Author: tarek

Congressman Paul Ryan, chairman of the House Budget Committee and former vice presidential candidate, penned an op-ed in the Wall Street Journal this week proposing that Congress might end the government shutdown and avoid a cataclysmic debt default if Democrats agree to cut spending and not raise revenue. There is absolutely nothing new about Rep. Ryan taking this approach. (Although some of his Republican peers are reportedly disappointed that he did not also call for the defunding of health care reform.)

As we recently explained, the President and Congressional Democrats have already completely capitulated to Republican demands on reduced levels of spending to be set out in a “continuing resolution” (CR) to keep the government running. The shutdown resulted from House Republicans’ refusal to approve a CR that did not also defund or delay health care reform, which is an unrelated matter because it is funded separately (and in fact its implementation moves forward even now as much of the government is closed).

We also explained that the need to increase the debt ceiling does not involve increasing the deficit or increasing the size of government, but only carrying out the laws already enacted by Congress. And yet, House Republicans have demanded several policy “concessions” in return for raising the debt limit, which is necessary to avoid a catastrophic default on U.S. debt obligations.

In his Walls Street Journal op-ed, Ryan argues that we should “ask the better off to pay higher premiums for Medicare… reform Medigap plans to encourage efficiency and reduce costs… and ask federal employees to contribute more to their own retirement.”

President Obama, according to Ryan, “has embraced these ideas in budget proposals he has submitted to Congress. And in earlier talks with congressional Republicans, he has discussed combining Medicare’s Part A and Part B.”

Others have pointed out that all of President Obama’s comprehensive budget proposals have, in fact, included the entitlement cuts Ryan mentions, but coupled them with increased revenues. For example, CTJ has explained that the President’s proposed budget blueprint for fiscal year 2014 would have raised revenue by $851 billion over a decade (not counting certain revenue-raising provisions that the President unfortunately wants to use to offset tax breaks for businesses). The idea has always been that the President would agree to some spending cuts if Congressional Republicans agree to a revenue increase.

A graph from the Washington Post shows that the offers traded back and forth between President Obama and House Speak John Boehner leading up to the “fiscal cliff” deal all included significant revenue increases as well as cuts in spending. (Yes, even Speaker Boehner offered significant revenue increases initially).

But Ryan ignores all of that. He argues that a deal to end the shutdown and raise the debt ceiling should include a move towards tax reform that would not raise revenue. “Rep. Dave Camp and Sen. Max Baucus have been working for more than a year now on a bipartisan plan to reform the tax code,” Ryan writes. “They agree on the fundamental principles: Broaden the base, lower the rates and simplify the code.”

Actually, one of the most fundamental principles needed in designing a tax code is determining the amount of revenue you want to raise, and Camp and Baucus have not come to any agreement on that. Camp, like Ryan, has repeatedly called for a reform of the tax code that does not raise any additional revenue, while Baucus has called for a revenue increase without being specific about the amount.

A recent CTJ report explains that the level of revenue the federal government will collect under our current tax laws would equal about 18.5 percent of our economy a decade from now. That’s lower than the level of federal spending for all but a few years over the past three decades. With the retirement of the baby-boomers and the need for public investments in infrastructure, education, nutrition and other programs that will help us thrive as an economy and as a nation, it is simply absurd to call for a budget deal that precludes any increase in revenue.

On Wednesday, the New York Times examined the practice of some U.S. corporations inverting (reincorporating in another country) by merging with foreign companies, and the extent to which this is done to avoid U.S. taxes. This problem is probably somewhat overblown, but to the extent that it exists, there are straightforward ways Congress can address it.

It used to be that U.S. tax law was so weak in this area that an American corporation could reincorporate in a known tax haven like Bermuda and declare itself a non-U.S. corporation. (Technically a new corporation would be formed in the tax haven country that would then acquire the U.S. corporation.) In theory, any profits it earned in the U.S. at that point should be subject to U.S. taxes, but profits earned by subsidiaries in other countries would then be out of reach of the U.S. corporate tax.

But what sometimes happened in practice was that even the profits earned in the U.S. were made to look (to the IRS) like they were earned in the tax haven country through practices like “earnings stripping,” which involves loading up the American subsidiary company (the real company) with debt owed to the foreign parent (the shell company). That would reduce the American company’s taxable profits and shift them to the tax-haven parent company, which wouldn’t be taxable. A 2007 Treasury study concluded that a section of the code enacted in 1989 to prevent earnings-stripping (section 163(j)) did not seem to prevent inverted companies from doing it.

This problem was to some extent addressed by the “anti-inversion” provisions of the American Jobs Creation Act (AJCA) of 2004, resulting in the current section 7874 of the tax code. The problem highlighted in the Times article is that American corporations today can sometimes get around section 7874 by merging with an existing foreign corporation.

It’s a safe bet that some of these mergers really are motivated partly by a desire to avoid U.S. taxes on profits earned in other countries and also to avoid U.S. taxes on what are really U.S. profits but which are shifted into tax havens through earnings stripping. This may well be the case in the three examples cited of American corporations merging with Irish corporations, as Ireland has a low corporate tax rate and has featured prominently in tax schemes used by Apple and other companies.

In other cases, tax avoidance may not be the only factor in firms deciding to merge — as in the examples cited in the article of an American company merging with a French firm and another merging with a Japanese firm. But even in both of these cases, the new companies are to be incorporated in the Netherlands, which has also featured in tax avoidance schemes used by companies like Google, which suggests that tax avoidance is certainly a sweetener in the deal.

One question not addressed is the extent to which an Obama administration proposal to crack down on earnings stripping by inverted companies would resolve this problem. This proposal would basically apply a stricter version of section 163(j), the provision that is supposed to stop earnings stripping, to inverted companies that manage to avoid being treated as a U.S .corporation under section 7874, the anti-inversion provision enacted in 2004.

Specifically, section 7874 treats an ostensibly foreign corporation as a U.S. corporation for tax purposes if (1) it resulted from an inversion that was accomplished (meaning the U.S. corporation became, at least on paper, obtained by a corporation incorporated abroad) after March 4, 2003, (2) the shareholders of the American corporation own 80 percent or more of the voting stock in the new corporation, and (3) the new corporation does not have substantial business activities in the country in which it is incorporated.

Section 7874 provides much less severe tax consequences for corporations that meet these criteria except that shareholders of the American company now own between 60 percent and 80 percent (rather than 80 percent or more) of the voting stock in the newly formed corporation. Section 7874 does not treat these corporations as U.S. corporations, and that may allow them to save a lot of money by stripping earnings out of their American subsidiary companies. The President’s proposal would apply a stricter version of section 163(j), the provision that is supposed to prevent earnings stripping, to these companies (and to companies that inverted before 2003).

Tax avoidance by the corporations resulting from the mergers discussed in the Times article might be curbed by the Obama proposal. To be affected, the new corporations need to be at least 60 percent owned by the shareholders of the American company and also have no substantial business activities in the country where they are incorporated. For example, the merger between an American company and a French company and the merger between an American company and a Japanese company both resulted in companies incorporated in the Netherlands. They may be over 60 percent owned by the American shareholders and it’s likely that they have no substantial business in the Netherlands, a notorious tax-haven conduit.

But even if the resulting company does not meet these tests, Congress should subject them to the stiffer earnings stripping rule. In other words, the administration’s proposal is arguably too weak. For example, even if one of these mergers results in a company that does have substantial business activities in the country where it is incorporated, why should that company be allowed to strip earnings from its American subsidiary companies?

For that matter, the stricter earnings stripping standard that would be imposed under the President’s proposal is one that reasonably should apply to any foreign-owned company. Among other things, it would bar an American subsidiary company from taking deductions for interest payments to a foreign parent company in excess of 25 percent of its “adjusted taxable income,” which is defined as taxable income plus most certain significant deductions that corporations are allowed to take.

This seems like a reasonable standard to apply regardless of whether or not an inversion has taken place. In other words, Congress should enact an expanded, stronger version of the President’s proposal.

In less than a month, Colorado voters will decide whether to abandon the state’s flat-rate income tax in favor of a more progressive, graduated rate tax.  The main purpose of this reform is to raise nearly $1 billion in new revenue each year to offset the disastrous effects that strict constitutional limits on tax collections (i.e. TABOR) have had on the state’s K-12 education system.  But a new analysis from our partner organization, the Institute on Taxation and Economic Policy (ITEP), shows that the proposal would have another benefit: improving the fairness of Colorado’s regressive tax system (PDF).

According to ITEP’s Who Pays? report, the poorest 20 percent of Coloradans currently spend 8.9 percent of their income paying state and local taxes, while the wealthiest 1 percent pay just 4.6 percent of their income in tax.  One reason for this gap is that unlike most states, Colorado’s income tax uses a single flat rate, and therefore doesn’t live up to its potential for offsetting the steep regressivity of sales and excise taxes.

The proposal being voted on in November (Amendment 66) would change this by giving Colorado a fairer, two-tiered income tax.  Specifically, the Amendment would raise the state’s income tax rate from 4.63 percent to 5 percent on incomes below $75,000, and from 4.63 percent to 5.9 percent on incomes over that amount.  If approved by voters, the gap in overall tax rates paid by Coloradans at different income levels would be reduced.  The wealthiest 1 percent would see taxes rise by 0.8 percent relative to their incomes, while lower-income taxpayers would see just a 0.1 percent increase.

Amendment 66 asks the most of those taxpayers currently paying the lowest effective tax rates.  While most families would see a modest increase in their income tax bills under the amendment, just 16 percent of the revenue raised by Amendment 66 would come from the bottom 80 percent of earners.  The bulk of the revenue (63 percent) would come from the wealthiest 20 percent of Coloradans.  And the remainder (21 percent) would not come from Coloradans, but rather from the federal government as Coloradans reap the benefits of being able to write-off larger amounts of state income tax when filling out their federal tax forms.

As the Colorado Fiscal Institute points out, that 21 percent federal contribution is a big deal.  If Coloradans reject Amendment 66 this November, they’ll essentially be turning down $200 million in federal dollars that their K-12 education system could put to very good use.

Read the report

Following the Securities and Exchange Commission (SEC)’s announcement (PDF) that it had closed its review of Apple’s financial disclosures, headlines like “SEC Agrees That There’s Nothing Wrong With Apple’s US Taxes” started appearing, giving the false impression that what Apple has somehow been exonerated for is its tax avoidance practices. The reality, however, is that the SEC is now satisfied that Apple is not violating the rules in the disclosure of its tax circumstances to the agency, which has nothing to do with the legal validity of its tax avoidance methods more generally. In addition, the SEC only closed its investigation after Apple agreed to disclose more information on its foreign cash, tax policies and plans for reinvestment of foreign earnings; that makes it pretty clear that the SEC did not judge the company’s previous disclosures adequate.

Much of the news coverage took its cues from a story at the Dow Jones tech news site, All Things D. called “SEC Clears Apple’s Tax Strategy.” To that site’s credit, it corrected the story, explaining that the article “was updated to make it clear that the SEC’s review concerned Apple’s tax disclosures, not the legality of its tax practices under U.S. tax law, which is the purview of the IRS.” Also relevant is a Los Angeles Times story that ran several days before All Things D’s. It got no significant pick-up from other news outlets because it rather blandly, and accurately, conveyed that this whole thing was simply a step in a bureaucratic process. Unfortunately, the flurry of stories and columns suggesting that Apple had been wrongly convicted in the court of public opinion are still out there, uncorrected, creating an impression that Apple’s tax practices are pure benevolence.  

Going beyond just the misleading headlines, articles like the editorial in the Wall Street Journal turned the SEC letter into an opportunity to argue that the Senate investigation into Apple was really just a “three-ring media circus” created by Senators to “please their political masters.” (Some believe that corporations like Apple are themselves the political masters, but that’s another matter.) But the WSJ editorial misconstrues… everything. The entire point of the Senate investigation and subsequent hearing is that what Apple does may be legal, but it also allows the company to escape paying its fair share in taxes on its high profits.

As Citizens for Tax Justice (CTJ) noted in a May report, Apple has managed to manipulate the international tax system using tax havens to such an extent that it paid almost nothing in income taxes on over $102 billion in foreign profits. While Apple’s abuses of the international tax system are particularly striking, CTJ also found that Apple is joined by companies like Dell, Microsoft and Qualcomm in shifting billions of dollars of profits to tax havens. CTJ was unable, however, to include many other companies engaging in these kinds of manipulations because the SEC is not using its authority to require companies to disclose all the information needed to make these determinations about every company. (Ironically, Apple has been more forthcoming than other notorious tax dodgers like Google and GE.) 

Rather than fixating on whether what Apple does is technically legal, the focus needs to be on how lawmakers can put an end to these elaborate tax dodges altogether. The most straightforward way to stop companies from dodging taxes would be to end deferral (PDF), which allows companies like Apple to indefinitely postpone paying taxes on offshore profits. In addition, lawmakers could follow the recommendations from the Senate investigation’s report (PDF) on Apple, which proposed tightening transfer pricing rules and reforming the “check-the-box” and “look-through” rules in the Internal Revenue Code.

There is mounting public outrage over the way corporations are avoiding U.S. taxes using offshore tax havens, and one move that would encourage Congress to do the right thing sooner would be for the SEC to tighten its disclosure requirements. The agency should ask for more detail on country-by-country income shifting, in particular, since that’s the direction the world is going anyway.  It’s time for the SEC to start exercising the authority it has, and for Congress to stop the revenue hemorrhage that is corporate tax avoidance.

Cartoon by Mike Smith, courtesy the Press Democrat.

Governor Sam Brownback’s tax policies are being challenged by a state legislator who’s running to unseat him, Paul Davis. “Gov. Brownback’s `real live experiment’ is not working,” Davis said, using Brownback’s own description of the extreme tax changes he signed into law. Davis was referring to rising unemployment rates and a new Kansas Department of Revenue report showing revenues are falling below projections. Kansas lawmakers have slashed taxes over the past two legislative sessions and, despite what supply-siders would have you believe, tax cuts really don’t pay for themselves.

The Institute for Illinois’s Fiscal Stability at the Civic Federation in Chicago issued a report describing the lack of movement on fiscal issues as a “lost opportunity” for the state (we agree). Laurence Msall, president of the Civic Federation said, “This year was a lost opportunity as legislators failed to prepare for the extreme financial challenges everyone knows are on the immediate horizon. We see some progress this year on the backlog of unpaid bills, but nothing to address the unresolved pension crisis or to plan for the revenue loss coming next year.”  Next year, the state’s income tax rate is scheduled to be reduced and with that even larger shortfalls in the state’s budget are expected.

Following up a story from last week about Archer Daniels Midland Company (ADM) asking for $20 million in tax breaks from Illinois, Illinois Governor Pat Quinn is now saying that he won’t approve any ADM tax breaks until the state’s pension system has been reformed.

For evidence of why special “tax incentives” don’t work in boosting state economies, look no further than this Washington Post story on the tax breaks that the District of Columbia tried to give LivingSocial last year.  Shortly after being offered $32.5 million to expand its DC presence, the tech company did exactly the opposite, cutting its DC payroll from nearly 1,000 employees to just over 600.  Today, just 244 DC residents work for the company.  Had LivingSocial seen a rising demand for its product, it would no doubt have expanded its payroll and happily collected a $32.5 windfall courtesy of DC taxpayers. But promises of a special tax break aren’t enough on their own to convince a smart business owner to expand.

After three days of debate and backroom deals, lawmakers in Oregon delivered hundreds of millions of dollars in unwarranted tax cuts to businesses as part of the state legislature’s 2013 special session on Wednesday.

The Governor’s objective for calling the special session was to increase education spending, reduce public employee pensions, and limit regulation of genetically modified agriculture, among other priorities. But buried in one of the five bills that came up for consideration – all of which passed on Wednesday – were tax rate cuts for partnerships, limited liability companies, and “S corporations.”

As we and the Oregon Center for Public Policy have demonstrated, these cuts far outweighed increased assistance for working families, which came in the form of a modest increase in the state Earned Income Tax Credit (EITC). Moreover, the budget math only works for the first two years. Oregon’s own Legislative Revenue Office expects the costs of those business tax cuts to grow rapidly starting in 2015, eating away at the limited new revenues in the deal. This will likely create another budget crunch a few years down the road. And despite the political rhetoric about jobs and small business surrounding the tax cuts, the beneficiaries are almost exclusively individuals in the top 1 percent.

Rep. Brent Barton, D-Oregon City, himself a lawyer in private practice, asked an important question about the deal: “What is the message that this Legislature is sending when we cut my taxes 20 percent? We cut taxes on thousands of lawyers, doctors, lobbyists, accountants on the same day that we cut benefits for retirees. What message does that send?”

Unfortunately, advocates for working Oregonians will have little time to recover from the special session fight before they’re confronted with Governor Kitzhaber’s next pet project: weakening Oregon’s so-called “over-reliance” on income taxes.

In recent weeks, Capitol Hill has been fixated on two major deadlines to pass important legislation. One was October 1, when spending authority ran out for many federal operations causing a partial government shutdown because Congress did not enact legislation to continue to fund those programs. The second deadline, which is much more serious, is October 17, when the U.S. debt will reach the existing $16.7 trillion debt ceiling set in federal law, making it impossible for the federal government to entirely meet obligations like Social Security payments and debt payments.

The government shutdown is tragic because it needlessly closes down public services and removes money from the economy with no benefit whatsoever. Breaching the debt ceiling would be catastrophic because it would lead the U.S. to default on its debt obligations, which is difficult to even fathom because much of the global economy is based on U.S. debt (on U.S. Treasury bonds).

Recent reports are that the government shutdown may continue on for some days and some lawmakers may attempt to link legislation to open the government with legislation to raise the debt ceiling.

The two posts below address some important aspects of this situation that you may not have heard about regarding both the shutdown and the debt ceiling.

What You Need to Know about the Government Shutdown

What You Need to Know about the Debt Ceiling

Congressional Democrats have already capitulated to Republican demands on what level of spending should be enacted to keep the government running.

The last government shutdown, which stretched from the end of 1995 into the start of 1996, happened because the parties disagreed about the size of the spending bills that would keep the government funded. Wherever you stand on that issue, you can logically see how such a disagreement might result in no spending bills being approved and a consequent shutdown of the government.

But this year, Democrats have already agreed to the level of spending proposed by the Republicans, at least in the short-term.

Congress has failed to enact the appropriations bills that are supposed to fund federal government operations (in some cases because Republicans could not support the low funding levels they earlier committed to.) But this happens frequently and is addressed by passage of a “continuing resolution” that provides short-term funding to whatever programs and agencies need it until Congress is able to work something out.

The “continuing resolution” (CR) approved by the Democratic-led Senate would keep the government funded for another six weeks — at the levels demanded by Republicans. As the Center for American Progress has explained, if the spending level of the CR was continued for the whole year it would amount to $986 billion in discretionary spending (the part of government spending Congress must approve each year). That’s roughly the same as the $967 billion called for in the most recent “Ryan budget” (the House budget resolution, named after House Budget Committee chairman Paul Ryan).

That’s considerably lower than the $1,058 billion that the Senate sought to spend in the budget resolution it approved in the spring, and much lower than the $1,203 billion in spending in 2014 that President Obama called for in his first budget proposal.

Once the Republican spending level is agreed to for the short-term CR, it is far more likely that Congress will continue funding the government at that same level for the rest of the year.

Put a different way, Congressional Democrats have basically conceded that sequestration of funding for federal programs under the Budget Control Act (across-the-board spending cuts that no one thinks make any sense) would remain intact for the time being. 

So if the parties essentially agree on the spending level, what is the problem? That brings us to the next point…

Congressional Republicans in the House (or a faction of them) have refused to approve the spending legislation needed to keep the government running unless it also includes provisions on the completely unrelated issue of health care reform.

The House Republicans approved a version of the CR that defunded the Patient Protection and Affordable Care Act (ACA, also known as Obamacare). The health care reform law is not even funded by this spending legislation, and in fact its implementation has proceeded this week even while other parts of the government shut down. In other words, Obamacare is a completely unrelated issue that the House Republicans have tacked onto their CR.

The Democrats in the Senate voted to send a “clean CR,” a CR without the health care provisions, to the House. The House then approved a CR with provisions that would delay for one year, rather than defund, the health care reform. (Many Republicans acknowledged that this delay would eventually lead to repeal of the law.)

In addition to the one-year delay of health care reform, this CR also included a provision that would repeal one piece of that health care reform — a tax on medical devices designed to get some of the businesses that would profit from the law’s expansion of health coverage to contribute to support it. Another CTJ post explains why repealing the medical device tax is a terrible idea.

The Democratic majority in the Senate rejected this Republican House-passed CR as well.

The government shutdown does not actually save money and probably increases the budget deficit.

The shutdown that occurred in 1995-1996 actually cost the government $2 billion in today’s dollars. There are a lot of reasons for this. Furloughed federal workers received back pay for the time they were out of work during the shutdown, but even if federal workers don’t receive back pay this time around, it’s not likely that the shutdown will reduce the deficit. Part of that is because of the various fees (for inspections, visas, entrance at national parks) that won’t be collected, as well as the costs of reopening agencies and programs after they’ve been closed.

A prolonged shutdown could reduce economic output generally — fewer people with paychecks means fewer consumers buying goods, which in turn means fewer profits for businesses and less income for people employed by those businesses. This lost income, and the lost taxes that would be collected on that income, is another reason to worry that the shutdown will increase, rather than decrease, the deficit.

The need for Congress to increase the existing $16.7 trillion debt ceiling by October 17 does not involve increasing the deficit or spending but rather allows the government to issue debt to cover the costs of legislation that Congress has already enacted — including interest payments on existing debt.

In most governments around the world, any time a legislature approves spending or tax cuts that create a deficit or increase the deficit, the central bank is authorized to issue whatever debt is needed to accomplish this. The U.S. has a strange law, arising mainly out of a historical accident, which bars the federal government’s debt from rising above a certain level — even though the debt may be on course to blow through that limit because of the spending measures and tax cuts already enacted by Congress.

It’s generally been recognized that it would be irrational for Congress to refuse to raise the debt ceiling when it is necessary to carry out legislation already enacted by the same Congress. Past votes against debt ceiling increases were considered “message” votes, cast when it was clear that the increase would pass both chambers and be signed by the President. (And contrary to claims of Congressional Republicans, most deficit-reduction bills are enacted separately from the debt ceiling increases.)

That changed in 2011, when Congressional Republicans refused to increase the debt ceiling unless President Obama gave them “concessions” (which is a strange word to use when these “concessions” are in return for avoiding a debt default that would cause economic catastrophe for all of us). The concession given by the President was basically the spending caps and sequestration enacted as part of the Budget Control Act of 2011.

This event seems to have led Congressional Republicans to believe that threatening to cause the U.S. to default on its debt obligations is an effective and rational way to extract concessions from the President and the Democrats who control the Senate. This leads us to the next point…

House Republicans (or a faction of them) now refuse to raise the debt ceiling (in other words, threaten that the U.S. will default on its debt obligations) unless several unrelated parts of their legislative agenda are enacted.

The House Republicans have drafted a bill to raise the debt ceiling — and also enact a long list of items on the GOP agenda, including but not limited to: approving the Keystone pipeline, enacting tort “reform,” delaying health care reform for a year, means-testing Medicare, abolishing part of the Dodd-Frank financial reform, and setting up a process to enact a tax reform along the lines of the tax provisions in the most recent Ryan budget. This is the same Ryan tax plan that would provide millionaires with an average tax cut of at least $200,000 annually, as explained in a CTJ report. 

There are extremely strong legal arguments that if the debt ceiling is not raised in time, the President should declare that the debt ceiling itself is illegal and ignore it.

If Congress fails to enact an increase in the debt ceiling before October 17, the President will face laws that contradict each other: on the one hand, laws requiring money to be spent on various programs and debts to be paid, and on the other hand, the debt ceiling which will bar him from borrowing the funds necessary to do this. So if the debt limit is not increased, then President Obama will have to violate the law one way or another. Several government experts and attorneys have examined this issue and concluded that if the President must ignore one of these laws, he should ignore the debt ceiling.

This also makes the most sense as a matter of policy. If the debt ceiling is breached and the President does not ignore it, that will mean that one chamber of Congress can use periodic threats of default to control the executive branch of government, which would completely upend the Constitutional arrangement of separation of powers.

States are just beginning to come to terms with the impact that the shutdown of the federal government will have on state residents. This informative blog post from the Wisconsin Budget Project tells us what programs folks should and shouldn’t be worried about on the state level and links to several resources from The Center on Law and Social Policy (CLASP) that readers might find helpful.

Another day…another company asking for enormous state corporate tax breaks. This time Archer Daniels Midland Company (ADM) is asking Illinois lawmakers for $20 million in tax breaks to keep their headquarters in Decatur. During a House Revenue and Finance Committee hearing, Rep. Barbara Flynn Currie characterized testimony of an ADM executive as “essentially blackmailing the state … saying if you don’t go through this hoop for us, we may think about going somewhere else.”  (H/T POLITICO’s Morning Tax.)

The Tax Foundation and the National Taxpayers Union are urging the U.S. Supreme Court to hear a case that could allow Overstock.com — and other online vendors like Amazon.com — to shirk  their responsibility for collecting state and local sales taxes. While a previous Supreme Court precedent bars states from requiring sales tax collection by vendors who have no “physical presence” in the state (a ban which Congress is considering lifting via the Marketplace Fairness Act, which passed the Senate by a rare bipartisan vote in May), some states have chipped away at e-tax-evasion by interpreting “physical presence” more broadly than others. In New York, for example, Overstock.com has agreements with in-state affiliates to pay for customer referrals, thus requiring the company to collect sales taxes from its New York customers under a 2008 state law that has been upheld by the New York Court of Appeals. While a national solution that levels the playing field between all online vendors and the brick-and-mortar stores who have always collected sales tax is preferable, states should be free in the meantime to require sales tax collection from online retailers who have legitimate ties to their local economies. Hopefully the Supreme Court agrees.

Having already made some backwards moves on the tax policy front, New York Governor Cuomo now appears to be abandoning his commitment to study and improve the state’s tax structure. In December, he announced the New York State Tax Reform and Fairness Commission. The Commission was “charged with addressing long term changes to the state tax system and helping create economic growth.” But instead of going forward with this thorough examination, the Governor has just appointed former Governor George Pataki and Controller Carl McCall to head a task force whose sole objective is to find a way to cut between $2 and $3 billion in taxes next year, in just one year! Maybe the junior Cuomo really does plan on running for President — of Texas.