Author: tarek

The National Priorities Project, working in partnership with Citizens for Tax Justice, has unveiled a new website that presents a running tally of the cost of the Bush tax cuts for the richest five percent, who now receive almost half of the total tax cuts. The cost is also broken down for the richest one percent and the next richest 4 percent.

As the Joint Select Committee on Deficit Reduction (aka “Super Committee”) considers drastic cuts in public investments and services that working people depend on, the amount of revenue lost due to tax cuts for the rich cannot be ignored. As CTJ has said for years, we will never have the revenue necessary to invest in the American people until these tax cuts are allowed to expire.

See the website: www.costoftaxcuts.com

Opposition to broad-based tax increases has caused state lawmakers to look, with increasing urgency, for additional revenue-raising opportunities outside of the income, sales and property taxes that form the backbone of most state tax systems. One of the most popular alternatives to those major revenue sources is state-sponsored gambling. But gambling revenues are rarely as lucrative, or as long-lasting, as supporters claim.

A recent Las Vegas Sun article, Nevada’s tax income from gaming well below other markets, shows clearly that gambling revenues aren’t a dependable revenue stream.  For many years, Nevada enjoyed a bit of a monopoly on the gaming market, but in recent years others states have begun to adopt their own forms of legalized gambling. Not surprisingly, “gaming latecomers have lured potential customers away from Nevada, and are now surpassing the Silver State in the tax dollars they generate for the state and local governments that sanctioned them.”

Nevada’s loss of gaming revenues is particularly dangerous because the state levies no corporate or personal income tax and is disproportionately reliant on gambling as a funding source.

Nevada’s tax structure problems don’t start or end with gambling, but it’s clear that as gambling revenues decline it’s going to become even more imperative that lawmakers come together to push for real tax reform that likely involves the implementation of a corporate and personal income tax.  

For more on the perils of state sponsored gambling read ITEP’s policy brief on the issue.

Photo of slot machines via Raging Wire Creative Commons Attribution License 2.0

On September 26, the Office of the Inspector General for the City of Chicago released its annual budget options report  to guide city officials as they debate how to close the city’s $1.2 billion budget deficit.  The recommendations are extensive (this year’s report is 136 pages long, more than 80 pages longer than last year’s), and contain some suggestions sure to be controversial, including instituting a city income tax and a commuter tax.

One promising recommendation, that the city broaden its sales tax base, is similar to a plan Mayor Rahm Emanuel proposed earlier this year.  It was quickly dubbed the “Rahm Tax.”  The mayor’s plan would have imposed a sales tax on those services that he deemed “luxury items,” including limo services, tanning parlors and pet grooming.

The current sales tax base in Illinois is strikingly narrow.  A report released by the Federation of Tax Administrators shows Illinois taxing only seventeen out of 168 possible services; only Oregon, New Hampshire, Alaska, and Colorado tax fewer services. 

The obvious advantage to multiplying the goods and services subject to tax is that a state (or city) can actually lower its overall sales tax rate and still generate the same amount of revenue.  Those items purchased by all of us, at fairly consistent rates (think school supplies, shampoo, and shoes), are already subject to a sales tax.  Meanwhile, services – from limo rides to gym memberships to interior design – are not.  So while taxpayers might initially balk at the idea of “new taxes,” everyone is better off if the tax burden is more broadly shared. 

At 9.75 percent, Chicago’s sales tax rate is one of the highest in the country, so extending it to services is not insignificant. However, the prospect of more equity in the system, coupled with the potential to eventually reduce the overall rate, should actually make this an appealing option for Windy City residents.

Photo of Rahm Emanuel via Adam Fagen Creative Commons Attribution License 2.0

Senator Chuck Schumer of New York today said he is hesitant to support President Obama’s tax proposals because, “There are people making 250, 300 [thousand dollars] in many of our states who are not rich.”

Actually, Citizens for Tax Justice calculated that married couples with income between $250,000 and $300,000 would get to keep 99 percent of their Bush tax cuts, on average, under the tax plan promoted by President Obama last year.

That plan, which the President continues to tout, would extend the Bush income tax cuts for the first $250,000 of income a married couple receives, or the first $200,000 of income an unmarried taxpayer receives.

This means that a married couple making $250,100 would pay higher taxes on just one-hundred dollars of income at most. President Obama’s plan would continue the tax cuts for income even beyond $250,000/$200,000 for many taxpayers once deductions and other breaks are factored in.

As a result, CTJ found that three quarters of all couples in the $250,000 to $300,000 income range would continue to enjoy all of their Bush income tax cuts if President Obama’s plan was in effect in 2011.

Another report from CTJ explains that 84 percent of the revenue savings under the President’s tax plan would come from taxpayers with incomes exceeding $1 million. The report also explains that married couples with income above $250,000 and unmarried taxpayers with income above $200,000 are the richest 2.6 percent of Americans. Even in Senator Schumer’s state of New York, only 3.5 percent of taxpayers have incomes exceeding the $250,000/$200,000 threshold. If they can’t afford to pay higher taxes, who can?

Some of the taxpayers Senator Schumer is worried about would actually pay less under President Obama’s plan. For example, a childless married couple making $250,000 in wages and taking the standard deduction in 2011 would pay $935 less in income taxes if President Obama’s plan was in effect.

See CTJ’s online tax calculator which determines how much a taxpayer would pay under the different tax proposals that were debated last year.

President Obama’s tax plan would allow the tax rates for the top two income tax brackets to revert to what they were at the end of the Clinton years. The President’s plan would also adjust the income tax brackets so that a married couple with income below $250,000 (or an unmarried taxpayer with income below $200,000) cannot possibly be affected by the top two income tax rates.

This adjustment in the tax brackets would result in a tax cut for some taxpayers, including the $935 tax cut for the married couple in the example above.

Here’s the technical explanation. There are six income tax brackets. The President’s plan pushes up the level of income you must have before you’re affected by the fifth bracket. That would mean that a portion of income that is currently taxed in the fifth income tax bracket would be taxed instead in the fourth income tax bracket, which has a lower tax rate. (Interested wonks can go to page 128 of the President’s budget blueprint that explains this arcane adjustment.)

And just in case anyone is concerned that the taxpayers described by Senator Schumer are small business people who will lay off all their employees in response to even the slightest possibility of higher tax bills, see CTJ’s report, The Bush Tax Cuts and Small Business.

Governors and legislatures love giving their citizens “property tax relief,” and mayors and county councils struggle to balance their budgets when it happens. All tax credits and tax breaks cost governments revenues, so the goal is to tailor programs and target cuts to accomplish the desired policy outcome.

Most property tax credits, however, aren’t well targeted.

Three new policy briefs from the Institute on Taxation and Economic Policy (ITEP) describe the various options available to policy makers seeking to reduce property taxes.

These are part of a series of Policy Briefs designed to provide a quick introduction to all the basic tax policy ideas that are important to understanding current debates at the state and federal level, all of which are here. The three newly revised revised Policy Briefs on property taxes are:

• Capping Assessed Valuation Growth: A Primer

• Property Tax Homestead Exemptions

• Split Roll Property Taxes

CTJ, Heritage Foundation, Tax Foundation and Others AGREE that the 60 Former Hill Staffers Lobbying for Repatriation Amnesty Are Wrong

Bloomberg reports that the corporate coalition promoting a tax amnesty for offshore profits that U.S. corporations repatriate to the U.S. has hired 160 lobbyists, including an astounding 60 people who formerly served as staff to current members of Congress.

This breathtaking chart illustrates how everyone from President Obama’s former communications director to the Democratic Finance Committee chairman’s former chief of staff is now being paid by corporations to promote the repatriation amnesty.

Even more remarkable is that the organizations that study tax policy and agree on nothing have come to a consensus that this proposal should be rejected. Groups like Citizens for Tax Justice and the Center on Budget and Policy Priorities have been joined by the anti-tax Tax Foundation and the extremely conservative Heritage Foundation in opposing the proposal.

Naturally, the consensus ends there. For example, CTJ explains that the way to really fix our international tax rules is to remove the tax break that causes U.S. corporations to shift profits and operations overseas in the first place (“deferral”) while the Tax Foundation argues instead for permanently exempting offshore corporate profits from U.S. taxes. “However,” the Tax Foundation explains, “experience shows that the [repatriation] holiday has been ineffective policy.”  

The Heritage Foundation is similarly unimpressed with the proposal, saying:

“The issue here is not whether tax cuts are good or bad per se, but whether this particular tax cut would increase domestic employment and domestic jobs. Again, the answer is that it would not. . . Are these repatriating companies capital-constrained today? No, they are not. These large multinational companies have enormous sums of accumulated earnings parked in the financial markets already.”

Other organizations that have published analyses extremely critical of the proposal include the Economic Policy Institute, the Tax Policy Center, the Center on Budget and Policy Priorities, and the Center for Economic and Policy Research.

The proposed repatriation amnesty, which proponents call a “repatriation holiday,” would temporarily remove all or almost all U.S. taxes on the profits that U.S. corporations bring back to the U.S. from other countries, including profits that they shifted to offshore tax havens using accounting gimmicks and transactions that only exist on paper.

Here’s what we have said about this debate:

Data on Top 20 Corporations Using Repatriation Amnesty Calls into Question Claims of New Democrat Network

“The twenty companies that repatriated the most offshore profits under the temporary repatriation amnesty enacted by Congress in 2004 now have almost triple the amount of profits ‘permanently reinvested’ (i.e., parked) overseas as they did at the end of 2005.”

Call on Congress to Oppose the Amnesty for Corporate Tax Dodgers

1. Another repatriation amnesty will cost the U.S. $79 billion in tax revenue according to the non-partisan Joint Committee on Taxation.

2. Another repatriation amnesty will cost the U.S. jobs because it will encourage corporations to shift even more investment offshore.

3. The proposal is an amnesty for corporate tax dodgers because those corporations that shift profits into tax havens benefit the most from it.

4. Congress enacted a repatriation amnesty in 2004, and the benefits went to dividend payments for corporate shareholders rather than job creation, according to the non-partisan Congressional Research Service. Many of the corporations that benefited actually reduced their U.S. workforce.

Here’s more from CTJ on the right way to fix our international tax rules:
Congress Should End “Deferral” Rather than Adopt a “Territorial” Tax System

In 2000, when the economy was strong and the state appeared to be flush with funding, Massachusetts taxpayers voted to incrementally roll back the personal income tax rate from 5.75 to five percent.  In 2002, the state legislature halted the rollback at 5.3 percent in response to an economic downturn with a provision that it could resume if revenues exceeded 2.5 percent growth.  The fiscal restraint inherent in this provision is admirable, but did not quite accomplish the legislature’s primary goal – preventing unaffordable tax cuts when the state can least afford them.

This year, it looks like the tax rollback will resume since revenues are expected to increase between 4 and 5 percent over 2010.  But these figures actually represent a decrease in revenue when compared to pre-recession levels.  In 2008, tax revenues were nearly $21 billion.  That number dropped to just over $18 billion in 2009, and increased incrementally to $18.5 billion in 2010.  This year’s projections put the state’s revenue at slightly over $20 billion, leaving the state less well-off than it was in 2008.

The pinch on the state’s budget has been felt by almost every Massachusetts resident.  Sweeping funding cuts in education, law enforcement, health care, housing, and transportation have increased the burden on low- and middle-income families year after year.  Facing a $1.9 billion budget gap in 2012, this fiscal year’s budget also includes drastic spending cuts.  The largest of these cuts include carving out $63.8 million from higher education funding, $316.7 million from MassHealth (the state’s Medicaid program), $56.8 million from transportation funding and $100.5 million from the budget for courts and legal assistance (primarily reducing the state’s indigent defense system).  “What I’ve seen in my district is continued cuts to education, environmental aid and affordable housing,” said State Senator Jamie Eldridge of Acton. “People are really talking about how the budget cuts that have already happened are very negative.”

Proponents of the tax rollback refer to the reduction from 5.3% to 5.25% as “miniscule.”  Yet for 2012, that reduction represents $114 million in lost revenue for the state.  Obviously, that is not enough to make up for the state’s $1.9 billion budget shortfall, but it could stave off further tuition spikes in the state university system and mitigate planned transit fare hikes. 

Massachusetts also has an opportunity to learn from its mistakes.  When the economy was flush in the early 90’s, Massachusetts dropped its tax rates, then spent years trying to fill in its budget gaps.  The same pattern has developed again, made worse by a deep and unrelenting recession.  Using the first glimpses of economic recovery as an excuse to lower taxes yet again is imprudent.  Instead, the state should use the revenue surplus to revoke a portion of the drastic cuts implemented in this year’s budget, or at the very least, retain the surplus to stave off future budget shortfalls.

Photo of Massachusetts State Senate Chambers via Cody Hanson Creative Commons Attribution License 2.0

This week, the Associated Press is reporting that some lawmakers in Olympia “have been quietly exploring the logistics of a special election in February 2012 that could ask state voters to raise taxes to help fill another budget shortfall.” 

This is a very promising development. Lawmakers from Washington State to South Carolina and any state with a budget crunch should be exploring straightforward revenue raising options like this. Balancing budgets by cuts alone undermines education, health care, public safety and the myriad of other important services that government provides its constituents.

A less promising development, meanwhile, is that Governor Christine Gregoire has called the legislature back for a special session in November with the goal of finding $2 billion in budget cuts, on the heels of $4.6 billion they already passed earlier this year.

The Washington State Budget and Policy Center (WSBPC)  reminds us that there is a lot at stake in this special session. Already, state agencies have submitted budgets that reflect 10 percent across the board reductions.  Some of the real life implications of these reductions would be: over 18,000 fewer students enrolled in community and technical colleges, the loss of health care for 25,000 children, and the elimination of food assistance for 14,000 low-income legal immigrants.

WSBPC gets it right when it says, “it doesn’t have to be that way.  Policymakers can and should raise additional resources through a combination of eliminating wasteful tax breaks and temporarily increasing general tax rates or sin tax rates.

Given the harsh spending cuts that are likely coming down the pike, it’s imperative that lawmakers and the public remain vigilant and explore revenue raising opportunities in both the legislature and through the initiative process.

Photo of Washington State Capitol via Alan Cordova Creative Commons Attribution License 2.0