Tag: TaxJusticeBlog

“Political casualties are mounting fast in the wake of the Panama Papers—a historic leak of confidential documents from a Panama-based law firm that revealed connections between a number of world leaders and nearly 215,000 offshore shell companies.

The prime minister of Iceland has said that he plans to step aside “for an undetermined amount of time” after the Panama Papers revealed that his family owns previously-undisclosed offshore investments. The leak also implicated high-ranking current or former elected officials in countries including Russia, Argentina, Ukraine, Libya and Syria. Even David Cameron, the United Kingdom prime minister who has strongly condemned tax evasion, is facing scrutiny over a shell corporation set up by his late father.”

Read the Full Article at Quartz.

“Almost 70 years ago, Circuit Judge Learned Hand established an important tax principle. To paraphrase the judge, nobody has to pay more in taxes than the law requires, but would-be tax avoiders cannot make stuff up.

Unfortunately, over the years, making stuff up has become the stock in trade of lawyers for U.S.-based multinational corporations, and they too often get away with it thanks to our lax corporate tax laws and their weak enforcement.”

Read the Full Article in US News and World Report

“Anonymous shell corporations and secret bank accounts are vital resources for those engaged in tax evasion and money laundering. But this web of secrecy has started to crumble in recent years due in part to revelations from whistle-blowers embedded in this complex web of tax havens and fake corporations.

The latest leak to the International Consortium of Investigative Journalists (ICIJ), dubbed the Panama Papers, reveals that a single law firm, Mossack Fonseca, facilitated the creation of more than 200,000 offshore entities.”

Read the Full Article at CNN.com

Thanks for reading the State Rundown! Here’s a sneak peek:  New York lawmakers reach agreement on a $4 billion per year income tax cut. Connecticut lawmakers want to repeal their estate tax despite a major budget deficit. Oklahoma lawmakers are dragging their feet on tax increase proposals to close the state’s billion-dollar shortfall. Missouri’s Senate passes a gas tax increase for the first time in decades but the state House and voters will have the final say.

— Carl Davis, ITEP Research Director

Last night, New York’s legislative leaders agreed to a plan to cut personal income taxes by $4 billion per year. The plan, which is being described as geared toward taxpayers earning between $40,000 and $300,000 per year, will be phased-in between 2018 and 2025. Gov. Andrew Cuomo said that the plan “is not being paid for” since its delayed start date pushes its cost outside of the current budget window. A previous proposal championed by Democratic members of the Assembly would have combined $450 million in tax cuts for middle and working-class families with a tax increase on millionaires. Additionally, a group of 40 New York millionaires recently petitioned the state government to raise their taxes, saying they were “deeply concerned that too many New Yorkers are struggling economically, and the state’s ailing infrastructure is in desperate need of attention.”

Despite a looming budget deficit, some Connecticut lawmakers are pushing for repeal of the state’s estate and gift taxes. If the taxes are repealed, the result would be a major giveaway to the state’s wealthiest families at a time when the legislature’s non-partisan Office of Fiscal Analysis projects a $2 billion revenue shortfall over the next biennium. Proponents of repeal argue that the tax encourages well-heeled Nutmeggers to flee to more welcoming climes, but research shows that tax flight is largely a myth. Opponents of repealing the estate tax argue that the state’s tax system has favored the wealthy for decades, and that the hundreds of millions in revenue the tax generates annually are a lifeline for crucial public services. The estate tax is expected to bring in $217 million in FY 2017, and applies only to estates worth more that $2 million.

Legislators in Oklahoma are squeamish about tax increases during an election year, despite the state’s budget woes and the advocacy of Gov. Mary Fallin. Many legislators are dragging their feet on considering the governor’s proposed tax increases or bond issues until they know if they’ll face opposition. Fallin has made a number of suggestions to close the $1.3 billion budget gap, including an increase in the per-pack cigarette tax and expanding the sales tax base to include some currently-exempt services. Without new revenue, state agencies could face cuts of 15 percent or more next fiscal year. Some lawmakers argue that increasing regressive sales and cigarette taxes makes no sense when the legislature recently cut taxes on income and oil and gas production by billions of dollars.

The Missouri Senate approved an increase in the state’s gasoline excise tax for the first time in almost 20 years. The current rate of 17-cents-per-gallon is among the lowest in the country. The Senate would increase the tax by 6 cents to 23-cents-per-gallon, and the new revenue would pay for road and bridge projects. The plan would also require voters to approve the measure at the ballot box. The tax increase now moves to the Missouri House, where it is expected to face opposition.

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.

Thanks for reading the State Rundown! Here’s a sneak peek: Georgia and Idaho lawmakers say no to income tax cuts. The Vermont House passes a budget and tax package. Maryland’s Senate fails to move on manufacturing tax cuts. Nebraska’s legislature advances the governor’s property tax proposal with amendments.

– Carl Davis, ITEP Research Director

Georgia lawmakers ended their legislative session last week without passing a regressive package of income tax cuts. The Senate had passed two bills that together would have cut the top state income tax rate by more than 10 percent, but the House never took the bills up after Gov. Nathan Deal refused to support them. Deal argued that the cutting the income tax, the state’s largest revenue generator, would lead credit agencies to downgrade Georgia’s AAA bond rating. An ITEP analysis also revealed (PDF) that over half the cuts would have gone to the top one-fifth of Georgia earners.

Idaho lawmakers rejected a lopsided income tax cut of their own last week. On Friday the state legislature adjourned without passing any reductions to the state’s graduated income tax rates. Earlier this year an ITEP analysis of one such proposal revealed that while most Idahoans would have seen their taxes fall by $35 or less under the plan, high-income households would have received a benefit of over $800. Ultimately, the legislature prioritized enhanced funding for education over tax cuts.

The Vermont House passed a package of budget and tax bills for FY 2017 last week, sending the state budget to their colleagues in the Senate for consideration. The $5.77 billion budget includes investments in the state college system, access to child care, and community health services. Lawmakers passed a 3.3 percent provider tax on ambulance agencies to pay for an increase in reimbursement rates for ambulance services under Medicaid. An effort to impose a 92 percent tax on e-cigarettes passed out of committee but died on the floor.

Efforts to create tax incentives for manufacturers in Maryland failed this session despite backing from the governor and senior legislators. SB 181, sponsored by Sen. Roger Manno, and SB 386, championed by Gov. Larry Hogan, would have established Manufacturing Development Zones. Under the bills, new manufacturers who located in the zones would pay no corporate income tax and new employees earning less than $65,000 would pay no personal income tax for a designated period of time. New manufacturers could also apply to counties for a property tax waiver. Hogan’s bill would have applied only to poorer jurisdictions, while Manno’s measure would have been piloted in seven counties. Both bills failed to move out of the Senate Budget and Taxation Committee after established manufacturers complained the provisions would hurt their business.

Nebraska Gov. Pete Ricketts’ plan to cut property taxes got a boost this week when an overhauled version passed the Revenue Committee on a unanimous vote. The proposal would increase property tax credits for farm and ranchland owners by $30 million next fiscal year. The bill has received criticism from both sides. Organizations representing farmers and rural interests said the bill doesn’t go far enough, while Renee Fry of the OpenSky Policy Institute (and ITEP’s Board of Directors) warned that it would reduce state revenues and hamper education funding.

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. 

A few weeks ago we wrote about Tax Cut Fever in Georgia, and we have continued to monitor the high temperature of that debate since then.  We are pleased to report, however, that cooler heads ultimately prevailed as the state’s legislative session has ended without passage of either of the damaging tax-cut bills that had been under consideration.

Advocates in Georgia worked tirelessly to educate lawmakers and the public about the potentially damaging impact of two bills — HB 238 to flatten and reduce the state’s income tax (PDF) and SR 756 to amend the state Constitution (PDF) to force that rate down even further over time. ITEP analysis helped show that both were heavily skewed in favor of the wealthiest Georgians and would have weakened the state’s ability to fund its K-12 schools, hospitals, roads, and other services. HB 238 alone would bled the state budget of $281 million to $442 million per year, more than half of which would have gone to the wealthiest 20 percent of Georgians.

One of the strongest words of warning came from former State Auditor Russell Hinton, who advised that slashing state revenues would pose a serious threat to Georgia’s AAA bond rating. In the end, Georgians can be relieved that their representatives made the fiscally healthy decision to keep the state revenue system (and bond rating) intact.

Springtime has traditionally been a fertile period for state tax proposals. This year, some important debates have flourished regarding the scope of state sales tax bases.

In their purest form, sales taxes apply to nearly all of the goods and services purchased by final consumers. Maintaining a broad base and low rate helps these taxes bring in relatively steady revenues and minimizes any interference they may have with the economy. The real world, however, is much more complicated as most state sales tax bases are riddled with special exemptions.

Some of those exemptions have been crafted to advance important policy goals such as limiting the disproportionate impact that sales taxes typically have on low-income families. Others have more to do with the political influence of a given constituency than with principled tax policy. And still others are essentially historical accidents—as the economy and consumption patterns have changed, sales tax laws haven’t always kept up and initially inconsequential tax exemptions have sometimes ballooned in size. 

Shifting Ground 

It’s well-known that the nation’s service sector has grown significantly in recently decades. Today as much as two-thirds of consumer spending is on services rather than goods, and spending on services is the fastest growing area of consumption. But when lawmakers initially designed most state sales taxes in the 1930s, services were a relatively small part of the economy and were typically left out of tax bases. States have been slow to adapt to this change, though there have been some modest steps toward sales tax modernization in places such as North Carolina, as well as ongoing discussions of similar reforms in Arizona, California, Oklahoma, and West Virginia.

While few developments in sales tax policy are as important as the service sector’s growing prominence, the recent growth of online shopping has created another high-profile challenge to state sales tax systems. Under current federal law, states can only force e-retailers to collect the sales taxes their customers owe if those retailers have some kind of “physical presence” in the state. To take just one example, this means that Amazon.com (the nation’s largest e-retailer) is only collecting sales tax from customers in about half the states. For the other half, customers are supposed to be paying the sales taxes they owe directly to the state, but this requirement is unenforceable and very few do so in practice. Ultimately, the sales tax only functions if sellers are collecting and remitting the tax. For years, states have searched for ways to bring a larger number of e-retailers within their sales tax collection systems, and 2016 has been no exception in this regard. Bills taking steps to rein in the untaxed nature of online purchases have moved in Utah and in Oklahoma this year, and a recent federal court case has given states new hope of collecting these taxes as well.

Compared to the growth of the service sector and of online shopping, the rise of websites like Airbnb and apps like Uber and Lyft are extremely new developments with sometimes unclear implications for state and local tax policy. For example, it is not always clear whether Airbnb room rentals are subject to state and local hotel and lodging taxes, or whether Uber and Lyft rides are subject to sales taxes and airport pickup taxes, nor who is responsible for collecting and remitting those taxes if they are due. To their credit, some states and cities are attempting to be pro-active in updating their tax laws and regulations to account for these changes. Gov. Ducey of Arizona took executive action to help ensure that the state’s regulations adapt to the rise of the “sharing sector,” and other jurisdictions such as Cleveland, Philadelphia, San Francisco, Pennsylvania’s Allegheny County, and the state of Alabama have begun grappling with this issue as well.  

Exemptions old and new 

In contrast to the above attempts to ensure that sales tax bases can grow in line with the economy, states are also considering creating new exemptions from their sales taxes. Most state sales taxes already exempt some items deemed to be necessities, such as groceries and prescription drugs. This year has seen many calls to create similar exemptions for other necessities, particularly tampons. Tampon exemptions have already been enacted in a few states and have been the subject of vigorous debate around the country, including a lawsuit in New York, legislative proposals in California, Connecticut, Tennessee, and Wisconsin, and stories in The New York Times, Washington Post, and National Public Radio. 

But determining which items are truly necessities deserving of a tax exemption is not an easy task. As some lawmakers seek to broaden these exemptions, others are arguing that the exemptions already on the books for items such as groceries are too broad because they exempt not just bread and milk, but candy bars and soda pop as well. Last year Vermont removed soda from its broad exemption for groceries and California is considering removing its exemptions for candy and snack food. At the same time, lawmakers in Louisiana and Philadelphia have discussed implementing special excise taxes on soda.          

Healthy debates 

Ensuring that sales tax bases are not eroded as the economy changes is vital to securing adequate revenues for public services such as schools and public safety. But sales taxes are far from perfect, particularly in the way that they tend to hit lower- and moderate-income families the hardest. One tool for lessening sales tax regressivity is to exempt more necessities from the tax, but doing so can also force rates up and increase revenue volatility if the tax collects a larger share of its revenue from “unnecessary” items that people are less likely to buy during economic downturns. With that in mind, lawmakers should keep in mind that there are many tax policy solutions aside from sales tax exemptions that can benefit low-income families in more targeted ways.  

Thanks for reading the Tax Justice Digest. In the Digest we recap the latest reports, posts, and analyses from Citizens for Tax Justice and the Institute on Taxation and Economic Policy. 

Dear Treasury, Act to Stop Inversions
This week CTJ joined with 54 other organizations in signing a letter to the Treasury Department detailing actions it could take to curb inversions. CTJ’s Director Bob McIntyre also wrote his own letter to Treasury that you can read here.

Corporate Tax Watch: How Is This Legal?
ITEP’s Director Matt Gardner scratched beneath the surface of data solutions provider IHS’s proposed inversion. Seems the company’s tax accountants and attorneys have weaved quite a complex web: the company claims only 0.6 percent of its profits are domestic even though 60 percent of its customers are U.S.-based. Read our take on the company’s likely motivation for abandoning its U.S. citizenship.  

McIntyre Op-ed: No Free Lunch in Tax Policy
CTJ Director Bob McIntyre is exasperated with one-sided tax policy discussions. In an op-ed published in The Hill (Tall Tales and Half Analyses), he explains why analyses of tax cut proposals that don’t also talk about the spending and budgetary impacts should be met with a healthy dose of skepticism. “Across-the-board tax cuts would benefit all Americans in the same way that “dropping hundred dollar bills from a helicopter would benefit all those beneath it,” he wrote. “However, in the long-run, tax cuts of this magnitude will have to be paid for, and it won’t be pretty.” Read Bob’s full op-ed here.

New Brief: Tax Breaks for Higher Education Could Do More for Working Families
Every state that levies a personal income tax has at least one tax break for higher education expenses, but often these credits are poorly targeted and, in the end, not the best way to ensure more people have access to higher education. Read ITEP’s Higher Education Income Tax Deductions and Credits in the States brief.

Three States Kick Can Down Crumbling Road on Transportation Funding
Legislators in Indiana, South Carolina and West Virginia all started the year on the right foot, looking at serious proposals to raise new revenue for transportation. Sadly, legislators in all three states did little to permanently fix their states’ transportation problems. For more details read ITEP’s blog post.

Pennsylvania Finally Has a Budget, But There is More Work to be Done.
We’ve kept our eyes on the Pennsylvania budget standoff for some time. Unfortunately, the measure slated to become law on Monday represents a missed opportunity. Read ITEP Senior Analyst Aidan Russell Davis’s take here.

Shareable Tax Analysis: 

If you have any feedback on the Digest, please email me here:   kelly@itep.org To sign up to receive the Tax Justice Digest in your inbox click here. For frequent updates find us on Twitter (CTJ/ITEP), Facebook (CTJ/ITEP), and at the Tax Justice blog.

Three states – Indiana, South Carolina, and West Virginia – started the year on the right foot, looking at serious proposals to raise new revenue for severely underfunded transportation construction and maintenance funds. Sadly, legislators in all three states embraced partial solutions or punted entirely, preferring short-term fixes at the expense of other budget priorities.

South Carolina lawmakers had the chance to pass a significant tax package that would increase revenue for road repairs. In January, the state’s Senate Finance Committee considered a plan that would raise revenue by $694 million annually through a phased-in 12-cent increase in the gas excise tax, along with other transportation-related fee increases. Those increases would then be offset with a combination of $398 million annually in “broad-based” income tax cuts (bracket expansion and rate reductions on the top and bottom brackets), “targeted” income tax cuts (creation of a 3.5 percent refundable EITC and expansions of a few other credits), and some reduction of business property taxes. The offsets were a requirement of Gov. Nikki Haley, who vowed to veto any bill without them. The net effect of this plan would have been somewhat regressive and would have been much worse without the EITC.

However, the unwieldy package that tried to appeal to all legislators was undone by its complexity. For example, the EITC intended to attract progressive lawmakers repelled more conservative lawmakers. After weeks of delay in the Senate and a filibuster, the backers of the more ambitious package caved. Senators instead passed a measure to raid the general fund for more road money, jeopardizing other priorities and failing to solve the state’s structural funding issues. House Speaker Jay Lucas was not pleased. “This plan kicks the can further down the road and into a giant pothole,” he decried. “It’s not really a new idea, and it’s not a solution.” Gov. Haley has urged House lawmakers to accept the Senate’s $400 million punt, but also acknowledged that the state needs a long-term fix.

The debate in West Virginia followed a similar pattern, but began with more urgency due to the ongoing fiscal challenge there. A global downturn in energy markets has hit West Virginia and many other states reliant on oil and gas revenues hard in the pocketbook. Just last week, revenue forecasts for the state were downgraded by $92 million, adding to the $354 million shortfall that Gov. Earl Ray Tomblin and lawmakers have been grappling with since January.

Gov. Tomblin began the legislative session by calling for new tax increases to close the budget gap, including an increase in the cigarette tax of 45-cents-per-pack, a new tax on e-cigarettes and a 6 percent sales tax on telecommunications. A Senate bill, SB 555, would have increased the gas tax by 3-cents-per-gallon, the sales tax rate by 1 percent and various vehicle fees and taxes to send more money to the State Road Fund. The Senate proposal would have increased revenue by $290 million annually.

State lawmakers have been unable to come to an agreement on how to solve the budget crisis or raise new revenue for roads. After the release of the gloomy revenue numbers, Gov. Tomblin announced that the legislative session would end with no budget at all. Lawmakers are expected to reconvene later this spring.

Indiana lawmakers followed a familiar script this legislative session. There, the most ambitious proposal belonged to state Rep. Ed Soliday. His plan, HB 1001, would have earmarked excess general funds and gasoline excise taxes for transportation infrastructure, allowed counties and municipalities to levy motor vehicle surtax and wheel taxes, and allowed some portion of local income tax revenues to be used for roads/bridges. The bill would have increased revenue by raising the gas tax, special fuel tax, and motor carrier surcharge tax. It also would have increased the cigarette tax to $1.995 per pack to pay for Medicaid (to offset the general fund revenues now earmarked for infrastructure). Soliday’s proposal was later amended by his House colleagues to include expanded tolls and an income tax cut for non-corporate taxpayers.

Unfortunately, HB 1001 was stripped of most of its revenue raising components once it moved to the Senate. The final bill allowed the earmarking of general fund and gasoline excise taxes to transportation and includes the provision allowing local jurisdictions to levy vehicle surtaxes and wheel taxes. But instead of increasing state revenue, the final bill relies on shifts and transfers,  including transferring surplus general revenue funds to the state highway fund, which over the next two years will generate less than $230 million in “new money” for transportation funding at the expense of other critical state investments. Gov. Mike Pence praised the final measure as short-term benefit for the state, but the bill is far less than the $1 billion investment in transportation infrastructure he initially sought. 

A nine-month standoff between the Keystone State’s Republican legislature and Democratic governor will come to a close this Monday when a budget passed by the legislature lapses into law. Gov. Tom Wolf has said that he will neither sign nor veto the bill, so it will pass by default.

The passage of this 3-month budget does delay some potentially serious shutdowns, including the possibility that some schools would need to close their doors mid-year. But overall the package represents a missed opportunity. The legislature’s unwillingness to consider new revenues, reliance on accounting gimmicks, and heavy budget cuts will ultimately harm Pennsylvanians without offering a long-term solution to the state’s possible $2 billion structural budget gap.

Gov. Wolf recently explained that the state “cannot afford a budget that doesn’t provide the things Pennsylvanians need from their government.” He is now asking legislators to look ahead and begin making budget decisions for the impending arrival of fiscal year 2017, which starts on July 1.  

For the new fiscal year, Wolf has proposed $2.7 billion in tax and revenue modifications, including: an increase in the state’s flat rate personal income tax from 3.07 to 3.4; expanded tax credits for low-income families; a $1 per pack cigarette tax increase; a 40 percent tax on the wholesale price of other tobacco products; an expansion of the state’s sales tax base to include cable television services, movie theater tickets, and digital downloads; a 6.5 percent shale tax on natural gas reserves; a 0.5 percent surcharge on insurance premiums, now taxed at 2 percent; an 8 percent tax on promotional play at casinos; and an 11 percent tax increase on banks and other financial businesses.

The income tax components in particular could go a long way toward narrowing the state’s budget gap while also somewhat reducing the fundamental unfairness of a state tax system that asks far more of low- and moderate-income Pennsylvanians than of the wealthy.

In short, Pennsylvania lawmakers do have reasonable options, beyond quick-fix fiscal bandages, available for addressing the state’s long-term revenue challenges.