Tag: TaxJusticeBlog

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.

Companies Avoiding Billions in Taxes Spent Millions Lobbying Congress on Taxes
Just 10 companies, with $338 billion in offshore earnings among them, spent $59.8 million lobbying Congress in the first six months of 2016. Correlation? We think so. Read more

State Tax News

Coloradans to Vote on Universal Health Care Ballot Initiative
On Election Day, Colorado voters will decide whether to implement ColoradoCare, a universal healthcare plan (it would be the nation’s first) that would provide medical coverage to all Colorado citizens. Of course the proposed measure has friends and foes. Read more

Legalizing and Taxing Toking
Arizona, California, Maine, Massachusetts and Nevada are all considering ballot initiatives to legalize marijuana. States that already allow recreational marijuana sales have shown that legalizing and subjecting marijuana to sales taxes can raise millions in revenue. Read more

Louisiana among States Considering a Gas Tax Increase
While the federal government may not be interested in raising its gas tax anytime soon, 19 states have enacted gas tax increases and/or reforms since 2013.  And all signs are pointing toward that number growing in the months ahead. Louisiana is among the states that will seriously consider a gas tax increase in 2017. Read more

State Rundown: Uber and State Revenue Challenges
That Uber or Lyft ride in Pennsylvania will soon be 1.4 percent more expensive; Wyoming lawmakers punt on raising new revenue in spite of a large revenue shortfall; South Dakota will face revenue challenges in 2017, and the other tax cuts passed as part of New Jersey’s gas tax bill will create revenue-raising challenges. Read more

If you have any feedback on the Digest or tax stories you’re watching that we should check out too, please email me rphillips@itep.org 

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

On Election Day, Colorado voters will decide whether to implement the nation’s first universal healthcare plan.

Amendment 69 would establish ColoradoCare, a healthcare financing system that would provide medical coverage to all Colorado citizens without copays, coinsurance, or deductibles. Upon full implementation, the state would pay for the plan with a 10 percent payroll tax. About 6.67 percent of the tax would be paid by employers and 3.33 percent by employees. The state taxable portion of non-payroll income, such as capital gains, rental, or pension income, would also be subject to the full 10 percent tax paid via the personal income tax. Colorado citizens who receive healthcare from Medicare, the Veteran’s Administration, Federal Employee Health Benefits Plan, TRICARE (for military and dependents), and Indian Health Services, would maintain their current coverage. ColoradoCare would replace Medicaid and the state-run ACA marketplace. Citizens could opt out of ColoradoCare and purchase private insurance, but they would still be subject to the payroll tax.

A grassroots collaborative that ultimately formed Universal Health Care for Colorado initiated the ballot initiative. Proponents argue the plan will provide comprehensive care at a lower cost not only by reducing administrative costs, fraud, and duplication, but also by increasing purchasing power for bulk drugs and medical equipment.

Opponents are more skeptical, particularly of the financing method. Many who oppose the measure argue the payroll tax is insufficient to cover rising healthcare costs and could leave the state with significant unfunded liabilities. The Colorado Health Institute estimated that the proposal would amass an $8 billion deficit after 10 years that would continue to grow. Some groups that support universal healthcare, including the Colorado Fiscal Institute (CFI) oppose Amendment 69)due in part to the unsustainability of the tax.  Opponents have also cited concerns about the lack of gubernatorial or legislative oversight of the 21-member Board of Trustees that would make plan decisions, and lack of coverage for elective abortion care.

A  CFI analysis found that ColoradoCare could result in lower healthcare costs even for those currently without insurance who pay nothing in premiums; however, low-wage earners currently receiving Medicaid could end up paying more if tax credits are not made available. Further, it is unclear if the 10 percent payroll tax would be a sufficient long-term revenue source for financing healthcare, particularly since healthcare costs have grown faster than wages and inflation.

It may sound strange, but there are very few tax policy issues that generate support among lawmakers quite like a gas tax hike—at least at the state level.  While the federal government may not be interested in raising its gas tax anytime soon, 19 states have enacted gas tax increases and/or reforms since 2013.  And all signs are pointing toward that number growing in the months ahead.

Louisiana is among the states that will seriously consider a gas tax increase in 2017, and for good reason.  At the start of next year, the state’s gas tax rate will officially become 27 years old.  Only five states (Alaska, Oklahoma, Mississippi, South Carolina, and Tennessee) have waited longer since last updating their tax rates.  Unsurprisingly, most of those five states will be considering gas tax increases next year as well.

Last week I had a chance to travel to Baton Rouge to speak with the Louisiana Governor’s Task Force on Transportation Infrastructure Investment.  Part of that conversation (PDF) included a look at how growth in construction costs and improvements in vehicle fuel economy have combined to erode the purchasing power of Louisiana’s gas tax by 47 percent since 1990.  And on top of that, we know with almost complete certainty that both of these developments are going to continue to impact the state’s gas tax in the years ahead.

The only way to shore up gas tax revenues for the long run in the face of inevitable inflation and fuel economy growth is to index the tax rate to inflation or some other economic measure.  This sensible reform is growing in popularity.  Five states (Maryland, Pennsylvania, Rhode Island, Utah, and Virginia) as well as the District of Columbia have adopted indexed gas taxes in just the last three years.  Today most Americans live in states with variable-rate gas taxes of some type.

My presentation (PDF) dives more deeply into some of the details—including a discussion of how volatility can be avoided under an indexed gas tax.  But it’s already clear that the big picture issues are well understood in Louisiana.  Department of Transportation and Development Secretary Shawn Wilson says that in his extensive conversations with stakeholders and citizens thus far, “we hear people say we need to invest more” in infrastructure.  And the means of generating that investment are becoming increasingly clear: “at all of the meetings there was a pretty vocal level of support for addressing the gas tax.”

Voters in Arizona, California, Maine, Massachusetts, and Nevada will vote this November on ballot initiatives that, if passed, will legalize and tax marijuana purchased for recreational use.

These states are on the path of Alaska, Colorado, Oregon, and Washington, which already allow the production, taxation, and sale of marijuana to adults for recreational purposes. Should these initiatives pass, the number of Americans living in states with legal marijuana would roughly quadruple, from about 18 million to 75 million, around 23 percent of the U.S. population.

States that already allow recreational marijuana sales have proven that while marijuana taxes are no budgetary panacea, they can raise millions in revenue. For example, as of mid-way through October 2016, Washington has collected $339 million from excise taxes on recreational marijuana since sales began in 2014. Similarly, Colorado collected about $300 million in revenue from marijuana sales between January 2014 and August 2016. For Colorado, this puts marijuana revenue at about 1 percent of the state’s general fund, which is well ahead of the amount collected on alcohol sales, yet still a bit below the revenue collected from cigarette taxes.

Here’s a breakdown of each state’s ballot initiative, including the potential plan to tax marijuana and what level of revenues these states could expect to collect:

Arizona

Arizona’s marijuana ballot initiative would place a 15 percent excise tax on marijuana and marijuana product sales. The revenues generated by this tax would be earmarked such that 40 percent would go to schools for education-related expenses, 40 percent would go to schools to provide full-day kindergarten services, and 20 percent would go to the Arizona Department of Health services to educate the public on the dangers of alcohol, marijuana, and other substances. The Arizona Joint Legislative Budget Committee estimates that this initiative would raise $135 million in extra revenues in fiscal years 2019 and 2020.

California

The California ballot initiative would levy excise taxes on the cultivation of marijuana flowers and leaves at $9.25 per ounce and $2.75 per ounce, respectively. The measure also places a 15 percent excise tax on the retail price of marijuana. A fiscal analysis of the initiative found that it would raise revenues in the high hundreds of millions of dollars to over $1 billion annually.

Of the revenues raised by the taxes imposed by this measure, $2 million would go to UC San Diego for the study of medical marijuana, $10 million per year for 11 years would go to California universities to research and evaluate the implementation and impact of the ballot initiative, $3 million per year for five years would go to the California Highway Patrol to develop protocols to determine whether a driver is impaired due to marijuana consumption, and $10 million, increasing each year by $10 million until reaching $50 million in 2020, would go to grants to promote employment and health and legal services in communities disproportionately affected by past federal and state drug policies. Of the remaining revenue from the measure, 60 percent would go to youth programs, 20 percent to the prevention and alleviation of environmental damage caused by illegal marijuana producers, and 20 percent to programs that reduce the negative impacts on health and safety resulting from the initiative.

Maine

Maine’s ballot initiative would levy a 10 percent excise tax on recreational marijuana. Additionally, jurisdictions can also impose privilege taxes on marijuana cultivation and manufacturing activities. Revenues raised from this tax would be deposited in the state’s General Fund and cannot be used for new state programs, except to train law enforcement personnel around marijuana retail laws and rules. The Maine Office of Fiscal and Program Review estimates that the initiative would raise $2.8 million in additional revenues in 2017 and 2018, and $10.7 in subsequent years.

Massachusetts

The Massachusetts ballot initiative would subject marijuana to the state’s 6.25 percent sales tax and retail marijuana would also be subject to a 3.75 percent excise tax, bringing the total state tax rate to 10 percent. Local municipalities would have the option of adopting an additional two percent excise tax. Medical marijuana would be exempt from these taxes. The Massachusetts Special Senate Committee on Marijuana estimates that the taxes would produce about $60 million in additional revenues. Of the $60 million, about $25 million would be set aside to fund the implementation of, enforcement of, regulation of, and local assistance for state marijuana policy, with the remainder going to the general fund.

Nevada

The Nevada ballot initiative would levy a 15 percent excise tax on marijuana. The revenues from state taxes would go to the State Distributive School Account, while revenues from local sales and use taxes would be distributed to the state and local governments in the same manner that they are currently distributed.

Aaron Mendelson, an ITEP intern, contributed to this report.

A recent analysis by Bloomberg Government revealed that 125 Fortune 500 U.S. multinationals with earnings held offshore spent $230 million lobbying Congress, including on tax issues, in the first six months of 2016.

These and other profitable companies too often claim their tax avoidance strategies are within the boundaries of the law, but they don’t readily reveal how they spend millions lobbying Congress to keep in place or even expand the loopholes that enable rampant tax avoidance.  

A recent Citizens for Tax Justice (CTJ) report found that U.S. multinational companies currently hold nearly $2.5 trillion offshore on which they owe up to $718 billion in taxes. Just 10 companies, with $338 billion in offshore earnings among them, spent $59.8 million lobbying Congress in the first half of this year. Google, which holds $58.3 billion offshore, spent the most, $8 million, lobbying lawmakers. Apple and Pfizer, the two companies with the most cash stashed offshore ($408.5 billion), spent $2.25 million and $6.17 million respectively. The available data does not allow the public to determine exactly how much these companies spent specifically lobbying on tax issues, only the total amount spent on lobbying and whether the company spent any time lobbying on tax issues.

As Congress and a new presidential administration consider action on business tax reform next year, there is every reason to believe that companies will ramp up their spending to maintain the status quo or secure loopholes that will allow them to continue shielding profits from U.S. taxes.

A provision that corporations favor and has secured bipartisan support is a temporary discounted tax rate for companies that repatriate their offshore earnings. This is touted as a way to generate short-term revenue to fund infrastructure or other investment. But this essentially would reward bad corporate behavior and incentivize corporations to resume stashing profits offshore after taking advantage of the one-time discounted rate. Rather than allow companies to get a discount, lawmakers should instead require companies to immediately pay the 35 percent rate that they owe on current and future offshore earnings.

Corporations have demonstrated their willingness to spend millions lobbying Congress to get favorable provisions in the tax code. Ordinary working people have no such clout. The nation’s lawmakers should stand up to corporations and pass meaningful tax reform that will create a needed long-term revenue.

Aaron Mendelson, an ITEP intern, contributed to this report.

This week we are bringing you news of Montana‘s attempt to ban statewide sales taxes, ballot measures to tax e-cigarettes (in California), efforts to enact the nation’s first carbon tax (in Washington state), an initiative to increase income taxes (in Cleveland, Ohio), budget problems in Kansas (along with possible revenue raising momentum), and efforts to address revenue shortfalls in Virginia, Nebraska, and Massachusetts. Thanks for reading the Rundown!

— Meg Wiehe, ITEP State Policy Director, @megwiehe

• Montana‘s Gov. Bullock has proposed banning a statewide sales tax. While there is no state sales tax currently levied, the constitution allows for one up to 4 percent—a possibility the governor wants to do away with. But don’t expect to see any action on this in the near future. Passage requires support from two-thirds of the legislature and voter approval in the 2018 general election.
• If voters approve Proposition 56 in a few weeks, California will become the fifth state to tax e-cigarettes, joining Kansas, Louisiana, Minnesota, and North Carolina.
• Voters in Washington state have the chance to vote on what could be the first carbon tax in the country, a measure that has divided support even within the environmental community.
• As a result of numerous tax cuts, Ohio cities continue to struggle. This November, Clevelanders will consider the city’s first income tax increase in 35 years. To avoid deep cuts to city services, Issue 32 would increase the tax half a percent to 2.5 percent.
• In Kansas, researchers warn that population changes will exacerbate state budget problems, Democrats and moderate Republicans are pushing for the legislature to raise revenue needed for public investments, and Gov. Brownback is making efforts to spread “good economic news” while not ruling out the possibility of a future tax increase.
• Budget balancing measures to address Virginia‘s $1.5 billion revenue shortfall have commenced. Gov McAuliffe has called for budget cuts, canceling state employee pay raises, tapping reserve funds, and reconsidering the state’s choice not to take part in Medicaid expansion. It remains to be seen whether revenue-raising options will be considered during the 2017 legislative session.
• More on revenue shortfalls: Nebraska is one of many states facing a current and projected revenue shortfall. Unfortunately, it is also one of several states where some leaders think the solution to these problems is to make further cuts. In Massachusetts, a $295 million budget deficit has been identified. As a result, Gov. Baker is pursuing workforce reductions and contemplating cross-agency spending cuts. 

What We’re Reading…

• David Cay Johnston digs into IRS data on “HINTs” – people with High Incomes and No Taxes – and finds there are more than you might expect.
• The National League of Cities reports that after ten years, city budgets have almost returned to their pre-recession levels, though many cities in California find that hard to believe.
• The Pew Charitable Trusts summarizes city soda tax referenda in CA and CO, as well as legal challenges to a similar measure in PA. 

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 Meg Wiehe at meg@itep.org. Click here to sign up to receive the Rundown via email.

Over the past 15 years, nearly every state has enacted a cigarette tax increase to fund health care, discourage smoking, or to help balance state budgets. While attempts to address health concerns have merit, the latter is bad public policy. This November, four states have cigarette and tobacco tax ballot measures up for consideration.  

The cigarette tax is a regressive tax that falls disproportionately on low-income taxpayers. These individuals spend more of their income on the tax than their wealthier neighbors, who also tend to be less likely to smoke. However, research has shown that cigarette taxes can be used to effectively discourage smoking, particularly among children and young adults. Every 10 percent increase in the price of cigarettes may reduce overall cigarette consumption by roughly 3 to 5 percent. This statistic is even more compelling for children and young adults who are two to three times more likely to stop smoking as a result of a price increase.

Taking a step back from the specific merits and drawbacks, the use of cigarette taxes to plug budget gaps is bad policy. Taxes exist primarily to help fund and support public services. Cigarette tax increases are often politically feasible and expedient revenue-raisers, and they can help do just that. However, there is a downside.

Aside from hitting low- and middle-income taxpayers harder than upper-income taxpayers, cigarette tax revenues grow more slowly than do most other taxes. This is partly due to the flat per-pack basis of the tax, which will not fluctuate with inflation and will remain stagnant absent policy change or a reversal of declining smoking rates. As a result, cigarette tax revenue declines over time and is unlikely to be sustainable in the long-run.

During 2016 legislative sessions, Louisiana, Pennsylvania, and West Virginia enacted cigarette tax increases to fill structural gaps and support ongoing expenses. While it was vital for these states to raise revenue amid growing shortfalls, broad-based tax changes could have provided a more stable, ongoing source of revenue.

Of the ballot measures up for consideration in California, Colorado, Missouri, and North Dakota, most are driven by health concerns and the realization of revenue savings that could result from reduced smoking rates rather than tools to raise revenue to address shortfalls or support ongoing expenditures.

Here’s a summary of the cigarette tax initiatives that taxpayers will vote on next month:

• California Proposition 56 calls for a $2-per-pack tax increase on cigarettes, an increase from the current state tax of $0.87 to $2.87-per-pack. Revenue raised would be redirected to health care for low-income Californians.

• Colorado Amendment 72 calls for a $1.75-per-pack tax increase on cigarettes, an increase from the current state tax of $0.84 to $2.59-per-pack. Revenue raised would fund a variety of programs, including medical research, cancer and smoking prevention, veteran health, and healthcare in rural and underserved areas.

• Missouri has two different cigarette tax initiatives on the ballot this year, each with quite different funding objectives:
  • Constitutional Amendment 3 calls for a $0.60-per-pack increase on cigarettes in $0.15 yearly increases by 2020, an increase from the current $0.17 state tax (the lowest in the nation) to $0.77-per-pack, and a $0.67-per-pack initial rate fee on tobacco wholesalers. Revenue raised would largely fund early childhood education programs, with additional funds going toward health care facilities and smoking prevention programs.
  • Proposition A calls for a gradual $0.23-per-pack tax increase on cigarettes by 2021, an increase from $0.17 to $0.40-per-pack, and an additional 5 percent sales tax for other tobacco products. Revenue raised would be placed in the state’s transportation infrastructure fund to repair roads.

• North Dakota Initiated Statutory Measure 4 calls for a $1.76-per-pack increase on cigarettes, an increase from the current state tax of $0.44 to $2.20-per-pack, and doubling the tax on other tobacco products from 28 percent to 56 percent. Revenue raised would be divvyed between two trust funds, one for community health and the other to support veteran health care services and programs.

For more information, read ITEP’s brief Cigarette Taxes: Issues and Options that looks at the advantages and disadvantages of cigarette taxes, and cigarette tax increases, as a source of state and local revenue.

One of the measures facing Missouri voters this fall is Amendment 4, which would modify the state constitution to prohibit future expansions of state or local sales taxes to “any service or transaction” not already included in the tax base.

This amendment would severely restrict Missouri’s ability to adjust its sales tax in the future to adapt to economic changes. As we have written elsewhere, expanding the sales tax base to include consumer services is a reform needed to bring state tax codes into better alignment with the 21st century economy, improve the sustainability of sales tax revenues and the many vital services they fund, reduce upward pressure on sales tax rates and other taxes, and remove arbitrary and unfair distinctions in what’s taxed and what’s not. Banning such expansions would prevent any of these benefits from being realized in Missouri.

Most state sales taxes, including Missouri’s, apply to purchases of physical goods but not to most services. And in most cases this is simply because sales tax codes were created in the 1930s when services were neither a large part of the economy nor feasibly tracked and taxed. But while the economy has shifted substantially over time – services were 67 percent of household consumption in 2015 and technology has made it much easier to apply and enforce taxes on services – most state sales taxes have not kept up with the times. A 2007 Federation of Tax Administrators survey identified 168 services taxed in at least one state. Missouri’s sales tax came in as even more outdated than most, taxing only 26 of those services, fewer than all but 12 states.

And the stakes are not low. Sales and similar taxes are crucial revenue streams for states and local governments, making up nearly half of state tax collections nationwide in Fiscal Year 2014-2015, and 43 percent in Missouri specifically. But as currently constituted, they are an unsustainable revenue source. As the economy shifts and sales taxes like Missouri’s remain stuck in the past, state and local revenues and the services they pay for can suffer. In the words of the Missouri Municipal League, which opposes Amendment 4, its approval “could lead to a significant reduction in vital local services, such as police, fire, street maintenance, parks and more.”

To avoid such service cuts without expanding sales taxes to services, the only options are raising sales tax rates or increasing other taxes or fees. At the state level this generally means upward pressure on personal and corporate income taxes, while at the local level the only significant revenue option other than sales taxes is usually the highly unpopular property tax.

Sales taxes, including those on services, are regressive or weigh more heavily on lower-income families than those higher up the income scale. This is a crucial consideration and a strong reason to avoid relying too heavily on sales taxes, but that can be mitigated with targeted credits like the Earned Income Tax Credit and other means that benefit those lower-income families, or by using revenue gained from expanding the sales tax base to reduce the sales tax rate. It is harder to mitigate the fact that taxing goods while exempting services arbitrarily favors the consumers and providers of services over similarly situated people who just happen to purchase or sell goods. And when shrinking tax bases force sales tax rates higher, the wedge between these two groups is driven wider, exacerbating the unfairness as well as any economic distortion it may cause.

Constitutionally banning sales tax modernization in Missouri would prevent the state from matching its sales tax to the economic realities in 2016, much less keeping up with economic changes and technological advances that are yet to come. If the amendment passes, other states should consider it a cautionary tale rather than an example to follow.

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.

An Outrage That Deserves Closer Scrutiny
Through a complex system of state tax subsidies, 10 states are funneling public dollars to private and religious schools and making a mockery of charitable contributions by allowing taxpayers to turn a profit when they donate to private K-12 scholarship funds. Read ITEP analyst Carl Davis’s blog about this practice, or read ITEP’s comprehensive report (State Tax Subsidies for Private K-12 Education).

Hillary Clinton’s Tax Plan Would Raise $1.46 Trillion over a Decade
On Monday, Hillary Clinton’s campaign announced an expansion to the Child Tax Credit. A new analysis of her overall tax plan finds that it would raise federal revenues by $1.46 trillion over the next decade while providing a small tax cut on average to the bottom 95 percent of American taxpayers. The analysis also shows that those in the top 5 percent would see a significant tax increase. Read the analysis. 

OTHER STATE NEWS

New Jersey’s Tax Deal Will Increase Taxes for Middle-Income New Jerseyans
New Jersey made national headlines after lawmakers announced the state will increase its gas tax by 23 cents a gallon. But there is a lot more in the tax package. In a recent blog post, ITEP analyst Dylan Grundman explains income tax cuts would deliver the biggest benefit to upper-income New Jersey residents, while lower-middle and middle-income families’ taxes would increase. Read more

On Revenues and Referenda
In Oregon, opponents and proponents are waging aggressive campaigns on ballot Measure 97, which would increase the state’s corporate minimum tax for businesses with annual Oregon sales over $25 million. If residents vote “yes”, the measure is expected to generate $3 billion a year. Read more

And in Oklahoma, SQ 779 is a constitutional amendment that would raise the state sales and use tax by 1 percentage point. Of the total revenue generated by the new tax, 60 percent would go to providing a salary increase of at least $5,000 for every public school teacher. Read the Oklahoma Policy Institute’s take on this amendment.

The ITEP Weekly State Rundown
This week the rundown highlights news confirming that Kansas’s years of tax cutting have been heavily tilted toward the rich, more lagging revenues in states including Arkansas, Texas and Minnesota, new problems for New Jersey’s budget, and a major new taxpayer boondoggle in Nevada. Read the State Rundown

If you have any feedback on the Digest or tax stories you’re watching that we should check out too, please email me rphillips@itep.org 

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