Category: TaxJusticeBlog

From Duluth to Edgerton the wheels of Minnesota government will start turning soon.  Wednesday morning Governor Mark Dayton signed into law legislation that will end the nation’s longest state shutdown in a decade. The compromise legislation was passed during a marathon legislative session that started Tuesday and ended early Wednesday morning. 

Governor Dayton and the legislature finally came together in a compromise that balances the budget by delaying payments to schools and issuing bonds against future tobacco settlement monies. Despite wide voter approval, the progressive tax policy proposals that the Governor pushed during his campaign and during the budget fight never came to fruition.

The Minnesota Budget Project (MBP) reminds us that the compromise reached comes at a huge cost. For example, in the budget agreement higher education was cut by $351 million.  The compromise budget also includes a $54 million cut to transportation. Obviously, it’s a good thing that Minnesota will be up and functioning shortly, but in terms of spending and taxes, the budget is a real disappointment after Governor Dayton’s promising start.  MBP puts it best, “the compromise agreement means Minnesota will fail to maintain the investments we need to create the workforce of the future.”

Photo via Governor Dayton Creative Commons Attribution License 2.0

Twice in a span of just three days, the Wall Street Journal has run articles suggesting that anti-tax Minnesota lawmakers got their way because the voters were on their side.  This couldn’t be further from the truth.

Last week, in an effort to end an increasingly costly shutdown of the Minnesota government, Governor Dayton ended his push for a much needed tax increase on the state’s wealthiest residents.  As the Governor explained, “continuing the state government shutdown would be … destructive for too many Minnesotans.”  A budget, without the tax increase, will likely be enacted some time this week.

While it’s disappointing that the Governor was unable to secure the enactment of one his most significant campaign promises, this may have been the best outcome possible given the level of stubbornness exhibited by anti-tax Republicans.  It was not, however, the outcome that Minnesota voters wanted.

Polling from just before the shutdown made clear that a full 63% of Minnesotans wanted their elected officials to enact a tax increase on the richest 2% of taxpayers.  The same poll also showed that voters viewed Gov. Dayton much more favorably than the state legislature’s Republican majority.

With this in mind, the level of spin contained in a pair of recent Wall Street Journal opinion pieces is nothing short of astounding.

In a bizarre July 16 article that railed against “socialist holdouts,” “the welfare state,” and “perhaps the most liberal governor in the country,” one op-ed writer claimed that Republicans succeeded because they “reflected more accurately the electorate’s mood.”

Just two days later, Stephen Moore wrote in the Journal that Gov. Dayton “blinked” because “Minnesota voters seemed to understand that the state would only make its economic troubles worse” by raising taxes.

It’s true that Minnesota’s forthcoming “compromise” budget will be heavily tilted in favor of Republican legislators’ priorities, even though most Minnesotans do not share those same priorities. 

The Wall Street Journal’s opinion pages are famous for this kind of journalistic fiction.  A more interesting question is whether other news outlets will do any better in representing the opinions of ordinary Minnesotans.  The fact is, raising taxes on the richest of the rich is widely popular across the country yet strangely invisible from most media coverage of budgets and taxes.

Amazon.com announced this week that it plans to bankroll a California ballot initiative that would make it easier for online shoppers to commit sales tax evasion.

At issue is a new California law expanding the group of retailers required to collect and remit sales taxes.  Virtually every traditional “brick and mortar” retailer, as well as a number of online retailers, is already required to collect sales taxes on every sale they make.  Absent this requirement, California’s sales tax law would be basically unenforceable.

But many online retailers are able to skirt this collection requirement because they lack a so-called “physical presence” in the state, like a warehouse or a store. (By contrast, Amazon.com does have a physical presence in the state even though they claim otherwise.)  This unfortunate reality came about because of a misguided US Supreme Court ruling from nearly two decades ago, and the result of this arrangement has been completely predictable.

While Californians who shop at Amazon.com are required to pay sales taxes directly to the state, only a small number actually do so.  But rather than attempt to track down these tax scofflaws one by one, California recently enacted a law that increases the number of retailers required to help the state enforce its existing sales tax laws.  Specifically, online retailers that partner with California businesses to generate sales are now required to help collect sales taxes, just like most other retailers operating in the state.

Evidently, Amazon views its ability to offer an open highway for sales tax evasion as a huge advantage over its competitors.  To protect that advantage, the company plans to spearhead an effort to collect half a million signatures in order to get a measure repealing the new law onto the ballot in either February or June of 2012.  Presumably, the company is also planning to spend the big money needed to combat what the California Retailers Association has already promised will be a major opposition campaign.  The fact that Amazon views sales tax evasion as so central to its business strategy that it’s willing to take these radical (and costly) steps is an enormous revelation.

Of course, as we’ve pointed out before, this is hardly the first time that Amazon has resorted to aggressive tactics to combat tax policy it dislikes.  And California is learning the online giant will go to great lengths to avoid doing what most every retailer has to do every day – collect sales taxes.

Photo via Markuz Creative Commons Attribution License 2.0

“Relieved, but not celebrating” is one of the headlines in Friday’s StarTribune. Governor Dayton and the state legislature finally reached a compromise that would balance the budget and reopen the state by delaying payments to schools and issuing bonds against future tobacco settlement monies.

In his statement to lawmakers Governor Dayton said, “despite my serious reservations about your plan, I have concluded that continuing the state government shutdown would be even more destructive for too many Minnesotans. Therefore, I am willing to agree to something I do not agree with — your proposal — in order to spare our citizens and our state from further damage.”  In his statement the Governor listed three conditions:

1) The removal of social policy issues from further consideration this year (like requiring voters to bring identification to the polls or ending taxpayer funding for abortions).

2) Dropping a provision which would have required a 15 percent across the board reduction in the number of state employees.

3) Support for a $500 million bonding bill to “put people back to work throughout Minnesota.”

The details of the budget are still being worked out, but the state will likely be up and running in just a few days.

Obviously this compromise is a huge blow to tax fairness advocates. Dayton had previously campaigned on and proposed raising taxes in a progressive way to avoid making radical cuts. Delaying payments and issuing bonds is not a fiscally responsible way to solve Minnesota’s budget problems over the long term.

Dayton closed his statement this way: “I urge the members of both of your caucuses to consider carefully the advisability of supporting alternative sources of revenue, which would provide better, long-term financial stability for Minnesota than the two sources in your offer.” It’s a real shame that his words are falling on deaf ears; by all accounts, substantial, beneficial tax reform is going to be shelved for the time being.

Photo via Governor Dayton Creative Commons Attribution License 2.0

On Wednesday, the Center for Media and Democracy (CMD) unveiled “ALEC Exposed,” a new website showing how corporations and right-wing politicians have partnered through ALEC to spread anti-tax legislation and other damaging bills.  The website includes over 800 model bills released for the first time by CMD.  

As CMD points out in their press release:

“ALEC has become the premier institution for crafting and promoting model legislation and resolutions that largely benefit its corporate members. Until today, it has been difficult to trace the controversial and oddly uniform bills popping up in legislatures across the country directly to ALEC.  The public can now examine the array of ALEC model bills for the first time and link them to bills being introduced in their own state house.”

Notably, this new tool comes exactly one week after we tore apart one ALEC report purporting to measure states’ economic competitiveness.

On Tuesday, Senator Carl Levin (D-MI) introduced the Stop Tax Haven Abuse Act (S. 1346) to help stem the tide of the estimated $100 billion annual tax revenue loss connected to the use of offshore tax havens. In his press conference and floor statement Sen. Levin stated that offshore tax abuses undermine public confidence in the tax system, increase the tax burden on middle America, create and unfair disadvantage for small business, and encourage the movement of jobs offshore.

The bill would give the IRS new enforcement tools to detect and prosecute these abuses. The bill is being championed by a wide spectrum of supporters including small business and the Financial Accountabiltiy and Corporate Transparency (FACT) Coalition.

President’s and GOP’s Positions Both Include Greater Tax Cuts than Spending Cuts

It’s hard to say what will happen with the necessary increase in the federal debt ceiling. But one thing is clear: Almost anything that the President and the Congress can possibly agree upon will not reduce projected budget deficits. Instead, it will increase them.

A new fact sheet from Citizens for Tax Justice explains the problem that both sides want to extend all or most of the expiring Bush tax cuts. And neither side has proposed spending cuts or tax increases large enough to offset the tremendous cost of such an extension.

Read the fact sheet.

Photos via Rusty Darbonne and Talk Radio News Creative Commons Attribution License 2.0

New Jersey Governor Chris Christie used his line-item veto power to rip the legislature-approved budget to shreds earlier this month.  New Jersey Policy Perspective put it best when stating that Christie’s numerous vetoes “did serious damage to virtually every constituency imaginable in this state – except for corporations and the super-rich.”

As expected, he shot down a proposed tax on New Jersey millionaires who make up only .2 percent of all taxpayers in the state.  At the same time, he refused to restore the state’s Earned Income Tax Credit to previous levels, which, at a cost of only $50 million, was no-brainer strategy to provide much needed assistance to struggling low-income working families.

He also stripped away hundreds of millions of dollars for schools, aid to local governments, health care for working families, legal assistance for low-income individuals, and other critical programs. 

New Jersey Senate Democrats are meeting this week to attempt to override Christie’s spending cuts, however, they have been unsuccessful in gaining enough Republicans to join them and so far the vetoes stand.  They have yet to tackle the millionaires’ tax and Earned Income Tax Credit, but given that members are sticking to party lines, there is no realistic chance of restoring either of them.

The New Jersey Assembly Democrats are taking a different approach.  They first announced a plan to hold a series of hearings over the summer on Christie’s vetoes and wait to schedule override votes until the fall, hoping to gain some Republican support along the way.  But, by law, if an override vote fails in the Senate, the Assembly cannot take up a vote on that same issue.   

Despite the fact they are essentially powerless now in overturning Christie’s vetoes, Assembly Democrats are still planning to hold hearings starting next week on the impact of the cuts on children’s programs.  In a statement announcing the hearings, Assembly Budget Chair Lou Greenwald said, “The impact of these cuts demand immediate attention, and we’re committed to trying to find a way to make sure these programs continue to serve children suffering through horrific cases of abuse, illness and poverty.”

Company Accused of Dodging $2 Billion in US Taxes After Calling for Exemption for Tax Haven Profits and Attacking Illinois Tax Hike

A former global tax strategy manager of Caterpillar is suing the company for demoting him after he complained that it was using “tax and financial statement fraud” to avoid $2 billion in U.S. taxes.

Daniel J. Schlicksup’s specific claim is that the company improperly attributed at least $5.6 billion of profits from the sale of spare parts from a plant in Illinois to another unit in Geneva. He alleges that after telling his superiors that he believed the tax avoidance was illegal, they retaliated by transferring him to the company’s information technology division, which is entirely out of his area of expertise.

For their part, Caterpillar representatives have said that the company complies with all laws and regulations, but have not as of yet addressed the specific charges in the lawsuit.

Based on the details released so far, it is unclear how this case against Caterpillar will ultimately pan out. The problem, according to Harvard Professor Stephen Shay, is that a company does not need “much substance” to be considered legal in these circumstances under U.S. law. In other words, even if Caterpillar is using a Swiss subsidiary primarily to avoid billions in taxes, it’s possible that the maneuver could actually be legal depending on the specific details of the subsidiary’s operation.

Caterpillar has long been an especially outspoken critic of corporate income taxes. In May, the company’s CEO called for the US to adopt a territorial tax system, which would be a boon to multinational corporations and a disaster for everyone else.

On the state level, Caterpillar was the first company to protest the recent corporate tax increases in Illinois, where the company is headquartered. They led the opposition to the state increase, despite the fact that their total (all states including Illinois) state and local tax liability represented only a tiny fraction of their costs; a mere 0.7 percent of their global earnings in 2010. In addition, if the accusations prove to have any truth, Caterpillar may have been fraudulently avoiding Illinois taxes as well.

Photo via Cyrillicus Creative Commons Attribution License 2.0

A group of Iowa business leaders recently voiced their support for an increase in the state fuel tax to pay for much needed road repairs. Speaking in front of Governor Terry Branstad’s Transportation 2020 Citizen Advisory Commission, a wide array of business (subscription required to view link) interest groups called for the fuel tax hike, including the Associated General Contractors of Iowa, Iowa Farm Bureau, Iowa Bankers Association, Iowa Motor Truck Association, and the Iowa Good Roads Association.

The Commission is tasked with assessing the condition of Iowa’s roads and the revenue sources used to pay for those roads.  More specifically, the Commission is seeking to address what the state’s Department of Transportation estimates is a $215 million shortfall in transportation spending, relative to the amount of money needed to complete certain high-priority projects. 

Most of those who spoke at the July 7th hearing agreed that the best way to address this shortfall would be through an increase in the fuel tax.  One virtue of the tax is that it functions like a “user fee” in that those who drive more (and wear down state roads more) pay more to have them maintained and repaired.  Advocates for progressive taxes, on the other hand, point out that the gas tax impacts low-income taxpayers most heavily.  If the regressivity of the gas tax is mitigated through an expansion of the state’s EITC, however, an increased gas tax could be a very responsible and equitable way of fixing Iowa’s – or any state’s – deteriorating roadways.

Ultimately, it’s refreshing to see these business leaders – a group that too often exhibits a knee-jerk opposition to all tax increases – recognize that new tax revenues will be absolutely essential in bettering the state of Iowa and its roadways.  Iowa business leaders are well aware that working roads are the kind of infrastructure that allows them to succeed economically and transport their goods and services around the state. It’s also worth noting that the path being urged by Iowa business leaders is preferable to the one taken just next door in Nebraska, where chronic transportation funding shortfalls have been “addressed” by simply taking money away from education and other public services.

Photo via Will Merydith Creative Commons Attribution License 2.0