Author: tarek

A new brief from Citizens for Tax Justice explains how Rep. John Delaney’s (D-MD) new repatriation bill let’s companies escape paying their fair share in taxes:

“On Dec. 12, 2014, Rep. John Delaney (D-MD) proposed a new version of his “repatriation holiday” tax plan. The latest version would require multinational corporations to pay a token amount of taxes on their accumulated offshore profits and exempt those profits from any further U.S. income tax.

Delaney’s new plan differs from his previous proposal, which would have allowed corporations to choose to pay a small tax on their offshore profits in exchange for tax-exemption in the future.

The biggest problem with Delaney’s repatriation proposal is that it would allow companies such as Apple and Microsoft, which have parked hundreds of billions of dollars of U.S. profits in offshore tax havens, to pay a U.S. tax rate of no more than of 8.75 percent, instead of the more than 30 percent tax they should pay on these profits.”

Read the Full Brief

Who said tax reform was a dead letter in the nation’s capital? With President Barack Obama’s State of the Union address still a day away, it’s already clear that the President will make income tax reform a major talking point. A preliminary description released to the media over the weekend gives the broad outlines of a tax plan that would take important steps towards eliminating the special capital gains tax breaks currently enjoyed by the best-off Americans, while imposing a new tax on the assets of the largest, “too big to fail” financial institutions. Initial indications are that Obama proposes to use most, but not all, of the resulting new revenues to cut income taxes for middle- and low-income families. While some additional details will likely emerge in the wake of tomorrow night’s speech, the emerging picture is of a tax plan that would take a moderate step toward deficit reduction, and a major and welcome move toward greater fairness in our federal tax system.

Twin Capital Gains Tax Reforms Would Mean Major Tax Fairness Gains

The centerpiece of Obama’s plan is a proposal to raise substantial new revenues by closing the long-lamented, and rarely defended, “stepped up basis” rule for capital gains. Stepped up basis means that when stocks and bonds (among other assets) are not sold during the owner’s lifetime, no income tax will ever be paid on the (unrealized) capital gains income created during the owner’s lifetime. When the heirs who are gifted these capital assets sell them, they will pay not a dime of tax on the often-huge capital gains that accrued prior to the time they inherit.

Obama’s proposal would treat the transfer of these untaxed capital assets to heirs as a potentially taxable event. This sensible step would remove what is called the “lock-in effect” of the current system, which encourages wealthy owners of capital assets to hold on to them until death to avoid paying tax on their (unrealized) capital gains. Notably, the proposal would actually leave stepped-up basis intact for many heirs of smaller estates, since it would allow capital gains of up to $200,000 to be passed on tax-free for a married couple (half that for a single taxpayer). On top of this, the proposal would allow a $500,000 exemption for the value of homes passed on to heirs. While complete elimination of stepped-up basis would be a more straightforward and welcome reform, the half-step toward reform taken in Obama’s draft plan would sharply curtail one of the least justified tax dodges in existence today.

Taken on its own, ending stepped-up basis is only a starting point toward the laudable goal of taxing wealth like work. This is because even repealing stepped up basis would leave intact the stark difference in the top income tax rate on wages (currently 39.6 percent) and capital gains (20 percent). Happily, Obama’s draft proposal would mitigate (but not eliminate) this tax break by increasing the top tax rate on capital gains and dividends to 28 percent.

Tax on “Too Big to Fail” Financial Institutions

The President’s plan includes one other substantial revenue raiser: a low-rate tax on the value of the assets of a handful of the biggest financial institutions.  This idea, like a similar plan included in Obama’s budget proposal from last year, would serve the twofold purpose of recovering taxpayer money used by the Bush administration to bail out financial institutions and reducing the excessive risk-taking that necessitated the bailout.

Achieving Vital Anti-Poverty Goals

The President’s plan would use some of the new revenues from these tax hikes to fund needed expansions of two targeted tax credits for working families: the Earned Income Tax Credit and the $1,000-per-child tax credit (CTC).  Both the EITC and CTC are set to be reduced at the end of 2017, as temporary expansions pushed through by President Obama will expire at that time. Obama proposes to make these tax cuts permanent, and reiterates his proposal to expand the EITC for the childless workers who currently benefit least from the credit. Each of these steps, which Congress has discussed ad nauseam in the past year but has refused to enact, would provide needed relief to working families below or near the poverty line: collectively, these changes would mean a real victory for those seeking to use the tax code to help end poverty.

Other Middle-Income Tax Cuts

Obama’s plan would also create a tax credit available only to two-earner couples in which both spouses work. The credit would equal 5 percent of the lower-paid spouse’s first $10,000 of earnings, for a total tax break of up to $500, and would be unavailable to those couples earning over $210,000. Obama would also increase tax credits for families with dependent care expenses, and would simplify the array of tax breaks available to offset families’ higher education expenses.

The President’s tax proposal, as outlined this weekend, appears less ambitious than some would have hoped– after a year in which shameless corporate tax avoidance was constantly in the headlines, loophole-closing corporate tax reforms should be a centerpiece of any tax reform plan–but in the current political context, it’s certainly more than many observers expected.

Newly-elected Arkansas Gov. Asa Hutchinson continued a well-established tradition in the Natural State by beginning the legislative session with a proposed tax cut. Hutchinson’s plan would cut personal income tax rates by one percent for those making $21,000 to $75,000 a year, and would cost $137.8 million once fully implemented (according to Hutchinson’s office). The governor has yet to outline how he will pay for his tax cut. His plan will offer virtually no relief to the 40 percent of Arkansans who make less than $22,600 and currently pay a percentage of their income in state in local taxes that is twice as high as that paid by the wealthiest Arkansans, according to the most recent edition of ITEP’s Who Pays report. Legislators predicted that the cuts would receive broad bipartisan support.

North Carolina lawmakers began their legislative session yesterday with the usual pledges of bipartisanship meant to muffle the sharpening of knives. The state’s Republican legislature could face a showdown with Gov. Pat McCrory over Medicaid expansion, a policy that the governor now says he is open to considering. At their traditional press conference, the leaders of the House and Senate reiterated their opposition to expanding Medicaid to cover 500,000 additional North Carolinians, but were non-committal on other issues likely to dominate the session – business incentives, teacher pay and local taxes, among others. Senate President Pro Tem Phil Berger defended previously enacted corporate and personal income tax cuts, saying they are contributing to an improving economic environment despite revenue collections falling $190 million below state projections. This is after state projections were already adjusted downward by close to the same amount last year, so the state is actually bringing in $400 million less than originally anticipated.

Georgia Gov. Nathan Deal urged lawmakers to find money to invest in the state’s transportation system, saying $1 billion was needed to simply maintain the current system. While the governor did not specify where the funding should from, he highlighted the inadequacy of the state’s gasoline excise tax, signaling his openness to a tax increase. Georgia’s excise tax has not increased since 1971, while fuel efficiency has almost doubled. The prospect of a transportation plan passing the legislature is dicey; Republicans are likely to oppose increasing taxes or fees, while Democrats could balk at a plan that doesn’t include funding for mass transit. Democrats enjoy leverage on the issue since their votes could be necessary to overcome Republican opposition.

Following Up:

Arizona – A judge ordered lawyers for the Legislature, governor and Arizona public schools to enter into settlement talks over a lawsuit brought by the schools against the state. Gov. Ducey previously called for a resolution in his State of the State address.

New Jersey – Gov. Chris Christie’s State of the State address received mixed reviews for being light on details (the governor did not mention his state’s transportation crisis and punted on unfunded pension liabilities) and targeted toward a national audience. Christie did, however offer dissonant platitudes about the need to make investments and also cut taxes. Perhaps next he will boldly declare his intention to rub his tummy and pat his head at the same time.

Nebraska – The Nebraska Cattlemen Association is monitoring the property tax cut proposals emerging in the legislature after Gov. Pete Rickett’s pledge to offer Nebraskans property tax relief in his State of the State address. They have shown particular interest in Sen. Al Davis’ plan to pay for property tax relief through new local income taxes.

Tennessee – As predicted, plenty of legislators hate Gov. Bill Haslam’s plan to expand Medicaid coverage to 200,000 Tennesseans. House Republican leader Gerald McCormick is particularly unenthused, saying he would sponsor the governor’s bill but only because it’s his job (cue heavy sighing and eye-rolling).

Things We Missed: 

New Mexico’s Legislative Finance Committee and Gov. Susana Martinez both released their budget proposals this week. State revenues are expected to continue sliding due to falling oil prices, and less generous spending is expected. (Thanks to Ellen Pinnes for the tip!) 

Welcome to the State Rundown, your source for the latest in state tax policy! This week, 21 states begin their legislative sessions, including a number of states where newly-elected conservative governors will have to grapple with big budget deficits. Presidential contenders Scott Walker and Chris Christie will deliver highly-anticipated State of the State addresses as well. Here are the top stories we’ll be following this week:

Arizona Gov. Doug Ducey, who campaigned on a pledge to cut income taxes, will likely shift his focus from tax cuts to spending cuts in his State of the State address today. His pledge last week not to raise taxes in his inaugural address was widely seen as a concession that promised tax cuts were untenable given the state’s $500 million deficit this fiscal year and projected $1 billion shortfall in FY 2016. Ducey will instead announce a statewide hiring freeze and his intention to push for a resolution to a long-standing school funding dispute.

New Jersey Gov. Chris Christie will attempt to use his State of the State address to stop his recent slide in the polls and seize the initiative on two issues that threaten his legacy – public employee pension reform and transportation funding. So far the governor has been mum about the contents of his speech, but New Jersey political watchers anticipate Christie will defend his decision to cut back on promised payments to state pension plans. A bipartisan commission appointed by the governor has yet to release recommendations on how to deal with tens of billions of dollars in unfunded health benefits and pension liabilities. Christie must also contend with a nearly insolvent transportation fund that will go broke in July without additional funding. Some observers speculate that the governor will call for a state gas tax increase, which, after adjusting for inflation, is currently at its lowest level in history.

Gov. Pete Ricketts of Nebraska, who identified property tax cuts as his first priority in his inaugural address last week, may also welcom efforts in the legislature to push for income tax cuts as well. Business leaders in the state have made it clear that income tax cuts are their main concern, and the state’s projected budget shortfall makes it unlikely Nebraska could afford both property tax cuts and income tax cuts. The release of the Governor’s budget this week will provide more details on his vision for tax cuts. Proposals already circulating in the legislature include reducing the taxable value of agricultural land, capping property taxes, taxing land based on profit generated instead of market value, or increasing the size of the state’s property tax credit fund.            

Tennessee Gov. Bill Haslam could be a victim of his party’s success in the last election, as conservative state lawmakers could push the governor farther to the right than he would like during the legislative session that starts this week. Republicans enjoy supermajorities in both houses of the state legislature, and some lawmakers plan to push to cut or eliminate the Hall Tax over the governor’s objections. The Hall Tax is a six percent tax on income from dividends, interest and capital gains – and a rare progressive feature in a tax system that leans overwhelmingly on the poor. Haslam has repeatedly rebuffed calls from conservative groups to push for repeal, arguing that the $300 million in revenue gained from the tax each year would be difficult to replace. His stance could be complicated, however, by his push to have Tennessee accept Medicaid expansion under his Insure Tennessee plan. Expansion could bring $1.14 billion in new spending and 15,000 jobs to Tennessee, but is a lightning rod among conservatives who oppose the Affordable Care Act. The governor could decide that he lacks the political capital to fight for Insure Tennessee and the Hall Tax at the same time.

States Starting Session This Week:
Arkansas
Arizona
Colorado
Delaware
Georgia
Idaho
Illinois
Iowa
Kansas
Maryland
Minnesota
North Carolina
South Carolina
South Dakota
Tennessee
Texas
Utah
Virginia
Washington
West Virginia
Wyoming

State of the State Addresses This Week:
Arizona Gov. Doug Ducey (watch here)
Idaho Gov. Butch Otter (watch here)
Indiana Gov. Mike Pence (Tuesday)
Iowa Gov. Terry Branstad (Tuesday)
New Jersey Gov. Chris Christie (Tuesday)
South Dakota Gov. Dennis Daugaard (Tuesday)
Washington Gov. Jay Inslee (Tuesday)
Wisconsin Gov. Scott Walker (Tuesday)
Georgia Gov. Nathan Deal (Wednesday)
West Virginia Gov. Earl Ray Tomblin (Wednesday)
Wyoming Gov. Matt Mead (Wednesday)
Colorado Gov. John Hickenlooper (Thursday)
Kansas Gov. Sam Brownback (Thursday)
Nevada Gov. Brian Sandoval (Thursday)
Vermont Gov. Peter Shumlin (Thursday) 

Governor’s Budgets Released This Week:
Idaho Gov. Butch Otter (Monday)
West Virginia Gov. Earl Ray Tomblin (Wednesday)
Nebraska Gov. Pete Ricketts (Thursday)
Nevada Gov. Brian Sandoval (Thursday)
Rhode Island Gov. Gina Raimondo (Thursday)
Vermont Gov. Peter Shumlin (Thursday)
Arizona Gov. Doug Ducey (Friday)

Happy New Year and welcome back to the State Rundown, your statehouse insider and source for all things state tax policy related. We’ll provide a preview of the week’s big debates every Monday afternoon, as well as a follow-up post on Thursday afternoons. Eighteen states began their legislative sessions this week, so let’s hit the ground running!

California Gov. Jerry Brown was sworn in Monday to a history-making fourth term, delivering his annual State of the State speech at the state Capitol in Sacramento. Brown touted his success in leading California through the Great Recession, turning a severe budget deficit into surplus and presiding over impressive economic growth. However, budget fights over the state’s high speed rail project and temporarily enacted sales and income tax increases, set to expire in 2018, loom this session.

North Dakota Gov. Jack Dalrymple struck a defiant tone in his State of the State address Tuesday, despite the threat to his spending plans posed by the continuing slide in oil prices. The governor announced plans to increase state support for counties by $1 billion and pledged to make further tax cuts a priority this legislative session. Since 2009, North Dakota has cut taxes by $4.3 billion, and some lawmakers are pushing to eliminate the state income tax. A property tax reform measure has a likelier chance of passage, however.

Lawmakers in the Rhode Island House of Representatives want to pass a major and costly tax cut for Ocean State retirees. Yesterday, a bill was introduced to exempt all state, local and federal retirement income, including Social Security benefits and military pensions, from the state’s personal income tax. An initial ITEP analysis of the bill found that the lion’s share of the benefits would go to well-off elderly taxpayers.  Since some social security income is already exempted from Rhode Island taxes, fixed-income seniors already owe no personal income taxes on those benefits and often have no other retirement income. 

The bad economic news keeps coming for Kansas Gov. Sam Brownback. A recent report from the Bureau of Labor and Statistics on employment growth in metropolitan areas shows that the governor’s tax cuts have failed to produce jobs – in fact, Kansas City, Missouri added jobs at four times the rate of Kansas City, Kansas, right across the state line. Back in 2012, Gov. Brownback promised Johnson County business leaders that steep tax cuts would draw economic activity from Missouri. In another setback for the governor (and victory for Kansas schoolchildren), a state judicial panel ruled that Kansas inadequately funds public schools. The ruling could mean that state leaders need to pony up another $548 million in school funding when they already face a $1.1 billion deficit. Of course, these are self-inflicted wounds that could be reversed through a prudent fiscal policy.

Newly-elected Illinois Gov. Bruce Rauner is on a gloom-and-doom tour, hoping to drive home just how terrible his state’s finances are and prepare voters for the worst. The governor will inherit a budget short by $1.4 billion, and some state agencies are expected to run out of money in a month. The state’s budget deficit is expected to almost double to $12.7 billion. Rauner, who ran on a platform of lower taxes and higher school spending, has his work cut out for him. A temporary income tax increase is slated to expire this month, which will mean $5 billion less in revenue for a state that desperately needs it.

States Starting Session this Week:
California
Connecticut
Indiana
Kentucky
Massachusetts
Minnesota
Mississippi
Missouri
Montana
Nebraska
New Hampshire
New York
North Dakota
Ohio
Pennsylvania
Rhode Island
Vermont
Wisconsin

State of the State Addresses this Week:
California Gov. Jerry Brown (watch here)
North Dakota Gov. Jack Dalrymple (watch here)
Maine Gov. Paul LePage (watch here)
Connecticut Gov. Dannel Malloy (watch here)

Governor’s Budgets released this Week:
California Gov. Jerry Brown (Friday)
Maine Gov. Paul LePage (Friday)

The new budgetary mantra of the House GOP appears to be: if you can’t make the math add up, change the rules of math.

On Tuesday the House did exactly that with its passage of a  new rule requiring the non-partisan Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) to use “dynamic scoring” rather than static scores for official cost estimates on proposed tax changes. Dynamic scoring is a controversial method of assessing the effect of tax cuts. It allows lawmakers to claim that a tax reform proposal is revenue neutral, even if it would lose revenue under a conventional score. House Republicans embrace the method because they can claim tax cuts pay for themselves, rather than increasing the deficit or making it even more difficult to raise enough revenue to fund basic priorities. The ability to obscure the true cost of tax cuts could prove especially appealing to incoming Chairman of the Ways and Means Committee Paul Ryan, who has long proposed steep tax cuts for the rich, while at the same time calling for massive cuts to programs for low- and moderate-income people.

The idea behind dynamic scoring is that, in addition to accounting for the behavioral impacts of a given piece of legislation which is included in a static estimate, budget estimates should include the overall impact on the economy. The problem is that there is just too much uncertainty about the overarching economic impact of individual pieces of legislation, which is why this has not been included historically as part of single-point budget estimates.

The high level of uncertainty in these estimates is demonstrated by the fact that when JCT was asked to do a dynamic score of former Rep. Dave Camp’s tax-reform bill, they estimated that the legislation could increase GDP anywhere from 0.1 percent to 1.6 percent during its first decade, meaning that there was a 16-fold spread between its high and low estimates. What drove this extreme level of variability between JCT’s different estimates were changes in the whole host of assumptions that go into modeling the legislation’s impact. Based on this, one of the biggest potential problems with dynamic scoring is that it could politicize the estimate process by allowing more space for estimators to make politically motivated assumptions in their economic modeling.

Advocates of tax cuts intend to use dynamic scoring to push the thoroughly debunked supply-side economics idea that tax cuts pay for themselves. In reality, even President George W. Bush’s own Treasury Department rejected this idea when it found that his massive tax cut package might make no difference at all on growth over the long term.

Looking forward, it remains to be seen just how JCT and CBO will respond to this new requirement and what kind of assumptions they will use in estimating the dynamic impact of future legislation. Let’s hope that they are allowed to remain a bulwark against fiscally irresponsible tax cuts, rather than being used to lend faux creditably to supply-side claims.

Residents of 10 states will see their gasoline tax rates change on Jan. 1, but the direction of those changes is decidedly mixed.  Five states will raise their gas tax rates when the clock strikes midnight, while the other five will cut theirs, at least for the time being.

Among the states with gas tax increases are Pennsylvania (9.8 cents), Virginia (5.1 cents), and Maryland (2.9 cents).  Each of these increases is taking place as scheduled under major transportation finance laws enacted last year.

North Carolina (1 cent) and Florida (0.3 cents) are also seeing smaller gas tax increases as a result of formulas written into their laws that update their tax rates each year alongside inflation or gas prices.

The states where gas tax rates will fall are Kentucky (4.3 cents), West Virginia (0.9 cents), Vermont (0.83 cents), Nebraska (0.8 cents), and New York (0.6 cents).  Each of these states ties at least part of its gas tax rate to the price of gas, much like a traditional sales tax.  With gas prices having fallen, their gas tax rates are now falling as well.

While some drivers may be excited by the prospect of a lower gas tax, these cuts will result in less funding for bridge repairs, repaving projects, and other infrastructure enhancements that in many cases are long overdue.  Because of this, Georgia Governor Nathan Deal recently signed an executive order preventing a gas tax cut from taking effect in his state on January 1.  And Kentucky is considering following Maryland and West Virginia’s lead by enacting a law that stabilizes the gas tax during times of dramatic declines in the price of gas.

But while states such as Kentucky may struggle to fund their transportation networks in the immediate wake of these tax cuts, these types of “variable-rate” gas taxes are still more sustainable than fixed-rate taxes that are guaranteed to become increasingly outdated with every passing year.  To that point, here are the states where gas tax rates will be reaching notable milestones of inaction on Jan. 1:

• Iowa, Mississippi, and South Carolina will see their gas tax rates turn 26 years old this January.  Each of these states last increased their gas taxes on January 1, 1989.  
• Louisiana will watch as its gas tax rate hits the quarter-century mark.  Its gas tax was last raised on January 1, 1990.  
• Colorado’s gas tax rate will “celebrate” its 24th birthday on New Years Day, having last been increased on January 1, 1991.
• Delaware will become the newest addition to the 20+ year club as it “celebrates” two decades since its last gas tax increase on January 1, 1995.

Gas tax rates need to go up if our infrastructure is going to be brought into the 21st century.  Jan. 1 may be a mixed bag in that regard, but it’s increasingly likely that things could change soon as debates over gas tax increases and reforms get under way in states as varied as Georgia, Idaho, Iowa, Michigan, New Jersey, South Dakota, Tennessee, Utah, and Wisconsin.

A long time will pass before we forget the unintentionally ironic signs held up a few years ago during health care reform protests that read, “Keep Government out of Medicare.” The signs would have been humorous if they didn’t betray a deep disconnect between public services we all rely on and the tax system that makes them possible. And in truth, that disconnect is what makes talking taxes a tough sell at times. But we persist.

As highlighted in other blog posts, 2014 yielded state  tax fairness victories and some setbacks. Federal tax policy, unfortunately, continues to be an uphill battle as we face well-heeled lobbyists who are just as invested in reducing taxes for the wealthy and corporations as we are in pursuing fair tax policies that raise enough revenue to meet the nation’s critical priorities.

Supply Side Theory Debunked

Real-live experiments and expert analyses have repeatedly debunked supply side theories, including a May analysis by ITEP. Our targeted work in states helped beat back harmful tax proposals, including producing analyses of various state tax cut proposals that would disproportionately benefit businesses and the wealthy. In Tennessee, for example, a Grover Norquist/Koch brothers-backed effort to abolish the Hall tax, a state tax on capital gains and dividends, fortunately failed. The proposal would have been a boon to the state’s richest residents while starving local governments of resources necessary for essential public services, not to mention it would have made Tennessee’s tax system more regressive than it already is. 

We were among the first to raise the alarm in 2012 (and continued to do so through 2014) with analyses highlighting the negative short– and long-term implications of drastic tax cuts Kansas Gov. Sam Brownback’s showered on the wealthy and business. It remains important to keep up the drumbeat about the negative effects of top-heavy tax cuts since this trend is not unique to prairie and southern states. Ohio, Missouri, North Carolina and Wisconsin, to name a few, are all states that explored lopsided tax cuts in 2014.

The Gas Tax Needs Reform

The notion that there’s only an upside to tax cuts and no long-term implications (failure to raise enough revenue to fund critical priorities) makes a bitter pill for some to swallow when our analyses conclude that certain taxes should be raised. The federal gas tax, currently 18.3 cents a gallon, has remained at the same level since 1993, the first year of the Clinton Administration. And many states also have outdated gas taxes.  The tax is a critical source of funding for our nation’s transportation system, yet the tax is fundamentally flawed.

Corporate Tax Dodging

Our corporate tax is also deeply flawed because it allows profitable corporations to get away with paying little or no tax, depriving the nation of revenue necessary to adequately fund programs and services. The $2 trillion that corporations are stashing offshore, avoiding about $550 billion in taxes, is cause enough to call for closing loopholes in our tax code.

After pharmaceutical giant Pfizer and, later, major drug store chain Walgreen Co. announced plans to undergo corporate inversions, CTJ rang the alarm bells. These deals, of course, are a farce as they involve U.S.-based multinationals merging with or purchasing smaller foreign-based corporations and then filing paperwork and claiming they are no longer based in the United States. Pfizer’s deal ultimately failed and Walgreen reversed its decision in no small part due to public pressure. But other companies, including Burger King and Medtronic finalized deals.

While some members of Congress introduced legislation to stop this practice, it failed to gain any real traction. Eventually the Treasury Department announced a rule intended to prevent some inversions, but, as we noted, a rule helps but is not enough. A company’s decision to invert usually comes after a long history of tax dodging.

Even if the United States is not yet cracking down on corporate tax dodgers, foreign entities are beginning to scrutinize major corporations. The International Committee of Investigative Journalists released two major reports that highlighted how Luxembourg, one of 12 notorious tax havens, enables corporate tax dodging.

Giving Away the Store to Corporations

A piece of tax legislation that members of Congress managed to agree upon, however, was a $42 billion giveaway to corporations passed just before members adjourned. The bill mostly benefits business but includes some token giveaways to middle-class people that allow lawmakers to put the patina of middle-class tax breaks on it. The bill began as an $85 billion measure, then a $450 billion measure until it took its final form. Unfortunately, we’ll get to see this play out all over again in 2015 since the bill was largely retroactive and expires Dec. 31, 2014.

The Way Forward

The decisions that federal and state lawmakers make regarding taxes deserve scrutiny, particularly in this era of widening income inequality. The rising tide of public anger over corporate tax dodging and the abject failure of supply side experiments in states like Kansas lead us to hope that our continued fight for tax justice will lead to fairer tax policies in 2015 and beyond.

The holiday season is a time for good cheer, family togetherness, and pointless political arguments with your dearest loved ones over dinner and that fifth glass of red wine. These internecine battles are even worse when your great uncle revels in the minutiae of healthcare finance and your second-cousin just scored a fellowship at a tax policy think-tank. (Note: I apologize in advance to my family for ruining the mood with an extended discussion of economic development incentives.)

The best way to avoid a lengthy discursion on the merits of the Export-Import Bank is to buy your wonky relatives a gift good enough to buy you a few hours’ peace. Luckily for you, the nerds at ITEP have compiled this holiday guide to make your life easier!

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We Are Better Than This: How Government Should Spend Our Money ($24 on Amazon): “Edward Kleinbard is one of the foremost expects in tax and budget policy, and his new book is definitely one of the best policy books released this year. While I do not agree with everything, the book provides a crucial picture of America’s fiscal state and thoughtfully lays out how lawmakers could create a more economically efficient and financially responsible government.” – Richard Phillips

Making Piece: A Memoir of Love, Loss and Pie and Ms. American Pie: Buttery Good Pie Recipes and Bold Tales From the American Gothic House ($19 and $21 on Amazon, respectively): “Seems like we are always fighting over the same revenue pie – education needs their slice, economic development, health and human services too. In that vein, I recommend these two books by author Beth Howard. The former talks about how pie making helped Beth deal with complicated grief following the death of her husband just hours before divorce papers were to be signed, and the latter is a book of her pie recipes. Howard makes a very convincing case that the world would be a better place if more people baked and shared pie together. Here’s hoping that as legislative sessions start there are more conversations about making the revenue pie bigger, and that folks from both sides of the political spectrum come together to enjoy some homemade goodness.” – Kelly Davis

 The Tax Shelter Coloring Book (How to Color Yourself Rich!) ($6 on Amazon): “Are you tired of kids coloring in the latest Disney character? Do you think that coloring should also help a family’s bottom line? If so, you need this classic coloring book in your life. It not only has lots of information about how to set up your financial arrangements for tax avoidance purposes, it also has plenty of pictures for children to color in!” – Richard Phillips

Richard Scarry’s What Do People Do All Day? ($10 on Amazon): “This book is a childhood classic, and the section on road construction can help you introduce complicated ideas around infrastructure financing to the budding policy nerd in your life.” – Rebecca Wilkins

The Settlers of Catan ($33 on Amazon): “This popular game is a perfect introduction to the world of insanely complicated German board games set in abstract agrarian economies. It is also the perfect way to start a conversation on the merits of taxing resource extraction to pay for road construction, if that’s your thing.” – Meg Wiehe

We’re Not Broke ($20 online): “There is no better overview of how multinational corporations are using their political clout and complex financial maneuvers to avoid taxes than this brilliant documentary, written and directed by Victoria Bruce and Karen Hayes. The movie dives right into how corporations like Google and Apple are able to avoid paying billions in taxes and leave everyday American taxpayers holding the bag.” – Richard Phillips

Titleist Pro V1 Golf Balls ($55 for a dozen on Amazon): “Golf balls, good novels, etc. Anything to make the wonks more human.” – Bob McIntyre

2014. It was the best of times; it was the worst of times. Our position didn’t prevail in every state, but the cause of tax justice and fairness for working families made significant gains in a number of places. Below, the best and worst tax policies of the past year:

The Best

Washington, DC takes the number one spot for enacting a progressive tax reform package this past summer. Unlike other jurisdictions that have used the guise of “reform” to cut taxes for the wealthy, the D.C. City Council cut the personal income tax rate for middle-class residents and expanded a number of provisions to assist working families, including the property tax circuit breaker and standard deduction. The council also expanded the city’s EITC for childless workers, one of the most effective strategies for lifting workers out of poverty and a longtime ITEP recommendation. The city partially paid for these reforms by broadening the sales tax base to include more services, limiting personal exemptions for better-off citizens, and making permanent its 8.95 percent income tax bracket on high-income earners.  Many additional changes are tied to revenue triggers, ensuring that the reform measures won’t wreck the city’s finances.

Washington Gov. Jay Inslee made sustainability and fairness the centerpiece of his 2015 budget proposal, announced this month. The proposal protects education spending and important services through a 7 percent capital gains tax on capital gains earnings above $25,000 per individual and $50,000 per couple. The governor also pledged to fund the state’s working families tax credit (the state’s Earned Income Tax Credit) through his proposed tax on carbon polluters, benefiting 450,000 Washington families. The proposal is the boldest by a Washington governor in some time.

Lawmakers in Minnesota and Maryland invested in provisions to give working families a lifeline. Minnesota expanded the property tax credit for homeowners and renters and increased the working family credit (the state’s EITC) and the dependent care credit. Maryland legislators expanded the refundable portion of the EITC, from 25 percent to 28 percent.

Alaska officials saw the light and decided to let their film tax credit expire five years early. The film tax credit has been notoriously ineffective in a number of states.

Vermont legislators increased homestead property taxes by 4 mills (cents per $100 of assessed value) and non-residential property taxes by 7.5 mills, while leaving rates unchanged for low and moderate-income taxpayers.

The Worst

Lawmakers in Wisconsin doubled down on their tax-cut fervor, reducing the bottom personal income tax rate from 4.4 percent to 4 percent and enacting another round of state-funded property tax cuts.

Voters in Tennessee permanently banned the state from enacting a broad-based personal income tax through a ballot measure that amends the state constitution, essentially tying the hands of future lawmakers and ensuring that the state’s tax system will remain among the most regressive in the nation.  Georgia voters approved an amendment to cap the state’s top personal income tax rate where it stands as of Jan. 1, 2015, which could lead to financial problems down the road and will prevent future Georgians from making needed investments.

Lawmakers in Missouri and Oklahoma enacted personal income tax cuts dependent on the state hitting revenue targets.  Oklahoma’s top personal income tax rate would drop from 5.25 to 4.85 percent while Missouri’s top income tax rate would drop from 6 to 5.5 percent; in Missouri, a new 25 percent exemption on pass-thru business income would be implemented.

Lawmakers in a number of jurisdictions – Washington, DC, Rhode Island, Maryland, Minnesota, and New York – increased the estate tax threshold, essentially giving the wealthiest residents in those states a huge, unnecessary tax break.

Florida lawmakers passed a hodgepodge of gimmicky sales tax holidays and exemptions for car seats, cement mixers, helmets, electricity bills, college meal plans and a host of legislator’s pet causes. The legislature also reduced the business franchise tax and cut motor vehicle fees, for a total of $500 million in lost revenue.