Tax Justice Digest: Making Sense of Tax Policy and the Debate, Trump’s Tax Plan and State News

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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.

The Debate
During the presidential debate, both candidates seized on tax issues. CTJ analyst Richard Phillips attempts to make sense of the spin, by explaining the difference between a value-added tax (VAT) and a tariff and outlining how cutting taxes and debt reduction are opposing ideas. Read more

Trump’s Tax Plan
CTJ this week released a distributional analysis of Donald Trump’s latest tax proposal. The plan would add $4.8 trillion to the debt over a decade and reserves the greatest share of tax cuts (44 percent) for the richest 1 percent. Although the plan cuts taxes across the board, it increases taxes for some demographic groups. Read more

Increasing Transparency
When it comes to corporate tax data, the gatekeeper is a little known organization called the Financial Accounting Standard Board (FASB). ITEP used a comment letter this week to make the case to FASB for how more disclosure could help inform the public and lawmakers on how to best reform our tax code. Read more

State Rundown
This week’s state rundown discusses proposed new (or increased) taxes in Missouri, Illinois, Louisiana, California and Oregon and the spread of ‘dark store’ tax avoidance practices across the states. Read more

Offshore Tax Avoidance
Last week, Rep. Mark Pocan introduced the Corporate Transparency and Accountability Act, a bill that would require all publicly traded multinational companies to disclose their revenues, profits, taxes, and certain other operations information on a country-by-country basis (CbCR) to the Securities and Exchange Commission (SEC). Read more

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

The Financial Accounting Standards Board and a New Opportunity for Transparency

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For those concerned with the fate of our corporate tax code, perhaps the most important organization to watch right now is the Financial Accounting Standards Board (FASB). While not well-known to those outside the accounting profession, FASB plays a critical role as the organization that sets the standards for what appears in corporate financial statements. What makes this role so important to the corporate tax debate is that FASB can require corporations to disclose information about the tax rates they pay in the U.S. and abroad—and is currently reevaluating its tax disclosure requirements.

One of the fundamental problems with the debate around our country’s corporate tax code is the lack of transparency on exactly how much companies are paying in taxes and how they structure their offshore operations. To the extent that this data is available, it comes in the form of companies’ publicly disclosed financial statements. For their part, Citizens for Tax Justice (CTJ) and the Institute on Taxation and Economic Policy (ITEP) rely heavily for these reports to estimate the effective tax rates of different companies or estimate how much companies may owe in taxes on their offshore income. While these reports provide critical insights into our corporate tax code, they are only as good as the data that financial statements provide and unfortunately this data is lacking in a number of important ways.

As an example, one of the biggest information gaps in current financial statements is that the overwhelming majority of companies with offshore earnings fail to report how much they would owe in taxes if they were to repatriate these earnings back to the United States. In fact, out of the 298 Fortune 500 companies that report offshore earnings, only 58 companies disclose how much in taxes they would owe on this money on repatriation. This incomplete disclosure makes it difficult for lawmakers and the public to assess the extent to which companies are holding these earnings in tax havens to avoid U.S. taxes.

For the past few years, FASB has undertaken a wholesale overhaul of its disclosure requirements in order to make them more effective. Recognizing many of the problems with income tax disclosures, FASB recently proposed draft rules expanding the disclosure of income tax information and related information. While the changes FASB is proposing are helpful, in a comment letter to FASB sent today, ITEP called on the board to use this disclosure review process to bring complete transparency to company filing by requiring them to publicly disclose basic tax and financial data on a country-by-country basis.

If FASB required companies to disclose their income, revenues, assets and income tax paid on a country-by-country basis, this information would reset the corporate tax debate by providing a more complete picture of the operations and tax status of our nation’s corporations. The public would be able to see more clearly the extent to which the nation’s largest companies are engaging in tax avoidance. With this information in hand, the public and their representatives could make a better informed decision about the ways in which our corporate tax code needs to be reformed.

Even minor expansions to the current disclosure rules could prove important to the corporate tax debate. For example, FASB proposes to require companies to report their income taxes paid both in the United States and abroad. This information would better inform the debate on the corporate tax code by allowing the public access to a second measure of companies’ domestic effective tax rate.

While the work of FASB is often unappreciated, its decisions over the next few months will have important implications for our understanding of the corporate tax code and the reforms that it needs. Hopefully, FASB’s work will add greater transparency to the murky corporate tax debate.

Making Sense of Tax Issues Raised During the First Presidential Debate

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Tax policy has figured prominently in this presidential election cycle, with both major party candidates releasing tax proposals and, on the campaign trail, frequently discussing how their tax policy changes would affect Americans.

Hillary Clinton has released a tax plan that would increase taxes on wealthy Americans and increase federal revenue by more than a trillion dollars over the next decade. Donald Trump proposes a tax cut that will cost an estimated $4.8 trillion over a decade and would largely benefit the wealthy.

During Monday night’s debate, both candidates seized on the tax issue. Below are some clarifications of the political spin.

Large Tax Cuts and Debt Reduction Don’t Go Together

Throughout the debate, Mr. Trump several times pointed to the nation’s $20 trillion national debt as a reason to change course on fiscal policy. At the same time, he proposes an-across-the-board tax cut of at least $4.8 trillion of which the lion’s share, 44 percent, would go to the richest 1 percent of households. Reducing annual deficits and cutting taxes on this scale are incongruous policy ideas, particularly if there are no plans to slash spending on the same scale.  According to an analysis by the Committee for Responsible Budget (CFRB), Mr. Trump has only proposed about $1.2 trillion in net spending cuts over the next 10 years, which does not come close to making Trump’s tax cut plan budget neutral.

In fact, CFRB estimates that the added interest payments from the cost of deficit-financing his tax cuts would wipe out more than half the spending cuts he is proposing. In other words, Trump’s plan would dig the country trillions deeper into debt, not help the country get out of it.

Secretary Clinton’s tax plan would enact a series of tax increases on the wealthiest Americans, including the so-called Buffett Rule, a separate surcharge on income over $5 million and ending the stepped-up basis loophole on capital gains income. The plan also includes a series of tax breaks to incentivize corporate profit sharing and for caregiving and excess out-of-pocket healthcare costs, among other ideas. From a deficit perspective, Secretary Clinton has ensured that all of her new spending and tax break proposals are matched up with revenue increasing proposals that ensure that they do not add to the deficit. Unfortunately, with the country facing a deficit of more than $9 trillion during the next decade, substantially more revenue than Secretary Clinton is proposing is needed just to keep up with the existing revenue gap.

Corporations’ Offshore Cash Could Provide an Influx of Revenue, But …

During the debate, Mr. Trump alluded to multinational corporations’ $2.4 trillion in earnings stashed offshore and his plan to enact a deemed repatriation rate of 10 percent on these earnings. He seemed to be supporting the ideologically driven argument that corporations are stashing money offshore because the U.S. corporate tax rate is too high and if the U.S. lowered its rate or provided a discounted rate upon repatriation, as some lawmakers have advocated, the U.S. could tap into this tax revenue.

Secretary Clinton said during the debate that she supports the “bringing back of money that’s stranded overseas” and that she does not believe Mr. Trump’s proposals would accomplish the repatriation of funds he’s betting on. Unfortunately, Sec. Clinton did not elaborate during the debate on her specific objections to Mr. Trump’s repatriation proposals, and her campaign has not laid out a specific plan on business tax reform. However, her campaign has specified that it would raise $275 billion from business tax reform, which tracks closely with the amount that would be raised through President Barack Obama’s 14 percent deemed repatriation proposal, a rate that is not substantially higher than Mr. Trump 10 percent proposal.

On the corporate tax argument, it is important not to buy into political rhetoric that says our U.S. businesses are faltering. U.S. corporations are competitive and profitable. The average effective tax rate for profitable Fortune 500 corporations is just 19.4 percent, just over half the statutory rate of 35 percent. In fact, far too many profitable, large corporations pay nothing in taxes in many years. From a comparative perspective, the U.S. corporate tax level is below average compared to other for developed countries.

The real issue with regard to corporations holding trillions in profits offshore to avoid U.S. taxes is that our federal tax system allows companies to defer paying taxes on foreign profits until they are repatriated, which creates an incentive for companies to engage in accounting tricks and book U.S.-earned profits in offshore tax havens. Rather than give companies huge tax breaks, the better solution would be to simply close the loopholes that allow companies to move offshore and to require companies to immediately pay U.S. taxes on their offshore earnings.

What Can We Learn From Candidates’ Tax Returns?

Mr. Trump reiterated during the debate that he does not plan to release his tax returns because they are under audit and went on to argue that not much information can be deemed from tax returns in any case. Both points get wrong important facts about tax return information.

First, the IRS has already stated that Mr. Trump can release his tax returns, even those under audit. More importantly and to state the obvious, tax returns provide critical information about whether a candidate is paying taxes, their effective tax rate, their charitable contributions, and in the case of Mr. Trump, information about his business dealings. Finally, tax returns provide a great deal of information on a person’s business and financial relationships and can reveal private conflicts of interest. In 2012, we learned that Mitt Romney, despite great wealth, paid a lower effective rate than many middle-class families. We also know, for example, information about how and from whom Secretary Clinton and former President Clinton earned their money, and we also know how much they have contributed to their charitable foundation and what their effective tax rate is. Furthermore, although not required by law, every Republican and Democratic presidential candidate since Richard Nixon (Gerald Ford released a summary) has released their tax returns.

The Value-Added Tax (VAT)

Mr. Trump raised Mexico’s VAT during a discussion of NAFTA and trade. In so many words, he said Mexico’s VAT puts U.S. exporters at a disadvantage because it places a “16 percent, approximately” tax on U.S. products. It’s important to note that Mexico’s VAT is not a tariff. The consumption tax also applies to domestically made products, meaning that the VAT gives no tax advantage in Mexico to buying Mexican over American products. Moreover, Mexican products also face a similar tax in the U.S. in the form of the state and local sales taxes levied by most states. And of course, Mexico is far from the only nation to levy a VAT. If Mr. Trump is pure in the idea that VATs put U.S. exporters at an economic disadvantage, then he would have to shut down trade with France, Germany, Great Britain and a host of countries across the globe.  

Trump’s Extensive Tax Breaks Highlight Flawed Economic Development Strategies

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A New York Times investigation of the extensive tax breaks that Republican presidential nominee Donald J. Trump’s business enterprises received over the past several decades is helping to bring scrutiny to the practice of local property tax abatements and other local economic incentives. Local officials consistently afforded Trump deals which allowed him to pay very little in taxes on the properties he has built and in some cases totally recoup building costs through tax forgiveness.

The article focuses on the nine construction projects Mr. Trump has overseen in New York City since his solo developer debut in 1980. According to the article, Trump’s real estate development projects have “reaped at least $885 million in tax breaks, grants, and other subsidies” in New York City alone. The largest and most detailed example the article discusses is how Trump’s Grand Hyatt Hotel, which cost an estimated $120 million to build in 1980, has received $359.3 million in forgiven or uncollected taxes to date due to a 40-year deal he struck with the city.

The New York Times’ case study on Trump’s tax treatment is just one example of bad economic development policies that state and local governments adopt all too often. A Good Jobs First study of more than 4,200 economic incentive awards in 14 states (including New York) found that 80 to 96 percent of funds went to large corporate interests. These interests, while promising to bring a plethora of well-paying jobs to communities, often do not deliver on their promises, or do so but only at a very high cost to the community.

This cost comes in the form of decreased tax revenues for the local government. Large firms have little incentive to invest in a community compared to small businesses because the success of the overall corporation depends very little on any single community. Meanwhile, the “business friendly” tax deals afforded to the companies deplete local funds for infrastructure and education, deteriorating the long-term human capital necessary to build a sustainable economy by attracting businesses that require skilled workers for high-paying jobs.

Trump is just one of many developers who use tax incentive programs intended to revitalize economic growth. Sadly, Trump’s business dealings are being reported on only because he is running for President. These developers often fall very short of their economic promises while profiting hugely from taxpayer money. Local and state governments should stop using tax incentives and other subsidies to attract businesses and encourage economic development. Instead, they should expand education opportunities and infrastructure spending to directly invest in their communities and cultivate the skills that top-ranking firms need.

State Rundown 9/28: The Quest for New Taxes

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This week we are bringing you news of proposed new (or increased) taxes in Missouri, Illinois, Louisiana, California and Oregon and the spread of ‘dark store’ tax avoidance practices across the states.  Thanks for reading the Rundown!

— Meg Wiehe, ITEP State Policy Director, @megwiehe

  • Missouri voters will officially be considering two proposals to increase state tobacco taxes, either by 60 cents per pack over four years or 6 cents over six years. A helpful breakdown of the two proposals and how revenues would be distributed is available here.
  • In Illinois, Cook County Board President is considering adopting a tax on sugary beverages to close a $174 million budget gap.
  • Members of the Governor’s Task Force for Transportation Infrastructure Investment are considering a gas tax increase as a viable way to meet Louisiana‘s infrastructure needs. The last time the state raised its gas tax was in 1984.
  • Cities across California may start taxing online video streaming services, following the lead of Pennsylvania, Minnesota, and Chicago.
  • Among the parties weighing in on Oregon‘s gross receipts tax on large businesses (Measure 97) are former Oregon governors and the unlikely tax policy adviser Kansas governor Sam Brownback.
  • The “dark store” tactic – by which big-box retailers like Lowe’s are challenging their property tax valuations and undermining funding streams for schools and other local services – is spreading across the country and now hitting Alabama in a big way. Meanwhile, new Northern Michigan University-produced documentary “Boxed In” chronicles that state’s fight over the issue.

What We’re Reading…  

  • A new report from the Rockefeller Institute of Government warns of “slow and highly uncertain” revenue growth for states in FY 2017, which could foreshadow budget cuts ahead.
  • Pew Charitable Trusts reports that record money is being spent on state ballot campaigns across the nation in the leadup to November’s election.
  • The Center for American Progress released a tax simplification plan that will “work for everyone.”
  • California’s Legislative Analyst’s Office has released a report examining the impacts of Proposition 13—the landmark property tax limitations enacted back in 1978.
  • A new report from the Council of Economic advisors examining progress made on income inequality under President Obama includes the impact of tax policy changes such as an expansion of the Earned Income Tax Credit and a rollback of the Bush era tax cuts for the wealthiest households.

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 Meg Wiehe at Click here to sign up to receive the Rundown via email.

The Distributional and Revenue Impact of Donald Trump’s Revised Tax Plan

September 26, 2016 01:52 PM | | Bookmark and Share

Read this report in PDF.

A new Citizens for Tax Justice (CTJ) analysis of the revised tax plan proposed by presidential candidate Donald Trump in September finds that the plan would reduce federal revenues by at least $4.8 trillion over the next decade while cutting taxes for all income groups. The analysis also shows the wealthiest top 1 percent of taxpayers’ share of the tax cut would be 44 percent.

Revenue Impact

Trump’s revised tax proposal would reduce federal revenues by $4.8 trillion over the next decade. Of that, $2.1 trillion would be due to personal income tax and payroll tax cuts; $2.4 trillion would be due to corporate tax cuts, and another $0.3 trillion in revenue loss would be due to repeal of the federal estate tax. It is important to note that this revenue estimate does not factor in the effect of reducing the personal income tax rate on “pass-through” income to 15 percent, a provision that Trump has irregularly indicated would be part of his plan. Adding a 15 percent pass-through rate would add as much as $1.6 trillion to the ten-year cost of the plan, bringing its total cost to $6.4 trillion.

Distributional Impact

The revised Trump plan would cut taxes overall for each income group. The largest tax cuts, as a share of personal income, would go to those in the top 1 percent of the income distribution. This group, with incomes averaging $1.7 million in 2016, would receive tax cuts averaging 5.1 percent of their income or $88,000.

The top 1 percent would also collectively enjoy a bigger share of the tax cuts than any other income group: 44 percent of the tax cuts would accrue to this group in 2016. By contrast, the top 1 percent’s share of nationwide personal income is 21.6 percent and their current share of total income taxes paid is about 23.6 percent. Trump’s proposed tax would reduce the share of total taxes paid by the top 1 percent of taxpayers, thus making the federal tax system less progressive.

Low- and middle-income families would see tax cuts averaging much less, between 1.3 and 1.7 percent of their income. The poorest 20 percent of Americans would see tax cuts averaging $200 if the Trump plan were implemented immediately, while middle-income taxpayers would see an average tax cut of $818.

However, not all families within each income group would receive tax cuts. Some middle- and low-income families’ taxes would go up under Trump’s plan because the bottom income tax rate would increase from 10 to 12 percent under the plan, or because their taxable income might increase.

Those potentially seeing tax hikes include:

Families Currently Paying at the Lowest 10 Percent Tax Rate. Under current law, a married couple pays a 10 percent tax rate on the first $18,550 of taxable income in 2016, with a 15 percent rate applied on income over that threshold. Under Trump’s plan, a higher 12 percent rate would apply to the first dollar of taxable income, and to the first $75,000 of taxable income. This means married couples with low incomes will pay a 2 percent higher tax rate on their first $18,550 of taxable income than they do now. In some cases, new tax benefits provided by the Trump tax cuts would be insufficient to offset this initial tax hike.

Childless Couples Who Itemize. Trump’s proposal would repeal personal and dependent exemptions and replace them with an expanded standard deduction and generous new deductions for dependents. Since childless couples with large itemized deductions would benefit from neither of these tax breaks, the loss of personal exemptions could result in substantial tax increases that are not offset by reductions in tax rates.

Heads of household. Unmarried taxpayers with dependents, including single parents, can currently claim “head of household” status for tax purposes, which gives them larger exemptions and deductions and broader tax brackets than those available to other single taxpayers. Trump’s plan would eliminate this status. Taken on its own, this change would increase taxes for many heads of household. For example, under current law single parents pay at the 25 percent marginal tax rate on taxable income exceeding $50,400. The Trump plan would apply the 25 percent tax rate to single parents’ taxable income exceeding $37,500.

Families with Children Over the Age of 13. Trump proposes to replace personal exemptions, which are given on a per-family member basis, with a larger standard deduction—which does not increase with family size. While Trump’s proposed new dependent care tax breaks will help offset this tax hike for many families, the new breaks are available only for children under the age of 14. This means families with older children are more likely to see a tax hike under this plan.

Itemizers. One of the revenue raisers in Trump’s plan is a provision capping the total value of itemized deductions at $200,000 for married filers ($100,000 for all others). For some upper-income families, this provision will reduce their deductions and make more of their income subject to tax. For middle- and lower-income families who itemize, the expansion of the standard deduction will offer less, and sometimes no, benefit, increasing the likelihood that these families will see tax increases overall.

Proposed Policy Changes in the Trump Plan

On the personal income tax side, Trump proposes to:

  • Reduce personal income tax rates for most taxpayers by creating a three-bracket system with rates of 12 percent, 25 percent and 33 percent on regular income, with top rates applying to taxable income exceeding $225,000 for married couples, $112,500 for all others.
  • Capital gains tax rates in the three brackets would be 0, 15 and 20 percent. Carried interest would no longer be taxable at the reduced capital gains rates.
  • Repeal the Alternative Minimum Tax.
  • Eliminate the Net Investment Income Tax on high-income taxpayers that was enacted as part of President Obama’s health care reforms.
  • Increase the standard deduction from $12,600 to $30,000 for married couples, and to $15,000 for all other taxpayers.
  • Cap the total value of all itemized deductions at $200,000 for married couples, $100,000 for all other taxpayers.
  • Eliminate personal and dependent exemptions, which in 2016 are $4,050 per family member.
  • Introduce a new dependent exemption, nominally for child care costs, but apparently available to all families with children under 13 and incomes under $500,000 (married) or $250,000 (all others).

Trump’s proposed corporate tax changes include:

  • Reduce corporate tax rate to 15 percent.
  • Optional full expensing of capital investments (in exchange for giving up deductibility of interest payments).
  • Repeal manufacturing deduction and all other tax credits except R&E credit.
  • One-time deemed repatriation tax on offshore profits at 10 percent rate.

Trump would also repeal the federal estate tax, but would disallow stepped up basis for estates valued at more than $10 million. This analysis excludes the impact of the stepped up basis provision due to insufficient data.

Methodological Notes

This analysis excludes some components of the Trump plan, either because these components have not been fully specified or because data limitations prevent analysis. Most notably, the analysis excludes the rate reduction for “pass through” business income that Trump previously announced because the candidate has provided incomplete and conflicting details on how this tax cut would be structured. The analysis also excludes the proposed deduction for elder care due to data limitations, and excludes the plan’s savings incentives because of difficulties in forecasting taxpayers’ response to these incentives.

One of the most important new tax provisions under Trump’s plan is a deduction and credit associated with dependent care. While the deduction is nominally based on a capped amount of actual expenses on dependent care, the campaign’s web site says the tax break “would be provided to families who use stay-at-home parents or grandparents.” Because this means stay-at-home parents could claim the maximum deduction available in each state, we assume all parents of eligible children would claim the maximum deduction, rather than simply deducting their actual dependent care expenses. This assumption increases the projected tax cuts for families with eligible children, and also increases the projected 10-year cost of the plan. The analysis also assumes taxpayers will be allowed to choose whether to claim the proposed deduction or credit or continue to use the dependent care credit that currently exists.


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News Release: 44% of Tax Cuts in Trump’s Revised Plan Would Go to Top 1% of Taxpayers

September 26, 2016 01:50 PM | | Bookmark and Share

For Immediate Release: Monday, September 26, 2016

Plan cuts taxes for every income group on average, but some low-income families would see tax increases

A new distributional analysis of Donald Trump’s tax plan reveals that 44 percent of the candidate’s proposed tax cuts would go to the top 1 percent of taxpayers, and the plan would increase the nation’s debt by $4.8 trillion over 10 years, Citizens for Tax Justice said today.

“To be sure, Trump’s latest tax plan costs less than the initial deficit-inflating tax proposal that he laid out earlier this year,” said CTJ director Bob McIntyre. “But this new tax plan is in the same spirit as Trump’s initial proposal. He would cut taxes for the rich, cut taxes for businesses, provide miniscule tax cuts for lower-income groups, and then claim it’s a populist plan that helps working families.”

While the analysis found that every group would receive a tax cut overall (the lowest-income 20 percent, for example, would receive an average annual tax cut of about $200), the wealthiest Americans, with average annual incomes of $1.7 million, would be the biggest beneficiaries, with an average annual tax cut of $88,410.

The analysis also found that some lower-income families would experience tax increases under Trump’s plan, including married couples who itemize, childless couples, families with children over 13, and single parents. These groups could be subject to a tax increase because the lowest tax rate would go up under Trump’s tax plan, and the plan as it is currently written does not include any mechanism to prevent these tax increases. 

“In addition,” McIntyre noted, “the severe cuts in federal programs that would be the inevitable result of Trump’s tax plan would likely leave all but the highest-income families much worse off than they are now.”

Link to Full Analysis:




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New Bill Would Bring Transparency to World of Offshore Tax Avoidance

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On Thursday, Rep. Mark Pocan (WI-D) introduced the Corporate Transparency and Accountability Act, a bill which would require all publicly-traded multinational companies to disclose their revenues, profits, taxes, and certain other operations information on a country-by-country basis (CbCR) to the Securities and Exchange Commission (SEC). The measures in the bill are similar to the rules adopted by the Internal Revenue Service (IRS) earlier this year with the key difference being that this information would be available to the general public.

By requiring CbCR, passage of the bill would represent a major gain in the battle to end the practices of base erosion and profit-shifting in the corporate world. This information will help governments to identify the shady accounting practices companies use to minimize their tax obligations and combat those practices through responsible changes to the tax code.

Advocates have long been calling for the SEC to voluntarily adopt these rules, but there has been significant pushback from corporate and financial interests. That being said, there is evidence that even the largest financial interests are beginning to realize that they are fighting a losing battle. Earlier this year, Goldman Sachs sent a memo to investors telling them to “Buy stocks with high US sales and high effective tax rates and avoid firms with high foreign sales and low tax rates,” indicating at least one major firm believes that the lax financial regulations that have allowed multinationals to amass $2.4 trillion offshore are coming to an end.

The public and investors alike would benefit a great deal from the passage of Rep. Pocan’s bill because it would provide much needed transparency on the level of corporate taxes that companies are paying throughout the world. 

Aaron Mendelson, an ITEP intern, contributed to this report.

State Rundown 9/21: Many States Moving in Reverse

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This week we are bringing you news about taxpayer disapproval of stadium subsidies in Nevada, more pressure to reverse tax cuts in Kansas, a move in Missouri to narrow its sales tax base, and other state tax policy developments from across the country.  Thanks for reading the Rundown!

— Meg Wiehe, ITEP State Policy Director, @megwiehe

What We’re Reading…  

  • New Jersey Policy Perspective has released a report and short video chronicling the “Notorious Nine” fateful decisions beginning in the 1990s that brought the state down from economic powerhouse to fiscal mess. Step one for states looking to recreate the New Jersey disaster? Pass unaffordable, regressive income tax cuts.
  • A new academic paper examines ownership of pass-through businesses and how much taxes they pay, finding that pass-through income is more heavily concentrated among high-earners and that many of the ownership interests are unclassified or circularly owned.

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 Meg Wiehe at Click here to sign up to receive the Rundown via email.


Mississippi’s Proposed “Consumption Tax” Would Dramatically Lower Taxes for the Wealthy, Increase Taxes for the Poor

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Mississippi’s proposal to move to a user-based tax system is a euphemism for increasing regressive sales and consumption taxes that will ultimately result in higher taxes for the poorest Mississippians and lower taxes on the wealthy.

Currently, Mississippi legislators are reviewing the state’s tax code with a goal, according to Lt. Gov. Reeves, to “move toward a user-based system rather than an income-based system.”

 And now that the study has begun, one outlet recapped the first day of study proceedings with the blunt headline “Mississippi Would Benefit from Consumption-Based Tax System” (paywall). With the Mississippi legislature’s recent history of cutting taxes and seeming desire by many to continue with more of the same, it is important to add data to this conversation showing who would benefit – or not – from the sort of tax shift the Mississippi Tax Policy Panel is considering.

As Hope Policy Institute succinctly pointed out last week, there is no reason to expect cutting taxes and shifting reliance away from income toward sales taxes will bring economic growth and benefit Mississippians. Additionally, a look at whose taxes would rise and fall if the state moves to a “user-based’ system is striking.

ITEP examined the impact of carrying the tax-shift goal to its logical extreme: completely replacing the state’s $1.9 billion of personal income tax revenues with higher sales taxes. Our analysis found that the lowest-income Mississippians (bottom 20 percent of taxpayers), who already pay nearly twice the effective tax rate paid by the highest-income 1 percent, would see an additional 3.3 percent of their incomes go toward taxes, while the highest-income 1 percent in the state would see tax cuts averaging 2.9 percent of their incomes – a tax cut of more than $21,000 on average for that group (See graph).  The change would result in a massive shift of the responsibility for paying state taxes away from the highest-income Mississippians and onto low- and middle-income families. Furthermore, to do this without broadening the sales tax base would require a state sales tax rate of about 10.78 percent, which would be easily the highest rate in the nation and an increase of more than 54 percent over the state’s current 7 percent rate.

While this type of wholesale elimination of the personal income tax has not been explicitly proposed this year, it was proposed in 2015 and is illustrative of what it means to “move toward a user-based system rather than an income-based system,” and it is crucial for the tax policy panel and Mississippians generally to understand that any significant shift from income taxes to sales taxes will take on these same highly regressive contours. When it is claimed that “Mississippi would benefit” from such a shift, it is important to ask which Mississippians.