Author: tarek

Like most states, New Hampshire is faced with yet another budget shortfall to close in the upcoming fiscal year, this one at roughly half a billion dollars.  The New Hampshire House of Representatives approved a budget in March that closed the gap almost entirely through cuts in spending ($489 million total) including reductions in child-care assistance for low-income families and funding for the state’s university system.  Yet, incredibly, New Hampshire lawmakers are still considering a variety of proposals to cut business taxes.

This week, the New Hampshire Fiscal Policy Institute (NHFPI) published an informative brief explaining how various proposals to reduce the state’s two main business taxes would result in millions of dollars more in spending cuts. 

The brief also debunks myths that lawmakers have promoted to justify cutting business taxes. One is that the state’s business taxes are extremely high. (They are comparable to the national average.) Another is that business taxes influence business location decisions, and that lowering taxes on businesses would fuel economic growth. 

NHFPI also points out that the two business taxes lawmakers are considering reducing, the Business Profits Tax (BPT) and Business Enterprise Tax (BET), make up a relatively small share of the total taxes New Hampshire businesses pay.  The tax that represents the largest share, the property tax, could in fact increase as a direct result of cutting the BPT and BET.  

A state tax cut of any size would likely lead to reductions in funding for local aid, which would in turn force local governments to increase property taxes to pay for local services.

As previously noted, Connecticut is one of only a handful of states where state leaders have given serious consideration to raising revenue as part of a balanced solution to closing their budget gaps. 

In February, new Governor Dan Malloy (who calls himself the “Anti-Christie” referring to New Jersey’s notoriously conservative governor) released his budget proposal for fiscal year 2012. The plan would have closed roughly half of a $3 billion shortfall with a mix of new revenues from the personal income tax, sales tax, excise taxes, business taxes, and the estate tax. 

As of this week, the governor moved one step closer to enacting his vision for Connecticut when he reached an agreement with House and Senate leadership on his tax and spending packages.

Both chambers’ Finance and Appropriations Committees approved the revised budget plan on Thursday and the full House and Senate will take it up next week.  Not surprisingly, Republican lawmakers criticized the proposal and unsuccessfully offered a no-tax increase amendment that would have meant more than $1.4 billion in additional cuts to essential services.
 
One common criticism of the Governor’s original tax package was that it hit middle-income households the hardest.  While a new 30 percent refundable state Earned Income Tax Credit (EITC) ensured low-income households would not see a tax increase (and in some cases would receive a net tax cut), the proposed elimination of the state’s property tax credit would have disproportionally impacted middle-income households. 

As a result, an ITEP analysis found that middle-income households would have seen the biggest tax increase as a share of income under the Governor’s proposal.  Tied to that criticism, several key House and Senate members as well as the Better Choices for Connecticut coalition pushed for a more progressive tax package (equipped with an ITEP analysis of that plan) that would ask the state’s wealthiest households to pay for the largest share of the tax increase.
 
The revised package appears to have addressed these criticisms.  A scaled back version of the property tax credit would be restored and result in a smaller tax increase for middle-income households.  And, changes to personal income tax rates and a mechanism to recapture the benefits of lower tax rates will mean that the top 5 percent will pay more than under the Governor’s original plan.

The Connecticut tax package also includes several significant changes to the state’s sales tax including broadening the base to include several services and currently exempted goods, a new ‘Amazon’ law, a 7 percent tax on luxury goods, and a small rate increase from 6 to 6.25 percent. 

The governor’s original sales tax proposal was even more comprehensive, but several items (expanding the sales tax to include haircuts and boat repairs, an elimination of the sales tax holiday and elimination of exemption on auto-trade-ins) were left out of the revised package. 

Otherwise, the revised package mostly mirrors the original and includes tax increases on estates, cigarettes, alcohol, and corporate income.

The South Dakota Legislature’s Executive Committee voted earlier this week to study the more than 100 sales tax exemptions that the state currently allows. Tax exemptions are one type of “tax expenditure,” or government spending through the tax code.

Tax expenditures have the same impact as cash grants from the government, but implementing them through the tax system makes them less visible — and makes lawmakers less accountable for justifying them.

South Dakota’s sales tax exemptions alone are estimated to cost over $500 million annually. Adding the cost of property tax and corporate tax expenditures would make that figure even larger. To put that figure in perspective, South Dakota’s general fund budget for fiscal year 2012 is just over $1 billion.

“We don’t know when they were put in place, how they were trended over time and if they continue to meet their initial intent,” said Joy Smolnisky, director of the South Dakota Budget & Policy Project.

This summer legislators will meet to review the exemptions and study whether or not they achieve any sensible policy goals. Let’s hope this initial study leads to the creation of a regularly published tax expenditure report. For more on the importance of tax expenditure reporting, see the Budget and Policy Project’s work on this important issue.

For more general information, see CTJ’s report on tax expenditures.

Louisiana’s Better Choices for a Better Louisiana Coalition is taking on Governor Bobby Jindal and other legislative leaders who have said they aren’t interested in increasing taxes. The Coalition recently unveiled their plan to increase taxes by $900 million to help close next year’s budget gap, which is estimated to be $1.6 billion.   

Eddie Ashworth, director of the Louisiana Budget Project, acknowledges that getting the legislature to raise taxes will be difficult, saying “I think we’re definitely pushing a rock up the hill.”

Still, the Coalition’s balanced approach to the budget shortfall, raising taxes and cutting spending, should appeal to any lawmaker who has ever claimed the title of “moderate.” Also, one proposal included in the Coalition’s plan responds to the increasing momentum even in conservative circles for addressing spending in the tax code: a review of the state’s 400-plus tax exemptions, which cost about $7 billion annually.

Expedia, Orbitz, and Priceline are exploiting a major sales tax loophole, and in some states are possibly breaking the law in doing so.  Last week, the Center on Budget and Policy Priorities (CBPP) released a report explaining how this loophole works, and pegging its aggregate size at somewhere in the neighborhood of $400 million per year.  The report urges states and localities to pursue legal action, legislative action, or both in order to remedy this situation.

In the vast majority of cases, online travel companies (OTCs) like Expedia and Priceline currently remit sales and lodging taxes only on the “wholesale” room rate they pay to hotels — not the “retail” room rate they actually charge travelers.  In doing so, the OTCs claim that the difference between the retail and wholesale price is simply a “facilitation fee” that should not be subject to sales taxes.  But as CBPP rightly points out:

“The OTCs are providing the same kinds of marketing and room booking services that the hotels themselves engage in.  If the hotels may not deduct a pro-rated amount of their advertising and website operation expenses from the retail room charge prior to calculating applicable hotel taxes when they incur such expenses directly, there is no possible justification for compelling such a deduction when hotels pay an OTC to provide the same services.”

CBPP recommends that states and localities either sue to recoup the taxes owed by OTCs, or if current statutes are sufficiently unclear with respect to the taxes owed by OTCs, enact new legislation clarifying that taxes should be paid based on the full retail price of the room.  New York City and Washington DC have both taken this latter course of action, while a half dozen states and numerous localities have chosen to pursue legal action.

Read the CBPP report for more detail, including state-by-state revenue estimates, an explanation of why this reform won’t harm tourism, and a closer look at what states and localities must do to close this inequitable and costly tax loophole.

Weeks after the New York Times broke the story of General Electric’s tax avoidance, it’s still hard for many Americans to believe how successfully GE has managed to avoid owing any tax on its profits. Yet some anti-immigrant groups find it much more plausible that undocumented immigrants somehow pay no taxes at all, while relying heavily on state and local government services.

A new report from the Immigration Policy Center, fueled by data from ITEP’s Microsimulation Model, shows that in fact, undocumented families pay a substantial amount of state and local taxes across the nation. The report estimates that these families pay over $11 billion a year in state and local sales, excise, income and property taxes.

It’s notoriously difficult to know precisely even the basic facts about the changing undocumented population in the US, and the IPC report should be understood not as a definitive answer but as a sensible estimate based on the best available data. But the new IPC report serves as an important reminder that undocumented taxpayers make important financial contributions to the fiscal health of state and local governments.

Conservative lawmakers and pundits often claim that the richest Americans are paying a disproportionate share of taxes while a huge number of lower-income Americans pay nothing at all. CTJ has updated its report on federal, state and local taxes that explains why they’re wrong.

Read the report.

Honeywell International has responded to a press release that CTJ posted Tuesday and which explained that the company has paid an effective U.S. income tax rate of just 4.1 percent averaged over the past five years.

The company’s CEO, Dave Cote, was a member of the President’s National Commission on Fiscal Responsibility and Reform and speaks frequently about his support for cuts in Medicare and Medicaid. Cote spoke on Tuesday at a public event focused on deficit reduction and was asked twice about the CTJ press release.

Within a matter of hours, Honeywell sent a letter to CTJ essentially saying that the company correctly reported large profits to its shareholders for the last two years but used available tax loopholes to report losses to the IRS.

CTJ’s director, Bob McIntyre, wrote a letter back to Honeywell that concludes:

“So I think we agree on the following: The reason why Honeywell, despite reporting substantial pretax U.S. profits to its shareholders, paid no federal income tax in 2009 or 2010 (or more precisely, paid less than zero) is that it took advantage of legal tax breaks to wipe out its federal income tax liability. We may disagree, however, about whether these tax breaks should exist.”

Read CTJ’s press release about Honeywell and the correspondence between the company and CTJ.

Yesterday, the Business Roundtable, a politically conservative group of corporate CEOs, released a report claiming to show that U.S. corporations pay higher effective tax rates than corporations of other countries. CTJ’s director Bob McIntyre was quoted in several news articles explaining why the report, which was written by PricewaterhouseCoopers, is nonsensical.

First, it includes both “current” income taxes (i.e., taxes paid) and “deferred” income taxes (i.e., taxes not paid). Because the US allows far more tax breaks in the form of (indefinite) deferrals than do other countries, that makes the US effective tax rate look much higher than it actually is. Second, the report looks at worldwide taxes paid, and attributes all of those taxes to the country where companies are headquartered. So if US companies pay a lot of foreign taxes, the report counts that as high taxes imposed by the United States!

Corporations’ public filings divide their tax liabilities into “current” taxes and “deferred” taxes, the deferred taxes being those a company expects to pay in the future. Taxes that are “deferred” are quite often never paid at all. If and when they are paid in the future, they will be recorded as “current” taxes during that year, but usually the company will have more deferrals that will offset any deferred taxes that come due.

Corporations’ public filings also provide their worldwide taxes on their worldwide profits. But clearly the U.S. government only has control over U.S. taxes. Many companies actually pay taxes at a higher rate on their foreign profits because other countries do not provide as many breaks for investment as the U.S. does. But surely no one expects Congress to give corporations even more breaks to help them pay their foreign taxes.

The report issued for the Business Roundtable includes current and deferred, worldwide taxes in its calculation of effective tax rates of corporations. Floyd Norris, the chief financial correspondent of The New York Times, calls this “highly misleading.” He asked the author of the report how much U.S. corporations actually pay to the U.S. government (how much their current U.S. taxes are in a given year).

The reply from PricewaterhouseCoopers’ Andrew Lyon (who happens to be a former assistant Treasury secretary under George W. Bush): “We have not looked at that data.”

Thankfully, Citizens for Tax Justice is looking into that data and hopes to have a report within a few months.

Hundreds of events from coast to coast are being organized to target corporations that fail to pay their fair share in taxes while lawmakers consider slashing public services that working Americans depend on.

MoveOn

MoveOn invites “frustrated taxpayers, underwater homeowners, vilified public servants, job-hunting students, and unemployed veterans—everyone facing cuts or cutbacks, a pink slip or a shrinking paycheck” to join demonstrations to demand that Congress cracks down on corporate tax dodgers and to deliver to these companies the tax bill they should pay. Find a MoveOn event near you.

U.S. Uncut

U.S. Uncut is also organizing demonstrations and events targeting corporations, some of which are in cooperation with MoveOn. Find a U.S. Uncut event in your area.

U.S. PIRG

Finally, U.S. PIRG and other organizations will have activities outside post offices on April 15 and April 18 in several states to create awareness about tax dodging by corporations and to press Congress to act. These events will target people whose minds are very much on taxes as they mail off their federal income tax returns.

See the list below for U.S. PIRG events in your state and contact information.

April 15, 2011

Event: U.S. Public Interest Research Group will be holding events outside of Post Offices across the country to try to get Congress to address tax dodging corporations with report releases and post-carding.

Locations:

Portland OR, April 15th. Contact Jen Lavelle at jlavelle@ospirg.org, 503.231.4181

AnnArbor MI, April 15th. Contact Megan Hess at mhess@pirgim.org, 734.662.6597

Chicago IL, date TBD. Contact Brian Imus at brian@illinoispirg.org, 312-544-4433 x 210 (Federal Plaza, outside of main post office)

Hartford CT, April 15th, Contact Jenn Hatch at jhatch@connpirg.org, 860.233.7554

Albuquerque NM, date TBD, Contact Erin Eckelson at erin@nmpirg.org, 505.254.1244

Philly area, date TBD. Contact Megan DeSmedt at mdesmedt@pennpirg.org, 215.732.3747

Phenoix AZ, April 15th. Contact Seren Unrein at sunrein@arizonapirg.org, 602.252.9227

Des Moines IA, Date TBD, Contact Sonia Ashe at sashe@iowapirg.org, 515.282.4193

April 18, 2011

Event: U.S. Public Interest Research Group will be holding events outside of Post Offices across the country to try to get Congress to address tax dodging corporations with report releases and post-carding. U.S. PIRG is partnering with Citizen Action in a number of states: NJ, OR, IL, MI, MO, CT.

Locations:

Trenton NJ, April 18th. Contact Jen Kim at jkim@njpirg.org, 609.394.8155

Seattle WA, April 18th, Contact Lindsay Jacobson at ljacobson@washpirg.org, 206.568.2854 (either at post office downtown, or in front of Microsoft).

Boston MA, April 19th, Contact Dee Cummings at dcummings@masspirg.org, 617.292.4805

Baltimore MD, April 18th, Contact Johanna Neumann at Johanna@marylandpirg.org, (410) 467-9389

St. Lois MO, TBD