Tag: TaxJusticeBlog

The fall harvest season has brought a bumper crop of tax ballot measures in states across the nation(though sadly, no tax-themed seasonal lattes.) We’ve already covered a ballot proposal in Washington, a potential ballot proposal in North Carolina, and a 2016 proposal in Maine – check out the links to get the scoop. Today, we’re looking at measures in Texas and Utah, and providing an update on Washington.

Texas: Texas voters will consider two proposals with significant ramifications for roads and schools. Proposition 1 would increase the homestead exemption for public school property taxes from $15,000 to $25,000. The average savings for Texan households would be about $126, but schools systems across the state would lost $1.2 billion per biennium – money that the state would have to replace from the general fund. A state judge has already ruled that the state’s low level of school funding is unconstitutional, and Proposition 1 will make it harder to even maintain the status quo – all at a time when the needs of Texas’s schoolchildren are growing. Compounding the budgetary pressure is Proposition 7, which would divert sales tax revenue from the general fund to the Texas Department of Transportation for highway maintenance and construction, but would not raise any new revenue. This could have the unintended effect of weakening spending in other important areas that are paid for out of the general fund (including schools), particularly since low oil and gas prices are hurting the state’s bottom line. A better approach would be raising the state’s gasoline tax, which has remained unchanged for 24 years and has failed to keep pace with inflation.

Utah: Utah voters in 17 counties will decide whether or not to raise their sales taxes by 0.25 percentage points in order to fund the Utah Transit Authority. Legislative analysts say the plan will cost affected Utahans $50 a year on average. The legislature voted to allow counties to decide if they wanted to include the measure, Proposition 1, on the ballot and 17 of Utah’s 29 counties followed through. If passed by a county’s residents, the sales tax increase will only apply to that county. If approved, 40 percent of the revenue raised will support the transit authority. Another 40 percent would go to cities for local roads and other transportation projects. The final 20 percent will go regional transportation projects.

Washington: Tim Eyman, the author of Initiative 1366 and previous supermajority requirements, is a lightning rod in Washington state politics. I-1366 would force the legislature to amend the state constitution to require a supermajority vote for tax increases. If legislators refuse to amend the constitution, the ballot initiative would automatically cut the sales tax rate by a penny, leaving the state $8 billion poorer at a time when the Washington Supreme Court says the state is not meeting its constitutional obligation to K-12 students. Already, a mix of uncertainty over funding and questions swirling around Eyeman have caused many supporters of previous anti-tax measures to withhold their support from I-366. The Association of Washington Business and the state’s grocery store association are both keeping out of the debate over the proposal over concerns about how their donations were used in past efforts. If the initiative passes anyway, opponents hope that the courts will eventually rule I-1366 an unconstitutional abrogation of legislative authority. 

A coalition of Iowa student leaders is calling for a tax incentive to keep graduate and professional students in the state. Student government leaders from the University of Iowa, Iowa State University and the University of Northern Iowa want lawmakers to implement a 50 percent income tax break for graduate and professional students who reside in Iowa for up to five years after graduation. For students who choose to reside in rural areas, the tax break would increase to 75 percent. Student leaders say the measure would address a shortage of healthcare and legal professionals in the state. However, a recent survey of Iowa graduate and professional students found that employment opportunities were the biggest factor in choosing to remain in the state, not tax incentives.

The battle over road funding in Michigan continues. House Republicans managed to pass a road funding plan despite objections by chamber Democrats, though some say the measure is unlikely to pass. The measure would increase the state’s gasoline excise tax by 3.3 cents per gallon, increase the state’s diesel tax by 7.3 cents per gallon over two years, and increase vehicle registration fees by 40 percent. It would also shift hundreds of millions of dollars from the general fund to the roads budget. In a bizarre twist, House Republicans decided to tie these revenue-raising measures to a triggered personal income tax rate cut that would overwhelmingly benefit the wealthy and could ultimately repeal the state’s income tax entirely. Critics say the proposal would fail to raise enough revenue and that the income tax cut and general fund transfer could cause major budget problems down the road. They generally favor a larger increase in the gas excise tax. The bill is the latest salvo in transportation talks between the legislature and Gov. Rick Snyder that have collapsed into impasse. Voters rejected a sales tax increase to pay for road construction in May.

Nebraska Gov. Pete Ricketts will push a package of income and property tax cuts next legislative session, according to a recent address the governor delivered to Lincoln Chamber of Commerce. Ricketts claimed that cutting taxes would be the key to economic growth and would be his “No. 1 issue.” Similar efforts to cut income and property taxes failed in Nebraska during the last legislative session. An ITEP analysis of one of these plans found that wealthier Nebraskans would benefit disproportionately, while revenue losses would be drastic. 

Years of debate over how to boost funding for Michigan’s roads may be nearing an end.  But somewhere along the way, that debate was hijacked in a way that few people seem to have fully noticed.

Earlier this week, the Michigan House passed a road funding package that would raise the gasoline tax by 3.3 cents per gallon, raise the diesel tax by 7.3 cents, boost vehicle registration fees by roughly 40 percent, and offset some of these regressive tax increases with an expansion of the state’s circuit breaker tax credit for low- and moderate-income homeowners and renters.

So far, so good.  But these changes aren’t the real story.

Buried beneath talk of those 3.3 extra pennies that motorists would pay for a gallon of gasoline is a provision that could eventually eliminate the state’s single largest, and fairest, source of revenue: the personal income tax.  Under SB 414, which has passed both the House and Senate in slightly different forms, income tax rate cuts would be triggered whenever general fund revenues grow faster than inflation.  Unlike recent triggers enacted in states such as Oklahoma, SB 414 does not specify a target income tax rate and thus rate cuts would continue until the tax vanishes entirely.  In the House version of the bill the first cuts could begin as early as 2019, while the Senate’s version would start the process in 2018.

There are a multitude of problems with this approach.  Among them:

• The cost of these triggered cuts would be enormous.  The Michigan League for Public Policy (MLPP) explains that the state’s most recent budget “falls short in key areas related to economic growth and opportunity, and many investments are not on a scale that will make Michigan a comeback state for all of its residents.”  And yet, the Michigan House Fiscal Agency (HFA) explains (PDF) that if SB 414 were in effect right now, the result in 2016 would have been roughly $700 million less to invest in public services (caused by a drop in the income tax rate from 4.25 to 3.92 percent).  That revenue loss would compound as additional rate cuts are triggered.
• Michigan already has a regressive tax system where low- and middle-income families pay 9 percent, or more, of what they earn in state and local taxes.  High-income families, meanwhile, pay just 5 percent of their incomes in tax.  As ITEP’s Who Pays? analysis shows, the state’s personal income tax is the only major tax on the books running counter to this unfairness.  Cutting or repealing the income tax would primarily benefit those wealthy individuals who already face the lowest state and local tax rates.  According to Who Pays?, four of the five states with the most regressive tax systems in the country do not to have an income tax—hardly a group that Michiganders should be eager to join.
• SB 414 is designed to appear fiscally responsible by allowing income tax rate cuts to take effect only when overall revenue growth exceeds the rate of inflation.  In this case, inflation is measured for the cost of products typically purchased by household consumers—known as the Consumer Price Index (CPI).  But the CPI is not a reliable measure of the costs that Michigan’s state government will incur in the years ahead.  As we explain in our brief outlining Colorado’s disastrous history with a somewhat similar inflation-based formula, growth in the cost of services such as medical care, education, and infrastructure has routinely outpaced growth in the CPI.  This suggests that SB 414’s inflation measure is a poor gauge of the state’s fiscal trajectory.
• Even if the CPI were a relevant measure of inflation for these purposes, the Michigan proposal’s vulnerability to the “ratchet effect” would still guarantee its fiscal irresponsibility.  If revenues plummet in one year because of an economic downturn and then partially recover in the following year, that modest recovery could trigger an income tax rate cut even if the state’s revenues remained far below their pre-recession levels.  In other words, every recession would lower the bar needed to trigger an income tax rate cut to the point that even an anemic recovery could be enough set it off. 
• While an economic recovery may be the most frequent scenario in which an unaffordable income tax rate cut would take effect, it is by no means the only scenario.  The Michigan HFA, for example, explained in its analysis (PDF) of the bill that a “one-time revenue increase” caused by unusual economic events or federal tax changes could also result “in a permanent reduction in the income tax rate.”  If that happens, Michigan will find itself trying to provide the same level of services, with a lower income tax rate, even after the temporary tax windfall that triggered the rate cut is no more than a distant memory.

Michigan Rep. Jim Townsend recently called this income tax trigger proposal “the ugly conclusion to what term limits have brought us.”  This is in reference to the fact that Michigan’s fairly strict cap on the number of years that lawmakers can hold office will mean that many—if not most—of the lawmakers voting for this trigger law will no longer be in the legislature when it comes time to deal with its full budgetary consequences.

Enacting tax cuts that will not take effect for years, and even decades, in the future under the mistaken impression that SB 414 will be able to accurately gauge their affordability is a major gamble that is unlikely to pay off.  Michigan residents would be better served if their lawmakers refocused their efforts on the issue that is supposed to be at the core of their work: finding a way to fund the state’s deteriorating transportation infrastructure.

In recent years, Georgia has been a hotbed for regressive proposals to eliminate or lower the state’sreliance on income taxes and replace that revenue with higher sales taxes.  So far each of these proposals has been rejected, though late last year voters did cap the state’s top personal income tax rate—a change that could lead to financial problems down the road and may prevent future Georgians from making needed investments.

With the Great Recession behind us and economic conditions slowly improving across the country, now is the time for states to assess their preparedness for future downturns. Rather than waiting for another crisis to occur, ITEP’s new policy brief explains why states should make structural improvements to their rainy day funds right now.

If the economy falters and states are caught without enough reserves to cover the resulting budget shortfalls, policymakers will be faced with having to enact temporary tax increases or potentially painful budget cuts. An adequate, accessible rainy day fund can help lessen the need for these types of difficult budget decisions.

But as the brief explains, deposits into state rainy day funds should not come at the cost of inadequate funding and support of critical public services today. State rainy day funds are at their best when the need to save is carefully balanced against spending priorities. When this happens, rainy day funds are an indispensable part of a responsible state budget.

Read the brief to learn more about rainy day issues such as size limits and rules for the deposit, withdrawal, and replenishment of funds.

The Clarion-Ledger reports that transportation funding could be a “sleeper issue” in Mississippi’s upcoming election. The state has not raised its gas tax, right now at 18.4 cents per gallon, since 1987 and road conditions reflect the lack of investment. Last fall, state highway officials were forced to tell farmers and other businesspeople that crucial bridges connecting fields and ports were off limits to heavy trucks. Many decided to flout the state’s rules and send heavy trucks across the deteriorating bridges, which have collapsed on occasion. The Department of Transportation estimates that $400 million a year in additional revenue will be needed just to maintain current road conditions.  

Low oil prices pose a challenge for state budgets in Texas and Oklahoma. Texas Comptroller Glenn Hegar lowered revenue projections by $2.6 billion from his January estimate, citing lower economic growth than anticipated and undercutting the fabled “Texas Miracle” narrative of low taxes leading to gangbusters economic expansion. Meanwhile, Oklahoma Finance Secretary Preston Doerflinger reported that general fund apportionments were below projections last month due to falling oil prices and accompanying job loss. Notably, while personal and corporate income tax revenues exceeded projections, sales and gross receipt tax revenues were far below projections. Many conservative lawmakers advocate a move from income to consumption taxes, but Oklahoma’s example indicates that such a move could be bad for budget stability.

Florida Gov. Rick Scott wants more tax cuts and additional funds for corporate tax incentives, but so far the legislature is not biting. Scott pledged during his reelection campaign last year to cut taxes by $1 billion. He is almost halfway there after lawmakers passed a $427 billion package of tax cuts during the most recent legislative session, but even conservatives have yet to endorse a further round of cuts and more corporate giveaways. Senate President Andy Gardiner says $250 more in cuts could be possible, but balked at more money for corporate incentives. Meanwhile, Senate Democratic Leader Arthenia Joyner decried new tax cuts and more “corporate welfare” as “grand abdications of the public trust.”

Florida House lawmakers are considering a different tax plan that would not cut taxes but swap revenue sources. The House Tax and Finance Committee is exploring options that would allow it to reduce property taxes by increasing sales taxes. One proposal would exempt the first $1 million of a property’s appraised value from property tax liability and cover 98 percent of property in the state. In return, the sales tax rate would have to increase by 4.93 percentage points. Some lawmakers were outraged at the proposals, as poor Floridians already pay eight times as much of their income in sales taxes as the wealthy. An editorial in The Gainesville Sun notes that “Florida already has one of the most unfair tax systems in the country, and the sales-tax plan would only make it worse. Making Florida even more reliant on the sales tax would also force greater cuts of schools, safety-net programs and other government expenses whenever the state experienced a recession.”

Presidential candidate John Kasich today released a tax proposal that is in lock step with other Republican candidates’ plans.  Most basic details are missing, but it is clear Kasich’s plan would lavish substantial tax breaks on the best-off Americans while blowing a huge hole in the federal budget. This plan is not surprising. As governor of Ohio, Kasich has supported and signed regressive tax proposals.

The centerpiece of Kasich’s plan is a drastic cut in the personal and corporate income tax rates. For the richest Americans, Kasich would cut the top tax rate from 39.6 to 28 percent and slash the tax rate on capital gains to 15 percent. He would outright repeal the estate tax.

For corporations, Kasich proposes dropping the rate from 35 percent to 25 percent and allowing companies to immediately write off their capital expenses. Kasich would also allow U.S. companies to avoid ever paying a dime on profits they shift offshore by moving to a “territorial” tax system.

The elements of Kasich’s blueprint are virtual carbon copies of plans put forth by Jeb Bush and Donald Trump. What sets Kasich apart is that he seems uninterested in closing tax loopholes to pay for his aggressive tax cuts. On the corporate side, he apparently doesn’t see a single corporate giveaway worth repealing. And although closing the “carried interest” loophole has gained bipartisan support, Kasich’s proposal does not address this tax giveaway to wealthy money managers.

All of this means the revenue impact of Kasich’s plan would likely be just as devastating as the Trump and Bush plans, both of which would cost trillions over a decade. The only question is precisely how many trillions of dollars Kasich’s plan would cost.

At the moment, it is nearly impossible to project how his plan would affect families at varying income levels because he proposes reducing the number of tax brackets from seven to three, but the limited details he has provided do not include income levels for his proposed tax brackets.

The lowest income families could very well get a tax cut because Kasich proposes a 10 percent increase to the Earned Income Tax Credit, but some middle-income families could experience a tax increase because Kasich’s plan implies that he would repeal all itemized deductions other than charitable contributions and mortgage interest.  

If Kasich’s goal is to set himself apart from the competition in the presidential tax cut sweepstakes, he hasn’t achieved it. What’s most striking about the Kasich plan is just how closely it hews to the disastrous fiscal blueprint of those candidates who have gone before him.

Leading Republican presidential candidates including Donald Trump, Gov. Jeb Bush and Sen. Marco Rubio have all received misguided accolades at some point for so-called populist tax plans that would eliminate or reduce federal income taxes for the lowest-income families.

Of course, after the initial media hullabaloo died down, it quickly became clear that these candidates are toeing the party line and masking massive, deficit-financed tax breaks for corporations and the wealthy with token tax breaks for working people.

Well, presidential candidate Bobby Jindal’s tax plan suggests he believes the others have it all wrong. Currently in poll purgatory, Jindal announced a tax plan Wednesday that would repeal most of the features in the federal tax code that shelter many low-income workers from the federal income tax. He proposes to dissolve personal exemptions and standard deductions all in the name of ensuring that those below the poverty line “have some skin in the game.”

“If we have generations of Americans who never pay any taxes,” Jindal wrote. “It will be very easy for them to turn a blind eye to absurd government spending and to continue to allow our government to bankrupt our nation.”

To some, this will sound rational; to others it’s a loaded, erroneous and misguided statement that indicates Jindal’s understanding of human nature is just as wrongheaded as his knowledge of how the nation’s economy and tax system work. His assumptions are outrageous but pretty much in line with rightwing social and political thought that labels low-income people as “takers,” blames the poor for being poor, and presumes people are poor because they simply haven’t tried hard enough not to be poor. 

Alas, Jindal’s federal tax proposal isn’t surprising given his track record. As governor of Louisiana, he championed policies that suggest he believes low-income people aren’t paying nearly enough in taxes and the rich need tax breaks. He proposed repealing the state’s personal and corporate income taxes and replacing the lost revenue with an expanded regressive sales tax, which would capture more of Louisiana’s poorest residents’ income. Fortunately, state lawmakers panned his plan.

Now, the governor wants to bring his backward tax philosophy to Washington.

His tax proposal perpetuates myths about low-income, working people instead of asking tough questions such as why we have an economy in which 45 percent (by the latest estimates) of U.S. taxpayers earn incomes so low that they have no federal income tax obligation? The answer cannot be that nearly half the nation’s population just needs to stop being poor and, by the way, pay more taxes.

Here are a few facts that Jindal likely didn’t consider, misconstrued or conveniently overlooked. Even the poorest Americans pay a substantial share of their income in federal, state and local taxes. All working people pay Medicare and Social Security taxes, and all consumers pay sales taxes as well as a bevy of other state and local taxes.

Jindal also promises his plan would “dramatically simplify the tax code.” But that, too, is empty rhetoric. Sure, his proposal to repeal all standard and itemized deductions except for charitable and mortgage deductions sounds simpler on its face. But a deeper dive reveals that repealing the standard deduction means that every American would be able to write off their charitable contributions, no matter how small, to lower their tax bill.

Of course no plan that panders to the radical right wing would be complete without a call to “neuter” the IRS, an agency that is already substantially underfunded.

Much of the rest of Jindal’s proposal is consistent with what we’ve seen from other Republican presidential candidates. His plan would repeal the corporate income tax, the estate tax, and the “net investment income” tax enacted to help pay for the Affordable Care Act, and he would sharply cut other taxes, including the personal income tax. The main beneficiaries of this approach would be the very best-off Americans.

While there are too few details available to confidently project the likely cost of Jindal’s plan, his own campaign, after factoring in the dubious magic of dynamic scoring, estimates his plan would cost $9 trillion over a decade—largely in line with a plan put forth recently by Donald Trump and by Jeb Bush’s multi-trillion-dollar giveaway to the wealthiest Americans.

In Jindal’s defense, not every claim he makes about his tax plan is obviously false or misguided. It is very likely that his proposals would blow at least as big a hole in the federal budget as the $9 trillion he cheerfully projects.

But let’s also be clear. Some economists have said growing income inequality and stagnating wages are among the defining issues of our time. Jindal’s tax proposal would make this problem worse by lavishing tax breaks on the very wealthy while taxing the poor more.

A new proposal from a Maine coalition could set the stage for dueling tax ballot initiatives in Maine. The Stand Up for Students proposal would create a 3 percent surcharge on households with taxable income over $200,000, generating an estimated $110 million in revenue earmarked for costs associated with classroom instruction. According to an ITEP analysis, the tax increase would impact just 2 percent of Maine households, all of them among the top 5 percent of the state’s taxpayers.

Meanwhile, Maine Republicans have proposed a ballot initiative that would replace the graduated income tax structure with a flat income tax rate of 4 percent for all Mainers. As we outlined in a previous blog post, the Republicans’ ballot initiative would cost $550 million in state revenues and give the top one percent of Maine taxpayers an average tax cut of over $21,000. Most middle- and low-income Maine taxpayers would see no benefit given the higher sales and property taxes or drastic budget cuts necessitated by such a plan. For a side-by-side comparison, see the table below.

Voters in the Pine Tree State will face a stark choice if the backers of both ballot measures are successful in getting their preferred policy choice on the ballot. It’s worth pointing out that, in the event that both ballot measures pass, the Republicans’ flat tax initiative would not nullify the Stand Up for Students proposal, as the latter is a surcharge and not a modification to tax rates. 

Pennsylvania Gov. Tom Wolf and House and Senate lawmakers continue to grapple with how to balance the state’s books more than 90 days past the budget due date. The state’s fiscal year started July 1, but policymakers have yet to agree on a fiscal path forward that manages the state’s $2.3 billion deficit. 

The House voted this week against a new tax plan proposed by the governor, which, he said, provided an “opportunity to move forward and away from the failed status quo.” Conservative members of the legislature (who control the House and Senate) support a “no new taxes” solution and instead want to privatize state-run wine and liquor stores and reduce pension spending to close the gap.  The governor’s latest tax proposal was seen as an attempt to gain some conservative support for a revenue solution as he abandoned his plan to broaden the sales tax base and pared back his proposed new severance tax on natural gas extraction.   The centerpiece of his proposal was an increase in the state’s personal income tax rate from 3.07 to 3.57 paired with an increase in a tax forgiveness credit.  According to an ITEP analysis, the income tax changes would have held the state’s lowest income residents harmless while the rest of the hike was spread evenly across the income distribution. 

The Pennsylvania Budget and Policy Center notes that there is now more (and harder) work to be done:  “The weight of responsibility for guiding us to the budget Pennsylvania needs now rests more heavily than ever with the legislative majority, including with the members who, at various times, have expressed support for a severance tax, increased education funding and more investment in human services. Today they voted no. That was the easy part. The hard part will be getting to yes, to a vote for a responsible budget that invests in Pennsylvania’s schools, communities and future.”

Pennsylvania already has the sixth most unfair state tax structure in the country, so while there is harder work ahead for policymakers there are certainly clear options available that both raise money and increase the overall fairness of the state’s tax structure.