Author: tarek

ITEP today is pleased to announce that we’re launching an overhauled website, ITEP.org, that better reflects the work of our organization and makes our federal and state tax policy research more accessible.

For years, ITEP has been known mostly for our analyses of state tax policies. Advocates and policymakers have and continue to use data that we produce using the ITEP Microsimulation Model © to aid their efforts to secure fair, sustainable state tax policies that raise adequate revenue to fund our common community priorities.

Less widely known is that the ITEP model also has provided the core analyses behind Citizen for Tax Justice’s (our c(4)partner organization) federal policy work. Going forward, ITEP researchers are stepping into a federal policy research and advocacy role in a more forward-facing way. Not only will we use our model to produce revenue estimates and distributional analyses of federal policy proposals, our researchers will generate and publish qualitative analyses and other research under the ITEP name. Although federal policy research will no longer be published under the CTJ brand, CTJ will continue to work with its many partners as an advocacy voice for a fair and just tax system at both the federal and state levels.

A strong voice for working people in federal and state tax policy debates is absolutely critical. Sound, progressive tax policies make all the difference between high-quality educational systems or crowded classrooms with limited resources. They account for the difference between structurally sound roads and bridges or potholes and other crumbling infrastructure. At the federal level, good tax policy means raising enough revenue so the nation can adequately fund child care and early education, health care, food inspection, national parks, and a clean, safe environment among other things.

As you know, Congress and the president are poised to pass major tax changes in the coming year or so. The tax proposals currently being floated are being sold as jobs-creating plans that will boost the middle class. But ours and others’ preliminary analyses reveal quite the opposite. President Trump’s recent tax sketch includes too few details to analyze in depth, but its vague outline calls for radically slashing corporate taxes, cutting the top individual tax rate and eliminating the estate tax, all of which would benefit the wealthy. And the American Health Care Act would diminish access to health care for 24 million people while providing $800 billion in tax cuts for the very rich.

At the state level, a handful of legislatures are examining policies that will raise much-needed revenue for priorities such as infrastructure and education, but the leading trend is regressive tax cuts that starve state budgets of necessary resources. For the last several years, Kansas has been an example of tax cuts and regressive tax policy gone awry. After dramatic tax cuts that favored the wealthy and businesses, the state has dealt with annual, multi-billion-dollar revenue shortfalls and has had to cut funding for education and other basic services.

Yet other states are disregarding this cautionary tale and peddling tax cuts as a way to create jobs and grow the economy, and lawmakers at the federal level are selling the same spurious tax-cut remedy.

Given the great income divergence between the rich and the rest of us, we better make sure proposed policies square with our elected officials’ rhetoric.  

ITEP and others who promote fair, progressive tax policy are up against forces that have spent decades and millions of dollars trying to convince the public that taxes are a burden, unconnected to the fundamental services that make this nation a great place to live. But we will continue to use our analytic expertise, research, and copious local, state and national historical examples to reveal facts and the truth: Tax cuts for the wealthy benefit the wealthy and starve local, state and federal governments of necessary resources.

As the important tax debates of the day move forward, ITEP staff is prepared to rapidly analyze proposed tax plans at all levels of government with a keen eye on their effects on low-, moderate- and middle-income people. We will remain a voice for working people in tax policy debates at the state and federal level and advocate for fair, progressive tax policies that raise enough revenue to meet our common priorities.  

Sincerely,

Alan Essig, ITEP executive director

This week saw tax debates heat up in many states. Late-session discovered revenue shortfalls, for example, are creating friction in Delaware, New Jersey, and Oklahoma, while special sessions featuring tax debates continue in Louisiana, New Mexico, and West Virginia. Meanwhile the effort to revive Alaska‘s personal income tax has cooled off.

— Meg Wiehe, ITEP State Policy Director, @megwiehe

• With only a couple days left of regular session, Oklahoma lawmakers continue to search for ways to fill a nearly $900 million shortfall. A revenue package to increase the cigarette tax, gas tax, and production of oil and gas failed to pass the House.
• Delaware could raise its income tax rates and increase the corporate franchise tax for the largest businesses operating in the state as lawmakers and Gov. John Carney work to close a $400 million budget gap.
• New Jersey got unpleasant “April surprise” this week, learning that underperforming April revenues have created a $527 million budget shortfall that must be addressed before the end of June. To do so, Gov. Chris Christie’s administration will delay paying out money owed to local jurisdictions for homestead property tax credits and raid the state’s Clean Energy Fund. The administration has not proposed reversing the harmful tax cuts passed last year, which will cost the state more than $1 billion annually.
• Meanwhile, some New Jersey lawmakers are looking for ways to modernize Garden State’s revenue system. The state could become the latest to legalize and tax recreational marijuana, via a bill that would legalize sales and possession of small amounts and add a tax on those sales that grows from 7 percent to 25 percent over five years. Another bill that has been approved by the Assembly Budget Committee would subject Airbnb stays to the same taxes that apply to hotel visits.
• West Virginia’s special session continues to highlight a disconnect between the goals of the Senate and the House. Paring back the state income tax remains a sticking point.
• New Mexico will go into special session starting May 24th where Gov. Martinez wants to resurrect a major tax reform package from this past legislative session. HB 412 proposed significantly expanding the Gross Receipts Tax by eliminating existing exemptions (including taxing food) while also changing the personal income tax rates to a flat 5 percent.
• Prospects of significant tax reform this legislative session are dimming as lawmakers on the House Ways and Mean Committee have rejected all major tax reform proposals recommended by Louisiana‘s Task Force on Structural Changes in Budget & Tax Policy. However, a proposal to raise the gas tax has passed out of committee and will go to the full House for consideration.
• A Nevada bill to exempt feminine hygiene products from sales tax appears poised to pass, having cleared the Senate with unanimous approval. Businesses in the state could also see a payroll tax cut due to an automatic trigger put in place in 2015.
• Over the weekend, the Alaska Senate took up the House’s proposal to bring back a state personal income tax. The bill was defeated largely along party lines, leaving the state to deal with a multi-billion revenue deficit.
• Minnesota Gov. Mark Dayton vetoed multiple budget bills this week—sending lawmakers back to the drawing board with only six days left in the session. Key sticking points include disagreements over allocation of the state surplus, with Republican legislatures wanting significant tax cuts and the governor preferring increased spending investments.
• Arizona lawmakers passed a $9.8 billion budget which included deep service cuts and a handful of tax breaks. In other news, former Gov. Jan Brewer admitted that the size of previous tax cuts to corporations were a mistake, leaving Arizonans short for services.
• Maryland has become the first state to allow a tax credit for residential and commercial energy storage systems.
• Having already declined to raise Alabama‘s state gas tax earlier in the session, lawmakers this week also killed a bill that would have allowed counties to raise their own gas taxes if approved by a local vote. Until elections are behind them or unless a federal infrastructure plan requires state matching funds, lawmakers say, a gas tax update in Alabama is unlikely.

What We’re Reading…  

• In this New York Times piece, ITEP’s Carl Davis explains how in some states donors to private schools can actually turn a profit.
• Bloomberg predicts a rise in state gross receipts taxes if the U.S. Supreme Court rules against South Dakota‘s bid to collect sales taxes from online retailers.
• USC professor Edward Kleinbard proposes a new model for taxing capital income in an age of growing inequality.
• What happens when small government, anti-tax fervor plays out to the extreme? The New York Times reports on the experience of several southwest Oregon communities dealing with the ramifications of service cuts and closures.

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. 

Today the House Ways and Means Committee will hold its first tax reform hearing of 2017, which marks the official opening of the tax reform debate in Congress. True tax reform, if the committee sought to achieve it, could create more jobs and ensure companies are paying their fair share by cracking down on the massive offshore tax avoidance that companies engage in. Unfortunately, the panel of witnesses for today’s hearing is largely made up of representatives of various major corporations that are beneficiaries of the loopholes in our current corporate tax laws. Given this, it seems likely that these panelists will not push for a fairer corporate tax code, but rather a code that allows them to avoid even more taxes and incentivizes moving more jobs offshore.

The biggest tax avoider represented at the hearing is AT&T, which received $38 billion in tax breaks over the past eight years, meaning that it received more tax breaks than any other Fortune 500 company during that time. Over the past 10 years, the company managed to pay an average federal income tax rate of just 11.3 percent, less than a third of the statutory rate of 35 percent. In 2011, it managed to pay nothing in federal income taxes, despite earning $12 billion in profits.

Another company engaged in offshore tax avoidance represented at the hearing is Emerson Electric. This company is currently avoiding taxes on $5.2 billion in earnings that it’s holding offshore. Emerson also has as many as 68 subsidiaries in tax haven jurisdictions. Perhaps most suspiciously, the company has disclosed having a subsidiary in Bermuda named Emerson Electric Ireland Limited, which is connected to another subsidiary they report in Ireland. This structure appears to be identical to the subsidiary structure used by Apple and other companies to shelter profits from tax, which is known as the “double Irish.”

The third tax avoider represented on the panel is S&P Global. This company is avoiding taxes on $1.7 billion in earnings it is holding offshore. The company discloses owning 20 subsidiaries in foreign tax havens. In addition, S&P Global has advocated for a repatriation tax break that is more egregious than most of those previously considered. Their plan would allow companies to repatriate their earnings tax-free as long as they invest 15 percent of these funds in a short-term market rate bond. This would allow corporations to almost entirely avoid paying the over $750 billion they owe in taxes on their offshore money.

Real tax reform would mean ending the ability of companies to avoid taxes on their offshore income and cleaning out the corporate tax code of the kinds of tax breaks that allow AT&T to pay so little year after year. Ending deferral, the ability of companies to defer taxes on their offshore income, would encourage job creation in the United States by making it so that U.S. companies are paying the same tax rate on income earned in the U.S. as they do in countries throughout the world. Similarly, cleaning out the corporate tax code would improve the economy by creating a more even playing field since certain companies would no longer be given an artificial advantage due to special interest tax breaks they receive.

Considering the companies represented at today’s hearing, it will not be surprising to hear proposals moving in the exact opposite direction, such as a proposal to enact a territorial tax system. Rather than making corporations pay their fair share, a territorial system would allow these and many other companies to avoid even more in taxes because they would never have to pay a cent on income they earn or artificially shift offshore. Such proposals should be rejected if lawmakers really want to create jobs and economic growth.

A new report by the Institute on Taxation and Economic Policy (ITEP) and AASA, the School Superintendents Association, details how tax subsidies that funnel money toward private schools are being used as profitable tax shelters by high-income taxpayers. By exploiting interactions between federal and state tax law, high-income taxpayers in nine states are currently able to turn a profit when making so-called “donations” to private school voucher organizations. The report also explains how legislation pending in Congress called the Educational Opportunities Act (EOA) would expand these profitable tax shelters to investors and corporations nationwide.

The core feature of these tax shelters are credits that offer supersized incentives to donate to organizations that distribute private school vouchers. When taxpayers donate to most charities, such as food pantries or veterans’ groups, they typically receive a charitable tax deduction that somewhat reduces the out-of-pocket cost of their donation. Private school proponents have decided that their cause is worthy of a far more generous subsidy, however, and have successfully pushed for the enactment of state tax credits that wipe out up to 100 percent of the cost of donating to private school voucher organizations. When these lucrative state tax credits are combined with federal charitable tax deductions (and sometimes state deductions as well), some high-income taxpayers are finding that the tax cuts they receive are larger than their actual donations (see Figure 1). Tax accountants and private schools have seized on this tax shelter and turned it into a marketing opportunity, advising potential donors that: “You can make money by donating!”

As things stand today, this tax loophole is only available to taxpayers in nine of the seventeen states with private school voucher tax credits. But the Educational Opportunities Act (EOA) introduced by Sen. Marco Rubio (FL) and Rep. Todd Rokita (IN) would open up entirely new profit-making schemes to investors and corporations nationwide.

The EOA would offer a 100 percent tax credit of up to $4,500 for individuals or $100,000 for corporations donating to fund private school vouchers. Under this system, investors choosing to donate stock (or other property) rather than cash to voucher organizations would find that doing so would be more lucrative than if they had simply sold the stock and kept the money for themselves. This is because rather than receiving (taxable) capital gains income from a buyer of the stock, the investor would be paid in (tax-free) federal tax credits.

Another potential tax shelter would be limited to those taxpayers living in states offering their own voucher tax credits. While the EOA prohibits claiming a federal tax deduction and federal tax credit on the same donation, it is silent as to whether taxpayers can claim a state tax credit and federal tax credit on a single donation. If this occurred, taxpayers would enjoy a guaranteed profit every year they donate to private schools when they stacked 100 percent federal credits on top of state credits valued at 50 to 100 percent of the amount donated.

Wealth managers and tax accountants would be foolish not to advise their clients to take advantage of these handouts. Even families with no particular attachment to private schools would find it to be in their own financial best interest to begin donating to those schools. The result could be an explosion in funding for private schools at the expense of the public coffers and everything they fund—including public education.

Read the report: Public Loss, Private Gain: How Voucher Tax Shelters Undermine Public Education

South Carolina lawmakers this week raised the state’s gas tax for the first time in 28 years, a time period that tied for the third-longest in the nation. While the increase was meaningful and hard-fought, the final result remains flawed in ways that could have been easily remedied or avoided.

The biggest positive of the bill is that, once fully phased in, it will raise $600 million per year of needed revenue for the state’s ailing infrastructure through a combination of increased license and registration fees, a higher cap on the vehicle sales tax, and the 12-cent per gallon gas tax increase that is phased in over six years. This will fall short of the estimated $1 billion needed, but is an improvement nonetheless. And lawmakers overcame the opposition and eventual veto of Gov. Henry McMaster, requiring supermajority votes in both houses to enact the measure.

It is also laudable that for the most part, they resisted efforts to tack on costly, regressive, unrelated tax cuts to “offset” the effect of the gas tax increase. Some other states haven’t fared as well on that point: Tennessee’s lawmakers tied this year’s gas tax increase to a cut in the state’s Hall Tax on the investment income of very wealthy families, and last year some New Jersey lawmakers held the gas tax increase   hostage to assure elimination of the completely unrelated estate tax. Moreover, the tax cuts in both of those states were about as large as the tax increases, meaning they raised money to repair crumbling roads and bridges at the expense of schools, public safety programs, and health care, all while shifting the funding responsibility off of wealthy residents and onto low- and middle-income families. South Carolina’s legislators did not cut taxes to such an extent, so the bill brings in meaningful revenue without robbing funding from other priorities.

The Bill’s Flaws

However, some components added to the bill in the last few weeks are so poorly designed to meet their putative goals that it appears they were not intended to achieve those goals at all.

First among these is the creation of a nonrefundable Earned Income Tax Credit (EITC) valued at 125 percent of the federal credit. While this technically adds South Carolina to the list of states with their own EITCs and on the surface looks quite impressive, the nonrefundable nature of the credit and its interaction with the rest of South Carolina’s income tax code render it meaningless to the vast majority of the state’s low- and middle-income families, precisely those who will be hardest hit by the gas tax increase. Low- and middle-income families tend to pay much more in state consumption taxes such as sales and gas taxes than they do in state income taxes, and the main advantage of a state EITC is that if it is refundable it helps offset that fact by reducing a working family’s state income tax liability below zero to help them pay those other taxes that represent a large portion of their budgets.

But a nonrefundable EITC can only reduce income tax liability to zero, and most low-income families in South Carolina already pay little or no state income tax, so the provision is of little to no help to them. In fact, while the gas tax increase will significantly affect nearly all South Carolinians, a nonrefundable EITC will only reach about 2 percent of those in the lowest 20 percent of incomes (those with incomes below $21,000) and only about 11 percent of those in the next 20 percent (incomes between $21,000 and $36,000). For the families unaffected by it, setting the credit at 125 percent of the federal credit, much higher than any other state, is no different from setting it at 250 percent (as was proposed in an earlier version of the bill) or 1 percent. If South Carolina lawmakers wanted to offset the gas tax increase for the working families affected most by it, a refundable EITC even at just 2 percent of the federal credit would have cost a comparable amount from the state budget while reaching many more people – 44 percent of the lowest-income South Carolinians and 30 percent of the next income group. The graph above shows how a refundable EITC would do a better job of offsetting the regressive nature of the gas tax than does the nonrefundable version that was enacted.

A second flaw of the bill is a convoluted new credit for preventative maintenance to vehicles. To claim the credit, South Carolinians must save all their vehicle maintenance and gas tax receipts, and then claim a credit equal to either the total of their maintenance spending or their total increase in gas taxes resulting from the bill, whichever is smaller. And on top of all that, the department of revenue has to adhere to an annual cap on the credit ($114 million once fully phased in), so must estimate how many people will claim the credit and provide an adjustment factor for people to use when calculating their individual credits. This credit is so burdensome to comply with that it is hard to imagine very many people keeping the painstaking records necessary to do so, which may have been the legislators’ intent all along.

The final major flaw in the legislation is legislators’ decision to drop a provision that would have indexed the gas tax rate to inflation. If the goal was truly to update the tax structure and keep it updated to keep funding in line with needs, that provision would have gone a long way to ensuring a sustainable funding stream. Instead, without further action revenues will inevitably fall behind needs once again and this debate will have to be repeated while those needs go unmet.

In the end, lawmakers passed a bill that will do more good than harm. The gas tax update is partial and not sustainable, but is vastly better than another year of stalemate on the issue. The EITC is nonrefundable and will leave out the state’s lowest-income residents, but will provide help to some middle-income South Carolinians and can always be improved in the future. Most of the debates to settle differences on this bill took place behind closed doors with no public input. Had lawmakers been willing to listen to constructive criticism from their constituents and experts in the state, they may have reached a better outcome, but they do deserve credit for a getting the bill over the finish line, and overcoming the hurdle of Gov. McMaster’s veto along the way.

This week saw a springtime mix of state tax debates in all stages of life. In West Virginia and Louisiana, debates over income tax reductions and comprehensive tax reform are full of vigor. Other debates that bloomed earlier are now settled, such as Florida‘s now-complete budget debate and the more florid debates over gas taxes in South Carolina and Tennessee. Still others are just now beginning to sprout, as Oregon begins to debate its gas tax and a new gross receipts tax, a tax study starts up in Arkansas, another round of tax cuts are on the table in North Carolina, and a special session has been announced in New Mexico.

— Meg Wiehe, ITEP Deputy Director, @megwiehe

Active tax debates continue in several states:

• In West Virginia, the House and Senate remain at odds over any potential tax plans. Concern remains regarding the fairness of proposed income tax reductions (and ultimate elimination).
• Revenue bills are having various success this week in Louisiana. On Monday, a House Committee advanced a plan to make permanent the current temporary expansion of the sales tax based to previously exempt items and a lawmaker’s plan that would impose flat personal and corporate income tax rates, eliminate the deduction for federal income tax paid, and expand the EITC and standard deduction. On Tuesday, lawmakers failed to advance a bill to restructure business taxes and another bill supported by the governor that would lower personal and corporate income tax rates conditioned on the removal of the deduction for federal personal income taxes from the state constitution.
• Lawmakers in Michigan are sending legislation to Gov. Rick Snyder that would provide a significant tax break for developers building on “brownfields” or blighted lands. The tax breaks would exempt developers (including those investing up to $500 million in capital assets) from sales and use taxes and allow them to keep 50% of the income taxes from workers at the development site.
• A Nevada Senate committee has advanced a bill that would determine how the state will tax retail marijuana sales and use the resulting revenue, the first such bill to advance but not the only one being considered. Rates considered in various bills range from 10 to 15 percent, with the money going primarily to public education or local governments.

As others wrap up for the year:

• South Carolina lawmakers passed a gas tax update this week and then overrode Gov. McMaster’s veto of the bill. The bill raises the gas tax by 12 cents over six years but does not index the tax for inflation. It also increases the vehicle sales tax cap and raises vehicle registration fees. Lawmakers added some odd provisions to secure additional supporters: a state Earned Income Tax Credit set at 125 percent of the federal credit — which is not refundable, rendering it meaningless to most low-income families — and a tax credit that requires drivers to itemize every dollar spent on gas and vehicle maintenance.
• Florida‘s legislature passed a budget this week that “virtually ignored” Gov. Rick Scott’s agenda. The final version included only $75 million of the governor’s requested $618 million in tax cuts. Tax measures include cutting the business rent tax, renewing the state’s back-to-school sales tax holiday, and exempting diapers and feminine hygiene products from the sales tax.
• Now that the state has finally updated its gas tax, Tennessee officials have released the state’s plan for road and transportation improvements throughout the state.

While still others are just beginning:

• North Carolina’s budget debate is about to heat up.  The North Carolina Senate dropped its two year budget this week and included a close to $1 billion tax cut previously approved by the chamber, but failed to include funding for their mandated classroom size reduction initiative nor adequately support communities in disrepair from last year’s Hurricane Matthew.  From a NC Budget and Tax Center brief: “[the Senate budget] reflects an aggressive pursuit of tax cuts for the wealthy and profitable corporations in spite of increased uncertainty around federal funding to North Carolina and growing unmet needs in communities across the state.”
• New Mexico’s Gov. Susana Martinez has called a special session to begin May 24 to address the state’s ongoing budget crisis. Although the governor has suggested the session should be about a tax overhaul, the context heading into the session suggests a less rosy picture for reform: the governor already vetoed tax increases included in the legislative budget; the session is strictly focused on her budgetary priorities; and after cutting all funding for the legislature in the coming fiscal year (a move being challenged in court), the two branches of government aren’t particularly on the best terms.
• A draft transportation funding plan in Oregon is under consideration by the Joint Committee on Transportation and Modernization. The plan includes a gas tax increase, increased title and registration fees, a tax on new cars and bikes, and a 0.1 percent payroll tax in order to invest in needed infrastructure improvements. The committee hopes to have the bill to the House floor by early June.
• Members of the Arkansas Tax Reform and Relief Legislative Task Force have been appointed and are scheduled to begin their monthly meetings starting the week of May 21. The task force was created this past legislative session to placate lawmakers who wanted bigger tax cuts than the one advanced by Gov. Hutchinson.

What We’re Reading…  

• Governing reports that gas tax increases have become more acceptable in states where they were once considered taboo. ITEP’s Research Director Carl Davis is interviewed about the trend, driven largely by broad business support for investing additional gas tax revenue in improved roads and infrastructure to spur state economies.
• Pew has released a comprehensive report as part of its industry-leading work to help states track and evaluate the true costs and benefits of business tax incentives.
  
• Matthew Desmond writes a compelling piece for the New York Times Magazine about U.S. housing policy and the role of housing tax breaks in widening income inequality.

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. 

As expected, 2017 has brought a flurry of action relating to state gasoline taxes. As of this writing, six states (California, Indiana, Montana, South Carolina, Tennessee, and Utah) have enacted gas tax increases this year, bringing the total number of states that have raised or reformed their gas taxes to 24 since 2013.

These increases will play an important role in offsetting the loss of gas tax purchasing power caused by rising construction costs and improvements in vehicle fuel-efficiency. Although it’s worth mentioning that some of these long-overdue updates were paired with cuts in unrelated taxes that will create challenges for funding other areas of the budget, including education and health.

A summary of gas tax changes enacted since 2013 is below. This post will be updated in the weeks ahead as a handful of additional states continue to debate boosting their gas taxes.

2017 Enacted Legislation

• California: A 12-cent gas tax increase and 20-cent diesel tax increase will take effect on Nov. 1, 2017. The new law also changes the formula that California uses to implement ongoing gas tax rate adjustments. Among those changes are a new provision allowing for gas tax increases based on the rate of inflation within the state’s borders.
• Indiana: A 10-cent increase will take effect July 1, 2017. Further adjustments will occur between 2018 and 2024 based on a new formula that considers both inflation and the rate of growth in Indiana’s personal income. The new law also shifts the portion of sales tax revenue collected on gasoline purchases out of the general fund and toward transportation instead.
• Montana: A 6-cent per gallon gas tax increase will be phased-in over 6 years. Most of the increase (4.5 cents) will take effect on July 1, 2017. The remainder will be implemented in 0.5 cent increments between July 1, 2019 and July 1, 2022. The state’s diesel tax will eventually rise by 2 cents, with most of that increase (1.5 cents) taking effect July 1, 2017.
• South Carolina: The legislature overrode Gov. Henry McMaster’s veto to enact a 12-cent per gallon increase in the tax rate on both gasoline and diesel. The increase will be phased-in over 6 years, with the first increase (of 2 cents per gallon) taking effect on July 1, 2017.
• Tennessee: The gas tax will rise by 6 cents and the diesel tax by 10 cents on July 1, 2017. While Gov. Bill Haslam initially proposed indexing the state’s gas tax rate to inflation, this reform was not included in the final package passed by the legislature.
• Utah: A new law modifies the variable-rate gas tax formula enacted by Utah lawmakers in 2015 in a way that will allow for somewhat more robust revenue growth. The new formula is expected to result in a roughly 0.6-cent-per-gallon tax increase in 2019 and a 1.2-cent increase in 2020.

2016 Enacted Legislation

• New Jersey: A 22.6-cent per gallon increase in the gasoline tax took effect on Nov. 1, 2016. The diesel tax will eventually rise by a similar amount, as a 15.9 cent increase went into effect on Jan. 1, 2017 and an additional increase is scheduled for July 1. Moving forward, New Jersey’s gas tax rate will vary based on a formula designed to raise a target amount of revenue.

2015 Enacted Legislation

• Georgia: A 6.7-cent increase took effect July 1, 2015. A new formula for calculating the state’s tax rate will allow for future rate increases alongside inflation and vehicle fuel-efficiency improvements. This will allow the tax to retain its purchasing power in the years ahead. The first such increase (0.3 cents) under this formula took effect on Jan. 1, 2017.
• Idaho: A 7-cent increase took effect July 1, 2015.
• Iowa: A 10-cent increase took effect March 1, 2015.
• Kentucky: Falling gas prices nearly resulted in a 5.1-cent gas tax cut in 2015, but lawmakers scaled that cut back to just 1.6 cents by setting a minimum “floor” on the state’s gas tax rate. The net result was a 3.5-cent-per-gallon increase relative to previous law.
• Michigan: The state’s gasoline and diesel taxes rose by 7.3 cents and 11.3 cents, respectively, on Jan. 1, 2017. Beginning in 2022, the state’s gas tax will begin rising annually to keep pace with inflation.
• Nebraska: A 6-cent increase was enacted over Gov. Pete Ricketts’ veto. Nebraska’s gas tax rate is rising in 1.5 cent increments over four years. The first two of those increases took effect on January 1 of 2016 and 2017.
• North Carolina: Falling gas prices were expected to trigger a gas tax cut of 7.9 cents per gallon, but lawmakers scaled that cut down to just 3.5 cents, resulting in a 4.4 cent increase relative to previous law. Additionally, a reformed gas tax formula that takes population and energy prices into account will bring further gas tax increases in the years ahead. The first of those increases (0.3 cents) took effect on Jan. 1, 2017.
• South Dakota: A 6-cent increase took effect April 1, 2015.
• Utah: A 4.9-cent increase took effect on Jan. 1, 2016. Future increases will occur under a new formula that considers both fuel prices and inflation. This formula was modified under legislation enacted in 2017 to allow for faster gas tax revenue growth.
• Washington State: An 11.9-cent increase was implemented in two stages: 7 cents on Aug.1, 2015, and a further 4.9 cents on July 1, 2016.

2014 Enacted Legislation

• New Hampshire: A 4.2-cent increase took effect July 1, 2014.
• Rhode Island: The gas tax rate was indexed to inflation. This resulted in a 1-cent increase on July 1, 2015 and will lead to further increases in most odd-numbered years thereafter (2017, 2019, etc).

2013 Enacted Legislation

• Maryland: The first stage of a significant gas tax reform, which tied the tax rate to inflation and fuel prices, took effect on July 1, 2013. Since then, the state’s tax rate has increased by 10 cents above its early-2013 level.
• Massachusetts: A 3-cent increase took effect July 31, 2013.
• Pennsylvania: The first stage of a significant gas tax reform, tying the rate to fuel prices, took effect on Jan. 1, 2014. So far the gasoline tax rate has increased by 27 cents per gallon while the diesel tax has increased by 35.5 cents.
• Vermont: A 5.9-cent increase and modest gas tax restructuring took effect May 1, 2013. Since Vermont’s gas tax rate is linked to gas prices, however, the actual rate has varied since then.
• Virginia: As part of a larger transportation funding package, lawmakers raised statewide diesel taxes effective July 1, 2013, as well as gasoline taxes in the populous Hampton Roads region. Outside of Hampton Roads, gasoline taxes are 1.3 cents lower than they were before the reform, but a new formula included in the law will cause the tax rate to rise alongside gas prices in the years ahead.
• Wyoming: A 10-cent increase took effect July 1, 2013. Gov. Matt Mead’s signature on this increase made Wyoming the first state to approve a gas tax increase in over three and a half years (no state enacted a gas tax increase in 2010, 2011, or 2012).
• District of Columbia: Legislation approved in 2013 has yet to impact Washington D.C.’s gas tax rate in practice, though by tying its tax rate to fuel prices the District opened the door to potential gas tax rate increases in the future.

Lawmakers across the political spectrum recognize the need for additional spending to maintain and upgrade our nation’s transportation infrastructure. According to the Federal Highway Administration, there is a backlog of $836 billion in needed repairs and improvements to roads and bridges and an additional $90 billion backlog of public transit projects. Maryland Democratic Representative John Delaney has been one of the most vocal lawmakers in the debate over funding infrastructure and has recently proposed two bills seeking to significantly increase spending on these critical needs. Unfortunately, rather than just funding infrastructure, both of Rep. Delaney’s bills would make the problem of inadequate revenue worse by giving away billions of dollars in tax breaks to corporations.

Rep. Delaney’s Partnership to Build America Act would give companies a huge tax break on their offshore earnings in order to help fund an infrastructure bank. The legislation would allow companies to bring back up to $6 in offshore earnings tax-free for every $1 they invest in infrastructure bonds. This means that to “fund” the intended infrastructure bank with $50 billion worth of bonds, the legislation could allow multinational corporations to bring back $300 billion tax-free and receive tax breaks of up to $105 billion.

While Rep. Delaney’s Infrastructure 2.0 Act takes a different approach, it would similarly mean huge tax breaks for the country’s biggest offshore tax avoiders. The legislation would use a deemed repatriation at a tax rate of 8.75 percent to raise about $200 billion in revenue to pay for an infrastructure bank and increase funding for the Highway Trust Fund. The key problem is that companies currently owe about $767 billion in taxes on their $2.6 trillion in offshore earnings, so by cutting the repatriation tax rate by three-quarters (from 35 to 8.75 percent) Rep. Delaney is proposing to reward multinational corporations with a tax break of around $550 billion. Rep. Delaney’s proposal to only tax offshore earnings at a 8.75 repatriation rate is especially striking given that this rate is lower than the 10 percent rate previously proposed by Republican President Donald Trump.

It is important to note that both of Delaney’s bills would, at best, provide only temporary and limited funding for infrastructure spending. In fact, both bills could make the funding situation worse in the long run by giving profitable corporations billions in tax breaks that could be used to fund infrastructure, other public investment priorities, or to lower the deficit. Either way, what is needed is a more permanent solution to the continual lack of infrastructure funding.

One of the best and most sustainable ways to fund infrastructure would be for lawmakers to finally reform the federal gas tax by increasing the tax rate and indexing it to grow over time.  The federal gas tax has been stuck at 18.3 cents per gallon since October of 1993, which means that this April 1st marked the all-time record for the longest period that Congress has gone without increasing it. Keeping the federal gas tax at the same nominal level for decades on end has meant that the revenue it raises has been substantially eroded by inflation and the higher fuel efficiency of motor vehicles. This growing gap between gas tax revenues and our nation’s infrastructure needs explains why, every few years, lawmakers have had to scramble to find revenue to fund infrastructure.

What may be leading lawmakers like Rep. Delaney to more convoluted approaches to funding infrastructure, rather than just raising the gas tax, is a perception that this reform is politically unpopular and will not garner bipartisan support. But this perception may not reflect reality. Since 2013, nearly two dozen states, led by elected officials across the political spectrum, have managed to make the fiscally responsible move to increase their gas taxes without running into significant political problems. In recent weeks, President Trump even mentioned the possibility of raising the gas tax to fund additional infrastructure spending, which has drawn much needed attention to the idea. Rather than continuing to rely on gimmickry and giveaways to corporations like those proposed by Rep. Delaney to fund infrastructure, it is about time lawmakers finally reform the federal gas tax instead.

President Donald Trump’s tax sketch released in late April is the starting point for federal tax reform discussions. For now, the sketch includes too few details to properly analyze its revenue and distributional impacts, but based on limited information, corporations and the wealthy stand to benefit most. Below are resources ITEP has produced on tax reform. If and when the Trump Administration or Congress release more details about a proposed tax reform plan, ITEP staff will continue to provide analyses and commentary, especially about how any tax proposal would affect working people and the federal government’s ability to fund basic services and programs. 

Commentary on President Trump and House GOP’s Tax Plans

Both President Trump and Congress have floated tax plans that would redistribute wealth to corporations and the already rich. Multinational corporations are immensely profitable and currently pay barely more than half the 35 percent statutory corporate tax rate (the average effective rate for profitable corporations is 21.4 percent), yet policymakers are proposing to drop  the corporate tax rate to 20 or even 15 percent with no clear plan for closing the copious loopholes that allow corporations to avoid federal taxes in the first place. Further, this drive to cut taxes for corporations and the rich is contrary to the public will.

• President Trump’s Corporate Tax Outline: At Least He Didn’t Use a Napkin – April 27, 2017
• Trump Tax Plan Revives Economic Voodoo – April 26, 2017
• Does a 15 Percent Corporate Tax Rate Sound Low? For Dozens of Major Corporations, Maybe Not – April 25, 2017
• State of Play: The Coming Debate Over the Ryan and Trump Tax Plans – January 17, 2017
• Congress Shouldn’t Defy Public Opinion and Good Policy by Cutting Taxes for Corporations and the Wealthy – January 17, 2017
• Tax Cuts for the Rich Are the Main Feature, Not a Bug, of the Trump Tax Plan – December 1, 2016

Full Revenue and Distributional Analyses of Trump Campaign and House GOP Tax Plans

The so-called “Better Way Plan,” released by Speaker Paul Ryan and the President’s campaign tax plan, are currently the only substantive tax proposals on the table, and it’s reasonable to surmise these proposals will help form the basis of tax legislation moving forward. For each of these plans, ITEP dived into their details and used its microsimulation model to estimate their total revenue and distributional impact. The one common thread between the old plans? Profitable corporations and the wealthiest 1 percent of taxpayers are the biggest winners.

• The Distributional and Revenue Impact of Donald Trump’s Revised Tax Plan – September 26, 2016
• Donald Trump’s Tax Plan Would Cost $12 Trillion – March 17, 2016
• Ryan Tax Plan Reserves Most Tax Cuts for Top 1 percent, Costs $4 Trillion Over 10 Years – June 29, 2016
• Fact Sheet: Comparison of House GOP Tax Plan, Trump’s Initial Tax Proposal and Trump’s Revised Tax Proposal – November 15, 2016

Resources on Key Features of the Trump and House GOP Tax Change Priorities

The Trump Administration and House GOP have each put out basic goals for tax legislation, including a corporate rate cut, moving to a territorial tax system, a border adjustment tax, a repatriation holiday, and estate tax repeal among other things. These and other pieces of the plan warrant component-by-component evaluation. ITEP research on some of the most prominent pieces of their plans is below.

Corporate Rate Cut

• Fifteen (of Many) Reasons We Need Corporate Tax Reform – April 13, 2017
• U.S. Collects Smaller Share of Corporate Taxes Than Developed Country Average – April 10, 2017
• The 35 Percent Corporate Tax Myth – March 9, 2017

Move to Territorial Tax System

• How to Shut Down Offshore Corporate Tax Avoidance, Full Stop – April 7, 2017
• Offshore Shell Games 2016 – October 4, 2016
• The Case for Closing the Loophole that Allows Corporations to Defer Taxes on Offshore Income – March 19, 2015

Border Adjustment Tax

• Regressive and Loophole-Ridden: Issues with the House GOP Border Adjustment Tax Proposal – February 22, 2017

Repatriation Tax Break

• The $767 Billion Money Pot Driving Tax Reform – March 28, 2017
• Fortune 500 Companies Hold a Record $2.6 Trillion Offshore – March 28, 2017
• Multinational Corporations Would Receive Half a Trillion in Tax Breaks from Trump’s Repatriation Tax Proposal – January 18, 2017
• Comprehensive Guide to “Repatriation” Proposals – November 28, 2016

Tax Breaks for Child and Dependent Care

• Trump Child Care Tax Break: Good PR, But Bad Policy That Will Do Nothing for Low-Income Families – August 8, 2016

Estate Tax Repeal

• The Federal Estate Tax: A Critical and Highly Progressive Revenue Source – December 7, 2016
• Fact Sheet: Preserving the Estate Tax – December 7, 2016

Pass Through Loophole

• Why We Must Close the Pass-Through Loophole – August 24, 2016

Carried Interest Tax Break Repeal

• Bush and Trump’s “Populist” Tax Rhetoric Is All Talk – September 10, 2015
• How Donald Trump’s Carried Interest Tax Hike Masks a Massive Tax Cut for Wealthy Money Managers – September 29, 2015

Net Investment Income Tax Repeal

• Affordable Care Act Repeal Includes a $31 Billion Tax Cut for a Handful of the Wealthiest Taxpayers: 50-State Breakdown – March 17, 2017

Economic Growth Paying for Tax Cuts

• Lawmakers Should Not Use Disproven Trickle-Down Myth to Ramrod Tax Cuts for the Rich – February 8, 2017
• Tax Foundation Model Seeks to Revive Economic Voodoo – February 11, 2016

Progressive Tax Reform Options

If the Trump Administration and Congress plan to make the first fundamental overhaul to the nation’s tax system in a generation, it is critical to take a step back and discuss how tax reform can improve the lot of all Americans and what the majority of taxpayers think lawmakers should focus on. Public opinion polls overwhelmingly show that a majority of the public do not want another round of tax cuts that primarily benefit the wealthy and corporations. True, sustainable tax reform and related proposals should increase revenue and the overall fairness of our tax system.

• What Real Tax Reform Should Look Like – April 27, 2017

Two states are on the verge of embracing a tried and tested anti-poverty policy, the Earned Income Tax Credit (EITC). In the past two weeks, lawmakers in both Hawaii and Montana passed EITC legislation, which governors in both states are expected to sign.

Once officially enacted, these states will join 26 other states and the District of Columbia in using EITCs to boost low-wage workers earnings and to offset some of the regressive state and local taxes they pay.

While both bills will improve tax fairness, reward work, and help families meet their basic needs, they have notable differences. 

Hawaii’s HB 209 would enact a sizeable EITC equal to 20 percent of the federal credit. But the bill includes three unusual provisions that will limit the credit’s usefulness to low-income families. First, the credit would be nonrefundable, meaning that taxpayers earning too little to owe state income tax will receive no benefit. Second, Hawaii taxpayers could claim the credit only after all of the state’s existing refundable credits have been applied. And third, the credit would expire after tax year 2022. Hawaii lawmakers should consider lifting these restrictions during the next legislative session.

Montana’s HB 391, enacted via a bipartisan effort, includes an EITC equal to 3 percent of the federal credit. Unlike Hawaii’s proposed EITC, this credit would be refundable, meaning that Montanans would receive a refund for the portion of the credit that exceeds their income tax bill. The importance of refundability hinges on the fact that it can be used to offset any state and local taxes paid, rather than only income taxes. This is particularly important given the upside-down nature of state and local tax systems where low- and moderate-income families pay a bigger share of their income in taxes than wealthier taxpayers. While Montana’s EITC would represent a meaningful step toward poverty alleviation, the 3 percent credit would become the lowest in the nation, behind Louisiana’s 3.5 percent credit.