Tag: TaxJusticeBlog

It’s well-documented that profitable Fortune 500 companies are stashing profits offshore to the tune of at least $2.1 trillion and avoiding as much as $550 billion in U.S. taxes.

But instead of taking steps to halt this brazen tax dodging, lawmakers have floated various misguided “reform” proposals that would actually reward these companies’ bad behavior. Whether it’s the territorial tax system proposed by a Senate working group last week or the repatriation tax breaks frequently proposed by lawmakers on both sides of the aisle, many tax writers appear oddly intent on lavishing more tax cuts on corporate tax dodgers rather than making them pay their fair share.

As a new Citizens for Tax Justice report makes clear, there are two major problems with the repatriation proposals discussed in recent months. Foremost, none of these proposals address the core problem: corporations can legally stash profits offshore with no consequence by taking advantage of a provision in our tax laws known as deferral. Second, Congress has been down this road once before eleven years ago, when a one-time repatriation holiday proved a boon for corporations but failed to abate offshore tax avoidance.

CTJ has written extensively about how deferral provides an incentive for corporations to play offshore shell games. Many large U.S.-based multinational cor­porations avoid paying U.S. taxes on significant profits by using accounting tricks to make revenue earned in the United States appear to be generated in corporate subsidiaries based in tax haven countries with minimal or no taxes.  

Some lawmakers have railed against this practice while others claim businesses are forced to be bad corporate citizens due to the U.S. corporate tax rate. With such disparate views, it’s no wonder that Congress has a poor track record in dealing with offshore corporate tax dodging.

In 2004, faced with the prospect of huge multinationals shifting their profits into beach-island tax havens, Congress offered them a carrot: corporations that repatriated their offshore profits could pay a low 5.25 percent tax rate on those profits, far below the 35 percent corporate tax rate our tax system normally requires. A number of corporations cheerfully took the carrot—and promptly resumed shifting their U.S. profits into foreign tax havens the following year. Furthermore, instead of using this boon to create jobs and invest in research and development, businesses laid off workers and used the tax break to enrich corporate executives.

Eleven years later, the problem of offshore tax avoidance is coming to a head once again, but there’s no reason to believe another repatriation holiday would yield a different outcome.  

Fortune 500 corporations now have declared over $2.1 trillion of their profits to be “indefinitely reinvested” abroad. The scale of this income shifting is ludicrous: a CTJ report found that U.S. corporations reported to the IRS that the profits their subsidiaries earned in 2010 in Bermuda, the Cayman Islands, the British Virgin Islands, the Bahamas and Luxembourg were greater than the entire gross domestic product (GDP) of those nations that year. In the Cayman Islands alone, U.S. multinationals claimed they earned $51 billion in profits in 2010, a year in which the entire economic output of the Caymans was only $3 billion.

But as CTJ’s new repatriation report outlines, neither political party’s leadership is pushing sensible ideas on how to deal with this scam. Congressional tax writers, incredibly, are once again backing a repatriation holiday. At a time when bipartisanship is a rarity on Capitol Hill, Sens. Barbara Boxer (D-CA) and Rand Paul (R-KY) are reaching across the aisle to offer a 6.5 percent tax holiday to companies that agree to repatriate their offshore cash.

Things aren’t much better in the White House, where President Barack Obama earlier this year included a “deemed repatriation” in his 2016 budget. Obama’s plan wouldn’t even require companies to bring their profits back—instead, he would apply a one-time tax to their offshore profits, also at a special low rate.

If Congress adopts either of these as stand-alone strategies, one thing is certain: big corporations will continue their long-standing charade of pretending their U.S. profits are earned in foreign tax havens. Neither of these reforms on their own would remove the harmful incentive for companies to play these offshore shell games.

But there is an option that could stop income-shifting cold. If lawmakers simply end tax deferral for offshore profits, corporations would find no tax advantage in pretending their profits were earned in a Caribbean island. But as long as our tax laws allow corporations to indefinitely avoid their income tax responsibilities by going through this pretence, they will continue to do so. All the “holidays” Congress can dream up will do nothing to stop it.

By ITEP and CTJ staff

The summer vacation season is in full swing, and many of us will take a little time to enjoy the nation’s coasts, spend a few days at the lake or just enjoy the great outdoors.

But which book to fall asleep to while enjoying your time off, you ask. Fear not, the upstanding wonks at ITEP and CTJ have you covered! Check out our list of suggestions below, and you’ll amaze your coworkers with your erudition upon your return. They’ll be as in awe  of your depth of knowledge as they are of your rad tan.

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The Warmth of Other Suns: The Epic Story of America’s Great Migration ($12 on Powell’s): This National Book Award winner by Isabel Wilkerson is a gripping read about the voyage of millions of African Americans from the South to the North, Midwest and West from 1915 to 1970. Wonks will appreciate the data included and the debunking of several myths about the migration, while lovers of nonfiction that reads like fiction will savor every word. – Kelly Davis

The Age of Acquiescence: The Life and Death of Resistance to Organized Wealth and Power ($20 on Powell’s): Where’s the collective outrage? In this book, Steve Fraser argues that Americans are missing the impetus the nation  had during the long period from the American Revolution to the Civil Rights Movement to collectively organize and bring about change. This book isn’t about tax policy, but it sure explains a lot about why we’re continually fighting uphill battles. – Jenice Robinson

The Control of Nature ($8 on Powell’s): John Mcphee’s 25-year-old bestseller surveys the titanic, quixotic efforts of humanity to bend the natural world to its will. McPhee documents the Army Corp of Engineers’ 180-year battle to tame the Mississippi River and the absurd engineering strategies used to prevent the hilltop homes of suburban Los Angeles from sliding into the sea, beautifully conveying both the hopelessness of these battles against unstoppable natural forces and the quiet, sometimes admirable resolution with which the residents of these threatened places persist in surviving. And what better time to read this masterpiece than while lounging on the most temporary geological feature on the planet, the sandbar known as North Carolina’s Outer Banks? – Matt Gardner

The Life-Changing Magic of Tidying Up: the Japanese Art of Decluttering and Organizing ($17 on Powell’s): Marie Kondo’s book is taking the world (and my home and office) by storm. Do you know if your throw pillows spark joy? Have you thanked your holey socks before throwing them away?  More than a simple advice book on how to declutter and organize your home, as this Atlantic article notes, it will appeal to wonks who are interested in the effects of emotional and cognitive factors on economic decisions. – Meg Wiehe

Treasure Islands: Uncovering the Damage of Offshore Banking and Tax Havens ($18 on Powell’s): “While the original Treasure Island told the sordid tale of Long John Silver and his scurvy crew, this book from Nicholas Shaxson spins a yarn about the modern-day pirates of our international financial system. Shaxson unveils the world of tax havens in a way that is both enthralling and informative. This book is an especially good read for a Caribbean cruise, as you will likely be stopping at many of the very same tax haven islands that Shaxson describes. – Richard Phillips

Steve Nelson, American Radical ($5 on Amazon): James Barrett tells the story of Steve Nelson, who came to the United States after World War I. The teenage son of a Croatian immigrant, Nelson faced unemployment, dangerous conditions, low pay and racism upon his arrival. He eventually joined the Communist Party because of his experiences, a choice made by many immigrant workers in the early part of the 20th century. Nelson became a full-time organizer major leader, but resigned in 1957 when his attempts to make the American Communist Party more open and democratic failed. Fun fact: my grandfather, Gus Taylor, is mentioned in the book! – Jessica Taylor

The Pale King ($17 on Powell’s): “David Foster Wallace’s posthumous and unfinished novel is the book for all who’ve ever wondered what would happen if someone disguised fiction as a nonfictional account of the daily lives of IRS workers in Peoria, Illinois. Okay, it may sound quite dull, but Wallace’s combination of brilliant and offbeat writing, existential angst, and humor manage to bring alive a story about tedium.  (It may not be for everyone, but even non-wonks can appreciate it – I read it and loved it before I had any knowledge of tax policy.) – Kayla Kitson

The Path to Power (The Years of Lyndon Johnson, Volume 1) ($14 on Powell’s): Robert Caro’s introductory volume of his series of LBJ biographies chronicles the early history and rise of our 36th president in the grandiose narrative style the author is known for. This richly researched and detailed book will satisfy historians and political junkies alike, and Caro does a masterful job tracing the origins of our modern big money political system in the 1930s and 1940s. This unwieldy tome also doubles as a weight to keep your towel from blowing away in the breeze. – Sebastian Johnson

Of all the GOP presidential candidates, former Florida Gov. Jeb Bush has been the most tightlipped on federal tax reform. So far, Bush has kept his vision vague, calling for a “vastly simpler system” and “clearing out special favors for the few, reducing rates for all.”

Just last week, he used the release of 30 years of his tax returns to call for lower tax rates. Tax analysts on both sides of the aisle have said his higher-than-usual tax rate for a person with his wealth is either due to poor planning or a savvy political maneuver to avoid the Mitt Romney problem.

His record as governor of Florida and his recent public pronouncements suggest his tax reform proposals would likely focus on lopsided tax cuts.  

Record as Governor of Florida

During his eight years as governor of Florida, Bush pushed through about $13 billion in tax cuts, a substantial portion of which went to the wealthiest Floridians. The most significant was his cut and eventual repeal of Florida’s intangibles tax, which amounted to more than three times the size of any other category of cuts enacted under his watch. This low-rate-tax on the value of residents’ intangible assets (such as stocks, bonds and accounts received) was one of Florida’s only progressive sources of tax revenue; eliminating it primarily benefited the state’s wealthiest residents and made its tax system even more regressive.

Besides repealing the intangibles tax, Bush backed a series of significant cuts to the property, sales and corporate taxes in the state. While the corporate tax cut went disproportionately to the wealthy, the cuts to the sales and property taxes provided low- and middle-income taxpayers with a break as well. These breaks, however, meant cuts to public services, including extremely damaging cuts to the state’s foster care system.

In 2001, state legislators pushed a sales tax reform package that would have expanded the sales tax base to new products and services and used the resulting revenue to lower the sales tax rate. The reform package generated opposition from groups whose products and services would no longer be exempt from sales tax. In the fact of this opposition, Bush opposed this sensible plan.

Because Florida does not have an income tax, it has one of the most regressive tax systems in the nation and Bush did nothing to change this reality. The year Bush left office, the bottom 20 percent of Florida taxpayers paid 13.5 percent of their income in state taxes, five times the 2.6 percent rate paid by the top 1 percent of Florida taxpayers. In other words, while Bush may tout Florida as a low-tax state, this is only true for the state’s wealthiest residents.

Tax Cutter and Tax Pledge Resister?

In recent years Bush has managed to distinguish himself from his fellow candidates in one major way: he is the only GOP presidential candidate that has refused to sign Grover Norquist’s anti-tax pledge. The infamous Norquist pledge requires that candidates promise to vote against any tax increase no matter what the circumstance.

Bush has indicated his openness to a deficit reduction deal that includes tax increases in exchange for substantial spending cuts. For example, in 2011 Bush said he would absolutely support a deficit reduction deal of one dollar of additional revenue for every ten dollars in spending cuts, a theoretical deal rejected by every single one of the 2012 GOP presidential candidates.

Yet Bush has based much of the case for his presidency on his record as a tax-cutting governor. His Super-PAC website, for instance, touts his record of cutting billions in taxes as part of his “limited government approach” that “helped unleash one of the most robust and dynamic economies in the nation.” Bush has also indicated his support for tax cuts at the federal level, saying at the Conservative Political Action Conference (CPAC) that despite trillions in debt and unfunded liabilities he believed that “You can lower taxes and create more economic opportunity that will generate more revenue for the government.”

Tax reform is shaping up to be a major issue in this campaign. Bush, like most of the other candidates, hasn’t formally outlined a proposal, but his choice of Glenn Hubbard, one of the architects of the regressive and budget busting Bush tax cuts and of Mitt Romney’s regressive tax cut plan from the 2012 campaign, as a top economic adviser sends a clear signal about the direction in which he’s heading.

Sens. Rob Portman (R-Ohio) and Chuck Schumer (D-NY) today released a long-awaited tax reform plan that reads like a wish list for multinational corporations. 

The Senate Finance Committee working group’s report provides recommendations for restructuring the federal government’s international corporation tax rules. The plan is long on misguided ideas and short on specifics. The heart of the plan is a proposal to move to a territorial tax system in which all corporate income reported in countries other than the United States–including notorious tax havens such as Bermuda and the Cayman Islands–would be exempt from U.S. corporate income taxes.

As Citizens for Tax Justice has noted, such a system would dramatically increase the incentive for U.S. multinational corporations to use accounting maneuvers and paperwork to shift their profits from the United States to offshore tax havens. At a time when corporations have accumulated more than $2.1 trillion in offshore holdings, much of which may be U.S. profits that are reported as “earned” in zero-tax jurisdictions such as the Cayman Islands, the first step toward corporate tax reform should be removing incentives to offshore profits, not providing even more.

European countries that have some form of a territorial tax system have found it impossible to halt the use of offshore tax havens, so it seems likely that a U.S. territorial system would be equally leaky. Yet the framework claims the new plan would supposedly make it harder for corporations to engage in offshore shenanigans.

Further, under the Portman-Schumer blueprint, chronic tax avoiders such as Apple, Microsoft and GE will have new ways to avoid taxes. Another feature of the plan is a “patent box” regime that gives companies a special low tax rate on profits generated from legal monopolies, such as copyrights and patents. As CTJ has explained, patent boxes give companies tax breaks that are, at best, linked only to research that has long since been completed, and at worst lets companies game the system by pretending that most or all of their income is related to intellectual property.

One member of the Senate working group, noted with approval that the plan represents “the first step toward the kind of ‘win-win’ situations that are all too rare in this town.”

The plan gives big multinationals new avenues for tax avoidance whether they report their income in the U.S. or shift profits to tax havens, which is truly a “win-win” for corporations seeking to avoid paying their fair share. But the broad outlines of the Finance Committee’s recommendations make it clear that the plan would be a big loss for the rest of us. 

When it comes to tax reform, former Virginia senator and Democratic presidential candidate Jim Webb has publicly discussed conflicting views.

Webb has proposed taxing investment income at the same higher tax rate that applies to wages. He has also proposed ending offshore profit-shifting by multinational corporations by closing the “deferral” loophole. On the other hand, Webb suggests that the nation should consider “shifting our tax policies away from income and more toward consumption.” Such policies would be highly regressive.

Asked this week by a Tax Notes reporter, “Can a consumption-based national tax system be squared with wanting to shift more of the tax burden to investment income?” CTJ Director Bob McIntyre offered a one-word answer: “No.”

During his time as a senator, Webb advocated for ending deferral, the policy that allows multinational corporations to indefinitely defer paying taxes on their foreign income, which are often U.S. profits that have been shifted offshore for tax purposes. In a book laying out his policy vision, Webb attacked deferral, noting that it actually helps corporations move their operations overseas and is part of the reason why many Fortune 500 companies pay nothing in federal taxes. Webb is one of only a few senators, including Sen. Ron Wyden and Sen. Bernie Sanders, who have staked out such a strong position in favor of closing this egregious corporate tax loophole.

Webb has also been a consistent critic of the preferential tax rates on capital gains and dividends. In 2012, he noted  that this loophole is “the largest contributor to overall income inequality over the last decade.”

While Webb supports increasing the capital gains and dividends tax rate, he opposes increasing tax rates on ordinary income such as wages. He was one of only five Democrats to vote against legislation that would have repealed the Bush tax cuts for those making more than $250,000. Webb reasoned that it would be preferable to raise the capital gains and dividend tax rates instead and to leave the Bush tax cuts on ordinary income in place.

Since he left the Senate, Webb has repeated these tax reform ideas, calling for an end to loopholes and exceptions that harm “economic fairness.”

But since beginning his campaign, Webb has taken a stark turn with his suggestion that we should move away from the progressive income tax and toward a regressive consumption tax. As is well known, such a tax change would be a huge boon to wealthy investors at the expense of working families. So where does Jim Webb stand these days when it comes to taxes? It’s very hard to say. 

Earlier this week, Maine lawmakers overrode Gov. Paul LePage’s veto of the state budget for fiscal year 2016, thus enacting a significant tax overhaul lawmakers had agreed to weeks earlier in a bipartisan fashion.  

The final tax reform package improves the state’s tax code and includes several major tax changes: lower income tax rates, a broader income tax base, new and enhanced refundable tax credits, a doubling of the homestead property tax exemption, an estate tax cut, and permanently higher sales tax rates.

With the exception of increased sales tax rates and a cut in the estate tax, the overhaul contains provisions that modestly improve the progressivity of Maine’s tax code  (see ITEP’s analysis below).

Coming to an agreement was not an easy feat. Gov. LePage’s initial tax proposal announced in January involved a costly, sweeping tax shift package, which would have resulted in a significant shift away from progressive personal income taxes toward a heavier reliance on regressive sales taxes.  While almost every Mainer would have received a tax cut under this plan, the benefits were heavily tilted in favor of the state’s wealthiest taxpayers and would have left the state with $300 million less revenue when fully enacted.

Democratic legislative leaders in Maine responded in April with a plan entitled, “A Better Deal for Maine”, the tax benefits of which would have been targeted to low- and middle-income Mainers rather than the wealthy. Finally, Republican lawmakers released their own proposal in May that would have hiked taxes on the average taxpayer with income below $89,000 while delivering a tax cut to wealthier taxpayers.

After months of debate and competing tax reform and tax cutting proposals,  lawmakers enacted the final package with a great deal of compromise between both parties of the Maine State Legislature.

Major Elements of the Final Tax Package:

• Restructures the state’s personal income tax brackets and rates: the starting point of the top income threshold increases and the top rate lowers from 7.95% to 7.15%
•  A significant increase in the standard deduction, which replaces the state’s zero percent bracket; the standard deduction is also phased out for upper-income taxpayers
• All itemized deductions  are subject to the state’s cap (around $28,000; charitable contributions and medical expenses had previously been exempt from the cap); itemized deductions fully phase out for upper-income taxpayers
• Introduces a new refundable credit for low- and middle-income Mainers to offset sales tax rate increases
• Makes Maine’s earned income tax credit refundable at its current level (5 percent of the federal)
• Doubles the homestead exemption for all Maine resident homeowners;
• Maintains the current temporary 5.5% sales tax rate and the 8% tax on meals (set to drop to 5% and 7% this month)  while increasing the lodging tax to 9%;
• Cuts the estate tax by raising exemption level to match federal level
• Reduces local revenue sharing

While the plan includes some very good income tax base broadening measures–most notably applying all itemized deductions to the state’s cap and fully phasing out itemized deductions for upper-income taxpayers– it is still a subtle tax shift in that most of the personal income tax cuts are paid for with higher sales tax rates. As a result, the state will slightly shift its reliance away from its progressive personal income tax onto a narrow and regressive sales tax.  However, this plan is vastly different from other proposed and enacted tax shifts, as it reduces taxes for most low and moderate-income families and somewhat improves the progressivity of the tax code.

This outcome is accomplished in two main ways. First, the plan converts the state’s 5 percent nonrefundable Earned Income Tax Credit (EITC) to a refundable credit. In other words, low-income working families have the ability to receive the entire value of the credits regardless of any personal income tax liabilities, resulting in an increase of after-tax earnings for many working poor families in Maine by about $7 million to $9 million per year.

Second, the plan enacts a new refundable sales tax fairness credit, which will lessen the impact of the included sales tax rate increases on low- and moderate-income Mainers.   The credit has a maximum value of $250 and begins to phase out at $20,000 for single filers and $40,000 for married filers. The refundability of this credit ensures that taxpayers will get the full value of the credit regardless of how much tax they owe.

With the inclusion of the refundable sales tax credit as well as the refundable EITC, Maine’s new budget will direct approximately $40 million more to low- and moderate income families in the state. This is indeed a win for working families; however, threats from Gov. LePage to dismantle the income tax have not waned. In his veto letter LePage proclaimed, “Mainers deserve to have the debate over whether the income tax should be phased out. The future of our state depends on our ability to be competitive with the nation and the word. We must work aggressively each year to cut back the income tax until it’s gone.”

The decrease or disappearance of income taxes would undoubtedly result in tax increases and spending cuts elsewhere. Based on LePage’s previous proposals, such changes would adversely affect low and middle-income groups. If the recent bipartisanship displayed among Maine’s legislatures is any indication of future policymaking, they will continue to remain strong in rejecting damaging proposals, while lifting up proposals benefitting Maine families.  

The budget showdown between Pennsylvania Gov. Tom Wolf and the state legislature continues. Republican lawmakers want to close a large budget gap without new taxes, while the governor has proposed a property tax reform measure and a new tax on natural gas extraction. Wolf has threatened to veto a budget with no tax increases. With the fiscal year ending today, pressure is on for leaders to make a deal. If that deadline is passes without a resolution, most observers expect business to continue as usual for state workers in the short term.

Washington state legislators reached an agreement on transportation spending that includes an increase in the state’s gas excise tax. The $15 billion package will increase the tax by 11.9 cents-per-gallon over three years. Gov. Jay Inslee previously pledged to sign any deal between the House and Senate, making enactment of this deal likely.

New Jersey is poised to increase the state EITC to 30 percent of the federal credit after a surprise endorsement from Gov. Chris Christie. As New Jersey Policy Perspective notes, the increase will help over 500,000 working families and boost the state economy: “It’s been estimated…that the EITC has a multiplier effect of 1.5 to 2 in local economies – in other words, every dollar of tax credit paid ends up generating $1.50 to $2 in local economic activity.”

Connecticut lawmakers reached a deal on the budget in a special session after Gov. Dannel Malloy called lawmakers back to the capital at the behest of corporate lobbyists. At issue was an increase in the state’s sales tax on computer and data processing services from 1 to 3 percent, as well as new combined reporting rules for businesses operating in Connecticut. The legislature backed down on those changes after corporations decried the measures and leaned heavily on the governor. The new deal maintains the sales tax rate on computer and data processing and delays the start of combined reporting by one year.  To make up the lost revenue from those changes, lawmakers reduced Medicaid spending by $12.5 million, reduced a scheduled state employee pay increase by .5%, partially delayed a transfer of sales tax revenue to transportation projects, and delayed some new municipal revenue sharing.  

Oregon will launch a new experiment this month that aims to change the way we fund road construction and repair. The program, called OReGO, will charge 5,000 volunteer drivers a 1.5 cent-per-mile road usage charge, also known as a vehicle miles traveled (VMT) tax, rather than the traditional state gas excise tax at the pump. The program is meant to address declining revenues from the gas tax, as vehicles become more fuel-efficient and the maintenance needs of aging infrastructure skyrocket. While some observers are optimistic that VMT taxes could prove to be a more sustainable revenue source, there is reason to be more skeptical. As ITEP’s Carl Davis points out in a new report, “[Oregon’s] new VMT tax is an unsustainable revenue source because it contains the same design flaw that has plagued the state’s gasoline tax for almost a century—a stagnant, fixed tax rate that is incapable of keeping pace with inflation.” Davis suggests indexing current state gas excise tax rates to inflation before beginning to experiment with entirely new funding mechanisms.

States Still In Legislative Session:
Alabama
Illinois
Maine
Massachusetts
Michigan
New Hampshire
North Carolina
Oregon
Pennsylvania
Washington
Wisconsin

During his five years in office, New Jersey Gov. and now presidential candidate Chris Christie has consistently blocked progressive tax increases and sought to pass regressive and fiscally irresponsible tax cuts. The starkest example of how Gov. Christie has sought to make New Jersey’s tax code more unfair is that he consistently vetoed a small tax rate increase on millionaires but (conveniently until this week) refused to reverse his cuts to the state’s earned income tax credit (EITC). On the federal level, Gov. Christie has similarly laid out a broad tax cut plan that would heavily favor the wealthiest taxpayers while simultaneously slashing federal revenue.

Record as Governor of New Jersey

One of Gov. Christie’s very first actions as governor was vetoing the continuation of a temporary 2009 income tax increase on the state’s millionaires. The millionaire’s tax would have only affected the top 0.2 percent of New Jersey households and provided hundreds of millions in critically needed revenue as the state was still reeling from the recession.

Gov. Christie in 2010 pushed through a reduction in the state’s EITC from 25 to 20 percent of the federal credit. For all of Gov. Christie’s talk of the need for tax cuts, the reality is that his first year in office actually resulted in higher taxes for many of the state’s low- and middle-income families, while protecting the state’s wealthiest from paying a slightly higher tax rate.

It’s important to note that even with the millionaire’s tax, the state’s wealthiest residents would not have very much to complain about. The Institute on Taxation and Economic Policy (ITEP) calculated in 2015 that if the state were to restore the EITC to its previous level and reinstate the millionaire’s tax, the wealthiest 1 percent of taxpayers in the state would still pay a substantially lower state and local effective tax rate than the bottom 20 percent of taxpayers.

Worse, Gov. Christie also enacted a 2 percent cap on the growth of local property taxes. Like other property tax caps, Christie’s version severely limited the ability of local governments to raise enough revenue to provide basic public services. This limitation was especially harsh on local government because Christie also fought to cut state aid to them.

Beyond their effect on local government revenue, property tax caps are a poorly targeted way of providing tax breaks to individuals in need because wealthier taxpayers with better ability to pay also get a tax break. A better, targeted approach is the state’s property tax circuit breaker. Rather than expand the circuit breaker, Gov. Christie cut the rebates in half from 2011-2013. In addition, he delayed sending out rebates for nine months, choosing to prioritize other tax cuts instead.

Gov. Christie has attempted to pile on even more fiscally irresponsible and regressive tax breaks in recent years. He proposed a 10 percent across-the-board income tax cut, which would have cost the state billions and would have disproportionately benefited the wealthiest taxpayers. Gov. Christie tried to justify the cuts by relying on wildly unrealistic revenue projections, which assumed that New Jersey’s revenue growth rate would be nearly three times the national average.

Besides fighting for tax cuts on the personal side of the tax code, Gov. Christie has plowed a stunning $4 billion into tax subsidies for businesses in the state since the start of 2010. In contrast, the state awarded only $1.2 billion in subsidies during the entire previous decade. Despite investing so much more into tax subsidies, Gov. Christie recently vetoed commonsense legislation that would have required better scrutiny of the impact of his corporate tax break programs.

In 2010, Gov. Christie rejected $6 billion in federal funds for a critical transportation project to avoid paying just a third of the project’s cost. Two years ago, Gov. Christie privatized the state’s lottery system, promising that the move would pay substantial dividends for the state. Today, the gamble is already proving to be a revenue-losing dud, which should have been predictable given how unrealistic the projections were for how much the newly privatized lottery was supposed to realize.

To his credit, Gov. Christie reversed his position just this week on the state’s EITC and actually called for it to be raised to 30 percent of the federal EITC. The legislature quickly moved to pass this change, which will benefit an estimated 500,000 households in the state.

Gov. Christie’s Federal Tax Reform Plan

In the run-up to his official presidential announcement, Gov. Christie laid out his vision for federal tax reform in an op-ed in the Wall Street Journal. The plan follows in the footsteps of 2012 presidential candidate Mitt Romney’s tax reform proposal in that it calls for a dramatic drop in personal and corporate income tax rates without specifying how it would make up for the loss in revenue from the rate cuts. The only thing Gov. Christie says on this point is that breaks for charitable contributions and interest on home mortgages should be protected and that one potential approach would be to cap the total deductions and credits taxpayers can receive. A Citizens for Tax Justice (CTJ) analysis of Romney’s plan found that it would cut taxes for families making over a million dollars by an average of $250,000 annually and lacking more details from Gov. Christie, this is a pretty good proxy for the impact his plan would likely have.

In reviewing the proposal, CTJ’s Director Bob McIntyre noted that Gov. Christie’s plan “would almost certainly entail both a huge increase in the national debt and a huge increase in inequality.” Given Gov. Christie’s tax record in New Jersey, this should not be much of a surprise.

On Wednesday July 1, six states will raise their gasoline tax rates.  While some drivers may view this as an unwelcome development during the busy summer travel season, the reality is that most of these “increases” are simply playing catch-up with inflation after years (or even decades) without an update to the gas tax rate.  Moreover, these increases will fund infrastructure improvements that directly benefit drivers and other travelers—an especially important step at a time when Congress’ commitment to adequately funding infrastructure remains highly uncertain.

The largest gas tax increases are taking place in Idaho (7 cents per gallon) and Georgia (6.7 cents for gas and 7.7 cents for diesel).  Each of these increases is occurring due to legislation enacted earlier this year.  Maryland’s increase of 1.8 cents is a result of legislation signed by former governor (and current presidential candidate) Martin O’Malley in 2013.  Rhode Island’s 1 cent increase is the first automatic update for inflation to take place under a law signed by former Gov. Lincoln Chafee in 2014 (Chafee is now a presidential candidate as well).  Finally, Nebraska’s 0.5 cent hike and Vermont’s 0.35 cent increase are automatic changes resulting from these states’ variable-rate gas tax structures.

By contrast, the gasoline tax rate will fall by 6 cents in California and the diesel tax rate will drop by 4.2 cents in Connecticut as a result of laws linking those states’ gas tax rates to gas prices (a unique quirk in California’s law will cause the diesel tax to rise by 2 cents).  These cuts will reduce the level of funding available for transportation at a time when basic infrastructure maintenance is already lagging far behind.  Earlier this year, similar automatic cuts had been scheduled to take place in Kentucky and North Carolina, but lawmakers in both of these states wisely intervened by placing a “floor” on their gas tax rates that minimized the loss of infrastructure revenue. 

View chart of states raising gasoline taxes 

View chart of states raising diesel taxes

Conservative leaders in the Ohio legislature reached an accord on the state budget, ultimately agreeing to a net tax cut of $1.85 billion over two years. The move is sure to make the revenue outlook worse in Ohio and will undermine investments in priority areas like education, infrastructure and healthcare.

For months, lawmakers battled over a trifecta of budget proposals. Gov. John Kasich proposed across-the-board income tax cuts for the third time in his tenure, but offset some of the regressivity in his plan by suggesting that deductions and credits for senior citizens be means-tested. Kasich also wanted to increase sales, business and cigarette taxes, as well as implement a new severance tax on oil and gas extraction. Even so, the governor’s plan would have been a huge tax shift from the rich down the income scale. A proposal by House leaders adopted some of Kasich’s tax cuts and means-testing, but none of his other planned increases. Senate leaders added to the tax cuts approved by the House, while adding an increase in the cigarette tax.  

The deal reached by legislative leaders includes a 6.3 percent across-the-board income tax cut – smaller than that sought by Gov. Kasich. The excise tax on cigarettes will increase by 35 cents, a compromise reached with House leaders to ensure the levy does not exceed that of neighboring Pennsylvania. The current 50 percent income tax deduction on the first $250,000 of business income will increase to 100 percent over two years. The rate on business income over $250,000 will fall to 3 percent. Nearly all of the tax increases proposed to offset cuts were stripped from the final plan. Gov. Kasich is expected to sign the compromise budget by the June 30 deadline.

Progressive lawmakers and political observers have decried the compromise budget as a huge giveaway to the wealthy. “While they are busy cutting taxes for the wealthiest Ohioans,” argued one editorial citing ITEP data, “lawmakers are ignoring their opportunity — and duty — to restore spending on essential services for children, working families, veterans, and old, poor, disabled, and mentally ill people, along with aid to local governments, that they slashed from previous budgets.” Worse, many of the budget negotiations were held in secret, with many of the state’s lawmakers kept out of the process. Dozens of amendments offered by progressive legislators that would offer more targeted tax credits to businesses that create jobs and increase funding for education were rebuffed.

An ITEP analysis of the compromise plan found that the top one percent of Ohio taxpayers would get half of the income tax cuts – an average annual tax break of $10,236 for those making $388,000 or more. Meanwhile, the bottom 20 percent of taxpayers would see their taxes increase by an average of $20. After years of slashing budgets and big tax giveaways to businesses and the wealthy, Ohio can ill afford this budget. Leaders in the Buckeye state should invest in all its residents, instead of shifting the buck to those who are struggling to make ends meet.