State Rundown 11/6: Election Day Wrap Up

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Voters went to the polls in a number of state and local elections this week, with lots of implications for tax policy. This rundown covers the burning ballot outcomes and election results that followers of state policy should know about!


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Washington state voters approved Tim Eyeman’s Initiative 1366 with 53 percent of the vote. The measure mandates an automatic decrease in sales tax revenue by $1 billion unless the legislature agrees to refer a ballot measure to voters that would require a supermajority to raise taxes. As we noted in a previous blog post, Initiative 1366 is a disaster for the state. Legal challenges to its legitimacy are sure to follow, but at the moment eyes are on state legislators and what they will do to avoid both the revenue loss and the supermajority requirement.

Voters in Texas approved two proposals that will impact road and school funding. Proposition 1, which increased the property tax homestead exemption from $15,000 to $25,000, will cost schools in the state at least $1.2 billion over the biennium. Homeowners will keep $126 annually, on average. The measure passed with 86 percent of the vote. Proposition 7 diverts up to $2.5 billion a year in sales tax revenue from the general fund to the State Highway Fund beginning in 2018. It passed with 83 percent of the vote.

Ten out of seventeen counties in Utah passed a ballot initiative for transit funding, though the measure went down in defeat in the state’s most populous counties, Salt Lake and Utah. Proposition 1 implements a local sales tax with revenue split between transit providers, cities and counties.

Voters in Kentucky elected Republican Matt Bevin governor in an upset over challenger Jack Conway, the state’s attorney general. Bevin, a businessman often at odds with his own party’s mainstream, has pledged to end Kentucky’s successful healthcare exchange and is opposed to Medicaid expansion. He has also called for corporate and personal income tax cuts and for the repeal of Kentucky’s inheritance tax. Bevin’s election is likely to move Kentucky tax policy in a less fair and unsustainable direction.

Mississippi voters easily reelected Gov. Phil Bryant, who faced token opposition from Robert Gray, a long haul truck driver. Lt. Gov. Tate Reeves and House Speaker Phil Gunn, both also reelected, were responsible for a flurry of tax bills last session that would have lowered income taxes and eliminated the corporate franchise tax. At one point, lawmakers considered eliminating the income tax entirely. These efforts failed because backers could not gain a supermajority vote for their changes; now, Republicans are just one vote away from a supermajority. Expect more of the same during the state’s next legislative session.

In a bright spot, voters in Seattle, WA and Maine approved ballot questions to limit the influence of money in politics and to increase the power of small donors. Maine voters passed by 55 percent a proposal to update their public elections system. Candidates who opt for public funding will now receive additional funds if super PACs spend big for their opponents, and the transparency rules for independent spending have been tightened. The question also requires the legislature to scale back or repeal some business tax breaks in order to fund public financing. Voters in Seattle passed by 60 percent a new concept called “democracy vouchers.” Each citizen will receive four $25 publicly-funded vouchers to pledge to candidates of their choosing. The Seattle initiative also lowered campaign contribution limits, increased ethics enforcement, and banned contributions from lobbyists and city contractors. Hopefully, these measures will make lawmakers more responsive to the public on matters of tax fairness rather than entrenched interests.


Tax Justice Digest: Presidential Crazy Talk – Corporate Tax Watch – Many Secrets

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Read the Tax Justice Digest for recent reports, posts, and analyses from Citizens for Tax Justice and the Institute on Taxation and Economic Policy. For frequent updates find us on Twitter (CTJ/ITEP), Facebook (CTJ/ITEP), and at the Tax Justice blog.

Tax Cut Crazy Talk
When presidential candidates release tax reform proposals that promise to drastically slash taxes across the board and also generate strong economic growth, the only appropriate response is a heavy sigh and a plea to stop. Read our round up of the presidential candidates and their crazy talk.

Speaking of Crazy Talk: Rubio’s Tax Plan
CTJ took a closer look at Marco Rubio’s tax proposal and found that the senator’s plan would give the biggest tax cut to the wealthiest 1 percent of Americans and balloon the deficit by $11.8 trillion over a decade. Read the full analysis here.

Corporate Tax Watch: Apple and Pfizer
This has been a busy week for corporate tax monitoring. CTJ reports that Apple now holds $186.9 billion in offshore cash and moved a record $50 billion offshore just last year. The company has avoided $56.9 billion in federal income taxes thanks to these offshore holdings- that’s a lot of iPhones, iPads, and Macs.

CTJ staff is also keeping an eye on Pfizer because the company seems to be having an identity crisis. The company now wants to be Irish to avoid paying U.S. taxes (they tried to become a British company, but that didn’t work out). Read about Pfizer’s issues here.

The United States is a Top Secrecy Jurisdiction
Sometimes, ranking near No. 1 is not a badge of pride. The United States is the third biggest offender – just after Switzerland and Hong Kong – on the Tax Justice Network’s 2015 Financial Secrecy Index when it comes to facilitating financial secrecy and tax evasion. Read about this grim ranking here.

State News:
State Rundown: Spooky Appointments, Phantom Tax Increases
Read all about who New Jersey Gov. Chris Christie appointed as state treasurer, the outcome of elections in Louisiana, a “rain tax” in Maryland, and fixing unintended consequences in Ohio. Yes, this is a litany of teasers, but we think this edition of the rundown is that good and deserves a full read.

Shareable Tax Analysis:

ICYMI:   Now that the nights are starting earlier, why not get a jump on some good bedtime reading? Check out ITEP’s Guide to Fair State and Local Taxes. It’s riveting. We promise. You’ll learn all about state tax structures and what states get right and wrong when it comes to raising revenue.

This week’s Tax Justice Digest was full of compelling reads. Thanks for sticking with us until the end. Suggestions? Email:

Tax Cut Crazy Talk

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Sometimes when presented with fantastical information, the only appropriate response is a heavy sigh and a plea to stop. Please. Just. Stop. 

Such has been the case time after time this year as presidential candidates have released tax reform proposals that promise to drastically slash taxes across the board and also generate strong, economic growth. Please. Just. Stop.

Earlier this week, Citizens for Tax Justice released an analysis of Republican presidential candidate Marco Rubio’s tax proposal, and the results are exasperating but not surprising. The senator’s plan reserves the greatest share (34 percent) of its tax cuts for the top 1 percent (average annual cut of $223,783), and it would balloon the national debt by $11.8 trillion over a decade.

If this story sounds familiar, well, it is.  

CTJ has analyzed other candidates’ tax plans, too. It found that Jeb Bush would give nearly half of his tax cuts to the top 1 percent and add $7.1 trillion to the national debt over 10 years. Donald Trump’s plan would target more than a third of his tax cuts to the top 1 percent, and, like Rubio, would blow a $12 trillion hole in the federal budget over a decade.

Sens. Ted Cruz and Rand Paul are offering flat tax proposals that would lower taxes for the rich, increase taxes on low-income people and cost even more than Trump or Rubio’s plans. And Ben Carson has proposed a loosey-goosey “tithing” plan (at a rate of 10 percent or 15 percent, depending on when you ask him) with few details, but apparently with the highest revenue loss of all.

All of these candidates are telling the American public that they have the best interest of the middle class at heart. But a bit of simple math quickly refutes that falsehood.

Yes, most of the candidates claim they would cut taxes for all income groups (with the exception of Bobby Jindal, who fervently and explicitly calls for much higher taxes on the poor). But the superrich would be the greatest beneficiaries by far. And once enormous cuts in public services that these plans would require are taken into account, only the very rich would come out ahead.

To be sure, all of the candidates claim that their plans would produce an enormous increase in economic growth. For example, Bush, in a Wall Street Journal op-ed titled, “My Tax Overhaul to Unleash 4% Economic Growth,” stated, “By focusing on tax reform like I did in Florida, America can grow faster, too.” Likewise, Trump said his plan, “will create jobs and incentives of all kinds while simultaneously growing the economy.”

But these are just assertions with no backing. The candidates seem to have forgotten that the nation has tried trickle-down economic policies before without success.

When pressed about his deficit-busting plan on CBS’s Face the Nation, Rubio said, “It has to be a combination of things. You have to have the spending discipline on the mandatory spending programs and you need to sustain significant economic growth.”

Well, at least one candidate admits that we can’t have vast tax cuts and adequately fund the nation’s programs and services too.

Josh Barro at the New York Times compared the candidates’ plans to “puppies and rainbows.” Many others also have roundly criticized Republican promises of tax cuts without revenue consequence. You can read some of them here, here, here, here , here, and here.

Recall that George W. Bush promised the nation could cut taxes across the board — but especially for the rich — without budgetary fall out. Instead, Bush’s tax cuts turned surpluses into deficits, even with budget cuts. And as for boosting the economy, economic growth was poor throughout Bush’s presidency and toward the end saw the start of the worst economic recession since the 1930s. Even still, Republican candidates are proposing to double- and triple-down on Bush-era tax policies.

Please. Stop.

“These candidates don’t want to tell the American public the truth,” said Bob McIntyre, director of CTJ. “Taxes are already at historically low rates, and our nation cannot have more massive tax cuts and also meet our priorities. In fact, we need considerably higher taxes, especially on tax-avoiding corporations and wealthy investors.  Polls show that a large majority of Americans agree, which makes one wonder why the GOP candidates are calling for just the opposite.”

Today, federal lawmakers are struggling to find ways to fund the Highway Transportation Fund, pay for debts that have been built up over the past four decades and maintain essential public services. And this is with current tax rates. The answer to these very real complex national issues is certainly not crazy, fantastical tax-cut proposals that overwhelmingly benefit the wealthy.

Marco Rubio’s Tax Plan Would Pile $11.8 Trillion on the National Debt

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A Citizens for Tax Justice’s analysis of Republican presidential contender Marco Rubio’s tax proposal found that the senator’s plan would give the biggest tax cut to the wealthiest 1 percent of Americans and balloon the national debt by $11.8 trillion over a decade.

Rubio’s plan hugely favors the wealthy. And by reducing revenues by almost $12 billion over a decade, his plan will require draconian cuts to essential public services and likely wreck our economy.

The top 1 percent would receive an average tax cut of $223,783 under Rubio’s proposal. Lower income groups would also receive significant tax cuts under Rubio’s plan, but his campaign is already backtracking on its own claims of just how generous its cuts would be for the poor.

Read the CTJ analysis of the Sen. Rubio’s plan here.

Marco Rubio’s Tax Plan Gives Top 1% An Average Tax Cut of More than $220,000 a Year

November 3, 2015 01:38 PM | | Bookmark and Share

Update March 9th, 2016: Click here or scroll down to see a new addendum showing the cost of Rubio’s tax plan with alternative assumptions regarding his proposed refundable credit and his treatment of personal exemptions.

Read Report as a PDF.

A new Citizens for Tax Justice analysis of Marco Rubio’s tax plan reveals that it would add $11.8 trillion to the national debt over a decade. More than a third of Rubio’s tax cuts would go to the best-off 1 percent of Americans.

What the Rubio Plan Would Do 

Rubio’s tax plan includes major changes to both the personal and corporate income taxes.

Under Rubio’s plan, every income group would receive a tax cut. As a share of income, the top 1 percent would collectively see a tax cut equal to 12.5 percent of their average income, more than two times as big as the tax changes as a share of income enjoyed by the middle 20 percent of Americans, who would get a tax cut equal to 5.6 percent of their income.

The bottom 20 percent would receive a substantial cut of 13.9 percent as a percentage of their income due to Rubio’s creation of a $2,000 refundable tax credit for singles and $4,000 for married couples in place of the standard deduction, along with a huge expansion of the partially refundable per-child credit. CTJ’s modeling assumes that the standard credits would be fully refundable based on Rubio’s latest description of his tax plan.[i] Despite Rubio’s promise, however, his campaign staff has suggested that there would be rules denying standard credit refunds to non-workers and current non-filers. If such rules were proposed, the tax cuts for the bottom income group would be somewhat lower than our analysis shows. On the other hand, such rules would be hard to police, given the incentive the credit would create to report some earnings (even if none exist). [ii]

Overall, we found that:

  • The poorest 20 percent of Americans would receive a tax cut averaging $2,168 a year (assuming full refundability of the standard credit).
  • Middle-income Americans would receive an average tax cut of $2,859.
  • The best-off one percent of taxpayers would enjoy an average tax cut of $223,783.
  • More than a third of the tax cuts (34 percent) would go to the top one percent.

How the Rubio Plan Would Cut Personal Income Taxes:

  • Reduces the top personal income tax rate from 39.6 percent to 35 percent, and reduces the number of tax brackets from 7 to 3 (35, 25 and 15 percent).
  • Eliminates taxes on capital gains and dividends, including the 3.8 percent high-income surtax on investment income that was enacted as part of President Barack Obama’s health care reforms.
  • Reduces the top tax rate on individual business income to 25 percent.
  • Replaces standard deduction with a $2,000 per taxpayer (i.e., $4,000 for married couples) refundable tax credit, which phase out between $150,000 and $200,000 for individuals and between $300,000 and $400,000 for couples.
  • Creates a new, partially refundable child tax credit of up to $2,500 per child on top of the existing $1,000 per-child credit. The new credit is refundable based on rules similar to the current child credit. It phase out at much higher income levels than the current child credit (starting at $150,000 for individuals and $300,000 for couples)
  • Eliminates the Alternative Minimum Tax, which was designed to ensure that the wealthiest Americans pay at least a minimal amount of tax.
  • Eliminates the estate tax.

As a modest offset, the plan eliminates all itemized deductions with the exception of the charitable contributions and the mortgage interest deductions, which would now be available to all taxpayers. This change would more than double the number of taxpayers who would itemize their deductions.

How the Rubio Plan Would Cut Corporate Income Taxes:

  • Cuts the corporate tax rate from 35 percent to 25 percent.
  • Allows for full expensing on new investments, including buildings and land.
  • Enacts a territorial tax system.

The plan also includes some revenue offsets:

  • Eliminates the deductibility of interest expense (except for financial businesses).

“By eliminating personal taxes on capital gains and other investment income, repealing the estate tax and cutting the corporate income tax by about half, Rubio’s plan hugely favors the wealthy,” said CTJ Director Bob McIntyre. “And by reducing revenues by almost $12 trillion over a decade, his plan will require draconian cuts to essential public services and likely wreck our economy.”

Addendum: Modeling Rubio’s Plan Under Alternative Assumptions

In the table below we adjusted the estimated size of Rubio’s tax cuts downward from our previous estimate, based on new information that his advertised “refundable” standard credit would not be nearly as refundable as he has publicly claimed, and that the new credit would replace not only the standard deduction but also taxpayer personal exemptions (but not dependents’ exemptions).


[i] “A Pro-Growth, Pro-Family Tax Plan for the New American Century”

[ii] The Rubio campaign is quoted as saying “Rules would be tailored to ensure that our reforms would not create payments for new, non-working filers.” Dylan Matthews, “Marco Rubio and John Harwood’s testy debate exchange on taxes, explained.” October 30, 2015.

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After Failed Attempt to Become British, the Pfizer Corp. Now Wants to be Irish to Avoid U.S. Taxes

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How do you say Viagra in Gaelic? That’s an internal question the Pfizer Corporation may have to deal with if it’s successful in its latest attempt to avoid billions of dollars in taxes by trading its U.S. citizenship for an Irish passport in a process known as a corporate inversion.

The drug and consumer health products maker is attempting to buy Allergan, an Ireland-based firm, and assume that company’s Irish identity.

But that’s probably about as painful as the move would get for the New York-based pharmaceutical firm. When a company like Pfizer attempts to become a resident of Ireland or other tax haven countries, there generally aren’t a lot of moving trucks involved. Usually, corporate inversions are a purely paper transaction in which corporations shift their U.S. profits overseas for tax purposes without changing the way they do business. Inverting companies typically continue to rely heavily on the American education, transportation and healthcare infrastructure that have allowed them to prosper. The only real change is that post-inversion companies are no longer paying for the government benefits they consume. An inversion by Pfizer would very likely amount to pretending to be Irish, much like the Notre Dame mascot.

This is the second time in as many years that the company has attempted to renounce its U.S. citizenship. In 2014, the company attempted to trade its U.S. passport for a British one by acquiring the firm AstraZeneca.

The irony is that Pfizer has already been doing its best to pretend it’s a foreign corporation for some time. In each of the past seven years, Pfizer has reported losing at least a billion dollars a year in the United States while making money hand over fist in other nations. Between 2008 and 2014, Pfizer claims it lost $21 billion in the U.S. while enjoying $104 billion in foreign profits. Is it plausible that the maker of Viagra and ChapStick hasn’t made a dime of profits in the United States since 2007 even as it has averaged $15 billion a year in foreign profits?

A more likely explanation is that the company has been aggressively shifting its U.S. profits into foreign tax haven subsidiaries. A recent Citizens for Tax Justice report found that Pfizer has a stunning 151 subsidiaries in known foreign tax havens, more than all but five other Fortune 500 corporations. It’s probably no coincidence that the company also has been very aggressive in declaring its profits to be “permanently reinvested” offshore: at the end of 2014, Pfizer had $74 billion in offshore cash, fourth highest among the Fortune 500.

What makes Pfizer’s tax dodging especially galling is that its U.S. business plan heavily depends on federal government support. Over the past five years, Pfizer has received more than $5 billion in government contracts, each year making the list of the top 100 government contractors. In addition, Pfizer has profited directly from government-funded research by the National Institutes of Health (NIH) and rakes in billions of taxpayer dollars via government healthcare programs such as Medicare and Medicaid.

We don’t know how much of the company’s $74 billion is sitting in its Cayman Islands subsidiary, nor do we know whether the company has paid even a dime of tax on its offshore cash because the company refuses to disclose this information. But it’s a safe bet that if the company’s latest inversion attempt is successful, in practice Pfizer will remain as American as it’s always been since it was founded on U.S. soil in 1849.


How the U.S. Became a Top Secrecy Jurisdiction

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Sometimes, ranking near No. 1 is not a badge of pride. The U.S. ranks as the third biggest offender – just after Switzerland and Hong Kong – on the Tax Justice Network’s 2015 Financial Secrecy Index when it comes to facilitating financial secrecy and tax evasion, or, in other words, enabling individuals to hide their assets. 

The largest drivers for the United States’ high ranking are its financial secrecy laws and that it has the largest share of the global market for offshore financial services.

How did the United States become such an important offshore financial center? It began with the passage of the Revenue Act of 1921, which exempted the interest income of non-U.S. residents from tax. The combination of this tax break and weak financial disclosure rules made U.S. banks ideal places for foreign individuals looking to hide their assets.

The United States does not require financial institutions to collect basic ownership information from corporations. This allows entities to create illicit shell corporations, which criminals can use to commit crimes such as money laundering and tax evasion without much fear of being identified. Because incorporation is a function of state governments, many states, including Delaware, Nevada and Wyoming, have facilitated the proliferation of shell corporations as a way to raise revenue by collecting fees for each corporation created.

Some states have taken nominal steps to reverse their secrecy laws in recent years, but no real progress has been made. Federal legislation would help. The Incorporation Transparency and Law Enforcement Assistance Act, for example, would require states to collect the beneficial ownership information for each corporation registered in their state.

The United States’ lack of transparency on information about non-resident investments also aides those seeking to hide assets. Over the years, lawmakers have made several attempts to create a more transparent legal framework, but the only hopeful moment came during the 1990s when the Clinton administration proposed that banks in the United States be required to inform the U.S. Internal Revenue Service (IRS) about all bank interest paid to non-resident individuals. This regulation never went into effect.

The United States should end its protection of potential criminals by allowing more reciprocal exchange information between it and other countries. Steps are already being taken in this direction with the enactment of the Foreign Account Tax Compliance Act (FATCA) in 2010. Unfortunately, FATCA relies on an array of bilateral agreements instead of a broader multilateral agreement, making the exchange of information less streamlined. There are also numerous examples where bilateral agreements require U.S. access to information from foreign institutions, but they fail to provide that same information to other countries. Rather than being an impediment to progress, the United States should take a leadership role in combatting tax evasion by fighting for financial transparency around the world.

Apple Shifts a Record $50 Billion Overseas, Admits It Has Paid Miniscule to No Tax on Offshore Cash

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For the die-hard fans who lined up to purchase Apple’s latest iPhone last month, it’s hardly news that the California-based company still lives up to its reputation for technological innovation. The world’s No. 1 smart phone manufacturer last week released its annual financial report revealing it also remains No. 1 in crafty tax avoidance strategies.

Apple moved a record $50 billion offshore in the last year, far more than any company has achieved in a single year. It now holds a staggering $186.9 billion in cash offshore.

The company’s brazen exodus of cash is even more remarkable because it acknowledges it has paid virtually no tax to any nation on its offshore stash. Apple’s recently released annual report indirectly admits the company has paid an effective tax rate of about 2.2 percent on its permanently reinvested foreign profits. This means the beloved iPhone maker has avoided $56.9 billion in federal income tax on its offshore cash.

Apple’s unsavory tax practices are well-documented. A 2013 Senate investigation conclusively demonstrated that the company artificially shifted its U.S. profits into foreign tax havens. And for much of the past year, European Union (E.U.) officials have focused on the special tax deals worked out between European tax haven countries and companies including Apple, Starbucks, Fiat and Amazon.

As Citizens for Tax Justice (CTJ) documented in a recent report, Apple is only part (albeit the biggest part) of the problem. Hundreds of Fortune 500 corporations admit owning subsidiaries in known tax haven countries, and most of these companies now claim to hold large amounts of cash abroad. CTJ’s sensible recommendation to end companies’ ability to indefinitely defer tax on allegedly foreign profits would very likely accomplish what public shaming of Apple’s tax avoidance clearly has not: putting an end to corporations’ use of offshore tax havens to avoid paying U.S. taxes.