Tax Justice Digest: EITC Awareness — Corporate Tax Watch — Flint

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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.

Our office survived the blizzard and got busy analyzing tax policies far and wide – take a look at what we’ve been commenting on this week:

EITC Awareness Day!
Today is EITC Awareness Day and we couldn’t be happier to join with the IRS and other groups to spread the word about this important credit that lifts millions of families out of poverty each year. For more on the EITC, how the recent expansions benefit your state, and how states are implementing the credit check out this post from ITEP senior analyst Aidan Davis.

Federal News

Corporate Tax Watch: Adobe, Johnson Controls and NASCAR
The last few weeks we’ve been busy monitoring companies getting increasingly creative when it comes to avoiding their taxes. ITEP’s Director, Matt Gardner, crunched the numbers and it appears that Adobe shifted hundreds of millions offshore. Apparently executives at Adobe think, like PDFs, its profits are portable too.

Johnson Controls is a Milwaukee-based company that makes batteries and HVAC systems. They’d also like to become Irish. Read more about its outrageous tax-dodging scheme here.

Did you know that a tax break for NASCAR was included in the $680 billion extenders package Congress passed late last year?

Flint Fail: Lessons
The Flint water crisis should not be happening.  Here we take a closer look at this “customer” service failure and the role that tax policy played.

State News

Looking Forward: 2016 State Tax Policy Trends
This week ITEP’s state tax policy team identified many of the trends they will be following this year in state tax policy – from tax shifts to tax cuts and working family tax credits. Read the first post in ITEP’s important series.

Chances Are You Live in a State Where Amazon Collects Taxes
Starting Monday, will begin collecting sales tax from its customers in Colorado.  Once this happens, the company will be collecting sales tax in a total of 28 states – including 19 of the 20 most populous states in the country. Here’s what ITEP’s Research Director, Carl Davis, has to say about this development.

Sign up for ITEP’s State Tax Rundown to Get Expert Info On Tax Debates In:
Alaska, Kentucky, Georgia, Indiana, Kansas, Massachusetts, North Carolina, South Carolina, and West Virginia

Now that many state legislatures are in session tax debates are heating up. During this busy time ITEP sends out two State Rundown emails a week detailing a myriad of state tax issues. To get these emails sign up for our Rundown here.  

State Spotlight: Louisiana
ITEP’s State Tax Policy Director, Meg Wiehe, weighs in on the tax and budget situation the new Governor of Louisiana faces. Stay tuned, the situation in Louisiana is quickly evolving.

Shareable Tax Analysis:

EITC Awareness

ICYMI: As part of EITC Awareness Day we wanted to remind you about CTJ’s interactive map which details the average benefit for working families of permanently extending the recent expansions in the EITC and Child Tax Credit. In good news for working families, these extensions were made permanent late last year.

As the compiler of this email, I’d love to hear from you anytime at

For frequent updates find us on the Tax Justice blog.

International Speedway Reaps Benefits of Revived “NASCAR Tax Break”

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DaytonaSpeedwayTax laws were good to the International Speedway in 2015. The company released its annual report this week, which reveals it’s just as fine a purveyor of tax dodging as it is race car driving. The company reports earning $73 million in U.S. pretax income in 2015, a handsome profit on which it did not pay a dime of federal or state income taxes. In fact, the company got an $8 million federal tax rebate in 2015.

This tax avoidance is partly enabled by an obscure tax break for “motorsports entertainment complexes.” The provision quietly expired at the end of 2014, but Congress revived it in December as part of its multi-billion dollar tax extenders package.  

It’s likely that few Americans realized that the much-maligned “NASCAR tax break” for a brief period was no more. This shouldn’t be surprising, since relatively few of us have the wherewithal to build a racetrack in our backyards. But, as we’ve noted previously, for the handful of corporations that own and maintain racetrack properties, the “NASCAR” break has been a tax-cutting bonanza. Two leading beneficiaries of this tax break, International Speedway and Speedway Motorsports, have paid federal tax rates averaging 11 percent and 7 percent, respectively, over five years.

2015 could have been the year when that all changed: the NASCAR tax break was one of dozens of temporary “extender” tax breaks that expired at the end of 2014. But faced with a rare situation in which inaction is the best course of action, Congress decided instead to bring the extenders back to life in the waning days of its 2015 session, and in doing so extended the NASCAR tax break for another two years.

In the context of our growing budget deficits, the annual cost of the NASCAR giveaway is a drop in the bucket at less than $20 million, making it a small part of the $680 billion extenders package. But because its benefits are narrowly focused on a few privileged companies, the damaging effects of this tax break go way beyond its fiscal cost. The prospect of well-heeled corporate lobbyists driving their employers’ tax rates to zero is exactly the sort of thing that makes Americans lose faith in their leaders, and in government more generally. For those scratching their heads at the rise of presidential candidates whose popularity appears to be driven by anger and resentment, look no further than tax breaks like this one. 

Michigan’s “Customer” Service Fail Is a Cautionary Tale about Cutting Taxes and Disinvestment

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Flint WaterThe Michigan legislature just approved a  $28 million appropriation to provide immediate aid in response to the water crisis in Flint, Mich., where vulnerable children and families have been poisoned by toxic lead.

This avoidable crisis partly has roots in the misguided movement to cut taxes so much that state and local governments have difficulty raising enough resources to adequately fund critical public services.

The linkage between Flint and tax policy is not as clear cut as, say, Kansas where communities slashed school funding among other things shortly after lawmakers passed top-heavy tax cuts that decimated state revenues. But there is a connection. If you didn’t know before the city’s toxic water made national headlines, you may now know that Flint, a once prosperous community with a strong middle-class, was economically devastated throughout the 80s and 90s due to loss of auto industry and manufacturing jobs. Flint native Michael Moore exquisitely captured the city’s plight in the 1989 documentary Roger and Me. Lack of jobs led to a substantial loss of population, an increase in poverty, and an eroding tax base. These structural problems festered for years. It’s hard to imagine how any lawmaker could view cutting spending as a viable solution.  

Yet, here we are.

Enter Gov. Rick Snyder, the former Gateway chief who prides himself on running Michigan like he ran a business, and who in 2011 took control of Flint via a city manager after deciding that the state could do a better job of whipping economically struggling communities into financial shape.

The problem is that running a business and governing are not parallel endeavors. So, no, Gov. Snyder, your constituents are not customers. But if for argument’s sake we assume they are, then know that Michigan’s customer service spectacularly failed. In the business world, don’t heads usually roll for such poor leadership and decision-making? A CEO is beholden to the bottom line and shareholders, but elected officials, in theory, are bound by public service and the greater good. Under Snyder’s leadership, the Flint city manager made a business decision to switch the city to a filthy water system to save $5 million (and later those in charge balked at spending an outrageously small $100 a day that could have avoided elevated lead levels by stopping the corrosion of pipes due to contaminated water). These savings are trivial compared to the incalculable human cost of endangering the health and well-being of 100,000 state residents.

The Flint water debacle has raised valid questions about race, class, political ideology and their role in government decision making and outcomes. We’ll leave some of the broader social questions for the political and pundit class to debate. But this we can say for certain: tax policy played a role in this crisis. Investments in higher education, local communities, public health, and other human services in Flint and throughout Michigan have and will continue to be squeezed by an array of costly business tax credits and transfers of general funds for transportation infrastructure.

Rather than cutting taxes for businesses, reducing the income tax, and gutting credits for working families, the state should be reforming its tax system to ensure it has the funds needed to provide critical public goods both now and in the future. Failure to do so will lead to more catastrophes that will be costly, both for the state and to the health and well-being of its citizens. The devastating events in Flint so starkly remind us that “savings” gleaned at the risk of public health and safety comes at too high a price.

Celebrating EITC Awareness Day

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EITC awareness DayCTJ and ITEP are joining in the effort to promote the EITC Awareness Day outreach campaign as it celebrates its 10th anniversary. Over the past decade, the IRS has joined partners nationwide to ensure that low- and moderate-income workers are given the credit they deserve. The federal EITC and state EITCs are well worth celebrating as anti-poverty measures that lift millions of working Americans out of poverty.

Since its introduction in 1975, the federal Earned Income Tax Credit (EITC) has rewarded work and boosted the economic security of low-wage workers. Over the past several decades, the effectiveness of the EITC has been magnified as the federal credit has been expanded and 26 states have enacted, and later expanded, their own credits.

The most recent expansion of the federal credit occurred in 2009 as part of the American Recovery and Reinvestment Act (ARRA). Under ARRA the EITC was temporarily enhanced for families with three or more children and for married couples. These vital enhancements were extended through 2017 in subsequent legislation and – in a big win for low-wage workers across the country – were made permanent late last year. For more on the impact by state of expanding the EITC click here for an interactive map.  This permanent improvement to the credit will prevent 16.4 million Americans from being pushed into or deeper into poverty.

The case for an EITC is even stronger at the state level, as we explain in our report Rewarding Work Through State Earned Income Tax Credits. State and local taxes are regressive, requiring low- and moderate-income families to pay more of their income in taxes than wealthy taxpayers. To date, twenty-six states and the District of Columbia have EITCs in place to supplement the federal credit. This past year lawmakers from both sides of the aisle came together in five states to champion state EITCs. California became the 26th state to enact an EITC; theirs is loosely based on the federal credit, but targeted only to those living in deep poverty. Building from the bipartisan momentum of 2015 state EITC reforms, a number of states are heading into their legislative sessions with EITC enactment and reform on the agenda. ITEP’s State Tax Policy Director, Meg Wiehe, flags this as a trend to watch in 2016.

Stay tuned for an upcoming blog post that will provide a more in-depth look at how states are likely to address poverty and inequality through tax breaks for working families in 2016. 

State Rundown 1/28: Taxes Up For Debate

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State Rundown in your inbox.


New Kentucky Gov. Matt Bevin delivered his first State of the Commonwealth address on Tuesday, forgoing tax cuts he promised during the campaign because in his words, the state “can’t afford them right now.” Instead, he called for deep reductions in state spending that would impair crucial services. Bevin would cut spending by $650 million across the board — a 4.5 percent reduction for all agencies for the remainder of the fiscal year and a 9 percent reduction over the next biennium. The governors plan would protect per-pupil K-12 funding, Medicaid, and social workers, and would increase some public safety spending. Bevin would also move $1.1 billion to the state’s troubled pension funds for teachers and state employees. However, universities, regulatory agencies, parks, public television, workplace safety, public health, environmental quality and economic development would be affected by the cuts.  

The North Carolina Budget and Tax Center came to the aid of partners in West Virginia this week, pleading with legislators to take proposed tax cuts off the table. Gov. Earl Ray Tomblin’s budget proposal would cut the state’s severance tax on coal to help prop up the ailing industry, while raising taxes on tobacco products and telecommunications. Ted Boettner of the West Virginia Center on Budget and Policy warned lawmakers that more tax cuts wouldn’t help the economy, and could make matters worse, pointing out that recent sales and corporate tax cuts had reduced state revenue that could have prevented the current deficit. Alexandra Sirota of the North Carolina Budget and Tax Center backed him up, noting that tax cuts in her state merely shifted taxes down the income scale and failed to produce new jobs.  

Georgia Senate Finance Chairman Judson Hill proposed two tax-cutting measures last week. The first would institute a flat income tax rate of 5.4 percenteliminate most itemized deductions (though would allow taxpayers to deduct all charitable contributions), and increase the personal and dependent exemptions by $2,000. Hill’s second measure would amend the state’s constitution to mandate a decrease in the flat rate (assuming the first proposal is enacted) to 5 percent if state revenues and reserves exceed certain levels. The finance chairman’s proposals come against the backdrop of Gov. Nathan Deal’s call for additional funding to make up for reduced spending in the wake of the Great Recession.  Look for an ITEP analysis of these proposals soon on the Tax Justice Blog.


Lawmakers in South Carolina continue to debate how to increase road funding while also cutting taxes in order to satisfy a demand by Gov. Nikki Haley to offset any gas tax increase with income tax cuts. The latest compromise would increase the state’s gasoline excise tax by 12 cents per gallon over three years, along with a number of other vehicle related fees and taxes. The increases, expected to increase road funding by $665 million, would be paired with $400 million in  income tax cuts. One point of contention is a desire by some  lawmakers to include a refundable EITC for low-income South Carolinians in the package. The proposed EITC would cost $44 million and benefit 514,000 residents who would face higher costs at the pump. Some influential lawmakers were amenable to idea. Senate President Hugh Leatherman, who supports proposed tax breaks for manufacturers included in the plan, said “When we are giving everybody else something, why wouldn’t we look to help them to pay the additional increase in the gas tax?” An ITEP analysis of this proposal will be coming soon to the Tax Justice Blog. 

The debate over the budget deficit in Alaska continues, with lawmakers mulling a gas tax increase and proposals to bring an income tax back to the state. The Senate and House transportation committees considered Gov. Bill Walker’s plan to double the state’s gasoline excise tax from 8 to 16 cents per gallon. The measure would raise $49 million annually, a far cry from the $4 billion needed to plug the state’s budget hole. The governor has also suggested levying a state income tax equal to 6 percent of the federal income tax Alaskans owe, while State Rep. Paul Seaton has put forth a plan asking Alaskans to pay the state 15 percent of what they pay in federal taxes. Walker’s income tax plan would raise $200 million, while Seaton’s more ambitious plan would raise $655 million and includes a long-term capital gains tax of 10 percent. A recent poll of Alaskans shows that residents favor a mix of cuts and new revenue to address the crisis by almost a 2-1 margin. 

Got a juicy news story or new development in state tax policy that’s too good to miss? Send your ideas and any comments to Sebastian at and we’ll add it to the next State Rundown! to Collect Sales Tax from Roughly 84 Percent of its US Customers

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amazon taxStarting Monday February 1st, will begin collecting sales tax from its customers in Colorado. Once this happens, the company will be collecting sales tax in a total of 28 states—including 19 of the 20 most populous states in the country.  All told, 84 percent of the country’s population will live in a state where collects sales tax.

Putting aside the four states that levy neither a state nor local sales tax, that leaves just 18 states, and the District of Columbia, where Amazon is refusing to collect and remit the sales taxes owed by its customers: Alabama, Alaska, Arkansas, Hawaii, Idaho, Iowa, Louisiana, Maine, Mississippi, Missouri, Nebraska, New Mexico, Oklahoma, Rhode Island, South Dakota, Utah, Vermont, and Wyoming.

For more on this issue, see the detailed discussion (and animated map) that we released at the start of last year’s holiday shopping season.

What to Watch for in 2016 State Tax Policy: Part 1

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State legislative sessions are about to begin in earnest.We expect tax policies to get major playin statehouses across the nation this year with many states facing revenue surpluses for the first time in years and others having to grapple with closing significant deficits. Regardless, officials should focus on policies that create fairer, more sustainable state tax systems and avoid policies that undermine public investments.

ITEP this year once again will be taking a hard, analytic look at tax policy proposals and legislation in the states. This is the first in a six-part blog series providing analyses on the implications of policy proposals, as well as thoughtful commentary on best policy practices.

 Part 2: Revenue Surpluses May Prompt Tax Cut Proposals

In some states, economies have recovered well since the economic downturn, and lawmakers are considering spending surpluses on tax cuts instead of providing much-needed boosts to public investments that were scaled back during the recession. The economic recovery has been uneven, however, and some states that find their economies still struggling or newly sputtering may consider tax cuts on high-income residents under the misguided premise that tax cuts at the top trickle-down and stimulate economic growth.

One trend we expect to see is tax cuts that take effect in small increments over a very long period based on revenue performance or some other automatic “trigger.” The effect of these incremental cuts is to push the brunt of revenue losses into the future. Another trend is to move toward single-rate income taxes, negating the chief advantage of the income tax: its ability to reduce tax unfairness by requiring people with higher incomes to pay higher rates and those with less income to pay lower rates. Keep an eye in 2016 on Georgia where there is a proposal to cut and flatten the income tax and then further reduce it in future years based on automatic triggers.

Part 3: Revenue Shortfalls Create Opportunities for Meaningful Tax Reform

A number of states including Alaska, Connecticut, Delaware, New Mexico, Vermont, West Virginia, and Wyoming are grappling with current and future year revenue shortfalls. Pressed for revenue, we anticipate that some states may turn largely to spending cuts or more regressive and less sustainable tax options (like a small hike in the cigarette tax) to close their budget gaps. The scale of the problem in many of these states could also present a real opportunity for lawmakers to debate and enact reform-minded tax proposals that could raise needed revenue, improve tax fairness, and craft more sustainable state tax systems for the future. 

The most significant revenue downturns and best opportunities for reform are in states dependent on oil and gas tax revenue, most notably Alaska and Louisiana. Alaska Governor Bill Walker unveiled a proposal in December that would among other things bring back a personal income tax. Louisiana’s new governor, John Bel Edwards, will call a special session next month to pitch short- and long-term revenue raising ideas, including much-needed reforms to the state’s income tax. We are also watching Illinois and Pennsylvania where lawmakers are now more than seven months overdue on putting together a budget for the current fiscal year, largely over disagreements on how to find needed revenue to pay for public investments.

Part 4: Tax Shifts in All Shapes and Sizes

Tax shifts, which reduce or eliminate reliance on one tax and replace it with another source, are one bad policy idea we expect to continue to rear its ugly head. The most common tax shifts in recent years have sought to eliminate personal and corporate income taxes and make up the lost revenue with an expanded sales tax. Such proposals result in a dramatic reduction in taxes for the wealthy while hiking them on low- and middle-income households, increasing the unfairness of state tax systems and exacerbating already growing income inequality.

Lawmakers in Mississippi  and Arizona  have expressed support for lowering and eliminating income taxes. Changing political and revenue pictures in both of these states could lead to lawmakers finally making good on their promises in 2016. Also watch for smaller scale shifts like a plan in New Jersey where lawmakers want to pair a much needed increase in the state’s gas tax with an elimination of the estate tax to “offset” the tax hike.

 Part 5: Addressing Poverty and Inequality Through Tax Breaks for Working Families

In 2016, we expect states to focus on a range of policies to support working families, building off the momentum of their 2015 reforms and national dialogue on poverty and income inequality. In particular, developments to enact or improve state Earned Income Tax Credits (EITCs) are likely in a dozen states across the country. For instance, Louisiana’s new governor John Bel Edwards called for doubling the state EITC as part of his commitment to reduce poverty. Maryland’s governor, Larry Hogan, called to accelerate the planned EITC increase. Delaware lawmakers are looking to take a step forward by making the state’s EITC refundable, but unfortunately are also considering a drop in the percentage of the credit.

Tax breaks for working families may also appear as proposals to provide targeted cuts to offset regressive tax increases in states where lawmakers plan to raise revenue. We suggest also keeping an eye on working family tax break proposals in the following states: California, Georgia, Illinois, Minnesota, Mississippi, Missouri, Oregon, Rhode Island, Utah, Virginia, and West Virginia.

Part 6: Overdue Increases in Transportation Funding

The recent momentum toward improvements in funding for transportation infrastructure is likely to continue in 2016. Governors in states such as Alabama, California, and Missouri have voiced support for gasoline tax increases, and gas taxes seem to be on the table in Indiana and Louisiana as well. These discussions on a vital source of funding for infrastructure improvements are long-overdue, as many of these states haven’t updated their gas taxes for decades

But not all transportation funding ideas being discussed are worth celebrating. Arkansas Gov. Asa Hutchinson, for example, has proposed that additional infrastructure funding come from diverting significant revenues away from education, health care, and other services. Meanwhile, lawmakers in other states (Mississippi, New Jersey, and South Carolina) would like to leverage a gas tax increase to slash income or estate taxes for high-income households. While these plans would result in more funding for transportation, their overall effect would be to worsen the unfairness and unsustainability of these states’ tax codes.

Johnson Controls Attempts a Snow Job

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As the nation’s capital remained blanketed in nearly two feet of powdery snow Monday, Wisconsin-based manufacturer Johnson Controls announced its own attempt at a snow job: a proposed corporate inversion with Ireland-based Tyco (yes, that Tyco), which would move Johnson’s corporate headquarters, at least on paper, from Milwaukee to Ireland. A representative of the firm told the New York Times that while the plan will yield $150 million a year in tax benefits, the proposed merger is driven by “the operating potential of the two companies.”

Johnson Controls, like every other company that has shifted its corporate address to a tax haven locale, is downplaying the tax benefits.

It’s not immediately obvious why the company would need to make the shift as it routinely pays far less than the statutory 35 percent federal corporate tax rate. Between 2010 and 2014, Johnson reported just over $6 billion in U.S. pretax income, and it paid a federal income tax rate averaging just 12.2 percent over this period. This is actually lower than the 12.5 percent tax rate Ireland applies to most corporate profits.

But scratching just beneath the surface, the billions of reasons the company is seeking to renounce its U.S. citizenship are more apparent. At the end of 2014, Johnson Controls disclosed holding $8.1 billion of its profits as permanently reinvested foreign income, profits it has declared it intends to keep offshore indefinitely. Johnson discloses very little information about the location of its foreign subsidiaries, and refuses to disclose how much (if any) foreign tax has been paid on these offshore profits. But if the company is stashing these profits (at least on paper) in a zero-rate tax haven such as the Cayman Islands, then the tax stakes for Johnson could indeed be real.

Reincorporating abroad would allow Johnson Controls to avoid ever paying a dime in U.S. income tax on profits currently stashed in tax havens. And if the experience of prior inversions is any guide, an Irish-headquartered Johnson Controls will likely move aggressively to artificially shift even more of its U.S. profits into low-rate tax havens.

Johnson Controls, like the other recent high-profile inversion Pfizer, reaps substantial dollars from U.S. taxpayers. Between 2010 and 2014, Johnson and its subsidiaries received more than $1 billion in federal contracts—more than $210 million a year. And all indications are that post inversion Johnson will still act about as American as it’s always been. Corporate leaders are telling worried Wisconsinites that “we’ll remain committed to Milwaukee,” leaving the company’s operational headquarters in that city. Incredibly, this is the same path followed by the company’s inversion partner: Tyco was one of the first inverters over two decades ago, moving first to Bermuda and then Ireland, and even now the company maintains its operational headquarters in Princeton, New Jersey.

Yesterday presidential candidate Bernie Sanders berated Johnson Controls as “deserters,” arguing that “If you want the advantages of being an American company then you can’t run away from America to avoid paying taxes.” Sanders has introduced aggressive legislation to end offshoring of corporate profits. Hillary Clinton similarly called out Johnson Controls and has proposed an “exit tax” along with a few other targeted proposals designed to reduce the incentive for companies invert.

Republican candidates have defended corporate tax deserters and proposed rewarding tax dodging by cutting the statutory corporate tax rate—a rate the companies like Johnson Controls don’t even come close to paying as it is.

Proposing to cut the corporate tax as a solution to the inversions is problematic, for obvious reasons, the most obvious being that in a deficit environment, tax cut proposals should include pay fors.

The more fundamental problem with cutting the corporate rate is that as long as it’s possible for corporations to easily shift their profits into zero-tax jurisdictions, reducing the U.S. corporate rate will never put a stop to corporate inversions. Even if Congress could find a fiscally responsible way to drop the corporate rate from 35 percent to 25 percent—a cut that would require eliminating virtually every existing corporate tax break—25 percent is still a lot bigger than zero. The real solution must be taking away the incentive for corporations to reach for the zero tax rate by ending the ability of companies to indefinitely defer tax on their U.S. profits by using accounting fictions to pretend they’re being earned offshore.


State Rundown 1/25: State of the States

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West Virginia Gov. Earl Ray Tomblin proposed two tax increases in his State of the State address to help close a projected revenue gap of more than $350 million in the current fiscal year. The governor plans to ask lawmakers to increase the tax on tobacco products and add telecommunications services to the state’s sales tax bases, applying a 6 percent tax to cell phone data and voice plans. Cigarette taxes would increase by 45 cents a pack, while other tobacco products would be taxed at 12 percent, up from 7 percent. Together, both taxes would raise $138 million in revenue — including $28.9 million for this fiscal year if the increases are effective on April 1. This amount would not be nearly enough to avoid spending cuts, and is far from the reform-minded revenue raising ideas that groups such as the West Virginia Center on Budget and Policy have been promoting.   

Gov. Mike Pence of Indiana used his State of the State address to criticize a House Republican proposal to raise the state’s gasoline tax — and gained support from House Democrats in the process. House Bill 1001 would increase the gas tax by 4 cents a gallon to 22 cents, the first increase in thirteen years. The tax on diesel would increase by seven cents per gallon, and the amount of gas tax revenue earmarked for roads and bridges would also go up. While House Speaker Brian Bosma argues that increasing the tax to pay for transportation maintenance would be good for economic growth, Pence and House Democratic Leader Scott Pelath say the tax increase would be premature. Both men argue that the state should rely on its revenue surplus to pay for transportation improvements instead. 

Kansas, which has been awash in red ink since Gov. Sam Brownback’s tax cut experiment failed, will again face deep cuts to balance the budget. Brownback would eliminate the Kansas Bioscience Authority, which strives to build bioscience jobs in Kansas, and the Children’s Initiative Fund, which sponsors crucial early childhood education programs. The move would allow the governor to cover at least $80 million of a $190 million deficit next fiscal year. Brownback would also raid the state’s transportation fund for $25 million to support general government programs. Meanwhile, individuals in Kansas have used the governor’s exemption on business pass-through income to avoid millions in income taxes. While the state estimated about 191,000 taxpayers would be eligible for this break, over 330,000 “self-employed” filers have taken advantage of the loophole. Even business advocates, like local chambers of commerce, say the pass-through income break has failed to create jobs and hurt economic growth.  


State lawmakers in Massachusetts heard arguments for and against the Fair Share Amendment, which would impose an increased tax rate on income over $1 million. If passed, the tax rate on income over that amount would increase from 4 percent to 9 percent. ITEP data show that the current tax system in Massachusetts is regressive; the top one percent pay 4.9 percent of their income in state and local taxes, while the middle 20 percent pay 9.3 percent of their income. The disparity arises from Massachusetts’ flat tax rate on income, and the fact that those who earn less pay a larger proportion of their income in sales and property taxes. The proposed tax increase would affect just one percent of Massachusetts taxpayers.


North Carolina lawmakers claim that their tax cuts are responsible for a budget surplus. But as a recent editorial in The News and Observer notes, lawmakers didn’t cut taxes — they merely shifted responsibility from the wealthy to the working poor. While Gov. Pat McCrory and legislators cut personal and corporate income taxes, they expanded the sales tax base — and the revenue increase is a result of that base expansion. And since the sales tax is a regressive tax, working families and the middle class are paying more.  


State of the State Addresses This Week:  

Hawaii Gov. David Ige — January 25 

Illinois Gov. Bruce Rauner — January 27 

Kentucky Gov. Matt Bevin — January 26 

Utah Gov. Gary Herbert — January 27 

Mississippi Gov. Phil Bryant — January 26 


Previous State of the State Addresses:  

Alaska Gov. Bill Walker — January 21 (link here

Arizona Gov. Doug Ducey — January 11 (link here

California Gov. Jerry Brown — January 21 (link here

Colorado Gov. John Hickenlooper — January 14 (link here

Delaware Gov. Jack Markell — January 21 (link here

Florida Gov. Rick Scott  — January 12 (link here

Georgia Gov. Nathan Deal — January 13 (link here

Idaho Gov. Butch Otter — January 11 (link here

Indiana Gov. Mike Pence — January 12 (link here

Iowa Gov. Terry Branstad — January 12 (link here

Kansas Gov. Sam Brownback — January 12 (link here

Massachusetts Gov. Charlie Baker — January 21 (link here

Michigan Gov. Rick Snyder — January 19 (link here

Missouri Gov. Jay Nixon — January 20 (link here

Nebraska Gov. Pete Ricketts — January 14 (link here

New Jersey Gov. Chris Christie — January 12 (link here

New Mexico Gov. Susana Martinez — January 19 (link here

New York Gov. Andrew Cuomo — January 13 (link here

South Carolina Gov. Nikki Haley — January 20 (link here

South Dakota Gov. Dennis Daugaard — January 12 (link here

Vermont Gov. Peter Shumlin — January 7 (link here

Virginia Gov. Terry McAuliffe — January 13 (link here

Washington Gov. Jay Inslee — January 12 (link here

West Virginia Gov. Earl Ray Tomblin — January 13 (link here

Wisconsin Gov. Scott Walker — January 19 (link here


Incoming Louisiana Governor Faces Budget Test

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By now, the budget crisis in Louisiana is the stuff of legend. Driven by former Gov. Bobby Jindal’s nearsighted tax policies (all cuts and no investments) and exacerbated by anemic oil and gas revenues, the state faces a $750 million shortfall in the current fiscal year as well as a $1.9 billion shortfall for the fiscal year starting in July.

The test facing new Gov. John Bel Edwards will be to balance the need for new revenue with the need to support the ordinary Louisianans who were left out in the cold by the Jindal administration. This week, Edwards proposed increasing taxes and tapping state reserve funds to stave off the largest deficit in state history. He is expected to call a special session in mid-February to float, and hopefully gain support, for his tax plan.

The governor has proposed closing the current year gap with a one cent increase in the state sales tax, bringing the rate to 5 percent. Groceries, prescription drugs, and residential utilities would not be subjected to the sales tax increase. The sales tax increase would raise revenue by $216 million between now and late June (and raise more than $800 million over a full year). Edwards would also transfer $128 million from the states rainy day fund and another $200 million from an oil spill cleanup fund to the state’s general fund. Altogether, these moves would raise revenue by $544 million — not enough to cover the $750 million shortfall.

Gov. Edwards also proposed some long-term solutions to Louisiana’s structural budget problems, brought about by overreliance on one-time money, rolling back tax increases put in place more than a decade ago, and other gimmicks. He supports increasing  income taxes, specifically singling out the federal income tax deduction as a reform-minded idea that would raise much needed revenue.  An ITEP analysis found that eliminating the ability for Louisiana taxpayers to deduct their federal income taxes from state returns (only 5 other states allow this practice) would raise around $1 billion with more than 80 percent of the increase being paid by the wealthiest 20 percent of taxpayers. Edwards suggested he would also be open to lowering corporate and individual income tax rates if conjunction with the deduction repeal.

While the governor acknowledged that a sales tax increase — a regressive measure — is not an ideal solution to the crisis, his officials note that only a sales tax increase would offer a secure revenue stream to make up the shortfall this fiscal year. Budget officials also acknowledge that the governor’s proposals are a menu of options for legislators, given the need to get approval from his opponents in the statehouse. Lawmakers have signaled a willingness to consider tax increases given the dire circumstances, including an effort to examine the use of tax breaks in the state.

One proposal that the governor suggested in December that should still be on the table is his pledge to double the state’s EITC as part of an anti-poverty agenda. While perhaps a hard sell given the state’s deficit, putting more money into the pockets of working families would support the state’s economy, help lift more families out of poverty, and help offset the impact of a likely sales tax hike.