Category: TaxJusticeBlog

CTJ/ITEP Staff Summer Fun List Selections

We’re in the midst of summer and besides analyzing tax policies and scouring corporate financials, our staff is enjoying the warm temps, sunshine and time outside. Normally we provide summer book recommendations as a way to demonstrate that we are not all tax all the time. But this summer,  we’re really showing our non-wonk range and expanding our picks beyond books.  Enjoy this hodgepodge of staff suggestions and maybe add one or two of them to your things-to-do-this-summer list:

Watch the new documentary “The Price We Pay” by Harold Crooks
Harold Crooks’ “The Price We Pay” provides a deep dive into the offshore tax haven system that has allowed multinational corporations to dodge billions in taxes across the world. No other documentary in recent years has provided such an informative and engaging look into how corporations created the offshore tax system and what we as citizens need to do to stop this behavior. – Richard Phillips

Read Crazy Rich Asians and China Rich Girlfriend by Kevin Kwan

After his hugely successful 2013 book, Crazy Rich Asians, Kevin Kwan followed up with 2015’s China Rich Girlfriend. Both are of the ridiculous guilty pleasure genre. Kwan’s engaging storytelling skills are apparent, but it’s not the narrative arc that will make your jaw drop so much as the glimpse it provides into the lives of the world’s globe-trotting mega rich. Kwan says his books are works of fiction, though loosely based on experiences from his childhood in Singapore. Perhaps Kwan’s descriptions of the opulent lifestyle of super wealthy Singapore denizens are hyperbole. Nonetheless, for a progressive tax policy advocate like me, the books serve as reinforcement that the world’s richest citizens are doing more than just fine, and they most certainly can afford to pay their fair share in taxes. – Jenice Robinson

Read The Fire Next Time by James Baldwin

“God gave Noah the rainbow sign; no more water, the fire next time!” In this short but very heavy work that also inspired Ta-Nehisi Coates’s Between the World and Me, Baldwin writes to his young nephew, attempting to impart a message of hope and love without sugar coating the dismal reality of race relations in the United Sttes. The result is a powerful, poetic , and devastatingly honest confrontation with these issues and Baldwin’s own internal struggle to find the hope and will to push forward. Though it agitates more than inspires, The Fire Next Time will inevitably stir something in you, and you will certainly find it hard to complain about your taxes after reading it. – Dylan Grundman

Read The Green Boat by Mary Pipher

Like Baldwin, Pipher explores an issue that simultaneously threatens our society and our sanity: climate change. Writing that “humans have sailed into an emotional hurricane that no one knows how to navigate,” Pipher draws on her knowledge as a Psychology Ph.D. and her wisdom as a seasoned activist to help her readers get the sea legs and bearings required for this journey. Instead of allowing the enormity and abstractness of the issue to paralyze and depress us, “we can acquire the skills we need to overcome our sense of doom, and discover our capacities for transcendent coping.” Anyone working hard on changing intractable issues – whether they are social inequities, ecological challenges, or misguided tax policies – can learn and benefit from Pipher’s thoughtful and practical advice. – Dylan Grundman

Read Sick in the Head: Conversations About Life and Comedy by Judd Apatow

This is a collection of Judd Apatow’s intimate and candid conversations with big names in the comedy business over the past 30 years. They cover everything from the art of the trade, to contemplative thoughts on life, love, the trials and errors of being a comedy nerd. Given the intensity of the upcoming election and some of the dire budget situations states will face heading into 2017, who couldn’t use a good laugh? – Aidan Russell Davis

Read The Legend Series by Marie Lu

If you are growing weary of political boxing and want to enjoy escapism to a United States that is nearly unrecognizable, reading the Legend trilogy is a must read. Follow teens June and Day on various adventures as they team up to “save” their country. It’s a roller coaster of a young adult trilogy. The New York Times says of the first book “Legend doesn’t merely survive the hype, it deserves it.”  – Kelly Davis

Listen to Marc Maron’s WTF Podcast

I’m enjoying Marc Maron’s WTF podcast that offers Maron’s stand-up riffing accompanied with honest, though-provoking conversations with actors, comedians, directors, and more. He even gets into some juicy policy talk in his garage. – Aidan Russell Davis

Listen to The Mortified Podcast

As an avid journal writer, people watcher, and story lover, this is a delightful podcast full of both laughs and tears perfect for 20 minute walk or car ride. The tagline also works as a good mantra for those engaged in state tax policy debates, especially when things don’t seem to be going so well–“We are freaks, we are fragile, and we all survived.” – Lisa Christensen Gee

Listen to On Being with Krista Tippett

If you’re craving substantive conversations on big topics, look no further than On Being. Exploring the questions,  “What does it mean to be human, and how do we want to live?,” these conversations remind me that there are so many people working for good in the world and helps me connect to additional resources that nourish and keep me energized in my piece of the work towards social transformation. – Lisa Christensen Gee

Listen to The Longest Shortest Time and Mom and Dad are Fighting

I’ve had all the ups and downs and in-betweens of tax policy battles over the last decade plus. But it’s parenting travails that have been on my mind since bringing a second child into this world earlier in the year.  When I want to be reminded that I am not the only mom struggling to get my almost 5 year old to “listen to my words” or trying to remember what it’s like to get a full night of uninterrupted sleep, I turn to two highly recommended podcasts: The Longest Shortest Time and Mom and Dad are Fighting.  I especially appreciate that both are free of judgmental and dogmatic advice and instead focus on fresh stories and takes on parenting life that go far beyond answering mundane questions like “when can I start feeding my baby solids?” that I find myself googling as of late.   – Meg Wiehe

Listen to Lin-Manuel Miranda’s Hamilton

As both a musical fan and tax wonk, it does not get any better than Lin-Manuel Miranda’s wildly successful musical Hamilton. The musical provides a beautiful and entertaining introduction into the life of Alexander Hamilton, the founding father that did more than anyone to set up our nation’s federal tax system. While the musical focuses a lot on the Revolutionary Way and Hamilton’s love life, it does include a fair amount of policy wonkiness. One scene that especially set me aflutter is the battle rap between Alexander Hamilton and Thomas Jefferson over whether the newly formed national government should take on the wars debts of every state. – Richard Phillips

Happy Summer! If you enjoy any of our summer selections let us know! Write to kelly@itep.org or find us on twitter at @taxjustice or @iteptweets

Since the Treasury Department announced new rules in early April designed to stop corporate inversions, some corporate lobbyists have protested loudly. This likely is an indicator the proposed rules would have a real effect on the ability of big multinational corporations to avoid corporate income taxes. The new rules are designed to prevent U.S. companies from merging with a foreign company and reincorporating as a foreign entity in order to escape paying U.S. taxes, a practice known as a corporate inversion.

In recent years, corporate inversions have emerged as a real threat to the U.S. tax base. In fact, the Joint Committee on Taxation (JCT) now estimates that inversions will cost the U.S. Treasury at least $34 billion over the next 10 years. The American people should not have to make up for the revenue hole created by inversions, and in the absence of legislation to curb this problem, the Treasury is right to take whatever actions it can within its legal authority to curb inversions on its own.

Citizens for Tax Justice (CTJ) submitted comments this week in support of two parts of the Treasury’s proposed rules, the Serial Inverter Rule and the Earnings Stripping Rule, while also urging Treasury to take additional action to curb corporate inversions.

The Serial Inverter Rule

Serial inverters are multinational corporations created by repeated inversions. The proposed rule on Inversions and Related Transactions, also known as the “serial inverter” rule, disregards newer inversions in determining whether anti-inversion rules apply to a company, meaning that companies will find it more difficult to circumvent these rules through a series of successive inversions.

We’ve already seen the positive impact of the proposed serial inverter rule in the case of Pfizer, which abandoned its planned $125 billion merger with foreign company Allergan, a serial inverter, shortly after this rule was proposed. This action alone may have already saved U.S. taxpayers as much as $40 billion in taxes on offshore profits that Pfizer could have avoided by inverting.

The Earnings Stripping Rule

Earnings stripping is an accounting gimmick used by multinational corporations to avoid taxes by shifting profits from higher- to lower-tax jurisdictions. Usually, this practice involves a multinational giving subsidiaries in higher-tax jurisdictions (like the United States) loans from subsidiaries in low- or zero-tax jurisdictions (like the Cayman Islands). Because interest payments on these loans are tax-deductible in the higher-tax country and are paid out to the subsidiary in the lower-tax company, the company is able to artificially shift much of its income to the lower-tax jurisdiction.

Treasury’s proposed rule on Treatment of Certain Interests in Corporations as Stock or Indebtedness, or the “earnings stripping” rule, will inhibit multinational corporations’ ability to use this trick to shift profits out of the U.S. by increasing the cost of excessive intercompany loans. This action will curb the incentive for companies to invert because it will lower the amount that companies can permanently shift out of the U.S. tax system if they invert.

A particular strength of this rule is that it applies not only to inverted companies, but to all multinationals doing business in the United States. Cracking down on all earnings-stripping activities will raise badly-needed revenue and will also help level the playing field between multinational corporations that can take advantage of this gimmick and the many smaller domestic businesses that cannot.

More Action Needed

Although these two rules will undoubtedly help to prevent tax-motivated corporate inversions, Treasury should take additional steps to curb this practice. A good starting point would be putting an end to “hopscotch loans,” which occur when inverted U.S. companies escape paying taxes on dividends by making a loan directly to a foreign parent and bypassing the U.S. parent.

Unfortunately, Treasury action can only go so far, and only legislative action can stop inversions cold. The good news is that Congress has available several promising legislative options to shut down inversions, including enacting an exit tax, further cracking down on earnings stripping and requiring that post-merger companies be owned by a majority of the foreign company’s shareholders in order to be considered foreign. The bad news is that lawmakers have not yet shown the political will to take these sensible steps. 

Kelsey Kober, an ITEP intern, contributed to this report.

This week we bring you tax and budget news in Alaska, California, Illinois, New Jersey, North Carolina, and Pennsylvania. Check out the What We’re Reading section below for a good piece on Kevin Durant and the minor role tax rates played in his decision to take his talents to Golden State. Thanks for reading the State Rundown!

— Meg Wiehe, ITEP State Policy Director, @megwiehe

• In advance of bringing the Legislature back for yet another special session next week, Alaska Gov. Bill Walker capped the state’s Permanent Fund dividend (a flat payment made to all Alaskans) at $1,000 next year, down from the 2015 payout of $2,072, and vetoed $1.29 billion in state spending. The dividend cap and service cuts will hit low-income Alaskans the hardest. However, an income tax, proposed in the governor’s New Sustainable Alaska Plan could provide some balance.

• Lawmakers in Pennsylvania agreed on a $31.5 billion spending plan in advance of the midnight June 30 deadline. SB 1073 increases funding to public schools and funds efforts to combat the state’s opioid crisis. However, there is little agreement over how to find the $1 billion plus in new revenue needed to fund it. Gov. Tom Wolf said he will sign the bill “as soon as there is a sustainable revenue package to pay for it…”, but lawmakers only have until Monday, July 11 to reach a compromise before the governor must start using his veto pen.
• On the last day of the 2016 fiscal year, Illinois lawmakers approved stop-gap measures providing long-overdue funding to higher education and human services for FY ’16, six months of FY ’17 funding for the above mentioned and state agency operations, and a full year of FY ’17 funding for K-12 education. While providing some relief for services that have been operating sans funding for the past year, these measures prolong uncertainty and instability by pushing the state’s day of revenue reckoning past the November elections.
• North Carolina lawmakers closed the state’s short session on July 1 without giving final approval to a proposal to enshrine a cap on the state’s income tax rate in the constitution via voter referendum.  However, the agreed upon budget for the new fiscal year includes a new, small income tax cut by increasing the standard deduction from $15,500 to $17,500 (married couples) continuing the state’s march away from reliance on the progressive tax.   

• In New Jersey, after rejecting a weird plan to pair a needed gas tax increase with a mish-mash of tax cuts that would have primarily benefited wealthy New Jerseyans, and then rejecting an even more destructive plan that would have slashed the state sales tax and blown a hole in the state general fund even bigger than the one they need to fill in the Transportation Trust Fund, lawmakers ultimately chose no plan at all and went on vacation. The state has been forced to declare a state of emergency and shut down most roads maintenance and construction. The bizarre saga will continue when the next scheduled Senate session begins on July 11.

• California officials have announced that seventeen (and possibly more) initiatives will appear on the ballot this November. Among them are several tax initiatives,  including extending the current income tax rates on high-income earners, raising the cigarette tax by $2 a pack, and state and potential local taxation on the sale of marijuana if legalized.

 What We’re Reading…

•  The Washington Post’s Wonkblog has a piece explaining that state tax rates were just one very small part of the calculation in Kevin Durant’s decision to sign with the Golden State Warriors over the Miami Heat or Oklahoma Thunder.
• Emmanuel Saez at the Washington Center for Equitable Growth has a new analysis on disproportionate income growth among the top 1 percent and the bottom 99 based on 2015 SOI data. Read the full analysis here.

The rightwing Tax Foundation today released an analysis of Speaker Paul Ryan’s tax plan. Not surprisingly, it found the plan would carry a relatively small price tag over the next decade, reducing federal revenues by only $191 billion. 

This dubious finding sharply contrasts with an analysis released by Citizens for Tax Justice last week, which pegged the 10-year cost of the Ryan plan at  $4 trillion, a figure 20 times larger than the Tax Foundation’s questionable estimate.

What explains the huge gap between these two sets of findings? The main driver is the Tax Foundation’s one-sided approach to “dynamic scoring,” the budgetary practice of assessing the fiscal impact of tax changes by looking not just at the direct effects on tax revenue, but the indirect effects of these tax policy changes on the economy. Before waving its “dynamic scoring” wand, the Tax Foundation assigns the Ryan plan a national debt-inflating $2.4 trillion ten-year cost. But the  magical dynamic effects of the Ryan plan, the Tax Foundation claims, would offset all but $191 billion of that.

An additional difference between the CTJ and Tax Foundation estimates has to do with the “border adjustments” that Ryan proposes for his corporate tax. This would amount to a 20 percent tariff on imports and a tax rebate on exports. There is some controversy about whether the World Trade Organization would find such a scheme acceptable. This means that the $1.1 trillion such a scheme might raise (on a net basis) should not be automatically included in a revenue analysis of the Ryan plan. The Tax Foundation breezily asserts that the tariff would be acceptable, while CTJ thinks that it is quite unlikely. This choice explains most of the remaining difference between the two organizations’ revenue estimates.

But Tax Foundation’s use of one-sided “dynamic scoring” explains the bulk of the difference. Under the best of circumstances, dynamic scoring is fraught with uncertainty. Cutting or increasing tax collections, and cutting or increasing government spending in a way that keeps budget deficits under control, can plausibly have an effect on economic growth.  But there is little or no agreement among economists on the direction of that effect, let alone its magnitude. So an economic model based on this unproven assumption is highly suspicious at best.  

The Tax Foundation’s approach to dynamic scoring notoriously assumes that while tax cuts always spur economic growth, government spending on education, roads and health care has no positive effect on the economy. This one-sided assumption effectively guarantees that any analysis from its model will always find that tax cuts are economically helpful–no matter how devastating their impact on the government’s ability to provide basic services–and tax increases are harmful. For example, studies have found that capital gains tax rates have no meaningful relationship to economic growth, yet the Tax Foundation has previously estimated that higher capital gains rates have such a huge negative impact on growth that raising them would lose revenue.

Further, the Tax Foundation model always finds that tax cuts for the rich will have a wildly unrealistic positive impact on the economy, in essence providing justification to policymakers who continually propose regressive tax policies that many academics have found contribute to growing income inequality.

A more clear-eyed approach to measuring the “dynamic” effect of federal tax changes would at least attempt to quantify the very real—and very beneficial—effect of public investments on the national economy. The Tax Foundation’s unwillingness to admit that government spending can be helpful renders its analysis of the Ryan plan’s revenue impact virtually meaningless.

A new review of 27 major American financial firms’ corporate filings finds that some of the nation’s big banks fail to report the vast majority of their tax haven subsidiaries in their annual Securities and Exchange Commission (SEC) corporate filings. This brazen omission gives even more credence to previous studies about how Fortune 500 companies, banks included, are using tax haven subsidiaries to avoid U.S. taxes on a grand scale.

The companies analyzed include banking and financial services giants such as J.P. Morgan Chase, Wells Fargo, Bank of America, Citigroup, Goldman Sachs, and Morgan Stanley. All told, the 27 firms collectively reported 401 tax haven subsidiaries to their shareholders and the SEC in 2015. However, when these same companies reported more complete information to the Federal Reserve, they revealed they own more than 2,800 corporate subsidiaries in notorious tax haven countries such as the Cayman Islands, Bermuda, Luxembourg, and the Netherlands. In other words, these major corporations are reporting to the SEC, their shareholders and financial analysts at least 85 percent fewer subsidiaries companies than what’s on their actual books. It’s hard to believe such an omission on this vast scale is accidental. The more likely answer is that these tax haven subsidiaries are shell corporations that are part of a broader strategy to stash earnings abroad to avoid paying U.S. corporate income taxes.

How Do They Get Away With This?

Corporations can avoid disclosing subsidiaries to shareholders due to the SEC’s requirement that companies only have to disclose their “significant” subsidiaries. Even the Federal Reserve doesn’t require all subsidiaries to be reported, but does apply a stricter set of criteria for disclosure. CTJ analysts discovered the gross discrepancy between what these financial firms report to the SEC and what they report to the Federal Reserve by reviewing disclosures released to both entities.

Consumers should be concerned about this partial reporting for a few reasons. First, the SEC-mandated annual financial reports are the main source of information readily available to American shareholders who want to understand the financial health—to say nothing of the ethical standards—of the companies in which they invest. Incomplete disclosure means shareholders are routinely receiving a very incomplete view of the structure of the firms they’ve chosen to invest in. Second, if corporations are using shell companies on a mass scale to avoid paying taxes, it ultimately means ordinary working people are going to have to contribute more or the nation will not have enough resources to fund priorities as varies as education, health and transportation.

This finding is doubly troubling because the financial sector is likely not alone in failing to reveal tax haven subsidiary companies. We were only able to discern this information about the financial sector because such companies have both SEC and Federal Reserve reporting requirements. But most U.S. corporations outside the financial sector aren’t regulated by the Federal Reserve, so it is impossible to know the extent to which corporations in other sectors are concealing their tax haven subsidiaries.

Across the Fortune 500, the scope of this non-disclosure is potentially staggering. CTJ’s 2015 “Offshore Shell Games” report found that Fortune 500 companies disclosed over 7,600 tax haven subsidiaries to the SEC in 2014. If the underreporting seen in the financial sector is representative of what is happening with Fortune 500 companies in general, the actual number of tax haven subsidiaries held by this larger group could be closer to 50,000! However, the only way we will be able to discover whether this is the case is if the SEC broadens its requirements so that companies have to report all their subsidiaries and not just the “significant” ones.

Read the Full Report.

In the Tax Justice Digest we recap the latest reports, blog posts, and analyses from Citizens for Tax Justice and the Institute on Taxation and Economic Policy. Here’s a rundown of what we’ve been working on lately. 

Speaker Paul Ryan Proposes “A Better Way” Giveaway to the Super Wealthy

This week CTJ analyzed Speaker Ryan’s so-called “A Better Way” tax plan. In a related blog post, CTJ Director Bob McIntyre writes that “Ryan’s view of tax policy has much in common with the regressive, budget-busting plan Trump sketched out last fall — and in some ways is even more extreme.

As Suspected, Inverted Companies Are Already Engaging in Accounting Tricks to Avoid Taxes

ITEP Director Matt Gardner delves into the latest financial release from Medtronic. The health care giant successfully inverted (AKA renounced its citizenship) in early 2015 and now claims it is headquartered in Ireland. The company’s financials confirm what advocates had suggested would happen: it is likely using accounting tricks to shift U.S.-earned profits into tax haven subsidiaries to avoid taxes.

Financial Companies Don’t Reveal All When it Comes to Tax Havens

This week CTJ released a new report that finds 27 American financial companies are concealing the existence of thousands of tax haven subsidiaries in the financial reports they file annually with the Securities and Exchange Commission (SEC). The 27 companies studied reported a total of 401 tax haven subsidiaries to the SEC, but thanks to other disclosures CTJ found that those same companies own at least 2,800 subsidiaries. Read more here.  

Battered Roadways During Your Independence Day Drive Courtesy of Stagnant Gas Taxes

Independence Day weekend isn’t the only thing arriving tomorrow. Most states will be starting new fiscal years on July 1, and a handful of them will be adjusting their gas tax rates to mark the occasion. Even more states have gas taxes that are frozen in time. In this blog post ITEP Research Director Carl Davis highlights why it’s necessary for states to keep their gas taxes up to date.

Guest Blog Post Louisiana’s Unfinished Business

Jan Moller from the Louisiana Budget Project describes the disappointing outcome of the three legislative sessions held in his state this year. In this guest blog post, Mr. Moller writes, “While elected officials raised enough revenue to avoid the most serious cuts, they left major holes in the budget.” 

State Rundown

In this week’s Rundown we highlight state tax news in New Jersey, North Carolina, Pennsylvania, California, and Wisconsin. Read the Rundown and check out our new “What We’re Reading” section here.

Policy Brief: State Corporate Tax Disclosure

Check out ITEP’s newly updated policy brief on why state corporate tax disclosure is needed here.

Shareable Tax Analysis:

ICYMI:

Last week’s 4-4 decision by the U.S. Supreme Court on President’s Obama’s 2012 and 2014 executive actions on immigration means the President’s executive actions won’t become law. ITEP analyzed the state tax implications of the President’s proposals and found that undocumented immigrants would pay $805 million more in state and local taxes if his executive actions were upheld.

 Our best wishes for an enjoyable Independence Day! If you have any feedback on the Digest or tax stories you’re watching that we should check out too please email me  kelly@itep.org 

Sign up to receive the Tax Justice Digest

For frequent updates find us on Twitter (CTJ/ITEP), Facebook (CTJ/ITEP), and at the Tax Justice blog.

Aside from the ethical concerns around corporate inversions, the clearest case for establishing legislation to prevent this practice is the $2.4 trillion that U.S. multinationals have stashed offshore, and the potential for inversions to help these companies avoid up to $695 billion in U.S. tax on these profits.

But those of us who find the copious corporate tax loopholes that enable corporate inversions problematic also worry that these tax-motivated moves could result in a bigger, longer-term fiscal drain. Newly inverted companies could more easily engage in “earnings stripping,” which occurs when companies use accounting tricks to shift their profits from the United States to foreign tax havens. A new financial release from Medtronic, which successfully inverted in early 2015 and now claims it is headquartered in Ireland, suggests that the health care giant may be engaging in these accounting tricks.

Like many multinationals, Medtronic sells products and services around the world, and the company’s financial reports disclose the location of both the company’s sales and profits. Over the past decade, U.S. sales consistently have accounted for about 58 percent of Medtronic’s worldwide revenue. But since the company inverted last year, the U.S. share of pretax income has fallen precipitously: the company’s last pre-inversion disclosure showed the U.S. representing 54 percent of sales and 46 percent of income, but the company’s newest annual report, covering 2015, shows that while the company derives 58 percent of its revenues from U.S. sales, those revenues only translated into 8 percent of the company’s worldwide income

Earnings stripping is the likely culprit. This scheme typically takes the form of intra-company borrowing: a U.S. subsidiary borrows cash from its foreign parent, and pays interest on the loan to the parent. The interest payments reduce the company’s U.S. taxable income, and the interest income boosts the company’s foreign income — even though the entire transaction amounts to nothing but shifting profits from one corporate pocket to another.

Earlier this year, the U.S. Treasury issued regulations that are designed to reduce the tax benefits of earnings stripping, by treating interest payments of this as non-deductible dividends, rather than as taxable-deductible interest. If the dramatic shifts in the location of Medtronic’s income over the past two years are due to earnings stripping, one can only hope that the new rules will crack down on such tax avoidance schemes in the future.

We’ve got a jam-packed Rundown for you with legislative action coming down to the fiscal year wire. Read about tax happenings in New Jersey, North Carolina, Pennsylvania, California, and Wisconsin. Thanks for reading the State Rundown!

— Meg Wiehe, ITEP State Policy Director, @megwiehe

•  New Jersey lawmakers are coming up against a hard deadline at the end of the month to raise the state’s gas tax and shore up its Transportation Trust Fund (TTF), but continue to insist on pairing it with cuts in other taxes. They appear to have abandoned the weird mix of tax policies they were considering last week, but the new plan backed by Gov. Christie and Assembly leadership is even more destructive. The plan would slash the state sales tax rate from 7 percent to 6 percent and quintuple an existing tax break for retirement income, and is a net revenue loss for the state as a whole, draining the General Fund of more than $17 billion over 10 years.
• The North Carolina Senate gave final approval on Tuesday to its radical measure to enshrine in the state constitution a 5.5 percent cap on the personal income tax rate.  If the House signs off, the fate of the state’s ability to fairly and adequately fund vital public services will be in the hands of voters in November.   As our guest blogger Cedric Johnson wrote earlier in the month, the cap would forever lock in recent tax decisions that have primarily benefitted wealthy North Carolinians, force higher sales and property taxes, tie the hands of future lawmakers, and cut off a vital source of revenue needed to invest in education and healthy communities. 

• Up against tomorrow’s budget deadline, Pennsylvania lawmakers are charging ahead with a budget bill. The bill passed the House Tuesday evening and now moves to the Senate where it will likely face scrutiny over whether it is truly balanced. The $31.6 billion budget includes a dollar per pack increase to the cigarette tax, revenue gains from changes to liquor laws, expanded casino gambling, and a one-time tax amnesty program.

• California Gov. Jerry Brown signed the FY17 budget bill on Monday, which includes added investments in higher education and child care, an additional $3 billion for the state’s rainy day fund, and a $1.75 billion cushion to account for lower-than-expected revenues or higher-than-expected costs. While in good standing this year, the state faces a $4 billion deficit if higher income tax rates for the wealthy aren’t extended in November.
• Deficits, delays, and more short-term borrowing appear to be Wisconsin Gov. Scott Walker’s continued approach to the state’s transportation funding crisis. The governor recently reiterated his opposition to raising the gas tax or vehicle registration fees without an equal cut elsewhere when advising agencies on their 2017-2019 budget requests, signaling that the long-term transportation funding solution lawmakers have been working for over the past several years is likely still a ways off. 

What We’re Reading…

• The Washington Post on a growing trend among states to explore mileage taxes to address inadequate gas tax revenues.
• With growing income inequality, the Institute for Policy Studies identifies significant tax reform campaigns to watch.
• Mayors grapple with new economy player Airbnb and how to respond to disruption of hospitality industry tax collections.
• The annual KIDS COUNT Data Book identifies the EITC as one of the best policies to encourage work while improving the lives of children in low- to middle-income families.
• Check out ITEP’s updated policy brief on state corporate tax disclosure. 

Since House Speaker Paul Ryan signaled his support of Republican presidential candidate Donald Trump earlier this month, the pundit class has continually speculated whether Trump is “conservative enough” and how Trump’s policy agenda would align with the party’s standard bearers.

With last Friday’s release of Ryan’s blueprint for tax overhaul called “A Better Way”, it is apparent Ryan’s view of tax policy has much in common with the regressive, budget-busting plan Trump sketched out last fall — and in some ways is even more extreme.

The most obvious similarity between the two plans is their cost. At a time when the nation faces pressing budget shortfalls in both the short- and long-run, further reducing our already low tax receipts is a recipe for fiscal disaster. Yet both Ryan and Trump seem unconcerned by this. While the $4 trillion, 10-year estimated cost of Ryan’s tax cuts is dwarfed by the $12 trillion cost of Trump’s plan, any tax reform proposal with a price tag that includes the word “trillions” is exceedingly out of touch with the harsh fiscal realities facing the federal budget going forward.

Speaker Ryan and Trump also appear to have similar philosophies about who should be the biggest beneficiary of their tax largesse. Ryan’s proposal raises the stakes, taking Trump’s top-heavy approach to a new level. CTJ’s analysis finds that candidate Trump would give 37 percent of his tax cuts to the top 1 percent of Americans. Our analysis of Ryan’s plan finds it would reserve a staggering 60 percent of its tax breaks for this small privileged group. In fact, the top one-tenth of the top 1 percent would enjoy 35 percent of the Ryan tax cuts.

Candidate Trump and Speaker Ryan also appear to have similar views about corporate taxes. Trump’s plan would reduce the yield of the corporate tax by $2 trillion over the next decade. Ryan’s plan outdoes Trump’s, with an estimated price tag of $2.5 trillion over 10 years. To put this in context, the price tag of Ryan’s plan is more than half of what the corporate income tax is projected to bring in over the next 10 years. While both candidates would sharply reduce corporate tax rates, Ryan would make matters worse by moving to a territorial tax system that would allow multinational corporations to indefinitely continue the charade of pretending that a large share of their profits are earned in foreign tax havens. Both proposals to slash corporate tax collections come at a time when profitable Fortune 500 companies are paying only about half the current statutory tax rate, federal tax collections are at record low levels and U.S. corporate taxes as a share of the economy are substantially smaller than corporate tax collections in most other developed nations.

To be sure, there are differences between the approaches Ryan and Trump would take to cripple our revenue-raising capacity. But the two blueprints for tax change outlined by Ryan and Trump are notable both for their stark favoritism toward the rich and the yawning budget holes they would create for our nation in years to come.

Read the full analysis of Ryan’s tax plan.

Thanks to Jan Moller from the Louisiana Budget Project for guest posting for us about the end of Louisiana’s three legislative sessions held this year. Find a more detailed commentary on what was and wasn’t accomplished here (PDF).

The three sessions that comprised the 2016 Louisiana Legislature should be remembered as much for what was accomplished as what wasn’t. While elected officials raised enough revenue to avoid the most serious cuts, they left major holes in the budget that will impact students from kindergarten through college and set back the state’s efforts to reform its criminal justice system.

Perhaps more importantly, legislators failed to make the long-term structural reforms needed to put Louisiana’s budget back on solid footing. That means the work of building a fairer and sustainable revenue and budget structure must continue next year, as many of the revenue measures that were passed in 2015 and 2016 come with expiration dates. The Legislature didn’t fix Louisiana’s fiscal problems so much as it bought some time for real reforms to be made.

Gov. John Bel Edwards and the Legislature deserve credit for ending the pernicious practice of balancing the budget using “one-time” dollars that have no replacement source in future years. The 2015-16 budget was built with $826 million in one-time dollars, which contributed greatly to the initial $2 billion shortfall in the fiscal year that starts July 1. Next year’s budget is free of such “funny money,” and represents a more honest balance between revenues and expenses.