Author: tarek

The 113th Congress concluded by passing a $42 billion, deficit-financed tax extender bill that mostly benefits businesses. CTJ’s director Robert McIntyre’s op-ed in The Hill argues that the tax package illustrates how savvy lawmakers can enact legislation that has almost no support from the general public. 

“These temporary tax provisions are a caricature of legislative backroom dealing and corporate influence. They include a tax credit for “research” defined so loosely that it includes the development of machines by Chili’s to replace staff in their kitchens and the development of new flavors by Pepsi. They include the “active financing exception,” a tax break for the offshore lending done by companies such as General Electric, a superstar at dodging taxes even by the standards of corporate America.”

Read the full op-ed.

Kansas Gov. Sam Brownback bowed to reality yesterday and unveiled his plan to close the state’s self-inflicted budget gap. In true Sam Brownback fashion, his solution is to stiff highway projects and pensioners rather than reverse his disastrous tax cuts. The plan has been criticized by state leaders on both sides, since keeping your state’s roads in poor condition and your senior citizens poor is bad for economic development. Brownback’s proposal also includes smaller, though significant cuts for early childhood education programs, further showing the governor’s willingness to rob Kansas’s future to pay for unnecessary tax cuts today.

A new report commissioned for Wisconsin Gov. Scott Walker by his lieutenant governor claims that the state’s high taxes and complex tax code are a drag on economic growth. While no recommendations are made within it’s pages, the report’s conclusion represents a consensus among state business and political leaders who were included in the meetings. Not surprisingly, this consensus leaves out the thoughts of advocates for public services, educators and other Wisconsinites who must have missed the invitation to the 23 meetings held across the state. Walker seems to be taking a page from Indiana Gov. John Pence’s playbook, after Pence held a tax reform conference this past summer open to Art Laffer and Grover Norquist, but not the public.

Meanwhile, Maryland legislators held a hearing recently to discuss the fate of its tax incentive program for film production, after a damning report showed the program brings in only 10 cents for every dollar spent. The bulk of the $62.5 million in credits went to just two shows, “Veep” and “House of Cards.” The credits first generated controversy early this year, when House of Cards threatened to stop production in the state unless lawmakers put up more money. This crisis was averted after Kevin Spacey agreed to schmooze with lawmakers and pose for photos at an Annapolis wine bar. Frank Underwood would be proud.

A new report from the North Carolina legislature’s top economist reveals that state revenues are $190 million short of what was previously projected (this is on top of a previous downgrade in revenue availability for the year by $200 million). Fiscal experts in the state say the gap was caused by weak individual income tax collections and falling paycheck withholdings in the wake of last year’s tax overhaul. ITEP and our allies at the North Carolina Justice Center have been sounding the alarm for months over the huge tax cuts passed for the wealthy, arguing that their cost was wildly underestimated. Let’s hope state lawmakers don’t make up for missing revenue by cutting crucial services and making things worse.

A report commissioned by a pro-business group claims that “tax reform” would boost business in Iowa. The state tax code, according to its authors, is too cumbersome and complex, leaving investors too confused to set up shop in the state. The Chamber Alliance, which commissioned the report, will lobby the state to simplify (read: fewer brackets) and reduce (lower rates) corporate and personal income taxes. Apparently the $4.4 billion in property tax cuts and $90 million in annual income tax relief passed by state legislators last year hasn’t been enough to make the state competitive.

The decision to further cut the Internal Revenue Service’s (IRS) budget by $346 million next year from its already low 2014 level is almost certainly the most ill-advised cut in the announced omnibus spending bill passed in the House of Representatives Thursday night and now moving forward in the Senate.

IRS budget cuts actually increase the budget deficit because they result in lower revenue collections. In fact, one study found that every dollar spent on the IRS’s enforcement, modernization and management system reduces the federal budget deficit by $200 and another report found that every dollar the IRS “spends for audits, liens and seizing property from tax cheats” garners $10 back.

The latest cut to the IRS comes on top of years of devastating budget cuts, with the agency’s budget already chopped by 14 percent between 2010 and 2014 (controlling for inflation). As a result, the IRS has cut its staff by 11 percent since 2010. These budget cuts have been enacted even as the IRS has to process more and more taxpayer information each year and to administer the distribution of billions in new tax credits as part of healthcare reform.

Given its increasing responsibilities and decreasing budget, it’s no wonder the National Taxpayer Advocate (NTA), a well-respected non-partisan IRS watchdog, said in its latest annual report that the IRS budget is one of the agency’s “most serious problems” and that the “IRS desperately needs more funding.” One area where the effects of the budget cuts are especially visible, according to the NTA, is in the customer service division, where only 61 percent of taxpayers seeking to speak with a customer service representative were able to get through.

The tragic thing about these budget cuts is that they have become politically self-reinforcing. For years, anti-tax conservatives have been happy to jump on any IRS misstep to justify punishing the agency with more budget cuts, which then makes the agency less able to function and more prone to precisely these same missteps.

Demonstrating this principle, many conservatives are using a new Treasury inspector general report showing that the IRS improperly paid out billions in child and earned income tax credits as a convenient prop to bash the IRS for “gross mismanagement” and “bureaucratic incompetence.” One point that these critics leave out is that this same report concludes that the IRS simply “does not have the resources nor does it have alternative compliance tools needed to adequately address the erroneous EITC payments identified.” In fact, Congress has failed to enact several Treasury and IRS proposals or provide funding that would enable the agency to reduce the error rate.

Taking these politically opportunistic attacks to their extreme, a recently released documentary  compared the IRS’s recent missteps to fascism and genocide in its advocacy for the IRS’s total abolition. The rhetoric of abolishing the IRS used to be the kind of irresponsible speech cordoned off to the political extremes. More recently, the Republican National Committee fundraised on the explicit promise that donating would help the party “Abolish the IRS,” though the committee never explained how it would go about paying for government without some equivalent agency to collect taxes. 

Besides the politicians, the only real beneficiaries of IRS cuts are the tax dodgers and cheats that will have even less reason to fear that they will be caught by the woefully inadequate tax enforcement. For example, the IRS commissioner recently noted (Subscription Required) that the agency simply does not have the capacity to take advantage of new international reporting requirements on multinational corporations to help with its corporate tax enforcement efforts. Failure of these enforcement efforts have left honest taxpayers holding the bag for an estimated $385 billion in unpaid taxes each year.

Rather than cutting the IRS’s budget, Congress should substantially increase its budget. A good start would be increasing its FY2015 budget by $1.5 billion, compared to the current proposed level in the budget deal, as President Obama proposed in his most recent budget. Such an increase would be a win-win for taxpayers since it would substantially decrease the deficit and at the same time improve the functioning of the IRS so that it can more fairly and effectively enforce the tax code. 

A month after the International Consortium of Investigative Journalists (ICIJ) revealed leaked documents demonstrating that Luxembourg allowed Pepsi, IKEA, FedEx and 340 other corporations to use the country as a tax haven, ICIJ has now announced new evidence that Disney, Koch Industries and 33 additional companies are also in the game.

The new trove of leaked documents shows that Disney and Koch Industries have, like the other companies, obtained private tax rulings from Luxembourg’s Ministry of Finance that bless complex business and accounting structures shifting profits from countries where actual business is done into Luxembourg, and then in some cases into other countries.

The revelations further demonstrate the need to end the U.S. tax code rule allowing American corporations to defer paying U.S. income taxes on profits that they report to earn offshore. The ability to defer these taxes for years or forever creates a powerful incentive for corporations to use accounting gimmicks to make it appear as though profits are earned in countries where they won’t be taxed — like Luxembourg, thanks to the private tax rulings it hands out like candy to big corporations.

Ernst & Young advised both Disney and Koch Industries to set up a financial subsidiary in Luxembourg that lends money to the other subsidiaries, which then send their profits in the form of interest payments to the lender in Luxembourg.

Disney’s lending subsidiary in Luxembourg reported 1 billion Euros in profits from 2009 through 2013 and paid just 2.8 million Euros in income tax to Luxembourg, for an effective income tax rate of less than one percent.

ICIJ explains that Disney may use the “check-the-box” loophole in U.S. tax law, which allows corporations to simply assert (by checking a box on a form) whether its foreign-owned entities are separate corporations or merely branches of the U.S. company. This would allow Disney to tell the IRS that its payment to the Luxembourg lender is a deductible interest payment to a separate company, even while the Luxembourg lender tells its own government that it’s merely a branch of Disney receiving an internal company payment, which is not taxable. The result is that the profit is not taxed in any country.

The lending exists only on paper and the financial subsidiary is a shell company. It and four other subsidiaries of Disney’s in Luxembourg are all housed in one residential apartment and have one employee.

Koch Industries’ private tax ruling from Luxembourg’s Ministry of Finance blesses a tax-dodging scheme for its subsidiary Invista, a company that produces Lycra-brand fiber and Stainmaster-brand carpets. Invista publicly says it is headquartered in the U.S., but Koch owns it through a holding company incorporated in the Netherlands.

A Luxembourg subsidiary called Arteva facilitates loans from one subsidiary of Invista to another. Arteva reported profits of $269 million from 2010 through 2013 and paid just $6.4 million in income taxes to Luxembourg over that period, for an effective income tax rate of just 2 percent. Its highest effective rate in any one of those four years was just 4.15 percent. Like Disney, Koch may have exploited the check-the-box loophole to pull this off.

One section of Koch’s private tax ruling explains how $736 million would be shifted from one subsidiary to another until an American branch would become “both the debtor and creditor of the same debt, which is canceled at the level of the American branch.”

A huge amount of complex planning goes into these tax avoidance schemes. The article notes that Ernst & Young’s office in Luxembourg racked up $153 million in revenue last year, probably by peddling these tax dodges. A lot of this scheming could be brought to an end if Congress enacted tax reform ensuring that all profits of American corporations, regardless of where they are earned, are taxed when they are earned. If Disney and Koch Industries could not defer U.S. corporate income taxes on profits booked offshore, they would have little incentive to use these tactics to make profits appear to be earned in Luxembourg or other countries.

We explained in October that Rep. Paul Ryan was making noise about changing official estimates for tax measures to incorporate “dynamic scoring.” This approach assumes that tax cuts boost economic growth so much that they partly or completely pay for themselves.

Ryan’s call has only intensified since the election. Now the battlefront has expanded as organs of the conservative movement, like the Wall Street Journal and Grover Norquist’s Americans for Tax Reform have called for new leadership at the Joint Committee on Taxation (JCT), which scores tax measures, and the Congressional Budget Office (CBO), which scores spending measures.

There is simply no agreement among economists about how tax cuts affect the broader economy, which makes it impossible to incorporate such effects into an apolitical revenue-estimating process for Congress that is trusted by everyone. In fact, no one really knows whether cutting taxes encourages most people to work and invest more (because they get to keep more of their income) or less (because they can work and invest less and still achieve whatever after-tax income goal they have set for themselves).

But that has not stopped Douglas Holtz-Eakin, a former CBO director, from siding with Ryan. His logic is that the budget-estimating process incorporates all sorts of guesswork so lawmakers should be willing to accept even more guesswork and embrace dynamic scoring.

Nor has it stopped the Wall Street Journal from putting forward people such as  Steve Entin of the Tax Foundation to lead JCT.

Incidentally, in 2009 Citizens for Tax Justice blasted both Holtz-Eakin and Entin for reports they penned on the federal estate tax. Holtz-Eakin cherry-picked evidence to conclude that repealing the estate tax would create 1.5 million jobs. Entin concluded that estate tax repeal would magically increase revenue. To say these people have controversial views on the effects of tax cuts would be an understatement.

JCT always considers the effects of changes in tax policy on individual and business’s behavior. But only when it considers certain major tax legislation, such as Rep. Dave Camp’s tax reform plan, does JCT provide dynamic analysis, which considers possible impacts of the policy change on the size of the economy overall. Currently, this analysis provides a wide range of scenarios because no one can agree on which model and which assumptions are correct.

For example, Camp’s reform plan is, based on conventional revenue-estimating, revenue-neutral in the first decade. (It loses $1.7 trillion in the second decade, but that’s a different story.) The dynamic analysis provided by JCT provided eight different scenarios about the dynamic impact on revenue, ranging from a low of $50 billion to a high of $700 billion. Naturally Camp chose to highlight the version that speculated that dynamic effects would raise $700 billion over a decade and ignored the rest.

Sen. Rob Portman has introduced a so-called Accurate Budgeting Act that would require JCT to provide a single dynamic score for tax legislation. The House passed a similar bill in April. Given the range of uncertainty and lawmaker’s desire to clutch at whatever analysis presents the rosiest assessment of their proposals, this could warp the estimating process and cause a lot of misinformation.

After President Barack Obama’s veto threat last week ended discussion of a $450 billion package of tax breaks mostly benefiting businesses, the House of Representatives on Wednesday approved a smaller bill, H.R. 5771, that would extend most of the tax cuts for one year at a cost of $42 billion.

A new report from Citizens for Tax Justice explains that while the President deserves credit for stopping a much bigger corporate giveaway, even the $42 billion bill is an absurd waste of money from a Congress that has been unable to find a way to fund basic public investments like highways and bridges.

Here are just a few of the problems with H.R. 5771:

■ Most of the tax breaks fail to achieve any desirable policy goals. For example, they include bonus depreciation breaks for investments in equipment that the Congressional Research Service have found to be a “relatively ineffective tool for stimulating the economy, a tax credit for research defined so loosely that it includes the work soft drink companies put into developing new flavors, and a tax break that allows General Electric to do financial business offshore without paying U.S. taxes on the profits.

■ The tax breaks cannot possibly be effective in encouraging businesses to do anything because they are almost entirely retroactive. The tax breaks actually expired at the end of 2013 and this bill will extend them (almost entirely retroactively) through 2014. These tax provisions are supposedly justified as incentives for companies to do things Congress thinks are desirable, like investing in equipment or research, but that justification makes no sense when tax breaks are provided to businesses for things they have done in the past.

■ The bill increases the deficit by $42 billion to provide tax breaks that mostly benefit businesses, even after members of Congress have refused to enact any measure that helps working people unless the costs are offset. The measures that Congress refused to enact without offsets include everything from creating jobs by funding highway projects to extending emergency unemployment benefits.

Read the full report.

Earlier this year, copious potholes on highways and roads due to severe winter weather conditions exposed the harsh truth about our nation’s transportation funding: there’s not enough of it, and potholes and other crumbling infrastructure could become the norm if the states and the federal government don’t address the issue.

Twenty-four states have gone a decade or more without increasing their gas tax, and 16 states have gone two decades or more without an increase. The last time Congress increased the federal gas tax was in 1993.

A blog in Wednesday’s Washington Post pondered whether now is the time for the federal government to raise the tax since gas prices have dropped to levels last seen four years ago. While there will not be any movement on the federal level in the short term, a couple of states are weighing increases. 

South Carolina Gov.  Nikki Haley and a majority of House members have historically refused to increase the state’s gas tax, but The State newspaper reported that lawmakers are increasingly recognizing that the South Carolina’s transportation infrastructure needs are woefully underfunded. Perhaps a hike in the gas tax isn’t that unrealistic.  A state Department of Transportation report released earlier this year found that the state needs to generate an additional $43 billion over the next 25 years to meet those needs.

South Carolina’s gas tax is one of the lowest in the country (PDF) and hasn’t been raised in more than 25 years. After adjusting for inflation, ITEP found that the state’s current gas tax is lower today than at any point in history – going all the way back to the tax’s creation in 1922. For example, while the 2 cent gas tax that South Carolina levied in 1922 may sound very low to today’s drivers, in the context of the 1922 economy it was actually higher than the 16 cent gas tax South Carolina levies today. In fact a 2-cent tax in 1922 is roughly equivalent to a 28.3-cent tax in today’s dollars. Simply restoring the South Carolina gas tax to the same inflation-adjusted levels would represent a big step toward fully funding the state’s transportation needs. More and more states are realizing that undoing inflationary tax cuts is the most straightforward way to keep their infrastructure from crumbling beneath their feet.

In Michigan, Governor Rick Snyder is putting pressure on the House of Representatives to follow in the footsteps of the Senate and pass legislation that would replace both the state’s current 19-cent gas tax and 15-cent tax on diesel with a tax on the average wholesale price of gas. Based on current gas prices the tax rate would increase to 44 cents in 2018 and raise an additional $1.2 billion for transportation by 2019.   The Governor admits this is asking representatives to take a “tough vote”, but it’s one that the Senate already took by a nine-vote margin (23-14). Gov. Snyder said of the state’s infrastructure crisis, “Every day that passes it’s only going to get worse. Pothole season isn’t going to be any better next year.”

Because this legislation links the gas tax to the wholesale price of gas the state is putting itself in a better position to ensure that transportation funding keeps up with inflation overtime. 

Policymakers in South Carolina and Michigan aren’t alone in their quest for dealing with infrastructure woes. ITEP’s report State Gasoline Taxes: Built to Fail, But Fixable concludes that the poor design of gas taxes “has resulted in sluggish revenue growth that fails to keep pace with state infrastructure needs.” ITEP recommends raising gas taxes especially in states that haven’t increased their taxes in several years, restructuring gas taxes to take into account increased fuel efficiency and construction costs, and offsetting regressive gas tax hikes with targeted low-income tax relief.

In this political environment, tax increases may be a tough sell. But roads aren’t going to fix themselves, and the D-grade results of inadequate transportation funding will only get worse. States and the federal government should present and consider serious policy proposal for raising gas taxes to repair our nation’s roads and bridges.

There was only one detailed tax reform plan introduced during this Congress, and Hill staffers of both parties are calling it a starting point for tax reform discussions in the next Congress. But there’s a huge problem. The plan, introduced by Rep. Dave Camp, is a $1.7 trillion tax cut for corporations and the wealthy.

Republican and Democratic congressional aides spoke at an event focused on tax reform two days after the midterm elections. Even the Democratic aides said that the plan, introduced by Camp, a Republican, addressed tax reform “in a revenue-neutral, responsible way,” and that the plan “was a great contribution to the discussion.” Here’s why they’re wrong.

Rep. Camp, the outgoing chairman of the House Ways and Means Committee, claimed that his plan would be revenue-neutral, meaning it would end some loopholes and breaks but use all the resulting revenue savings to offset reductions in tax rates. He also claimed that it would be distributionally neutral, meaning, for example, that the richest one percent of Americans would contribute about the same percentage of federal tax revenue as they do today.

These sound bites from Camp are extremely misleading. Citizens for Tax Justice studied the plan and concluded that they would be true only in the first decade after enactment, which is the typical period of time that Congress’s tax analysts examine for tax proposals. But Camp uses various timing gimmicks to ensure that the true costs of his plan would not appear until later, outside the window of time that lawmakers usually pay attention to. CTJ concluded that in its second decade, the Camp tax plan would reduce revenue by $1.7 trillion. That’s $1,700,000,000.

For example, the statutory corporate income tax rate would be reduced from 35 percent to 25 percent, but that would be phased in over a five-year period. Thus the full cost of this rate reduction would therefore not show up in the first ten years.

Another of Camp’s gimmicks involves changing the rules for well-off taxpayers who make voluntary extra contributions into their retirement plans. Camp would encourage or force people to put a large share of these contributions, which are currently deductible, into nondeductible Roth IRAs. These lost tax deductions are estimated to raise $230 billion over the first decade. But when people eventually withdraw funds from Roth IRAs, the withdrawals would be tax-free. So in the second decade, the change would lose almost as much revenue as it raised in the first decade.

It is possible that Democratic staffers complimented Camp’s budget-busting tax reform plan merely to contrast it to the far worse approach Camp and the rest of his party put forward more recently. The Republican-controlled House approved bills to make certain temporary tax breaks permanent without offsetting their costs and without addressing broader problems with the tax code. (More on that here.) These bills, the Democratic staffers argued, were a step away from tax reform. That’s true as far as it goes.

But the conversation at the tax reform event became more alarming when a moderator asked the aides how everyone on the Hill should think about revenue as the next Congress discusses tax reform. Should lawmakers choose a specific amount of revenue that should be raised, or should lawmakers agree to pursue a tax reform that is revenue-neutral? Even the Democratic staff discounted the importance of revenue, replying that lawmakers and their staffs should try to “get the policy right” without setting any revenue goal.

This approach to tax reform is outlandish. The point of the tax system is to raise revenue to pay for public investments and services. We need more of it.

Why We Need More Revenue

The U.S. is one of the least taxed of all developed countries. And Washington seems to suffer from amnesia about how our lack of revenue has hurt us recently.

To take just one example, no one seems to remember that in 2011 Congress declared a budget emergency and enacted the Budget Control Act, which imposes more than $100 billion a year in automatic spending cuts (sequestration) for several years. When sequestration went into effect, it cut into things that most Americans would say are investments in our future, cutting 600 medical research grants and eliminating 57,000 Head Start slots.

A last-minute deal in Congress partially undid these cuts for 2014 and 2015, but they will likely return in 2016, when sequestration will be fully in effect once again. It would be hypocritical and shortsighted for lawmakers to spend their time discussing a tax reform proposal that raises no new revenue (or one that loses revenue) even as they tell American families that the government cannot afford to provide early education, research or other basic investments in their future.

The lame-duck Congress is poised to conclude by passing a $450 billion package of deficit-financed tax breaks that primarily benefit businesses. Democratic leader Sen. Harry Reid is negotiating a deal with House Republicans, according to news reports.

The bill would make permanent several temporary tax breaks for businesses and extend others for two years without offsetting the cost. This Congress, which has refused to provide measures such as emergency unemployment benefits or highway projects unless the costs were offset, should not make one of its final acts a package of special interest tax breaks that fail to achieve any desirable policy goals. President Barack Obama has wisely threatened to veto the emerging deal.

It is especially troubling that both Democratic and Republican members are supporting tax extenders yet continue to ignore two temporary tax measures that should be made permanent, provisions that boost the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) for low-income, working families. These expire at the end of 2017 under current law.

Bill Makes Permanent Problematic Temporary Tax Breaks
Earlier this year, the Senate Finance Committee approved a limited package of two-year tax breaks, which is the sort of tax extenders legislation Congress has enacted in the past. A CTJ report explained that even a more limited bill would provide $85 billion in tax cuts that mostly go to businesses and fail to achieve policy goals.

The House of Representatives took an approach that was even more irresponsible, approving bills that would make many of the most costly and least effective tax breaks permanent.

To be sure, some of the proposed permanent tax breaks cost relatively little and achieve a policy goal that is not entirely unreasonable, such as an increase in the break for people who take mass transit to work. But the vast majority of the provisions that would be made permanent are costly breaks that do not seem to accomplish any policy goal. Here is some of what we said in our report earlier this year about these breaks:

The Research Tax Credit
The research credit needs to be reformed dramatically or allowed to expire. Accounting firms are helping companies obtain the credit to subsidize redesigning food packaging and other activities that most Americans would see no reason to subsidize. These firms also approach businesses and tell them that they can identify activities the companies carried out in the past that qualify for the research credit, and then help the companies claim the credit on amended tax returns. When used this way, the credit does not accomplish the goal of increasing business research.

Deduction for State and Local Sales Taxes
Lower-income people pay a much higher percentage of their incomes in sales taxes than the wealthy, but lower-income people also are unlikely to itemize deductions and are thus less likely to enjoy this tax break. In fact, the higher your income, the more the deduction is worth, since the amount of tax savings depends on your tax bracket. People earning less than $60,000 a year who take the sales-tax deduction receive an average tax break of just $100, and receive less than a fifth of the total tax benefit. Those with incomes between $100,000 and $200,000 enjoy a break of almost $500 and receive a third of the deduction, while those with incomes exceeding $200,000 save $1,130 and receive just over a fourth of the total tax benefit.

Section 179 Small Business Expensing
Section 179 is an accelerated depreciation break for smaller businesses, allowing them to write off most of their capital investments immediately (up to certain limits). A report from the Congressional Research Service reviews efforts to quantify the impact of depreciation breaks and explains that “the studies concluded that accelerated depreciation in general is a relatively ineffective tool for stimulating the economy.”

Bill Extends More Than 50 Special-Interest Tax Breaks for Two Years
As explained in CTJ’s report, many of the remaining more than 50 tax breaks that would be extended for two years under the deal are also bad policy. For example, two provisions encourage U.S. corporations to shift their profits offshore. One of these breaks is the active financing exception (the G.E. loophole), which provides an exception to the general rule that corporations cannot defer paying U.S. taxes on offshore income when it takes the form of interest (which is easy to manipulate for tax avoidance purposes). Another is the seemingly arcane “CFC look-through rule” which aided Apple’s infamous tax avoidance schemes.

EITC and CTC Expansions Not on the Table
Expansions in the EITC and CTC that were first enacted as part of the economic recovery act of 2009 were last extended in the “fiscal cliff” legislation of early 2013. That law maintains these provisions through the end of 2017. The changes make the refundable part of the CTC more accessible to parents with very low earnings and increase the EITC rate for families with three or more children and for some married families.

A report published by Citizens for Tax Justice during the fiscal cliff debate concluded that 13 million families with 26 million children would be affected in 2013 by these provisions. The report includes national and state-by-state figures.

Congress Should Not Pass a $450 Billion Business Giveaway
The 113th Congress has had two years to make its mark and pass important legislation that would benefit ordinary Americans. At so many turns—from expanding emergency unemployment benefits, to passing transportation funding—they chose gridlock. In fact, Republican members used the deficit as a scapegoat for not doing anything for ordinary working people. This Congress should not make deficit-financed tax breaks that primarily benefit businesses one of its final acts. If the lame-duck Congress insists on making its mark on the tax system by making temporary tax breaks permanent, the EITC and Child Tax Credit expansions should be their top priority.

By Kelly Davis and Meg Wiehe

Mississippi lawmakers have been talking for months about spending some of the Magnolia State’s revenue surplus next year on a tax cut, but that talk has been short on details until this week.  On Monday, Gov. Phil Bryant released his budget plan for next year which includes a $79 million tax break for working families via enacting a 15 percent nonrefundable Earned Income Tax Credit (EITC).  The EITC would be available for taxpayers if revenues increase by 3 percent annually and the state’s emergency fund is fully funded.  

More tax cut proposals are likely to surface in the coming weeks as House and Senate members put together their spending plan for next year. While it is likely we will see much more expensive tax cuts directed to the wealthiest taxpayers in the state, let’s hope lawmakers work to improve upon Gov.  Bryant’s plan.  Nonrefundable EITCs only benefit low income workers who owe income taxes, but do nothing to offset the high sales and property taxes that hit these families the hardest. Making the credit refundable would help offset those regressive taxes for the poorest Mississippians. In fact, an ITEP analysis found that the governor’s nonrefundable EITC proposal would give a tax break to only 9 percent of the poorest MS. But a refundable credit would reach 45 percent of low-income people.

Making the credit refundable would also be an excellent way to put even more money in the hands of working Mississippians who are very likely to spend that money. When speaking about who would benefit from his tax cut plan Bryant rightly said, “They don’t bury it in the yard,” Bryant said. “They spend it.”

While it’s worth celebrating that the Mississippi Governor’s tax cut plan is directed to low-income working families most in need of a break, our friends at the Mississippi Economic Policy Center remind us than any tax cut comes at a cost to public education which is grossly underfunded in the state.  The state has cut funding for K-12 schools by 12.3% since 2008.  More than $300 million is needed to bring public education spending up to an adequate level, yet Bryant’s proposed budget only increased K-12 spending by $53 million.