Author: tarek

At a time of growing wealth and income inequality, House Republicans seem to be on a warpath to use tax policy to accelerate this trend.

The House Ways and Means Committee passed a bill on Wednesday that would repeal the estate tax. The bill’s passage is an incremental victory for the wealthy and their allies who, for years, have been trying to outright repeal the tax. The bill’s proponents have been falsely touting estate tax repeal as necessary to keep small businesses and family farms in operation, but the truth is that the bill is a giveaway to the richest of the rich. Only a fraction of the top one percent of the population are even subject to the tax.

Earlier this year, the GOP made a big hullabaloo over talking more about poverty and income inequality. But this bill and the just-passed House budget prove lawmakers are more interested in talk about inequality for political purposes, but action only when it comes to the whims of the super rich. Given that the estate tax is a critical bulwark against wealth inequality, it’s absurd that Congress would even consider weakening the tax when they should be working to strengthen it.

For those representatives who need a review, here are the three principal reasons we should make the estate tax more robust:

1. The estate tax is one of our nation’s most progressive revenue sources. The latest data from the IRS show that less than 4,700 estates (or the richest 0.18 percent all of estates) owed any estate tax whatsoever in 2013. Put another way, repealing the federal estate tax would do nothing for 99.82 percent of estates that already do not owe a penny in federal estate taxes.

Lowering taxes for this tiniest sliver of the ultra wealthy makes even less sense given the extreme rise in their overall wealth in recent years. For example, a recent study found that the top 0.1 percent of Americans already own more than 20 percent of all wealth in America, a level of wealth inequality that has not been seen in America since the late 1920s.

Opponents of the estate tax frequently cite its alleged effect on family-owned “small” businesses and farms. This is a red herring, plain and simple. According to estimates, only about 20 small business or farm estates owed anything in estate taxes in 2013. Even for those few small businesses or farms that owe estate taxes, there are already generous rules allowing those taxes to be paid over a 15-year period.

2. The estate tax is an important complement to our income tax system. Inherited wealth is one of the only forms of income that is entirely excluded from income taxation. In testimony before the House Ways and Means Committee, law professor Ray Madoff noted this inequity by pointing out that a person earning $60,000 could owe $15,627 in income taxes, while someone inheriting $60,000, even from a distant relative, owes nothing in taxes on that income. The estate tax makes up for this inequity (for wealthy estates at least) by applying a tax to the estate as a whole before it is then distributed to its inheritors.

In addition, without the estate tax, a substantial portion of income would go entirely untaxed at any point under the current system due to the “stepped up basis” rule. Under this rule, capital gains income on assets that are not sold during the owner’s lifetime are never subject to any tax. Congress should end this tax shelter as President Obama proposed to do in his latest budget.

Under the current system, the estate tax at least ensures that some tax is paid on capital gains for the wealthiest estates. For estates worth more than $100 million for example, these unrealized capital gains constitute 55 percent of their value.

3. The estate tax is a critical source of federal revenue. According to the nonpartisan Joint Committee on Taxation, repealing the estate tax would cost the federal government as much as $268 billion in revenue over the next ten years. This loss of revenue would likely mean even more cuts to crucial public investments, a further increase in our nation’s deficit or increasing taxes on individuals with lesser ability to pay.

If anything, Congress should raise more revenue by passing President Obama’s proposals to end the many egregious loopholes (including the infamous GRAT loophole) in the estate tax and restore the exemption level to $3.5 million dollars. Taken together, Obama’s proposals would raise another $214 billion over the next 10 years and would likely result in no additional taxes owed for 99.7 percent of estates.

Texas Senator, and now presidential candidate, Ted Cruz is a supporter of radical tax plans that would dramatically increase taxes on poor and middle class Americans in order to pay for huge tax cuts for the wealthiest Americans. While he has not clearly established which he favors more, Cruz has endorsed both the creation of a flat income tax and a bill that would replace the progressive income tax system with a national sales tax, a plan misleadingly called the “Fair Tax.”

While Ted Cruz may portray himself as wanting to lower taxes, the reality is that under the tax plans he has endorsed, the overwhelming majority of Americans would likely see their taxes go up considerably. Looking at the “Fair Tax,” an Institute on Taxation and Economic Policy (ITEP) study found that the bottom 80 percent of taxpayers would see their federal taxes go up by about $3,200 on average annually. In contrast, ITEP found that the top 1 percent of taxpayers would receive an average annual tax cut of $225,000.

On the flat tax, Cruz has not yet spelled out a specific plan that he would like to see enacted, but it’s unlikely that any plan he proposed will be significantly better than the extremely regressive flat tax proposals that have been offered in the past. For example, an ITEP analysis of Senator Arlen Specter’s flat tax proposal found that the bottom 95 percent of Americans would see their annual taxes increase by $2,900 on average, while the top 1 percent of taxpayers would see their taxes decrease by $210,000 on average.

When speaking about the tax system, Cruz has also peddled a patently irresponsible promise to abolish the IRS, without specifying how our country might go about collecting tax revenues (including Social Security and Medicare taxes) without a revenue collection agency. Even though much of Cruz’s rhetoric is likely bluster and contains factual inaccuracies, it’s still dangerous demagoguery.

Cruz’s approach on taxes is so unfair that even some conservatives suspect that it will not prove politically popular. Making this point, Pew Research recently found that even 45 percent of Republicans believe some wealthy people don’t pay their fair share in taxes, meaning a substantial portion of the Republican primary voters may not be able to stomach the massive tax breaks for the wealthy that Cruz is advocating.

Looking forward, here’s hoping that we see other presidential candidates reject Cruz’s regressive tax approach in favor of tax reform ideas that ensure that the rich and profitable corporations are paying their fair share. 

While the problems with our international tax system are complex, the solution is relatively simple: U.S. corporations should pay the same tax rate, at the same time, on their domestic and foreign profits.

The ranking member of the Senate Finance Committee, Sen. Ron Wyden, made the case for this reform earlier this week in a Senate Finance Committee hearing on the international tax system by calling for an end to the deferral of taxes on foreign profits. Wyden has made ending deferral one of the central planks of his bipartisan tax reform legislation.

The root of the problem with the United States’ international tax system is multinational corporations’ ability to defer paying taxes on their foreign profits until these profits are repatriated to the United States. This creates a strong incentive for companies to shift their foreign profits and use accounting gimmicks to move U.S. profits to tax havens, where they will owe little to no tax. Without the ability to defer taxes on their offshore income, there would be no incentive to hold earnings in tax havens because companies would owe U.S. taxes on this income either way.

Exactly how much do companies avoid paying in taxes due to our system of deferral of taxes? According to the non-partisan scorekeepers at the Joint Committee on Taxation (JCT), deferral will allow U.S. companies to avoid paying some $418 billion in federal income taxes over just the next five years.

For its part, in its latest budget the Obama Administration proposed a 19 percent minimum tax on foreign profits. While this proposal is praiseworthy for ending deferral, the fact that the minimum tax rate would be lower than the tax rate on foreign profits means that it would still leave in place a system that incentivizes corporations to shift profits offshore, either on paper or by shifting real operations.

During another Senate Finance Committee hearing on simplification, Professor Mihir Desai, by no means a foe of multinational corporations, noted in his testimony that he thinks it is preferable to explicitly repeal deferral given that a minimum tax “creates numerous opportunities for planners that have resources that far eclipse the ability of the government to police them.” Reinforcing this point, the JCT estimates that Obama’s minimum tax would only capture about a third, $130 billion over five years, of the revenue lost due to deferral of taxes on foreign profits.

Unfortunately, much of the push for international tax reform is coming from advocates of a territorial tax system, which would actually exacerbate the problems we currently face with offshore tax shifting by exempting much of U.S. corporations’ foreign income from taxation. In other words, rather than making the U.S. more “competitive” as companies claim, a territorial system would just make it even more beneficial for U.S. companies to move jobs and profits offshore.

Looking at the big picture, tax professor and former corporate tax practitioner Stephen Shay argued before the Senate Finance Committee that the Wyden proposal to end deferral was the “first best choice” to reform the international tax system because it is the best way to address base erosion and profit shifting by multinational corporations. Senate Finance Committee members should take the recommendation of Professor Shay, Ranking Member Wyden and an increasing number of advocates to heart as they develop proposals for international tax reform going forward. 

The GOP House budget proposal released Tuesday implies that lawmakers intend to allow the controversial package of business tax cuts known as tax extenders to expire for good. If true, this would be an important step toward a fairer tax system. Unfortunately, they probably don’t mean it.

As we have noted before, the extenders are mostly a motley array of ineffective giveaways to businesses. There’s the research credit that gives businesses tax breaks for such dubious activities as developing new soft drink flavors or exploring how to replace workers with machinery. And then there’s bonus depreciation, which allows businesses to write off the cost of capital investments at a much faster pace than which materials actually depreciate. There’s also the infamous “active finance” loophole, which is likely a main driver in allowing General Electric to pay next to nothing in federal income tax most years.

The House budget blueprint says nothing at all about the fate of these and other tax “extenders,” each of which expired at the end of 2014. On its face, this suggests that Republican leaders are ready to say a permanent adieu to these ill-advised tax breaks, which have been the subject of a year-end drama almost every year recently. After all, the blueprint’s authors are pretty vocal about the few high-end tax cuts they explicitly propose in the document, so one would expect they’d be poised to brag about the extenders as well. But in light of Republican leaders’ recent history in dealing with budget blueprints—and with the extenders—a very different interpretation seems more plausible. In all likelihood, the House leadership fully intends to bring the extenders back—it just would prefer not to have to explain, at this time, how Congress will find the revenue needed to pay for them.

We’ve been here before: a year ago, the House budget plan formulated by then-Budget Chair Paul Ryan was just as conspicuously silent on reviving the extenders. But the House leadership subsequently revealed their true stripes, approving several bills over the course of 2014 that would not only have brought these misbegotten tax breaks back, but also would have made some of them permanent.

While this strategy is intellectually dishonest, this approach to budgeting makes perfect sense for those seeking only to masquerade as fiscal conservatives. During the budget season, everyone wants to be able to claim they’ve proposed a “balanced budget.” And the more tax cuts you propose, the harder it is to say with a straight face that your budget proposal is fiscally responsible. But months from now, when the goal has shifted from burnishing their “fiscal conservative” credentials to pushing through tax cuts for grateful corporations, the budget-busting impact of the extenders will be less of an issue.

This shell game has real consequences for the federal budget, and for middle-income working families. Every time Congress passes up the chance to root out unwarranted tax loopholes for corporations and the wealthy, that’s increasing the odds that the next budget fix will fall on low- and middle-income taxpayers.

Budgets are moral documents, laying out a vision of the priorities of a government and of its citizens. From this perspective, the House budget blueprint’s hypocritical silence on the fate of the tax extenders borders on the sociopathic. 

Art Laffer, an economist renowned for the childlike simplicity of his theories, has decided to enter the children’s book market. His new book Let’s Chat About Economics! was coauthored by writer Michelle Balconi, who heard Laffer speak at on a panel and enthused “I was listening and I just really wanted my kids to be there. I said to my husband, ‘We have to talk about this tonight.’” I’m sure Mrs. Balconi’s kids are grateful to have missed the event.

The actual content of the book is comprised of straightforward economic concepts couched in familiar settings for children, like planning a vacation for spring break (diminishing returns) or buying groceries (budgeting and scarcity). The Laffer curve is not included, but there are fun and colorful graphs to illustrate ideas in ways that kids can understand. Perhaps Laffer can send a few free copies to the Kansas public school libraries decimated by budget cuts in the wake of disastrous tax policies he championed.

Given the recent success of Mr. Laffer’s book, here are a few more titles he might consider:

Sam Brownback and the Terrible, Horrible, No Good, Very Bad Year: Poor Sam Brownback! From the moment he passed deep income tax cuts, nothing has gone his way. Revenues are way under projection, economic growth and jobs have failed to materialize, and he had to propose tax increases to keep Kansas solvent. It’s enough to make a governor want to move to Australia.  

Harriet the Supply-Sider: Harriet M. Welsch is a precocious eleven-year-old and aspiring writer who believes that tax cuts for the wealthy will generate prosperity for everyone. When the other students at her progressive New York City elementary school catch wind of her political views she is shunned, but she gets the last laugh as a successful novelist under the pseudonym Ayn Rand.

The Borrowers: A fantasy novel about tiny politicians that live in the walls of an English home, this story features a wee president who is forced to take things from the Big People in order to pay for tax cuts and boost military spending.

Bridge to Topeka: Two lonely and imaginative young children create a fantasy bridge to Topeka, Kansas, when the original one collapses due to inadequate funding that delayed routine maintenance.

Frog and Toad are Austrians: Frog and Toad may be opposites, but there is one thing they can agree on: The United States should return to the gold standard and abolish the Federal Reserve.

The Job-Giver: This utopian tale is set in the near future, where society has eliminated all pain and strife by appointing the wealthiest man in town – the “Job-Giver” – as ruler.

Miss Nelson Was Laid-Off! When Miss Nelson’s students constantly take advantage of her kind nature, she takes a leave of absence and is replaced by a long-term substitute, the strict Miss Viola Swamp. The students believe this to be a ruse, but it is revealed that Miss Nelson was let go due to budget cuts.

The Grinch Who Stole Pensions: The mean old Grinch is at it again! This time, he’s run for and won a seat in the state legislature, using his power to try and wiggle out of his state’s pension obligations to teachers and police officers. 

Once again, U.S. House leadership has released a budget blueprint that promises a “stronger America,” but is, at best, vague about the hard choices lawmakers really must make to ensure the nation has enough resources to meet its basic priorities.

After releasing A Balanced Budget for a Strong America Tuesday, House Budget Committee Chair Tom Price asserted that the budget blueprint “balances the budget within ten years.” But like so many Republican budget proposals before it, the plan would achieve balance almost entirely through spending cuts. The outcome of budget battles in both Republican and Democratic administrations demonstrates balanced budgets are never achieved solely through spending cuts.

On the tax side, the House budget plan appears to have been sketched out on a cocktail napkin. Apart from enacting two new tax cuts that would overwhelmingly benefit the wealthy—and implicitly hiking taxes on low-income families by cutting two targeted tax credits for working families–the House plan is vague about how it would approach urgent reforms of individual and corporate tax laws.

Last year, we criticized the House Budget proposal for being very specific about how low it would cut  top tax rates, while offering no details about which loopholes it would close to pay for these rate cuts. It didn’t seem possible, but this year’s proposal offers even fewer details. On the important question of how to restructure the income tax, the blueprint says only that it would “lower rates… [and broaden] the tax base by closing special interest loopholes that distort economic activity.” This may be an appropriate talking point for a political candidate, but the budget plan should offer something more than campaign rhetoric.

And while the plan is mostly devoid of comprehensive tax reform proposals, it offers copious details on two proposed tax cuts that would disproportionately benefit the wealthy. The plan would repeal Medicare tax expansions designed to help fund healthcare reform, and it would repeal the Alternative Minimum Tax (AMT). The Medicare tax repeal would blow a $1 trillion hole in the federal budget over the next decade, and dismantling the AMT would lose more than $300 billion over the same period. 

More worrisome is that the House budget also appears to endorse a backdoor tax increase on low-income working families by allowing temporary expansions of the federal Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) to expire. The tables in the House blueprint show no change in revenues from a current-law baseline, implying that these temporary changes will be allowed to expire on schedule at the end of 2017. Allowing these provisions to expire would essentially be a tax hike on more than 13 million working families.

This should be no surprise to observers of the legislative process, since the Republican leadership in the House has repeatedly signaled its intention to let these valuable anti-poverty strategies expire. But in combination with the two high-end tax cuts, the net impact of these changes would be to make the federal tax system less fair.

It’s not easy to design a fiscal blueprint that avoids the hard tax reform questions facing the nation while simultaneously hiking taxes on low-income families and cutting them for the best-off, but the House Budget blueprint appears to have accomplished this.

Nevada Gov. Brian Sandoval will make his case for expanding the state’s business license fee before a joint legislative committee on Wednesday. The governor wants to change the fee from a flat rate of $200 per year to a tiered system with rates from $400 to $4 million per year, with a company’s revenue and industry type determining the fee level. Sandoval argues that the change is necessary to support investments in K-12 education throughout the state.

Rhode Island Gov. Gina Raimondo’s budget proposal received positive reviews last week for its emphasis on job creation and education. Notable tax changes include a two-step increase in the state’s Earned Income Tax Credit (EITC) and a targeted tax exemption on social security income for couples who make up to $60,000. An ITEP analysis shows that all of the benefits of the governor’s proposed social security exemption would go to seniors in the bottom 80 percent of the state’s income distribution, whereas a rival plan to exempt all social security income from taxes would deliver half its benefits to the top 20 percent. To help raise revenue, Gov. Raimondo also proposed a new property tax on second homes worth over $1 million, as well as increases in the cigarette excise tax and taxes for online rental companies.

The Montana House of Representatives failed to override Gov. Steve Bullock’s veto of HB166, a bill that would have cut income taxes. Under the proposal passed by the legislature, income tax rates would have been reduced by 0.2 percentage points across all brackets. Opponents of the bill argued that the state already faces a $47 million deficit and that most of the benefits of the income tax cut would accrue to high-earners; almost 50 percent of the cuts would have gone to the top ten percent of Montanans. Gov. Bullock also pointed out that “the experience of other states shows that decimating your revenue base to benefit large corporations and the wealthiest individuals does not work to stimulate the economy.” A smattering of other tax cut proposals are still making their way through the legislature, including a measure that cuts income taxes and reduces breaks for capital gains, and another that would increase the exemption allowed for business equipment.

The Oklahoma House of Representatives, by contrast, voted to allow a scheduled income tax cut to proceed despite facing a $611 million budget deficit. The tax cut will reduce the top income tax rate from 5.25 to 5 percent beginning in January 2016. After that, if revenue conditions are met, the tax rate will fall to 4.85 percent in 2018. Since the Oklahoma Tax Commission says the state will lose $404 million in revenue from 2016 to 2018 due to the cuts, that’s a big “if.” ITEP data show the tax cut will put an average of just $29 back into the pockets of middle-income households, while the top 1 percent of Oklahoma earners will get an average benefit of $2,009 each.

A bill that would cut income taxes in Arizona if online shoppers lose their ability to evade sales taxes passed in the House after being defeated twice in the same chamber.  Sponsored by state Rep. J.D. Mesnard, the income tax cut proposal will only go into effect if Congress passes the Marketplace Fairness Act (which has little chance of happening soon).

Following Up
Massachusetts: Gov. Charlie Baker’s budget faces a tough road in the legislature; Senate President Stanley Rosenberg has said it fails to “invest in the future,” while other state officials have claimed that the cuts proposed by the governor would endanger everything from the lottery to elections.

Texas: The budget drafted by leaders of the state’s House Appropriations Committee reportedly includes more money for public schools than the Senate budget does. The Senate plan would cover additional costs from surging school enrollment, but would direct more revenue to tax cuts than the House proposal.

South Carolina: A Senate panel headed by Sen. Ray Cleary approved a bill that would increase the gas tax by 20 cents over five years and index the tax to inflation. The measure is expected to be vetoed by Gov. Nikki Haley, who has said she will not approve an increase in the gas tax unless it’s paired with a big cut in the state’s income tax.

States Ending Session This Week:
New Mexico (Saturday)

Having roundly ignored President Barack Obama’s budget proposal for fiscal year 2016 when it was introduced in February, Republican leaders in the House of Representatives are poised to introduce their own budget blueprint next week. The big question is whether new Budget Committee Chair Tom Price (R-GA) will follow in the footsteps of outgoing Chair Paul Ryan, who in recent years made a habit of releasing budget blueprints that were all hat and no cattle.

Ryan’s plans typically called for taking bold steps to reduce the federal budget deficit by eliminating tax “loopholes,” but were utterly silent on the question of whose ox should be gored in this process. By answering the easy questions (how far income tax rates should be cut) and refusing to even touch the hard ones (which loopholes should be closed), Ryan’s budget plans made budget-busting, highly regressive tax proposals the main topic at budget time each year.

Representative Price now has a valuable opportunity to depart from Ryan’s irresponsible approach to budgeting. If the committee’s new leaders are truly committed to achieving deficit reduction in a sustainable way, Price’s plan should:

1) Answer the hard questions first. Cutting income tax rates is simply not affordable unless congressional tax writers can first put together a well-defined plan for eliminating specific tax breaks, rather than vaguely calling for “closing loopholes.”

2) Raise new revenues through corporate tax reform. Our corporate tax raises less, as a share of the economy, than almost every other developed democracy. Corporate tax reform is of vital importance—but it must be done in a way that focuses on eliminating unwarranted tax breaks and increasing the yield of the tax. Revenue-neutral tax changes would miss an important opportunity to restore our nation’s fiscal balance.

3) Don’t leave states—and drivers– in the lurch. Last year’s House Budget plan was silent on how to deal with the looming shortfall in the Highway Trust Fund, the nearly-depleted funding source that is supposed to pay for repairs and improvements to our vital, but crumbling, highway system. By refusing to take the obvious step of increasing the federal gas tax for the first time in two decades, Ryan’s budget forced states to fend for themselves in their efforts to maintain roads and highways.

This is the third post in our series outlining state tax trends being debated during 2015 legislative sessions.  Our previous two posts focused on tax shifts and tax cuts.

MARCH 19 UPDATE: The list of states has grown to ten now that a 6 cent increase was signed into law in South Dakota (taking effect April 1).  Utah is poised to become the eleventh state once Governor Herbert signs a bill raising the tax by 5 cents and tying it to gas prices (effective January 1)..

A little over a month ago, we identified a dozen states seriously considering raising their gas taxes in 2015 to better fund their deteriorating transportation infrastructure.  Since then, Iowa lawmakers enacted and implemented a 10-cent increase in gas and diesel tax rates, effective March 1.  Iowa’s step forward makes it the ninth state to either raise or reform its gas tax in just over two years.  Starting with Wyoming’s approval of a 10-cent gas tax hike in February 2013, we’ve seen gas tax increases or reforms enacted in jurisdictions as varied as Maryland, Massachusetts, New Hampshire, Pennsylvania, Rhode Island, Vermont, Virginia, the District of Columbia, and now Iowa.  We expect that this list will grow by the time states’ 2015 legislative sessions come to a close.

The Leaders: Aside from Iowa, these six states have made the most progress toward gas tax reforms or increases this year by passing a bill through at least one legislative chamber.

• The Georgia House overwhelmingly approved a bill that reforms the gas tax by indexing it to rise alongside both inflation and fuel efficiency, as we’ve recommended in the past.  Now attention shifts to the Senate.
• Michigan lawmakers have approved gasoline and sales tax increases, but we’ll have to wait until May 5 to see if voters sign off on those changes.
• In North Carolina, the Senate passed a bill that would raise the state’s tax on wholesale gas prices from 7 to 9.9 percent.  The bill would also pare back a gas tax cut scheduled to take effect this July due to falling gas prices and would prevent further declines in the future.  The House, on the other hand, approved a less sustainable bill that would not raise the wholesale gas tax rate and would only put a temporary stop to scheduled gas tax rate cuts.  For his part, Gov. Pat McCrory is assuming the Senate’s permanent gas tax “floor” will take effect to help balance his proposed budget.
• The South Dakota Senate approved the first bill filed this year (SB1), which raises the state’s gas tax by 2 cents per year.  The bill that the House is poised to vote on would put a stop to those increases after 3 years—effectively capping the increase at 6 cents per gallon.
• In Utah, both the House and Senate passed gas tax legislation this week.  The Senate bill would raise the current fixed-rate gas tax by 9 cents per gallon, while the House prefers a more sustainable reform that would allow the tax to rise alongside gas prices in the future.
• And in Washington State, the Senate approved an 11.7 cent gas tax hike, phased in over three years.

Other Developments: While the gas tax debate hasn’t advanced quite as far in these seven states as of yet, each still has a real shot at reform in 2015.

• Discussions of a gas tax increase in Idaho are ongoing.
• Kentucky lawmakers may not be talking about boosting the tax that drivers currently pay at the pump, but there is a lot of interest in stopping a 5.1 cent tax cut scheduled to take effect on April 1 as a result of falling gas prices.
• Following Governor Jay Nixon’s urging that Missouri legislators consider raising the state’s 18 year old gas tax rate, at least two bills have been filed doing exactly that.
• Nebraska’s unicameral legislature is giving serious thought to a 6-cent gas tax hike that’s being pushed by a lawmaker with a reputation for being a tax-cutting conservative.
• Influential lawmakers in New Jersey are continuing to talk about raising the gas tax, but Gov. Chris Christie and some legislators are indicating that tax increases are off the table.  Not much has changed since our last post on the subject, but there is still talk that anti-tax politicians may change their tune if a gas tax hike on New Jersey drivers is paired with tax relief for heirs to large fortunes, in the form of repeal of the state’s estate tax.
• South Carolina lawmakers are having ongoing discussions over plans to enact a flat gas tax hike, or to reform the tax to rise alongside inflation or gas prices.  Unfortunately, Gov. Nikki Haley is continuing to insist that any reform to the state’s severely outdated gas tax rate should be paired with an even larger cut in the state’s personal income tax—a rare progressive feature of a tax system that already tilts in favor of high-income taxpayers.  South Carolinians, however, appear to be less hung up on the idea of tying a personal income tax rate cut to gas tax reform.  As long as South Carolina’s gas prices stay lower than in neighboring states, most South Carolinians support raising the gas tax to fund infrastructure repairs.
• Vermont is considering to a 2-cent gas tax increase that would help offset the costs associated with cleaning up roadway run-off into the state’s waterways.

The Procrastinators: The chances of gas tax reform this year have dimmed somewhat in at least two states that we initially saw as likely reformers.

• A sizeable budget surplus in Minnesota has reduced the some lawmakers interest in raising the gas tax.  Minnesota House leadership now says that transportation needs can be met with existing revenues, at least this year.
• Tennessee Gov. Bill Haslam thinks that gas tax reform is needed, but says that he won’t be ready to put in the effort needed to pursue that reform until next year. 

For more information on state gas taxes, take a look at the new gas tax section of ITEP’s website.

The head of a consortium of businesses that includes multiple profitable companies that consistently pay no or abysmally low federal taxes has been tapped to testify Wednesday at a Senate Budget Committee hearing on the “Benefits of a Balanced Budget.”

Former Michigan Gov. John Engler heads the Business Roundtable and is the hearing’s lead witness. It’s not clear whether the long-term decline of our corporate income tax—and the budget deficits this decline has helped create—will be a topic of conversation at the hearing, but if it comes up it’s pretty clear what Engler will say. The Roundtable has been among the loudest voices calling for cutting the corporate tax rate from its current 35 percent. We have noted previously that the Roundtable’s position is based on erroneous claims that U.S. corporations are paying uncompetitively high tax rates domestically.

Yet it’s hard to see just what the Roundtable members have to complain about. One prominent member of the Roundtable is Xerox, a company that has long featured prominently in our regular surveys of Fortune 500 corporate tax avoidance. As it happens, Xerox released its 2014 financial report last week. The report suggests that Xerox shouldn’t be too worried about our corporate tax rate being too high, since it has been phenomenally successful at avoiding it. The company reported $629 million in pretax 2014 U.S. earnings, and it didn’t pay a dime in federal income tax on those profits. In fact, the company received a tax rebate of about $16 million last year.

And 2014 was no anomaly. Over the past five years, the company has paid an effective tax rate of just 5.4 percent on $3.6 billion in U.S. profits.

Xerox is not alone in undercutting the Roundtable’s case for corporate tax cuts. Our February 2014 magisterial survey of tax avoidance by profitable Fortune 500 corporations found that the Business Roundtable’s membership is riddled with tax avoiders: American Electric Power paid zero income taxes in three of the five years between 2008 and 2012. FedEx had two zero-tax years in the same period, as did Honeywell and International Paper. General Electric avoided all income taxes in three of five years. Goldman Sachs only managed to zero out its income taxes in one of five years—still an impressive feat given that in their zero-tax year, it reported $4.8 billion in U.S. profits. And Boeing and NextEra Energy topped them all by paying no income tax in four of five years, despite being consistently profitable in each of those years.

Few would disagree with the idea that deficit reduction is a worthy goal. But John Engler and the Business Roundtable seem not to realize that their tax avoidance is a real impediment to achieving this goal. One can only hope that the Senate Budget Committee can convince them to help achieve the “Benefits of a Balanced Budget” by actually paying their fair share of income taxes.