We retired Tax Justice Blog in April 2017. For new content on issues related to tax justice, go to www.justtaxesblog.org
A long time will pass before we forget the unintentionally ironic signs held up a few years ago during health care reform protests that read, “Keep Government out of Medicare.” The signs would have been humorous if they didn’t betray a deep disconnect between public services we all rely on and the tax system that makes them possible. And in truth, that disconnect is what makes talking taxes a tough sell at times. But we persist.
As highlighted in other blog posts, 2014 yielded state tax fairness victories and some setbacks. Federal tax policy, unfortunately, continues to be an uphill battle as we face well-heeled lobbyists who are just as invested in reducing taxes for the wealthy and corporations as we are in pursuing fair tax policies that raise enough revenue to meet the nation’s critical priorities.
Supply Side Theory Debunked
Real-live experiments and expert analyses have repeatedly debunked supply side theories, including a May analysis by ITEP. Our targeted work in states helped beat back harmful tax proposals, including producing analyses of various state tax cut proposals that would disproportionately benefit businesses and the wealthy. In Tennessee, for example, a Grover Norquist/Koch brothers-backed effort to abolish the Hall tax, a state tax on capital gains and dividends, fortunately failed. The proposal would have been a boon to the state’s richest residents while starving local governments of resources necessary for essential public services, not to mention it would have made Tennessee’s tax system more regressive than it already is.
We were among the first to raise the alarm in 2012 (and continued to do so through 2014) with analyses highlighting the negative short– and long-term implications of drastic tax cuts Kansas Gov. Sam Brownback’s showered on the wealthy and business. It remains important to keep up the drumbeat about the negative effects of top-heavy tax cuts since this trend is not unique to prairie and southern states. Ohio, Missouri, North Carolina and Wisconsin, to name a few, are all states that explored lopsided tax cuts in 2014.
The Gas Tax Needs Reform
The notion that there’s only an upside to tax cuts and no long-term implications (failure to raise enough revenue to fund critical priorities) makes a bitter pill for some to swallow when our analyses conclude that certain taxes should be raised. The federal gas tax, currently 18.3 cents a gallon, has remained at the same level since 1993, the first year of the Clinton Administration. And many states also have outdated gas taxes. The tax is a critical source of funding for our nation’s transportation system, yet the tax is fundamentally flawed.
Corporate Tax Dodging
Our corporate tax is also deeply flawed because it allows profitable corporations to get away with paying little or no tax, depriving the nation of revenue necessary to adequately fund programs and services. The $2 trillion that corporations are stashing offshore, avoiding about $550 billion in taxes, is cause enough to call for closing loopholes in our tax code.
After pharmaceutical giant Pfizer and, later, major drug store chain Walgreen Co. announced plans to undergo corporate inversions, CTJ rang the alarm bells. These deals, of course, are a farce as they involve U.S.-based multinationals merging with or purchasing smaller foreign-based corporations and then filing paperwork and claiming they are no longer based in the United States. Pfizer’s deal ultimately failed and Walgreen reversed its decision in no small part due to public pressure. But other companies, including Burger King and Medtronic finalized deals.
While some members of Congress introduced legislation to stop this practice, it failed to gain any real traction. Eventually the Treasury Department announced a rule intended to prevent some inversions, but, as we noted, a rule helps but is not enough. A company’s decision to invert usually comes after a long history of tax dodging.
Even if the United States is not yet cracking down on corporate tax dodgers, foreign entities are beginning to scrutinize major corporations. The International Committee of Investigative Journalists released two major reports that highlighted how Luxembourg, one of 12 notorious tax havens, enables corporate tax dodging.
Giving Away the Store to Corporations
A piece of tax legislation that members of Congress managed to agree upon, however, was a $42 billion giveaway to corporations passed just before members adjourned. The bill mostly benefits business but includes some token giveaways to middle-class people that allow lawmakers to put the patina of middle-class tax breaks on it. The bill began as an $85 billion measure, then a $450 billion measure until it took its final form. Unfortunately, we’ll get to see this play out all over again in 2015 since the bill was largely retroactive and expires Dec. 31, 2014.
The Way Forward
The decisions that federal and state lawmakers make regarding taxes deserve scrutiny, particularly in this era of widening income inequality. The rising tide of public anger over corporate tax dodging and the abject failure of supply side experiments in states like Kansas lead us to hope that our continued fight for tax justice will lead to fairer tax policies in 2015 and beyond.