Tag: TaxJusticeBlog

Public outrage over the financial crisis may have subsided in recent years, but the lasting legacy is a nation that remains acutely aware of exploitative business practices that line the pockets of corporate executives and shareholders at the expense of ordinary working people.

Perhaps this is why H&R Block and Intuit quietly lobbied for a provision currently in the Senate appropriations bill that would make it more difficult for low-income taxpayers to claim the Earned Income Tax Credit. Currently, individuals filing their own taxes have to fill out a one-page form to claim the credit. H&R Block thinks these folks should have to fill out a longer form with repetitive and irrelevant questions.  Robert Greenstein of the Center on Budget and Policy Priorties explains why this would be unneccessary and overly burdensome. And an Aug. 24 Vox article by Dylan Matthews brilliantly describes why this measure is ridiculous.

“The only possible reason to change the form, then, is to confuse taxpayers enough that even more of them will pay companies like H&R Block to prepare their returns,” Matthews wrote.

H&R Block, in response to negative publicity, defensively argued in a press release that it is lobbying for this provision to preserve the EITC and cut down on fraud by “do-it-yourself” filers. Nonsense. Someone should tell the company’s crisis communications team that it is not good PR to both brazenly mislead and condescend within the span of five paragraphs. Tax preparers such as H&R Block, Jackson Hewitt and Liberty Tax Service have a long history of exploiting low-income taxpayers, not fighting to preserve and strengthen programs, including the EITC, that lift people out of poverty. Further, implying that low-income taxpayers are deliberately committing fraud is highly offensive.

Erroneous returns are often due to paid tax preparers’ errors. The tax code is extremely complex, but tax preparers needn’t undergo special training or certification. A 2014 GAO investigation of 19 tax preparers found that only two–barely 10 percent–properly completed tax forms. The remaining 17 made mistakes ranging from finishing a return that was $57 too little to preparing a return that grossly inflated the refund by $3,718. H&R Block should clean its own house and industry if it is genuinely worried about EITC overpayments. And while it is at it, the company should cease with the paternalistic language that essentially labels low-income people as  incapable.

H&R Block’s effort to make it more difficult for consumers to claim the EITC without tax preparers’ help is also highly suspicious given that for years the industry exploited low- and moderate income taxpayers with usurious refund anticipation loans (RALs). The RAL industry flourished in the 1990s and early aughts when electronic filing became commonplace. The loans were an immediate advance against a taxpayer’s calculated refund. Tax preparers often charged consumers a preparation fee, electronic filing fee, as well as a fee for the loan advance. By the time tax preparers finished tacking on charges, consumers often paid companies 10 percent or more of their refunds.

According to the National Consumer Law Center, 90 percent of people who received refund anticipation loans were low-income taxpayers. It’s not hard to surmise why. For families living paycheck-to-paycheck, the appeal of immediate cash to make ends meet often, by necessity, trumps concerns about predatory lending rates. Tax preparers know this, and that’s why the industry profited from RALs by more than $1 billion annually during its heyday. In 2010, the IRS passed regulations that made it less enticing for banks to grant RALs and a couple of years later, most big banks got out of the RAL business.

Don’t shed any tears for H&R Block and other tax preparation firms, though. Tax preparers continue to profit off low-income taxpayers through Refund Anticipation Checks. For consumers who cannot pay up-front costs, tax preparers offer to deduct the preparation fee from their refunds. Of course the fees add up. There’s the preparation fee, the federal filing fee, the state filing fee, and other add-ons.  

Consumer watchdog organizations continue to highlight how some tax preparers charge excessive fees. The groups are educating the public about how to file their own returns and receive refunds using their own bank accounts or other financial products to avoid copious fees. In addition, a number of local nonprofit organizations will prepare returns for low- and moderate-income people for free. H&R Block and other tax preparation firms know this, but they have a financial interest in keeping consumers dependent upon their services, hence the quiet lobbying to make it more difficult to claim the EITC.  

The public doesn’t begrudge corporations earning big profits. But it rightly detests corporations that have a willful disregard for public wellbeing. The EITC does not exist to provide business opportunities that enrich tax preparation firms at the expense of the American public. H&R Block and other corporations’ effort to complicate the EITC for the transparent reason of greasing their corporate palms is nothing short of shameful.

As Labor Day weekend approaches, a tanned and rested Congress is poised to return to Washington to hash out corporate tax changes. Much of the debate over corporate tax reform in Washington sensibly focuses on how to encourage Fortune 500 corporations to repatriate and pay U.S. taxes on the $2.1 trillion on profits they have declared to be “permanently reinvested” (and thereby free of U.S. taxes) overseas. But an overlooked fact in this debate is just how much tax companies have avoided by keeping these profits (on paper, at least) offshore. An April 2015 CTJ report estimates that Fortune 500 corporations likely have avoided $600 billion in federal income taxes on these offshore profits.

Corporations declaring their intention to keep profits permanently offshore are required to estimate, if possible, the amount of U.S. tax they would pay if they repatriate these profits. Most companies legally avoid complying with this rule simply by declaring that it is too complex to make the calculation. But CTJ went through corporate filings and found 57 Fortune 500 corporations do comply. (See table below for details) These companies estimate they would pay a 29 percent tax rate on repatriation. (Since the federal tax on repatriated profits is 35 percent minus any taxes already paid to foreign countries, this means these companies have paid an average tax rate of just 6 percent on these profits, an indicator that much of this income is being kept in low-rate tax havens.)

Hundreds of other companies with offshore cash fail to make this disclosure, so it is impossible to know precisely how much corporate income tax they have avoided on their offshore cash. But if these companies, which include notorious tax avoiders General Electric, Pfizer, Merck and IBM, owed tax at the same 29 percent average rate reported by disclosing companies, the unpaid tax bill on Fortune 500 corporations’ offshore cash would be $600 billion (that is, $2.1 trillion times 29 percent). Since almost two-thirds of Fortune 500 corporations disclose owning subsidiaries based in offshore tax havens, it seems likely that many of these corporations are sheltering their “permanently invested” profits in these havens.

President Obama and congressional tax writers are sensibly focusing their energies on finding a way to make companies with offshore cash pay at least some tax on these profits. But Obama has proposed a tax rate of just 14 percent, less any foreign taxes already paid. (Republicans in Congress will likely propose a tax rate much lower than that.) This would bring in just $220 billion. That’s nearly $400 billion less than the full amount owed. CTJ’s finding suggests that any plan that would bring in less than $600 billion would amount to yet another giveaway for corporate tax dodgers. It’s time these offshore tax dodgers pay what they owe.

The Texas Supreme Court this heard oral arguments in a school finance case regarding recession-era education budget cuts. In 2011, the Texas Legislature cut K-12 education spending by $5.4 billion and per-pupil spending declined by more than 8 percent. More than 600 school districts sued the state, arguing that the cuts make it impossible to meet minimum education standards and that funding is inadequate and unfairly apportioned. Over the past four years, the state has restored about $5 billion in funding, but District Judge John Dietz still sided with the plaintiffs, declaring that the funding system is unconstitutional. The state then appealed the case. Texas, which has no income tax, relies on local property taxes to fund its public schools. In 1993 the legislature passed the “Robin Hood” plan, which mandated some revenue sharing between wealthy and poor school districts.

The latest group to be fed up with the interminable budget impasse in Illinois is credit rating agency Moody’s, which said that the stalemate is a sign of “weak governance.” Moody’s warned Gov. Bruce Rauner and lawmakers that failure to reach an agreement by late September would turn a projected deficit of $5.14 billion into an actual one. Moody’s suggested that raising the income tax would be the most logical solution, as the state “has the economic capacity to absorb higher income tax rates. It is one of only eight states that levy a flat individual income tax. Among those states, Illinois’ current rate is comparatively low: the average among these states is 4.4%, compared with 3.75% in Illinois.” Increasing the personal income tax by 1 percent and the corporate income tax by 1.5 percentage points would generate approximately $2.4 billion in additional revenue.

Michigan group Citizens for Fair Taxes is fighting for a ballot initiative that would increase the state corporate income tax rate from 6 percent to 11 percent, a change they say would bring in $900 million annually for public roads and reverse the tax shift from businesses to working families begun under Gov. Rick Snyder in 2011. About one-third of Michigan businesses are subject to the corporate income tax. If the group collects 253,000 signatures, the proposal would go before the legislature. If the legislature fails to act or votes down the proposal, it will be put to the voters on the November 2016 ballot.

Connecticut Gov. Dannel Malloy is fighting to keep GE headquarters in the state after the company threatened to move. Some state leaders want to repeal the combined reporting requirement just enacted as part of the tax package supporting the two-year budget in June. Malloy is working with officials to create a sweetheart package of tax incentives to keep GE in the state. The move comes after GE used its political clout to force the legislature into special session this June, after the tax package narrowly won legislative approval despite business objections. Numerous studies have shown that taxes are not the primary driver behind business relocation decisions, but GE and other business still use the threat of relocation to wring concessions out of state and local governments.

Speaking of dubious tax claims, Art Laffer urged West Virginia leaders to slash income taxes to stimulate economic growth, weeks after the state’s commerce secretary said taxes were a non-issue in business relocation decisions. The secretary stated that West Virginia’s uneducated workforce was a larger factor in attracting new companies to the state. Unmoved by facts, Laffer told the West Virginia Chamber of Commerce that lower taxes and a reduced social safety net would result in more growth: “If you tax rich people and give money to poor people, you’re going to get lots and lots of poor people and no rich people.” Laffer’s remarks were praised by Senate President Bill Cole, who said, “There’s no question in my mind that, by itself, it could be the single biggest and largest economic driver that this state has ever seen. I think he’s spot on. I think, virtually, everything he’s said has proven itself out in history.” Clearly Sen. Cole has never been to Kansas.

A recent op-ed in The Huntsville Times outlines how Alabama legislators could reform the state’s tax system without constitutional amendments. The four proposals outlined would reform the state’s business privilege tax by reducing rates for small businesses and increasing them on large multinational businesses, require combined reporting on corporate income tax forms, increase the cigarette excise tax, and transfer use tax revenues to the General Fund. Author Carol Gundlach of Arise Citizen’s Policy Project says these reforms would avoid harmful cuts to Medicaid, prisons and mental health being considered by legislators.

Do you have a hot state tax tip? Send it to sdpjohnson@itep.org for the next State Rundown!

During presidential primaries, we expect candidates to talk about their big plans for moving the country forward and addressing the nation’s most pressing issues. We expect soaring rhetoric based on so-called traditional ideals. Discussing the world in right v. wrong extremes is much easier than conceding that there are myriad shades of gray and that actual governing and policymaking is always easier in theory than it is in practice.

So, you can’t blame Republican presidential candidate Dr. Ben Carson, polling at second just a few percentage points behind current frontrunner Donald Trump, for touting a tax plan that would replace the nation’s current tax system with one based on tithing. Regardless of religious or secular affiliation, most of us understand the biblical concept of giving 10 percent of our income to religious authorities.

During the first GOP primary debate, Carson said under his 10 percent flat tax “tithe” plan, “[y]ou make $10 billion, you pay a billion. You make $10, you pay one.” Sure, it may sound easy, but it is utterly unrealistic, and, based on the limited details he has released, it would fail to raise enough revenue to fund Social Security, unemployment and labor programs, let alone the entire federal government.

Carson has never specified whether his plan would actually include all income or exclude capital gains incomes, as many other tax proposals do.

Without specific details, Citizens for Tax Justice (CTJ) Director Bob McIntyre made a generous estimate of how much Carson’s 10 percent flat tax could reasonably raise by simply multiplying total federal adjusted gross income estimated for 2016 ($11.25 trillion) by 0.10. This would yield tax revenues of only $1.1 trillion. The Office of Management and Budget (OMB) estimates that the federal government will raise an estimated $3.5 trillion and spend $4 trillion in 2016. In other words, Carson’s plan likely would raise only 32 percent of the revenue of the current tax system and pay for only 28 percent of estimated government spending.

Further, McIntyre said, arguing the U.S. Tax system could be based on tithing misrepresents how societies functioned during ancient times. “Tithing was instituted to support the church,” he said. “But there were also taxes to support the government, too — pretty heavy ones during the Roman ascendancy.”

But Carson is sticking to his guns, stating that he has talked to economists who said with enough loophole closing a workable tax rate would be “somewhere between 10 and 15 percent.” However, our calculation demonstrates that even with every deduction eliminated, Carson’s 10-percent flat tax would increase the deficit by $3 trillion in just one year.

Even if Carson increased the rate of his flat tax, it would still be bad policy for the nation. Flat taxes plans are generally regressive. A CTJ analysis of one revenue-neutral flat tax plan found that it would raise taxes on the bottom 95 percent of taxpayers by an average of $2,887, while cutting them by an average of $209,562 for the richest one percent of taxpayers each year.

Carson is not alone among the Republican candidates in advocating some form of a flat tax. Ted Cruz, Rand Paul, Mike Huckabee, John Kasich, Rick Perry, Bobby Jindal, Lindsey Graham, and even Donald Trump have either endorsed or said that they are considering proposing a flat tax system. The only candidate to specify his flat tax plan with any detail is Sen. Rand Paul, whose plan would blow a $15 trillion hole in the budget over the next ten years, according to CTJ’s estimate. But Carson’s 10-percent plan would cost far more than even Paul’s proposal.

Earlier this month, the Securities and Exchange Commission finalized a new rule that will require most public corporations to disclose the ratio between CEO pay and median wages for rank-and-file employees. This rule will give shareholders and the public a clearer window on how corporate salary structures are affecting income inequality.

But while this rule represents an important step toward understanding how specific corporations are compensating ordinary workers compared to corporate executives, it also highlights the inadequacy of an even more fundamental way in which many corporations are likely undermining all middle-income working families: corporate tax avoidance.

Congress and federal regulators have it in their power to bring corporate tax dodging into the light just as they’ve done with executive pay, and should move quickly to do so.

Many of the biggest corporations avoid hundreds of billions of dollars in U.S. taxes in a way that is virtually impossible to glean from their public filings. Big corporations keep shareholders in the dark about whether they are using foreign subsidiaries to avoid paying their fair share of U.S. taxes. Corporate tax filings, for example, often omit disclosure of tax-haven subsidiaries and fail to acknowledge whether the company’s offshore cash is subject to any income tax by any country. Less corporate tax revenue has a direct and corrosive impact on economic inequality just as the executive pay levels do. This should matter to all taxpayers because every billion that a corporation dodges in taxes ultimately must be made up by either taxing individuals at higher rates or drastically cutting funding for vital government services and programs.

And the billions add up fast: a CTJ report earlier this year found that Fortune 500 firms are likely avoiding as much as $600 billion in federal income taxes through the use of offshore tax havens. As CTJ has noted before, there are straightforward steps Congress and the SEC can take that would allow shareholders to know when their investments are supporting tax-dodging corporate leadership.

Lavish CEO pay directly disadvantages a corporation’s middle-income workers, and the new SEC disclosure will hopefully help shame some big companies into treating all workers more equitably. But until the largest corporations are required to be transparent in their use of offshore tax havens, these companies will continue to erode the take-home pay of all working families in a way that is far less visible than the pay ratios public corporations must now disclose.

The online craft website Etsy is facing new scrutiny for its recent decision to shift some of its intellectual property into a secretive Irish subsidiary. As Bloomberg reported last week, the company’s Irish subsidiary has been made into an “unlimited liability corporation,” a form that exists primarily to avoid disclosure of even the most basic financial information. This behavior might elicit yawns from a public weary of tax-avoidance tales from Apple to Xerox, except for one important detail: Etsy is one of the first publicly held corporations to structure itself as a “B corporation,” or benefit corporation — and as such, is required to act in a socially responsible manner.

While the criteria for being a “B corporation” vary by state, the common theme is that a company claiming this status must keep in mind not just its bottom line, but also “workers, community and the environment.” This is important because when corporate executives are called on the carpet to defend their tax-dodging ways, they routinely cite their fiduciary responsibility to their shareholders as the reason why tax avoidance is not only acceptable, but something they simply must do. B corporations were supposed to change all that. But apparently not: Etsy has engaged in a tax-avoidance two-step. First, like prominent tech corporations such as Microsoft, Etsy has found a way to move its intellectual property to a subsidiary in a low-rate tax haven. Then, on top of that, Etsy changed the legal form of its subsidiary so that it wouldn’t have to disclose how much money it is funneling into its tax-haven Irish subsidiary.

When Google chooses “don’t be evil” as its corporate slogan, it’s just that: empty sloganeering. The company can, and should, face merciless scorn for the ways in which its tax-dodging practices violate that supposed ethos, but at the end of the day, as long as what it’s doing is legal, no one can stop them. In contrast, B corporations are, at least in theory, held to a higher standard. Yet already in the pages of Fortune, Etsy’s behavior is being defended as “just being loyal to its shareholders.” This raises the question of whether the B corporation’s mandate for social responsibility extends into the tax policy realm — or whether the folks at Fortune simply haven’t noticed that Etsy is a different kind of corporation.

The good news is that the organization responsible for B corporation certification, B Lab, is on the case. It turns out that a change in ownership, including an initial public offering (IPO), requires that companies with B corporation status must recertify their status. One of the questions Etsy must answer as part of its re-application for B corporation status is “[h]as the Company reduced or minimized taxes through the use of corporate shells or structural means.” But as tax expert Robert Willens noted in the Wall Street Journal last week, “[t]here is nothing to be gained other than tax savings” from what Etsy has done.

The advent of the B corporation could be a welcome trend in corporate governance, opening the door for business leaders to think about important social policy outcomes, rather than just cold hard cash, in making their executive decisions. Responsible taxpaying is only one part of the high standards to which B corporations are held. But tax avoidance is a basic and fundamental betrayal of corporate citizenship. If Etsy is recertified despite persisting in its offshore tax hijinks, it will be harder to take seriously the “benefit corporation” label.

Donald Trump’s recently released framework for immigration reform includes misleading statements about “illegal immigrants” claiming refundable tax credits. Trump claims that “illegal immigrants” received $4.2 billion in “free” tax credits in 2011 and proposes to pay for part of his immigration proposal by accepting the Treasury Inspector General for Tax Administration (TIGTA)’s “recommendation” to eliminate tax credit payments to these individuals. It’s hard to know where to start in deconstructing the inaccuracies in Trump’s statement.

First, the use of the word “free” is highly misleading, as undocumented immigrants do pay a significant amount in local, state, and federal taxes.  An analysis by the Institute on Taxation and Economic Policy (ITEP) estimated that in 2012, undocumented immigrants paid $11.8 billion in state and local taxes (including about $7 billion in sales and excise taxes, $3.6 billion in property taxes, and $1.1 billion in income taxes). On top of this, the Social Security Administration’s Office of the Chief Actuary estimated that in 2010, unauthorized workers (who may be undocumented or in the country legally but without permission to work) paid $12 billion in Social Security payroll taxes net of benefits received. Since most unauthorized workers are not eligible for Social Security benefits, this group only received approximately $1 billion in benefits for the $13 billion paid in.

Second, the $4.2 billion figure that Trump references is from a 2011 TIGTA report that actually states that families with an unauthorized worker received $4.2 billion in 2009 (not 2011) through the refundable portion of the Child Tax Credit (known as the Additional Child Tax Credit). While this may sound the same on the surface, there are a few things that should be noted. As the report explains, these credits were claimed by taxpayers using an Individual Taxpayer Identification Number (ITIN), which the IRS issues to individuals not eligible for a Social Security Number. ITINs are issued without regard to immigration status to people not authorized to work in the United States, so this group includes not just undocumented immigrants but also individuals who have immigrated legally but aren’t legally able to work.

Taxpayers using an ITIN are prohibited from receiving the Earned Income Tax Credit (EITC) but are allowed to claim the Child Tax Credit (CTC). Worth up to $1,000 per qualifying child, the CTC is intended to offset the costs of raising children. Families who owe less in taxes than their eligible Child Tax Credit amount can receive the difference through the Additional Child Tax Credit, which is paid out with their tax refund. Since the CTC is intended primarily to benefit children, it makes sense that it is the children’s immigration status, not the parents’, that qualifies a family to receive the credit, and a qualifying child can be a citizen, a U.S. national, or a resident alien. And although some portion of the $4.2 billion in Additional Child Tax Credits could be going to families with undocumented parents, nearly 80 percent of the children of undocumented immigrants are U.S. citizens.

It is also worth noting that the refundable tax credits like the EITC and CTC have immense benefits for the children in the families that receive them. There is a growing body of research showing that these credits improve educational and health outcomes for children and result in them working hard and having higher earnings as adults.

Third, while Trump says that his plan would “accept the recommendation” of TIGTA to eliminate tax credit payments to illegal immigrants, the 2012 TIGTA report that he references makes no such recommendation. In actuality, the report recommends that the IRS implement procedures to reduce the number of fraudulent ITIN applications that it approves. TIGTA’s main concern here is that people are using fraudulent documents to obtain an ITIN and using it to file fraudulent tax returns (e.g. claiming tax refunds for non-existent persons), not the use of ITINs by undocumented immigrants.

Finally, if the concern is the $4.2 billion revenue loss, Trump should look to comprehensive immigration reform that allows a path to citizenship for undocumented immigrants, which would actually increase revenues at the federal, state, and local levels. The Congressional Budget Office (CBO) estimated that the 2013 Senate comprehensive immigration reform bill would have decreased the deficit by $197 billion over ten years, as newly legal immigrants would pay $459 billion in additional taxes, while the increased government expenditures for benefits would only increase by $262 billion. Additionally, ITEP estimated that granting citizenship to all undocumented immigrants would raise more than $2.2 billion annually in state and local revenues. These revenue increases would occur because more immigrants would then be paying taxes on their income and because citizenship is likely to boost wages and therefore increase income, sales and property taxes. Trump might want to consider these benefits instead of spending all his time planning for that wall.

For more on Trump’s tax proposals, click here.

Budget gridlock continues in a few states across the country, including North Carolina where lawmakers are dragging through one of the longest sessions in 40 years, and taxpayers have already spent an extra $1 million to keep the legislature in session. House and Senate leaders agreed on a $21.74 billion budget, or roughly the mid-point between the two chambers’ spending packages passed earlier this summer.  However, lawmakers now need to agree on how to spend the money.  As a News and Observer editorial notes, such a restrictive level of spending keeps the state’s budget “suspended in the recession’s gloomy economic period.” A proposed change to local sales tax revenue also caused deadlock. Rural legislators would like to redistribute local sales tax revenue from urban areas and tourist destinations to their jurisdictions, while legislators from those places say the change would require a tax hike on their constituents. Last week legislators passed a stopgap funding measure through Aug. 31.

The Michigan House this week again debated road funding but adjourned Wednesday without a deal, the latest move in a long debate that has already defeated a ballot measure and threatened the state’s EITC. After voters torpedoed a sales tax increase at the polls that would have paid for transportation improvements, both chambers of the legislature passed alternative funding plans. The compromise package called for $600 million in new fuel tax and vehicle registration tax increases as well as a transfer of $600 million in income tax revenue from the general fund. Gov. Rick Snyder and Democratic legislators balked at the general fund transfer, while Republicans in the House were slow to rally around the new taxes. Both houses of the legislature will return after Labor Day.

A controversial education tax credit in Kansas is drawing fire from critics who say it directs public money to religious schools. Created in 2014, the Kansas Low-Income Students Scholarship Program allows non-profit organizations to collect donations from businesses to pay private school tuition for low-income students who attend public schools with low test scores. In return, businesses are allowed a state income tax credit equal to 70 percent of their donation. More than 50 private schools, many of which offer religious education, have signed up for the program. Opponents of the scholarships say the program is unconstitutional, as Article 6 of the State Constitution states “No religious sect or sects shall control any part of the public educational funds.”

New Jersey lawmakers are trading proposals to cut taxes on yacht owners with Gov. Chris Christie. Lawmakers sent a budget to the governor that capped the 7 percent sales tax on yachts at $20,000, a windfall for boats costing more than $286,000. Christie vetoed that measure and responded with a plan that would halve the yacht sales tax from 7 percent to 3.5 percent. Marinas and boat retailers favor the governor’s plan. The vetoed plan would have cost between $3 million and $4 million; estimates on the governor’s alternative are not available but are expected to be higher. Legislators will consider Christie’s proposal when the legislature reconvenes, perhaps as soon as September.

As West Virginia legislators continue to consider changes to the state’s income tax structure to draw more businesses, state Commerce Secretary Keith Burdette questioned whether such an effort was necessary. Burdette pointed out that location was the number one reason that companies chose not to expand in the Mountain State:  “We don’t lose prospects over taxes; I’m not sure we lose them over regulations any more. We lose them over site.” Burdette also pointed out that the state’s lack of an educated workforce hurts business recruitment efforts. “Simply making us the lowest cost state without acknowledging and focusing attention and resources on other factors which make an attractive business climate would be a mistake,” Burdette acknowledged. 

Hillary Clinton recently announced a $350 billion proposal to make college more affordable. It would be paid for by capping the value of itemized tax deductions for high-income households. It appears that the plan is a watered down version of President Obama’s proposal to cap the tax savings from a longer list of deductions and exclusions at 28 cents per dollar deducted or excluded.

Both Clinton and Obama’s plans would affect only taxpayers in tax brackets above 28 percent (currently the 33, 35, and 39.6 percent brackets). Thus, it would limit deductions only for single taxpayers earning more than $200,000 and married couples earning more than $250,000, and its effects would be trivial until incomes are much higher than that.

A CTJ analysis of President’s Obama’s broader proposal to limit the value of various deductions, which would have raised an estimated $529 billion over 10 years, found that only about three percent of taxpayers would see any tax increase, and that three-quarters of the tax hike would be paid by the best-off one percent.

The upside-down nature of tax deductions and exclusions means that taxpayers in higher brackets receive a greater percentage benefit than those in lower brackets.  For instance, taxpayers in the top bracket can save almost 40 cents for each dollar deducted while taxpayers in the 15 percent bracket save only 15 cents on the dollar. And, of course, low- and moderate-income taxpayers are much less likely to itemize deductions because their potential deductions are generally less than the flat standard deduction.

The American public would be unlikely to endorse a direct spending program that awarded its greatest percentage of benefits to the wealthiest taxpayers. But this type of top-heavy subsidy often seems to escape scrutiny when it is provided through the tax code. Clinton’s plan to limit the value of itemized deductions to 28 percent on the dollar is a step in the right direction.

Yet another American company has announced its intention to carry out a corporate inversion, a fancy term for buying a smaller company, completing some paper work and, for tax purposes, declaring its new headquarters are in a foreign nation.

This time it’s Terex, a Connecticut-based heavy equipment and crane manufacturer, which just announced a proposed deal to purchase a Nordic rival and become a resident of Finland. But if it is doing it for tax purposes, as appears the motivation for most corporate inversions, the most likely reason is not Finland’s 20 percent corporate tax rate.

Like many Fortune 500 corporations, Terex has little reason to complain about the 35 percent statutory U.S. corporate tax rate since it pays nothing near that much. In the past three years, Terex has enjoyed $774 million in U.S. pretax income and has paid just $84 million in federal income taxes on those profits or, a federal tax rate averaging just 10.8 percent. This is just about half the 20 percent statutory rate applied by Finland.

Finland’s tax rate is likely not Terex’s motivation for inverting. But there is another, more unsavory way in which taxes might figure into this story: the company’s large and growing cash stash. At the end of 2014, Terex disclosed holding $800 million of its profits as permanently reinvested foreign income, profits it has declared it intends to keep offshore indefinitely. If the company is stashing these profits (at least on paper) in a zero-rate tax haven such as the Cayman Islands—a clear possibility, given the existence of its “Genie Cayman Holdings” subsidiary and similarly named shell corporations in the British Virgin Islands and Bermuda—then the tax stakes for Terex could indeed be real. Reincorporating abroad would allow Terex to avoid ever paying a dime in U.S. income tax on any profits in these tax havens. And if the experience of prior inversions is any guide, a Finland-headquartered Terex will likely move aggressively to artificially shift even more of its U.S. profits into low-rate tax havens.

The case of Terex and its proposed move to Finland negates arguments by some U.S. lawmakers who claim that United States should lower its statutory tax rate to prevent companies from renouncing their citizenship. Terex has paid a 10.8 percent effective rate over three years. How much lower should its tax rate be?

The truth is, for companies seeking to avoid paying their fair share, zero percent will always be a very attractive tax rate. Rather than trying to stem the flow of inversions by cutting the U.S. tax rate closer to Finland’s, Congress should remove the incentive for corporations to shift their profits to beach island tax havens by repealing the loophole that allows companies to indefinitely defer paying U.S. tax by using accounting fictions to pretend their profits are earned offshore. Such a move would likely put an immediate stop to the inversion trend and would make our tax system fairer to boot.