Author: tarek

Presidential candidate Mitt Romney has been doing a lot of media interviews lately, and when the editors at Politico wrote up their sit-down with the GOP nominee, they characterized Romney’s answers to their questions as “the clearest window yet into how the lessons he gained in the corporate world would be applied to the presidency.

So what did he say? Romney told Politico “I learned leadership by watching people,” and named J.W. “Bill” Marriott, a fellow Mormon and the CEO of the hotel chain of the same name, as one of the people from whom he’s learned a lot about leadership. He put Marriott right up there with his mentor, Bill Bain.

While we can’t speak to Bill Marriott’s management style, we can tell you that during his 40-year tenure as CEO of Marriott International, the company engaged in aggressive tax avoiding – so aggressive that it later got them into trouble with the IRS.

The company used a tax shelter known as “Son of BOSS,” generating capital losses that a federal court deemed “fictitious,” “artificial” and a “scheme.” The government criminally prosecuted the promoters of this particular tax shelter and people are now serving federal prison sentences for it. In fact Romney himself, as a member of Marriott’s audit board, most likely signed off on this tax evasion strategy. The company has used other aggressive tax planning vehicles, too, even claiming a questionable tax credit for synthetic fuels.

Marriott also shows an ever-increasing ability to shift and shelter its profits offshore. While 3,122 of its 3,718 hotel properties are in the United States, the company pays more income tax in foreign jurisdictions than in the US, even though the majority of its profits must surely be generated here.

Marriott has over a hundred subsidiaries in known tax haven countries. For example, while it has only one hotel in the Cayman Islands, Marriott has 15 subsidiary companies there.  And in Luxembourg, where it has nine subsidiaries but zero hotels, Marriott uses one of its subsidiaries to collect royalties on its various brand names which the US cannot tax.

Does Romney admire and endorse these kinds of shenanigans? Hard to say for sure. But given his widely recognized use of some pretty aggressive (though legal, far as we know) strategies to avoid paying his personal taxes, we now have a glimpse into the values that inform his views on corporate tax policy.  We are beginning to sense a pattern in this presidential candidate, and it looks a little like disdain for our nation’s tax laws.

Both Republicans and Democrats are featuring governors at their national nominating conventions. Because convention speakers are chosen as the parties’ ambassadors to new audiences during these TV spectacles, the state policy team at the Institute on Taxation and Economic Policy are providing quick sketches of current governors from both parties who have been leaders – for better and for worse – in state tax policy. Below are profiles of more of Tuesday night’s prime time speakers.

Oklahoma Governor Mary Fallin:  Governor Mary Fallin led an unsuccessful (hooray!) attempt this year to wreak havoc on Oklahoma’s tax system which included eventual elimination of the Sooner State’s personal income tax.  To pay for the preliminary rate cuts, Fallin wanted to eliminate the personal exemption, Earned Income Tax Credit, and other credits – all tax provisions that overwhelmingly benefit low and moderate income Oklahomans.  The legislature generally supported her plan and introduced about a dozen versions of tax reform.  Every plan had one common feature: they would have raised taxes on a majority of Oklahoman families while cutting them – dramatically – for the richest.

Fortunately, despite strong legislative support to deliver a large tax cut package (and the expertise of Fallin’s supply-side consultant, Arthur Laffer), all efforts stalled this year.  But the fight to preserve Oklahoma’s personal income tax and protect the state’s poorest residents is far from over. Governor Fallin recently vowed, “[w]e are going to get that tax cut done next year.” 

Ohio Governor John Kasich: When he was running for office, candidate Kasich supported eliminating the state’s personal income tax altogether. And though he later softened his radical stance, citing the inability of the state to afford such a massive change, it is clear that cutting the personal income tax has been on his agenda ever since. As governor, he first advocated paying for income tax rate cuts with revenue from a new fracking tax, but that failed. Now, he’s exploring eliminating some tax exemptions to pay for income tax reductions. Clearly, Kasich has it out for the income tax even though he already succeeded in eliminating Ohio’s estate tax and pushing through a tax credit that benefits investors.

Governor Brian Sandoval: Of all the GOP governors across the country, Brian Sandoval stands out as the one most likely to put his constituents over politics.  Working with Republicans and Democrats, Sandoval extended $620 million in temporary taxes first in 2011 and again this year to avoid deep cuts to education spending.  Significantly, Sandoval even abandoned on Grover Norquist’s “no-tax pledge” after taking a careful look at the fiscal conditions in Nevada. 

Wisconsin Governor Scott Walker: Governor Walker’s tax policy positions make him no friend to low income working families. The budget he signed reduced the value of the state’s earned income tax credit and froze the state’s circuit breaker (for low income property owners). The Governor’s budget also includes $2.3 billion in tax breaks over the next decade in the form of a domestic production activities credit (a needless business tax giveaway), two different capital gains tax breaks (that benefit the most affluent), and a variety of new sales tax exemptions.

South Carolina Governor Nikki Haley: Governor Haley’s tax policy position is clear – she’s on the side of corporations and businesses rather than working South Carolina families. Governor Haley has long supported eliminating the state’s corporate income tax.

Both Republicans and Democrats are featuring governors at their national nominating conventions. Because convention speakers are chosen as the parties’ ambassadors to new audiences during these TV spectacles, the state policy team at the Institute on Taxation and Economic Policy are providing quick sketches of current governors from both parties who have been leaders – for better and for worse – in state tax policy.

[UPDATE 8/30/12: The good people at FactCheck.org reviewed Governor Christie’s RNC speech and call it a Fact Free Keynote. Read why here.]

Tonight, America will hear from New Jersey’s Governor Chris Christie, a man known for his bombastic, no-apologies approach and who we crowned “Fiscal Drama Queen” in our 2012 gubernatorial yearbook.

Since taking the reigns as the Garden State’s leader in January 2010, Governor Christie’s fiscal agenda has done “serious damage to virtually every constituency imaginable in this state – except for corporations and the super-rich.”  Christie raised taxes on the working poor and on fixed-income seniors while at the same time insisting on tax cuts that disproportionately benefit the wealthiest New Jerseyans.  He has thrice vetoed a temporary millionaire’s tax (impacting a mere .2 percent of the state’s taxpayers, temporarily!) that would have prevented hundreds of millions of dollars in spending cuts to schools, health care for working families and legal assistance for low-income individuals, to name just a few programs impacted by Christie’s priorities. 

And now, Governor Christie wants a significant income tax cut so much that he continues to swear by a fantastical revenue forecast despite consensus among nonpartisan experts that 2013 revenues are likely to fall a staggering $1.3 billion below that projection, (much like the last fiscal year, which ended with $542 million less in the bank than predicted).

An ideologue with political ambitions who fails to serve his constituents, Christie is nonetheless the keynote darling of the 2012 GOP.

Both Republicans and Democrats are featuring governors at their national nominating conventions. Because convention speakers are chosen as the parties’ ambassadors to new audiences during these TV spectacles, the state policy team at the Institute on Taxation and Economic Policy are providing short sketches of governors from both parties who have been leaders – for better and for worse – in state tax policy.

We begin with Rick Scott, Governor of Florida (the GOP convention is in Tampa this week) who removed himself from the program and his host duites in order to oversee his state’s response to Tropical Storm Isaac.

Florida Governor Rick Scott: From day one in office, Governor Rick Scott has pursued a strategy of shrinking government.  His first budget proposal included enormous cuts to both corporate income taxes and property taxes (which earned him the “Corporate Tax Giveaway King” title in our recent yearbook).  Under Scott’s plan, which he unveiled before a tea party rally, the state’s already low corporate tax rate would fall from 5 percent to 3.5 percent.  At the same time, state spending would drop by $4.6 billion, with pre-K through university education taking the biggest hit, of $3.1 billion.  In his 2012 State of the State address, he called taxes “the great destroyers of capital and time for small businesses.”

Amazingly, though, not even the state’s conservative legislators have seemed interested in Scott’s ultra-conservative ideas and have largely rejected  his anti-tax platform over the past two years.  Had Scott spoken at the GOP convention, he probably would have touted his “accomplishments” as the leader of the host state and pointed to the Sunshine State’s low taxes as a key to his success.  Of course, the money always has to come from somewhere, so while Florida may be a so-called low-tax state, it is actually an extremely high tax state (PDF) for its poorest residents.

Mitt Romney appears to have a lot at stake in the upcoming election when it comes to his own federal taxes.

If Obama wins and gets his tax plan adopted, then Romney will pay an effective federal tax rate of 34.3 percent.

If Romney wins and he successfully promotes the tax plan that his running mate, Paul Ryan, proposed in 2010 (the only Romney-Ryan tax plan spelled out in any detail), then Romney will pay only 0.4 percent.

The dollar difference, per year: $7.7 million!

In contrast, Obama would actually raise his own tax rate to 28.4 percent and Romney would lower it 18.1 percent, saving Obama some $67,000.

Note: All these figures are based on the income and deductions reported on Romney’s 2010 federal tax return, the only return he has yet been willing to release.

The Congressional Budget Office’s (CBO) latest 10 year budget and economic projections set off yet another firestorm of dire headlines warning of a “deep recession” if Congress does nothing to address the so-called “fiscal cliff.” While such headlines create a sense of crisis, the real danger is not that Congress will do nothing, but rather that cynical members of Congress will use our struggling economy as an excuse to extend the reckless policies of the last 12 years.

One of the key points missing from the fiscal cliff debate is the fact that doing nothing would be rather beneficial over the long run. As Citizens for Tax Justice (CTJ) pointed out earlier this year, if Congress were to just sit on its hands and do nothing, this would solve the entirety of our long term fiscal gap and would even allow the US government to start paying down the national debt by 2015.

For better or worse, however, there’s good reason to believe that Congress will do something. As CTJ’s Director Bob McIntyre pointed out in a recent op-ed, the gap between Republicans and Democrats on how to deal with the fiscal cliff is actually relatively small considering that it’s over whether or not to extend 78% of the Bush tax cuts (as President Obama is proposing) or all of the Bush tax cuts (as congressional Republicans are proposing). Under either scenario (or somewhere in between) this would wipe out most of the fiscal cliff and prevent the country from slipping back into recession.

The critical problem, however, is that both approaches would dramatically increase the deficit over the coming years. According to CTJ estimates, President Obama’s proposal to extend most of the Bush tax cuts would increase the deficit by $4.2 trillion, while the Republican proposal to extend all of the Bush tax cuts would add $5.4 trillion to the deficit over the next 10 years. In other words, while both approaches would help the economy in the short term, they would put the US on the path to fiscal ruin.

What, then, is the best way to deal with the fiscal cliff? Lawmakers should focus on extending a responsible portion of the tax cuts that go to low and middle income families, while at the same time enacting temporary stimulus programs, such as infrastructure investments, putting teachers back to work and other programs that directly create jobs. (which are far more stimulative than extending the Bush tax cuts). This approach would have the double benefit of helping the struggling economy in the short term, while setting the US on the path of deficit reduction over the long term.

Here’s a follow up to our previous post describing the effort to get a much needed severance tax increase on the ballot in Arkansas.  The former natural gas executive, Sheffield Nelson, who was behind the effort has said that he won’t have enough signatures to qualify this proposal for the November ballot.

Last month, a Louisiana Revenue Study Commission began looking into the state’s tax exemptions to see if these government handouts are effective. Now that Governor Bobby Jindal has been passed over as the Republican Vice Presidential nominee, it appears he’s going full speed ahead with revenue neutral tax “reform” efforts.  As part of the efforts to reform the tax structure and examine tax expenditures the Governor, other policymakers and taxpayers should review these new materials from the Louisiana Budget Project.

This week, Illinois Governor Pat Quinn signed into law legislation that imposes a new tax on strip clubs. Revenue generated from this new tax will fund programs for victims of sexual assault. By choosing to enact an entirely new tax that seems destined to raise little revenue, rather than enacting needed reforms in the taxes the state already levies, Illinois lawmakers have missed a chance to make the tax system fairer. The worthy goal of funding anti-abuse efforts would be better served by eliminating income, sales and corporate tax loopholes.

Iowa’s gas tax is at an all-time low and shrinking- and transportation infrastructure is suffering because of it.  Earlier in the year, we thought Governor Terry Branstad would champion an increase in the tax to address the state’s transportation funding needs.  Now we have learned the governor will only support a “modest” change in the gas tax if lawmakers first reduce property, personal income and corporate income taxes.  Which begs the question- how will Iowa pay for much needed road and bridge repairs if the state is left with even less revenue than it had before this so-called “reform” plan?

Photo of Bobby Jindal via Gage Skidmore Creative Commons Attribution License 2.0

The Olympics may be over, but some US lawmakers are still competing for the lousy tax policy medal. Weeks after Florida Senator Marco Rubio proposed—and President Barack Obama endorsed—a bill to exempt US Olympians’ gold-medal bonuses from federal income tax, a California Senate Committee approved a plan last week to exempt these bonuses from the state’s income tax.  

An unusually pointed Senate Governance and Finance Committee staff analysis of the bill, however, noted that “the measure is the exact opposite of sound tax policy” and tartly suggested that “[t]he Committee may wish to consider whether running afoul of good tax policy is worth the bill’s kind gesture.”

The staff analysis also pointed out that, like the federal legislation that inspired it, the California bill could inadvertently exempt from tax not just the $25,000 bonus Kobe Bryant will receive from his basketball gold medal, but also Olympics-related compensation he might receive from advertisers and sponsors.

Seemingly undeterred by this analysis, the Senate Committee initially approved the bill by a 5 to 1 vote last week, but its sponsor couldn’t get it past the Appropriations Committee for a full vote. He has said he will add amendments and try again.

As we’ve noted previously, the trivial cost of this measure does not change the fact that it would add one more brick to the wall of tax complexity. Meaningful tax reform requires weeding out special tax breaks for privileged groups rather than adding them; any politician who knows this and endorses an Olympic winnings tax exemption is engaging in political opportunism of hypocritical proportions.

Uber-supply side economist Arthur Laffer and Kansas Governor Sam Brownback gave small business owners a “pep talk” earlier this week about the massive tax cuts that the Governor signed into law earlier this year. It’s part of the Governor’s PR Offensive to brand a regressive tax plan, that costs $2.5 billion over five years, as somehow fiscally sound.

Wednesday Louisiana Governor Bobby Jindal released a statement that should make Louisianans nervous: “Our top priority next legislative session is to reform Louisiana’s tax system so that we can make our tax code fairer, flatter, and lower for Louisiana families and businesses.” They already had to scrounge up “one time” money to fill state budget gaps; reducing revenues further by cutting taxes will only exacerbate Louisiana’s fiscal problems. 

California Governor Jerry Brown officially launched a campaign this week to gain support for his temporary income tax increase for the state’s wealthiest residents and permanent ¼ cent increase in the sales tax. It will be on California’s November ballot as Proposition 30.  At a press conference, Brown stressed that a rejection of his measure would trigger automatic budget cuts amounting to $6 billion less for K-12 schools and universities and called the measure an “opportunity to say ‘yes’ to our schools [and] about one simple question: Shall those who have been blessed beyond imagination give back 1, 2 or 3 percent for the next seven years, or shall we take billions out of our schools and colleges to the detriment of the kids standing behind us and the future of our state?”

Add this one to the long list of bad ideas put forth by New Jersey Governor, Chris Christie.  For the paltry sum of $120 million in cash up front, Christie is selling off the Garden State’s lottery.  The deal will require the buyer to increase ticket sales by at least 7.5 percent annually – or face a penalty.  This, Christie believes, will make the sale worthwhile. But the chosen vendor will have their work cut out: even in a record year, New Jersey’s lottery grew by only 1.2 percent (it raised $2.6 billion last fiscal year, a reported $31.5 million increase over the previous year).  

Utah policymakers have decided to get serious about their state’s deteriorating gas tax revenue. The crisis shouldn’t surprise anyone since Utah has had the same state gas tax rate for 14 years which has lost more than 30 percent of its value over time.  Rather than confronting that erosion in its value, Utah lawmakers have been raiding their general fund in order to pay for transportation. They need to increase the tax by at least 12.6 cents a gallon – and get other key recommendations from Building a Better Gas Tax from ITEP.

A widely tweeted report from the Tax Foundation claims that failure to enact the House Republican bill extending most of the expiring tax cuts would mean that Americans lose significant tax cuts — from an average $1,310 in Mississippi to an average $5,783 in Connecticut.

Here’s why the Tax Foundation report is highly misleading:

1. The report discusses what will happen if the House GOP bill extending most expiring tax cuts is not enacted and all the tax cuts are allowed to expire, but fails to mention that President Obama’s approach would extend all tax cuts for 98 percent of taxpayers and partially extend them for the richest two percent of taxpayers.  If the scenario studied by the Tax Foundation report (the complete expiration of all the tax cuts) comes to pass, it will be because the House of Representatives refused to approve the President’s approach, which has already passed the Senate.
2. While the House GOP bill would extend more tax cuts for 2.7 million high earners (the richest two percent of taxpayers), it would allow the expiration of certain tax breaks for 13 million working families with 26 million children. These are the 2009 provisions expanding the EITC and Child Tax Credit, provisions that would be extended under the approach taken by President Obama and Senate Democrats. This is why our national report and our state-specific reports show that most income groups besides the rich would, on average, pay more in taxes under the GOP approach than under Obama’s approach.
3. Even if the choice was between enacting the House GOP bill and allowing all the tax cuts to expire, the Tax Foundation report would be misleading because the average tax break for an entire state does not represent the tax break most taxpayers in that state would see. Any calculation of the average tax cuts under the House GOP bill will be skewed by the enormous tax cuts that go to the very richest taxpayers, resulting in an average tax break that is far greater than the median tax break (the tax break going to the taxpayer who is right in the middle of the income distribution). For example, we estimate that in Connecticut, the richest state in the U.S., the average tax break under the GOP bill for all the state’s taxpayers would be $3,810, but the average tax break for the middle 20 percent of the state’s taxpayers would be $1,020.[1] (The report also shows that the average tax break for the middle 20 percent of taxpayers would be $20 larger under Obama’s approach.)

[1] Note our estimate that the House GOP bill would result in a tax break of $3,810 on average for Connecticut taxpayers, which is much smaller than the $5,783 estimated by the Tax Foundation. Part of the reason is that the Tax Foundation is including the full two years of AMT relief in the GOP bill, rather than one year. The report says that the House GOP bill would provide $403 billion of tax cuts, which is very close to the $405 billion figure at the bottom of this table from the Senate Finance Committee chairman’s website. The chairman’s table shows that the figures for the GOP approach clearly include a second year of AMT relief, which accounts for a fourth of that $405 billion total. Rightly or wrongly, both parties are committed to providing AMT relief each year until some sort of tax reform makes it unnecessary, so there is really no difference between the parties on this issue, even if the Democratic proposal up for debate right now only provides one year of AMT relief while the GOP proposal provides two years of AMT relief. In any event, it doesn’t make sense to estimate an average tax break including two years of AMT relief and then report that this amount is at stake “per year” as at least one media outlet has done.