Tax Justice Digest: Ryan Blueprint — Trump — California Experiment

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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. 

House Speaker Paul Ryan Today Released a Proposal to Gut the Progressivity of the Federal Tax Code

In response to Speaker Ryan’s tax reform blueprint, CTJ Director Bob McIntyre released this statement discussing the harmful impact of the Speaker’s plan on tax fairness.

Donald Trump’s Nonsense Rhetorical Appeal to Bernie Sanders Supporters

In this post, CTJ Director Bob McIntyre highlights CTJ analyses of Donald Trump’s and Bernie Sanders’ tax plans to demonstrate the stark economic policy differences between the two.  

Would Ubiquitous Toll Roads Be Better Than a Gas Tax?

Next week California will launch an experiment to determine whether the state could repeal the gas tax and instead charge motorists for each mile they drive – essentially turning every public road into a toll road. ITEP research director Carl Davis weighs in.

West Virginia Legislative Session Wraps Up With Disappointment

West Virginia lawmakers closed their 17-day special session last week after agreeing on a budget bill, but lawmakers missed an opportunity to pass substantial reform. ITEP Senior Analyst Aidan Russell Davis describes the compromises made this year.  

State Rundown

In this week’s Rundown we highlight state tax news in Alaska, Louisiana, New Jersey, Pennsylvania and Rhode Island. Read the Rundown and check out our new “What We’re Reading” section here.


CTJ Director Bob McIntyre penned a op-ed that describes how Donald Trump and other wealthy real estate developers can exploit tax loopholes to pay little or no tax.

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

News Release: CTJ Statement on Speaker Ryan’s Tax Plan

June 24, 2016 11:40 AM | | Bookmark and Share

CTJ on Speaker Ryan’s Tax Plan:  Tax Cuts for Corporations and the Wealthy Never Have and Will Not Deliver on Promises of Economic Growth

(Washington, D.C.) Following is a statement by Bob McIntyre, director of Citizens for Tax Justice, regarding the release of House Speaker Paul Ryan’s tax reform blueprint.

“With rising income inequality, substantial deficits and lack of adequate revenue to fund public services, the nation should not be engaging in policy discussions about major tax cuts, especially cuts that primarily benefit the wealthy and corporations. But here we are—again. Speaker Ryan’s latest tax reform blueprint proposes to gut the progressivity and adequacy of our federal tax code via enormous cuts in top tax rates, multiple new tax breaks and corporate tax changes.

“Speaker Ryan proposes a major giveaway to corporations, cutting the statutory corporate income tax rate from 35 percent to 20 percent. At the same time, his plan would decimate the corporate tax base by exempting foreign profits from taxation and allowing the full expensing of capital investments. Even with the limited base-broadening measures Ryan proposes, it is likely that his plan will allow corporations to pay trillions less in taxes in the years to come.

“On the individual side, Speaker Ryan’s plan takes aim at the most progressive features of the tax code. First, he proposes to eliminate the estate tax, which only the richest of the rich, two of every 1,000 wealthy estates (0.2 percent) pays. In addition, Ryan plans to cut the top capital gains tax rate from 25 percent to 16.5 percent, which means an enormous windfall for the top 1 percent who enjoy about two-thirds of all capital gains income. Finally, Ryan would eliminate the alternative minimum tax, a measure that has long helped to ensure the wealthiest Americans pay at least a minimal tax rate.

“The only way that Speaker Ryan could possibly pay for such a costly, regressive plan is to double downby enacting draconian cuts to critical programs for middle- and low-income families.”


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Donald Trump’s Nonsense Rhetorical Appeal to Bernie Sanders Supporters

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It appears Donald Trump wants Bernie Sanders supporters to buy into the patently false notion that Trump is a populist candidate and their next best option. But Mr. Trump’s disingenuous rhetoric doesn’t pass the sniff test. 

During a teleprompter-aided speech on Wednesday, a pandering Trump made a direct appeal to Sanders’ supporters, saying that he would “fix a rigged system” that allows insiders to “keep themselves in power and in the money.”

The truth is that Trump’s proposals are quite the opposite of Sanders’. One clear illustration of Trump’s enrich-the-wealthy agenda is his tax plan, which hugely favors the top 1 percent. Sanders, of course, proposes big tax increases on the rich.

Trump would slash taxes by $12 trillion over ten years, while Sanders’ health care tax plan (which forms the bulk of his tax plan) would increase taxes by $13 trillion over 10 years. This means that Sanders and Trump have more than a $25 trillion disagreement on how much the federal government should collect in taxes over the next decade.

Trump and Sanders also have very different ideas on how taxes should be distributed and what they should be used to pay for. For his part, Sanders would focus his tax increases on the very wealthiest Americans. He would use that new revenue to enact a single-payer health care system that would mostly benefit low- and middle-income Americans. Overall, Sanders’ health care and tax plan would increase after-tax income for the middle 20 percent of Americans by an average of $3,240 a year, while cutting after-tax income for the top one percent of Americans by an average of $159,980 annually.

In utter contrast, Trump’s tax cut plan would increase income inequality by distributing trillions in tax cuts to the wealthy. In fact, the top 1 percent of Americans would receive 37 percent of the benefits from Trump’s $12 trillion tax cut. Making matters worse for those who are not among the wealthiest Americans, a tax cut of such dramatic size would inevitably require enormous cuts to spending programs and/or substantial tax increases to pay for its cost. When Citizens for Tax Justice (CTJ) produced a distributional analysis of his tax plan plus a probable scenario of spending cuts and tax increases to pay for the plan, it found that the middle 20 percent of Americans would  see a net loss of $2,076 on average annually under the Trump plan, while the wealthiest 1 percent would see a net benefit of $161,740. In other words, Trump’s tax plan would represent an unprecedented shift of income to the wealthy, while taking away substantial income and public services from the overwhelming majority of Americans.

It may sound good for Trump to claim that “together we can fix a rigged system.” Polls show a vast majority of Americans thing the deck is stacked against ordinary hardworking Americans. But no one should mistake Trump — who by the way won’t release his tax returns, which can reveal quite a bit about whether he has exploited our rigged system — for an economic populist. His rhetoric doesn’t match up with his explicit policy proposals. Instead, his tax policies would ensure that those who have the most wealth and power would get an even larger share of the income pie than they do now.  

West Virginia’s Session Wraps-up Yet Need for Revenue Remains

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After a contentious budgeting process, West Virginia lawmakers brought their 17-day special session to a close last week after agreeing on a budget bill, SB 1013. That legislation, along with a separate bill that increases tobacco taxes, has since been signed by the Governor. This resolution follows the budget impasse that ended the Mountain State’s regular session and a special session called to address the $270 million shortfall.

While these steps helped avoid a potential government shut-down and will raise a projected $98 million a year in much-needed revenue, the state’s budget woes are far from over. Rather, West Virginia joins a number of other states across the country that have used this legislative session (and election year) to punt on resolving their fiscal problems. The budget bill’s heavy reliance on budget cuts, tobacco tax increases, and one-time funds, including a $70 million withdrawal from the state’s Rainy Day Fund, are not long-term, sustainable solutions–leaving much work to be done in 2017 when lawmakers will face the possibility of a $300 million revenue hole.

This budget is the second to make it out of the Legislature. The first, which did not include any tax increases, was vetoed by Gov. Earl Ray Tomblin earlier this month. Revenue-raising proposals to apply the sales tax to telecommunications services and to increase the state’s sales tax rate on either a temporary or permanent basis fell short.

Tobacco tax increases–the result of much turmoil–were the sole source of revenue to make it through both the House of Delegates and the Senate. After much debate over the magnitude and scope of the increases, SB 1012 resulted in an estimated $98 million tax increase on cigarettes, e-cigarettes, and other tobacco products. West Virginia’s cigarette tax will increase by $0.65, bringing the tax up to $1.20 from $0.55 per pack, and e-cigarettes and vaping liquids will now be taxed at a rate of 7.5 cents per milliliter.

While the cigarette tax seems to often be seen as the politically feasible option, it is both a regressive and declining source of revenue. So, on average, low- and middle-income families will pay more of their income in these taxes than those with higher incomes. The revenue source will also decline over time due to the steady reduction in smoking rates and the per pack basis of the tax which does not account for inflation-adjustment. 

The $270 million budget gap that plagued lawmakers this session was largely the result of ill-advised tax cuts and low energy prices, neither of which seem to be going away anytime soon. Elimination of the state’s business franchise tax took full effect last year, and over the last several years the corporate income tax was reduced as well. To that end, the West Virginia Center on Budget and Policy recently wrote that had the state moved forward with all of Gov. Tomblin’s proposed tax increases, the revenue gain would still be smaller than the revenue loss from past tax cuts. That really drives home the need to either roll back cuts or consider equitable revenue solutions to remedy West Virginia’s structural budget shortfall.

Here’s to hoping that legislators come back fresh next session ready to consider the range of progressive revenue options worthy of consideration.

State Rundown 6/23: Budget and Tax Happenings

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Thanks for reading the State Rundown! Here’s a sneak peek: Alaska’s legislative session continues to drag on, sessions in Louisiana, New Jersey, Pennsylvania, and Rhode Island are potentially nearing their end and Philadelphia’s got a new soda tax. Don’t forget to check out What We’re Reading.

— Meg Wiehe, ITEP State Policy Director, @megwiehe

  • There is no immediate end in sight for Alaska’s legislative session, originally set to end in mid-April. This week Gov. Bill Walker called the Legislature back for yet another special session to consider tax and Permanent Fund legislation. Scheduled to reconvene in July, the Legislature will continue to grapple with ways to close the state’s $4 billion budget deficit. ITEP’s analysis of revenue options finds that an equitable solution cannot be reached without a personal income tax.
  • Louisiana’s special session to address a FY17 $600 million budget gap ends tonight at midnight. The House has approved $284 million in new revenue, the majority from an increased tax on HMOs and revised business tax credits. All significant income tax reform measures failed in the House, and the Senate has given up on reviving the proposal to eliminate the personal income tax deduction for state taxes. With $200 million less than expected corporate income and a $27 million accounting error, new revenues fall significantly short of what is needed to fill the hole—the TOPS scholarship program and safety net hospitals will likely feel the most significant cuts.
  • New Jersey’s tax debate and fiscal crunch are coming down to the wire this week and next, as the state’s Transportation Trust Fund (TTF) is set to run out of money for repairing and maintaining roads and bridges in the Garden State on June 30th. Raising the state’s gas tax, which has not been adjusted for inflation or changing needs since 1988, is the obvious way of shoring up the TTF. Yet in what the New Jersey Star-Ledger is calling “an astonishing capitulation,” the debate continues to focus largely on using the TTF crisis as an opportunity to pass tax cuts that primarily benefit the most well-to-do New Jersey residents.
  • Pennsylvania‘s Gov. Tom Wolf abandoned calls to raise revenue through the state sales or income tax this year. This is an unfortunate turn of events for the Keystone State. ITEP analysis found that the Governor’s proposal to increase the state’s flat personal income tax rate from 3.07 to 3.4 percent, coupled with increases to the state’s tax forgiveness credit to mitigate the impact on low-income families, would be an equitable solution to help address the state’s revenue shortfall.
  • The Philadelphia City Council approved a new tax on soda and sweetened beverages last week making it the first major US city to impose this additional levy. The estimated $91 million raised from the 1.5 cent per ounce tax will primarily be used to fund an expansion of the city’s early childhood education program.
  • The Rhode Island House and Senate approved an $8.9 billion budget that has already received praise from Gov. Gina Raimondo. The budget, in brief, provides a tax break for retirees, reduces the corporate minimum tax down to $400 from $450, cuts beach parking fees, increases education aid and expands the state’s Earned Income Tax Credit from 12.5 to 15 percent of the federal credit. 

What We’re Reading…

  • This Washington Post Wonkblog piece examines the impact of opposite approaches to tax policy in Kansas and California (bonus- it also features ITEP data).
  • The Kansas City Star takes down false claims from some lawmakers who are peddling misleading”’facts” to constituents about the state’s fiscal and economic health.
  • A new report from the Economic Policy Institute documents growing income inequality across the states.

Is Pay-Per-Mile Driven Better Than a Gas Tax? Experiment Gets Underway in California

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Next week California will launch an experiment to determine whether the state could repeal the gas tax and instead charge motorists for each mile they drive—essentially turning every public road into a toll road. 

But while a per-mile charge does have merit, California’s decision to expend so much effort studying this option while ignoring the preventable decline of its gas tax is problematic.

The Golden State’s per-mile experiment comes on the heels of a similar pilot program launched in Oregon last summer.  In both cases, officials’ main objective is to establish whether available technology—in the form of a smartphone app or standalone plug-in device—is reliable and secure enough to track distance traveled, and sometimes location, for a large number of vehicles.  California’s experiment is expected to include 5,000 volunteer drivers while Oregon’s currently has 1,018 vehicles enrolled.  Although smaller, Oregon’s experiment may be more ambitious: California’s experiment will last just nine months, but Oregon’s is slated to continue indefinitely.  And while California drivers will only make “simulated” payments, Oregon drivers can opt out of the state’s gasoline tax and choose to pay the per-mile charge in its place.

Putting aside concerns over technology and privacy, the basic idea behind this plan is sound.  Frequent drivers generate more wear-and-tear on the roads and should therefore generally pay more for roadway upkeep and expansion (low-income families unable to afford the charge are an exception but can be offered offsetting relief via a rebate or tax credit).

As things currently stand, this “user pays” objective is accomplished relatively well by existing taxes on gasoline, diesel, and other motor fuels.  Every state, as well as the federal government, currently levies an excise tax on these fuels and frequent drivers tend to pay more as a result.

In the long-term, however, it is likely that a sizeable share of drivers will own electric-powered vehicles that will be unaffected by the gas tax.  If and when this happens, a gas tax replacement will be necessary and a per-mile charge could become the cornerstone of transportation finance.  But with fully electric vehicles currently making up less than 1 percent of new vehicle sales, we’re not there yet.  While fuel economy is improving, the transportation funding shortfalls facing many states are not evidence that the current gas tax structure is on the verge of becoming obsolete.

Gas Tax Revenue Collections Are Falling Short, But There Is a Fix

Changes in vehicle fuel economy are only part of the reason gas tax revenues are falling short.  In fact, when we studied the causes of the gas tax’s decline in 2013, we found that more than three-fourths of the decline since the mid-1990s was unrelated to fuel economy improvements.  Instead, the main problem thus far has been stagnant tax rates failing to keep pace with predictable growth in construction and maintenance costs.  Typically, this has been because state and federal gas taxes are levied as fixed amounts per gallon and are adjusted only infrequently by lawmakers reluctant to vote for gas tax increases.

In California’s case, however, the problem is even worse.  Only July 1, the state will see its third gas tax rate cut in as many years, dropping the rate by almost 12 cents per gallon relative to where it stood in the summer of 2013.  This decline has come about because California’s gas tax is linked to the volatile price of fuel.  It has nothing to do with changes in vehicle fuel economy and could have been easily avoided with a restructuring of the formula used to calculate the state’s gas tax rate.

If lawmakers in California and elsewhere want to pursue a meaningful, sustainable strategy for funding transportation right now, a per-mile charge is not the answer.  For starters, as we’ve explored in earlier reports, per-mile charges are no better prepared for inflation than existing gas taxes.  Regardless of whether drivers are taxed per-mile or per-gallon, revenues will fall short in the long-term unless the tax rate is indexed to inflation.  Florida, Georgia, Maryland, Rhode Island, and Utah already index their gas tax rates, and unlike per-mile charges whose widespread implementation is still years away, inflation indexing can be implemented almost immediately.

Moreover, if lawmakers are concerned about the impact that fuel economy improvements are having on the gas tax, Georgia’s 2015 gas tax reforms offer a practical, implementable model that other states can follow.  Going forward, Georgia’s gas tax rate will be allowed to rise alongside improvements in average fuel economy.  For instance, if average fuel economy were to double from 20 to 40 miles per gallon, Georgia’s gas tax rate would double as well, leaving the average driver paying the same amount of tax per mile driven.

Of course, even these reforms will not be sufficient if many or most Americans eventually begin driving electric cars rather than gasoline-powered ones.  The experiments underway in California and Oregon are important steps toward preparing us for that future.  But we don’t have the luxury of planning for the future while ignoring the needs of the present.  To deal with the shortcomings that exist in our infrastructure right now, gas tax reform—not a per-mile charge—is the answer.

Tax Justice Digest: Microsoft — LinkedIn — LA, NC and PA Update

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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.  

Corporate Tax Watch: LinkedIn and Microsoft

How is Microsoft buying LinkedIn? By borrowing $26 billion and essentially using its $108 billion in offshore cash as collateral. CTJ Director Bob McIntyre writes about this perfectly legal tax dodging deal here.  

LinkedIn has a tax avoidance problem. The company generates tax breaks faster than it can use them. Read how this could be a gain for Microsoft.

Our Take on Menu of Louisiana Tax Proposals

Louisiana lawmakers are in their second special session of the year to address the state’s budget shortfall before the new fiscal year begins July 1. ITEP Senior Analyst Lisa Christensen Gee reminds us that fiscal duct-tape should be avoided and reviews the key tax proposals here.

Guest Blog Post: North Carolina Senate Measure Increases Costs and Hurts Communities

Cedric Johnson from the North Carolina Budget and Tax Center writes about the push by some North Carolina Senators to change the constitution to cap the state’s income tax rate. Read Cedric’s guest post here.

IRS Should Strengthen its Country-by-Country Reporting Rules

Offshore tax avoidance costs governments worldwide hundreds of billions of dollars in lost revenue. The IRS just issued new rules about the need for country-by-country reporting, but those rules don’t go far enough. Read more.

Pennsylvania: Budget Countdown

Will Pennsylvania’s budget be ready by July 1? Here’s the latest on where things stand in Harrisburg from ITEP Senior Analyst Aidan Russell Davis.

State Rundown

In this week’s Rundown we highlight state tax news in: Louisiana, Michigan, New Jersey, Missouri, North Carolina, and West Virginia. We are also debuting a new feature: News We’re Watching. Read the full State Rundown here.

Sharable Tax Analysis

ICYMI: CTJ recently wrote a thoughtful piece on what real tax reform looks like. Check out the three guiding principles for tax reform here 

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

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

Pennsylvania’s Budget Countdown: Will It Be Ready by July 1?

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With the recent nine-month budget stalemate fresh in everyone’s memory, Pennsylvania legislators are vigorously working to avoid another multi-month budget impasse as fiscal year 2017 quickly approaches. With a $1.8 billion structural revenue gap and deep cuts to services at stake, time is of the essence. 

No one seems to know how Pennsylvania’s budget negotiations will shake out this year, including the Governor. House and Senate Republican leaders push to resist tax increases and focus on changes to the retirement system and the state system for wine and liquor sales seems to be setting the stage, but advocates for good tax policy are on the ground making the case for a responsible budget and a fairer state tax system.

I spent some time last week in Harrisburg discussing the state’s budget and the potential for tax policy changes at the Keystone Research Center’s 20th Anniversary Conference. As I emphasized at the conference, Pennsylvania lawmakers have plenty of progressive revenue raising options to choose from to help maintain adequate and equitable levels of funding for vital public services and close their $1.8 billion budget gap.

Since taking office in 2015, Gov. Tom Wolf has proposed several revenue raising options to address the state’s revenue crisis, including: a $1 per pack cigarette tax increase; 40 percent tax on the wholesale price of other tobacco products; expansion of the state’s sales tax base to include cable television services, movie theater tickets, and digital downloads; and a 6.5 percent shale tax on natural gas reserves. Most recently, he proposed increasing the state’s flat personal income tax rate from 3.07 percent to 3.4 percent, coupled with increases to the state’s tax forgiveness credit that would mitigate the impact on low-income families. According to our analysis, this proposal would raise more than a billion dollars of much-needed revenue for state services each year. 

However, these revenue raising proposals have gained little traction. The 2015-16 budget passed by default when Gov. Wolf neither signed or vetoed the bill claiming that it did nothing to tame the state’s structural deficit. Tax increases will, however, continue to play a role in the ongoing budget debate. And the way in which proposed taxes impact low- and middle-income families should be at the forefront of that conversation.

Pennsylvania has one of the most regressive tax systems in the nation. In 2015 the lowest-income taxpayers paid 12 percent of their income in taxes – this is nearly three times the 4.2 percent rate paid by the top 1 percent of earners. This imbalance is largely due to Pennsylvania’s reliance on a flat personal income tax rate and its lack of refundable tax credits. The state’s flat tax does very little to offset the regressivity of the rest of the taxes the state levies, including its heavy reliance on sales/excise and property taxes.

There are a number of steps Pennsylvania lawmakers can take to move toward a “fairer” tax system. If the goal is to raise revenue in an equitable fashion, here are a few possible approaches:

  • Increase the personal income tax rate.
  • Levy higher rates on capital gains or other forms of nonwage income.
  • Revisit costly exemptions already on the books – such as the complete exemption for retirement income.
  • Expand the sales tax base to include services and pair that reform with a targeted tax credit to mitigate the effect on low-income Pennsylvanians.
  • Amend the restriction against taxing any given class of income at different levels (thereby allowing for a more progressive, graduated rate income tax).

To offset the impact on those families least able to afford a higher tax bill, any of these options could be paired with expanded tax forgiveness credits, a new personal exemption or, better yet, refundable low-income credits such as the Earned Income Tax Credit (EITC).

Microsoft’s New Plan to Avoid $9 Billion in Taxes

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Some of America’s most notorious offshore profit-shifters have found a new way to use the huge amounts of cash they’ve stashed in tax havens without paying the taxes they owe.

The latest is Microsoft, which is funding its takeover of LinkedIn by borrowing $26 billion, essentially using its $108 billion in offshore cash as collateral. By financing the purchase instead of paying for it outright, Microsoft will reportedly avoid $9 billion in federal income taxes this year and save more in years to come through tax deductible loan interest.

Microsoft is following in the footsteps of Apple, which used some of its more than $200 billion in untaxed offshore profits last year as implicit collateral to finance a $6.5 billion stock repurchase to boost its stock price. By structuring the deal as a loan, Apple avoided nearly $2 billion in taxes it would have had to pay if it used its offshore cash directly.

As law professor Edward Kleinbard told Bloomberg News, Microsoft’s (and Apple’s) borrowing is tantamount to “a tax-free repatriation.” Companies awash in untaxed offshore cash should not be allowed to use that money to back investments in the United States without paying the billions in taxes that they should pay.

Microsoft, for example, claims that, for tax purposes, 55 percent of its total profits are earned by three offshore tax-haven subsidiaries, despite the fact that these subsidiaries have only two percent of Microsoft’s workforce. This explains why Microsoft has paid only a 3 percent tax rate so far on the profits it pretends it earned offshore, meaning that the company owes $34.5 billion on that $108 billion cash hoard.

The problem of shifting earnings offshore to avoid taxes goes far beyond Apple and Microsoft. According to CTJ’s latest estimate, U.S. companies now hold $2.4 trillion in largely untaxed profits offshore, which has allowed them to avoid nearly $700 billion in U.S. taxes.

 At this point, our international tax laws have almost no connection to reality.

Ordinary working people can’t pretend we make our money in the Cayman Islands or other tiny no-tax places. But sadly, multinational corporations can do so. And their preposterous offshore tax-avoidance schemes will continue to proliferate until our lawmakers wake up and stop letting multinational corporations shift their tax responsibilities onto the rest of us.

State Rundown 6/16: Budgets, Tax Debates, and Legislative Progress

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Thanks for reading the State Rundown!

Here’s a look at what we’re thinking about this week: the latest on Louisiana’s second special session, North Carolina’s Senate took steps to constitutionally cap the state’s income tax rate, West Virginia lawmakers passed a budget, “dark store” drama in Michigan, some in Missouri want to freeze sales the state’s tax base, and tax debates rage in New Jersey.

We are also debuting a new feature, News We’re Watching. After the Rundown you’ll see links to what our staff is reading this week. I’d love to hear from you especially about this new feature. Feel free to reach out on Twitter @megwiehe.

Lastly, this week Carl Davis, our Research Director, joined Twitter. Follow him @carlpdavis

 — Meg Wiehe, ITEP State Policy Director, @megwiehe

In the second special session this year to address budgetary gaps, the Louisiana House Ways and Means Committee narrowly approved a complicated measure yesterday that would turn a costly tax deduction claimed mostly by households making over $100,000 into a short-term lending mechanism to the state. As originally proposed, HB 38 would permanently limit the itemized deductions in excess of the standard deduction taxpayers could claim to 57.5 percent. The amended bill exempts charitable and mortgage interest deductions from the 57.5 percent limitation and temporarily suspends the availability of the deduction until 2018, at which point taxpayers can claim the lost value of the deduction from the previous two years. The amended bill is estimated to raise $115 million of the $600 budget gap, but would create a liability of over $250 million in 2018—the same year the state is scheduled to lose $1 billion in revenue from temporary tax increases enacted in March, most notably the 1-penny sales tax increase. HB 38 goes to the full House today.

Also, the Louisiana House  voted down contingent bills HB 7 and HB 17, which would have eliminated the deduction for federal personal income taxes while creating a flat tax with a problematic capped rate—measures that would not address the state’s immediate revenue needs and severely limit the ability of lawmakers to raise revenue in the future through the progressive income tax. The Louisiana Senate will consider a bill today that would require oil, gas, and chemical companies to choose between two tax breaks, which if passed, would raise $146 million in revenue for the next budget cycle.

North Carolina Senators approved a bill this week that would change the state’s constitution to prevent the state’s income tax rate from ever going above 5.5 percent (the 2017 rate is 5.499%) via a voter referendum.  As our guest blogger Cedric Johnson wrote earlier in the week, the cap would forever lock in recent tax decisions that have primarily benefitted wealthy North Carolinians, force higher sales and property taxes, tie the hands of future lawmakers, and cut off a vital source of revenue needed to invest in education and healthy communities.  The bill was scheduled to go to the Senate floor on Wednesday, but at the last minute was pulled and moved to Saturday, June 25th a sign, according to the NC Budget and Tax Center, that the tax cap will be linked to budget negotiations in order to get the House to play along.

The West Virginia Legislature passed a compromise budget (SB 1013) earlier this week to close the state’s $270 million budget shortfall, bringing their 17 day special session to an end as they await Gov. Earl Ray Tomblin’s signature. After vetoing an earlier budget proposal that did not include any tax increases, Gov. Tomblin is expected to sign off on this version of the budget which includes a $98 million tax increase on cigarettes, e-cigarettes, and other tobacco products, a $70 million withdrawal from the state’s Rainy Day Fund, and a range of budget cuts. $15 million in funding for the Public Employee Insurance Agency to offset premium increases for retirees and reduce premium increases and benefit cuts for current employees helped seal the deal. Other approved measures include the restoration of funding to the Volunteer Fire Department Workers’ Compensation Premium Subsidy Fund and providing current year financial support to Boone County Schools.

With big-box retailers increasingly using a tactic known as the “dark store” method to avoid property taxes on brand-new multi-million-dollar stores, Michigan legislators are fighting back. The “dark store” method involves challenging property appraisals by arguing that they should be based on the value of nearby vacant and obsolete retail stores, while also building restrictions into the deeds of such stores that make them virtually worthless to any would-be buyers. The retailers point to those “dark stores” and deed restrictions (such as prohibiting a hardware store building from being used as a hardware store again if sold) to challenge their appraisals and drastically reduce their property taxes in the process.  Local governments in Michigan have already lost more than $200 million due to this dubious practice. Legislation that would clarify the rules and steps for property appraisals to ensure this tactic cannot be used in the future passed through the Michigan House late last week and now moves to the Senate.

Most state sales taxes were created in a time when buying tangible goods (scissors and combs, for example) was far more prevalent than buying services (like haircuts). Over the last few decades, as the U.S. economy becomes more and more service-based, many states have attempted to update their sales tax laws to include more services. Regrettably, some voters in Missouri are working to freeze that state’s tax code in the past, as signatures have been gathered to put a constitutional amendment on the ballot in November to restrict the sales tax from ever applying to any “service or activity” not already subject to tax.

 Tax debates continue to rage on in New Jersey, where the state’s Transportation Trust Fund is only funded until June 30. Legislators in both the House and Senate are working on plans to raise the state gas tax — which is one of the lowest in the nation and has not been updated since 1988 — to ensure funding for the state’s roads and bridges continues. But Gov. Chris Christie insists he won’t sign such a measure unless it also includes major tax cuts. The plans proposed thus far include a number of tax cuts for various groups in hopes of either winning over Gov. Christie or securing enough votes to override his veto. Some of the recent proposals have included a repeal of the state’s estate tax, an expansion of the existing pension and retirement income exclusion, an expansion  play along.the state Earned Income Tax Credit, and a new deduction for charitable contributions. With so much at stake and so many components to multiple tax packages, it will be a bumpy ride to close out the month in the New Jersey legislature.

News We’re Watching:

Here’s a few other state tax-related stories that caught our eyes this week:

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 Kelly Davis at Click here to sign up to receive the Rundown via email.