What Just Happened in Tennessee? Questions and Answers

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Last week, Tennessee Gov. Bill Haslam signed Senate Bill 47, affecting the state’s Hall Tax on dividend and interest income. But the unusual nature of the Hall Tax, and of this legislation, have created some lingering questions regarding this bill’s consequences.

Did Tennessee just eliminate its income tax? Yes and no. SB 47 reduces the tax rate from 6 percent to 5 percent in the first year, eliminates the tax entirely in 2022, and declares the legislature’s intent to gradually reduce the rate in the intervening years. In essence, lawmakers bought a ring and set a wedding date, but gave themselves six years to plan the wedding and find the money for it. That’s a big commitment, but not quite the same as tying the knot; people can change over the course of six years, and the Tennessee legislature will have new members and be operating in a different context six years from now.

So why the long engagement? While Tennessee had a modest budget surplus coming into this year, the Hall Tax brings in more than $300 million per year and Gov. Haslam and others expressed concerns about the state’s ability to afford full repeal of the tax. And because more than $100 million in Hall Tax revenues are distributed to Tennessee cities and counties each year, opposition to repeal from local officials was strong as well. By delaying repeal until well outside the current budget window (2022), current legislators can take credit for “eliminating” the Hall Tax without having to identify a way to deal with the associated revenue drop for another six years—if they are even still in office when that time comes.

Who will be harmed and who will benefit? As we have written about here, here, and here, the primary beneficiaries of this bill are a small number of the wealthiest Tennesseans. The highest-income 5 percent of households will receive 61 percent of the tax cut while only 14 percent of the benefit will flow to the 95 percent of Tennesseans who earn less than $173,000 per year. The remaining 25 percent actually ends up going to the federal government as Tennesseans will lose the ability to write off their Hall Tax payments on their federal tax returns and will pay more in federal taxes as a result.

The negative effects of Tennessee losing more than $300 million in revenue, meanwhile, are more likely to fall on everyday Tennesseans. Local officials have been vocal that they are “definitely not happy about” losing their share of the funding (three-eighths of total Hall Tax revenues) and will “have to either increase property tax or cut services or both.”

The state will ultimately face a similar decision, either having to cut funding for services like schools and public safety or raise other taxes to replace the lost Hall Tax funding. But finding potential cuts in Tennessee’s already lean budget will be difficult, as the state currently ranks 48th in education spending and 43rd in total state and local spending as a share of personal income.[1] Moreover, the fact that Tennessee is unusually reliant on its sales tax (2nd highest reliance on general sales taxes in the country) to fund government means that its budget situation is likely to grow increasingly difficult in the years ahead if Tennesseans’ consumption habits continue to shift away from (taxed) goods and toward (often untaxed) services and Internet purchases.

What is more, the Hall Tax was already one of the few progressive features of Tennessee’s tax structure, so any future tax increases to offset the revenue loss are likely to hit low- and middle-income Tennesseans the hardest. The Tennessee tax system is more regressive (meaning it captures a greater share of income from the lowest-income residents than the wealthiest) than in all but six other states, a situation that will only worsen under SB 47.

Is this an example other states can follow? Anti-tax advocates in other states might mistake this year’s action in Tennessee as an indication that their state may be able to eliminate its own income tax. In reality, however, Tennessee’s situation is unique enough that it’s unlikely to offer many lessons for would-be tax repealers elsewhere.

To be clear, Tennessee already lacks a broad-based income tax as the Hall Tax only applies to certain types of dividend and interest income. Moreover, the tax already includes generous exemptions that keep the vast majority of Tennesseans from paying anything at all. So while the Hall Tax is an important source of revenue for Tennessee’s state and local governments, it is also much more modest than the broad-based income taxes that advocates in other states sometimes seek to repeal.

The Hall Tax generates 1.3 percent of state and local tax revenue in Tennessee, the lowest share of any state outside of the seven states that have no personal income tax at all.[2] Other states that have recently considered eliminating their income taxes are many times more reliant on those taxes than is Tennessee. For example, personal income taxes are 15 percent of tax revenues in Arizona, 21.7 percent in Oklahoma, and 22.9 percent in Kansas.

And despite the Hall Tax’s comparatively small size, Tennessee lawmakers were only able to cut the rate by one-sixth this year—meaning that instead of losing 1.3 percent of public revenues, the short-term loss will be closer to 0.2 percent. In this light, income tax elimination in Oklahoma or Kansas would be about 100 times more damaging than what is occurring in Tennessee this year, and 17 times more damaging than what Tennessee is hoping to do over the next six years.

What’s the bottom line? Tennessee’s Senate Bill 47 has the potential to significantly reduce the adequacy and fairness of Tennessee’s tax system. But lawmakers’ desire to avoid making difficult budgetary tradeoffs led them to delay most of the bill’s impact until 2022, meaning that there is plenty of time for the law to be scaled back or repealed before it takes effect. Moreover, lawmakers and advocates in other states should be careful not to read too much into Tennessee’s experience—income tax repeal in a state like Tennessee means something very different than it does in a state deriving 15 to 20 percent, or more, of its revenue from taxes on income.

[1] Data in this paragraph are for Fiscal Year 2012-13 from U.S. Census Bureau Survey of State and Local Government Finances, the most recent data comparable across states; spending measure is direct general expenditures; Personal Income data from U.S. Bureau of Economic Analysis.

[2] Data in this paragraph also from U.S. Census Bureau Survey of State and Local Government Finance, Fiscal Year 2012-13.

Tax Justice Digest: Millionaire Myth — Corporate Tax Watch — State Rundown

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In the Tax Justice Digest we recap the latest reports, blog posts, and analyses from Citizens for Tax Justice and the Institute on Taxation and Economic Policy. Here’s a rundown of what we’ve been working on lately. 

Millionaire Migration Myth Debunked for Good?

A new study provides the best evidence yet that progressive state income taxes are not leading to any meaningful amount of “tax flight” among top earners. Read ITEP research director Carl Davis’ full analysis of this important study here.

Google and Tax Avoidance

How does Google’s restructuring open the door to tax avoidance? Through some creative accounting and “Delaware Alphabet Soup.” We explain all the details here.

Corporate Tax Watch: Icahn Enterprises, Airbnb and Coca Cola Enterprises

Read this edition of Corporate Tax Watch to see how tax reform could benefit Carl Icahn, more on the taxes Airbnb may (or may not) be paying, and how earnings stripping is impacting Coca Cola’s bottom line.

The Nation’s Most Irrational State Tax Break Falls Out of Favor

ITEP research director Carl Davis writes that the state income tax deduction for state income taxes paid is losing favor in the handful of states that offer this bizarre and circular deduction. Davis writes that Oklahoma’s deduction is on the chopping block; and rightfully so given that its mere existence was a legislative accident. Read the full post here.

State Rundown: Bad Ideas, Worse Budgets

This week’s state tax policy rundown focuses on tax happenings in Kansas, New York, Minnesota, Tennessee and Massachusetts. Read the full Rundown.

ICYMI: Dana Milbank’s recent column in the Washington Post raised some serious questions about why Donald Trump may not be releasing his tax returns. CTJ Director Bob McIntyre told Milbank he’d “be shocked if he (Trump) isn’t pretty much writing off his whole life.” Read Milbank’s full column.

If you have any feedback on the Digest, please email me  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.

State Rundown 5/26: Bad Ideas, Worse Budgets

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Thanks for reading the State Rundown! Here’s a sneak peek: Kansas marks tax cut anniversary with budget cuts. New York governor expected to sign tampon tax repeal. Minnesota legislators pass tax cuts amid chaos. Tennessee repeals its Hall Tax. Massachusetts legislators give initial approval to millionaire tax.

— Meg Wiehe, ITEP State Policy Director, @megwiehe


This week marks the fourth anniversary of Kansas Gov. Sam Brownback’s tax cut “experiment,” and the governor recently celebrated by signing another austerity budget. Brownback’s mid-biennium budget adjustment includes $97 million in cuts for most state agencies. The budget cut by 4 percent all agencies except for public safety and K-12 education, with higher education being hit worst. More than $30 million of the cuts were to the higher education system; the University of Kansas (KU) has already proposed a 4 percent tuition increase for next year. Meanwhile, a recent report found that the state’s highest paid public employee – KU basketball coach Bill Self – pays virtually no state income tax thanks to Brownback’s derided exemption of business pass-through income. Self receives the bulk of his $2.75 million in annual compensation through a limited liability corporation. Not quite the outcomes Brownback claimed would come from his income tax cuts.

New York Gov. Andrew Cuomo is expected to sign a bill that would eliminate the state’s sales tax levy on female hygiene products. Right now, the sales tax adds approximately 88 cents to an $11 pack of 50 tampons. The so-called “tampon tax” has come under fire in some circles for being regressive and an unfair imposition of the sales tax on a product that should be considered a necessity. Others, however, have noted that exempting products from the general sales tax base erodes the base over time, necessitating higher rates on other purchases. They also note that targeted sales tax credits for working families would be a better solution to sales tax regressivity.

Minnesota‘s legislative session ended in chaos this week, with lawmakers scrambling to pass a series of major deals but falling short. The legislature managed to pass a $260 million package of tax cuts before the Sunday night deadline but fell short on bills for transportation funding and public works. The tax cuts include property tax cuts for farmers and businesses, a new tax credit for Minnesotans with student loan debt, and credits to help Minnesota families with childcare costs. Interestingly enough, lawmakers also passed a $3 million sales tax exemption for the purchase of suites at sports stadiums, but not an exemption for ordinary game tickets. Gov. Mark Dayton has suggested he could call a special session in June to give lawmakers another shot at passing the transportation and public works bills. EDIT: The package of tax cuts also includes a strong expansion of the Working Family Credit, Minnesota’s version of the EITC. Under the changes, the size of the credit would expand for most families and individuals, and the income cutoff for eligibility will be raised for some families and individuals. Moreover, the age requirement for childless workers to qualify for the credit will be lowered from 25 years old to 21 years old. Minnesota is the first state (after Washington, DC) to expand the state EITC to childless workers. About 386,000 Minnesota families and individuals will benefit from the credit expansion, which will reduce taxes by $49 million.

Anti-tax advocates in Tennessee succeeded in their years-long push to eliminate the state’s Hall income tax on investment income. Gov. Bill Haslam signed a bill that cuts the tax rate from 6 to 5 percent this year, and that eliminates the tax entirely in 2022. The bill also says that its “intent” is for future legislators to enact additional, gradual rate cuts in the years before full repeal takes effect. The Hall income tax is levied on some dividend and interest income, and was expected to generate $341 million in revenue in FY 2017. ITEP data show that eliminating the tax would give the top 1 percent of Tennessee taxpayers an average $5,000 tax break while doing nothing for the vast majority of Tennesseans. As senior analyst Dylan Grundman notes, “The Hall Tax plays an important role in offsetting the otherwise regressive impact of Tennessee’s tax system. Overall, the state’s tax system captures a greater share of income from low- and middle-income people than from the wealthy but the Hall tax is one of the few taxes that runs counter to that trend.” Municipalities could struggle to make up lost Hall tax revenue, which delivers more than $100 million to the state’s cities and counties each year.

In a bit of good tax policy news, a proposed “millionaire tax” ballot initiative gained initial approval in Massachusetts. Lawmakers  voted 133-57 to advance a 4 percent surtax on income over $1 million. Massachusetts currently has a flat tax rate of 5.1 percent on all income, and the uniform rate is constitutionally mandated. To change this, the millionaire tax ballot initiative must be approved by at least 25 percent of lawmakers in a joint session during two successive legislative sessions. If lawmakers vote again to advance the measure next year then voters will have the chance to weigh in. If enacted, the millionaire tax would generate an additional $1.9 billion in revenue for transportation and education.


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.  

New Research Shows Millionaires Less Mobile than the Rest of Us

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A new study (PDF) released today provides the best evidence yet that progressive state income taxes are not leading to any meaningful amount of “tax flight” among top earners.

Stanford University researchers teamed with officials at the Treasury Department to examine every tax return reporting more than $1 million in earnings in at least one year between 1999 and 2011.  They found that while 2.9 percent of the general population moves to a different state in a given year, just 2.4 percent of millionaires do so.  Even more striking is that for the most “persistent millionaires” (those earning over $1 million in at least 8 years of the researchers’ sample), the migration rate is just 1.9 percent per year.  As the researchers explain: “millionaires are not searching for economic opportunity—they have found it.”

The researchers examined the specifics of where those few migrating millionaires decided to relocate.  They found that “outside of Florida, differences in tax rates between states have no effect on elite migration. Other low-tax states, such as Texas, Tennessee, and New Hampshire, do not draw millionaires from high-tax states.”

In other words, Florida is only one of the nine states without broad-based income taxes that seems to possess any kind of special allure for high-income taxpayers.  Given that reality, the study notes that “It is difficult to know whether the Florida effect is driven by tax avoidance, unique geography, or some especially appealing combination of the two.”  In any case, this study refutes the notion that repealing state income taxes can transform a state into a magnet for high-income taxpayers: it’s simply not playing out that way in eight of the nine states without such a tax.

None of this should be terribly surprising.  By definition, high-income taxpayers are already living comfortably.  A very small minority of them may be willing to uproot their lives in search of an even better bang for their buck, but they are the exception rather than the norm.  In fact, even when the researchers narrowed their focus to less disruptive migration options—moving just across a state border in regions where notable differences in tax rates exist—they were unable to find a meaningful tax effect in either the short- or long-term.  Despite the mythology, high-income earners do not simply pack their bags and leave in search of locales that will allow them to chip in less for public investments. 

Google and Tax Avoidance: From the “Double Irish With a Dutch Sandwich” to “Delaware Alphabet Soup”

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You may have heard about Google Inc.’s restructuring last year, which resulted in the technology company becoming a wholly owned subsidiary of a new Delaware corporation called Alphabet Inc. What you may not know is how this restructuring can help the company potentially avoid millions in state taxes.

In a recent academic paper “Google’s ‘Alphabet Soup’ in Delaware”, the authors explain how Alphabet Inc. will allow Google to take advantage of the “Delaware loophole” to lower its corporate income tax. The Delaware loophole, which is detailed in the 2015 Institute on Taxation and Economic Policy (ITEP) report “Delaware: An Onshore Tax Haven”, is estimated to have cost states $9.5 billion in lost revenues over a 10-year period. It works like this:

A company sets up a “Delaware Holding Company,” which owns its intellectual property (IP), such as patents and trademarks. The company’s subsidiaries (in this case, Google Inc. and its affiliates) then pay royalties to the holding company (Alphabet Inc.) for the use of the IP. In Delaware tax law, corporations whose activities within the state consist only of managing “intangible investments” (including but not limited to stocks, bonds, patents, and trademarks) and collecting income from those investments are exempt from taxation on that income. At the same time, the corporation can deduct the royalty payments as a business expense on tax returns filed in other states where it has subsidiaries. Google’s restructuring provides Alphabet Inc. with the opportunity to exploit this strategy. For example, the company could artificially inflate the price of its IP and effectively shift all or most profits into Delaware where they won’t be taxed.

For states that use combined reporting, this profit shifting is not as worrying. The rule requires corporations with subsidiaries in multiple states to report the income of all of their subsidiaries for the purposes of determining their corporate income tax liability. In these states, Alphabet would have to report the royalty income of the Delaware holding company along with the income of all other subsidiaries, regardless of location, and apportion its total income among all the states where it is subject to tax. In contrast, states that use separate accounting, which allows corporations to report profits for each subsidiary independently, can see their tax bases significantly eroded as a result of corporations using this strategy. Adopting combined reporting is the best way that states can protect themselves from falling victim to the Delaware loophole and other tax-shifting strategies.

Should Google use this restructuring to avoid taxes, this wouldn’t be the first time it has employed complex accounting and paper work to reduce its tax bill: it funneled billions in profits to offshore tax havens through a series of foreign subsidiaries with a strategy that has been dubbed the “Double Irish With a Dutch Sandwich.” As of the end of 2015, Google had $58.3 billion in offshore “permanently reinvested” profits on which it pays no U.S. taxes, up from $47.4 billion in 2014.

In the press release announcing the restructuring last year, Google co-founder and Alphabet CEO Larry Page stated that the purpose of the restructuring was to allow more management scale and to “run things independently that aren’t very related.” Though we can only speculate about the degree to which the restructuring was motivated by tax considerations, it is undeniable that it has created new opportunities for tax avoidance.

Nation’s Most Irrational Tax Break Falls Out of Favor

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A constant refrain among advocates for tax reform is that there are too many special breaks built into our nation’s tax system.  While some tax breaks are worthwhile, far too many are ineffective, unfair, complicated, or politically motivated.

But even the most flawed tax break typically has some kind of rationale—however flimsy—that its supporters can trot out in its defense.  Without a rationale or purpose, why would a tax break ever be enacted in the first place?

The answer is that sometimes tax breaks get enacted by accident.

Last week, the Oklahoma legislature sent Gov. Mary Fallin a bill—at her request—eliminating just such a break: a state income tax deduction for state income taxes paid.  Oddly enough, Oklahoma taxpayers who happen to claim itemized deductions can currently write off their state income tax payments when calculating how much state income tax they owe.  This bizarre, circular deduction did not come into existence because of its policy merits (there are none), but rather because Oklahoma accidentally inherited it when lawmakers chose to offer the same package of itemized deductions made available at the federal level.

The federal deduction for state income taxes paid exists primarily as a way for the federal government to aid state governments.  In effect, by letting taxpayers write off their state income tax payments, the federal government is indirectly providing states with a portion of the income tax revenue they collect.  Since a state obviously cannot provide aid to itself, however, this rationale is thrown out the window at the state level.  Accordingly, state deductions for state income taxes paid have been described as irrational, absurd, (PDF) and lacking “economic justification” (PDF).

Making matters worse, these purposeless tax breaks actually exacerbate the unfairness built into state and local tax systems.  According to an ITEP analysis, over half (58 percent) of the revenue lost through Oklahoma’s deduction flows to just the wealthiest 5 percent of taxpayers.

The good news is that this deduction seems to be on its way out.  New Mexico and Rhode Island both repealed their state income tax deductions in 2010 and Vermont followed suit in 2015.  Now, after years of urging from the Oklahoma Policy Institute, it appears that the Sooner State will join this group as well.

Once Gov. Fallin signs Oklahoma’s repeal into law, only four states will offer the deduction in full: Arizona, Georgia, Louisiana, and North Dakota.  A fifth state, Hawaii, allows the deduction only for taxpayers earning under $100,000 per year (or under $200,000 for married couples).  These nonsensical deductions may not last long, however, if tax reform advocates (PDF) in the remaining states are successful in their efforts (PDF).

Corporate Tax Watch: Icahn Enterprises, Airbnb and Coca Cola Enterprises

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Icahn Enterprises: How Much Would Carl Icahn Benefit From Tax Reform?

Billionaire investor Carl Icahn has pledged $150 million toward seeding a Super PAC to lobby Congress to help pass his version of corporate tax reform, which likely means the passage of corporate tax breaks like a repatriation holiday. While $150 million seems like a huge amount of money to spend, it’s possible that Icahn may simply be making yet another wise investment.

According to Icahn Enterprises’ financial filings, the company discloses holding a minimum of $962 million in unrepatriated profits offshore and has at least 28 offshore tax haven subsidiaries. If Icahn’s lobbying efforts for a repatriation holiday alone are successful, his company could potentially end up saving more than the $150 million he invested. For example, if Icahn Enterprises is paying the average foreign rate of 6.4 percent on its offshore earnings and the repatriation holiday rate was 5.25 percent (the rate in 2004), Icahn Enterprises could save a cool $234 million in taxes. It’s likely he’d personally profit even more from the repatriation holiday providing a break to companies that he’s invested in, to say nothing of tax breaks Congress might push through.

Airbnb: The Not Sharing Economy

According to a Bloomberg report, Airbnb has set up an “extensive web of subsidiaries” that will allow it to dodge taxes on much of its income. Specifically, Airbnb may be following in Apple’s footsteps by funneling its profits to an Irish subsidiary, which then allows it to escape taxation by shifting its intellectual property to a zero tax country (in this case the Isle of Jersey). Not only do such maneuvers allow Airbnb to get away without paying their fair share in taxes, they also give the company an unfair competitive advantage over more traditional lodging companies who are less able to shift their profits offshore. As more and more of the economy becomes dependent on intellectual property, it will become even more vital that lawmakers act to shut down this kind of offshore tax avoidance.

Coca Cola Enterprises: Earnings Stripping Provisions Already Having an Impact

A recent news report found that new Treasury rules targeting inversions may reduce the tax savings of Coca-Cola Enterprises’ proposed merger by as much $375 million. This report is one of the first instances of companies disclosing that Treasury’s crackdown on earnings stripping, a practice in which intercompany loans are used to shift profits to low- or no-tax jurisdictions, will have a significant impact on the projected tax benefits from a merger. While Coca-Cola Enterprises still plans to move forward with its merger, this report shows that the Treasury rules will help take away tax avoidance as a driver of such mergers.



Tax Justice Digest: Trump — Millionaire Migration — Boom Goes Bust

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In the Tax Justice Digest we recap the latest reports, blog posts, and analyses from Citizens for Tax Justice and the Institute on Taxation and Economic Policy. Here’s a rundown of what we’ve been working on lately:

CTJ’s Take on Trump’s Missing Tax Return and Evolving Tax Plan:
Donald Trump is the first major presidential nominee to not release a full tax return in 40 years. CTJ Director Bob McIntyre writes that Trump may be trying to hide from the public’s view the numerous ways that the tax system is already rigged in favor of wealthy individuals. Read the piece.

The presumptive Republican presidential nominee flip-flopped on his plan to give massive tax breaks to the wealthy before flipping back. Here is CTJ’s take on Trump’s musings.

Tax Migration Myth Refuses to Die
This ITEP piece sets the record straight on the millionaire migration myth. The fabulously wealthy simply do not migrate from state to state in search of low tax rates. Read the full post here.

If It Sounds Too Good to be True…. It Probably Is
Corporate integration sounds like it could be a good thing. After all, integrating implies streamlining and increased efficiencies, but when it comes to taxes and corporate integration the term is simply a ruse for more corporate tax cuts. Read more about Sen. Orrin Hatch’s corporate integration proposal .

Paying for the Boom in Alaska, North Dakota, Oklahoma, West Virginia, and Wyoming
The five states most reliant on the energy sector for economic growth are facing huge budget shortfalls, brought on in part by short-sighted tax cuts made by lawmakers that failed to prepare for this decline. Read ITEP Senior Analyst Aidan Russell Davis’s cautionary tale for other states.

ITEP State Rundown: New Jersey, Oklahoma, Vermont and State Estate Taxes
This week’s Rundown features working family tax credit debates in New Jersey and Oklahoma and a wrap up of Vermont’s legislative session. Read the full Rundown.

Shareable Tax Analysis:

ICYMI: Tax havens may be legal, but there’s something really wrong when American corporations say they earn $46 billion in the Cayman Islands when the entire economy of the Cayman Islands is just $3 billion. For more on tax havens read CTJ’s recent analysis of the 10 most obvious corporate tax haven countries.

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.

Tax Migration Myth Refuses To Die

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Let’s establish a few facts for the last time. Santa Claus isn’t real, and neither is the Easter Bunny. There is no pot of gold at the end of the rainbow. Mutant alligators don’t roam the sewers of New York City. And the fabulously wealthy do not migrate from state to state in search of low tax rates.

We’ve dispelled the “millionaire migration” myth a number of times (see here, here, and here). But it seems thinly-sourced anecdotes beat empirical evidence.

The brouhaha over hedge fund honcho David Tepper’s move from New Jersey to Florida is the latest case in point. A few weeks back, The New York Times published a hand-wringing article that claimed Tepper’s relocation could cost the Garden State hundreds of millions of dollars. Frank Haines, New Jersey’s legislative budget and financial officer, noted that the state “may be facing an unusual degree of income tax forecast risk.” Tepper was one of the wealthiest men in New Jersey, earning more than $6 billion over the past three years; sources claim New Jersey could lose out on $300 million in income tax revenue annually to Tepper’s preference for South Beach over the Jersey Shore.

A number of other publications jumped on the story as well. In Forbes, Laffer lackey Travis Brown crowed, “When the departure of just one resident sends your state’s legislative budget office into a panic – it might be time to take a closer look at your tax policies.” Bloomberg blamed the state’s high marginal tax rates, noting that “1 percent of taxpayers contribute about a third of [income tax] collections.” (To the credit of the New York Times, they identify growing income inequality as one factor in lopsided income tax contributions).

It’s a familiar tale. Before David Tepper, it was Gerard Depardieu and thousands of French citizens fleeing high taxes. And before Depardieu, it was Phil Mickelson suggesting he would take his golf winnings and leave high-tax California for a more millionaire-friendly state. Art Laffer and Travis Brown have built a cottage industry peddling these “tax rate arbitrage” stories to amenable legislators and chambers of commerce around the country. But the claims don’t stand up to the barest scrutiny.

Take the case of New Jersey, at the center of the latest drama. Tepper is one man in a state of 8.9 million. He certainly wasn’t the only person to move out or into the state this year. Many observers have highlighted the increasing numbers of people leaving New Jersey, but the out-migration rate for 2014-15 was just 0.9 people per 1,000 residents; overall population increased by 19,169 over the same period. Moreover, the state increased its number of millionaire residents from 207,200 to 237,000 between 2006 and 2015. In 2014 the state ranked second overall in the percentage of households worth at least $1 million – a fact hard to square with the dire predictions of wealth flight.

Additionally there is a mountain of evidence disproving claims that the wealthy move just to pay a lower marginal tax rate on their higher earnings. If Us Magazine has taught us anything, it’s that stars – financial or otherwise – are just like us: they move for job opportunities, a change in scenery, or for personal reasons. In fact, sources close to David Tepper say he moved to Florida to be closer to his mother and sister.

And yet these tax tall tales persist, because they allow anti-tax advocates to push for low marginal tax rates and regressive policies that are more “friendly” to the wealthy. By focusing on the sad story of one fantastically rich person, they conveniently obscure the forest for one money tree.

For example, these low-tax boosters point to Florida, which has a reputation as a “low-tax” state. But by touting the Sunshine State’s nonexistent income tax, they ignore the rest of the state’s hugely regressive tax structure. As an ITEP report notes, “failing to levy an income tax comes at a cost. In order to pay for state and local government services, Florida’s sales and excise taxes are 18 percent above the national average. Measured relative to personal income, Florida has the 13th highest sales and excise tax collections in the entire country.” The bottom 20 percent in Florida – who earn an annual salary of $10,700 on average – pay almost seven times as much of their income in state taxes as the top 1 percent. These low-income working families face the fourth highest state and local tax bill in the country. Few can afford to move elsewhere, and they certainly don’t get coverage in the New York Times when they do.

This has been the aim of pushers of the tax migration myth all along – to skew state tax policies to the few at the expense of the many. In Connecticut, state officials regularly track and forecast the incomes of their richest 100 residents. When one plutocrat makes noises about moving, state officials meet with them and try to persuade them otherwise. Is this the kind of government we want: a rapid response team hyper-focused on a few dozen billionaires instead of the pressing needs of millions of ordinary citizens? Public policies designed to lure the wealthy instead of promoting broad-based economic growth? A friendly handshake for rich hedge fund owners, and a shakedown for the working poor?

Supply-siders would rather we focus on their anecdotes rather than the questions above. 

A Dividends Paid Deduction is the New Front in the Push for Corporate Tax Cuts

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It seems that each year there is a new “it” tax break for which advocates for cutting corporate tax breaks and their supporters rally. Last year the “it” tax break was a patent box and a few years back it was a repatriation holiday. This year the tax break du jour is the dividends paid deduction.

A dividends paid deduction would allow corporations to deduct from their corporate income taxes the cost of the dividends that they issue to shareholders. In other words, companies would get a tax break for paying out dividends to shareholders. Taken alone, this deduction would cripple the corporate income tax at an estimated cost of roughly $150 billion annually. At a time of growing income inequality and government austerity, enacting a massive cut in one of our country’s most progressive revenue sources would be counterproductive, to say the least.

Advocates of the dividends paid deduction argue that this policy would help end the “double tax” on corporate earnings. The biggest problem with this argument is that it wrongly assumes these earnings are being fully taxed at either the corporate and individual level. On the corporate level, a study by Citizens for Tax Justice (CTJ) found that large profitable corporations pay just over half the statutory rate in federal income taxes, meaning that almost half of corporate income escapes taxation. On the individual level, so much of dividend income is paid to tax exempt shareholders that only 35 percent of dividends are taxable, which means that nearly two-thirds of dividends are escaping taxation on individual side as well.

In addition, there is no reason that many corporations should not be subject to a tax wholly separate from a tax on the individual level. For legal purposes, corporations are treated as separate entities with legal rights and responsibilities (such as paying taxes). Corporations are also granted a series of economic advantages such as limited liability and the ability to be publicly traded.

Advocates of the dividends paid deduction have found a new champion in Senate Finance Committee Chairman Orrin Hatch, who held a hearing on the subject this week and is working on draft legislation that would enact such a deduction. While the details of the proposal have not been made public or scored, it appears that Hatch’s proposal would attempt to stem the enormous cost of the break by enacting a withholding tax that in effect eliminates the tax break for dividends paid out to tax exempt shareholders (which as discussed above constitute nearly two-thirds of shareholders). Even with this withholding tax, Hatch’s proposal would likely cost tens of billions annually.

Rather than buying into the latest corporate tax break fad, lawmakers should instead focus on closing the many outrageous loopholes that pervade our tax system, such as the inversion and deferral loopholes. Closing such loopholes would not only make our tax system fairer, but would also help raise much-needed revenue for public investments.