Author: tarek

We’ve known for a while that government subsidies and tax breaks for sports stadiums are a raw deal for taxpayers. But a new book by Harvard University urban planning professor Judith Grant Long reveals that the costs are worse than we thought. According to Long’s book, Public/Private Partnerships for Major League Sports Facilities, taxpayers spent over $31 billion in tax or direct subsidies for the 121 sport facilities in use in 2010, which is $10 billion more than the cost estimated by the industry itself.

Most of the difference between Long’s and industry calculations is explained by the industry’s failure to fully account for the cost of land, infrastructure, operations, and lost property taxes as part of the cost of stadium construction deals. When all factors are taken into account, cities bore, on average, 78 percent of the cost of the public-private (so-called) partnership stadium construction deals. Long found in some particularly egregious cases, such as Indianapolis’s Lucas Oil Stadium and Paul Brown Stadium in Cincinnati, the public’s share of the cost actually surpassed the entire cost of building the stadium because of these unaccounted for external costs to the city.

What do taxpayers get in return for the billions they have to pay in subsidies? Not all that much, frankly. As the watchdog group Good Jobs First has chronicled, the costs of new stadiums do not pay off in terms of economic growth or job creation. The primary reason for this is that these entertainment venues tend to redirect consumer spending from other activities rather than generating entirely new economic activity. Even if you accept that new stadiums do generate some jobs (rather than just shifting those jobs from other industries), they aren’t any bargain considering that they can cost taxpayers as much as $200,000 per job “created.”

Just this week, the Miami Marlins reinforced every bad stereotype of sports teams acting in bad faith when it traded away its best players – and its National League competitiveness – in order to reduce salary costs. The trades were made in spite of the explicit promise by the team’s owner that he would spend whatever it took to build a power house team as part of a sweetheart deal that will end up costing taxpayers an astounding $2.4 billion.

With the case against subsidizing stadiums with public dollars growing ever stronger, lawmakers need to finally put a stop to this ludicrous form of corporate welfare.

A non-partisan group called “TBD Colorado” spent much of 2012 talking to Coloradans about the state’s long-term problems, and now has some sensible things to say about the state’s tax policies. While light on specifics, TBD urges (PDF) lawmakers to consider raising more revenue for things like education and transportation, and said that the state’s tax base should be broadened “so that it more accurately reflects Colorado’s underlying economy.”

For Colorado lawmakers that want a more specific assessment of what’s wrong with the state’s tax system, the Bell Policy Center’s new infographic: “5 trends that explain why Colorado’s revenue resources are shrinking” provides some additional insights.  The problems facing Colorado are familiar to many states, including exempting sales taxes for services (PDF), the decline of the gas tax and recent federal tax cuts on which the state has piggybacked.

A comprehensive overhaul of Minnesota’s tax and budget system is in the works for 2013. Governor Mark Dayton and other state policymakers are looking at long-term solutions that will set the state’s revenues on a sustainable path now and into the future.  At a public forum this week, Revenue Commissioner Myron Frans said that the Dayton administration is looking for changes that will make the system “fair, simple and support a strong and growing economy.”

A lot of attention has been given this past week to the passage of California’s revenue-raising ballot measure, Proposition 30.  But, the arguably more important election news from the Golden State is that when the dust settled, Democrats ended up with a supermajority in both houses, giving lawmakers the ability to tackle tax policy through the legislative process versus the ballot.  Senate leader Darrell Steinberg intends to make the most of the new makeup and will pursue tax reform in the coming year saying, “when we talk about revenue it ought to be in the context of tax reform, about broadening the base, about lowering rates, about creating a more competitive environment for business, and potentially bringing in more revenue.”

Utah lawmakers are looking at a proposal to double the sales tax applied to the purchase of food. They would couple the sales tax increase with two new refundable credits to offset the impact of the tax increase on low- and moderate-income families: a food credit (PDF) and state Earned Income Tax Credit (EITC) (PDF).  Generally, exempting food from a state’s sales tax base is a poorly targeted and costly policy since it makes the base much narrower, yields less revenue, and gives a large tax break to wealthier taxpayers who can easily afford to pay the sales tax on food.  Refundable credits of the nature being proposed in Utah are a less costly alternative that can be designed to reduce taxes for specific income groups.  

On Saturday, a stretch of the legendary I-495 Beltway encircling Washington, DC will grow from eight lanes to twelve.  But this modest expansion of the region’s famously inadequate transportation network isn’t designed to benefit everyone.  With so many federal and state lawmakers terrified to raise taxes for the public good, the Beltway’s new “express lanes” will be paid for in a different way—specifically, by the wealthier drivers who can afford to buy their way out of the congested lanes (Kia Lanes, perhaps?), and into these heavily tolled, so-called Lexus Lanes.

AAA Mid-Atlantic initially opposed the new Lexus Lanes, since by definition they only work when the rest of the transportation system is failing.  But an “acceptance of reality … about the sad state of transportation funding” led AAA to eventually change its mind and embrace the lanes on the grounds that they’re better than nothing.

Sad indeed.  The Institute on Taxation and Economic Policy (ITEP) has shown that much of our nation’s transportation funding woes can be traced back to the short-sighted design of federal and state gas taxes, and that there are straightforward ways to fix these glaringly broken taxes.  But raising and reforming the gas tax can be politically difficult, and thus here we are, with Band-Aid fixes like Lexus Lanes instead.

President and Lawmakers Should Resist Proposals to Extend Income Tax Cuts for $1 Million of Income

The idea that Democrats and Republicans might “compromise” by extending the Bush income tax cuts for the first $1 million a taxpayer makes is back in the news, and it’s still a terrible idea.

Bill Kristol, editor of the right-ring Weekly Standard, said on Fox News that Congressional Republicans should be willing to give in on taxes, at least when it comes to higher taxes on millionaires. That set off chatter among some political observers and media outlets that perhaps there was a room for a “compromise” with Congressional Democrats, some of whom have called for extending the Bush tax cuts for income up to $1 million, rather than $250,000 for couples and $200,000 for singles as proposed by President Obama.

Here’s why the idea is absurd: Obama’s approach to the Bush tax cuts is already a huge compromise for the many lawmakers who originally opposed the Bush tax cuts. Remember, President Obama’s proposal is to extend 78 percent of the Bush tax cuts (in terms of revenue). His proposal would extend the Bush income tax cuts entirely for 98 percent of Americans and partially for the richest two percent, and would extend much of the Bush estate tax cut so that only 0.3 percent of deaths would result in estate tax liability.

In May, House Minority Leader Nancy Pelosi floated the idea of extending the income tax cuts for up to $1 million of income. CTJ estimated that this would reduce the revenue savings from Obama’s approach to the income tax cuts by 43 percent. (This was later confirmed by the Joint Committee on Taxation.) We also found that people making over $1 million would get half of the additional tax cuts that would result from moving the threshold from $250,000/$200,000 to $1 million.

Married Couples Making $250k to $300k would Lose Just 2% of their Tax Cuts under Obama’s Approach. So Why Should We Extend Even More Tax Cuts?

People have asked us how extending the tax cuts for income up to $1 million could possibly help people who make over $1 million. The answer is that all of these proposals would extend reductions in income tax rates for all the income a taxpayer makes up to whatever threshold is being proposed. Obama’s proposal would extend the income tax cuts for the first $250,000 a married couple makes. That means that a married couple making $300,000 would only pay the higher, pre-Bush tax rates on $50,000 of their income (at most).

Similarly, Pelosi’s proposal (which she subsequently backed away from) would extend the income tax cuts for the first $1 million a family makes. That means that a family making $1.1 million would pay the higher, pre-Bush tax rates on just $100,000 of their income (at most).

Many people, including those who write about these issues and enact tax laws, have failed to appreciate this. Much of the debate has revolved around whether or not people who make $250,000 should be considered “rich” if they live in higher-cost areas. This debate is utterly beside the point because someone making $250,000 would not have to give up any of their tax cuts under Obama’s proposal.

In fact, a CTJ study found that married couples making between $250,000 and $300,000 would lose just 2 percent of their Bush-era income tax cuts under President Obama’s proposal. People making up to half a million dollars would keep most of their tax cuts.

Congresswoman Nita Lowey of Westchester, NY, is one of the Democrats who have made noises about moving the threshold from $250,000 to $1 million. Her comments on the issue reflect this lack of understanding.

Earlier this year, she told the Star Gazette that “If you are making $200,000 and are a fireman and a teacher, you are not feeling too rich with all the property taxes and all your expenses. But when you are making over $1 million, you ought to pay your fair share so we can support basic services in our communities.”

Even if Rep. Lowey’s district is some Bizarro World where fire fighters and teachers make $200,000 a year, they would not lose any portion of the Bush tax cuts under President Obama’s approach. And they certainly are not going to be helped by extending the tax cuts for even higher levels of income.

Leading up to the election, prominent Democrats like Rep. Chris Van Hollen, ranking member of the House Budget Committee, were pushing to renew the payroll tax holiday in 2013, an idea that seemed all but dead in Congress just weeks earlier. The renewed push for extending the payroll tax holiday came amidst reports that the Obama Administration is considering replacing it with a new version of the Making Work Pay Credit.

The shift in debate toward renewing or replacing the payroll tax holiday is driven by concerns over ending such economically stimulative measures while the economy is still relatively weak. Compounding these concerns, a recent analysis by JPMorgan concluded that the payroll tax holiday’s expiration would reduce consumer spending by $100 billion and would cut the nation’s overall gross domestic product (GDP) by as much as 0.6 percent.

Most economists agree that a policy putting money in the hands of low- and middle-income people is likely to have a greater stimulative impact for each dollar spent than a policy putting money in the hands of high-income people.

From this perspective, the Obama Administration would be right to favor the Making Work Pay Credit; it is much more progressive than the payroll tax holiday, considering that only 27 percent of the holiday’s benefits goes to the bottom 60 percent, compared to 50 percent of the making work pay credit’s benefits. In addition, replacing the payroll tax holiday would also allay concerns from powerful voices, like AARP, that continuing the holiday will endanger the Social Security Trust Fund over the long term by weakening its dedicated funding source.

It still may be difficult to weigh the benefits of short-term stimulus provided by these tax cuts against their long-term impact on the debt. But it’s important to keep in mind that extending the entirety of the Bush tax cuts would cost $322 billion, which is more than two and half times the projected cost of the payroll tax holiday ($121 billion) and more than five and a half times the projected cost of the Making Work Pay Credit.

If Congress departs from its annual tradition of steeply reducing the Alternative Minimum Tax (AMT), 57 percent of the tax will be paid by the richest five percent of Americans and 91 percent of the tax will be paid by the richest fifth of Americans. If Congress does reduce the AMT as usual, almost all of the tax will be paid by the richest five percent of Americans.

The AMT is one of the factors contributing to the hysteria in Washington about the so-called “fiscal cliff,” the point at which several tax cuts expire and several spending cuts go into effect at the end of this year. Lawmakers and observers often mistakenly portray the AMT as a tax that will affect middle-income Americans if it is not controlled.

The Washington Post reports that if Congress does not act, “the AMT is in line to affect about 33 million households in the 2012 tax year.” The paper also reports that as many as 60 million households could face filing delays because the IRS would have to update its forms and systems to determine who would be subject to the more expansive AMT.

But the vast bulk of actual AMT payments would come from a smaller number of very well-off Americans. CTJ’s fact sheet on the AMT shows that even if Congress fails to provide the usual AMT relief, the middle fifth of Americans would pay just one percent of the AMT. The bottom two fifths of Americans would pay virtually none of the AMT.

The AMT is a backstop tax designed to ensure that well-off Americans pay at least some minimum level of tax no matter how good they are at finding deductions, credits and loopholes that reduce their regular tax calculation. The exemptions in the AMT that keep most of us from paying it have never been indexed to rise with inflation, so Congress has increased them each year for the last several years.

More importantly, the Bush tax cuts reduced the regular income tax without making any permanent corresponding change in the AMT. In other words, most of the impact of an unrestrained AMT would be to limit the Bush tax cuts for well-off Americans. What would be so terrible about that?

There have been a lot of contradictory statements coming from Washington these days about how employment levels would be affected by President Obama’s proposal to allow the expiration of the Bush-era income tax rate reductions for the top two income tax brackets (only affecting income in excess of $250,000 for couples and $200,000 for singles). Republican House Speaker John Boehner continues to cite a discredited report claiming that 700,000 jobs will be lost, while several media outlets have recently reported that the Congressional Budget Office (CBO) found 200,000 jobs would be lost. Neither is right.

This is one of the confusing aspects of the debate over the so-called “fiscal cliff,” the term sometimes used to describe the point at which the Bush tax cuts are scheduled to expire, and some spending cuts are scheduled to take effect, at the end of this year.  

Boehner’s Bogus 700,000 Jobs Claim

Let’s start with the most outrageous claim — that of Speaker Boehner. Last week, we explained why his call to pursue tax reform along the model of the Tax Reform Act of 1986 was both disingenuous and not up to the task of addressing our current budget situation. During the same speech, Boehner mentioned an Ernst & Young report finding that “going over part of the ‘fiscal cliff’ and raising taxes on the top two rates would cost our economy more than 700,000 jobs.”

Citizens for Tax Justice explained, back in July, why the study Boehner cites (which was paid for by groups like the U.S. Chamber of Commerce and the National Federation of Independent Businesses) is bogus. To take just one example of the problems with the report, it assumes a labor supply response (the degree to which people work fewer hours in response to higher tax rates) that is nearly 10 times stronger than the non-partisan CBO assumes when it makes similar estimates on labor supply effects.

CBO’s Misunderstood 200,000 Jobs Figure

The most recent CBO estimates, which are claimed to show a potential loss of 200,000 jobs, are another story. One problem is that the CBO study examines the impact of delaying, for two years, the expiration of the Bush tax cuts (and some reductions in spending) which will occur under current law. One of CBO’s findings is that extending the income tax rate reductions for the top two tax brackets (the tax cuts for the rich that Obama would like to see expire) for two years will result in 200,000 more jobs than would exist if Congress allowed these tax cuts to expire.

But if Congress decides to delay the expiration of the Bush tax cuts for the rich for two years (or any amount of time), chances are extremely high that this delay will eventually become permanent rather than temporary. If President Obama caves to Republican demands to extend tax cuts for the rich now, when he seems to have a mandate from the voters to let them expire, why in the world would he do any better in the years to come?

And, permanently extending the Bush tax cuts for the rich, as Republican Congressional leaders ultimately want, would have negative long-term impacts because it would substantially increase the budget deficit and make it more difficult to make the investments that create jobs.

This is demonstrated by other CBO studies that examine the long-term impact of removing all the impacts of the so-called “fiscal cliff” permanently. A CBO report from August shows (in a table on page 37) that removing all the fiscal cliff impacts (by making the Bush tax cuts permanent and canceling the scheduled spending cuts) would reduce economic output (and thus jobs) by 2022. Gross domestic product would be down 0.4 percent and gross national product would be down 1.7 percent, compared to what would happen if Congress did nothing and simply allowed the fiscal cliff impacts to take effect. (And remember, two-thirds of the fiscal cliff’s impact on deficit reduction results from the expiration of tax cuts, rather than then spending cuts scheduled to take effect.)

Of course, the short-term does matter — we need to improve the economy right now! But even if we could be persuaded that extending the income tax cuts for income in excess of $250,000 could save 200,000 jobs in the short-term, we could think of many, many, more cost-effective ways to do this. The figures in the new CBO report show (in a table on page 7) that the cost difference between extending all the Bush tax cuts and extending all but the income tax cuts for the top two brackets would be $42 billion in 2013. Divided by 200,000, that comes to $210,000 per job saved.

In other words, CBO thinks we can save a job for every $210,000 that we give to people who make over $250,000 (or $200,000 for single taxpayers). We’re not sure how much it costs annually to help public schools hire back teachers laid off due to budget cuts, or to hire construction workers to build bridges, but we’re pretty sure it’s less than $210,000 each.

Actually, the same CBO report also shows that the cost of calling off the automatic cuts in defense and non-defense spending and the scheduled expiration of increased doctor payments from Medicare would be $64 billion by the end of 2013 and would make a difference of 800,000 jobs. Divide $64 billion by 800,000 and that comes to $80,000 per job saved. That sounds like a much better deal.

Enact Obama’s Proposal or Go Off the Fiscal Cliff

The biggest issue facing Congress right now is finding revenue to make the public investments that will help our economy and to reduce the deficit. Extending most of the Bush tax cuts, as President Obama proposes, is not a great way to achieve that, but it makes sense to enact Obama’s approach for one year to give lawmakers time to find better solutions. If anti-tax lawmakers block that approach and insist on enacting all the tax cuts, then Congress and the President should simply allow all the tax cuts to expire.

For Immediate Release: November 9, 2012

Obama’s Proposed Extension of the Bush Tax Cuts Is Costly, But Can Be Followed with Real Revenue-Raising Tax Reforms

Citizens for Tax Justice Responds to President’s Fiscal Cliff Remarks Today

Washington, DC — Arguing that it would create certainty as he undertakes negotiations over the year-end fiscal cliff, today President Obama called on Congress to extend for another year most of the Bush-era tax cuts scheduled to expire at the end of this year under current law. He noted that such a bill has already been approved by the Senate and only needs the approval of the Republican-controlled House of Representatives.

“Deficit reduction is getting off to a terrible start, when the President’s opening offer to Republicans is a huge tax cut that will add $250 billion or more to federal borrowing in 2013 alone,” said Bob McIntyre, director of Citizens for Tax Justice.

Under the President’s approach, 78 percent of the cost of the Bush tax cuts would be extended through 2013, which is far too much. The Senate bill that the President has endorsed would extend for one year the Bush income tax cuts for the first $250,000 a married couple makes and the first $200,000 a single taxpayer makes. Most people don’t realize that this would allow taxpayers who make as much as half a million dollars a year to keep most of their Bush income tax cuts.

But Obama’s approach is certainly superior to the approach advocated by the Republican-led House, which would extend the tax cuts for all income levels, including the very richest Americans.

As the President said during his remarks today, voters want progressive revenue increases. Exit polls show that 60 percent of voters want taxes to go up for the people making over $250,000. An election night poll from Hart Research found that 62 percent of voters were sending a message that we should “make sure the wealthy start paying their fair share of taxes.”

If President Obama caves to the demand of House Speaker John Boehner that Bush-era income tax rate reductions must be extended even for the richest Americans, the President will have given up the enormous leverage he has gained following the election, and will have ignored the clear mandate the voters gave him to end tax cuts for the rich.

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Citizens for Tax Justice (CTJ), founded in 1979, is a 501 (c)(4) public interest research and advocacy organization focusing on federal, state and local tax policies and their impact upon our nation (www.ctj.org).

According to the official exit polls on Election Day a combined 60 percent of voters support increasing taxes, with 47 percent supporting an increase in taxes on those making over $250,000 and 13 percent supporting a tax increase on everyone. Barely one third of voters think no one’s taxes should be increased. This support for higher taxes reinforces the fact that only small minority (21 percent) support the disastrous spending cuts-only approach to deficit reduction, as represented by the debt ceiling deal.

Making the voters’ views even more clear, an election night poll by Hart Research found that 62 percent of voters said that they were trying to send the message that the Congress should make sure the wealthy pay their fair share in taxes. In addition, the Hart poll found that 73 percent of voters said that Medicare and Social Security benefits should be protected from cuts.

This is important: while lawmakers in DC have been focused on deficit reduction over the last couple years, most voters do not share their concern. In fact, 59 percent told pollsters on Election Day that unemployment was the most important economic issue facing the country, which is almost four times the percentage of voters that said the deficit was the most important economic issue.

The results of these Election Day polls mirror a plethora of public polling over the past couple of years on how to handle deficit reduction. Earlier this year, for example, a Washington Post-ABC News poll found that as many as 72 percent of Americans support increasing taxes on millionaires. Making the public preference clear, former Reagan official Bruce Bartlett compiled 19 different polls during the debt ceiling fight last year showing there is wide support among Americans for raising taxes to deal with the deficit.

Taken together, the Election Day polls once again reveal the substantial gap between the kinds of policies that the public would like Congress to pursue and the policies it’s actually pursuing. To start, the fact that the public is more concerned about the health of the economy than about deficit reduction should make Congress reverse course and actually increase government spending and investment, which is several times more stimulative to the economy than making the Bush tax cuts permanent, i.e. permanently cutting taxes. Second, Congress should recognize that to the extent that deficit reduction is needed over the long term, the public heavily favors a balanced approach that includes significant immediate revenue increases and spending cuts, rather than the spending cuts-only approach favored by Congress in recent years. Voters told Washington to get real about taxes because voters themselves are realistic about revenues. The message couldn’t be more clear.

For years, conservatives and many moderates have believed that signing Grover Norquist’s no-tax pledge was a ticket to electoral success. Maybe it was, maybe it wasn’t. But on election night 2012, it began to look like the pledge was actually a liability as signatories to it were sent packing by voters in states from New Hampshire to Ohio to California. While the results are still coming in, at least 55 House incumbents or candidates and 24 Senators or Senate hopefuls who signed the pledge lost on Election Day.  That means in the next Congress, the number of pledge-signers will be 264 at most, down from 279, and Grover’s fans could potentially become the minority in the House, with only 216 seats, according to reports from Bloomberg (link not available).

Rather than a boon, in many Senate races signing Grover’s pledge turned out to be a burden this election year. In the Ohio Senatorial race for instance, Republican State Treasurer Josh Mandel attempted to portray himself as an independent and principled thinker, but this image was tarnished by the fact that he had signed the no-tax pledge. In fact, Mandel gave a pretty limp response to his opponent, Democratic Senator Sherrod Brown (who ultimately won the race), who pointed out during a debate that signing the pledge equaled “giving away your right to think.”

Similarly in Massachusetts, tax policy became the focal point of difference between Republican Senator Scott Brown and Democratic candidate Elizabeth Warren. During a debate between the candidates, Warren warned voters that “instead of working for the people of Massa­chusetts” Brown had “taken a pledge to work for Grover Norquist.” Such criticism helped voters see that he was not as independent from conservative influence and the Republican Party as he liked to portray himself in deep blue Massachusetts.

Earlier this year, the stranglehold of the no-tax pledge on the Republican Party and candidates was already showing signs of cracking as a substantial number of Republican candidates either refused to sign the pledge or repudiated their former fealty to it. Leading the charge, Virginia Republican Representative Scott Rigell advised fellow Republicans to not sign the pledge and ran explicitly on the platform of taking a balanced approach to deficit reduction. In contrast to many of his colleagues who lost running on the no-tax pledge, Rigell was easily re-elected to his House seat.

Moving forward, we expect more lawmakers will realize that taking a dogmatic anti-tax approach is not only bad policy, but that it’s also increasingly bad politics.

Picture of Norquist in a bathtub courtesy the New Yorker magazine.