Month: April 2016

Two years ago, the Koch-brothers-backed group Americans for Tax Reform and anti-tax advocate Grover Norquist launched an aggressive effort in Tennessee to eliminate the Hall Tax, a modest tax on capital gains and dividends that primarily falls on the very wealthiest Tennesseans.

That effort failed to produce results at the time, but like Kudzu, “the vine that ate the South,” the invasive idea proved difficult to stop once it took root in the Tennessee Legislature. With continued urging from outside groups and the state running a budget surplus this year, lawmakers again considered various proposals to outright eliminate the tax or phase it out over a number of years. Still, some remained concerned about giving life to a process that would be difficult to reverse and would choke off funding needed for state and local services.

But in a compromise that advanced unanimously through the Senate Finance, Ways, and Means Committee on Monday and continues to gain co-sponsors, Tennessee legislators are hoping they can introduce just a little bit of this Koch Kudzu this year and manage its spread in future years.

Can’t See the Forest for the Kudzu

While passing a measure to eliminate a tax that raises millions each year may be politically expedient during a year with a budget surplus, it is shortsighted.

The compromise reduces the Hall Tax rate from 6 percent to 5 percent in 2016 and declares the General Assembly’s intent to continue reducing the tax by 1 percentage point per year until it is extinct in 2021. This would reduce state and local revenues by about $57 million in the first year and $341 million per year if full repeal happens.

Revenue from the Hall Tax funds many vital state services and are also shared with Tennessee counties and municipalities. Ultimately these local governments could lose all of their Hall Tax revenue, which is currently about $119 million annually and used to pay for city streets, local police officers, county roads, etc. Once that revenue disappears, Tennesseans will either face cuts to those services or increases in their local property taxes.

Moreover, an Institute on Taxation and Economic Policy analysis finds that only those in the upper reaches of the Tennessee economy would see any significant benefit from the tax cuts. In just the first year, the wealthiest 1 percent of Tennesseans (with an average income of $1.2 million) would receive tax cuts averaging $870, while a majority of Tennesseans would see no benefit at all (see graph). 

More specifically, as we have detailed in our full report on Hall Tax repeal, only 14 percent of the total tax cut would flow to households among the bottom 95 percent of earners, while the top 5 percent of households would receive 61 percent of the benefit, and the federal government would collect the remaining 25 percent due to higher federal income tax payments by Tennesseans who would not be able to deduct as much in state taxes from their federal income taxes.

It should be noted that the Tennessee tax system is more regressive (meaning it captures a greater share of income from the lowest-income residents than the wealthiest) than all but six other states. In fact, the average tax rate for the bottom 20 percent of taxpayers is 10.9 percent compared to just 3 percent for the top 1 percent. Reducing or repealing the Hall Tax would make this imbalance even worse.

“State and local governments alone take in $11.6 billion from taxpayers without papers. They’d net more if more immigrants had legal status.

It may come as a surprise to some that just like almost everyone else, undocumented immigrants pay taxes. They pay property taxes and sales taxes, and many also pay taxes on their incomes. In fact, on average, they pay a higher share of their incomes in state and local taxes than taxpayers in the top 1%.”

Read the Full Article in USA Today

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

 Just in time for Tax Day, CTJ and ITEP have prepared a variety of materials that answer common Tax Day questions.

 Who Pays Taxes?
Short answer: Everyone.
CTJ is the only think tank that collectively analyzes all taxes (federal, state, local, excise, etc.) to calculate total effective tax rates. In this April 2016 update, CTJ finds that each income group’s share of total taxes is more or less on par with their share of all income.

Profitable Corporations Still Managing to Pay $0 in Federal Income Tax
Eight U.S. corporations, including some common household names like Netflix, paid effective federal tax rates of zero in 2015, a new CTJ report finds. For most of them, last year wasn’t an aberration. Over a five-year period, these companies managed to pay little or nothing in federal income taxes. Read more.

Say What? GE and Verizon Defend Tax Record
This week CEOs of General Electric and Verizon wrote op-eds claiming that their companies actually do pay their “fair share” of taxes. CTJ analysts took a close look at both companies’ tax records over the last 15 years and set the record straight in this new post.

Five Things You Should Know on Monday
Myths about taxes and Tax Day abound. This new brief from CTJ outlines five facts you should know on Tax Day. For example, the U.S. statutory corporate income tax rate is 35 percent, but many companies pay at a much lower rate. Click here to learn four other Tax Day facts.

Think U.S. Taxes Are High Compared to Other Developed Nations?
Check out this informative video, Taxes and the U.S. Economy. Compared to other developed nations, tax collections as a share of the U.S. economy are substantially below average. The data from the video comes from this recent CTJ report.

What about State Taxes?
ITEP analyzes state and local taxes in all fifty states. Regrettably, all 50 states have regressive tax systems that tax the poor far more than the rich. Click here to see how taxpayers at different income levels are impacted by your state’s tax structure.

Where are US Companies Stashing Profits?
CTJ finds that American corporations are using tax gimmicks to shift profits earned in the U.S. to subsidiaries located in tax haven countries to avoid paying corporate taxes. In some of these countries the U.S. profits actually exceed the tax haven country’s Gross Domestic Product.

Shareable Tax Analysis:

ICYMI: The Earned Income Tax Credit (EITC) is an especially important tax credit designed to help low-wage workers move out of poverty and achieve economic security. Here’s ITEP’s latest brief on the EITC’s effectiveness as an anti-poverty tool.

If you have any feedback on the Digest, please 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.

Alaska is grappling with one of the most serious budget shortfalls in the nation. The state currently faces a budget gap exceeding $4 billion and current revenues are expected to cover just 25 percent of the state’s costs, despite major spending cuts enacted in recent years.

With a revenue system highly dependent on oil tax and royalty revenue, Alaska has been forced to reevaluate its revenue structure in the face of plummeting oil production and prices. For years Alaska was able to use oil revenue proceeds to fund state government, and even repeal their income tax and cut sizable annual checks to Alaskans. Faced now with a new fiscal reality, the state is considering ways in which to diversify its revenue stream.

In a new report, “Distributional Analyses of Revenue Options for Alaska,” ITEP analyzes Gov. Walker’s New Sustainable Alaska Plan and other revenue strategies to fill the gap. The report presents information on how a range of policy options would impact Alaskans at different income levels.

The New Sustainable Alaska Plan, the most ambitious proposal on the table, would institute a personal income tax in the state for the first time in 35 years, reduce the Permanent Fund dividend (a cash payment that most Alaskans receive each year) and increase taxes on a variety of industries and on purchases of alcohol, tobacco and motor fuel.

The personal income tax in the plan was specifically proposed to offset the disproportionate impact that many of these changes would have on moderate-income families. Alaska is one of just nine states that lack a broad-based personal income tax – the most equitable revenue option available to states.

According to ITEP’s research director, Carl Davis:

“The governor’s decision to include an income tax in his fiscal plan was a step forward for Alaska’s budget debate. It is simply not possible to craft an equitable solution to Alaska’s budget shortfall that does not include some level of income tax.”

While a step in the right direction, the report finds that the modest income tax structure proposed in the New Sustainable Alaska Plan is not enough to fully offset the regressive nature of other components included in the package. Low-income families could expect to see their incomes reduced by between 5.5 and 9.6 percent, while higher-income families would face declines equal to just 1.2 to 2.0 percent of their incomes. Middle income families would see declines in the range of 2.4 to 3.9 percent.

The distributional impact of the New Sustainable Alaska Plan and other proposals currently being discussed by the legislature could be improved if they were rebalanced to derive more revenue from the personal income tax and less from reductions in the dividend. ITEP’s findings show that it is not possible to close Alaska’s budget gap in an equitable way unless a robust personal income tax is enacted as part of the package.

Read the report

In his 2013 book, The Great Escape: Health, Wealth and the Origins of Inequality, Nobel Prize winning economist Angus Deaton wrote, “The very wealthy have little need for state-provided education or health care; they have every reason … to fight any increase in taxes.”

Deaton was making a case for democracy and against the superrich having outsize influence in our nation’s political process. Two recent campaigns in Missouri to abolish a local tax that funds a variety of programs from public park maintenance to human services are a case study in why everyone needs a voice.

Rex Sinquefield, a Missouri billionaire, is on a relentless quest to quash local and state taxes in Missouri. A 2015 St. Louis Post Dispatch profile  quoted him touting his philosophy on taxes: “Get rid of your personal tax, get rid of your corporate taxes, don’t punish work, don’t punish profits, don’t punish productivity. Those taxes punish the things you need the most of … You end up hurting people at the bottom if you try to overtax the people at the top. You don’t want to punish the investing class.”

He is also on record lauding the disastrous 2012 tax cuts in Kansas as “unbelievably brilliant.”

In other words, Sinquefield is a zealous devotee of the oft-repeated but thoroughly debunked economics of Arthur Laffer. And unfortunately for Missouri, Sinquefield puts his money where his zealotry is.

This year, Sinquefield spent millions of his own money on a campaign to persuade St. Louis and Kansas City residents to vote to end their cities’ earning taxes. The 1 percent levy on wages and salaries funds about 40 percent of Kansas City’s budget and 33 percent of St. Louis’s operating budget for services such as local parks, street and sidewalk maintenance, police and fire protection, lead poisoning prevention, and human services including those for veterans, youth, and families in need. Sinquefield’s St. Louis campaign argued in a slew of ads that the city should let the tax expire and instead cut a third of its budget for city services. Sinquefield’s actions indicate he doesn’t value the services the tax supports, and he is spending millions to convince other Missourians the tax is not necessary.

But Show Me State voters reject his misguided ideology-driven campaign. Residents of both cities overwhelmingly (77 percent in Kansas City and 72 percent in St. Louis) voted to uphold the taxes in spite of Sinquefield’s well-financed efforts. After Kansas City tallied its votes, mayor Sly James, speaking about Sinquefield said, “We do not need outside interference, we do not need your guidance, we certainly don’t need your negativity,” and added, “Voters are sophisticated and intelligent enough about this tax to understand what it does for this city.”

Sinquefield, perhaps, is betting that long-term persistence will pay off. His spring campaign to abolish the earnings tax is far from an outlier.  In 2010, he put more than $10 million into the initial effort to require a vote on the earnings taxes every five years, and he has poured money into many other efforts at the local and state levels to elect anti-tax candidates and slash Missouri’s state income tax.

So while Sinquefield may want to opt out of local taxes and the services they support, Kansas City and St. Louis voters have made their preferences clear, choosing to continue to pay a 1 percent earnings tax to invest in their local communities and fund the services they value. 

Righteous indignation can be very effective, but sometimes it’s not all that righteous. Such is the case with recent op-eds penned by the CEOs of General Electric and Verizon, each of whom argue that contrary to the stump statements of presidential candidates, their companies do pay their “fair share” of taxes.

Verizon

Verizon CEO Lowell McAdam claims, in a recent op-ed and fact sheet, that it’s “just plain wrong” to assert that Verizon doesn’t pay its fair share of taxes and that the company paid a 35 percent tax rate in 2015. While McAdam doesn’t elaborate, he likely is tallying the company’s global taxes to make this claim. However, the annual taxes that the company pays to the federal government in recent years has been a lot lower than 35 percent and, thus, McAdam’s indignation is rather artificial.

In fact, over the past 15 years, Verizon has paid a federal tax rate averaging just 12.4 percent on $121 billion in U.S. profits, meaning that the company has found a way to shelter about two-thirds of its U.S. profits from federal taxes over this period. In five of the last 15 years, the company paid zero in federal taxes. While there is no indication that this spectacular feat of tax avoidance is anything but legal (the company’s consistently low tax rates are most likely due to overly generous accelerated depreciation tax provisions that Congress has expanded over the last decade), few Americans would describe the company avoiding tax on $78 billion of profits as “fair”.

GE

General Electric CEO Jeffrey Immelt takes a similar position in a recent op-ed. Immelt defends the company’s tax record simply by noting that the company “pay[s] billion in taxes.” This is true, but also meaningless for a company with earnings as gigantic as GE’s. In fact, over the past 10 years, GE paid an effective federal income tax rate of -1.6 percent on $58 billion in profits. Over 15 years, the company’s federal income tax rate was just 5.2 percent.

The company’s tax-avoiding ways extend to the state level, too. Over the past five years, the company paid an effective state income tax rate of just 1.6 percent. Immelt likely focuses on the dollar amount and not the company’s tax rate because there is simply no way of fudging the numbers to make the company appear to be paying income taxes at anything but a ridiculously low rate.

Congress Could End This

There is certainly room for righteous indignation in the ongoing debate over how to reform our corporate income tax. But the real source of such indignation should be the working families and small businesses that don’t have access to the congressionally sanctioned tax breaks used by Verizon, General Electric and other large multinational corporations.

The most recent data from the Organization for Economic Cooperation and Development (OECD) show that the United States is one of the least taxed developed nations. 

A tally of all taxes collected at the federal, state and local levels reveals based on 2014 U.S. Treasury data reveal that the United States had the fourth lowest level of total taxes — 25.7 percent of gross domestic product (GDP) — among the 34 OECD countries. Only Mexico, Chile and Korea collected less in taxes as a percent of GDP. The level of taxation in the United States is well below the 34.7 percent OECD weighted average. 

Read the full CTJ report here

Watch CTJ’s Taxes and the U.S. Economy video that sets the record straight on U.S. tax collections: