Author: tarek

House Budget Committee Chairman Paul Ryan has introduced a budget plan that, if implemented, would reduce revenues so significantly that they would be inadequate to pay for the federal spending under the Reagan administration, let alone the spending required in the years ahead.  The Ryan budget would provide income tax cuts for millionaires averaging at least $187,000 in 2014. The plan would also reduce corporate income taxes and would increase the (already considerable) incentives for corporations to shift profits and jobs overseas.

Each of these three problems is described in detail in a new report from Citizens for Tax Justice. Read the full report.

Large majorities of Americans, including small business owners, want profitable corporations to pay their fair share in taxes, but none of the major proposals in Washington would make that happen.  They will close some loopholes while creating others and, meantime, leave the amount of revenues U.S. companies contribute just about where it is now – at an historic low.

Why the disconnect between public opinion and political action? Could it be because 98 percent of the sitting members of Congress have accepted campaign donations from the country’s most aggressive, successful tax avoiding corporations?

Citizens for Tax Justice and U.S. PIRG’s new report Loopholes for Sale pursues the intersection of corporate campaign contributions to members of Congress and the absence of Congressional action to close corporate tax loopholes and raise additional revenue from corporate taxes.

Loopholes for Sale details how thirty major, profitable corporations (a.k.a. the Dirty Thirty) with a collective federal income tax bill of negative $10.6 billion have made Congressional campaign contributions totaling $41 million over four election cycles. This includes PAC contributions to 524 current members of Congress.

These 30 tax dodging companies specifically targeted the leadership of both political parties, and members of the tax writing committees in the House and Senate. Top recipients of their largesse since the 2006 campaign have been:

1- House Minority Whip Steny Hoyer (D-MD) – $379,850.00
2- Speaker of the House John Boehner (R-OH) – $336,5000.00
3- House Majority Leader Eric Cantor (R-VA) – $320,900.00
4- Senator Roy Blunt (R-MO)Former House Minority Whip 2003-08) – $220,500.00
5- Senate Minority Leader Mitch McConnell (R-KY) – $177,001.00

These companies – including GE, Boeing, Honeywell and FedEx—also gave disproportionately to members of the tax writing committees, including $3.1 million to current members of the House Ways and Means Committee and $1.9 million to members of the Senate Finance Committee.

The “pervasiveness of that money across party lines speaks volumes about why major proposals to close corporate loopholes have not even come up for a vote,” says US PIRG’s Dan Smith.

So if the public is so clearly supportive of closing corporate tax loopholes and making corporations pay more than they currently are, why aren’t our elected officials moving forward on corporate tax reform? This report, along with our earlier Representation with Taxation on corporate lobbying expenditures, exposes how part of the answer may be found by taking a hard look at the way some of America’s largest companies translate wealth into influence.

Indiana’s inheritance tax will soon be no more.  Under a bill signed by Governor Mitch Daniels this week, the state inheritance tax will be gradually eliminated over the next decade.  Of course, this will further benefit the state’s wealthiest taxpayers even as the state’s poorest residents already pay an effective state and local tax rate more than twice that paid by the rich.  

Connecticut lawmakers are seriously considering capping the state’s gasoline tax rate, due to the political pressures created by high gas prices.  A permanent cap, as some lawmakers prefer, would be extremely poor policy because it would flat line the gas tax as a revenue source for years to come.  A temporary cap would be preferable, but the best solution would be one that ITEP recommended for North Carolina last summer: design a cap that limits volatility. This protects consumers from price spikes and stabilizes state budgets without undermining a key source of revenue.

A new ITEP analysis finds that under a South Carolina House Republican plan, poor South Carolinians would see their income tax increase while wealthy taxpayers would pay less. The effect on individual taxpayers in any bracket are not substantial, but the revenue implications for the state are enormous and depend on the working poor to pick up the tab. The Ruoff Group policy shop does a nice job here of explaining why the plan is neither flat nor fair, as its advocates claim.

An outstanding news analysis in the Cincinnati Inquirer describes Ohio Governor John Kasich’s longstanding desire to eliminate the personal income tax altogether, and his current (failing) effort to pay for it with a fracking tax. The story cites a wide range of policy sources, including ITEP’s report debunking the myth that states without income taxes do better, and concludes that low income taxes alone do not make for stronger economies.

On Monday, Apple™ announced that it will distribute tens of billions of its cash holdings as dividends to shareholders, ending speculation over how the company will use the large pile of cash it has been sitting on. CFO Peter Oppenheimer went out of his way to point out that the dividends would be paid entirely from Apple’s U.S. cash, which means the $54 billion Apple has stashed in foreign countries will stay there. Oppenheimer explained that “repatriating cash from overseas would result in significant tax consequences under U.S. law.”

He’s not kidding! CTJ has estimated that Apple has paid a tax rate of just over three percent on this stash of “foreign” earnings, a clear indicator that much of this cash is likely parked in offshore tax havens and has never been taxed by any government. If Apple brought this cash back to the U.S., they’d likely pay something close to the 35 percent corporate tax rate that the law prescribes. The resulting $17 billion tax payment would be more than double the $8.3 billion in federal taxes that Apple has paid on its $83 billion in worldwide profits – over the last 11 years.

Apple is part of the Win America Coalition that’s been lobbying hard for a repatriation holiday (a.k.a. tax amnesty) which would allow them to bring back those unrepatriated profits at a super-low tax rate. But that would only encourage U.S. multinational corporations to shift even more profits offshore in anticipation of the next holiday.

Apple’s CFO was astonishingly blunt: “we do not want to incur the tax cost.”  Rather than shirking its basic obligation to help pay for the public goods that contribute to its extraordinary success, Apple’s executives might want to “think different” about its tax dodging ways before its devoted consumers start thinking differently about their favorite high-tech brand.

Photo of Apple Logo via Marko Pako Creative Commons Attribution License 2.0

A new report from the Political Economy Research Institute at UMass Amherst examines the research on potential responses to states raising taxes on wealthy households.  They conclude that while it can lead to tax planning changes among the more affluent, a permanent reasonable tax increase will improve a state’s revenue picture and, contrary to conventional wisdom, will not cause wealthy residents to flee to lower tax states.

Legislation pending in Maryland would require the state to evaluate whether its tax credits are achieving the goals for which they were enacted.  The vast majority of states still have no system in place for determining the costs and benefits of tax credits.  As in Oregon, the legislation would use sunset provisions (or expiration dates) to force lawmakers to review the evaluations before allocating more funds.  The Institute on Taxation and Economic Policy (ITEP) has a policy brief on accountability in tax credits and testified in support of a similar bill in Rhode Island last year.

The grassroots group Alabama Arise is getting positive news coverage for a rally they organized in Montgomery last week calling on lawmakers to exempt groceries from the sales tax and replace the revenue by eliminating a tax break that primarily benefits the wealthiest Alabamians.

In response to Ohio Governor John Kasich’s proposal to cut income taxes (paid for by increased taxes on gas mining) Policy Matters Ohio released a brief showing that Ohioans in the top one percent would get an annual tax cut of about $2,300 while middle income Ohioans ($32,000 to $49,000) would only get about $42.  Meantime, the powerful House Finance Chairman, Rep. Ron Amstutz, is postponing action on the Governor’s proposal, saying, “the more the members of our caucus have learned about this particular proposal, the more concerned I’ve become that there are key questions that cannot be sufficiently answered and resolved within the available legislative time frame.”

Talk about wrong priorities.  Earlier this month the Idaho House of Representatives approved a bill that hands the state’s wealthiest 1 percent a tax cut of about $2,600, while giving more than 80 percent of Idaho families precisely nothing.

In a new analysis, the Institute on Taxation and Economic Policy (ITEP) estimates that over half of the plan’s benefits would flow to the richest one percent of taxpayers, and four-fifths of the benefits would go to the best-off five percent of Idaho residents.

While it might seem like a bill stacked so blatantly in favor of the wealthy would be a tough sell in an election year, it actually has a real chance of passage.  The bill passed the House by a convincing 49-20 margin, it’s a top priority of Governor Butch Otter, and the state’s business lobbyists are tickled pink, referring to the cut as “manna from heaven.”

Fortunately, the plan does have some influential opponents.  The Chair of the House tax-writing committee complained about the long-term affordability of the plan, saying “That’s one-time money that we’re doing ongoing tax relief with…I don’t think it works.”  Meanwhile, the chair of the Senate’s tax committee is also cool to the idea, thanks in part to the very minimal (or even nonexistent) benefits it would provide to most families.

Supporters of the bill have predictably tried to rationalize its lopsided impact by claiming it will benefit the state’s economy, but as ITEP and Idaho-based analysts have pointed out, these claims amount to little more than a modern day snake oil sales pitch.

Oklahoma lawmakers are intent on taking an axe to the state’s only major progressive revenue source: the personal income tax.  Last week the Oklahoma House and Senate passed a variety of bills cutting or repealing the tax, and negotiations on a final package could begin in as little as two weeks.

As the Institute on Taxation and Economic Policy (ITEP) and the Oklahoma Policy Institute (OKPolicy) have pointed out, all of the proposals being considered would greatly increase the unfairness of Oklahoma’s tax code without benefiting the state’s economy.

But from a political perspective, perhaps the biggest obstacle standing in the way of Arthur Laffer’s agenda is how to pay for deep cuts to (or total elimination of) a tax that provides one-third of all state revenue.  Originally, lawmakers were optimistic that they could repeal special business tax breaks, breaks for senior citizens, and tax credits for the poor in order to partially fund a large cut in the state’s top tax rate.  But lobbyists representing senior citizens and businesses have talked many lawmakers out of that approach.  The more likely outcome now might be a slightly scaled-back package paid for with deep spending cuts and higher taxes on the poor.

The final outcome is far from certain, but it will likely be ugly as long as lawmakers continue to ignore the reality that income tax cuts won’t help the state’s economy, and that Oklahoma’s richest taxpayers already face an effective tax rate equal to just half of what the poor pay.

Photo of Oklahoma Capitol Dome via BJ McCray Creative Commons Attribution License 2.0

Nevada Governor Brian Sandoval campaigned on a promise of no-new-taxes but is breaking that promise (for a second time!) with his plan to balance the Silver State budget.  In an effort to avoid deep cuts in education, Sandoval is once again supporting an extension of temporary sales, payroll, and car taxes originally enacted in 2009.  Grover Norquist calls Sandoval the poster boy for why candidates can’t just promise no-new-taxes, they have to sign his pledge; in fact, Sandoval is a good example of why they shouldn’t.

We’ve already written that Arthur Laffer’s claims about economic growth and income tax repeal are fundamentally flawed and that in fact “high rate” income tax states are outperforming no-tax states. Now, three respected Oklahoma economists have come out in agreement, and are offering their own critique of Laffer’s findings. This is great news given that Laffer’s work has been so central to lawmakers’ efforts to eliminate the state income tax – the most progressive feature of any state’s tax system.

This week the Maryland Senate voted to raise personal income taxes in order to offset the anticipated “doomsday cuts” in public services that would otherwise have to occur.  An analysis from the Institute on Taxation and Economic Policy (ITEP) showed that the bill would be generally progressive.  And in yet another bit of good news, a late amendment to the bill would enhance its progressivity even more, as Marylanders earning more than a half-a-million dollars will no longer be able to take advantage of the state’s lower marginal rate brackets.

The Wichita Eagle editorial board is watching the Kansas House and Senate take up tax reform, and they are worried. While they’re glad some lawmakers are dubious about “the suspect advice of Reagan economist Arthur Laffer,” the governor’s advisor, they don’t like a House plan that “makes permanent the punishing budget cuts of the past few years to education, social services and other programs.” They opine that “tax reform needs to make fiscal sense and broadly benefit Kansans,” and conclude that with the various and competing proposals right now, it’s anybody’s guess if that will be the outcome.

One of the greatest sources of unfairness in our tax system is the preference for investment income. Specifically, the profits investors enjoy when they sell an asset for more than they paid to acquire it (capital gains) are usually taxed at lower rates than other types of income. One argument used to justify this policy is the claim that investors will stop buying and selling assets if the profits from these sales are taxed like other types of income. CTJ’s recent report on revenue options explains that this is untrue.

Most capital gains go to the richest one percent of taxpayers, leading people like Warren Buffett to criticize this tax preference for allowing some millionaires to pay lower effective tax rates than many taxpayers much further down the economic ladder.

So what’s stopping Congress from ending the tax preference for capital gains and simply taxing this income at the same rates as all other income? After all, President Ronald Reagan singed into law a tax reform that did exactly this. Is it such a radical proposal to bring back Reagan’s policy of taxing all income at the same rates?

One obstacle to ending the tax preference is misinformation about how revenue would be affected. The Wall Street Journal and other sources of anti-tax ideology claim that increasing tax rates on capital gains would not raise any revenue because investors would respond by selling fewer assets, meaning there would be fewer capital gains to tax.

Even the people who provide official revenue estimates for Congress — the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) — assume that this behavioral response exists, to a lesser but still significant degree.

Another non-partisan research institution that serves Congress, the Congressional Research Service (CRS), concluded in 2010 that JCT overestimates these behavioral responses and consequently underestimates how much revenue can be saved by allowing President Bush’s expansion of the capital gains preference to expire for the rich.

The recent report from CTJ on options to raise revenue explains why CRS is right and JCT is wrong. And why the Wall Street Journal is really, really wrong.

We don’t simply propose to allow Bush’s expansion of the capital gains preference to expire. We propose repealing the entire capital gains preference. We estimate that even if some behavioral responses do affect the revenue impact (meaning some investors do hold onto assets longer in response to the tax change) our proposal would still raise more than half a trillion dollars over a decade.

As our report explains, most of the ways in which investors respond to such a tax change are short-term responses. JCT seems to rely on research that confuses short-term responses for long-term responses. CRS points out that some studies from the last several years corrected for this mistake and found much smaller long-term behavioral responses.

See the CTJ report for more detail. As wonky and arcane as all this sounds, you can bet that the debate over capital gains tax changes and revenue will receive more attention as Congress starts talking about tax reform and about ways to get wealthy investors to pay their share.