Author: tarek

• There’s a trend this year of Republican governors striking deals with Amazon.com to begin collecting sales taxes on purchases made by their states’ residents.  New Jersey’s Chris Christie penned a new agreement with the company that can be added to the list of similar deals struck in Indiana, Nevada, South Carolina, Tennessee, Texas, and Virginia.

• When the richest woman in Wisconsin (and the governor’s biggest donor) pays no income tax to the state in 2010, it gets people asking about loopholes in the tax code.

• We aren’t the only think tank taking issue with the Kansas tax bill recently signed into law.  The fiscally conservative Tax Foundation recently issued a report which says that provisions in the bill to exempt “pass through” business income are “problematic” and an invitation to tax avoidance.  

• With summer road tripping underway, it’s bad news for Iowans that the state’s Department of Transportation appears to be more than $200 million short. Governor Branstad was right to say the state gas tax should be increased next year (as should almost every state’s).

Photo of Governor Christie via Bob Jagendorf Creative Commons Attribution License 2.0

A new study from the Internal Revenue Service confirms your worst fears about the tax code: it’s riddled with loopholes and Congress isn’t doing anything about it.  Year after year since 1977, the IRS has dutifully issued its “data on individual income tax returns reporting income of $200,000 or more, including the number of such returns reporting no income tax liability and the importance of various tax provisions in making these returns nontaxable” because Congress mandates it. And year after year, it shows that some of the very richest Americans are finding entirely legal ways to avoid federal income taxes altogether.

The new (and most recent) IRS data show that in 2009, more than 35,000 Americans* with incomes over $200,000 paid not a dime in federal income tax. For this group—less than one percent of all the Americans with incomes over $200,000, according to the study— itemized deductions and tax-exempt bond interest are among the main tax breaks that make this tax-avoiding feat possible. 

And, as if to illustrate how loopholes never die, these two tax breaks are among the oldest on the books; the exemption of bond interest dates to the century old statute establishing the income tax itself!

Sensible tax reforms could close (or at least shrink) these holes in the tax code.  The president, for example, has proposed a limit on the value of itemized deductions for the wealthiest Americans, and to extend the “Build America Bonds” program which keeps revenues flowing to cities but phases out the tax shelter the current system provides for the bond holders.

Of course, these wealthy taxpayers avoiding all their federal income tax responsibilities don’t even include the ones paying zero or low federal taxes because of the low rates at which investment income is taxed.

There is no excuse for hundred-year-old loopholes in a tax code: it’s time for Washington to clean up the tax code and take a brave stand against unwarranted exemptions that drain revenues and reward the rich.

* Others have focused on a smaller number of taxpayers, 21,000, who have an adjusted gross income (AGI) of over $200,000. But simple AGI excludes many types of income, such as tax exempt bond interest which is key to the low tax liabilities.

Last week Kansas Governor Sam Brownback signed into law Senate Substitute for House Bill 2117, a tax bill that dramatically changes the Kansas income tax structure and makes Kansas a real outlier when it comes to tax fairness. ITEP released a report which finds that the legislation includes a broad tax cut that will cost the state over $760 million a year, and yet will actually increase taxes on some low- and middle-income families – while the wealthiest Kansans will see their taxes reduced by $21,000 on average.

As a result of this legislation, Kansas is now a member of a uniquely regressive tax policy club; it joins Mississippi and Alabama in taxing food, but not offering any targeted tax relief for the poorest families who have to spend a larger portion of their budgets on groceries.  Until last week’s bill signing, Kansas offered a Food Sales Tax Rebate (FSTR) that targeted tax relief to Kansans over 55 and those with children and an income less than $35,400. Families with income of less than $17,700 could claim a flat $91 per family member to offset the sales tax they paid on food.

Even after cutting income tax rates and increasing the standard deduction, a family of four with $17,000 of income will still lose $294 because of the elimination of the food sales tax credit.

For more on the new law and to learn more about the various tax plans that were debated in Kansas this legislative session, check out ITEP’s Kansas Tax Policy Hub.

(Photo courtesy Wikipedia)

• Michigan lawmakers recently slashed income taxes for businesses by about $1.6 billion, and paid for it mostly with income tax hikes on the elderly and poor.  Now lawmakers are debating a gimmicky income tax cut that would take effect about a month before voters head to the polls in November but do little to offset recent tax increases on the state’s working poor.

• Late last week, the Illinois House voted to raise the state’s cigarette tax. This is big news not only because the tax increase will help to fill a nearly $3 billion budget hole in the state’s Medicaid program, but because anti-tax zealot Grover Norquist was resoundingly defeated despite threats from his Illinois staffers that voting for the cigarette tax could “ruin the GOP brand in the state for a generation.”

• Question: Could the popularity of the no-new taxes pledge championed by Grover Norquist be waning? Answer: Yes. Read this.

• To understand how the regressive, multi-billion dollar tax cut bill signed into law last week in Kansas is being received, check out this news round up from the Wichita Eagle.  A lot of people are “horrified.”

On Wednesday, CTJ heard that House Minority Leader Nancy Pelosi had sent a letter to Speaker John Boehner asking for an immediate vote on extending the Bush tax cuts for incomes up to $1 million.  We crunched a few numbers and shot off a press release pointing out the fiscal folly of the plan.  Bloggers, reporters, pundits, outlets of all stripes and one very important editorial board cited CTJ’s numbers about the staggering cost of moving the threshold from the $250,000 mark previously set by President Obama.

In his article at RollingStone.com called “Democrats About to Give Away the Store on Bush Tax Cuts. Seriously?,” Jared Bernstein writes that “the (excellent) Citizens for Tax Justice – CTJ also points out that about half the benefits of this higher threshold accrue to – wait for it – millionaires.” He opined that moving the threshold to $1 million is “a bad genie to let out of the bottle.”

Also citing CTJ’s numbers, a Washington Post editorial decried Pelosi’s “risky pander” on the tax cuts, commenting on the minority leader’s “interesting definition of what constitutes the middle class.” The editorial ended with this question: “Do Democrats really want their new slogan to be ‘Almost as irresponsible as the Republicans?’”

The tax geek publication Bureau of National Affairs Daily Tax Report (subscription required) noted that “Citizens for Tax Justice skewered Pelosi’s request, saying that what she is actually proposing is a ‘windfall for millionaires.’”

In noting, “This town may never agree on who is middle-class, but surely we can agree it doesn’t include anyone who makes over a million dollars a year,” CTJ’s Bob McIntyre helped frame the early coverage of what we hope will be a short lived idea on Capitol Hill.

• Maryland Governor Martin O’Malley signed a progressive income tax increase into law this week and successfully avoided large spending cuts.  An analysis of the tax package by the Institute on Taxation and Economic Policy (ITEP) showed that while 87 percent of the new revenue would come from the state’s richest five percent of taxpayers, the tax increases are fairly modest and would still leave Maryland with a regressive tax system on the whole.

• The North Carolina Budget and Tax Center issued a new report urging lawmakers not to enact the gas tax cap recently proposed by Governor Bev Perdue.  Among other things, the report uses data from ITEP to show that North Carolina’s gas tax rate, adjusted for inflation, is quite low by historical standards (all claims about the rate being at an “all-time high” to the contrary).  ITEP’s take on the long-running debate over a North Carolina gas tax cap can be found here.

• Last week it appeared that Oklahoma lawmakers had reached agreement on a plan to cut the state income tax, but that agreement might be unraveling.  The Associated Press reports that House lawmakers are unhappy with the fact that some low and middle-income taxpayers would see their taxes rise under the agreed-upon plan, and there’s a chance a tax cut won’t be enacted at all before the legislative session ends on Friday.  ITEP’s analysis of the controversial plan was recently blogged by the Oklahoma Policy Institute, and picked up by The Oklahoman and other outlets.

• One more hurdle remains before New Hampshire voters get the chance to amend their state’s constitution to permanently ban a personal income tax.  The Senate voted 20-4 on a measure, but made a few changes that must now be reconciled with the House version before sending it to the public ballot this fall.  The New Hampshire Fiscal Policy Institute points out, however, that this amendment seeks to solve a problem that doesn’t exist since there have been no serious income tax proposals in years, and, that it will tie the hamstring future generations of citizens and lawmakers.

• A New York tax fairness coalition called on Governor Cuomo this week to keep his promise to appoint a commission that would comprehensively review and make recommendations to improve the state’s tax system. The coalition’s recommendations for the commission are here. Cuomo has repeatedly pledged to appoint a “Tax Reform and Fairness Commission” but has yet to do so.

Photo of Governor Martin O’Malley and Governor Andrew Cuomo via Friends of Hillary and Patja Creative Commons Attribution License 2.0

The nonpartisan New Jersey Office of Legislative Services (OLS) released estimates on Wednesday predicting that New Jersey revenues will fall a staggering $1.3 billion short of Governor Chris Christie’s previous estimate through fiscal year 2013. The estimated revenue shortfall is bad news for Christie because it makes his ten percent across the board income tax cut proposal appear that much more reckless.  Even the bean counters at Moody’s and Standard and Poor’s are worried.

The discrepancy between Christie’s previous revenue predictions and the estimated shortfall is due to the wildly unrealistic revenue estimate put out by the Christie administration in March, which an analysis by the New Jersey Star Ledger found to be the most optimistic in the country. In fact, Christie’s promised 7.4 percent in revenue growth was more than 2.5 times the national average of 2.8 percent.

For the moment, Christie is standing by his income tax cut plans, saying that the budget gap is actually only $676 million – and he is proposing to fill it by cutting $295 million in transportation funding next year. The Governor’s reduced gap estimate is derived from his faith in the millions in tax breaks his administration has given to the state’s wealthiest residents and corporations already being at work, unleashing unprecedented economic growth. This is what he’s been calling the “New Jersey Comeback.” Unfortunately, his predictions are based on the same old myths that have proven to be wrong time and again across the country.

The failure of Christie’s approach is borne out by New Jersey’s wobbly economy. As New Jersey Policy Perspective points out, the reality is the state is actually lagging behind the rest of the country, with its unemployment rate increasing slightly, to 9.1 percent in April 2012, higher than the regional rate of 7.9 percent. Rather than helping drive a recovery, it looks like Christie’s policy of favoring expensive tax breaks over critical government services has actually driven up joblessness by putting tens of thousands of public sector employees out of work.

The Governor is doubling down on tax breaks and service cuts when he should instead protect New Jersey’s basic quality of life and embrace, rather than veto, a millionaire’s tax — which his constituents love, his Assembly passed, and would generate $500 million in desperately needed revenues for the Garden State.

Making matters worse, the Democratic Senate President Stephen Sweeney continues pushing his caucus to pass a compromise tax cut he says is for the middle class. For interested readers, there’s a politics to all of it.

(Photo courtesy of Center for American Progress.)

Over 30 million Americans will take to the roads this Memorial Day weekend, and it’s all but guaranteed that many of them will be unhappy about the price of gas.  But while it’s easy to get frustrated by high prices at the pump, it’s also important that motorists realize gas taxes are not to blame for those high prices, and that gas taxes are absolutely essential to the safety and efficiency of the infrastructure we use everyday.

As the Institute on Taxation and Economic Policy (ITEP) explains in a pair of new policy briefs, federal and state gas taxes are the main sources of funding for the roads, bridges, and transit systems that keep our economy moving (and that make our summer vacations possible).  Roughly 90 percent of federal transportation revenues come from the federal gas tax, while state gas taxes are the single most important source of transportation revenue under the control of state lawmakers.

Moreover, the amount of money we’re spending on gas taxes is much lower than what we used to pay. Families today are spending a smaller share of their household budgets on gas taxes than they have in about three decades—and that share is continuing to decline.

Of course, a low gas tax has a cost.  The federal government is increasingly using borrowed money to pay for our roads and bridges, while states that lack the luxury of borrowing are taking money away from education and other priorities in order to fund basic road repairs.  Meanwhile, even with these infusions of cash, the condition of our transportation infrastructure is continuing to decline.

ITEP’s new policy briefs put this issue into perspective by explaining how gas taxes work, their importance as a transportation revenue source, the specific problems confronting gas taxes, and the types of gas tax reforms that are needed to overcome these problems.

Read More:

• The Federal Gas Tax: Long Overdue for Reform (2-page brief)
• State Gasoline Taxes: Built to Fail, But Fixable (2-page brief)
• Building a Better Gas Tax (ITEP’s 50-state report from December 2011)

Photo of man pumping gas via Teresia Creative Commons Attribution License 2.0

For Immediate Release: May 23, 2012

Minority Leader Pelosi’s “Middle Class” Tax Plan Benefits Millionaires, According to New Citizens for Tax Justice Estimate

Washington, DC – In seeking an immediate vote in the House of Representatives to extend tax cuts on incomes up to $1 million, House Minority Leader Nancy Pelosi is actually proposing a windfall for millionaires, according to a preliminary analysis from Citizens for Tax Justice. Pelosi’s proposal to extend the Bush income tax cuts for taxpayers’ first $1 million of income is a departure from President Obama’s proposal to extend the tax cuts for the first $250,000 that a married couple makes and the first $200,000 a single person makes.

“This town may never agree on who is middle-class, but surely we can agree it doesn’t include anyone who makes over a million dollars a year,” said Robert McIntyre, director of Citizens for Tax Justice.

■ Pelosi’s proposal would save 43 percent less revenue than Obama’s plan.
CTJ’s preliminary estimates show that Obama’s proposal to extend the Bush tax cuts for the first $250,000 or $200,000 of income a taxpayer makes would save between $60 billion and $70 billion in 2013 compared to the GOP proposal to extend all the tax cuts, depending on economic conditions. Leader Pelosi’s proposal to extend the Bush tax cuts for the first $1 million of income would save 43 percent less revenue than Obama’s proposal.

■ 50 percent of the additional tax cuts proposed by Pelosi would go to millionaires.
The additional tax cut that would result from Pelosi’s plan compared to Obama’s plan (the additional tax cut resulting from extending the Bush tax provisions for taxpayers’ first $1 million of income instead of “just” their first $250,000 or $200,000 of income) would not be targeted towards the “middle class.” In fact, 50 percent of this additional tax cut would go to taxpayers with adjusted gross income (AGI) in excess of $1 million.

This would result because under Pelosi’s proposal, a married couple making $3 million a year, for example, would continue to pay the lower tax rates (enacted under President Bush) on $1 million of their income. Under Obama’s proposal, a married couple making $3 million a year would continue to pay the lower tax rates on just $250,000 of their income.

Taxpayers with incomes exceeding $1 million would therefore receive substantially larger tax cuts under Pelosi’s proposal than they would under Obama’s proposal.

Also see our fact sheet about these figures.

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).

Today, Governor Sam Brownback signed into law a radical tax bill that is projected to cost more than $2 billion over the next five years.  It also means the poorest 20 percent of Kansas taxpayers will pay 1.3 percent more of their income in taxes each year, or an average increase of $148, while the wealthiest one percent of Kansans will see their state income taxes drop by about $21,087 on average.  (See ITEP’s analysis of the Senate plan here for more figures.)

In terms of fairness, the legislation is tragic. Kansas is one of a few states that taxes food, but the Food Sales Tax Rebate (FSTR) has, until now, given targeted relief to taxpayers that are hit hardest by this regressive tax. By eliminating the FSTR, this new law makes it that much harder for low-income people to make ends meet.

The legislation also exempts from taxation all business income that companies “pass through” to owners  – something that no other state that taxes business income does. It’s likely that tax avoidance will increase as a result of companies reorganizing their corporate structure to take advantage of this loophole, which was, of course, billed as a tax cut for small businesses. If lawmakers wanted to offer assistance to small business owners, there are more targeted ways to do just that, through credits or limiting exemptions.

Other provisions of the bill include reducing tax rates down to 3.0 and 4.9 percent; increasing the standard deduction for head of household filers and married couples; and eliminating the Homestead Property Tax Refund for renters.

Proponents of the bill and Governor Brownback himself have said that the tax cuts will pay for themselves because of increased economic activity, but these supply side arguments are groundless.  As the Wichita Eagle opines, this “extreme makeover” of the state’s tax system is a “huge gamble,” and the odds are against Kansas recovering any time soon.

Photo of Governor Sam Brownback via King Content Creative Commons Attribution License 2.0