Month: February 2016

Read the Tax Justice Digest for recent reports, posts, and analyses from Citizens for Tax Justice and the Institute on Taxation and Economic Policy.

Happy Friday to you! Thanks for reading.

Tax Policy, Chickens, and Accounting Tricks
The Cayman Islands has a $3 billion economy, yet U.S. multinationals claim they earn $51 billion there annually. ITEP’s Executive Director Matt Gardner recently visited the island as part of a BBC2 documentary.  Read about his experience in the notorious tax haven and watch a clip of the documentary.

Surveying Gas Taxes: Two Updated Resources
Did you know that the federal government hasn’t raised the gas tax in 22 years? (Next week look for President Obama to propose a new $10 per barrel tax on crude oil.)  Lawmakers in some states have been more eager to enact reforms. ITEP’s Research Director, Carl Davis took a close look at state gas taxes in two new updated policy briefs.

2016 State Tax Policy Trends:
Budget Surpluses and Misguided Economics Drive Calls for Tax Cuts
This week ITEP Senior Analyst Dylan Grundman took a careful look at the many states that are debating whether to cut taxes because of a budget “surplus.” This is part two in our seven-part series on 2016 state tax policy trends.

States Considering Raising Revenue in Both Big and Small Ways
ITEP State Tax Policy Director Meg Wiehe gets us up to speed on the more than 16 states that are considering raising revenue this year. This is part three in our seven-part series on state tax policy trends.  

State Tax Rundown:This week’s State Rundowns examine developments in Idaho, Indiana, Kansas, New York, Ohio, Oklahoma, Oregon, Kansas, and Indiana. ITEP also provides a helpful listing of State of the State addresses that happened this week. Read our Rundowns here.

Shareable Tax Analysis: 

ICYMI: ITEP’s Research Director, Carl Davis offered his insights to the Vermont Senate Committee on Finance about how best to evaluate tax expenditures. Here’s what he had to say about this often overlooked component of tax codes. 

Thanks so much for those of you who emailed this week! I’m always eager to hear from readers:  kelly@itep.org

For frequent updates find us on Twitter (CTJ/ITEP), Facebook (CTJ/ITEP), and at the Tax Justice blog.

This is the third installment of our six part series on 2016 state tax trends.

Significant revenue shortfalls and the desire to increase funding for public education and other public investments are spurring lawmakers in more than 16 states to consider revenue raising measures both big and small this year.  The need to raise a significant amount of revenue, due either to dips in oil and gas tax revenue or ongoing budget impasses, will provide an opportunity to overhaul upside-down and inadequate tax systems with reform-minded solutions.

A new report from the Rockefeller Institute (PDF) quantified what we all instinctively already know–states with a heavy dependence on revenue from natural resources suffer when oil and gas tax prices tumble.  Revenues dropped by 3.2 percent between September 2014 and 2015 in Alaska, Louisiana, New Mexico, North Dakota, Oklahoma, Texas, West Virginia and Wyoming while the other 42 states experienced a combined growth in revenues of more than 6 percent. So, it should be no surprise that some of the biggest revenue challenges in the country are found in these energy dependent states, many of which shortsightedly reduced or even eliminated reliance on broad-based taxes during their “boom” years.  Of this group, Alaska and Louisiana are of particular interest as both states will explore transformative changes to their tax systems.

More than seven months into the current fiscal year, Illinois and Pennsylvania are still working without budgets, or much needed new revenue, in place. We will be watching both states closely this year for proposals that will finally help to break the stalemates.  And, many other states including Connecticut, and Vermont have lingering revenue problems leftover from the recession that will require lawmakers to take a hard look at their state tax systems to avoid yet more spending cuts. 

On a brighter note, not all of the anticipated revenue raising in the states this year will happen in response to revenue crises.  There are a number of efforts across the country to raise new revenue for much needed investments in public education, health care and transportation.  Voters in California, Maine, and Oregon will be asked to support higher taxes on the wealthy or corporations at the ballot in November and a similar effort could make it onto the ballot in Massachusetts in 2018.  Lawmakers in New York and Utah have filed bills to increase taxes on their states’ wealthiest residents to allow for more revenue for public investments.  Even South Dakota is considering raising revenue–lawmakers from both parties want to increase the state’s sales tax in order to pay for teacher salary increases (a regressive choice, but one of the few options available in a state that does not have a personal income tax). 

Here’s a list of states we are watching in 2016:

Alaska

Alaska sticks out like a sore thumb compared to all of the other states with natural resource dependent economies experiencing revenue shortfalls.  The state has no personal income tax or sales tax to turn to in times of crisis and more than 90 percent of state investments are funded via taxes on the energy sector.  (Alaska is the only state to ever repeal a personal income tax and has been without one for 35 years.)  Thus, there are few options short of drastic measures to plug a growing budget gap of more than $3.5 billion.

Gov. Bill Walker proposed a plan in December that would, among other things, institute an income tax equal to 6 percent of the amount that Alaskans pay in federal income taxes and cut the annual dividend paid out to every Alaska resident.  Other lawmakers have discussed enacting a state sales tax.  No matter the outcome of the debate in the Last Frontier State this year, one things is for certain — lawmakers in other states that are interested in cutting or eliminating their personal income taxes must now think twice before holding up Alaska as a model for what they would like to achieve.

California

Back in 2012, California voters soundly approved a ballot measure, Proposition 30, that raised more than $6 billion in temporary revenue via a small hike in the sales tax and higher taxes on the state’s wealthiest residents.  The revenue raised from the measure helped get the Golden State back on its feet following the Great Recession and has allowed lawmakers to make much needed investments in education and health care.  Now there is an effort afoot to place a new question on the ballot this coming November to extend the income tax changes (higher brackets and rates on upper-income households) through 2030 with the revenue going largely towards expanding and sustaining investments in public education.

Illinois

More than seven months into the fiscal year, Illinois continues to operate without a budget in place because Gov. Bruce Rauner and state lawmakers are still battling over the best way to address the state’s massive $6 billion revenue shortfall.  Revenues are short largely due to a 25% income tax cut that took effect the beginning of 2015, leaving the state on even rockier fiscal ground. Democrats have proposed some tax increases, but the governor says he will not consider revenue raising proposals until lawmakers agree to his so-called “pro-business” reforms. 

Louisiana

Louisiana faces a current year shortfall of $750 million as well as a $1.9 billion hole next year thanks to anemic oil and gas revenues and the nearsighted tax policies (all cuts and no investments) of former Gov. Bobby Jindal.  Lawmakers will get to work post- Mardi Gras celebrations on a plan to address the state’s immediate and long-term revenue problems.

The state’s new leader, Gov. Jon Bel Edwards has proposed a number of revenue raising options including much needed reforms to the state’s personal and corporate income tax.  But, given that most reform options would take time to implement and that the state has an immediate need for cash to plug the current year gap, he is starting with a call for a one cent increase in the state sales tax (an approach the governor has conceded is less than ideal).  Gov. Edwards’  more long-term solutions to Louisiana’s structural budget problems come with a focus on the income tax — specifically calling for the elimination of the federal income tax deduction as a reform-minded idea that would raise much needed revenue and improve tax fairness. 

Maine voters will likely have the opportunity in November to approve a ballot measure that would raise more than $150 million in dedicated revenue for the state’s public schools. Under the initiative, taxpayers with $200,000 or more in income would pay a 3 percent surcharge on income above that amount.  The campaign behind the measure, Stand Up for Students, has collected well above the threshold of needed signatures to qualify for the ballot, but the question along with others must still be certified by the state.

Massachusetts

The Raise Up Massachusetts coalition is behind an effort to create a millionaires tax, dubbed the “fair share amendment”, in the Bay State.  Due to the lengthy ballot process involved, the question will not go before voters until 2018, but the campaign is already in high gear. They have collected the needed signatures to move forward and last month the initiative won overwhelming approval from the Legislature’s Committee on Revenue.  If approved by voters in 2018, taxpayers with incomes over $1 million would pay an additional 4 percent on that income on top of the state’s flat 5.1 percent income tax.

New Mexico

Gov. Susana Martinez continues to stand by her no-new-taxes pledge despite a growing revenue problem in her state, but that has not stopped other lawmakers from filing bills to increase taxes. Proposals have been introduced to delay the implementation of corporate income tax cuts enacted in 2013, raise gas taxes, and increase personal income tax rates.

New York

The New York Assembly unveiled  a proposal to raise taxes on millionaires and cut taxes for working families. Under the proposal, individuals earning between $1 million and $5 million would pay a tax rate of 8.82 percent on that income. Income between $5 million and $10 million would be taxed at 9.32 percent, and income over $10 million would be taxed at 9.82 percent. If enacted, the tax plan would raise $1.7 billion in revenue to increase spending on public education, and infrastructure projects . The plan also includes tax cuts for New Yorkers earning between $40,000 to $150,000 and an increase the state’s Earned Income Tax Credit, a tax break targeted to low-income working families.

Oklahoma

Gov. Mary Fallin recently unveiled a revenue raising package relying heavily on regressive cigarette and sales tax increases to plug the state’s more than $900 million shortfall.  The governor deserves some kudos for recognizing her state’s revenue problem needs a revenue-backed solution.  However, it should be noted that the state has cut the personal income tax by more than $1 billion since 2004, including a more than $140 million cut that went into effect at the start of the year despite the state’s revenue woes. Other than a proposal to eliminate a truly nonsensical income tax deduction, her plan mostly ignores income tax options.  Raising significant new revenue from sales and cigarette taxes will continue to shift more of the state’s tax reliance onto low- and moderate-income Sooner taxpayers, especially if some lawmakers succeed in their wish to eliminate the state’s 5 percent Earned Income Tax Credit.  Without this targeted tax break for low-income working families, the kinds of revenue raisers being discussed would certainly exacerbate tax inequality in the state.   

Oregon

An Oregon ballot initiative, sponsored by Our Oregon, would create an additional minimum tax on corporations with Oregon sales of at least $25 million (a 2.5 percent tax would apply to sales in excess of $25 million). If the initiative wins approval, it would raise close to $3 billion annually in new revenue for public education and senior health care programs. Currently, corporations doing business in Oregon pay the greater of a minimum tax based on relative Oregon sales or a corporate income tax rate of 6.6 percent on income up to $1 million and 7.6 percent on income thereafter.

Pennsylvania

Pennsylvania government continues to operate more than 7 months into this fiscal year without a budget (there is an emergency funding budget in place that is more than $5 billion less than the proposed budget).  Yet, Gov. Tom Wolf is expected to propose a budget for next fiscal year on February 9th.  An ongoing disagreement on revenue raising measures and spending priorities between the governor and House and Senate lawmakers explain the hold up and several compromise budget and tax plans last summer and fall failed to gather enough support to break the impasse.  The situation is reaching crisis stage as the state now faces a $2.6 billion structural revenue gap and cannot continue to operate much longer on emergency funding if there are no longer enough revenues coming in to fund core government services.  Gov. Wolf is likely to try yet again to solve the problem with a balanced revenue proposal including income and sales tax increases and a new severance tax. 

South Dakota

South Dakota lawmakers led by Gov. Dennis Daugaard are proposing a 0.5 cent increase in the state’s sales tax that will raise more than $100 million annually.  Most of the revenue will be used to increase teachers’ salaries, a long sought after policy goal in a state that ranks 51st in teacher pay.  Democrats are proposing a similar measure, but their plan would first remove food from the state’s sales tax base and then raise the rate by a full cent.  While both measures fall more heavily on low-income households, the Democrats’ proposal is slightly less unfair (although it raises more revenue) since taxes on food hit low-income households especially hard.  South Dakota is one of nine states without a broad-based personal income tax, so their options for a more progressive tax increase are limited.

Utah

Utah Sen. Jim Dabakis has proposed adding two new brackets with higher rates to his state’s flat income tax to raise revenue for public education.  Taxpayers with income greater than $250,000 would pay more under his plan.  Dabakis argues that the state’s flat tax is a “disaster” and is largely to blame for the underfunding of K-12 schools.

West Virginia

Just a few short months ago, we were watching West Virginia for a large-scale tax reform package that would have likely reduced reliance on the state’s personal income tax.  But now that the state faces a revenue shortfall of more than $350 million this year (and more than $460 million next year), attention has turned to options for filling the gap.  As in Louisiana, past tax cuts are as much to blame for the state’s revenue woes as the hit to the state’s coal industry.

Gov. Earl Ray Tomblin’s budget proposal included higher taxes on tobacco and adding cell phone plans to the state’s 6 percent sales tax that together would raise around $140 million when fully implemented.

Other States to Watch: While governors in Vermont and Connecticut have said no to raising taxes to address budget gaps, lawmakers in those states are likely to challenge those sentiments and propose reform-minded tax increases that ask the wealthiest residents in their states to pay more. And Iowa lawmakers are considering a series of bills to increase the state’s sales tax to pay for everything from school construction to water quality projects and transportation infrastructure. 

Today we are taking a look at revenue raising proposals in New York and Oregon, fast-moving tax cuts in Idaho (with some ITEP numbers), and highlighting the impact of state tax cuts on local governments in Ohio. Have a great weekend!

As always, thanks for reading.
— Meg Wiehe, ITEP’s State Tax Policy Director

A local official in Ohio says citizens have no choice but to raise local taxes in the wake of state budget cuts–the latest reminder that tax-cutting states such as Ohio are often just passing the buck to localities. Cleveland Mayor Frank Jackson said that city residents will have to approve a 0.5 percent local income tax rate increase (from 2 to 2.5 percent) to avoid cuts in services. The increase would generate $85 million in revenue that Jackson pledges will go to expanding services. Otherwise, the city faces a deficit next fiscal year thanks to cuts in state funding and declining property tax revenues.  If approved by the city council, the income tax increase would then be put before voters in November.

Oregon  Sen. Mark Hass introduced a revenue proposal this week that he sees as an alternative to a corporate income tax initiative that will likely be on the ballot in November.  The ballot initiative, sponsored by Our Oregon, would create an additional minimum tax on corporations with Oregon sales of at least $25 million (a 2.5 percent tax would apply to sales in excess of $25 million).   If the initiative wins approval, it would raise close to $3 billion annually in new revenue for public education and senior health care programs. Currently, corporations doing business in Oregon pay the greater of a minimum tax based on relative Oregon sales or a corporate income tax rate of 6.6 percent on income up to $1 million and 7.6 percent on income thereafter. Hass’ proposal would eliminate the current system of corporate taxation and replace it with a Commercial Activity Tax of 0.39 percent on gross receipts. Hass would also cut taxes for households earning $58,000 or less and increase the state’s Earned Income Tax Credit from 8 to 18 percent of the federal credit. Hass’ measure would raise $1 billion in new revenue each biennium with half of the revenue going towards public education spending and the other half to pay for his targeted low- and middle-income tax cuts.

An Idaho House committee approved a tax cut bill from House Majority Leader Mike Moyle that would cut the corporate income tax rate, and top two personal income tax rates, by a tenth of a percentage point each. If passed, the top two personal income tax rates would fall to 7.3 and 7 percent, while the corporate rate would drop to 7.3 percent. The bill would also increase the grocery tax credit by $10 for some Idahoans of more modest incomes. On net, however, the proposal would primarily benefit the state’s wealthiest taxpayers. ITEP estimates that while most families would receive tax cuts of $35 or less, the top 1 percent of earners would take home an additional $815 per year, on average.

The New York Assembly will consider a proposal to raise taxes on millionaires and cut taxes for working families. Under the proposal, individuals earning between $1 million and $5 million would pay a tax rate of 8.82 percent on that income. Income between $5 million and $10 million would be taxed at 9.32 percent, and income over $10 million would be taxed at 9.82 percent. If enacted, the tax increases would raise $1.7 billion in revenue. Middle class earners who make $40,000 to $150,000 would get a modest tax rate reduction, from 6.45 to 6.25 percent. The state’s Earned Income Tax Credit would also be increased, with the average recipient seeing a boost of $110.

If you like what you are seeing in the Rundown (or even if you don’t) please send any feedback or tips for future posts to Sebastian Johnson at sdpjohnson@itep.org. Click here to sign up to receive the Rundown in via email. 

In the coming days, President Obama will officially unveil a plan to fund major enhancements to transit, rail, and other infrastructure projects with a $10 tax per barrel of crude oil.  While the tax would initially fall on oil companies, its ultimate impact would be similar to the nation’s existing gas tax—albeit somewhat broader since it would affect not just gasoline and diesel fuel, but also heating oil and other petroleum products.

According to our updated policy brief, the federal government has now gone over 22 years without raising the gas tax.  At the state level, by contrast, gas tax increases or reforms have been enacted in 18 states since 2013 and are once again major topics of discussion.

With the average price of gas now well below $2 per gallon, state lawmakers have been more willing to accept the fact that refusing to update their gas tax rates for years, or even decades, has seriously harmed their ability to maintain and expand their transportation networks.  Despite the progress being made, we count a total of fifteen states that have waited twenty years or more since last raising their gasoline tax rates.  Though in some of those states—such as Alaska (45.8 years), Mississippi (27.1 years), South Carolina (27.1 years), New Jersey (25.6 years), and Alabama (23.7 years)—proposals to raise gas taxes have recently received the backing of governors or other key lawmakers.

Fortunately, gas tax procrastinators in search of a better model have plenty of examples from which to choose.  Our second updated brief spotlights states with smarter, variable-rate gas taxes that can rise automatically alongside inflation, vehicle fuel-efficiency, or other relevant measures.

In the long-run, we know that construction costs and vehicle fuel-efficiency are almost guaranteed to continue increasing.  Given this reality, we also know that levying a flat gas tax rate for years, or even decades, without any kind of adjustment is a recipe for fiscal imbalance as fuel-efficient vehicles consume less gas and each gas tax dollar collected is stretched thinner.

Ultimately, those states with variable-rate gas taxes are much better positioned for the long-run than the states—and the federal government—that levy fixed-rate gas taxes whose rates have been outdated for far too long.

Read the briefs:

How Long Has it Been Since Your State Raised Its Gas Tax?

Most Americans Live in States with Variable-Rate Gas Taxes

Thanks for reading this Groundhog day edition of the State Rundown. Today we are taking a close look at developments in Oklahoma, Kansas, and Indiana.  There’s a link below to an especially good editorial in The Witchita Eagle outlining  critiques of Kansas Governor Brownback’s regressive tax policies. You’ll also find a helpful listing of State of the State addresses happening this week. 

As always, thanks for reading. 
— Meg Wiehe, ITEP’s State Tax Policy Director

Oklahoma legislators fear the state could be headed for a second revenue failure before the end of the fiscal year if oil prices continue to drop, forcing spending cuts across the board for all state agencies. The state’s previous revenue failure required a cut of 3 percent and the state’s school superintendent says another cut might mean schools running out of money and shutting their doors. To help deal with the state’s bleak fiscal situation, Gov. Mary Fallin has proposed raising significant new revenues by expanding the state’s sales tax base, increasing the cigarette tax by $1.50 per pack, and eliminating the state’s bizarre state income tax deduction for state income taxes paid. While describing Fallin’s proposal as a “good starting point,” the Oklahoma Policy Institute also observes that Oklahoma’s current revenue crisis was partly brought on by the legislature’s decision to allow a regressive and unaffordable income tax cut to take effect this January. Unless lawmakers reverse that decision, state revenues will decline by $147 million during the upcoming fiscal year.

An editorial in The Wichita Eagle calls out Kansas Gov. Sam Brownback and legislators for their continued reliance on regressive food taxes to shore up the budget. In 2012, when Brownback pushed through his tax cut experiment, the state sales tax on food was scheduled to drop to 5.7 percent; today, the sales tax on food is 6.5 percent. When local taxes are included, the combined rate can be as high as 10 percent — the nation’s highest. A recent study (PDF) found that “A household in the lowest income group pays anywhere from 2.7 percent to 8.4 percent more of their income in taxes on groceries than does a household in the highest income level.” Representative Mark Hutton has proposed cutting the state sales tax rate on groceries to just 2.6 percent and would make up the revenue by eliminating the state’s costly and ill-targeted personal income tax exemption for all non-wage business income.

Indiana lawmakers seem to have taken a page out of South Carolina (and Michigan’s) playbook in considering a transportation package pairing gas tax increases with income tax cuts. House Bill 1001 would increase the state’s gasoline excise tax by 4 cents to 22 cents per gallon, the first increase in over thirteen years. The tax on diesel fuel would increase by 7 cents per gallon. House Republicans inserted a phased-in 5 percent income tax cut into the transportation package to entice Gov. Mike Pence and other lawmakers who might be on the fence to support the gas and diesel tax increases. The package also raises more than $200 million through a $1 per pack cigarette tax hike.  An ITEP analysis of the proposal found that the average taxpayer among the bottom 80 percent of earners would see a tax hike under this plan while the wealthiest 20 percent of taxpayers would benefit from a tax cut on average.

State of the State Addresses This Week:

Alabama Gov. Robert Bentley — Tuesday, Feb. 2

Connecticut Gov. Dannel Malloy — Wednesday, Feb. 3

Maryland Gov. Larry Hogan — Wednesday, Feb. 3

New Hampshire Gov. Maggie Hassan — Thursday, Feb. 4

Oklahoma Gov. Mary Fallin — Monday, Feb. 1 (link here)

Rhode Island Gov. Gina Raimondo — Tuesday, Feb. 2

Tennessee Gov. Bill Haslam — Monday, Feb. 1 (link here)

If you like what you are seeing in the Rundown (or even if you don’t) please send any feedback or tips for future posts to Sebastian Johnson at sdpjohnson@itep.org

This is the second installment of our six part series on 2016 state tax trends.  An overview of the various tax policy trends included in this series is here. 

A number of states are experiencing much-welcome revenue surpluses this year, but some lawmakers in these states seem to have already forgotten the fiscal pain of the Great Recession, during which revenues plummeted and many states cut back investments in their schools, roads, and other vital services. Rather than take this opportunity to recompense for those cuts and/or re-stock their Rainy Day Funds, lawmakers in some states are considering tax cuts that would further erode their revenue streams.

Even states that are not enjoying surpluses and find their economies still struggling or newly sputtering are still hearing calls for tax cuts on high-income residents under the misguided premise that tax cuts at the top trickle down and stimulate economic growth.

Here’s a list of states we are watching in 2016:

Florida: In Florida, an expected revenue surplus is bringing tax cut proposals out of the woodwork. Gov. Rick Scott has called for about $1 billion in cuts, mostly through a $770 million tax giveaway that completely eliminates the corporate income tax for manufacturers and retailers. The House has its own $1 billion plan that includes some elements of the governor’s plan, such as continuing a sales tax exemption for manufacturers, and adds a number of other components, including a litany of gimmicky (and generally ineffective) sales tax holidays for everything from guns and fishing poles to computers and tablets. Members of the state Senate have called these massive tax cut plans “ridiculous” and “laughable.” Meanwhile, the revenue forecast on which these plans are based has been revised downward by $400 million, though even that may not dampen the tax cut fervor in Florida. With the Florida legislature in a short, 60-day session, we should learn more about the Senate’s plans soon, and the debates will play out in February and early March.

Idaho: Idaho finished last year with a budget surplus but may not be so lucky this year, as revenue estimators have recently revised their forecast downward. Yet despite this news and the fact that Idaho is already a relatively low-tax state, a tax cutting effort is proceeding in the Legislature. That proposal would reduce personal income tax rates for Idahoans in the top two income brackets, cut the corporate income tax rate, and provide a small increase in the state’s grocery tax credit. A recent report using an ITEP analysis shows that these changes would be skewed in favor of the highest-income Idahoans.

Maryland: Maryland faces a budget surplus of $450 million as well as a surplus of tax cut proposals. Gov. Larry Hogan’s plan would accelerate a scheduled increase in the state’s Earned Income Tax Credit (EITC), a smart policy that delivers assistance to the low-income working families who need it most and are most likely to put the money back into the economy. But Hogan’s EITC proposal accounts for just $16 million of his $480 million plan. Much of the rest is either unfocused, like the $100 million tax exemption for elderly Marylanders regardless of their need, or unproductive, like the easily abused 10-year tax hiatus for certain manufacturers. Meanwhile, others in the state have recently called for regressive and costly cuts to the corporate income tax and estate tax.

New York: Tax cut debates are active in New York as well. Gov. Andrew Cuomo has proposed tripling (from 5 percent to 15 percent) a tax exemption on “pass-through” income earned by businesses that pay personal income tax instead of corporate income tax. His plan would also expand eligibility for that exemption to include more businesses and would eventually lower the tax rate paid on that income to 4 percent. Meanwhile local entities, including New York City, feel the state has already gone too far in pushing costs onto the local level, a development that has contributed to high local property taxes. Those local officials are pushing for the state to find ways to increase its investments in local communities and statewide infrastructure. In fact, the mayor of Syracuse is advocating for tax increases on New York’s wealthiest residents to fund a better system of aid to local schools.

Virginia: Virginia’s Gov. Terry McAuliffe, too, is proposing tax cuts (PDF). His proposed package includes removing businesses with sales between $2.5 million and $25 million from the state’s accelerated sales tax; reducing the corporate income tax rate from 6 percent to 5.75 percent; increasing income tax exemptions; increasing existing tax credits for angel investors, research and development, and neighborhood assistance; and creating three new credits. The largest piece of the proposal is the corporate tax cut, a change that will reduce funding available for vital public services, primarily benefit large profitable corporations, and have negligible effects at best on Virginia’s economy.

Other states to watch: Minnesota, another state currently enjoying a surplus, may see tax cut efforts but as in New York there will be strong competition from others who feel the state has more pressing needs to address such as broadband access, transportation, and career and technical education. In Ohio, where some major tax cuts enacted in recent years are only now taking effect, some lawmakers may push to reduce taxes even further. Rhode Island is another state where there may be efforts to slash taxes on its wealthiest residents this year, similar to a push that took place last year (PDF).

Trigger Warning

Putting our state tax systems on cruise control might sound like a nice idea, but the reality is very different. Imagine if our cars automatically let a little bit of air out of the tires each time we sped up. Before long, we’d all be driving on flats and would have no way to get back up to speed after a slowdown (not to mention the state our roads would be in!). Yet that’s what policymakers in many states are proposing to do to their tax systems by implementing automatic tax cut “triggers” that reduce taxes whenever economic tailwinds give the state a boost. Such trigger proposals hamper states’ ability to save for the inevitable rainy day, and leave their budgets even further underwater when that day does come (not to mention the state their roads will be in!).

Georgia: Georgia is the latest state to consider such a trigger-based tax cut. In addition to legislation that would immediately increase personal and dependent exemptions, eliminate many itemized deductions, and convert the state’s graduated rate structure to a flat 5.4 percent rate, a proposed constitutional amendment would then lower that to 5 percent when revenues and reserves hit specified targets.

Nebraska: In Nebraska a trigger bill introduced last year remains in committee and could re-emerge. That proposal could take many years to reach full implementation but nonetheless would be dramatically tilted in favor of high-income Nebraskans and put a major hole in the state’s budget.

Another state to watch: Indiana: While not a “trigger” proposal, Indiana is an example of a state where some are trying to pass tax cuts now that don’t take effect until future years, often a way of scoring immediate political points while pushing the difficult budget-balancing decisions into the future. Under the proposal, the state’s income tax rate would drop from 3.23 percent to 3.06 percent, but not until 2025.

And Speaking of Driving on Flats

Another very troubling trend is that many of these proposals are efforts to abandon progressive income taxes — in which rates go up as income goes up — in favor of single-rate “flat” income taxes. State and local tax systems already lean more heavily on low-income families than their higher-income neighbors, and moving to flat taxes would only exacerbate this unfairness. The Georgia proposal linked above, as well as a question that may be put to voters in Maine, both aim to flatten their states’ income taxes.

Up Next

If you found these tax cut updates deflating, be sure to tune in to the rest of our 2016 Trends series, in which we’ll try to pump you back up with some examples of states considering more meaningful and positive tax reforms.

Is offshore tax avoidance a victimless crime? That was the question underlying my recent visit to the Cayman Islands, where I spent a whirlwind weekend helping to film a BBC2 documentary on the real-world impact of tax havens on economic inequality.

On paper, at least, the Cayman Islands is an economic powerhouse. The latest data from the Internal Revenue Service show that U.S.-based corporations claim that their subsidiaries earn $51 billion a year there, an astonishing figure for an island nation that has a population of just 59,000.

But official statistics peg the size of the entire Caymans economy at just $3 billion a year. Put another way, for every $1 of economic activity that occurs in the Caymans, American corporations are telling the IRS that they earn $16.

In this context, my visit to the Caymans was a surreal exercise in “Where is Waldo”: could anyone find any evidence that these billions in alleged Cayman profits enjoyed by American corporations are actually flowing through the local economy and affecting the lives of the island’s residents?

The answer is categorically no. The only visible indicators of handsome corporate profits are a number of low-slung, nondescript buildings that dot the country’s small capital, George Town. Seldom more than a few stories high, these modern buildings have virtually no in-and-out traffic, giving the impression that all are closed for an extended holiday. The most infamous of these is Ugland House, the building in Grand Cayman where 18,000 corporations claim they have subsidiaries. President Barack Obama drew attention to it in 2009, when he joked that it was either “the largest building in the world or the largest tax scam in the world.”

Just a stone’s throw away from these Potemkin office buildings, in which Bank of America alone disclosed basing 143 subsidiaries in its 2013 annual report, chickens casually wander across unpaved streets lined with broken-down cars. Most of the residents of these neighborhoods who have jobs work in tourism, which is made possible by the country’s pearly white beaches, not the financial or manufacturing industries.

After several high-profile investigations of tax haven abuse by elected officials in the United States and the United Kingdom, we’re more familiar with the broad outlines of how the Cayman Islands facilitates tax avoidance.

Companies earn profits in countries with advanced economies and then take elaborate steps to make it appear that these profits are earned in tax haven countries such as the Cayman Islands or Bermuda. Typically this is done by having a corporation with valuable intellectual property, like patents or trademarks, put that property in the hands of a shell corporation in the Caymans, which then leases the right to use this intellectual property back to the parent corporation. While this transaction is essentially invisible in the real world, requiring virtually no corporate personnel in these tax havens to execute, its effect on the location of corporate profits is profound: the Cayman Islands subsidiary reaps huge profits from leasing patents, and the U.S. or U.K.-based parent corporation is able to reduce its taxable profits through the large expenditures it allegedly incurs by paying for the use of its own patents.

A brief visit to the dilapidated neighborhoods of George Town makes it obvious that this tax accounting chicanery benefits only a wealthy few Cayman custodians and offers nothing to those who live in the shadow of desolate office buildings.

Offshore tax avoidance is not a victimless crime.

While Bank of America, for example, claims multiple subsidiaries in the Cayman Islands, it certainly doesn’t employ many of the island’s residents. The same can be said for myriad other profitable corporations that falsely claim they are earning huge profits there. Tax havens have precisely the same effect on poor families the world over. Earlier this year, Oxfam released a report showing that the global elite have an even greater share of the world’s income. Part of the reason, it finds, is a “global network of tax havens” that enable corporations and individuals to dodge taxes.

Dodging taxes perpetuates income inequality and cripples nations’ ability to fund vital public investments that benefit their entire populations. In the United States, we face daunting fiscal challenges as we seek to pay for basic services in an environment with growing national debt.  The tax avoidance enabled by a steady flow of paper profits from the United States to the Cayman Islands and other tax havens directly affects our ability to raise adequate revenue. Congress has the power to change this.