via the requirement or through a major revenue loss.

The result would be disastrous to state investments that help build a strong economy. Many vital public services could face cuts or be eliminated due to the revenue hole of $1.4 billion per year that would come as a result of a sales tax reduction. Those potentially lost revenues support public safety, schools and other investments that secure a strong economy and protect working families. In essence, this is a ‘lose-lose’ situation for lawmakers. They are either stuck with a damaging supermajority requirement or a massive loss in revenue.

Such restrictions can also force lawmakers to raise tuition and fees or utilize other devices to make up for lost revenue, placing an undue burden on everyone. Further, if lawmakers are looking to improve their tax structure (like adding a tax on capital gains to a tax code that currently does not tax personal income), they can forget about it. Any kind of real tax reform that might close wasteful loopholes for profitable corporations becomes nearly impossible with supermajority requirements.

Lastly, for anyone who believes our country has become too beholden to special interests, supermajority requirements worsen the situation. With a supermajority law in place, there are fewer legislators required to derail tax bills. Therefore, lobbyists and other special interests can essentially hold important legislation ‘hostage’.

The So-Called “Taxpayer Bill of Rights” and North Carolina

The North Carolina Senate approved a version of the “Taxpayer Bill of Rights” (TABOR) constitutional amendment for the ballot in November 2016 that would make things worse in the Tarheel State, where lawmakers have been on a spree of tax and spending cuts.  The House has yet to give their stamp of approval, but there is still time for the House to discuss the measure and hopefully reject it over the coming months.

If approved by voters, the initiative would change the state constitution in three detrimental ways. First, spending on public services would be limited and a two-thirds majority vote would be required to raise additional revenue. Second, TABOR would cap the income tax at 5% (currently the flat rate is 5.75%), resulting in more than $2 billion less each year in funding for education and other priorities that benefit North Carolina.  Finally, it would impose a limitation on the amount of revenue the state can collect and retain each year, requiring a deposit into the Rainy Day Fund but also a two-thirds vote to access that fund.

TABOR has some similarities to the supermajority requirement currently under consideration in Washington State, but its primary parallel is that it too limits lawmakers’ ability to adequately fund investments. The measure would be damaging to the quality of life for all North Carolinians.

A majority of families in the state rely heavily on the investments TABOR’s limits would undercut. Living proof of this struggle can be found in Colorado, where TABOR resulted in cuts to health care and education. It also allowed the economy, business environment, and overall quality of life to stagnate, if not worsen. That’s why Colorado voters ultimately decided to suspend the measure for five years, starting in 2005, in response to a sharp decline in public services.

Furthermore, the initiative’s revenue-limiting income tax cap would make it exceedingly difficult to create new economic growth. The decreased revenue would result in less investment in innovation, new industries, and building a strong workforce. Ensuring that a state’s tax structure is fair is also vital to a strong economy. The income tax is one of the best tools to ensure low-income people are protected from paying more in taxes than the wealthy. A cap on the income tax would only worsen the already upside-down North Carolina tax structure, as lawmakers will be forced to rely on other sources for revenue like regressive sales and property taxes.

Since TABOR limits the amount of revenue states can retain, it can fail to take unanticipated spending needs into consideration. The formula used to limit any unused revenue does not account for the growing costs of goods and services over time. TABOR would prevent the state from meeting the changing needs of its growing population while making it impossible to keep up with even basic growth in the costs of delivering public services. Requiring a two-thirds majority vote just to access the Rainy Day Fund in the event of an emergency could result in disaster.

Restrictive fiscal policies like North Carolina’s proposed TABOR initiative and Washington’s supermajority requirement do not help lawmakers govern, nor do they make governments more responsive to the will and needs of the people. Budgeting becomes nearly impossible when legislators are forced to comply with flawed limitations instead of serving the people in their states. What the people want becomes, in many ways, irrelevant and, ultimately, our democracy suffers. These supposedly progressive ballot initiatives are anything but. 

In conjunction with the U.S. Census Bureau’s release of new poverty data this week, ITEP has an updated report out today, State Tax Codes as Poverty Fighting Tools, that provides an overview of anti-poverty tax policies, surveys state developments in these policies in 2015, and offers recommendations that every state should consider to help families rise out of poverty.

Based on the Census data, here’s what we know. Poverty remained persistently high as the new data showed no significant change from last year or the previous three years.  In 2014, 46.7 million (or 1 in 7) Americans were living in poverty.  At 14.8 percent, the federal poverty rate remains 2.3 percentage points higher than it was 2007, just before the throes of the Great Recession indicating that recent economic gains have not yet reached all households and that there is much room for improvement. Most state poverty rates also held steady between 2013 and 2014 though twelve states experienced a decline.

In good news, the Supplemental Poverty Measure (SPM) released alongside the official measure, demonstrates that the tax code can be used as an effective poverty-fighting tool. The federal EITC and refundable portion of the Child Tax Credit alone, for example, decreased the supplemental poverty rate from 18.4 to 15.3 percent for everyone.  And, thanks in large part to those credits, the supplemental poverty rate for children is actually lower than their official poverty rate (16.7 compare to 21.5 percent). The SPM was developed in recent years to address concerns that the official measure does not produce an adequate nor accurate picture of those living in poverty.  It does a much better job of measuring the true cost of making ends meet as it includes expenses such as child care, out of pocket medical costs, and payroll and income taxes as well as policies like the Earned Income Tax Credit (EITC), the Supplemental Nutritional Assistance Program (SNAP; formerly food stamps), housing assistance and other key anti-poverty policies.

But here’s something that will be ignored this week in virtually all the chatter about poverty and policy: As much as federal tax policy plays a vital role in mitigating poverty, state tax systems actually exacerbate poverty.

While the federal tax system is overall (barely) progressive thanks to progressive income tax rates and tax credits such as the EITC and Child Tax Credit (CTC), virtually every state tax system is regressive, meaning the less you earn, the higher your effective tax rate. In fact, when all the taxes levied by state and local governments are taken into account, every state imposes higher effective tax rates on their poorest families than on the richest 1 percent of taxpayers. ITEP’s 2015 comprehensive report, Who Pays?, examined the tax systems of all 50 states and the District of Columbia and found the effective state and local tax rate for the poorest 20 percent is 10.9 percent, which is more than double the 5.4 percent average effective rate for the top 1 percent.

Despite the unlevel playing field states create for their poorest residents through existing policies, many state policymakers have gone backward and proposed (and in some cases enacted) tax increases on the poor under the guise of “tax reform.” During the 2015 legislative session, for example, 17 states considered or passed tax cut or tax shift packages that would lower taxes for the very rich and increase them for low- and moderate-income families.

State policymakers should take note. Right now, states are failing those who struggle with poverty and, instead, are using the tax code to favor those who don’t need any more help. Lawmakers who are serious about improving their constituent’s lives should closely examine the Census data on poverty in their states and communities and consider enacting progressive tax policies that will reduce poverty and improve families’ quality of life.

State Tax Codes As Poverty Fighting Tools recommends that states jump-start their anti-poverty efforts by enacting one or more of four proven and effective tax strategies to reduce the share of taxes paid by low- and moderate-income families: state Earned Income Tax Credits, property tax circuit breakers, targeted low-income credits, and child-related tax credits.

A full copy of the report can be found here. 

Leaders in New Hampshire voted on a final budget deal this week after months of wrangling between Gov. Maggie Hassan and legislative leaders. Hassan vetoed a budget passed by the legislature in June, and lawmakers were unable to overcome her veto. The budget dispute centered on business tax cuts pursued by the legislature but opposed by the governor. The final compromise will cut taxes by the same amount as the vetoed budget over the biennium, but the second round of tax cuts will be contingent upon state revenues meeting certain targets. If lawmakers pass the compromise budget, the business profits tax (BPT) rate will decrease from 8.5 to 8.2 percent and the business enterprise tax (BET) rate will be lowered to 0.72 percent in 2016. In 2018, the BPT rate will fall to 7.9 percent and the BET rate will fall to 0.675 percent, provided the revenue trigger is met.

Alabama lawmakers also moved to resolve a longstanding budget impasse as state leaders get closer to an October 1 deadline. There, legislators and the governor disagree over how to make up a projected $200 million budget gap. This week, the legislature passed a cigarette excise tax of 25 cents per pack and approved a permanent shift of some use tax revenue from the Education Trust Fund to the General Fund. Revenue from the use tax, a sales tax on goods purchased outside the state, tends to growth with the economy, while the General Fund revenues have remained flat since 2008. The portion of revenue moved to the general fund is projected to yield $80 million. The cigarette tax increase was opposed by some conservatives, while progressive lawmakers said the transfer of funds out of the Education Trust Fund could hurt public schools. Gov. Robert Bentley is expected to sign both measures.  The state capitol was the site of dueling rallies by progressive groups and Alabama tea partiers over various tax proposals designed to close the budget gap.

West Virginians continue to urge their state legislators to exercise caution on tax reform proposals, despite Art Laffer’s encouragement. Ted Boettner of the West Virginia Center on Budget and Policy noted that “Years of austerity and tax cuts have not boosted the West Virginia’s economy,” and that previous tax cuts have not kept the state from ranking first nationally in unemployment. “Taxes pay for services businesses want and need.” Boettner echoes the advice of Commerce Secretary Keith Burdette, who said legislators should focus on other ways to make West Virginia more competitive, like workforce and infrastructure investments.

Local officials in Indiana are worried that a push from big-box retailers will spell big revenue losses for cities and towns and a higher tax bill for homeowners. The concern arises because some retailers insist that their stores should be assessed as vacant structures for sale instead of based on their value as active stores. Some retailers have successfully appealed their assessments before tax courts, forcing jurisdictions to issue millions in refunds. A legislative fix was approved by the lawmakers in Indianapolis, but the change only limits property value comparisons to vacant structures that have been up for sale for less than a year and used for similar purposes. It is unlikely the law will address the underlying dispute over property valuation, and local officials want stronger language.

State gambling revenue has been flat since the Great Recession, according to the Rockefeller Institute, thanks to a lack of interest in traditional gaming from younger consumers. Polling from the American Gaming Association finds that younger players are more attracted to table games, which bring in less casino revenue, than they are slots, which are the most lucrative form of gaming. Other studies found that younger gamers spent more on food, entertainment and drink than gambling at casinos. The studies highlight the danger of states relying on gambling revenue rather than more traditional sources not subject to industry volatility. 

Update: The House Ways and Means Committee passed the extender bills on a party line vote, with Republicans in favor.

On Thursday, The House Ways and Means Committee will once again contemplate making permanent controversial tax breaks that overwhelmingly benefit big business at a cost of $380 billion over the next 10 years.

Known as tax extenders, these giveaways are a package of tax breaks that Congress must vote to restore every two years. Most of the tax breaks expired at the end of 2014, but many members of Congress are doing everything they can to resuscitate these ill-advised breaks before the end of this congressional session. 

Most notably, the committee will consider bills making permanent the “active financing” loophole and the CFC look-through rule. These esoteric names may mean something only to tax policy wonks and corporate accounting departments, but their impact on the federal budget has implications for us all. The active financing loophole allows multinational corporations to cook their financial books in a way that makes it appear that they are generating income in low-rate foreign tax havens while their costs are deductible in the United States. And the “CFC look-through” rule gives companies additional options for offshoring their profits on paper. An exhaustive Senate investigation into Apple’s international tax avoidance found that the CFC look-through rule is a key part of the company’s tax-dodging strategy.

The committee also will consider extending “bonus depreciation” rules allowing some companies to immediately write off their capital investments. Proponents attempt to justify this tax break by claiming it incentivizes businesses to invest more and create jobs, but the non-partisan Congressional Research Service has found  it to be a “relatively ineffective tool for stimulating the economy.” And depreciation tax rules are one of the main reasons big utilities and other corporations are able to avoid paying even a dime in federal and state income tax, despite being hugely profitable.

The committee meeting comes just a day after new Census data documented that wealth remains concentrated at the top, poverty remains at historical highs and real median income is less today than it was in 1999. But it’s not a hopeless situation. Tax policy can make a difference.  This hearing should have been an opportunity for lawmakers to renew the extender tax breaks that actually offer a meaningful benefit to low-income working families: the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) expansions that are set to expire at the end of 2017.

While corporate lobbyists and their congressional allies cannot back up their claims that these controversial business tax breaks stimulate the economy and create jobs, the EITC and CTC are proven to make a real difference in the lives of working Americans, lifting almost 10 million Americans above the poverty line in 2014. But the value of the EITC and CTC is set to fall substantially in just two years. If members of Congress truly want to focus on using the tax code to create widespread economic prosperity, they should make permanent these valuable tax provisions and stop their razor-sharp focus on helping big multinationals avoid paying their fair share. 

New data from the Census Bureau show that the Earned Income Tax Credit (EITC) and the refundable portion of the child tax credit (CTC) lifted 9.8 million people out of poverty, including 5.2 million children, in 2014. Taken together, these credits lifted more people out of poverty than any other program besides Social Security.

The new Census data revealed that the national poverty rate remained statistically unchanged at 14.8 percent in 2014, 18 percent higher than it was before the economic recession and 33 percent higher than its historic low in 1973. According to the latest international data, the U.S. poverty rate is the third highest among 33 economically developed countries in the world.

The data make a compelling case for using tax policy as one tool for fighting poverty. The nation’s lawmakers should take steps to not only maintain but expand effective anti-poverty programs such as the EITC and CTC. A critical first step would be to make permanent recent expansions to the credits enacted in 2009 under the American Recovery and Reinvestment Act. These provisions are set to expire in 2017, which would mean an annual loss on average of $1,073 to more than 13 million families.  Congress should also substantially improve the effectiveness of the EITC by expanding it to childless workers. One proposal would provide an estimated 10.6 million individuals and families an average benefit of $604.

For more on the new Census data and the critical role of the EITC and CTC, read CTJ’s new report: The EITC and CTC Greatly Reduce Poverty; Congress Must Act to Strengthen These Programs.

More Resources on the EITC/CTC:

Four Reasons to Expand and Reform the Earned Income Tax Credit – June 11, 2015

Proposed Expansion of EITC to Childless Workers Would Benefit 10.6 Million Individuals and Families – March 4, 2015

Making the EITC and CTC Expansions Permanent Would Benefit 13 Million Working Families – February 20, 2015

Thanks to Alexandra Sirota from the North Carolina Tax and Budget Center for guest posting for us about the budget debate in North Carolina. For more information we urge you to visit the North Carolina Tax and Budget Center’s website. 

By: Alexandra Sirota, Director North Carolina Tax and Budget Center

Due to the speed at which passage of the budget bill is moving, we’re highlighting here five important findings from our analysis of the proposed tax-cut plan.

The Budget & Tax Center will release a more detailed analysis of the tax plan in the next day, so stay tuned. 

The bottom line: yet again policymakers chose to cut taxes — a strategy that doesn’t address North Carolina’s real economic challenges. By doing so they undercut the foundations of what has proven to be economy-boosting public investments. Rather than debate what is needed so every child in North Carolina receives a high quality education, for example, policymakers narrowed their choices by cutting taxes to say it’s either teachers or textbooks; smart technology in the classroom or a teacher assistant; a one-time bonus or bringing teachers closer to the national average in pay.

North Carolina can’t afford to debate what a successful state looks like at the margins. The bar should be higher. We need to build on the investments that have made our state great and follow the time-tested better pathway to a strong economy that works for everyone.

Here is why the tax plan fails to meet North Carolina’s high standards of fiscal responsibility and will fail to put the state in a competitive position against our neighbors and the nation:

• It’s a big revenue loser. No surprise here — but the impacts of that revenue loss aren’t fully accounted for in this two-year budget. That is because policymakers designed the tax changes to kick in down the road when future policymakers will need to contend with an even greater gap between resources and public needs, like a growing number of students and the inability to move teachers to the national average in pay.

• The wealthiest keep getting the biggest breaks. The move to cut the top state income tax rate to 5.499 percent from 5.7 percent appears to only serve the ideological commitment to income tax cuts. By design, it doesn’t address the fact that low- and middle-income taxpayers already pay more as a share of their income in state and local taxes than the wealthiest taxpayers do. That gap will even widen a bit under this plan. Just slightly more than one-third of taxpayers with income below $20,000 get a tax cut at the same time that 99 percent of those with income greater than $423,000 do.

• The sales tax base expansion should not be used to pay for income tax and should include a state Earned Income Tax Credit. Increasing the goods and services subject to sales tax is important to keep up with today’s economy and provide much-needed revenue.  But relying more on the sales tax while reducing the income tax is a step in the wrong direction. It threatens the balance provided by two taxes that perform differently in different economic circumstances. In the long term North Carolina’s revenue system will be more subject to erosion in economic downturns – just when public needs tend to be the greatest. Equally important is that using an expanded sales tax to pay for costly income tax cuts fails to account for the reality that the lower one’s income the higher percentage of it they pay in sales taxes. A $500 increase in the standard deduction is insufficient to address the greater tax load that low- and middle-income taxpayers will pay. Again, the wealthiest get the biggest benefit.

• The corporate income tax rate will definitely drop to 3 percent at some point next year. Changes to the language driving the reduction mean that revenue collections don’t have to meet the low revenue threshold set, a bar that they will likely surpass given the national economic recovery, by the end of Fiscal Year 2016. Whenever they reach that threshold, the rate will be reduced resulting in an additional $350 million in lost revenue for public schools and targeted economic development efforts beginning in the second year.  Moreover, changes to the way in which corporations profits are subject to tax will also change such that multistate corporations will only pay tax based on the share of their national profits generated from sales to North Carolina consumers and no longer need to account for their property or payroll.

• Allocating sales tax revenue to local communities under the proposed complex formula won’t make them whole. Many questions remain about how the complicated formula for sending sales tax revenue to localities will be implemented — and how much money will be involved. Is it just the revenue anticipated from expanding the sales tax? Or could revenue generated from sales tax also be in the mix if anticipated revenue collections from broadening the sales tax fall short?  Importantly too, the roughly $84.8 million identified is unlikely to sufficiently change the dynamics in rural communities where water & sewer infrastructure needs persist, main street revitalization and support to existing businesses to expand are needed and job training and pathways require regional connections. A vision and policy agenda for rural economic development cannot be achieved with a state tax code that falls short.

The proposed tax plan proposed is not reform. It won’t help the state’s economic position. It has been proven over time that tax cuts don’t drive significant job creation or improve wages. They can’t ensure that economic activity happens in communities that are being left behind by current economic growth.

What tax cuts do is reduce the ability of the state to build a foundation for a strong economy. That is crystal clear. The harm to public schools, health, the justice system and economic development from adoption of a strategy that doesn’t work will be felt by us all.

Dear West Virginia Lawmakers,

Do you remember the scene in Return of the Jedi where Admiral Ackbar and Han Solo launch an assault on the partially-constructed second Death Star during the Battle of Endor? (Of course you do.) Unbeknownst to the heroes, the entire setup is a ruse to flush out the Rebel forces so that the Imperial fleet can destroy them. Ackbar discovers the true nature of the scheme too late, uttering his immortal catchphrase, “It’s a trap!”

Don’t be like Admiral Ackbar. You still have time to save yourselves. Don’t fall into a trap of your own making.

I’m referring, of course, to a recent visit to your state by Art Laffer, the Emperor Palpatine of economics. Laffer pushed for tax cuts for the wealthy in a speech to the West Virginia Chamber of Commerce, arguing that “If you tax rich people and give money to poor people, you’re going to get lots and lots of poor people and no rich people….It’s all incentives; it’s all driven by that.” He further claimed, “If I had a wand I could wave, I’d get rid of the income tax now,” decrying the progressive income tax as a job killer. Barring total income tax elimination, Laffer’s advice is to “right away…drop the highest rates first. Drop the highest rates down, and then bring the lower rates [up].” The logic here mirrors his first statement: raising taxes on poor people to give money to rich people must lead to lots of rich people and no poor people.

You might be surprised to learn that Art Laffer is a respected economist in some circles, despite the fact that he has been giving policymakers the same wrong advice for almost four decades now. Every supply-side piety he has uttered has been debunked, completely and thoroughly. The first Laffer acolyte, Ronald Reagan, had to immediately undo some of the 1981 tax cuts championed by Laffer after the national debt ballooned out of control. Reagan spent most of his presidency undoing the fiscal damage done by those tax cuts with sensible tax reform (most notably in the Tax Reform Act of 1986), but Laffer’s theories continue to receive most of the credit in the minds of his followers.

For proof of the bankruptcy of Laffer’s ideas, a legislative field trip to Kansas is in order. In 2012 and 2013, Laffer served as chief architect of Gov. Sam Brownback’s massive tax cuts for the wealthy. Brownback and Laffer made many of the same snake-oil promises you heard from Laffer in Charleston. The “real-live experiment” of massive wealth distribution up the income scale would lead to gangbusters economic growth. Businesses and rich people would flood into Kansas to take advantage of lower tax rates. The increase in economic activity would boost state coffers, covering the billions taken out of the treasury.

A quick scan of headlines about Kansas reveals the truth. Kansas lags the nation in job growth, and does worse than neighboring states that have not enacted draconian tax cuts. In January, the state faced a $5 billion deficit over seven years. Brownback and the state legislature were eventually forced to rollback scheduled income tax rate cuts and raise the cigarette and sales tax rates, among other changes, earlier this summer.

Far from bringing prosperity to all Kansans, Laffer’s tax proposal and the subsequent course correction brought misery to middle-class and working families. First, the three years of tax changes actually raised taxes on the bottom 40 percent of Kansans in order to give those making over $1 million an average tax break of $27,962 each year. Second, the budget cuts necessitated by the loss of tax revenue hit services that Kansas families depend on – public education, hospitals, universities and social services. Brownback was also forced to raid public pensions and funding for road construction to balance the budget. Third, in order to balance the budget this year, Brownback and the legislature relied on regressive sales and cigarette taxes, which disproportionately impact those near the bottom of the income scale.

Asked about the total failure of his predictions to come true, Art Laffer did what he always does – shrugged his shoulders. Asked about the huge budget deficit, Laffer said he wasn’t surprised but couldn’t explain them. Asked when the promised revenue boost would materialize, Laffer said maybe a decade. “You have to view this over 10 years…It will work in Kansas.” Did he feel sorry for the Kansans left stranded in the wake of his trickle-down terror? “I feel sorry for the governor, but he did the right thing,” Laffer lamented.

Sadly, some of you left Laffer’s speech convinced he was right. Rep. Eric Nelson, Chairman of the House Finance Committee, was enthusiastic about Laffer’s proposal to institute a flatter income tax, saying, “I think we heard everything from Dr. Laffer the other day and we’re going down his path.” Senate President Bill Cole was similarly effusive, saying, “There’s no question in my mind that [this] could be the single biggest and largest economic driver that this state has ever seen….I think he’s spot on. I think, virtually, everything he’s said has proven itself out in history.”

Instead of listening to Laffer, the legislature should take the word of State Commerce Secretary Keith Burdette, who knows much more about what West Virginia needs. When Burdette testified before the joint legislative committee on tax reform, he identified two reasons that more businesses don’t come to West Virginia. First is location, with the lack of flat land and mountainous terrain making it harder for companies to relocate. Another was the lack of a high quality workforce, with the lack of college degrees and low median income among West Virginians being a disincentive. When asked about taxes and regulation, Burdette replied, “We don’t lose prospects over taxes; I’m not sure we lose them over regulations anymore.”

Investments in infrastructure, roads and bridges would go a long way toward mitigating the downside of mountainous terrain. Similarly, investments in public education and services for the people of West Virginia would help to improve workforce quality.  Following Art Laffer’s plan would reduce the revenue available for crucial investments, while making the rich richer and the poor poorer. It’s a recipe for disaster – just ask Kansas.

In the Star Wars universe (spoiler alert), Wedge and Lando were able to overcome the surprise attack, destroy the second Death Star, and lead the Rebels to victory. But I wouldn’t bet on a Hollywood ending for West Virginia if you follow Art Laffer’s lead. It’s best that you see his promises for what they are now: a trap that your state can’t afford to fall into. 

Presidential candidate Donald Trump made headlines last week for saying that hedge fund managers are “getting away with murder” in their tax-avoidance behavior. He said he would put a stop to this by closing the infamous carried interest tax loophole, leading to a rush of articles declaring that Trump is threatening to “blow up” the Republican Party’s orthodox support of tax cuts for the rich. This week, former Florida governor Jeb Bush followed suit in calling for the closure of the loophole and received similar accolades for challenging the “long-held tenets of conservative tax policy.”

But the populist rhetoric of both Trump and Bush around carried interest should not distract from their broader plans to dramatically cut taxes for wealthy investors in other ways. Their campaign rhetoric does not deserve accolades; it requires greater scrutiny.

Hedge fund and private equity managers usually structure investment deals in such a way that they receive a percent of an investment’s profits as compensation–carried interest–even if they do not invest their own capital. A loophole in our tax laws allows investment managers to claim this income as capital gains rather than normal income, allowing money managers to pay the special lower tax rate for investment income.

For the last decade, Democrats have called for Congress to close this loophole. Populist Sen. Elizabeth Warren has often railed against it. Democratic presidential candidate Bernie Sanders recently said the Treasury Department has the authority to close this loophole. And President Barack Obama, along with current presidential contenders Hillary Clinton, Bernie Sanders and Martin O’Malley, all have proposed closing the carried interest loophole.

Mostly, calling for closing the egregious carried interest loophole has been the purview of Democrats, although former Ways and Means Chairman Dave Camp proposed closing the loophole as part of his broad tax reform plan last year. So, it is to be expected that some would call Trump and Bush’s plans to close the loophole a “populist” policy position. But they also both propose to pile tax cuts on the rich many times larger than the roughly $2 billion a year that could be raised by taxing carried interest at the same rate as normal compensation.

Bush’s plan includes several substantial tax cuts that would directly benefit wealthy investors. To start, it would cut the already low preferential tax rate on capital gains from 23.8 percent to 20 percent, giving wealthy investors an annual tax cut of $30 billion (a break 15 times the size of the carried interest loophole). In addition, Bush is proposing to give corporations hundreds of billions of dollars in new tax breaks over the next decade.

As for Trump, if his soon-to-be-released tax plan resembles his most recent tax reform proposal, anti-tax conservatives and wealthy investors won’t have anything to fear after all. In his 2011 tax reform proposal, Trump proposed to eliminate the corporate income tax and the estate tax, drop the tax rate on capital gains income and cut marginal income tax rates. This  would result in huge tax cuts for the wealthy. The roughly $500 billion annual cost of eliminating the corporate income tax would pay back wealthy investors 250 times over for the tax hike they’d see from closing the carried interest loophole.

Residual public disdain for Wall Street due to the financial crisis makes it politically expedient to bash wealthy money managers. But the tax agendas outlined by Trump and Bush would lavish huge tax breaks on the very same wealthy investors they claim to be taking on.