Tag: TaxJusticeBlog

As the year comes to a close, several tax bills are already being debated in states across the country. ITEP is closely following those proposals because they will likely dominate state headlines in 2016. In the new year we will write more about state tax policy trends for 2016, but in the meantime, here are some of the big state tax policy developments happening now:

There are bright signs on the horizon in Alaska. Gov. Bill Walker recently proposed a progressive income tax to address the state’s budget implosion, brought on by declining oil and gas revenues. Alaska has not had a personal income tax since 1980, when massive oil deposits were discovered on state land. Walker’s proposal would set the state income tax at six percent of what Alaskans pay in federal income taxes. The governor would also raise the state’s gasoline tax, which has not increased in 45 years. To learn more, check out this post on the Tax Justice Blog.

Florida Gov. Rick Scott will continue to push his $1 billion hodge-podge of tax cuts, though even legislators from his side of the aisle balk at the price. The package includes sales tax holidays for back-to-school shopping and hurricane preparedness and a tax break for college students’ textbooks. But those measures are mere leaves for the massive corporate tax cuts at the core of the proposal: corporate income tax cuts worth $770 million annually and a sales tax break on commercial rents that will cost $339 million over the biennium. House Speaker Steve Crisafulli says the governor’s plan may not be possible in its entirety. The state will post a one-time surplus of $635 million next year, but much of that money will go to support public education. Furthermore, a one-time cash infusion won’t pay for tax cuts that recur year after year.

Louisiana Gov.-elect John Bel Edwards will push to double the state’s EITC as part of his plan to reduce poverty in the state. As we outlined in a previous blog post, the move by Edwards is one of a number of encouraging signs for tax justice advocates. The governor-elect also appointed a moderate Republican, former Lt. Gov. Jay Dardenne, to be the state’s budget chief. Dardenne could have the skills to get a revenue-raising tax reform through the legislature since he was able to do so in the early 2000s. Louisiana faces a $1 billion deficit next fiscal year.

Mississippi lawmakers are set to push for tax cuts again next year after a failed attempt to pare back and even eliminate the personal income and corporate franchise taxes in 2015. While the Mississippi Economic Council for Transportation is calling on lawmakers to raise close to $400 million through the gas tax to pay for a long list of transportation infrastructure projects, Gov. Phil Bryant has said “any tax increase must be offset by corresponding tax cuts.”  Given the nature of the tax cuts proposed last year, such a plan would likely result in a significant tax reduction for the state’s wealthiest residents and a hike on low- and moderate-income working families.

Virginia Gov. Terry McAuliffe’s budget proposal unveiled this month includes corporate and personal income tax cuts.  The governor wants to cut the state’s corporate income tax rate from 6 percent to 5.75 percent. The proposal would cost $64 million in state revenues. McAuliffe claims that these changes are necessary to compete with neighboring North Carolina, which has repeatedly slashed its corporate tax rate in recent years. But an analysis by The Commonwealth Institute says these claims are false. They point out that two-thirds of Virginia corporations pay no income tax despite record profits, and that the governor’s proposed tax break would help a few large companies while providing no benefits for small businesses and families. They also note that recent history does not provide much reason to be optimistic about the Governor’s plan: a 2009 tax break for manufacturers, for example, failed to spur job growth in that sector. The governor also wants to cut the personal income tax through slightly increasing the size of the personal and dependent exemptions.  Such a proposal will only cut taxes by a little more than $20 million a year and ITEP found that more than a quarter of taxpayers, primarily low- and moderate-income working families, will see no benefit from the proposal. 

Happy Holidays from all of us at CTJ and ITEP! As the weather gets colder, our thoughts turn to warm chili and cuddling up with a good book. Our staff enjoyed these books this year and we hope you will too! If you have books to recommend to us, send them along to Kelly@itep.org

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Wonder by R J Palacio ($11.95 at Powell’s) – This smart, fast-paced book should be required reading for all humans. Don’t let the fact that this is a young adult book fool you – chances are you’ll be a better, kinder person for having read this gem. – Kelly Davis

Citizen: An American Lyric by Claudia Rankine ($13.32 at Powell’s) – This searing book of poetry is a reflection of the black lived experience in America. Rankine weaves personal experience, celebrity and pop culture references, and contemporary media tragedies into a genre-bending meditation on racism and prejudice in our society. A hard read, but well worth it. – Sebastian Johnson

Showdown at Gucci Gulch by Jeffrey H. Birnbaum and Alan S. Murray ($18.00 at Powell’s) – This work is both a riveting story of political intrigue and a must-read for anyone interested in reforming our tax code. The book tells the unlikely story of how the 1986 tax reform was enacted despite the opposition of DC’s many Gucci-clad lobbyists. The book even discusses the critical role of Citizens for Tax Justice in spurring on the push for reform with its blockbuster corporate tax reports.  – Richard Phillips

Between The World and Me by Ta-Nehisi Coates ($24.00 at Powell’s) – Here’s a description from an October 25, 2015 Daily Beast article by Felice Leon: “The piece is a raw account of Coates’s trying experiences as a black man living in America—from his father’s heavy-handed approach toward parenting (i.e. whippings) to the pain and rage caused by losing a close college friend at the hands of the police. The theme of the black body—protecting it, fearing its loss, and its destruction (which in his book, Coates describes as ‘traditional’ in America)—is woven throughout.” – Ed Meyers

Big Magic by Elizabeth Gilbert ($24.95 at Powell’s) – Looking for a book to get your creative juices flowing or just want to feel inspired? This is the book for you. Reading this book is a great way to begin 2016. – Kelly Davis

The Complete Beatles Recording Sessions by Mark Lewisohn ($45.00 at Powell’s) – Almost a quarter century ago, producer Mark Lewisohn wrote this fascinating look at the details of how the Fab Four cranked out some of the most influential pop music in history in seven short years at Abbey Road studios. The book is a labor of love, with a day-by-day chronology of every recording session from “Please Please Me” to “Let It Be.” Music-making technology moved light-years ahead in the 1960s, and the Beatles were not simply riding this wave—they were helping to push it forward by constantly demanding more and more of their sound engineers. But you don’t have to be a gearhead to appreciate this book: above all, Lewisohn puts us in the studio alongside Lennon and McCartney as observers of the creative (and usually collaborative) process that generated music their fans will always carry with them.  If I lost this book today, I’d go out and buy another copy tomorrow. No serious fan should be without it. – Matt Gardner

The Hidden Wealth of Nations by Gabriel Zucman ($20.00 at Powell’s) – This book may be a quick read at just 130 pages, but it still provides a deep dive into the lurid underworld of tax havens. Zucman weaves together history and hard data to tell the story of the rise of tax havens and to approximate just how much damage they are doing to the world. This book is a must-read for anyone concerned with economic inequality and tax equity. – Richard Phillips

Chronicle of a Death Foretold by Gabriel Garcia Marquez ($8.50 at Powell’s) – This classic from the Colombian author and innovator of magical realism recounts the story of Santiago Nasar, a man murdered in the beginning of the novel. The story explores themes of morality, collective responsibility, gender relations and purity, and is presented in a quasi-journalistic collection of testimonials. Marquez captures the rich beauty and timeless complexity of Colombian culture, deftly employing irony and mystery to draw the reader into the narrative. – Sebastian Johnson 

Anyone watching Apple CEO Tim Cook on CBS’s “60 Minutes” last night would be forgiven for wondering why Congress and the IRS won’t just leave this nice man and his poor company alone. Cook fielded questions on a wide variety of topics from national security to the future of the “Apple car,” but generated the most headlines for his combative, evading and ultimately misleading comments on tax issues.

In response to a typically mild question from interviewer Charlie Rose — “How do you feel when you go before Congress and they say you’re a tax avoider” — Cook told Rose that “we pay more taxes in this country than anyone.” In fact, that’s true, by the tally of the bean counters at the Institute on Taxation and Economic Policy. Apple’s federal income tax bill — just over $8 billion in 2014 — is larger than any other Fortune 500 corporation reported in that year.  But as Rose gamely pointed out in response, this reflects the truly gigantic scale of Apple’s reported profits rather than an overdeveloped sense of patriotism. Focusing on the amounts of tax the company can’t avoid, rather than the taxes the company has successfully dodged, is a classic corporate PR strategy routinely practiced by even the most blatant tax avoiders. It’s also basically meaningless.

But Cook wasn’t done. Faced with Rose’s reminder that Congressional investigators had found that “Apple is engaged in a sophisticated scheme to pay little or no corporate taxes on $74 billion in revenues held overseas,” Cook shot back: “That is total political crap. There is no truth behind it. Apple pays every tax dollar we owe.”

Of course, the exhaustive 2013 investigation by the U.S. Senate’s Permanent Subcommittee on Investigations (PSI) that brought Apple’s tax avoidance practices to light never alleged that Apple’s practices were illegal. What the PSI found was that Apple had used loopholes in the tax laws to make legal, but ethically reprehensible, “cost-sharing agreements” with its insubstantial Irish subsidiaries that allowed the company to avoid paying tens of billions of dollars in income taxes. The question the PSI hoped to encourage Congress to consider as a result of these hearings was not whether Apple’s actions were illegal. It was whether the company’s brazen tax avoidance should be made illegal by closing these egregious tax loopholes.

Cook’s comment does bring up an important, uncomfortable point: fully two years after the PSI unveiled Apple’s Irish tax-avoidance strategies, Congress has done precisely nothing to act on the PSI’s findings. At the end of the day, it’s the responsibility of Congress to close the door on the blatant corporate tax avoidance practiced by Apple and other multinational corporations.

Until that day comes, Apple execs have signaled clearly that they will continue to stash their corporate cash in offshore tax havens. As ITEP found earlier this fall, Apple shifted a record $50 billion in cash offshore in 2014, and admitted paying a tax rate of just 2.2 percent on its offshore cash. The tens of billions of dollars in corporate taxes the company is not paying to the U.S. are making it harder to adequately fund roads, healthcare and schools. Cook was correct when he told a George Washington University commencement audience, in a speech excerpted in last night’s “60 Minutes” broadcast, that “[a] company that has values, and acts on them, can really change the world.” Too bad that company isn’t Apple.

Even in the universe of Jedi, Death Stars and Ewoks, tax policy plays a surprisingly important role in driving the events of the day. In anticipation of the release of the newest Star Wars movie, we just wanted to share some of the little known tax policy lessons from the Star Wars universe.

1. A trade tax dispute sets off the turmoil central to the Star Wars movies.

The first words in the opening crawl of Star Wars Episode I: The Phantom Menace read, “Turmoil has engulfed the Galactic Republic. The taxation of trade routes to outlying star systems is in dispute.” The beginning crawl then explains that to protest trade taxation the Trade Federation has set up a blockade of all shipping to the planet of Naboo, which causes the Supreme Chancellor to dispatch two Jedi Knights to help resolve the tax dispute. In other words, the chain of events set off in The Phantom Menace begin with a classic interjurisdictional dispute over the taxation of trade.

Taxes on imported goods, known as tariffs, used to play a central role in funding the U.S. federal government. Through the late 18th and early 19th century, these revenues represented between 50 and 98 percent of all government revenue. During the late 19th and early 20th centuries, the dependence on tariff revenue dropped dramatically due to the rise of the income tax and the perception that the tariff was both regressive and economically distortive. Today tariffs represent just one percent of total federal revenue.

While most lawmakers now understand the potential for tariffs to set off turmoil on a worldwide (or galactic) scale, the real world Donald Trump has proposed to massively increase tariffs during his presidential campaign.

2. The Star Wars universe has problems with corporate tax enforcement and shell companies.

For those who want to go deeper into the Star Wars universe, there is a vast literature of books that more fully fill out how this alternative galaxy functions. In the book “Republic Commando: True Colors,” set between the second and third Star Wars movies, the author reveals that the Star Wars universe faces many of the same tax enforcement problems that we face in the world today.

Specifically, the book details the story of two employees of the Galactic Republic’s Treasury Corporate Tax Enforcement department who discover that a shell corporation Dhannut Logistics, presumably controlled by Darth Sidious (aka Emperor Palpatine), is being used to funnel money to pay for the construction of a massive clone army. Similarly, anonymous shell corporations incorporated in states like Delaware are frequently used as a conduit for illicit activities like money laundering and tax evasion. Given this, it is clear that both the Star Wars universe and the United States could benefit from requiring the disclosure of the beneficial ownership of corporations.

3. Murder is so frequent on the planet of Tatooine that there is a tax on it.

It is very common for jurisdictions to raise a lot of their revenue by taxing those things that they have in excess. For example, Nevada’s budget is very dependent on gambling revenues, North Dakota’s on natural gas and Florida on tourism. The one thing that the planet of Tatooine, the home world of Luke Skywalker, has in excess is murder, which maybe the motivation behind Jabba the Hutt’s decision to impose a so-called “murder tax.” While a tax on murder may raise revenue in the short term, it is likely that this source of revenue is not necessarily sustainable in the long run considering that each transaction necessarily requires a one person reduction in the tax base. Tatooine and many U.S. states dependent on similarly unsustainable revenue sources would be much better off in the long term if they enacted a broad based income tax to fund public services.

Over the course of the year, CTJ has published a series of analyses estimating the revenue impact of tax plans proposed by half a dozen Republican presidential candidates. It published a summary of the findings earlier today in a blog post.

These findings have sensibly drawn a lot of media attention, and the first question CTJ staff usually gets is “how do you come up with these numbers?” Here’s a quick answer to this question.

The starting point for Citizens for Tax Justice and the Institute on Taxation and Economic Policy’s work is the ITEP Microsimulation Model. This is a computer model built on a large database of more than 150,000 records, each representing a tax payer’s actual federal tax return.  Since 1960, the Internal Revenue Service (IRS) has made these databases available to researchers seeking to understand the nation’s tax system and the impact of proposed changes.

The result is a researcher’s dream: mountains of data showing everything from basic data on wages and capital gains to details of itemized deductions and business tax breaks.

Starting with this database’s economic profile of the incomes of all Americans, the ITEP model can easily be used to estimate the effect of different tax rules. With a point and a click, the ITEP model can show the effect of, for example, increasing the top capital gains tax rate from 20 to 25 percent, or repealing the itemized deduction for charitable contributions on the taxes paid by every single one of these 150,000 records. The result is a statistically valid estimate of how much federal tax revenues would increase (or fall) as a result of such a tax change, which means we can use the model to generate revenue estimates on federal tax reform plans.

Because we know the income levels of every single one of these records, we can also use these results to show how tax changes would affect different income groups, from the poorest twenty percent to the very wealthiest 1 percent.

The ITEP model produces a traditional or “static” revenue estimate, meaning that in general it does not calculate how tax changes affect behavior as does “dynamic” modeling. The latter is a type of modeling advocated by those who support supply-side economic theories, which claim dramatic tax changes will spur economic growth. But as we have noted elsewhere, economists can’t agree on whether such an effect exists, which means that the most responsible approach to revenue estimating is to present a static analysis.

Taken on its own, the ITEP Model can only analyze changes in taxes that already exist at the federal level. This means that when we want to analyze an entirely new proposed tax at the federal level, such as a value-added tax or a national sales tax, we supplement the model using other data sources to augment the economic profile we get from the IRS’ income tax database.

We use a similar process to analyze taxes levied by state and local governments, such as property taxes and sales and excise taxes, that aren’t included in the IRS data. 

As the Republican presidential candidates meet once again to debate, now is a good time to take stock of their various plans for tax reform. Using the Institute on Taxation and Economic Policy’s microsimulation model, we have calculated the revenue impact of the six major candidates’ tax plans.

According to the graph below, every Republican candidate who has published a tax plan would either balloon the deficit by trillions or have to impose draconian cuts to programs to finance their massive tax cut plans. Even the so-called “moderate” tax plan from Jeb Bush would cost more than $7 trillion over the next ten years.

At the furthest end of the spectrum, Rand Paul and Ted Cruz’s plans are more than double the size of Jeb Bush’s plan at a cost of $14.8 trillion and $16.2 trillion over 10 years. Not too far behind are Marco Rubio’s $11.8 trillion plan, Donald Trump’s $12 trillion plan and Ben Carson’s $9.6 trillion plan.

Even without making needed additional public investments in infrastructure, research and healthcare, the Congressional Budget Office (CBO) projects that the nation is on course to add $7 trillion to the national debt over the next decade. This means the federal government must raise more revenue over the next 10 years just to prevent a massive rise in the nation’s indebtedness. Yet each of the Republican candidates’ proposals would double, triple, or even quadruple the fiscal hole over the next decade. At a time when lawmakers are struggling to find ways to pay for basic services such as highways, let’s please stop this tax cut crazy talk now.

Updated January 16 to reflect the release of Ben Carson’s more detailed flat tax plan.

Earlier this week, Hillary Clinton outlined a new plan to combat the growth of inversions, a loophole through which U.S. companies pretend to be foreign in order to avoid taxes. Taken together, her plan to enact an exit tax, limit earnings stripping and to change the ownership threshold for becoming a foreign company would likely stop inversions in their tracks. Unfortunately, Clinton’s inversion plan also includes a fiscally imprudent proposal to use all of the added revenue from shutting down inversions to pay for new corporate tax breaks.

Clinton’s inversion proposals come in the midst of the growing outrage over Pfizer’s plan to pursue the largest inversion in history. Unless action is taken, Pfizer will use a merger with the company Allergan to shift its headquarters, on paper, to Ireland, which some say could allow it to avoid paying U.S. taxes on as much as $148 billion in earnings that it is holding offshore. To be clear, Pfizer will continue to be managed in the U.S. and will still benefit from government contracts and services. But inverting will allow the company to get out of paying its fair share of taxes.

While some in Congress are weirdly using inversions as an excuse to call for lower taxes on multinational corporations, Clinton’s proposals show that inversions can easily be stopped without broader tax reform or tax cuts. For example, Clinton has proposed to curb earnings stripping, a practice in which a U.S. subsidiary is loaded up with debt and makes large interest payments to its foreign parent company in order to lower its U.S. income taxes. By inverting, companies can more easily use earnings stripping to shift income earned in the U.S. into offshore low-tax jurisdictions. Clinton’s plan apparently follows President Obama’s approach in this area, by limiting the share of interest expense that can be deducted by the U.S. subsidiary. Obama’s proposal would raise about $50 billion over 10 years.

Clinton has also proposed to limit inversions by treating a company resulting from a merger of a U.S. and a foreign company to be recognized as having a foreign tax domicile only if the resulting company is majority owned by shareholders of the foreign rather than U.S. company. Under current regulations, only 20 percent of the new company has to be owned by the foreign shareholders. This allows U.S. companies to merge with substantially smaller foreign companies and move their tax domicile. This proposal would raise an estimated $17 billion in tax revenue over 10 years.

Clinton’s third and potentially most powerful proposal to curb inversions would impose an “exit tax” on companies that change their tax domicile to a foreign jurisdiction. The exit tax would require companies to pay the U.S. taxes they have “deferred” on their accumulated untaxed foreign income. Clinton does not specify what rate her exit tax would impose, but the ideal rate would be the full 35 percent rate (minus foreign tax credits) that companies would normally owe upon repatriation.

As noted above, combating inversions would not only make our tax system fairer, but it could also produce desperately needed revenue. The bitter fights over how to pay for even popular spending like sequester relief or the highway bill show that our country has a huge revenue problem, which is largely driven by the irresponsible decision to make permanent 85 percent of the Bush tax cuts, at a cost of $3.3 trillion over a decade.

Sadly, however, Clinton is not proposing to use any revenue generated by closing the inversion loophole to make new public investments (or reduce the deficit). Instead, she proposes to use all of the revenue gained from inversion reform to give new tax breaks to corporations! This does not make any sense considering that U.S. corporate taxes are already near historic lows. Like so many others, she seems to miss the point of why we need corporate tax reform.

Read the Tax Justice Digest for recent reports, posts, and analyses from Citizens for Tax Justice and the Institute on Taxation and Economic Policy.

Recommended Weekend Reading
Last week, we told you about the congressional debate over the tax extenders. This week the debate raged on without resolution, and Congress is expected to continue the debate through the weekend. ICYMI: CTJ has two recent extender related reports–Evaluating the Tax Extenders and Why Lawmakers Should Say No to Tax Extenders–that are easy and helpful reads.

The Joint Committee on Taxation this week released its Tax Expenditure Report (a report we adore) that allows anyone to understand how much federal deductions, exemptions and credits cost. ITEP’s Executive Director Matt Gardner fills us in on all the reasons we should spend at least part of our weekend reading this report. 

Donald Trump and That Broken Clock…
Earlier this week, Donald Trump criticized Amazon chief Jeff Bezos for allegedly using his purchase of the Washington Post as a tax dodge. Trump’s claim that Bezos is using the Post’s losses to reduce Amazon’s profit is clearly wrong since the newspaper is owned by Bezos, not Amazon. But here’s the part that Trump gets right: his criticism draws attention to the fact that Amazon pays a low effective corporate tax rate and has dodged $1 billion in taxes thanks to various loopholes. Check out our full commentary on Amazon’s tax avoidance strategies.

Delaware: A Homegrown Tax Haven
This week ITEP released its deep dive into all that is wrong with the way Delaware taxes corporations. Two fun tidbits from the report:

1)    Delaware actually had more companies incorporated than state residents in 2014.

2)    Setting up a company in Delaware requires less information than signing up for a library card.

There’s lots more to read about Delaware, including what states and Congress can do to improve tax fairness and transparency, in Delaware: An Onshore Tax Haven.

State News

Jaw-Dropping, Fireworks Worthy, Big News in Alaska
Alaska is the only state to ever repeal a personal income tax and has been without one for 35 years.  But this week, Gov. Bill Walker proposed a plan to remedy the state’s massive revenue shortfall by, among other things, instituting an income tax equal to 6 percent of the amount that Alaskans pay in federal income taxes. Read commentary from ITEP’s Carl Davis on this big news.

Connecticut Lawmakers Cave to Threats from General Electric Yet Again
This week, the governor and legislature once again put GE’s interests over the health and well-being of the state’s residents. ITEP’s State Tax Policy Director Meg Wiehe tells about the budget deal reached in Hartford this week.

Hope in Louisiana? 
ITEP’s Meg Wiehe is cautiously optimistic that tax reform in 2016 is possible in Louisiana thanks to a new governor and who he appointed as his commissioner of administration. Read about this New Hope here (sneaky Star Wars reference, you’re welcome).

Shareable Tax Analysis:

ICYMI: ‘Tis the season for crossing things off lists. Giving back to your favorite tax policy think tanks is something that you may not have crossed off that list yet, but never fear! The link for giving is here!

Questions, holiday greetings?  Email Kelly Davis at: kelly@itep.org

Earlier this week, the Joint Committee on Taxation (JCT) released its annual Tax Expenditure Report, a compendium of the many tax giveaways that drain federal revenues. In theory, this report is an essential cheat sheet for policymakers seeking to identify the best ways of closing unwarranted tax loopholes and making our tax system fairer and more sustainable.

In practice, Congress has made little progress in cleaning out the tax code in the four decades since the JCT began publishing this report. But the report remains a valuable yardstick for quantifying the cost of various tax breaks.

Here are a few takeaways from the newest report:

1)      It’s getting longer. This year’s report lists over 200 discrete tax breaks. In 1994, the JCT tabulated only 127 giveaways.

2)      Congress is poised to make it longer still. This year’s edition of the report is notably lightened by the temporary absence of the dozens of tax “extenders” that expired at the end of 2014, many of which will likely be resurrected by Congress before year’s end.

3)      Not all tax expenditures are created equal. Just a handful of the tax breaks listed in the JCT report account for a huge share of the $6.8 trillion in tax expenditures tallied here—and some of these largest giveaways have a truly pernicious effect on tax fairness.  To cite two:

The special lower tax rate on capital gains and dividends puts a $690 billion dent in five-year tax collections—while offering little or no benefit to millions of middle- and lower-income working families who get by on the wages they earn each year. It would be hard to devise a way of blowing $700 billion that offers less to working families.

The ability of multinational corporations to indefinitely defer tax on the income of their foreign subsidiaries will cost $563 billion over the next five years—and, as important, gives companies like Apple and Pfizer an incentive to pretend they’re keeping billions of dollars in cash in offshore tax havens. Ending deferral would shore up corporate tax revenues while largely ending the tax-avoidance games played by large multinationals.

In a more perfect world, Congress would annually ask tough questions about whether these and other upside-down tax subsidies such as the mortgage interest deduction are a sensible way of spending the public’s money. After all, if lawmakers proposed a $75 billion direct spending program for housing subsidies that reserved $30 billion for those earning over $200,000 a year, they’d be laughed out of town. But that’s what Congress does, indirectly, each year by leaving the mortgage interest deduction intact.

The timing of the JCT’s latest report is especially apt because Congress has spent much of the last week devising a plan that would dramatically expand the list (and the cost) of corporate tax expenditures. If lawmakers extend, or even make permanent, the dozens of mostly-business-oriented tax giveaways that expired at the end of 2014, next year’s tax expenditure report will be a lot longer—and the report’s tally of “perfectly legal” tax avoidance schemes will be a lot more expensive. It would be hard to find a clearer litmus test of whether Congressional tax writers take seriously the goal of paring back tax expenditures than the impending choice they face on the extenders. 

Connecticut lawmakers earlier this year passed a budget with more than $1 billion in new revenue, including increased corporate taxes, to plug a budget gap and ensure the state has resources to make needed investments in education, transportation and health care.  In late June, Gov. Dannel Mallow called lawmakers back to the capital for a special session, essentially caving to notorious tax dodger General Electric (GE) and other corporations’ demand that the state pare back just enacted tax chages. The most significant change enacted in the special session was a delay in the start date for combined reporting. Combined reporting requires a multi-state corporation to add together the profits of all of its subsidiaries, regardless of their location, into one report for tax purposes. Connecticut Voices for Children puts it this way:

 “Combined reporting is an essential policy aimed at preventing corporations from using accounting gimmicks to shift profits actually earned within their borders to states and foreign countries where they will be taxed at lower rates or not at all.”

This week, the governor and legislature once again put GE’s interests over the health and well-being of the state’s residents.  Due to underperforming personal income tax collections, the state faces a projected $350 million budget shortfall for the current fiscal year and another $552 million in the next fiscal year.  To close the current year gap, the legislature voted this week to cut early-childhood programs, conservation efforts, and medical services for inmates. But, it also agreed to spend money to cut corporate taxes including modifying combined reporting requirements and changing how some corporate deductions can be claimed.

The new corporate tax changes are largely seen as an effort to keep GE headquartered in the state.  But not surprisingly GE hasn’t committed to staying put and news leaked this week they may be considering a move to Boston. Since Massachusetts also requires multinational corporations to file combined returns, this latest news would suggest that Connecticut is being played by GE executives.