Tag: TaxJusticeBlog

Read the Tax Justice Digest for recent reports, posts, and analyses from Citizens for Tax Justice and the Institute on Taxation and Economic Policy. For frequent updates find us on Twitter (CTJ/ITEP), Facebook (CTJ/ITEP), and at the Tax Justice blog.

Tax Cut Crazy Talk
When presidential candidates release tax reform proposals that promise to drastically slash taxes across the board and also generate strong economic growth, the only appropriate response is a heavy sigh and a plea to stop. Read our round up of the presidential candidates and their crazy talk.

Speaking of Crazy Talk: Rubio’s Tax Plan
CTJ took a closer look at Marco Rubio’s tax proposal and found that the senator’s plan would give the biggest tax cut to the wealthiest 1 percent of Americans and balloon the deficit by $11.8 trillion over a decade. Read the full analysis here.

Corporate Tax Watch: Apple and Pfizer
This has been a busy week for corporate tax monitoring. CTJ reports that Apple now holds $186.9 billion in offshore cash and moved a record $50 billion offshore just last year. The company has avoided $56.9 billion in federal income taxes thanks to these offshore holdings- that’s a lot of iPhones, iPads, and Macs.

CTJ staff is also keeping an eye on Pfizer because the company seems to be having an identity crisis. The company now wants to be Irish to avoid paying U.S. taxes (they tried to become a British company, but that didn’t work out). Read about Pfizer’s issues here.

The United States is a Top Secrecy Jurisdiction
Sometimes, ranking near No. 1 is not a badge of pride. The United States is the third biggest offender – just after Switzerland and Hong Kong – on the Tax Justice Network’s 2015 Financial Secrecy Index when it comes to facilitating financial secrecy and tax evasion. Read about this grim ranking here.

State News:
State Rundown: Spooky Appointments, Phantom Tax Increases
Read all about who New Jersey Gov. Chris Christie appointed as state treasurer, the outcome of elections in Louisiana, a “rain tax” in Maryland, and fixing unintended consequences in Ohio. Yes, this is a litany of teasers, but we think this edition of the rundown is that good and deserves a full read.

Shareable Tax Analysis:

ICYMI:   Now that the nights are starting earlier, why not get a jump on some good bedtime reading? Check out ITEP’s Guide to Fair State and Local Taxes. It’s riveting. We promise. You’ll learn all about state tax structures and what states get right and wrong when it comes to raising revenue.

This week’s Tax Justice Digest was full of compelling reads. Thanks for sticking with us until the end. Suggestions? Email: kelly@itep.org

Sometimes when presented with fantastical information, the only appropriate response is a heavy sigh and a plea to stop. Please. Just. Stop. 

Such has been the case time after time this year as presidential candidates have released tax reform proposals that promise to drastically slash taxes across the board and also generate strong, economic growth. Please. Just. Stop.

Earlier this week, Citizens for Tax Justice released an analysis of Republican presidential candidate Marco Rubio’s tax proposal, and the results are exasperating but not surprising. The senator’s plan reserves the greatest share (34 percent) of its tax cuts for the top 1 percent (average annual cut of $223,783), and it would balloon the national debt by $11.8 trillion over a decade.

If this story sounds familiar, well, it is.  

CTJ has analyzed other candidates’ tax plans, too. It found that Jeb Bush would give nearly half of his tax cuts to the top 1 percent and add $7.1 trillion to the national debt over 10 years. Donald Trump’s plan would target more than a third of his tax cuts to the top 1 percent, and, like Rubio, would blow a $12 trillion hole in the federal budget over a decade.

Sens. Ted Cruz and Rand Paul are offering flat tax proposals that would lower taxes for the rich, increase taxes on low-income people and cost even more than Trump or Rubio’s plans. And Ben Carson has proposed a loosey-goosey “tithing” plan (at a rate of 10 percent or 15 percent, depending on when you ask him) with few details, but apparently with the highest revenue loss of all.

All of these candidates are telling the American public that they have the best interest of the middle class at heart. But a bit of simple math quickly refutes that falsehood.

Yes, most of the candidates claim they would cut taxes for all income groups (with the exception of Bobby Jindal, who fervently and explicitly calls for much higher taxes on the poor). But the superrich would be the greatest beneficiaries by far. And once enormous cuts in public services that these plans would require are taken into account, only the very rich would come out ahead.

To be sure, all of the candidates claim that their plans would produce an enormous increase in economic growth. For example, Bush, in a Wall Street Journal op-ed titled, “My Tax Overhaul to Unleash 4% Economic Growth,” stated, “By focusing on tax reform like I did in Florida, America can grow faster, too.” Likewise, Trump said his plan, “will create jobs and incentives of all kinds while simultaneously growing the economy.”

But these are just assertions with no backing. The candidates seem to have forgotten that the nation has tried trickle-down economic policies before without success.

When pressed about his deficit-busting plan on CBS’s Face the Nation, Rubio said, “It has to be a combination of things. You have to have the spending discipline on the mandatory spending programs and you need to sustain significant economic growth.”

Well, at least one candidate admits that we can’t have vast tax cuts and adequately fund the nation’s programs and services too.

Josh Barro at the New York Times compared the candidates’ plans to “puppies and rainbows.” Many others also have roundly criticized Republican promises of tax cuts without revenue consequence. You can read some of them here, here, here, here , here, and here.

Recall that George W. Bush promised the nation could cut taxes across the board — but especially for the rich — without budgetary fall out. Instead, Bush’s tax cuts turned surpluses into deficits, even with budget cuts. And as for boosting the economy, economic growth was poor throughout Bush’s presidency and toward the end saw the start of the worst economic recession since the 1930s. Even still, Republican candidates are proposing to double- and triple-down on Bush-era tax policies.

Please. Stop.

“These candidates don’t want to tell the American public the truth,” said Bob McIntyre, director of CTJ. “Taxes are already at historically low rates, and our nation cannot have more massive tax cuts and also meet our priorities. In fact, we need considerably higher taxes, especially on tax-avoiding corporations and wealthy investors.  Polls show that a large majority of Americans agree, which makes one wonder why the GOP candidates are calling for just the opposite.”

Today, federal lawmakers are struggling to find ways to fund the Highway Transportation Fund, pay for debts that have been built up over the past four decades and maintain essential public services. And this is with current tax rates. The answer to these very real complex national issues is certainly not crazy, fantastical tax-cut proposals that overwhelmingly benefit the wealthy.

A Citizens for Tax Justice’s analysis of Republican presidential contender Marco Rubio’s tax proposal found that the senator’s plan would give the biggest tax cut to the wealthiest 1 percent of Americans and balloon the national debt by $11.8 trillion over a decade.

Rubio’s plan hugely favors the wealthy. And by reducing revenues by almost $12 billion over a decade, his plan will require draconian cuts to essential public services and likely wreck our economy.

The top 1 percent would receive an average tax cut of $223,783 under Rubio’s proposal. Lower income groups would also receive significant tax cuts under Rubio’s plan, but his campaign is already backtracking on its own claims of just how generous its cuts would be for the poor.

Read the CTJ analysis of the Sen. Rubio’s plan here.

How do you say Viagra in Gaelic? That’s an internal question the Pfizer Corporation may have to deal with if it’s successful in its latest attempt to avoid billions of dollars in taxes by trading its U.S. citizenship for an Irish passport in a process known as a corporate inversion.

The drug and consumer health products maker is attempting to buy Allergan, an Ireland-based firm, and assume that company’s Irish identity.

But that’s probably about as painful as the move would get for the New York-based pharmaceutical firm. When a company like Pfizer attempts to become a resident of Ireland or other tax haven countries, there generally aren’t a lot of moving trucks involved. Usually, corporate inversions are a purely paper transaction in which corporations shift their U.S. profits overseas for tax purposes without changing the way they do business. Inverting companies typically continue to rely heavily on the American education, transportation and healthcare infrastructure that have allowed them to prosper. The only real change is that post-inversion companies are no longer paying for the government benefits they consume. An inversion by Pfizer would very likely amount to pretending to be Irish, much like the Notre Dame mascot.

This is the second time in as many years that the company has attempted to renounce its U.S. citizenship. In 2014, the company attempted to trade its U.S. passport for a British one by acquiring the firm AstraZeneca.

The irony is that Pfizer has already been doing its best to pretend it’s a foreign corporation for some time. In each of the past seven years, Pfizer has reported losing at least a billion dollars a year in the United States while making money hand over fist in other nations. Between 2008 and 2014, Pfizer claims it lost $21 billion in the U.S. while enjoying $104 billion in foreign profits. Is it plausible that the maker of Viagra and ChapStick hasn’t made a dime of profits in the United States since 2007 even as it has averaged $15 billion a year in foreign profits?

A more likely explanation is that the company has been aggressively shifting its U.S. profits into foreign tax haven subsidiaries. A recent Citizens for Tax Justice report found that Pfizer has a stunning 151 subsidiaries in known foreign tax havens, more than all but five other Fortune 500 corporations. It’s probably no coincidence that the company also has been very aggressive in declaring its profits to be “permanently reinvested” offshore: at the end of 2014, Pfizer had $74 billion in offshore cash, fourth highest among the Fortune 500.

What makes Pfizer’s tax dodging especially galling is that its U.S. business plan heavily depends on federal government support. Over the past five years, Pfizer has received more than $5 billion in government contracts, each year making the list of the top 100 government contractors. In addition, Pfizer has profited directly from government-funded research by the National Institutes of Health (NIH) and rakes in billions of taxpayer dollars via government healthcare programs such as Medicare and Medicaid.

We don’t know how much of the company’s $74 billion is sitting in its Cayman Islands subsidiary, nor do we know whether the company has paid even a dime of tax on its offshore cash because the company refuses to disclose this information. But it’s a safe bet that if the company’s latest inversion attempt is successful, in practice Pfizer will remain as American as it’s always been since it was founded on U.S. soil in 1849.

Sometimes, ranking near No. 1 is not a badge of pride. The U.S. ranks as the third biggest offender – just after Switzerland and Hong Kong – on the Tax Justice Network’s 2015 Financial Secrecy Index when it comes to facilitating financial secrecy and tax evasion, or, in other words, enabling individuals to hide their assets. 

The largest drivers for the United States’ high ranking are its financial secrecy laws and that it has the largest share of the global market for offshore financial services.

How did the United States become such an important offshore financial center? It began with the passage of the Revenue Act of 1921, which exempted the interest income of non-U.S. residents from tax. The combination of this tax break and weak financial disclosure rules made U.S. banks ideal places for foreign individuals looking to hide their assets.

The United States does not require financial institutions to collect basic ownership information from corporations. This allows entities to create illicit shell corporations, which criminals can use to commit crimes such as money laundering and tax evasion without much fear of being identified. Because incorporation is a function of state governments, many states, including Delaware, Nevada and Wyoming, have facilitated the proliferation of shell corporations as a way to raise revenue by collecting fees for each corporation created.

Some states have taken nominal steps to reverse their secrecy laws in recent years, but no real progress has been made. Federal legislation would help. The Incorporation Transparency and Law Enforcement Assistance Act, for example, would require states to collect the beneficial ownership information for each corporation registered in their state.

The United States’ lack of transparency on information about non-resident investments also aides those seeking to hide assets. Over the years, lawmakers have made several attempts to create a more transparent legal framework, but the only hopeful moment came during the 1990s when the Clinton administration proposed that banks in the United States be required to inform the U.S. Internal Revenue Service (IRS) about all bank interest paid to non-resident individuals. This regulation never went into effect.

The United States should end its protection of potential criminals by allowing more reciprocal exchange information between it and other countries. Steps are already being taken in this direction with the enactment of the Foreign Account Tax Compliance Act (FATCA) in 2010. Unfortunately, FATCA relies on an array of bilateral agreements instead of a broader multilateral agreement, making the exchange of information less streamlined. There are also numerous examples where bilateral agreements require U.S. access to information from foreign institutions, but they fail to provide that same information to other countries. Rather than being an impediment to progress, the United States should take a leadership role in combatting tax evasion by fighting for financial transparency around the world.

For the die-hard fans who lined up to purchase Apple’s latest iPhone last month, it’s hardly news that the California-based company still lives up to its reputation for technological innovation. The world’s No. 1 smart phone manufacturer last week released its annual financial report revealing it also remains No. 1 in crafty tax avoidance strategies.

Apple moved a record $50 billion offshore in the last year, far more than any company has achieved in a single year. It now holds a staggering $186.9 billion in cash offshore.

The company’s brazen exodus of cash is even more remarkable because it acknowledges it has paid virtually no tax to any nation on its offshore stash. Apple’s recently released annual report indirectly admits the company has paid an effective tax rate of about 2.2 percent on its permanently reinvested foreign profits. This means the beloved iPhone maker has avoided $56.9 billion in federal income tax on its offshore cash.

Apple’s unsavory tax practices are well-documented. A 2013 Senate investigation conclusively demonstrated that the company artificially shifted its U.S. profits into foreign tax havens. And for much of the past year, European Union (E.U.) officials have focused on the special tax deals worked out between European tax haven countries and companies including Apple, Starbucks, Fiat and Amazon.

As Citizens for Tax Justice (CTJ) documented in a recent report, Apple is only part (albeit the biggest part) of the problem. Hundreds of Fortune 500 corporations admit owning subsidiaries in known tax haven countries, and most of these companies now claim to hold large amounts of cash abroad. CTJ’s sensible recommendation to end companies’ ability to indefinitely defer tax on allegedly foreign profits would very likely accomplish what public shaming of Apple’s tax avoidance clearly has not: putting an end to corporations’ use of offshore tax havens to avoid paying U.S. taxes. 

New Jersey Gov. Chris Christie, clearly not a regular reader of this blog, nominated Art Laffer acolyte Ford Scudder to be state treasurer. Scudder is chief operating officer of Laffer Associates and an analyst at Laffer Investments. If appointed to the position, Scudder would be responsible for crafting the state budget and overseeing state investments, pensions and benefits, state debts and lottery revenue. Senate President Stephen Sweeney was not impressed by the governor’s move: “The so-called Laffer curve came to embody the trickle-down economic policies that were discredited because they favored the wealthy at the expense of everyone else. New Jersey is not the place to reintroduce the policies that caused so much lasting damage to the economy.” This is not the first time a Laffer associate has served in state government. Donna Arduin, a partner in Laffer’s consulting firm, recently left a high-profile position in Illinois (which remains mired in a budget standoff) and Laffer himself was a prominent architect of Sam Brownback’s failed tax experiment.

Louisiana voters decided on four constitutional amendments with implications for the state’s fiscal health this past weekend. Voters rejected Amendment 1, a proposal to weaken the state’s rainy day fund to benefit transportation projects, and Amendment 3, which would have loosened the rules around which bills could be offered during the fiscal legislative sessions held in odd-numbered years. Voters approved Amendment 2, a proposal that gives the state treasurer the option of investing funds in the state infrastructure bank, by a slim margin. The infrastructure bank allows local governments to borrow money at favorable rates for infrastructure projects. Voters also approved Amendment 4, which allows local governments to collect property taxes on properties owned by state and local governments outside of Louisiana.

A Maryland environmental group is challenging one jurisdiction’s plan to phase out a stormwater fee – also derided as a “rain tax” – without first spelling out an alternative way of paying for required environmental projects. The Chesapeake Bay Foundation argues that Baltimore County, which plans to eliminate the stormwater fee over two years, must first specify how it will pay for state-mandated projects designed to reduce water pollution. In 2012, the state legislature required urban and suburban districts to collect the stormwater fees to reduce runoff; under newly-elected Gov. Larry Hogan, the law was revised to allow jurisdictions to drop the fee if they dedicate another source of money to the required projects.

A bill that will fix an unintended feature of a recently-enacted tax cut passed the Ohio legislature this week and will now go to Gov. Kasich for his signature. In June, lawmakers passed a tax cut that allows business owners to deduct up to 75 percent of their first $250,000 in business income this tax year, and 100 percent of that amount in 2016. Any income in excess of $250,000 would then be subject to a flat tax of 3 percent in both years. However, as the law was originally enacted, the 2015 exemption only covered 75 percent of the first $250,000 and the other 25 percent (as well as any income over $250,000) would have been subject to a 3 percent flat tax.  For some taxpayers, this would have resulted in a tax increase since the state’s current graduated income tax system includes rates as low as 0.528% on low levels of income. Essentially, the tax cut included an accidental tax increase. The recently passed measure fixes the oversight, though it’s worth noting Ohio would have avoided $81 million in revenue losses next fiscal year if no correction was made. 

Anti-tax champion Grover Norquist recently said Paul Ryan is a ‘prophet” who “points the way to the Promise Land.” Coming from Norquist, that statement alone is reason enough for pause. But the newly elected Speaker of the House’s record on tax and budget policy also raises serious alarm regarding the direction of the nation’s fiscal policy.

For years, Rep. Ryan has been one of the leading champions of regressive tax policies. Now, as Speaker of the House, he will have a bigger microphone and a more powerful platform to push his pro-corporate, anti-worker vision for the nation’s tax code.

As chairman of the House Budget Committee in 2014, Ryan called for consolidating the existing income tax brackets down to two (10 and 25 percent), eliminating an unspecified number of tax expenditures, repealing the alternative minimum tax, reducing the corporate tax rate to 25 percent, and instituting a territorial tax system for multinational corporations. Even under the most generous assumptions, a CTJ analysis found that his plan would give millionaires an average tax break of at least $200,000 each year. Under less generous assumptions, this tax cut for the rich would balloon to nearly $330,000.

“Ryan’s colleagues in the House have said he would unite the party. Based on his record on economic policy, that unfortunately means he and his colleagues would like to unite behind regressive tax policies that ask the least of those most able to pay,” said Bob McIntyre, director of CTJ.

Beyond supporting regressive tax changes, Ryan also staunchly opposes any tax increases. He signed Grover Norquist’s no-tax pledge and said he would not support any budget deal that included an increase in revenue. Not surprisingly, given his desire to reduce the deficit without increasing revenue, Ryan’s budgets require draconian cuts to critical public services. For example, Ryan’s 2014 budget includes $3.3 trillion in cuts to programs for low- and moderate-income families, such as SNAP, Medicaid and Pell Grants. In other words, Ryan’s budget simultaneously calls for massive tax cuts for the wealthy and devastating cuts to critical safety net programs.

One of the ways that Ryan has attempted to paper over the harsh reality behind these is to embrace the world of fuzzy math. During his brief tenure as chairman of the Ways and Means Committee, Ryan ushered in a new rule requiring that the non-partisan scorekeepers at the Congressional Budget Office and the Joint Committee on Taxation (JCT) use dynamic scoring in their official cost estimates on proposed tax changes. While it has not been used extensively up to this point, dynamic scoring could have the magical effect of making costly tax cuts appear to have little effect on revenue collection due to economic growth that supposedly would result.

The nation is already struggling to fund basic priorities that Americans widely support. Federal spending today as a percent of GDP is less than it was during Ronald Reagan’s entire tenure.

“The nation cannot tax cut its way to prosperity,” McIntyre said. “Unfortunately, House members have just elected a speaker who will unite the party behind ideological, status quo policy ideas that would benefit the elite few at the expense of the rest of us.” 

Good news out of Louisiana this week. Voters defeated Amendment 1, one of four constitutional amendments on the Oct. 24 statewide primary ballot. The proposal would have put a $500 million dollar cap on the state’s Rainy Day Fund, the savings account the state relies on in the event of an unexpected drop in revenues. The amendment would have also created a transportation fund to capture any mineral revenue coming in above the new cap.

Steve Spires of the Louisiana Budget Project sums up the situation in his recent post:

“The goal of this amendment is laudable: to address Louisiana’s chronic backlog of transportation needs. Unfortunately, it would do so by weakening the state’s rainy-day savings account, which would hurt the state’s ability to react to future financial downturns and put vital state services at risk for damaging cuts.”

Even without the amendment, the fund is already subject to strict rules such as the condition that the legislature can only use one-third of its contents in any given year. A $500 million dollar cap would have limited rainy day fund infusions to just $167 million per year. In the context of Louisiana’s roughly $8 billion budget, Amendment 1 would have rendered the fund unable to cover anything beyond a 2.1 percent decline in revenues. This would have been an inadequate cushion to protect Louisiana residents from cuts to critical public services during the next economic downturn.

Size restrictions on rainy day funds limit states’ ability to grow reserves in line with their budgets. In our Primer on State Rainy Day Funds, ITEP warns against such overly restrictive caps. Louisiana voters made the right call this week by forcing lawmakers to have a real discussion about road funding, rather than weakening the state’s rainy day fund as part of a deficient package that wouldn’t have solved the problem.

With campaign season in full swing, presidential candidates of both major parties are now releasing details on their views of “tax reform.”  Not surprisingly, everyone’s for it– but that’s because the candidates have very different views on what reform should accomplish. A new CTJ report helps to separate the wheat from the chaff, outlining three broad goals that should be accomplished by any meaningful tax reform plan.

Read it here.