Month: March 2016

This article originally appeared in The Hill. 

For almost four decades, American voters have been fed a tall tale by anti-tax politicians and their allies. They’ve been told that government wastes their money, produces nothing of value, and needlessly robs American workers of their hard-earned pay. And they’ve been told that since their tax dollars aren’t buying anything worthwhile to begin with, even the biggest tax cuts don’t need to be paid for.

These calculated, misleading messages have helped pave the way for a series of irresponsible, unfunded tax cuts that have endangered our nation’s long-term fiscal health. The huge, deficit-financed tax cuts pushed through by President George W. Bush more than a decade ago were one result of this movement. In the current election cycle, the major Republican presidential candidates have presented the American public with tax-cutting plans that would double down on the Bush tax cuts, but they have offered few or no details about how they would pay for these cuts. It’s clear that the latest generation of Republican leaders views fiscal policy through the same rose-colored lenses as their supply-side predecessors.

Such breathtaking fiscal irresponsibility creates an analytic challenge for those who care about tax fairness. On its face, a plan to cut taxes by $12 trillion over the next decade, as Donald Trump’s proposal would do, would result in a net income gain for virtually all Americans in the same way that dropping hundred dollar bills from a helicopter would benefit all those beneath it. But any analysis of Trump’s plan that focuses solely on the tax cuts is woefully incomplete: in the long run, tax cuts of this magnitude will have to be paid for, and it won’t be pretty. If history is any guide, a mix of unpopular spending cuts and across-the-board tax increases will be required to offset most or all of the tax cuts.

My organization, Citizens for Tax Justice, has a new report that tells both sides of the story. We not only show the effects of the tax cuts that GOP presidential candidates boast about, but we also count what the candidates don’t want to talk about: the effects of the inevitable spending cuts and/or offsetting tax increases that will be necessary to avoid fiscal catastrophe.

Looking at the GOP tax proposals this way tells a very different story: every income group except the very highest ones would be worse off under the GOP candidates’ tax plans.

For example, Donald Trump’s tax plan ostensibly offers middle-income Americans a tax cut of about $2,500 a year. But paying for that tax cut will eventually cost them about $4,600, for a net loss of about $2,100 a year. For the same group, Ted Cruz’s plan will have a net annual cost of more than $7,000. And Marco Rubio’s promised tax cut for the middle of $1,400 ends ups as a net cost of almost $2,500 a year.

The same logic applies to plans that would increase taxes. Democratic candidate Bernie Sanders has proposed to increase taxes and provide a government-funded universal health insurance program. As part of that proposal, employer-related health insurance would become unnecessary, and would likely be converted into higher cash wages. Of course, those higher wages would be subject to taxes, but most workers would end up with significantly higher after-tax earnings. Meanwhile, they would get the same or better health insurance coverage than they have now, as would all Americans.

A complete analysis of Sanders’s health proposal would find that the vast majority of Americans, especially those with limited or no health insurance, would be much better off than they are now. Yet according to tables published by some groups and widely covered by the media, all income groups would be worse off because everyone would pay a portion of the taxes imposed to fund the universal insurance program, albeit a very small portion for most of us.

The bottom line is this: Focusing solely on the tax side while ignoring the public services that taxes make possible doesn’t just tell only half of the story. It gets the whole story completely wrong.

Robert McIntyre is the director of Citizens for Tax Justice, a Washington D.C.-based policy organization that does analyses and advocacy for fair tax policies that allow the nation to raise the revenue it needs to fund its priorities.  

Thanks for reading the Tax Justice Digest. We hope you are having a great week. In the Digest we recap the latest reports, posts, and analyses from Citizens for Tax Justice and the Institute on Taxation and Economic Policy.

New CTJ Report: Ted Cruz’s Tax Plan Would Cost $13.9 Trillion, While Increasing Taxes on Most Americans

This week CTJ released a report detailing the cost of Sen. Ted Cruz’s tax plan. Despite proposing the largest tax cut of any candidate ($13.9 trillion), Cruz’s tax plan would increase taxes on 60 percent of Americans. Read all the details here.

State Tax Rundown: Luck of the Double Irish 

This week our Rundown takes a close look at the DuPont/Dow merger along with tax and budget happenings in West Virginia and Florida. We also offer a list of states where legislative sessions have ended. Read our St. Patrick’s Day edition of the Rundown.

Corporate Tax Watch: Nabisco

In a recent blog post, ITEP’s Executive Director Matt Gardner makes a good case for why Nabisco deserves even closer scrutiny after deciding to lay off 600 works in its Chicago plant. Turns out the company is also likely dodging taxes thanks to offshore subsidiaries. Click here for all the details.

Congressional Progressive Caucus Budget

CTJ’s Senior Policy Analyst Richard Phillips offers his take on the budget released earlier this week from the Congressional Progressive Caucus. Richard writes the budget has “important policy ideas that, shamefully, have no chance of passing in the current political climate. Read his full post here.

Shareable Tax Analysis:

ICYMI: CTJ recently updated its analysis of Trump’s Tax Plan so now you’ll be able to find the cost distribution of the tax plan by income level and the net effect of paying for the tax cut in one report. The full report is here.  

If you have any feedback on the Digest or just want to send some lucky greetings email me here: kelly@itep.org

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

The Congressional Progressive Caucus (CPC) earlier this week released a proposed federal budget with important policy ideas that, shamefully, have no chance of passing in the current political climate.

The budget proposes revenue-raising tax reforms, both on the individual and corporate side, and would use the proceeds to reduce the deficit, invest in universal preschool, substantially boost infrastructure spending, make college more affordable and restore spending to domestic programs that have been hacked in recent years.

In contrast, the prevailing discourse in Washington has been driven in recent years by a relentless push for ever more spending cuts, ignoring entirely the value of the programs or investments being made. Even after facing the fallout of deep tax cuts in 2001 and 2003, discussing how to raise more revenue is anathema to the party that controls Congress. The perfect articulation of this is the recently released House GOP budget, which would raise no new revenue, yet it calls for making draconian cuts to low-income programs—cuts that would be in addition to reductions already made as part of the sequester and other budget deals. The Center on Budget and Policy Priorities (CBPP) notes that the GOP budget would cut roughly 40 percent of federal resources for low-income assistance, representing the “most severe budget cuts in modern history for Americans of limited means.”

It’s time to shift the national dialogue about the federal budget away from plans for deeper spending cuts or more tax cuts.

What’s in the CPC Budget Proposal?

The CPC 2016 budget proposal provides an exceptional blueprint for how Congress could make the tax system fairer, while at the same time raising sufficient revenue to pay for important public investments. According to an analysis by the Economic Policy Institute (EPI), the CPC budget would create millions of jobs, reduce the deficit to a fiscally sustainable level and make substantial investments in infrastructure, healthcare and education.

On the individual side of the tax code, the CPC would end the preferential tax rate on capital gains, restore the pre-Bush tax rates on individuals over $250,000 and enact new higher tax brackets on individuals making over a million dollars. Ending the preferential rate on capital gains is especially important because it would ensure that wealthy investors are no longer able to pay lower tax rates than many middle-income working families. Citizens for Tax Justice (CTJ) estimated for the CPC that these provisions together would raise $1.5 trillion over 10 years.

The CPC budget contains a few additional progressive revenue raisers on the individual side of the tax code. First, the budget would finally end the outrageous provision of the tax code, known as stepped up basis, that allows accrued capital gains to escape taxation at death, a move that would raise $825 billion over 10 years. In addition, the budget proposes to cap the value of itemized deductions at 28 percent, a progressive provision that would raise an estimated $646 billion in revenue over 10 years and significantly curtail the extent to which itemized deductions disproportionately benefit the wealthy. Finally, the budget would make the estate tax more robust by lowering the exemption level to $3.5 million, increasing the progressivity of its rate structure and closing loopholes, all of which would raise an estimated $231 billion over 10 years.

On the corporate side, the CPC budget takes aim at a number of the most egregious corporate tax breaks. To start, the budget would close the deferral loophole, which is a provision that allows companies to defer paying taxes on their “foreign income” and thus drives corporations to store large swaths of their income in tax havens. The CPC estimates that eliminating deferral (which includes ending the Active Financing Exception) would raise about $983 billion over 10 years. Adding to this, the CPC would also take aim at the inversion loophole ($41 billion) and the stock option loophole ($32 billion) as well as end tax breaks for fossil fuel companies ($139 billion).

Taken together, the CPC budget would raise $8.8 trillion in additional revenue over the next 10 years. To put this in context, revenue levels as a percentage of GDP would rise from its current average projected level of 18.1 percent under current law to 21.9 percent under the CPC budget. While they are unlikely to be passed anytime soon as a group, the tax proposals in the CPC budget reveal the sheer number of options that lawmakers could choose to provide much needed revenue to make new investments, stave off further austerity and curb annual deficits. 

Thanks for reading the State Rundown! Here’s a sneak peek: Delaware lawmakers approve a corporate tax
 giveaway for a potential DuPont and Dow merger. West Virginia lawmakers leave without a budget after voting down tax increases. Florida lawmakers reject the governor’s big tax cut plan, opting for more modest cuts and school spending increases. 

– Carl Davis, ITEP Research Director 

 America’s own tax haven of Delaware approved huge tax breaks for Dow and DuPont in the hope that if the companies merge as planned, they will establish their new company in Delaware. In a move that will cost the state $14.1 million in lost revenue, the Delaware Senate passed a bill eliminating the $5 million aggregate cap on the research and development tax credit, and made the credit refundable. The bill passed unanimously and there was no debate. Senators also revived a never-used tax credit that rewards companies for establishing new headquarters in Delaware, expanding it to include in-state companies that retain jobs after a merger. The credit would be applied retroactively to the jobs retained under the Dow-DuPont merger. The bill is expected to swiftly pass the House. Meanwhile, lawmakers continue to consider a bill that would make the state’s Earned Income Tax Credit (EITC) refundable, but only after reducing it from 20 to 6 percent of the federal credit. To learn more about Delaware’s fiscal malfeasance, check out ITEP’s report “Delaware: An Onshore Tax Haven.” 

West Virginia lawmakers have failed to come up with a solution to the state’s estimated budget shortfall of $238.8 million – an amount larger than initially expected because of the ongoing downturn in energy prices. Earlier this year legislators tabled a proposed gas and sales tax increases to pay for roads. After the West Virginia Senate approved a 3 cent increase in the state’s gasoline excise tax and a 1 cent increase in the sales tax rate, the House Finance Committee batted both measures down, arguing that the state’s public services can absorb more cuts. The House committee also voted down a Senate measure that would have increased the cigarette excise tax by $1 per pack. Gov. Tomblin has announced that he is sending legislators home and will bring them back later this spring to regroup and deal with the shortfall.

Florida Gov. Rick Scott’s billion-dollar tax cut failed to get a sympathetic hearing from legislators, who instead passed a modest property tax measure paired with more spending on K-12 education. The centerpiece of his plan, eliminating corporate income taxes for manufacturers and retailers, was swiftly rejected by the House. The Senate then pared the House version of Scott’s tax cut plan back to just $129 million in sales tax reductions for manufacturing equipment purchases and specific groups and products. The Senate also passed $400 million in local property tax cuts by assuming more state responsibility for K-12 funding. Florida’s per-pupil state spending on K-12 education will increase by 1 percent, a state record but anemic by national standards. House and Senate negotiators came together to present the governor with a final measure that largely followed the Senate proposal. There was speculation that Gov. Scott would veto the entire budget in protest, forcing the legislature into special session. Instead, the governor opted to veto $256 million from the budget.

States Ending Session: 

Utah (March 10)

Washington (March 10)

Florida (March 11)

Virginia (March 12)

Indiana (March 14)           

West Virginia (March 15, but will reconvene later this spring)

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 via email. 

Nabisco, the purveyor of Oreos and ‘Nilla wafers, is facing renewed blowback over its decision to lay off 600 workers at its Chicago plant while shifting production to Mexico. But the loss of manufacturing jobs is not the sole reason the company’s activities deserve closer scrutiny.

A corporate spokesperson predictably explained that the layoffs were about automation rather than offshoring, but others have hinted that the very low worldwide tax rates paid by Nabisco’s parent company, Mondelez, might have played a role in the decision.

The real story is likely far more complicated. USA Today reports that Mondelez paid a worldwide tax rate of 7.5 percent last year. This is well below the United States’s statutory 35 percent corporate tax rate and also substantially below Mexico’s 30 percent rate. If Mondelez is avoiding taxes through its foreign activities, it is more likely that the company’s subsidiaries in the Bahamas and the Netherlands are responsible.

Call It a Double Whammy

While losing 600 jobs would deal a body blow to Chicago working families, the $6 billion of profits that Mondelez moved offshore in just the last year (and the needed tax contributions it is able to avoid because of this action) represent yet another way the company is harming working families.

Mondelez now has a total of $19.2 billion in “permanently reinvested” offshore profits, but the company refuses to disclose how much of those profits are being held in tax havens or whether any foreign tax has been paid on these billions of dollars in profits.

Several politicians have cried foul, including presidential candidate Hillary Clinton who responded to Nabisco’s move by proposing that companies moving jobs overseas should lose some or all of the tax breaks previously received for domestic job creation.

Such a plan could raise difficult implementation questions (for example, should Mondelez lose its tax breaks for domestic Triscuit production just because the company moves its Oreo production abroad?). Even so, the goal of “clawing back” undeserved tax breaks is a sensible one that has been achieved in a number of states, thanks in part to the work of watchdog group Good Jobs First. But a fiscally important reform would be taking away the incentive for corporations to shift their profits into offshore tax havens to avoid U.S. income taxes. 

Thanks for reading the Tax Justice Digest. In the Digest we recap the latest reports, posts, and analyses from Citizens for Tax Justice and the Institute on Taxation and Economic Policy. 

New CTJ Report: Large Majority of Americans are Net Losers Under GOP Candidates’ Tax Plans Over the Long Term
This week CTJ released a report that takes a radically different approach to analyzing the presidential candidates’ tax proposals. It provides an analysis of how Americans would be affected if Congress eventually passed legislation to pay for the tax cuts Bottom line: the idea that tax cuts don’t have to be paid for is a myth.  Read the full report here.

State Tax Drama: Louisiana, Illinois, and Pennsylvania
This week ITEP took a close look at three major state tax policy debates that continue to make headlines. Progress was made this week in Louisiana, but the budget situation in both Illinois and Pennsylvania flounders. Read our post, Budget Woes and Partisanship here. 

Corporate Tax Watch: Wendy’s, Duke Energy, Citrix
ITEP’s Executive Director Matt Gardner examined three well-known companies this week in Corporate Tax Watch. Whether they’re selling burgers or energy, profitable companies find ways to cook the books and dodge taxes. Read the latest here.  You can get Corporate Tax Watch emails by signing up here.

Shareable Tax Analysis: 

ICYMI: Last week CTJ released a report that revealed U.S. corporations now hold a record $2.4 trillion offshore, a sum that ballooned by more than $200 billion over the last year as companies moved more aggressively to shift their profits offshore. The full report is here  

If you have any feedback on the Digest or the fine work of CTJ and ITEP send it here:  kelly@itep.org

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

One truism of American politics, often touted by governors on the campaign trail, is that state governments have to get stuff done. Thanks to the requirements that they balance their budgets each year, governors and state legislatures are forced to work across the aisle.

Unfortunately, the gridlock that has seized our divided federal government has seeped down to state capitals, which are finding it increasingly difficult to find common ground. Pennsylvania and Illinois are the two most egregious examples of the failure of state lawmakers to reach a deal. Louisiana, facing its own deep fiscal crisis, has been a hopeful counterpoint.

Pennsylvania and Illinois present bizzaro versions of one another with the same frustrating outcome – deadlock. Illinois voters elected Republican businessman Bruce Rauner governor in 2014. They also elected a Democratic majority to both houses of the Illinois General Assembly. Meanwhile, Pennsylvania voters elected Democratic businessman Tom Wolf governor in the same year and returned Republican majorities to both houses of the Pennsylvania General Assembly.

The path to crisis was similar in both states. Years of underfunded pensions and irresponsible tax cuts – including the rollback of a temporary income tax rate increase last year – left Illinois with a $6 billion budget gap at the beginning of 2015. Lawmakers have already cut over $2 billion in state services, but Illinois faces billions more in cuts if it doesn’t raise new revenue. So far, Rauner has refused to consider tax cuts unless legislators consider big-ticket items on his agenda: reforming worker’s compensation, freezing property taxes, term limits, and weakened collective bargaining. The legislature is not biting.

In Pennsylvania, revenue growth has lagged state spending for many years, in part due to unwise business tax cuts over the past five years. The danger for Pennsylvania is somewhat lower than for Illinois, though $2 billion in possible budget cuts still loom. Wolf wants to increase the state’s personal income tax rate or increase and expand the state’s sales tax to make up the shortfall and protect investments in education and human services, while legislators want budget cuts instead of tax increases.

In both states, lawmakers have long used accounting gimmicks, transfers from dedicated funding sources (such as for roads and schools), and other short-term fixes to stave off the day of reckoning. And both states have somehow found a way to bicker for months past the constitutionally prescribed date for a budget agreement. The unprecedented stalemates in Illinois and Pennsylvania over the budgets for FY 2016 have gone on for so long that both governors have already presented budgets for FY 2017. So far, no resolution is in sight for either state.

Louisiana offers hope for the efficacy of divided government. Voters there elected Democrat John Bel Edwards governor in 2015 while the General Assembly remains in Republican control.

Edwards inherited a massive budget shortfall from outgoing Gov. Bobby Jindal, whose mix of big tax cuts and clever accounting measures left the state treasury in ruins. Louisiana faced a $954 million shortfall for FY 2016 and a $2 billion gap for FY 2017. Legislators initially resisted calls for new revenue from the new governor, but they were outmaneuvered when Edwards highlighted what impact their deep cuts would have (the threat to LSU football was too steep a price to pay for many voters).

In the end, lawmakers approved a temporary increase in the state’s sales tax rate, from 4 percent to 5 percent, and removed many sales tax exemptions. They also approved increases in taxes on cigarettes and alcohol, and extended or reinstated taxes on vehicle rentals, cellphones, and landlines. Both chambers of the legislature also approved a measure designed to improve enforcement of sales taxes on online shopping, but the budgetary impact of that measure is yet to be determined.

Ultimately, Edwards and legislators were able to come to an agreement that raised all but $30 million of the revenue needed to cover the gap in FY 2016. Despite this, their effort was neither perfect nor comprehensive. The consumption tax hikes approved by lawmakers will worsen the unfairness of a state tax system that already heavily impacts the poor. And lawmakers will still need to come up with another $800 million to close the FY 2017 shortfall. But compared to the infighting in Pennsylvania and Illinois, the compromise is remarkable.

Wendy’s: Where’s the tax payments?

When the Burger King Corporation announced plans to renounce its U.S. citizenship through a corporate inversion last year, Ohio Sen. Sherrod Brown encouraged his constituents to boycott the company’s restaurants in favor of Ohio-based Wendy’s. But the burger company’s latest financial statements suggest that Brown might want to rethink his recommendation. Over the past three years, Wendy’s reports $440 million in U.S. pretax income on which it has paid zero in state corporate income taxes. At the federal level, Wendy’s reported a tax rate of just 1.8 percent over this three-year period. When the company’s use of tax breaks for executive stock options is factored in, its federal tax rate is also zero. While ending frivolous corporate inversions should be a priority for Congress so should eliminating generous corporate tax breaks.

Duke Energy: How’d They Do That?

A 2014 CTJ/ITEP report identified Duke Energy as one of 26 Fortune 500 corporations that paid zilch in federal income tax over the five-year period between 2008 and 2012. Three years later, nothing has changed. The company has since reported $10.7 billion in pretax U.S. income, on which its total current federal income taxes were minus $123 million. This astonishing eight-year, tax-free stretch is the product of perfectly legal tax breaks, primarily accelerated depreciation provisions that allow companies to write off the cost of their capital investments faster than they actually wear out. Since Congress’s main recent activity on accelerated depreciation has been to expand this tax break, it’s worth noting that the reason profitable corporations often are able to avoid paying income taxes is because Congress passes laws that make it easy for them to do so.

Citrix: Taking “Remote Access” to a New Level

The Citrix Corporation is a widely known provider of remote-access software, which allows employees to use “remote login” technogy to access a centrally located computer from their home offices. If the company’s corporate report is to be believed, it seems a substantial number of its 9,500 employees must be remotely logging in from homes in the Cayman Islands. How else to explain the fact that domestic sales accounted for 56 percent of its worldwide revenues last year but the company claimed none of its profits were earned in the United States?  One clue to this mystery lies in the company’s income tax note, which states that the company’s $2.3 billion in permanently reinvested foreign earnings are “primarily held by its foreign subsidiary in the Cayman Islands.” $2.3 billion also happens to be the total amount of profit the company has reported outside the United States in the last 11 years, dubiously suggesting that the lion’s share of the company’s income-generating activities must be taking place in the Caymans.