Category: TaxJusticeBlog

A constant refrain among advocates for tax reform is that there are too many special breaks built into our nation’s tax system.  While some tax breaks are worthwhile, far too many are ineffective, unfair, complicated, or politically motivated.

But even the most flawed tax break typically has some kind of rationale—however flimsy—that its supporters can trot out in its defense.  Without a rationale or purpose, why would a tax break ever be enacted in the first place?

The answer is that sometimes tax breaks get enacted by accident.

Last week, the Oklahoma legislature sent Gov. Mary Fallin a bill—at her request—eliminating just such a break: a state income tax deduction for state income taxes paid.  Oddly enough, Oklahoma taxpayers who happen to claim itemized deductions can currently write off their state income tax payments when calculating how much state income tax they owe.  This bizarre, circular deduction did not come into existence because of its policy merits (there are none), but rather because Oklahoma accidentally inherited it when lawmakers chose to offer the same package of itemized deductions made available at the federal level.

The federal deduction for state income taxes paid exists primarily as a way for the federal government to aid state governments.  In effect, by letting taxpayers write off their state income tax payments, the federal government is indirectly providing states with a portion of the income tax revenue they collect.  Since a state obviously cannot provide aid to itself, however, this rationale is thrown out the window at the state level.  Accordingly, state deductions for state income taxes paid have been described as irrational, absurd, (PDF) and lacking “economic justification” (PDF).

Making matters worse, these purposeless tax breaks actually exacerbate the unfairness built into state and local tax systems.  According to an ITEP analysis, over half (58 percent) of the revenue lost through Oklahoma’s deduction flows to just the wealthiest 5 percent of taxpayers.

The good news is that this deduction seems to be on its way out.  New Mexico and Rhode Island both repealed their state income tax deductions in 2010 and Vermont followed suit in 2015.  Now, after years of urging from the Oklahoma Policy Institute, it appears that the Sooner State will join this group as well.

Once Gov. Fallin signs Oklahoma’s repeal into law, only four states will offer the deduction in full: Arizona, Georgia, Louisiana, and North Dakota.  A fifth state, Hawaii, allows the deduction only for taxpayers earning under $100,000 per year (or under $200,000 for married couples).  These nonsensical deductions may not last long, however, if tax reform advocates (PDF) in the remaining states are successful in their efforts (PDF).

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Icahn Enterprises: How Much Would Carl Icahn Benefit From Tax Reform?

Billionaire investor Carl Icahn has pledged $150 million toward seeding a Super PAC to lobby Congress to help pass his version of corporate tax reform, which likely means the passage of corporate tax breaks like a repatriation holiday. While $150 million seems like a huge amount of money to spend, it’s possible that Icahn may simply be making yet another wise investment.

According to Icahn Enterprises’ financial filings, the company discloses holding a minimum of $962 million in unrepatriated profits offshore and has at least 28 offshore tax haven subsidiaries. If Icahn’s lobbying efforts for a repatriation holiday alone are successful, his company could potentially end up saving more than the $150 million he invested. For example, if Icahn Enterprises is paying the average foreign rate of 6.4 percent on its offshore earnings and the repatriation holiday rate was 5.25 percent (the rate in 2004), Icahn Enterprises could save a cool $234 million in taxes. It’s likely he’d personally profit even more from the repatriation holiday providing a break to companies that he’s invested in, to say nothing of tax breaks Congress might push through.

Airbnb: The Not Sharing Economy

According to a Bloomberg report, Airbnb has set up an “extensive web of subsidiaries” that will allow it to dodge taxes on much of its income. Specifically, Airbnb may be following in Apple’s footsteps by funneling its profits to an Irish subsidiary, which then allows it to escape taxation by shifting its intellectual property to a zero tax country (in this case the Isle of Jersey). Not only do such maneuvers allow Airbnb to get away without paying their fair share in taxes, they also give the company an unfair competitive advantage over more traditional lodging companies who are less able to shift their profits offshore. As more and more of the economy becomes dependent on intellectual property, it will become even more vital that lawmakers act to shut down this kind of offshore tax avoidance.

Coca Cola Enterprises: Earnings Stripping Provisions Already Having an Impact

A recent news report found that new Treasury rules targeting inversions may reduce the tax savings of Coca-Cola Enterprises’ proposed merger by as much $375 million. This report is one of the first instances of companies disclosing that Treasury’s crackdown on earnings stripping, a practice in which intercompany loans are used to shift profits to low- or no-tax jurisdictions, will have a significant impact on the projected tax benefits from a merger. While Coca-Cola Enterprises still plans to move forward with its merger, this report shows that the Treasury rules will help take away tax avoidance as a driver of such mergers.

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:

CTJ’s Take on Trump’s Missing Tax Return and Evolving Tax Plan:
Donald Trump is the first major presidential nominee to not release a full tax return in 40 years. CTJ Director Bob McIntyre writes that Trump may be trying to hide from the public’s view the numerous ways that the tax system is already rigged in favor of wealthy individuals. Read the piece.

The presumptive Republican presidential nominee flip-flopped on his plan to give massive tax breaks to the wealthy before flipping back. Here is CTJ’s take on Trump’s musings.

Tax Migration Myth Refuses to Die
This ITEP piece sets the record straight on the millionaire migration myth. The fabulously wealthy simply do not migrate from state to state in search of low tax rates. Read the full post here.

If It Sounds Too Good to be True…. It Probably Is
Corporate integration sounds like it could be a good thing. After all, integrating implies streamlining and increased efficiencies, but when it comes to taxes and corporate integration the term is simply a ruse for more corporate tax cuts. Read more about Sen. Orrin Hatch’s corporate integration proposal .

Paying for the Boom in Alaska, North Dakota, Oklahoma, West Virginia, and Wyoming
The five states most reliant on the energy sector for economic growth are facing huge budget shortfalls, brought on in part by short-sighted tax cuts made by lawmakers that failed to prepare for this decline. Read ITEP Senior Analyst Aidan Russell Davis’s cautionary tale for other states.

ITEP State Rundown: New Jersey, Oklahoma, Vermont and State Estate Taxes
This week’s Rundown features working family tax credit debates in New Jersey and Oklahoma and a wrap up of Vermont’s legislative session. Read the full Rundown.

Shareable Tax Analysis:

ICYMI: Tax havens may be legal, but there’s something really wrong when American corporations say they earn $46 billion in the Cayman Islands when the entire economy of the Cayman Islands is just $3 billion. For more on tax havens read CTJ’s recent analysis of the 10 most obvious corporate tax haven countries.

If you have any feedback on the Digest, please email me here: kelly@itep.org

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

Let’s establish a few facts for the last time. Santa Claus isn’t real, and neither is the Easter Bunny. There is no pot of gold at the end of the rainbow. Mutant alligators don’t roam the sewers of New York City. And the fabulously wealthy do not migrate from state to state in search of low tax rates.

We’ve dispelled the “millionaire migration” myth a number of times (see here, here, and here). But it seems thinly-sourced anecdotes beat empirical evidence.

The brouhaha over hedge fund honcho David Tepper’s move from New Jersey to Florida is the latest case in point. A few weeks back, The New York Times published a hand-wringing article that claimed Tepper’s relocation could cost the Garden State hundreds of millions of dollars. Frank Haines, New Jersey’s legislative budget and financial officer, noted that the state “may be facing an unusual degree of income tax forecast risk.” Tepper was one of the wealthiest men in New Jersey, earning more than $6 billion over the past three years; sources claim New Jersey could lose out on $300 million in income tax revenue annually to Tepper’s preference for South Beach over the Jersey Shore.

A number of other publications jumped on the story as well. In Forbes, Laffer lackey Travis Brown crowed, “When the departure of just one resident sends your state’s legislative budget office into a panic – it might be time to take a closer look at your tax policies.” Bloomberg blamed the state’s high marginal tax rates, noting that “1 percent of taxpayers contribute about a third of [income tax] collections.” (To the credit of the New York Times, they identify growing income inequality as one factor in lopsided income tax contributions).

It’s a familiar tale. Before David Tepper, it was Gerard Depardieu and thousands of French citizens fleeing high taxes. And before Depardieu, it was Phil Mickelson suggesting he would take his golf winnings and leave high-tax California for a more millionaire-friendly state. Art Laffer and Travis Brown have built a cottage industry peddling these “tax rate arbitrage” stories to amenable legislators and chambers of commerce around the country. But the claims don’t stand up to the barest scrutiny.

Take the case of New Jersey, at the center of the latest drama. Tepper is one man in a state of 8.9 million. He certainly wasn’t the only person to move out or into the state this year. Many observers have highlighted the increasing numbers of people leaving New Jersey, but the out-migration rate for 2014-15 was just 0.9 people per 1,000 residents; overall population increased by 19,169 over the same period. Moreover, the state increased its number of millionaire residents from 207,200 to 237,000 between 2006 and 2015. In 2014 the state ranked second overall in the percentage of households worth at least $1 million – a fact hard to square with the dire predictions of wealth flight.

Additionally there is a mountain of evidence disproving claims that the wealthy move just to pay a lower marginal tax rate on their higher earnings. If Us Magazine has taught us anything, it’s that stars – financial or otherwise – are just like us: they move for job opportunities, a change in scenery, or for personal reasons. In fact, sources close to David Tepper say he moved to Florida to be closer to his mother and sister.

And yet these tax tall tales persist, because they allow anti-tax advocates to push for low marginal tax rates and regressive policies that are more “friendly” to the wealthy. By focusing on the sad story of one fantastically rich person, they conveniently obscure the forest for one money tree.

For example, these low-tax boosters point to Florida, which has a reputation as a “low-tax” state. But by touting the Sunshine State’s nonexistent income tax, they ignore the rest of the state’s hugely regressive tax structure. As an ITEP report notes, “failing to levy an income tax comes at a cost. In order to pay for state and local government services, Florida’s sales and excise taxes are 18 percent above the national average. Measured relative to personal income, Florida has the 13th highest sales and excise tax collections in the entire country.” The bottom 20 percent in Florida – who earn an annual salary of $10,700 on average – pay almost seven times as much of their income in state taxes as the top 1 percent. These low-income working families face the fourth highest state and local tax bill in the country. Few can afford to move elsewhere, and they certainly don’t get coverage in the New York Times when they do.

This has been the aim of pushers of the tax migration myth all along – to skew state tax policies to the few at the expense of the many. In Connecticut, state officials regularly track and forecast the incomes of their richest 100 residents. When one plutocrat makes noises about moving, state officials meet with them and try to persuade them otherwise. Is this the kind of government we want: a rapid response team hyper-focused on a few dozen billionaires instead of the pressing needs of millions of ordinary citizens? Public policies designed to lure the wealthy instead of promoting broad-based economic growth? A friendly handshake for rich hedge fund owners, and a shakedown for the working poor?

Supply-siders would rather we focus on their anecdotes rather than the questions above. 

It seems that each year there is a new “it” tax break for which advocates for cutting corporate tax breaks and their supporters rally. Last year the “it” tax break was a patent box and a few years back it was a repatriation holiday. This year the tax break du jour is the dividends paid deduction.

A dividends paid deduction would allow corporations to deduct from their corporate income taxes the cost of the dividends that they issue to shareholders. In other words, companies would get a tax break for paying out dividends to shareholders. Taken alone, this deduction would cripple the corporate income tax at an estimated cost of roughly $150 billion annually. At a time of growing income inequality and government austerity, enacting a massive cut in one of our country’s most progressive revenue sources would be counterproductive, to say the least.

Advocates of the dividends paid deduction argue that this policy would help end the “double tax” on corporate earnings. The biggest problem with this argument is that it wrongly assumes these earnings are being fully taxed at either the corporate and individual level. On the corporate level, a study by Citizens for Tax Justice (CTJ) found that large profitable corporations pay just over half the statutory rate in federal income taxes, meaning that almost half of corporate income escapes taxation. On the individual level, so much of dividend income is paid to tax exempt shareholders that only 35 percent of dividends are taxable, which means that nearly two-thirds of dividends are escaping taxation on individual side as well.

In addition, there is no reason that many corporations should not be subject to a tax wholly separate from a tax on the individual level. For legal purposes, corporations are treated as separate entities with legal rights and responsibilities (such as paying taxes). Corporations are also granted a series of economic advantages such as limited liability and the ability to be publicly traded.

Advocates of the dividends paid deduction have found a new champion in Senate Finance Committee Chairman Orrin Hatch, who held a hearing on the subject this week and is working on draft legislation that would enact such a deduction. While the details of the proposal have not been made public or scored, it appears that Hatch’s proposal would attempt to stem the enormous cost of the break by enacting a withholding tax that in effect eliminates the tax break for dividends paid out to tax exempt shareholders (which as discussed above constitute nearly two-thirds of shareholders). Even with this withholding tax, Hatch’s proposal would likely cost tens of billions annually.

Rather than buying into the latest corporate tax break fad, lawmakers should instead focus on closing the many outrageous loopholes that pervade our tax system, such as the inversion and deferral loopholes. Closing such loopholes would not only make our tax system fairer, but would also help raise much-needed revenue for public investments. 

Alaska, North Dakota, Oklahoma, West Virginia, and Wyoming.

What do these states have in common?

These are the five states that are most reliant on the energy sector (mining, quarrying, and oil and gas extraction) for their economic output, according to data from the Bureau of Economic Analysis. All of them are also facing budget shortfalls brought on in part by the falling price of energy, and in part by short-sighted tax cuts made by lawmakers that failed to prepare for this decline.

Alaska, Oklahoma, and West Virginia are currently grappling with these issues in contentious legislative sessions. In Alaska, the magnitude of the state’s budget shortfall forced lawmakers to extend their session beyond its scheduled date of completion, while West Virginia lawmakers just returned to their state capital this week for a special session. Lawmakers in North Dakota and Wyoming are not currently in session, but are gearing up to deal with the shortfalls that await them when they return to session in 2017.

In order to close their budget gaps, these states are contemplating whether previous tax cuts should be rolled back, whether new types of tax increases should be enacted, or whether the shortfalls should be closed primarily through deep cuts in public services. On the revenue side, there is also significant variation in the types of tax changes being explored—ranging from progressive income tax reforms to sharply regressive increases in consumption and excise taxes. Each of these five states’ tax and budget debates are discussed below.

In Alaska, lawmakers are facing a budget gap exceeding $4 billion and are currently focused on deep budget cuts and scaling back oil and gas tax credits as part of their extended legislative session. However, those changes alone will not solve the state’s budget problem. Gov. Bill Walker has proposed a broader package of tax policy options, including reinstating a personal income tax for the first time in 35 years and increasing existing taxes on various items and industries. Also on the table are proposals to scale back and restructure the state’s Permanent Fund dividend—an annual cash payment received by the vast majority of Alaskans each year. ITEP analyzed the Governor’s plan in a recent report and found that an equitable solution to the state’s revenue shortfall will require lawmakers to enact a personal income tax.

While Alaska’s tax cutting history is somewhat more distant than in other energy-dependent states, it is also the most dramatic. Following the discovery of oil, Alaska became the only state to ever eliminate a broad-based personal income tax and also started paying out dividends to Alaskans each year from the state’s Permanent Fund. Because Alaska also does not levy a sales tax at the state level, it is forced to rely heavily on oil tax revenues and royalties. For decades, oil revenues filled roughly 90 percent of the state’s general fund, but lower prices and declining production have dramatically reduced the level, and reliability, of those revenues.

West Virginia lawmakers are dealing with a $270 million budget hole this week as part of a special legislative session. During the regular session Gov. Earl Ray Tomblin proposed increasing the state’s tobacco tax and applying the sales tax to telecommunications services. These proposals will be revisited this month, along with a possible increase to the state’s general sales tax rate on either a temporary or permanent basis. Budget cuts and fund sweeps will also be debated, though the West Virginia Center on Budget & Policy notes that the state also has plenty of progressive revenue options worthy of consideration. The decision by previous West Virginia lawmakers to slash business taxes is a major contributing factor to the state’s shortfall. Elimination of West Virginia’s business franchise tax took full effect last year, and over the last several years the state’s corporate income tax was reduced as well.

Lawmakers in Oklahoma, facing a $1.3 billion budget hole with only a few weeks remaining in their legislative session, are weighing changes to income, sales, and excise taxes in addition to reductions in public services. Among the most damaging proposals on the table is an effort to eliminate or pare back tax credits for low-income families such as the state’s Earned Income Tax Credit (EITC) and sales tax relief credit. Oklahoma lawmakers have repeatedly cut the state’s income tax over the past decade, with the most recent reduction triggered this January despite an official “revenue failure.” Today this series of cuts comes with an annual price tag exceeding $1 billion in lost revenue. More sensible options under consideration include rolling back the state’s recent personal income tax cuts or repealing the state’s deduction for state income taxes paid.

North Dakota lawmakers, gearing up for their biennial session in 2017, have seen the state’s revised revenue forecast fall short once again. In response to that shortfall Gov. Jack Dalrymple issued budget guidelines requiring state agency heads to hold budget requests to 90 percent of current spending, signaling that most agencies will face budget cuts of up to 10 percent. This request follows a $245 million reduction this February done in an effort to help balance a mid-biennium revenue shortfall exceeding $1 billion. This is the first time since 2002 a North Dakota Governor has taken such measures. But unlike in other energy-dependent states, Gov. Dalrymple is refusing to consider tax increases and many legislators are promising not to raise taxes. Instead they intend to slash state services and withdraw money from their Budget Stabilization Fund. This painful budget tightening follows multiple cuts to the state’s income taxes over the past decade. In 2015, the most recent cuts led to reductions in both the individual and corporate rates costing the state $108 million over the biennium.

Lawmakers in Wyoming, expecting to be short at least $300 million over the coming biennium, last week weighed whether local governments should be able to impose an optional 2-percent tax on groceries. This tax was rolled back in 2006 in the face of criticism that it disproportionately fell on the state’s poorest residents. Lawmakers also considered raising the state property tax and increasing the tax on wind and energy production. However, only draft bills on the wind tax moved out of committee. In addition to these tax proposals, Gov. Matt Mead recently announced that state agencies must cut their budgets by 8 percent for the biennium. Wyoming has not enacted the same level of tax cuts over the years as in other energy-reliant states, largely because it already relies on such a narrow tax system. Wyoming levies no individual or corporate income tax, relying primarily on taxes on minerals, sales and use, and property.

If lawmakers in any of these states are looking for inspiration to take action, Louisiana and Nevada (ranked #7 and #9, respectively, in terms of their economic reliance on energy) stand out for their willingness to at least begin addressing their shortfalls by increasing tax revenue. Louisiana lawmakers this year, after much negotiation, approved a temporary increase in the state’s sales tax rate, removed sales tax exemptions, raised taxes on cigarettes and alcohol, and extended or reinstated taxes on vehicle rentals, cellphones, and landlines. Louisiana’s Gov. John Bel Edwards plans to call a second special session to continue pursuing revenue solutions. Nevada, in 2015, approved tax measures expected to raise up to $1.1 billion through a cigarette tax increase and the continuation of formerly temporary business taxes. These revenue increases have played a vital role in helping to avoid painful cuts in the face of low energy prices and weakened tax receipts.

States’ heavy reliance on their energy sectors has certainly contributed to their recent budget shortfalls. As energy prices plummeted, tax and royalty revenues fell and lawmakers have been forced to make tough decisions to fill the gaps. But not all of the blame for these states’ bleak fiscal outlooks can be assigned to the volatility of the energy sector. Narrow tax structures and repeated tax cuts, often enacted when energy-related revenues were abundant, have also played major roles in these states’ financial debacles.

Looking ahead, the experience of these states should serve as a cautionary tale for lawmakers prioritizing tax cuts over the long-run sustainability of state budgets.

Thanks for reading the State Rundown! Here’s a sneak peek: New Jersey legislative leaders support pairing a gas tax increase with a boost to the EITC. An Oklahoma coalition urges lawmakers to protect state tax credits for working families in possible budget deal. Vermont legislators end their session with a package of tax and fee increases. New CBPP report shows that state estate taxes reduce inequality and support broad prosperity.

— Carl Davis, ITEP Research Director

New Jersey leaders are finally considering an update to the state’s decades-old gasoline excise tax rate to pay for needed infrastructure improvements.  But while an update to the gas tax is sorely needed, an increased gas tax will disproportionately impact lower- and moderate income families who spend a significant share of their incomes refueling their vehicles.  To deal with this reality, State Senate President Steve Sweeney and Assembly Speaker Vincent Prieto have proposed boosting the state’s Earned Income Tax Credit (EITC) from 30 to 40 percent of the federal credit to offset some of the impact that higher fuel taxes would have on these families. The development comes after Prieto broke with Sweeney and Gov. Chris Christie on a plan to pair a gas tax increase with a repeal of the state’s estate tax. Combining a gas tax increase with enhancements to low-income refundable credits like the EITC is a model worthy of close attention from lawmakers across the country.  This pairing could allow for economically crucial infrastructure projects to move forward without having to pay for them on the backs of working families.

A coalition of clergy and progressive organizations urged Oklahoma lawmakers last week to protect tax credits that benefit over 400,000 working families and seniors in the state. Over the past few months legislators have considered reductions and/or elimination of a variety of tax credits and exemptions in order to close the state’s budget gap, including the state’s EITC, Sales Tax Relief Credit, and Child Care/Child Tax Credit. Low-income families with children can receive benefits from these credits in amounts as high as $300 or more. While scaling back these credits would have a real impact on the ability of vulnerable families to make ends meet, the proposals under consideration would only reduce the state’s current $1.3 billion budget gap by about $76 million. Notably, state legislators have thus far been unable to rein in tax credits and incentives for corporations.

Vermont legislators recently ended their session and passed a $49 million revenue package that relies largely on fees to raise money for home weatherization, increased Medicaid costs, and public sector employee contracts. The package includes a new fee on the registration of mutual funds in the state, which is expected to raise $20.8 million. The package contains a few tax changes as well, including a 3.3 percent tax on ambulance providers and the conversion of the tax on heating oil, kerosene and propane to an excise tax of 2 cents per gallon of fuel. The move from a price-based tax to one based on consumption is meant to offset the effect record low fuel prices. Lawmakers also expanded the state’s lodging tax to include Airbnb and similar companies.

A new report from the Center on Budget and Policy Priorities (CBPP) makes the case for state estate taxes, arguing that they are “a key tool for reducing inequality and building broadly shared prosperity.” CBPP Senior Fellow Elizabeth McNichol notes that only the wealthiest households are subject to the tax – the top 2.56 percent of estates on average in states where the tax is levied. Currently, just 18 states and the District of Columbia tax inherited wealth. You can read the full report here.

If you like what you are seeing in the Rundown (or even if you don’t) please send any feedback or tips for future posts to Sebastian Johnson at sdpjohnson@itep.org. Click here to sign up to receive the Rundown via email. 

Donald Trump said Tuesday he will not release his tax returns before the election because “there’s nothing to be learned from them,” potentially making him the first major presidential nominee not to release a full return in 40 years.  

Perhaps what the presumptive Republican presidential nominee really means is that he has nothing to gain politically by releasing his returns, but the public could learn quite a bit.

For instance, we might discover that despite Trump’s actual earnings, his taxable income isn’t much at all because, as some suspect, he may write off most of his lavish life style as “business expenses.”

If widespread speculation is true, this would mean that American taxpayers are footing the bill for a big share of Trump’s private jet, his golf outings, his mansions, and who knows what else. In a February 2016 article for The National Memo, David Cay Johnston outlines nine “bombshells,” that Trump’s tax returns may reveal, including how arcane tax rules may allow him to remain relatively tax free.

If Trump, who is vying to be the next president of the United States, is living large at the expense of the rest of us, doesn’t the public deserve to know?

During the thick of the Republican primary, Trump vowed to release his tax returns, but he has since resisted by claiming that he cannot release them while the IRS is auditing them. This flimsy excuse is simply not true. In a statement, the IRS wrote, “nothing prevents individuals from sharing their tax information.”

Ironically, Trump in 2012 said that Republican presidential candidate Mitt Romney was “hurt really very badly” by not releasing his tax returns and that Romney should have released them by April 1. No word on why what was good for Romney is not good for him.

Trump in so many words has declared that his business acumen and negotiating skills qualify him for the highest office in the land. In that vein, his tax returns may contain critical insights into how he is using the tax code to build his wealth.

During the 2012 campaign, for example, Mitt Romney’s tax returns exposed a myriad of loopholes that allowed him to pay a paltry 14 percent tax rate on millions in earnings. Specifically, Romney’s returns brought attention to the preferential rate on capital gains and also illustrated how some wealthy individuals use offshore shell companies or avoid taxes through special IRAs.

Given that Trump’s tax plan includes trillions in tax cuts for the wealthy, it isn’t surprising that he may be trying to hide from the public’s view the numerous ways that tax system is already rigged in favor of wealthy individuals like him.

But here’s the thing. A president is accountable to the American people. The electorate must demand more than bombastic proclamations and shouldn’t concede the point when a politician declares, “trust me I know how to get it done.” We should also be wary of allowing a presidential contender to go against the grain of what almost every presidential candidate in the last two generations has done–release at least one detailed tax return. 

Donald Trump may have turned conventional wisdom on its head this election cycle, but we shouldn’t allow him to rewrite critical rules that have helped reveal the character and agenda of our presidential contenders. 

Throughout the 2016 campaign, presidential candidate Donald Trump has claimed he would raise taxes on himself and other rich individuals, even while promoting a detailed tax plan that would do precisely the opposite.                          

Trump this weekend attempted to clarify this inconsistency. He remains, he says, committed to his regressive tax proposal, but he’ll rely on legislative negotiations with Congress to ensure the middle class doesn’t get the short end of the stick. If he means what he says, that’s a novel political tactic, to say the least.

Trump’s inconsistency on taxes came to a head last week, when he responded to criticisms that his plan would lavish huge tax cuts on wealthy Americans by saying ambiguously that he is “not such a huge fan of that.” Trump added that he is “so much more into the middle class” in his approach to tax reform.

Yet Trump’s comments are incompatible with the tax plan he announced last fall, which would reserve a stunning 37 percent of its tax breaks for the very richest 1 percent of Americans while cutting federal revenues by $12 trillion over a decade.

On the Sunday talk-show circuit, a number of interviewers sought to clarify this discrepancy. Speaking on “Meet the Press,” Trump reiterated that his plan would “lower the taxes on everybody very substantially,” but clarified that his negotiations with congressional leaders would likely turn his plan upside down: “For the wealthy, I think, frankly, it’s going to go up. And you know what, it really should go up.”

Trump made a similar forecast in his appearance on “This Week”: “On my plan, they’re going down. But by the time it’s negotiated, they’ll go up.” In other words, Trump stands behind the details of his plan but expects that a Congress suddenly hungry to tax the rich more would turn it upside down. If this is truly his position, it’s perplexing but it means he believes a wholesale failure to pass his tax proposal would qualify as effective leadership.

Presidential candidates routinely seek to appeal to the voting public by proposing vague tax platforms that promise big tax cuts to middle-income families, but they often omit the vital details that would be required to score these plans. Trump has emphatically not taken this approach. To his credit, Trump months ago released a comprehensive and detailed plan that left little open to interpretation. If Trump now thinks his plan is bad policy, he owes it to the American public to outline, in similar detail, what he thinks tax reform should look like.

Thanks for reading the State Rundown! Here’s a sneak peek: Wyoming and North Dakota grapple with declining revenue amid an energy bust. Arizona lawmakers reach a budget agreement. Missouri legislators consider a state EITC, and Missouri judges rebuff Krispy Kreme.

— Carl Davis, ITEP Research Director

State governments across the country continue to grapple with bottom-barrel energy prices, with Wyoming the latest to deal with the fallout. March revenue collections were worse than expected, with sales and use tax receipts $9.3 million below projected levels and severance taxes falling $17.4 million short. Wyoming, which is one of nine states without a broad-based personal income tax, is unusually dependent on the fossil fuel industry to support the state budget. Making matters worse, declining fossil fuel production could also have a secondary impact on sales tax revenue – the largest source of government funding – if demand for goods and services also decreases. Gov. Matt Mead has asked state agencies to cut their FY 2017 budgets by an additional 8 percent as revenues are expected to come in $300 million short over the biennium. Meanwhile, legislators are considering a number of tax increases to shore up the budget. One proposal would allow local jurisdictions to impose a sales tax on groceries—a development sure to worsen the stark regressivity of Wyoming’s overall tax system. Another proposal would increase the tax on producing wind energy, and lawmakers have also considered an increase in the state’s property tax to fund school construction.

North Dakota faces a similar predicament as a result of its extraordinary reliance on the fossil fuel industry coupled with historically low energy prices. This week, Gov. Jack Dalrymple asked state agency heads to hold 2017-2019 budget requests to 90 percent of current spending levels, but made exceptions for the departments of corrections and human services and K-12 spending. It is the first time since 2002 that a governor has issued budget guidelines mandating cuts. North Dakota was the only state to weather the recession thanks to the oil boom. Instead of sound fiscal management, leaders there cut taxes repeatedly when times were good and severance tax revenues were high. Now, the governor refuses to consider tax increases. Agency budgets were already reduced by $245 million in February to help balance a mid-biennium $1.03 billion revenue shortfall.

After an extended session, Arizona lawmakers have reached a budget deal. The Arizona Legislature approved a $9.6 billion budget that includes $29 million in (mostly) business tax cuts. If the budget is signed by Gov. Doug Ducey, corporations will get a number of perks, including $8 million in bonus depreciation and $7 million in sales and use tax exemptions for manufacturers. However, the budget does not include a children’s health insurance program for 30,000 kids that would have been funded by the federal government at no cost to the state.

Missouri legislators will consider legislation that would cut taxes for working families in the state. Senate Bill 1018 and House Bill 1605 would both create a state Earned Income Tax Credit (EITC) based on the federal credit. Households that qualify for the federal EITC would receive a non-refundable state EITC equal to 20 percent of the federal EITC. Most of the benefits would support families with income ranging from $20,000 to $37,000 annually. The Missouri Budget Project, citing ITEP numbers, estimates that these families would see an average tax cut of $54 to $289, giving a needed boost to these families and Missouri businesses.

In wackier Missouri tax news, the Missouri Supreme Court ruled against pastry purveyor Krispy Kreme. In what some observers termed the “doughnut hole loophole,” Krispy Kreme demanded a state refund on sales taxes paid after arguing its products were groceries. State law places a 1 percent tax rate on groceries but a 4 percent sales tax on foods made to be immediately eaten. The firm noted that many customers take their doughnuts home to consume later, but the judges didn’t buy it. 

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