Month: March 2017

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. 

Undocumented Immigrants’ Tax Contributions
ITEP today released updated numbers on undocumented immigrants’ tax contributions. Collectively, they contribute $11.74 billion in state and local taxes and pay an average effective state tax rate of 8.6 percent. This report is particularly important in the context of national policy discussion about a border wall and mass deportation.
Read the report

In a blog post about the report and current political climate, Meg Wiehe, ITEP director of programs, notes that undocumented immigrants have become an easy scapegoat for our rigged economic system, writing, “Erroneously blaming undocumented immigrants for stagnating wages and the growing chasm between the rich and poor detracts from the real issue: too many of our elected officials are responsible for tax and other public policies that favor special interests and corporations.”
Read Meg’s blog

A Tempered Delivery Doesn’t Make a Statement True
On Tuesday evening during his first address to Congress, President Trump promised to cut taxes for corporations and the middle class. For the latter to be true, the president would have to push a proposal that radically departs from his campaign trail tax plan, which would bestow 58 percent of its benefit on the richest 5 percent of taxpayers. While the speech was light on details, ITEP analyst Richard Phillips fact-checked this and three other statements on taxes.
Read more

What to Do When Continual Budget Shortfalls Become Exasperating?
Before the 2010 Tea Party wave, Kansas was governed by a bipartisan coalition of moderates. That wave ushered in Gov. Brownback and a series of supply-side tax cuts that devastated state revenues and gave the state the dubious distinction of poster child for failed trickle-down economic theories. Now, the bipartisan coalition of moderates is back and emboldened, and they mean business.
Read about the Kansas legislature’s recent vote to rescind tax cuts

What Is Combined Reporting and Why Should You Care?
Combined reporting requires large companies operating in multiple states to add together all the profits of their various branches and subsidiaries into one single report and then follow existing rules for apportioning those profits to states in which they operate. This is tax speak for making it more difficult for corporations to hide profits and dodge taxes.
Read a brief blog or
Read the full report 

What to Watch in the States: State-Federal Relationship Shifting
State lawmakers will be making policy decisions amid a great deal of uncertainty about the future of federal tax and funding policies that are crucial to the states. How those federal debates shake out and how states prepare for and react to them will have lasting consequences for families and businesses in every state, and for the very nature of federalism in the United States. 
Read more

If you have any feedback on the Digest or tax stories you’re watching that we should check out too please email me rphillips@itep.org

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A newly updated ITEP report released today provides data that helps dispute the erroneous idea espoused during President Trump’s address to Congress that undocumented immigrants aren’t paying their fair share. In fact, like all others living and working in the United States, undocumented immigrants are taxpayers. They collectively contribute an estimated $11.74 billion to state and local coffers each year via a combination of sales and excise, personal income, and property taxes, according to Undocumented Immigrants’ State and Local Tax Contributions.

As working Americans look to policymakers to address a rigged system in which wages for ordinary working people have stagnated while corporate profits and executive compensation have soared, some politicians have found an easy scapegoat in undocumented immigrants. Erroneously blaming them for stagnating wages and the growing chasm between the rich and poor detracts from the real problem: too many of our elected officials are responsible for tax and other public policies that favor special interests and corporations. Mass deportation won’t fix a rigged economic system.

Undocumented immigrants pay taxes. On average, the nation’s estimated 11 million undocumented immigrants pay 8 percent of their incomes in state and local taxes every year. In contrast, the richest 1 percent of taxpayers pay only 5.4 percent on average. Even though they pay a tax rate on par with many middle class citizens, undocumented immigrants are ineligible for many of the services that revenue supports.

Just as the horrendous impact of breaking up families under a mass deportation policy should not be ignored, nor should policymakers overlook the significant contributions undocumented immigrants make to our state and local revenues and the economy. It is overly simplistic and wrong to assume every job occupied by an undocumented worker would be readily taken by an American worker. This thinking ignores the reality of our workforce and broader economy. In addition to the disastrous nationwide business and economic impacts of a mass deportation policy, there would also be a tremendous shock to many state and local budgets without the tax contributions of undocumented immigrants.  

Most state and local taxes are collected from people regardless of citizenship status. Undocumented immigrants, like everyone else, pay sales and excise taxes when they purchase goods and services. They pay property taxes directly on their homes or indirectly as renters. And many undocumented immigrants also pay state income taxes.

ITEP’s data on undocumented immigrants’ tax contributions provides critical context at a time when the president is pushing policies and using language that unjustly demonizes our neighbors without legal status. This harmful ideology is reminiscent of other shameful examples of othering in American history. The U.S. has a record of targeting already vulnerable populations in times of crisis (Japanese internment camps during WWII and profiling Muslims post-911) and using malicious stereotypes (e.g. welfare queens and super predators) to unjustly scapegoat and marginalize communities of color.

Public policy—not people—by deliberate design has stacked the deck in favor of the elite and corporations. Castigating undocumented immigrants for our nation’s economic struggles plays into xenophobic and hateful ideology, and it won’t fix our rigged system. Public opinion polling shows that most of us know this and favor a path to citizenship for undocumented immigrants.

ITEP’s new report focuses on state and local taxes, but its findings mirror those at the federal level. Many undocumented immigrants pay federal payroll and income taxes as well as excise taxes on items such as fuel. A study from the Social Security Administration showed undocumented immigrants contributed $12 billion to the social security trust fund—and only drew down $1 billion from the fund. Full immigration reform at the federal level would decrease the deficit and generate more than $450 billion in additional federal revenue over the next decade, according to a 2010 report from the non-partisan Congressional Budget Office.

Immigrants without legal status contribute and help our communities thrive. When it comes to contributing their fair share to state and local revenues, they get the job done.

To view the full report or to find state-specific data, go to www.itep.org/immigration/.

Tax cuts have been proposed in many states already this year, but amid so much uncertainty, it remains to be seen how successful those efforts will be. This week saw one dangerous, largely regressive tax cut proposal move in Georgia, new budget proposals in Louisiana and New Jersey, a new plan to close West Virginia‘s budget gap, and cities in Alabama and Washington taking more matters into their own hands.

— Meg Wiehe, ITEP State Policy Director, @megwiehe  

• The Georgia House has advanced a regressive income tax bill that combines some promising features – a new nonrefundable state Earned Income Tax Credit and elimination of the state’s nonsensical deduction for state income taxes – with a flat tax rate that will predominantly benefit the highest-income Georgia residents.
• West Virginia Gov. Jim Justice proposed changes to the way in which he would close the state’s budget gap. New tax components include a 1-cent per ounce tax on sugar-sweetened beverages, 50-cent cigarette tax increase (bringing the tax/pack to $1.70), and a 0.25 percentage-point sales tax rate increase, expanding it to include professional services. The plan would also assess a surcharge between $500 and $1,000 for families with incomes over $200,000.
• Indiana lawmakers in the House passed a budget that includes a 10-cent increase to the fuel tax and a $1 increase to the cigarette tax. The budget is expected to be reworked in the Senate.
• Looking to raise more revenue to fund education, lawmakers in Utah continue to consider raising the sales tax on food from 1.75 percent to 4.7 percent. Advocates warn of the regressive impact this change would have without an offsetting tax change such as the enactment of a state EITC.
• Due to weak revenue collections and the state’s recent revenue failure, which will lead to cuts in essential state programs, S&P lowered Oklahoma‘s bond rating.
• How will Kentucky pay for pension reform? Lawmakers are considering taking up tax reform in special session, but say it would need to be revenue neutral to gain support.
• Alabama‘s window to update its gas taxes is “rapidly closing” due to the coming election year, according to The Anniston Star.
• Maryland lawmakers will attempt to close the “carried interest loophole” at the state level.
• A New Jersey legislative committee has advanced two bills to tax and regulate Airbnb and similar online marketplaces.
• Nebraska revenue forecasters revised their projection Monday, increasing the state’s revenue shortfall by $153 million.
• A bill to enforce collection of sales taxes owed on Mississippi purchases and devote the money to roads and bridges has been killed by Lt. Gov. Reeves.
• A campaign in Seattle is proposing a new strategy for testing the constitutionality of an income tax in Washington state—taxing unearned income for families with over $250,000 to “Trump proof” the city.
• Birmingham, Alabama is moving forward with a plan to give a rebate to its low-income residents to offset the state’s tax on groceries.

Budget Watch

• New Jersey Gov. Christie presented his final budget to legislators this week. The budget holds funding flat despite growing needs for K-12 schools and higher education, and it makes minor reductions to property tax relief programs despite a record-high average property tax bill in 2016. Christie’s proposal also relies on a narrow margin for error due to minimal reserves and assumed savings in public employee healthcare that have not yet been realized. He also suggested devoting state lottery proceeds to fill the pension funding gap.
• Louisiana Gov. John Bel Edward released his FY17-FY18 executive budget last week. The budget is short $440 million of what is needed to maintain existing year services and requires cuts to safety net hospitals and continued underfunding of the state’s higher education tuition program. 
• North Carolina Gov. Roy Cooper released his first budget (for FY17-19) this week.  While his proposal boosts public investments in education and other critical services, his policymaking was limited by the close to $2 billion in tax cuts enacted since 2013.  As the Director of the NC Budget and Tax Center notes, the spending level as a share of personal income proposed in the second year of his proposal is 17% below the state’s 45 year average.

Governors’ State of the State Addresses

• Most governors have now given their addresses for the year. The next scheduled address is Gov. Scott of Florida on March 7, followed by Gov. Kasich of Ohio on April 4, with Gov. Carney of Delaware and Gov. Cooper of North Carolina‘s speech dates still to be announced.

What We’re Reading…  

• Studies from three locales that have recently enacted taxes on sugary beverages show decreases in soda consumption.
• The Colorado Fiscal Institute explains why consumer purchases are not a realistic measure for changes in government spending.
• The DC Fiscal Policy Institute has released a new primer on where the district gets the revenue for its schools, public safety, and healthcare efforts.
• All signs suggest that the Bakken Shale boom has passed its peak, which will mean a need for careful budgeting and contingency planning in Montana and North Dakota.

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 meg@itep.org. Click here to sign up to receive the Rundown via email. 

Despite some expectations that President Donald Trump would use his address to a joint session of Congress to lay out more details of his plan for tax legislation, the speech was extremely light on details. The few details mentioned were largely misleading or outright erroneous. Below we break down four tax-related statements from President Trump’s speech and lay out the full context of the issue discussed.

“Right now, American companies are taxed at one of the highest rates anywhere in the world. My economic team is developing historic tax reform that will reduce the tax rate on our companies so they can compete and thrive anywhere and with anyone.”

In his first statement on tax issues, President Trump claimed that American companies face the highest tax rates in the world. The reality is that while the United States does have one of the highest statutory rates in the world, the corporate tax code is so full of tax loopholes that most companies pay nowhere near the 35 percent top tax rate. In fact, an analysis of data from economically developed countries found that the overall U.S. corporate tax level is below average compared to our key economic competitors. Another study by the Institute on Taxation and Economic Policy (ITEP) and Citizens for Tax Justice found that profitable Fortune 500 companies paid an average tax rate of just 19.4 percent, just over half the statutory rate, with many major companies paying nothing in taxes at all.

“At the same time, we will provide massive tax relief for the middle class.”

Returning to a frequent campaign theme, President Trump claimed that his tax and other economic policies would benefit the middle class. The reality is that President Trump’s previously proposed tax plans would do nothing like this. The detailed plan he released on the campaign trail last fall would bestow 58 percent of its benefit to the wealthiest 5 percent of taxpayers. A more accurate description of his tax cut plan is that it would provide the wealthy and corporations with a massive tax cut, while giving a cursory tax cut to almost everyone else. Furthermore, millions of low- and middle-income families could see their taxes rise under his plan given its changes to the lowest income tax brackets and changes to head of household rules.

“It’s a basic principle that those seeking to enter a country ought to be able to support themselves financially. Yet in America we do not enforce this rule, straining the very public resources that our poorest citizens rely upon.”

One of the major themes of President Trump’s address was his case for a crackdown on undocumented immigrants entering and currently residing in the United States. Trump claimed that undocumented immigrants strain public resources. One crucial fact that this description leaves out is undocumented immigrants pay a substantial amount in state and local taxes. According to a study by ITEP, undocumented immigrants collectively pay an estimated $11.6 billion in state and local taxes annually. Further, the study finds that undocumented immigrants on average pay 8 percent of their income in state and local taxes, which is on par with what the middle-income quintile pays in state and local taxes and higher than the 5.4 percent average rate paid by the top 1 percent of taxpayers.

“Currently, when we ship products out of America, many other countries make us pay very high tariffs and taxes, but when foreign companies ship their products into America, we charge them nothing or almost nothing.”

In one of the most muddled portions of the speech, President Trump made the case for some kind of border tax as retaliation against taxes he claims are unfairly placed on goods exported by the United States. Given his previous statements, one way to interpret it is that President Trump is continuing to wrongly argue that other countries discriminate against U.S. goods by applying their value added taxes (VATs) to U.S. goods. The problem with this statement is that VATs do not discriminate against U.S. goods because they apply equally to all goods imported or produced domestically in a given country. In addition, jurisdictions at the state and local level in the United States apply sales taxes in the exact same way, so under President Trump’s logic the U.S. already applies the same sort of tax onto foreign goods.

A second and potentially complementary way to interpret President Trump’s statement here is that he believes that U.S. goods face disproportionate tariffs throughout the world. The truth, however, is that the U.S. maintains a substantial schedule of tariffs against foreign products as well, meaning that any countries that apply tariffs to U.S. goods are certainly not doing so unilaterally.