Author: tarek

In his speech on Wednesday addressing the budget deficit, President Obama skewered the House Republicans’ budget plan as painting “a vision of our future that’s deeply pessimistic.” He pointed out that if enacted, the budget proposed by House Budget Committee Chairman Paul Ryan would mean

– “A 70 percent cut to clean energy. A 25 percent cut in education. A 30 percent cut in transportation.”

– “Cuts in college Pell Grants that will grow to more than $1,000 per year.”

– Typical 65-year-olds would spend nearly $6,400 more annually on health care.

– Medicare would be turned into a voucher, and “if that voucher isn’t worth enough to buy insurance, tough luck – you’re on your own.”

– 50 million would lose health insurance, resulting from Medicaid cuts and the repeal of the health care reform law.

– A trillion dollars in tax breaks for the rich (the extension of the parts of the Bush tax cuts that Obama wants to see expire).

“There’s nothing courageous about asking for sacrifice from those who can least afford it and don’t have any clout on Capitol Hill,” President Obama said of the Ryan budget plan.

Ryan’s Goal Is to Shrink Government, Not the Deficit

A report last week from CTJ explains that Ryan’s budget actually reduces revenue, compared to current law and compared to Obama’s proposed budget, which makes it pretty obvious that deficit reduction is not its real motivation. The Ryan plan would essentially make permanent the level of taxation enacted under President Bush and then overhaul the tax system to eliminate loopholes and put the revenue saved towards rate reductions.

The result would be that the highest rates for individuals and corporations would be just 25 percent, and tax revenue collected would equal just between 18 and 19 percent of GDP. To put this in perspective, note that spending was about 21 percent of GDP under President Reagan – and that was before the baby-boomers were retiring, before health care costs had climbed so dramatically, and before we became engaged in multiple conflicts in the Middle East.

The Ryan plan does not spell out in any detail what the resulting tax system would look like – and there’s a specific reason for this. Last year, when Congressman Ryan presented a detailed plan that would allow people to pay income taxes at a top rate of 25 percent, Citizens for Tax Justice found that the plan would cut taxes, on average, for the richest ten percent and raise taxes, on average, for all other income groups. Remarkably, the plan would also lose $2 trillion over a decade.

Even President Obama’s Approach Could Be Dramatically Improved

While President Obama’s approach is vastly more responsible and reasonable than the House Republicans’ plan, it still doesn’t do enough to raise revenue. President Obama would allow the Bush tax cuts for the rich to expire and wants to limit tax expenditures, which are the equivalent of spending but administered through the tax code.

Like his fiscal commission, Obama says he wants an overall deficit reduction plan that cuts spending by two dollars for every one dollar of new revenue. But given that we are one of the least taxed countries in the developed world, at very least that ratio should be reversed. To be sure, much of the new revenue should come from cutting what amounts to spending programs implemented through the tax code, as the President argues.

But it’s unclear exactly what he means when he says he wants to raise $1 trillion in new revenue. If he aims to raise $1 trillion compared to the “current policy baseline,” which assumes that the Bush tax cuts are extended forever, that is mostly accomplished by allowing the tax cuts for the richest two percent to expire, as he has already proposed.

But surely more Americans than just the richest two percent can afford to pay more, especially if budget reform is going to involve “shared sacrifice,” as President Obama says. And surely we can do more than just allow part of the Bush tax cuts to expire, which will happen anyway if Congress does absolutely nothing.

Finally, the President reiterated his call for corporate tax reform to make our businesses “more competitive.” Frankly, what we need is to make our businesses pay more in taxes, particularly our corporations. Even Bush’s Treasury concluded in a 2007 report that the share of profits paid in taxes is lower on average for U.S. corporations than corporations of other developed countries. To not even attempt to get more revenue overall from our corporate tax system is incomprehensible.

Recently, DC mayor Vince Gray released his proposal to balance the District’s budget.  In sharp contrast to the cut-heavy budgets being debated in most places around the country, Gray’s budget would use increased revenues, including taxes, to close over 40 percent of the gap.  Particularly encouraging are Gray’s proposals to raise taxes on corporations and high-income earners.

One of the most significant revenue-raisers in Gray’s budget is the creation of a new tax bracket of 8.9 percent on incomes over $200,000.  DC’s current top bracket of 8.5 percent kicks-in at just $40,000 of taxable income. 

Gray’s plan also wisely decouples the District’s income tax code from one of many federal income tax cuts extended last year — the repeal of the “Pease” limitation on itemized deductions for high-income taxpayers.  ITEP has recommended decoupling from the repeal of Pease on multiple occasions.

In addition to these reforms, Gray’s budget also recommends implementing combined reporting of corporations’ profits in different jurisdictions, and increasing the minimum franchise tax on firms with gross revenue over $1 million. 

Consumption taxes are relied upon to generate most of the remaining revenue boost contained in Gray’s budget.  Specifically, Gray is seeking to make the city’s temporary sales tax increase permanent, raise the parking garage tax from 12 percent to 18 percent, increase the off-premise alcohol tax from 9 percent to 10 percent, and expand the city’s sales tax base to include purchases of live theater tickets.

Unfortunately, while Gray’s budget is quite reasonable on the revenue side, its spending proposals are much harder to stomach.  As the DC Fiscal Policy Institute has pointed out, human services and other low-income programs fare very poorly under the plan.  These programs account for only one-fourth of the city’s budget, yet two-thirds of the spending reductions pitched by Gray would come from slashing this part of the District’s safety net.

Will Rhode Island be the next state to allow special interests to prevent it from bringing its sales tax into the 21st century? 

Despite near-universal agreement among economists on the wisdom of broadening sales tax bases and dozens of state tax commissions recommending such a move, state lawmakers across the country have crumbled under the pressure from service providers who do not believe their products should have to compete on the same playing field as goods. 

As a result, no state in recent years has succeeded in implementing a comprehensive sales tax base broadening plan.  The political ramifications of taking on previously untaxed businesses may make some policymakers wary.

This must change. As states shift from manufacturing economies to service economies, it’s essential that tax structures change too.

Rhode Island Governor Lincoln Chafee included an expansive sales tax modernization plan in his budget proposal this year which would broaden Rhode Island’s sales tax base to include dozens of services, lower the general state sales tax rate, add a one percent tax on most currently exempted goods, and raise additional revenue to help mitigate budget cuts. 

Governor Chafee is one of only a handful of governors willing to protect vital public services by supporting new revenues as part of a balanced budget plan. He is also one of just two governors willing to consider making long-term and necessary improvements to his state’s sales tax rather than just simply raising the rate.

Rhode Island House and Senate Finance members took up the governor’s proposal this week.  More than 90 individuals spoke against the plan at the House Finance Committee hearing on Wednesday with hundreds more on site to voice their opposition.  As to be expected, everyone from the auto mechanics to landscapers to salon and bowling alley owners lined the halls to say, “Don’t tax me.” 

ITEP submitted testimony to both committees in support of the modernization proposal.

Democratic Representative Jan Malik, who asked business owners during the hearing why they should not be taxed while other businesses are, said “I feel their pain… But I understand what the governor is trying to do here. Why is it fair for my business to get taxed [Malik owns a liquor store] but not your business? These are the questions that have to be answered. We all have to share the pain in this state.” 

Kate Brock of Ocean State Action, one of the few to speak in favor of the governor’s plan, asked why the state taxes lawnmowers but not landscapers, and nail polish but not nail salons. She said, “It is illogical to tax a good but not a service that results in the same outcome.”

It looks like the special interests triumphed at least in the short term in Rhode Island. House Speaker Gordon Fox said that the majority of house members will not be supporting the governor’s plan in its current form, but will work with him to come up a viable alternative.  Senate President M. Teresa Paiva Weed also announced that the Senate is working on alternative ways to address the state’s budget shortfall.  Neither would say that changes to the sales tax are altogether off the table. 

Governor Chafee said he was open to hearing suggestions from the House and Senate, but reasserted the need to update the sales tax to “stabilize the state’s revenues during downturns in the economy and to better align it with modern-day customer’s spending habits.”

Many lawmakers are not only rejecting the governor’s sales tax overhaul proposal, but are also objecting to the idea of raising revenue at all to address the state’s $300 million budget gap.  One of the “alternatives” will likely be more cuts to education and other core services.

If there’s one valid criticism of the proposal, it’s that even though taxing services is generally less regressive than a sales tax rate increase, it remains a regressive tax no matter how broad the base. The governor’s plan therefore asks more of low-income households than of the wealthiest in the state. 

Coupling the base expansion with a fully refundable state Earned Income Tax Credit would ensure low-income households are not disproportionately impacted by the governor’s (otherwise sensible) sales tax modernization proposal.

Rhode Island’s sales tax base is one of the narrowest in the country, largely limited to tangible goods and even many of those are exempted from taxation.  As currently structured, Rhode Island’s general sales tax is unsustainable, inadequate, and unfair. Governor Chafee’s proposed reforms would take important steps towards repairing each of these problems, and in particular would help stabilize revenue.

If Rhode Island (or any state for that matter) wants to continue relying on a sales tax as a substantial and reliable revenue source, lawmakers are going to have to take a stand against the service industry sooner rather than later.

North Carolina advocates seeking to protect the state’s Earned Income Tax Credit and supporting a balanced approach to the state’s budget crisis have stepped up their efforts to build public support with new multimedia campaigns.  

The SaveEITC.org website, launched last week, features a clever ad titled “If You Work Hard, You Deserve a Chance to Get Ahead.” The website also features fact sheets, and an action center where individuals can send virtual postcards to lawmakers explaining the many ways the EITC supports North Carolina’s low-wage workers and families. 

TogetherNC, a coalition of more than 120 advocacy groups, service providers and professional associations, started running ads this week in 15 North Carolina newspapers calling on lawmakers to support teachers, firefighters, public health workers, and other vital services with new revenue. 

Each of the four unique ads ends with the following message, “When our economy is out of balance, so are our classrooms.  Schools and parks. Libraries and fire stations. The things that make our communities great places to work and live are in jeopardy. Lawmakers, North Carolinians want a practical approach to our economy and our state budget–one that includes not only careful spending cuts but also new revenues that work for our changing economy. Balance is a beautiful thing.”

The Together NC coalition also launched a new website, SpeakNC, which will introduce a new video each week featuring North Carolinians who rely on the hundreds of services in jeopardy of being gutted in this year’s budget. 

Finally, the North Carolina Budget and Tax Center released their revenue raising and modernization plan this week.  The report describes the current failings of the state’s tax system and offers a comprehensive revenue modernization plan that would update the state’s personal income tax, sales tax, business taxes, and “tax-code spending” practices.  ITEP contributed substantial analysis and technical expertise to the report.

In the days leading up through Tax Day (which is on Monday, April 18 this year) there are several things you can do to promote tax fairness. US Uncut plans direct actions targeting particular corporations that have dodged their taxes. U.S. PIRG and other organizations will have activities outside post offices in several states to create awareness about tax dodging by corporations and to press Congress to act.

US Uncut Demonstrations

US Uncut protests corporations like Verizon and FedEx which have dodged all or most of their U.S. income taxes at a time when lawmakers are cutting basic public services to address federal and state budget gaps.

Find US Uncut events near you.

In D.C., US Uncut will host a creative direct action on April 15 at the Verizon store at Union Station with best-selling author of Treasure Islands, Nick Shaxson, who will do a book-signing. On April 17. US Uncut DC and organizers from Power Shift will target a corporate tax dodger and relate tax avoidance to cuts to the EPA’s budget. This event is said to have a beach party/tropical tax haven theme.

Events like these will take place all over the country. Find US Uncut events near you.

U.S. PIRG Events at Post Offices

The U.S. PIRG acitivities will take place April 15 and April 18 in at least a dozen states. 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 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

The Open Society Foundation is hosting a briefing on tax havens Thursday morning, which will be followed by a Hill briefing that afternoon. The details are below.

April 14, 2011

10:00 a.m.

Event: Civil Society Organization Briefing/Panel.
Location: Open Society Foundation, 1730 Pennsylvania Ave. NW, Washington, D.C.
Summary: Panel discussion to brief civil society organizations on the impact of tax havens on the global economy and the developing world. The panelists will include Mr. Shaxson, author of Treasure Islands, and Rebecca Wilkins, Senior Counsel, Federal Tax Policy, at Citizens for Tax Justice
Refreshments will be served
Please come and invite your friends/colleagues
Contact: Sarah Pray at spray@osi-dc.org

2:30 pm

Event: Hill Briefing
Location: S-115 of the Capitol
Summary: Panel discussion to brief Hill staffers on the impact of tax havens on the American economy, businesses and budgets. The panelists will include Mr. Shaxson, Rebecca Wilkins and Frank Knapp, President and CEO of South Carolina Small Business Chamber of Commerce
Refreshments will be served
Contact: Bonnie Rubenstein at bonnie@ctj.org

Any rational proposal to balance the federal budget would rely on a mix of spending reductions and revenue increases. But, as explained in a new CTJ report, the House Republican budget plan relies on draconian spending cuts and actually reduces revenue.

The plan is motivated not by a desire to balance the budget but rather by the ideological goal of reducing the size of government to something that would be unrecognizable to Americans today.

The plan’s author, House Budget Committee Chairman Paul Ryan, is intentionally vague about his plans to overhaul the tax system. That may be because his previous attempt to explain how he would reduce the top income tax rate to 25 percent made it clear that the result would be a big tax increase for all income groups except the richest ten percent.

Read the report.

In just the last few weeks, Arkansas and Illinois joined New York, North Carolina, and Rhode Island in enacting legislation requiring some online retailers, like Amazon.com, to collect sales taxes on purchases made by their state’s residents.  At least a dozen other states are considering enacting similar policies, and the list of states with a serious interest in this issue seems to be growing by the week.  In a new brief, ITEP explains the basics of so-called “Amazon taxes,” and discusses the actions that Amazon, Wal-Mart, Home Depot, and other retailers have taken during this new surge of interest in sales tax reform.

Read the ITEP brief.

Earlier this week, ITEP released a new report, Don’t Give Up on Pease: States Can Decouple from Recent Federal Tax Cuts for Wealthy Itemizers. 

The report is a companion piece to ITEP’s July 2010 report on the impact of itemized deductions on state revenues.  In that report ITEP offered five options for reforming the state treatment of federal itemized deductions.  This week’s report provides updated data and analysis for one of the recommendations contained in that report: decoupling from the federal repeal of the “Pease” provision.

The Pease provision, named after its Congressional sponsor, reduces the cost and regressivity of certain itemized deductions by limiting their value by up to 80 percent for the very best-off taxpayers.

Unfortunately, Pease was repealed as part of the Bush tax cuts, and this repeal was extended through tax years 2011 and 2012 as part of the federal tax compromise package signed late last year.  Unless the 31 states (and DC) that allow federal itemized deductions decouple from this aspect of the compromise package, they will see a modest revenue decrease in both of those years, while their wealthiest residents will receive a bonus state tax cut on top of their already sizeable federal tax cuts.

In news that will warm the hearts of tax justice advocates across the country, Missouri voters in Kansas City and St. Louis overwhelmingly approved ballot initiatives to keep their 1 percent local earnings taxes.

This is a huge blow to wealthy campaign financier Rex Sinquefield, who bankrolled the campaign against these taxes. The St. Louis earnings tax passed with 88 percent of the vote and Kansas City voters approved the tax by a 3-to-1 margin. It’s not every day folks so clearly come out and voice their support for taxes and the vital services they fund.

Mayors of both cities appeared to be gleeful following the election results. St. Louis Mayor Francis Slay said, “I was confident that the people of St. Louis would do the right thing for the future of the city if they were armed with the facts. Regardless of what anyone thought of the earnings tax, it would have been irresponsible to get rid of it without a viable alternative to replace it.”

Kansas City, Mayor-elect Sly James said, “It means that this city is going to continue to try and become as efficient as possible, but we’re not going to have to do it with one hand tied behind our backs.”