Author: tarek

Note to Readers: This is the fifth post of a five-part series on tax policy prospects in the states in 2014. Over the course of several weeks, The Institute on Taxation and Economic Policy (ITEP) highlighted tax proposals that were gaining momentum in states across the country. This final post focuses on progressive, comprehensive and sustainable reform proposals under consideration in the states.

State tax policy proposals are not all bad news this year.  There are some promising efforts underway that would fix the structural problems with state tax codes and improve tax fairness for low- and middle-income families. All eyes are on Illinois as lawmakers grapple with how to raise much needed revenue after their temporary income tax hike expires. Many are hoping the timing is now right for a real debate about a graduated income tax. Washington DC’s Tax Revision Commission has proposed a number of sensible reforms. And, lawmakers in Hawaii and Utah are expected to seriously debate ways to improve their states’ tax fairness.

Illinois – Though there has been much legislative activity in Springfield about corporate tax breaks, the arguably more important issue facing lawmakers is the state’s temporary income tax rate increase that is set to decrease in 2015. Given this upcoming rate reduction, lawmakers and the public are weighing in on alternative ways to fund vital services, including the merits of a progressive income tax.

District of Columbia – DC’s Tax Revision Commission set the stage for real tax reform this Spring when it recommended expanding the sales tax base, enhancing the city’s Earned Income Tax Credit (EITC) for childless workers, boosting the personal exemption and standard deduction, reforming the District’s income tax brackets, and phasing-out the value of personal exemptions for high-income taxpayers. The Commission’s proposal is hardly perfect: it includes an expensive giveaway for people with estates worth over $1 million, as well as a slight cut in the city’s top income tax rate (in exchange for making that temporary rate permanent).  But the plan still contains a lot of good ideas worthy of the word “reform.”

Hawaii – Hawaii levies the fourth highest state and local taxes on the poor in the entire country, but some lawmakers would like to change that.  Proposals to enact an Earned Income Tax Credit (EITC) managed to pass both chambers of the legislature last year before eventually being abandoned, and lawmakers gave serious consideration to other low-income tax credit changes as well.  The Hawaii Appleseed Center’s recent report (PDF) on enhancing low-income tax credits, and options to pay for those enhancements, provides a wealth of information for the many lawmakers and advocates who intend to pick up where they left off last year.

Utah – Last year’s effort to improve Utah’s regressive tax system (PDF) by enacting an Earned Income Tax Credit (EITC) ultimately fell short, though a bill that would have created such a credit did make it out of the state’s House of Representatives.  That push will be resumed this year.

This week the DC Council will be hearing tax reform recommendations from the experts they appointed to study the District’s tax system. While far from perfect, the DC Tax Revision Commission’s suggested changes include many sensible reforms. Here’s a quick overview of what’s being discussed.

The Commission recommends expanding the District’s Earned Income Tax Credit (EITC) for workers without children—the one group for whom this important anti-poverty and pro-work program currently provides little benefit.

Some middle-income taxpayers would benefit from lowering the middle tax bracket’s rate from 8.5 to 6.5 percent. And both lower- and middle-income families would benefit from a substantially increased personal exemption and standard deduction.

In order to partially fund these targeted low- and middle-income tax cuts, the Commission also recommends phasing out (PDF) the District’s personal exemption for high-income taxpayers, and making permanent the city’s temporary top tax bracket on incomes over $350,000 (albeit at a reduced rate).

And as with many tax reform efforts, the DC Commission’s plan also includes a long-overdue expansion of the District’s sales tax to include more personal services. Haircuts, tanning studios, car washes, and various other services (PDF) would finally be included in the sales tax base.

Among the more troubling aspects of the Commission’s plan is its price tag. The Commission wants to cut into the District’s revenues by $48.8 million, despite the fact that the DC Council only set aside $18 million to fund the Commission’s recommendations. And not all of the tax cuts contained in the Commission’s proposal are justified. A $15.8 million estate tax cut is unlikely to benefit (PDF) the District’s economy, and a $57 million corporate and business tax rate cut won’t do any good, either.

Against this backdrop, the Commission’s decision to recommend increasing the sales tax rate from 5.75 to 6 percent is an odd one. The $22 million in revenue raised by this regressive tax increase could easily be generated in a fairer way by scaling back the estate and corporate tax cuts, and/or by retaining the 8.95 percent rate on incomes over $350,000, as opposed to the lower 8.75 percent rate the Commission suggests.

Overall, the Commission’s proposal is a good starting point, but there’s still plenty of room for the DC Council to improve upon it before enacting any reforms into law.

Over the weeks leading up to the Super Bowl, the National Football League (NFL) has found itself increasingly under scrutiny for its extraordinary extraction of lavish tax breaks and subsidies from state and local governments throughout the country. In fact, one recent study estimated that the National Football League (NFL) receives as much as $1 billion in subsidies annually.

While state and local governments find themselves still struggling with austerity budgets, the NFL had revenues of $9 billion during 2013 and analysts expect its revenue to only rise in the years to come. In addition, the NFL’s overall profitability is rising and its operating margin is “head and shoulders above other sports.”

Given their lack of funds and the league’s high profits, why do state and local lawmakers feel the need to give extravagant subsidies to NFL teams? One of the main reasons is that NFL teams have frequently threatened to leave a given city if they do not receive the subsidies they want, typically for constructing or maintaining a stadium, and many lawmakers fear that voters will blame them for “losing” the team if they do ultimately move.

On top of this, proponents of the subsidies often produce studies purporting to show that the city or county’s economy will substantially benefit from the team and its stadium, even when accounting for the cost of the subsidies. According to Gregg Easterbrook, an expert on these deals, such claims simply do not “stand up to scrutiny.” The reality is that stadiums are a particularly poor economic investment because NFL teams only play about 8 regular season home games a year, whereas roads and bridges or even other businesses help the economy of a region all year round.

While many lawmakers are taken in by the arguments for the subsidies, the good news is that the general public now understands that subsidizing the NFL is simply not worth it in terms of “keeping” the teams or the economic benefits. In fact, a recent poll found that 71% of Americans opposed using tax breaks to attracts or keep a football team in town and 69% oppose the use of public funds to build and support stadiums for NFL teams.

On the federal level, there has been a lot of attention paid to a push by Senator Tom Coburn to remove the NFL’s (and other sports associations’) tax exempt status, which he claims allows the league to receive millions in unwarranted tax breaks. In truth, the tax exempt status only applies to the league’s organizing entity, which actually reported losses in recent years and is not currently being utilized as a “tax avoidance mechanism” according to tax experts.

Even if changing its status would cause the league to pay some additional taxes in the future, this amount will be a pittance compared to how much it receives in tax breaks from state and local governments, where the real tax avoidance is taking place.

Community organizations, state tax departments, and editorial pages across the country celebrated National EITC Awareness Day last Friday. Roughly 80% of those eligible for the federal Earned Income Tax Credit take advantage of it each year, a higher participation rate than most other social programs. But keeping this figure high — and ensuring that busy, working people are also aware of state and local EITCs they may qualify for — requires continued vigilance. One way to boost participation, and to save beneficiaries from wasting their refund on paid tax preparers, is by joining the volunteer income tax assistance (VITA) program. We also need anti-poverty advocates on the front lines fighting plans in some states to eliminate or weaken their state EITC, as North Carolina did last year.

Like many Americans, Grover Norquist is apparently sick of Congressional gridlock (despite having played no small part in causing it through his inflexible no-new-taxes pledge).  But rather than sit around while federal tax reform continues to stall, Grover has turned his sights toward Tennessee.  Grover wants to see Tennessee repeal one of the few bright spots of its staggeringly regressive tax system (PDF): its “Hall Tax” on investment income.  The Massachusetts native and current DC resident is signaling his intention to push lawmakers to repeal the tax, according to The Tennessean.

With an election just a few months away, Florida Governor Rick Scott has made clear that he wants tax cuts, yet again, to be a top priority in the Sunshine State.  His newest list of ideas includes cutting motor vehicle taxes, cutting sales taxes on commercial rent, cutting business taxes, and cutting business filing fees.  He’d also like to give shoppers a couple of sales tax holidays — a perennial favorite among politicians that like their tax cuts to be as high-profile as possible.

Check out the Kansas Center for Economic Growth’s new blog! Their latest post makes the salient point that two rounds of radical income tax cuts “have failed to create prosperity and are leaving low- and middle- income Kansas families struggling to make ends meet.”

Note to Readers: This is the fourth installment of a five-part series on tax policy prospects in the states in 2014.  This series, written by the staff of the Institute on Taxation and Economic Policy (ITEP), highlights state proposals for “tax swaps,” tax cuts, and tax reforms.  This post focuses specifically on proposals to increase or reform state gasoline taxes.

Six states and the District of Columbia enacted long-overdue gas tax increases or reforms last year, despite the tough politics involved in raising the price drivers pay at the pump.  Will 2014 bring the same level of legislative activity on the gas tax?  Maybe not; but there are a number of states where the issue is receiving serious attention.

Delaware: Governor Jack Markell of Delaware is pushing for a 10 cent increase in his state’s gas tax, which hasn’t been raised in over 19 years.  The idea faces an uphill battle in the legislature, but without the increase the Delaware Department of Transportation’s capital budget will have to be slashed by about 33 percent next year.  Delaware’s House Minority leader would rather raid the state’s general fund budget (most of which goes toward education and health care) as opposed to addressing the state’s transportation revenue problems directly through reforming the gas tax.

Iowa: Governor Terry Branstad isn’t going to lead the fight for a gas tax increase, but he won’t veto one, either, if it makes it to his desk. Last week, an Iowa House subcommittee unanimously passed a 10 cent gas tax hike just a few hours before Branstad made clear his intention to remain on the sidelines during this important election-year tax debate.

Kentucky: Governor Steve Beshear wants to reverse a 1.5 cent gas tax cut that went into effect last month as a result of falling gas prices (Kentucky is one of eighteen states where the tax rate changes alongside either gas prices or inflation).  Doing so would raise about $45 million in additional funds to invest in the state’s transportation infrastructure.  And putting a “floor” on the gas tax to prevent further declines in the tax rate could avoid up to $100 million in funding cuts in the next two years.

New Hampshire: The chair of New Hampshire’s Senate Transportation Committee wants to raise the gas tax and index it to inflation.  The tax has been stuck at 18 cents per gallon for over twenty-two years, and the commissioner of the state’s Department of Transportation is optimistic that could finally change this year.  Governor Maggie Hassan hasn’t been a major player in the push for a higher gas tax, but it seems likely she would sign an increase if it made it to her desk.

Utah: Utah Senate President Wayne Niederhauser is rightly concerned about the fact that “more and more money is coming out of the state’s general fund for transportation,” and would like to reform the state’s gas tax to provide transportation with a sustainable revenue stream of its own.  Familiar concerns about not wanting to hike the gas tax in an election year have been raised, but Governor Gary Herbert seems to realize that some kind of change to the gas tax is needed.  To provide some context to this debate, we recently found that Utah’s gas tax is currently at an all-time low, after adjusting for inflation.

Washington: Last year’s unsuccessful push to raise the gas tax in Washington State has spilled over into the current legislative session.  Governor Jay Inslee still supports raising the tax, and House and Senate leaders have spent a significant amount of time trying to cobble together an acceptable compromise.

But while these six states are the most likely to act this year, they’re hardly the only places where the gas tax is generating a lot of interest.  In Oklahoma, both of the state’s largest newspapers have urged lawmakers to consider gas tax reform, as has the Oklahoma Policy Institute and the Oklahoma Academy.  In Minnesota, the commissioner of the Department of Transportation wants to see the gas tax rise on a yearly basis, and a coalition has been formed seeking more revenue for transportation.  The chairman of the South Carolina Senate Finance Committee supports a gas tax hike, as does the chair of New Mexico’s Transportation and Public Works Committee, some members of New Jersey’s legislature, and the editorial boards of both New Mexico’s and New Jersey’s largest newspapers.  And in Michigan, Governor Snyder’s laudable attempt to raise the gas tax last year has stalled, though it remains a topic of discussion in the Wolverine State.

Altogether, thirty-two states levy unsustainable flat-rate gas taxes, twenty-four states have gone a decade or more without raising their gas tax, and sixteen of those states have gone two decades or more without an increase.  With so many states reliant on outdated gas tax structures, there’s little doubt that reforming the tax will remain a major topic of discussion for the foreseeable future.

Photo via herzogbr Creative Commons Attribution License 2.0 

Citizens for Tax Justice has long argued that offshore tax avoidance by corporations will never be fully addressed until Congress reforms our laws to tax the domestic profits and the offshore profits of our corporations at the same time and at the same rate. Only then will corporations have no incentive to make their U.S. profits appear to be generated in tax havens like Bermuda and the Cayman Islands. But a new report from US PIRG explains that state governments can at least protect state corporate income taxes from the worst offshore abuses with reforms newly adopted by Montana and Oregon.

As PIRG explains, these two states

“simply treat profits that companies book to notorious tax havens as if it were domestic taxable income. This simple loophole closing uses information that multinational companies already report to states. The reform could be introduced anywhere, but is readily available to the 24 states and District of Columbia that have already modernized their tax codes by enacting “combined reporting,” which requires companies to report on how profits are distributed among jurisdictions so that they are taxed based on how much business activity they do in those places. All told, closing this tax haven loophole could save the remaining 22 states and District of Columbia over a billion dollars annually.”

Read the US PIRG report.

In his State of the Union address, President Obama touched on tax issues a few times, most prominently in connection to business tax reform.

“Both Democrats and Republicans have argued that our tax code is riddled with wasteful, complicated loopholes that punish businesses investing here, and reward companies that keep profits abroad.  Let’s flip that equation.  Let’s work together to close those loopholes, end those incentives to ship jobs overseas, and lower tax rates for businesses that create jobs here at home.”

Which companies does President Obama think should get these tax breaks for creating jobs here in the U.S.? In 2012, President Obama told a crowd at a Boeing plant in Washington State that companies that use tax breaks to shift operations and profits offshore ought to pay more U.S. taxes and the revenue “should go towards lowering taxes for companies like Boeing that choose to stay and hire here in the United States of America.” At that time CTJ pointed out that over the past ten years, Boeing had paid nothing in net federal income taxes, despite $32 billion in pretax U.S. profits.

Here’s the uncomfortable truth: A lot of the corporations doing business in the U.S. already are paying little or nothing in taxes, as demonstrated by CTJ’s 2011 study of consistently profitable Fortune 500 corporations – a study that examined the U.S. taxes paid on the corporations’ U.S. profits. Even for those companies that do pay a reasonable effective tax rate in the U.S., there is no real economic evidence that lowering their tax rate will lead to economic growth for America. 

In fact, the U.S. corporate tax is far lighter than the corporate taxes imposed by other countries. According to the Department of the Treasury and the Congressional Budget Office, federal corporate tax revenue in the U.S. was equal to 1.2 percent of our economy in 2011 (1.5 percent if you include state corporate taxes). The average for other OECD countries (which include most of the developed countries) in 2011 was 2.9 percent.

While the President did say that savings from closing tax loopholes could be used to lower tax rates, he immediately followed that by saying:

“Moreover, we can take the money we save with this transition to tax reform to create jobs rebuilding our roads, upgrading our ports, unclogging our commutes – because in today’s global economy, first-class jobs gravitate to first-class infrastructure.”

But notice the fine print – he says this is revenue that would be raised in the “transition to tax reform,” rather than a permanent, sustainable increase in tax revenue. As we have explained before, some revenue that would be raised if business tax loopholes were closed would be permanent, sustainable revenue – but the President wants to use that revenue to offset reductions in the corporate tax rate. But closing these tax loopholes would also produce some revenue that is temporary, meaning it would only show up in the first few years or so. This temporary revenue increase cannot be used to pay for anything that is permanent (like the reductions in tax rates). Instead, the White House argues, reasonably, that a temporary revenue increase should be used to pay for something that is temporary, like a boost in infrastructure investments.

But the main goal of tax reform should be to raise revenue on a permanent basis from both the personal income tax and the corporate income tax. When budget cuts have literally led to children being kicked out of Head Start and reductions in investments like medical research, the need for revenue is obvious. The need to lower Boeing’s effective tax rate further below zero is not.

Many expect that during his State of the Union address tonight, President Obama will speak of income inequality, which he has previously called the “defining issue of our time.” As our nation hopefully begins this much-needed debate, everyone should be clear about one thing that has not been used much in recent years to reduce income inequality: the tax code.

The table below shows that effective tax rates were slightly higher in 2013 for all income groups (not just the rich) than they would have been if Congress had simply extended the tax rules in effect in 2012, as Congressional Republicans had called for in the debate over the “fiscal cliff.”

For the poor and middle-class, slightly higher effective tax rates resulted from the expiration of a Social Security payroll tax cut. For the rich, higher effective tax rates resulted from the end of parts of the Bush-era tax cuts and an effective increase in the Medicare tax as a part of health care reform.

The result is that the share of total taxes paid by each income group did not change much at all. As the table below illustrates, the richest one percent of Americans paid 24 percent of the total taxes in 2013, but would have paid 23.1 percent if the 2012 tax rules had been extended as Congressional Republicans called for. The shares of total taxes paid by the bottom four fifths of Americans were almost unchanged.

These figures are taken from one of the many CTJ reports that analyzed the impacts of the “fiscal cliff” deal that allowed certain tax cuts to expire. In other reports we have demonstrated that the tax code is not particularly progressive. For example, the richest one percent of Americans paid 24 percent of the total taxes in America in 2013, which may seem like a lot until you consider that this same group also received 21.9 percent of the total income that year. The poorest fifth of Americans paid only 2.1 percent of the total taxes in 2013, and received just 3.3 of the total income that year.

In other words, America’s tax system can just barely be called progressive.

Note to Readers: This is the third of a five-part series on tax policy prospects in the states in 2014.  Over the coming weeks, the Institute on Taxation and Economic Policy (ITEP) will highlight state tax proposals that are gaining momentum in states across the country. This post focuses on proposals to cut personal income, business, and property taxes.

Tax cut proposals are by no means a new trend.  But, the sheer scope, scale and variety of tax cutting plans coming out of state houses in recent years and expected in 2014 are unprecedented.  Whether it’s across the board personal income tax rate cuts or carving out new tax breaks for businesses, the vast majority of the dozen plus tax cut proposals under consideration this year would heavily tilt towards profitable corporations and wealthy households with very little or no benefit to low-income working families.  Equally troubling is that most of the proposals would use some or all of their new found revenue surpluses (thanks to a mostly recovering economy) as an excuse to enact permanent tax cuts rather than first undoing the harmful program cuts that were enacted in response to the Great Recession.  Here is a brief overview of some of the tax cut proposals we are following in 2014:

Arizona – Business tax cuts seem likely to be a major focus of Arizona lawmakers this session.  Governor Jan Brewer recently announced that she plans to push for a new tax exemption for energy purchased by manufacturers, and proposals to slash equipment and machinery taxes are getting serious attention as well.  But the proposals aren’t without their opponents.  The Children’s Action Alliance has doubts about whether tax cuts are the most pressing need in Arizona right now, and small business groups are concerned that the cuts will mainly benefit Apple, Intel, and other large companies.

District of Columbia – In addition to considering some real reforms (see article later this week), DC lawmakers are also talking about enacting an expensive property tax cap that will primarily benefit the city’s wealthiest residents.  They’re also looking at creating a poorly designed property tax exemption for senior citizens.  So far, the senior citizen exemption has gained more traction than the property tax cap.

Florida – Governor Rick Scott has made clear that he intends to propose $500 million in tax cuts when his budget is released later this month.  The details of that cut are not yet known, but the slew of tax cuts enacted in recent years have been overwhelmingly directed toward the state’s businesses.  The state legislature’s more recent push to cut automobile registration fees this year, shortly before a statewide election takes place, is the exception.

Idaho – Governor Butch Otter says that his top priority this year is boosting spending on education, but he also wants to enact even more cuts to the business personal property tax (on top of those enacted last year), as well as further reductions in personal and corporate income tax rates (on top of those enacted two years ago). Idaho’s Speaker of the House wants to pay for those cuts by dramatically scaling back the state’s grocery tax credit, but critics note that this would result in middle-income taxpayers having to foot the bill for a tax cut aimed overwhelmingly at the wealthy.

Indiana – Having just slashed taxes for wealthy Hoosiers during last year’s legislative session, Indiana lawmakers are shifting their focus toward big tax breaks for the state’s businesses.  Governor Mike Pence wants to eliminate localities’ ability to tax business equipment and machinery, while the Senate wants to scale back the tax and pair that change with a sizeable reduction in the corporate income tax rate. House leadership, by contrast, has a more modest plan to simply give localities the option of repealing their business equipment taxes.

Iowa – Leaders on both sides of the aisle are reportedly interested in income tax cuts this year. Governor Terry Branstad is taking a more radical approach and is interested in exploring offering an alternative flat income tax option. We’ve written about this complex and costly proposal here.

Maryland – Corporate income tax cuts and estate tax cuts are receiving a significant amount of attention in Maryland—both among current lawmakers and among the candidates to be the state’s next Governor.  Governor Martin O’Malley has doubts about whether either cut could be enacted without harming essential public services, but he has not said that he will necessarily oppose the cuts.  Non-partisan research out of Maryland indicates that a corporate rate cut is unlikely to do any good for the state’s economy, and there’s little reason to think that an estate tax cut would be any different.

Michigan – Michigan lawmakers are debating all kinds of personal income tax cuts now that an election is just a few months away and the state’s revenue picture is slightly better than it has been the last few years.  It’s yet to be seen whether that tax cut will take the form of a blanket reduction in the state’s personal income tax, or whether lawmakers will try to craft a package that includes more targeted enhancements to provisions like the Earned Income Tax Credit (EITC), which they slashed in 2011 to partially fund a large tax cut (PDF) for the state’s businesses. The Michigan League for Public Policy (MLPP) explains why an across-the-board tax cut won’t help the state’s economy.

Missouri – In an attempt to make good on their failed attempt to reduce personal income taxes for the state’s wealthiest residents last year, House Republicans are committed to passing tax cuts early in the legislative session. Bills are already getting hearings in Jefferson City that would slash both corporate and personal income tax rates, introduce a costly deduction for business income, or both.

Nebraska – Rather than following Nebraska Governor Dave Heineman into a massive, regressive overhaul of the Cornhusker’s state tax code last year, lawmakers instead decided to form a deliberative study committee to examine the state’s tax structure.  In December, rather than offering a set of reform recommendations, the Committee concluded that lawmakers needed more time for the study and did not want to rush into enacting large scale tax cuts.  However, several gubernatorial candidates as well as outgoing governor Heineman are still seeking significant income and property tax cuts this session.

New Jersey – By all accounts, Governor Chris Christie will be proposing some sort of tax cut for the Garden State in his budget plan next month.  In November, a close Christie advisor suggested the governor may return to a failed attempt to enact an across the board 10 percent income tax cut.  In his State of the State address earlier this month, Christie suggested he would be pushing a property tax relief initiative.  

New York – Of all the governors across the United States supporting tax cutting proposals, New York Governor Andrew Cuomo has been one of the most aggressive in promoting his own efforts to cut taxes. Governor Cuomo unveiled a tax cutting plan in his budget address that will cost more than $2 billion a year when fully phased-in. His proposal includes huge tax cuts for the wealthy and Wall Street banks through raising the estate tax exemption and cutting bank and corporate taxes.  Cuomo also wants to cut property taxes, first by freezing those taxes for some owners for the first two years then through an an expanded property tax circuit breaker for homeowners with incomes up to $200,000, and a new tax credit for renters (singles under 65 are not included in the plan) with incomes under $100,000.  

North Dakota – North Dakota legislators have the year off from law-making, but many will be meeting alongside Governor Jack Dalrymple this year to discuss recommendations for property tax reform to introduce in early 2015.  

Oklahoma – Governor Mary Fallin says she’ll pursue a tax-cutting agenda once again in the wake of a state Supreme Court ruling throwing out unpopular tax cuts passed by the legislature last year.  Fallin wants to see the state’s income tax reduced despite Oklahoma’s messy budget situation, while House Speaker T.W. Shannon says that he intends to pursue both income tax cuts and tax cuts for oil and gas companies.

South Carolina – Governor Nikki Haley’s recently released budget includes a proposal to eliminate the state’s 6 percent income tax bracket. Most income tax payers would see a $29 tax cut as a result of her proposal. Some lawmakers are also proposing to go much farther and are proposing a tax shift that would eliminate the state’s income tax altogether.

Editorial boards at the Milwaukee Journal Sentinel and the Wisconsin State Journal have both (rightly) responded to Governor Walker’s property and income tax cut proposals by encouraging lawmakers to instead curb the state’s growing structural deficit, or put any surplus revenue toward serious problems like poverty reduction and enhancing K-12 education. Perhaps the editorial boards were persuaded by Institute on Taxation and Economic Policy (ITEP) findings that wealthier folks benefit more from the tax cuts than low-and middle-income families. For more on ITEP’s analysis read this Milwaukee Journal Sentinel piece.

Idaho’s House Speaker has proposed dramatically scaling back the state’s grocery tax credit in exchange for a regressive $70-80 million cut to the individual and corporate income tax rates. But economist Mike Ferguson of the Idaho Center for Fiscal Policy points out that the Speaker’s plan would amount to a giveaway to the rich, while further squeezing the middle class.  An Idahoan making $50,000 per year, for example, could expect to see about $305 tacked on to their state tax bill under this change. Governor Butch Otter has been saying the right things about taking a break from tax cuts (kind of) and instead making education spending a priority this year. But the Governor recently said he was open to the Speaker’s idea, and the Idaho Statesman provided a partial endorsement. Idaho legislators should tread carefully: raising taxes on the middle class to pass another trickle-down tax cut is bad public policy and even worse politics.

A Wichita Eagle editorial, “Pressure on sales tax”, shares our concerns about one of the major consequences of the tax cuts and “reforms” enacted in Kansas over the past two years.  With the gradual elimination of the state’s personal income tax and pressure on local governments to raise revenue, it is inevitable that the state’s sales tax rate will continue to rise at the detriment of low- and moderate-income working families who are stuck footing the bill. And, in order to have sufficient revenue to fund services over the long-run, Kansas lawmakers will need to make the politically difficult decision to broaden the sales tax base, something they’ve shown little stomach for so far. The editorial states, “as Kansas strains to deal with declining tax collections and reserves according to Brownback’s plan to become a state without an income tax, the sales tax will be one of the only places to go for more revenue.”

Indiana lawmakers want to get a better handle on whether their tax incentives for economic development are actually doing any good.  Last week, the House unanimously passed legislation that will require every economic development tax break to be reviewed ov

er the course of the next five years.  Our partner organization, the Institute on Taxation and Economic Policy (ITEP), recommends that all states implement these kinds of ongoing evaluations.

Illinois Governor Pat Quinn is pushing back against a string of bad publicity regarding film tax credits. Quinn says that an entertainment boom is occurring in Illinois in part because of the Illinois Film Services Tax Credit, an uncapped, transferable credit that was extended in 2011. What Governor Quinn fails to mention, however, is how much taxpayers lost in the process. The credit costs roughly $20 million a year, requiring higher taxes or fewer public services than would otherwise be the case. Research from other states indicates that only a small fraction of that amount would be recouped via higher tax receipts. Moreover, film subsidies often waste money on productions that would have located in the state anyway and are unlikely to do much good in the long-term since the industry is so geographically mobile. Indeed, one of the producers of Transformers 3 admitted that he would have filmed in Chicago even without the credit, which cost taxpayers $6 million. Instead, the decision was based on “the skyline, the architecture and the skilled crews here, among other factors.”