Elections News

What a Trump Administration and Republican Congress Will Likely Mean for Tax Policy

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The chances of a major tax cut package passing next year just got a lot larger. For the first time in years there will be unified Republican control of both chambers of Congress and the White House. Unified party control will likely pave the way for legislative action, including a tax cut.

The starting point for any tax legislation next year will almost certainly be Republican Speaker of the House Paul Ryan’s “A Better Way” tax reform plan released in June 2016. Overall, Speaker Ryan’s tax plan would cut taxes by $4 trillion over 10 years, with about 60 percent of the benefits of the tax cut going just to the top 1 percent of taxpayers.

Of the $4 trillion in tax cuts, more than $2.4 trillion of the revenue loss would come in the form of corporate tax cuts, where Ryan is proposing to lower the corporate income tax rate from 35 to 20 percent, allow for the full and immediate expensing of capital investments and move the international code to a territorial tax system where foreign profits will never be taxed. On the individual side, Ryan’s plan would reduce the progressivity of the tax code by lowering the top marginal tax rate to 33 percent, eliminating the estate tax (even though only the top 0.2 percent of estates owe even a penny of estate tax), creating a special low rate on pass-through business income and reducing the tax rate on capital gains and dividends to 16.5 percent (half the proposed top rate on wage income). To be clear, Ryan’s proposal does include some base-broadening measures such as eliminating most itemized deductions and eliminating the deductibility of net business interest payments, but as the numbers above show, these base broadeners do not come close to making up for the regressivity or cost of the other provisions in the proposal.

For his part, President-elect Trump released a revised tax plan in September, which would lose less revenue than his original plan and is more in sync with Ryan’s plan. Overall, Trump’s plan would cut taxes by $4.8 trillion over 10 years with 44 percent of the cuts going to the top 1 percent of taxpayers. Like the Ryan plan, Trump proposes to cut marginal personal income tax rates. But on corporate taxes, Trump’s plan goes further by lowering the corporate and business pass-through rate to 15 rather than 25 percent. He also would repeal the estate tax. Trump’s plan does differ from Ryan’s in several specific ways, such as capping itemized deductions rather than just eliminating most deductions as Ryan proposed. More broadly however, both Ryan and Trump propose to substantially cut taxes for the wealthy and corporations. For a complete look, ITEP has created a chart with the breakdown of how the plans compare.

One of the biggest questions yet to be resolved is the extent to which Republican lawmakers are interested in making tax reform legislation bipartisan. Republican Senator and Chairman of the Finance Committee Orrin Hatch indicated his intention to move any tax reform legislation in the committee on a bipartisan basis. If this is the case, it could have major implications as Democrats would likely push for the legislation to be less costly or even have a revenue-neutral impact. Additionally, Democrats would likely push for more tax breaks targeted to low-income individuals and for reductions in the amount of cuts going to the wealthiest taxpayers.

If Trump and the Republican leadership decide against a bipartisan approach or such efforts break down, there is also a path for lawmakers to pass tax reform legislation with little to no input from Democratic lawmakers. The key is that Republicans could use a legislative maneuver know as budget reconciliation to pass the tax reform bill, which could allow them to sidestep any efforts by Democrats in the Senate to filibuster the package. This is precisely the approach Republicans took to pass the Bush tax cuts in 2001 and 2003.

At a time of growing deficits and income inequality, it remains to be seen whether public pressure can scale back the cost and regressive impact of the tax cuts for the wealthy and corporations. Unfortunately, unless the public and lawmakers stand up for progressive taxes, that is exactly the direction we are heading under the leadership of the Trump administration. 

Over the past few weeks we’ve written about a number of tax-related questions that voters will see on their ballots next week.

On income taxes, California voters will decide whether to continue the state’s progressive income tax rates on high earners enacted in 2012, while Maine may create a similar high-income tax bracket to help fund public schools. Colorado could implement the nation’s first universal healthcare plan, funded by a 10 percent payroll tax. Oregonians will cast their votes on a hotly debated corporate tax increase for education, health care, and senior services.

Regarding sales taxes, Oklahoma voters could approve a constitutional amendment to raise the state sales tax by a percentage point to give teachers a raise and fund other education priorities. Meanwhile, Missouri could amend its constitution to prohibit modernizing the sales tax to apply to the growing service sector.

 Other tax questions on ballots this year include soda taxes in multiple cities, cigarette tax increases in four states (California, Colorado, Missouri, and North Dakota), and marijuana legalization and taxation initiatives in five states (Arizona, California, Maine, Massachusetts, and Nevada). And following years of state tax and funding cuts affecting cities, counties, and schools, many of these local jurisdictions are asking voters to approve new or higher local taxes to fill in for lost state funding.

Making Sense of Tax Issues Raised During the First Presidential Debate

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Tax policy has figured prominently in this presidential election cycle, with both major party candidates releasing tax proposals and, on the campaign trail, frequently discussing how their tax policy changes would affect Americans.

Hillary Clinton has released a tax plan that would increase taxes on wealthy Americans and increase federal revenue by more than a trillion dollars over the next decade. Donald Trump proposes a tax cut that will cost an estimated $4.8 trillion over a decade and would largely benefit the wealthy.

During Monday night’s debate, both candidates seized on the tax issue. Below are some clarifications of the political spin.

Large Tax Cuts and Debt Reduction Don’t Go Together

Throughout the debate, Mr. Trump several times pointed to the nation’s $20 trillion national debt as a reason to change course on fiscal policy. At the same time, he proposes an-across-the-board tax cut of at least $4.8 trillion of which the lion’s share, 44 percent, would go to the richest 1 percent of households. Reducing annual deficits and cutting taxes on this scale are incongruous policy ideas, particularly if there are no plans to slash spending on the same scale.  According to an analysis by the Committee for Responsible Budget (CFRB), Mr. Trump has only proposed about $1.2 trillion in net spending cuts over the next 10 years, which does not come close to making Trump’s tax cut plan budget neutral.

In fact, CFRB estimates that the added interest payments from the cost of deficit-financing his tax cuts would wipe out more than half the spending cuts he is proposing. In other words, Trump’s plan would dig the country trillions deeper into debt, not help the country get out of it.

Secretary Clinton’s tax plan would enact a series of tax increases on the wealthiest Americans, including the so-called Buffett Rule, a separate surcharge on income over $5 million and ending the stepped-up basis loophole on capital gains income. The plan also includes a series of tax breaks to incentivize corporate profit sharing and for caregiving and excess out-of-pocket healthcare costs, among other ideas. From a deficit perspective, Secretary Clinton has ensured that all of her new spending and tax break proposals are matched up with revenue increasing proposals that ensure that they do not add to the deficit. Unfortunately, with the country facing a deficit of more than $9 trillion during the next decade, substantially more revenue than Secretary Clinton is proposing is needed just to keep up with the existing revenue gap.

Corporations’ Offshore Cash Could Provide an Influx of Revenue, But …

During the debate, Mr. Trump alluded to multinational corporations’ $2.4 trillion in earnings stashed offshore and his plan to enact a deemed repatriation rate of 10 percent on these earnings. He seemed to be supporting the ideologically driven argument that corporations are stashing money offshore because the U.S. corporate tax rate is too high and if the U.S. lowered its rate or provided a discounted rate upon repatriation, as some lawmakers have advocated, the U.S. could tap into this tax revenue.

Secretary Clinton said during the debate that she supports the “bringing back of money that’s stranded overseas” and that she does not believe Mr. Trump’s proposals would accomplish the repatriation of funds he’s betting on. Unfortunately, Sec. Clinton did not elaborate during the debate on her specific objections to Mr. Trump’s repatriation proposals, and her campaign has not laid out a specific plan on business tax reform. However, her campaign has specified that it would raise $275 billion from business tax reform, which tracks closely with the amount that would be raised through President Barack Obama’s 14 percent deemed repatriation proposal, a rate that is not substantially higher than Mr. Trump 10 percent proposal.

On the corporate tax argument, it is important not to buy into political rhetoric that says our U.S. businesses are faltering. U.S. corporations are competitive and profitable. The average effective tax rate for profitable Fortune 500 corporations is just 19.4 percent, just over half the statutory rate of 35 percent. In fact, far too many profitable, large corporations pay nothing in taxes in many years. From a comparative perspective, the U.S. corporate tax level is below average compared to other for developed countries.

The real issue with regard to corporations holding trillions in profits offshore to avoid U.S. taxes is that our federal tax system allows companies to defer paying taxes on foreign profits until they are repatriated, which creates an incentive for companies to engage in accounting tricks and book U.S.-earned profits in offshore tax havens. Rather than give companies huge tax breaks, the better solution would be to simply close the loopholes that allow companies to move offshore and to require companies to immediately pay U.S. taxes on their offshore earnings.

What Can We Learn From Candidates’ Tax Returns?

Mr. Trump reiterated during the debate that he does not plan to release his tax returns because they are under audit and went on to argue that not much information can be deemed from tax returns in any case. Both points get wrong important facts about tax return information.

First, the IRS has already stated that Mr. Trump can release his tax returns, even those under audit. More importantly and to state the obvious, tax returns provide critical information about whether a candidate is paying taxes, their effective tax rate, their charitable contributions, and in the case of Mr. Trump, information about his business dealings. Finally, tax returns provide a great deal of information on a person’s business and financial relationships and can reveal private conflicts of interest. In 2012, we learned that Mitt Romney, despite great wealth, paid a lower effective rate than many middle-class families. We also know, for example, information about how and from whom Secretary Clinton and former President Clinton earned their money, and we also know how much they have contributed to their charitable foundation and what their effective tax rate is. Furthermore, although not required by law, every Republican and Democratic presidential candidate since Richard Nixon (Gerald Ford released a summary) has released their tax returns.

The Value-Added Tax (VAT)

Mr. Trump raised Mexico’s VAT during a discussion of NAFTA and trade. In so many words, he said Mexico’s VAT puts U.S. exporters at a disadvantage because it places a “16 percent, approximately” tax on U.S. products. It’s important to note that Mexico’s VAT is not a tariff. The consumption tax also applies to domestically made products, meaning that the VAT gives no tax advantage in Mexico to buying Mexican over American products. Moreover, Mexican products also face a similar tax in the U.S. in the form of the state and local sales taxes levied by most states. And of course, Mexico is far from the only nation to levy a VAT. If Mr. Trump is pure in the idea that VATs put U.S. exporters at an economic disadvantage, then he would have to shut down trade with France, Germany, Great Britain and a host of countries across the globe.  

Trump's Extensive Tax Breaks Highlight Flawed Economic Development Strategies

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A New York Times investigation of the extensive tax breaks that Republican presidential nominee Donald J. Trump’s business enterprises received over the past several decades is helping to bring scrutiny to the practice of local property tax abatements and other local economic incentives. Local officials consistently afforded Trump deals which allowed him to pay very little in taxes on the properties he has built and in some cases totally recoup building costs through tax forgiveness.

The article focuses on the nine construction projects Mr. Trump has overseen in New York City since his solo developer debut in 1980. According to the article, Trump’s real estate development projects have “reaped at least $885 million in tax breaks, grants, and other subsidies” in New York City alone. The largest and most detailed example the article discusses is how Trump’s Grand Hyatt Hotel, which cost an estimated $120 million to build in 1980, has received $359.3 million in forgiven or uncollected taxes to date due to a 40-year deal he struck with the city.

The New York Times’ case study on Trump’s tax treatment is just one example of bad economic development policies that state and local governments adopt all too often. A Good Jobs First study of more than 4,200 economic incentive awards in 14 states (including New York) found that 80 to 96 percent of funds went to large corporate interests. These interests, while promising to bring a plethora of well-paying jobs to communities, often do not deliver on their promises, or do so but only at a very high cost to the community.

This cost comes in the form of decreased tax revenues for the local government. Large firms have little incentive to invest in a community compared to small businesses because the success of the overall corporation depends very little on any single community. Meanwhile, the “business friendly” tax deals afforded to the companies deplete local funds for infrastructure and education, deteriorating the long-term human capital necessary to build a sustainable economy by attracting businesses that require skilled workers for high-paying jobs.

Trump is just one of many developers who use tax incentive programs intended to revitalize economic growth. Sadly, Trump’s business dealings are being reported on only because he is running for President. These developers often fall very short of their economic promises while profiting hugely from taxpayer money. Local and state governments should stop using tax incentives and other subsidies to attract businesses and encourage economic development. Instead, they should expand education opportunities and infrastructure spending to directly invest in their communities and cultivate the skills that top-ranking firms need.

Donald Trump’s advisors have tried to spin his economic address earlier this week as yet another reboot of his campaign and of his tax reform plan.

Trump’s speech, coupled with the abrupt disappearance of his original tax plan from his campaign website, made it clear that his original tax plan has been “fired.”

He now embraces the higher personal income tax rate structure proposed by House Speaker Paul Ryan, and he also proposes a new tax break for child care expenses. Overall, however, the campaign has left many questions unanswered by releasing only limited details. This may be a deliberate strategy or a sign that the campaign has not fully fleshed out a revised proposal.

Among the unanswered questions:

1) How aggressively will Trump seek to close corporate loopholes? Even at the current 35 percent rate, U.S. corporate taxes are lower than those of most economically advanced/OECD nations. If the United States cuts its corporate tax rate without broadening the tax base, the nation’s corporate tax collections would spiral down and blow an even bigger hole in the federal budget. Corporate tax collections, mind you, are already at historically low levels. Under a best-case scenario argument for cutting the U.S. corporate income-tax rate, the U.S. would have to also aggressively close corporate loopholes and perhaps could settle on a revenue-neutral rate of 28 percent. But Trump proposes to drop the rate far below that level without closing even a single corporate loophole.

2) What about individual tax breaks? The personal income tax is equally riddled with unwarranted loopholes, and any sensible tax reform strategy must discuss how to deal with the elephant in the room: itemized deductions for mortgage interest, charitable contributions, and other expenses. Trump’s revised blueprint is silent on this point.

3) How would the revised Trump plan affect federal revenuesand the budget deficit? This is an area in which the contrast between Trump and his general election opponent, Hillary Clinton, has been most stark. Trump has proposed to cut taxes by $10 trillion over a decade, while Clinton’s plan would reduce the federal deficit somewhat over this period.

These blank spots notwithstanding, the dramatic reductions in tax rates outlined by Trump—a 15 percent corporate tax rate, a top rate of 33 percent for most individual income, a 15 percent rate on pass-through income, and the outright repeal of the estate tax—are a clear indication that no matter how aggressively Trump seeks to close loopholes, his plan overall would be a budget-busting giveaway to the best-off Americans.

Tax reform is never easy, but some parts are more painless than others. The easy part is cutting tax rates, and on this front the Trump plan is quite clear. Trump would repeal the estate tax while sharply cutting personal and corporate income tax rates.

The hard part of tax reform is paying for tax cuts: which tax breaks will be eliminated to make rate reductions affordable? And on this point, Trump remains virtually silent. Indeed, the biggest loophole-related change he announced this week is the full expensing of capital investments, which would create a giant new hole in the tax base. Until Trump provides more specifics on the hard work of loophole closing, the collection of ideas he presented this week may fit into the mold of a hyperbolic slogan, but it’s certainly not a real plan.  


The Democrats' New and More Progressive Tax Platform

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The tax-related proposals in the recently released Democratic Party platform represent a meaningful victory for progressives. From advocating for the expansion of poverty-reducing tax credits to condemning corporations that avoid taxation by stashing profits offshore, the provisions outlined in the platform would improve our tax system for ordinary Americans while holding tax-dodging corporations accountable. In terms of tax justice, this year’s Democratic platform is one of the party’s most progressive in modern history.

The tax changes outlined in the pages of the Democratic Party platform would shift taxes away from lower- and middle-income Americans and towards corporations and the wealthy. For instance, the platform proposes a multimillionaire surtax “to ensure millionaires and billionaires pay their fair share” as well as a plan to ask high earners to pay more towards the Social Security fund. Plans to cut taxes for lower-income citizens include expanding the highly effective Earned Income Tax Credit (EITC) to childless workers, indexing the Child Tax Credit (CTC) to inflation, and “tax relief to help the millions of families caring for aging relatives or family members with chronic illnesses.”

Additionally, the platform outlines a plan to increase revenue by cracking down on tax-dodging corporations. The Democrats vow to bring an end to offshore tax havens, which the platform says “corrupt rulers, individuals, and corporations exploit to shelter ill-gotten gains or avoid paying taxes at home.”  The most important anti-tax avoidance measure in the platform is the Democrats’ plan to end deferral, a popular loophole used by corporations to escape paying taxes on profits stashed offshore. Since presidential candidate Sen. Bernie Sanders has been a longtime champion for ending deferral, this addition to the platform represents a major shift towards Sanders’s more progressive position.

Symbolizing the progressive shift of the 2016 platform is the party’s promise to “use the revenue raised from fixing the corporate tax code to reinvest in rebuilding America and ensuring economic growth that will lead to millions of good-paying jobs.” This is a big change from the 2012 Democratic Party platform, which proposed to use funds from the closing of corporate tax loopholes to fund lower tax rates for corporations, many of which pay nothing at all in taxes. CTJ wrote in 2012 that this platform “reveals a party deeply committed to the anti-tax mindset that historically is associated with the Republican Party.” In contrast, this year’s platform emphasized the good that tax-funded public services can do, stating “we are committed to a strong, effective, accountable civil service, delivering the quality public services Americans have every right to expect.”  

While the Democratic Party platform would crack down on corporate tax misbehavior, the 2016 Republican Party platform would reward it. The GOP platform proposed to lower corporate tax rates to be “on par with, or below, the rates of other industrial nations,” ignoring the fact that a multitude of tax breaks and loopholes already enable corporations to pay well below the top tax rate. Additionally, the GOP platform advocates for individual tax evasion by promoting the repeal of the Foreign Account Tax Compliance Act (FATCA), an effective anti-tax evasion measure. Since the Joint Committee on Taxation (JCT) estimated that FATCA will return $8.7 billion that would otherwise have been lost to tax avoidance over the next decade to the U.S, this proposal would stick American taxpayers with the bill for this revenue shortfall through either increased taxation or spending cuts. In sharp contrast to the GOP plan, the Democratic Party’s new tax policy proposals would improve the lives of ordinary Americans by making corporations and the wealthy pay their fair share.

VP Nominee Tim Kaine has Largely Favored Progressive Tax Reform, With Some Deviations

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As the eyes of the U.S. turn to the Democratic National Convention this week, many people will be getting their first look at Hillary Clinton’s recently announced running mate, Sen. Tim Kaine. As one of Virginia’s current senators and the state’s former governor, Tim Kaine has supported progressive tax reform efforts, though he has occasionally taken stances at odds with those efforts—including the repeal of Virginia’s estate tax in 2006.

Kaine’s most recent tax positions appear to be largely in sync with the proposals of the Clinton campaign. Like Clinton, he has favored legislation that would close the carried interest loophole as well as the corporate inversion loophole. Furthermore, Kaine has called for raising roughly one trillion dollars in new revenue over 10 years, which is relatively in line with Clinton’s call for about $1.5 trillion in new revenue.

Most of Kaine’s positions on tax policy as both a member of Congress and governor stand in direct contrast with Trump’s running mate, Indiana Gov. Mike Pence, who has been a longtime advocate of supply-side economics and the tax cuts for the rich associated with that philosophy.

Governor of Virginia

As governor of Virginia, Kaine’s defining tax policy battle was his effort to raise substantial new revenues to put the state’s dwindling transportation funding sources on a more sustainable track. During each of his first three years in office, Kaine proposed raising around a billion dollars per year in transportation funding revenue largely from fees or taxes related to motor vehicles. Ultimately, Kaine’s battle with a notoriously anti-tax legislature resulted in a budget compromise that was not particularly sustainable, depending largely on debt financing and higher traffic fines.

Kaine’s other tax policy moves as governor were more of a mixed bag. Unlike Gov. Mark Warner before him, who wisely vetoed a bill that would have repealed the state’s estate tax, Gov. Kaine enthusiastically signed an estate tax repeal measure in 2006. This decision by Kaine drained valuable revenues from Virginia’s coffers and exacerbated the unfairness of the state’s tax code during a time of growing income inequality. As the Washington Post warned in an editorial leading up to repeal: “scrapping the estate tax — he single most progressive tax levied by government — sends the wrong signal at the wrong time. It sacrifices fairness for the many on the altar of special favors for the few.”

On a more positive note, Kaine did succeed in pushing progressive tax legislation in 2007 that raised the state’s income tax filing threshold substantially and slightly increased the state’s personal exemption. These changes made the state’s tax code somewhat less regressive by providing many low-income individuals with a tax cut.

On his way out of office, Kaine also offered a budget proposal that included a progressive increase in the state’s personal income tax—raising the top tax rate from 5.75 to 6.75 percent—though the idea was never taken seriously by most legislators or by then-incoming Gov. Bob McDonnell.

Senator from Virginia

While Kaine has supported relatively progressive tax policy positions during his time in the Senate, he championed a regressive tax proposal when he first ran for the Senate in 2012. At the time, Kaine proposed that rather than allowing the Bush tax cuts to be repealed for all individuals making over $250,000, they should only be repealed for those making over $500,000. To start, this proposal failed to recognize that allowing the cuts to expire for just those over $250,000 already represented a massive and problematic concession in that it would have meant extending 80 percent of the Bush tax cuts. In addition, the primary beneficiaries of his plan were not those making between $250,000-$500,000, but those making over $500,000. In fact, a CTJ analysis at the time found that 73 percent of the benefit from Kaine’s proposal would have gone to individuals making over $500,000 and 30 percent of the benefit would have gone to those making over one million dollars.

Fortunately, since Kaine was elected to the U.S. Senate, he has taken a distinctly more progressive tack on tax issues. For example, in recent years Kaine has co-sponsored a number of progressive tax proposals, including legislation to expand the earned income tax credit to childless workers, legislation that would curb inversions and legislation to close the carried interest loophole. Perhaps influenced by his time as governor, Kaine has also supported common sense legislation like the Marketplace Fairness Act, which would allow states to collect sales tax more easily from Internet retailers.

The clearest distillation of Kaine’s views on federal tax policy is the 2013 letter he sent to the Senate Finance Committee laying out his general principles on what tax reform should look like. Broadly, the letter calls for Congress to reduce or eliminate tax expenditures as a way to make the tax code simpler, more progressive and economically efficient. In addition, Kaine calls for tax reform to raise about a trillion dollars in revenue over ten years, which he would like to be used as part of a budget deal to reduce the deficit. Kaine also argues that corporate tax reform should raise revenue by closing down offshore corporate loopholes.

While Kaine has not been a leader in the fight for more progressive taxation on the federal level, he has been a consistent supporter of progressive tax legislation.

The Five Worst Tax Policy Proposals in the 2016 Republican Party Platform

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The Republican Party’s official 2016 platform, released on Monday, is wholly out of touch with reality. The plan would exacerbate the dual problems of rising inequality and continuous annual federal budget deficits with tax cuts that essentially put more money into the pockets of wealthy people and corporations and reduce federal revenues.

Some of the most troubling tax policy proposals:

1. Move the U.S. to a territorial tax system.

Under the heading “A Competitive America,” the GOP platform calls for the United States to “switch to a territorial system of taxation,” stating that such a system would help drive more investment and economic growth. In reality, a territorial tax system would create greater incentive for companies to shift profits and jobs offshore.

Under a territorial tax system, U.S. companies would no longer be required to pay tax on offshore profits. Such a system would encourage U.S. companies to move jobs and investments because they could take advantage of low- or zero-tax rates in tax haven countries. On top of this, U.S. companies would have more opportunities to avoid taxes under a territorial tax system because once they are able to artificially shift their U.S. profits offshore, they would never face any U.S. tax on these profits.

One striking thing about the GOP embrace of a territorial tax system is that Donald Trump proposes the opposite. His plan would end deferral and implement a full worldwide tax system.

2. Substantially lower corporate tax rates.

The GOP platform claims that American businesses face “the world’s highest corporate tax rates” and that the U.S. should lower its rate to be “on par with, or below, the rates of other industrial nations.” The key issue is that the GOP platform writers are only paying attention to the statutory U.S. rate, while ignoring the plethora of tax breaks and loopholes that enable most companies to pay well below the top rate. In fact, according to data from the OECD, the U.S. already has an effective corporate tax rate that places it just below the average rate of industrial nations. If the GOP succeeded in lowering the statutory rate to 25 or 20 percent, the most likely result would be a massive loss in revenue from one of the country’s most progressive sources of funding.

3. Enact a strict balanced budget amendment and require a supermajority vote to increase taxes.

One the more understated yet critically important tax policy proposals in the GOP platform is its call for a radical version of a balanced budget amendment that would not only require the budget to be in perfect balance each year, but would also place a cap on total spending and require a supermajority vote for any tax increase. A balanced budget amendment would cause a myriad of problems, but the most important is that it would restrict the ability of government spending to counteract recession through stepped up government spending.

The spending restraints would place a stranglehold on lawmakers’ ability to make any additional public investments and would likely require substantial spending cuts. In addition, it could make closing even the most egregious of tax loopholes impossible because closing such loopholes could require a supermajority vote. Many state governments have found themselves continuously hamstrung by such spending and revenue-raising restrictions.

4. Repeal FATCA

The GOP platform takes aims at the Foreign Account Tax Compliance Act (FATCA) anti-tax evasion 2010 legislation by specifically calling for its repeal. The key provision of the law is a requirement that foreign banks and foreign branches of U.S. banks share information on the accounts of U.S. citizens and residents with the IRS or face a harsh withholding tax. Access to this information will allow the IRS to track down those individuals who have been evading U.S. taxes by holding their assets in undeclared offshore accounts. The Joint Committee on Taxation (JCT) estimated that FATCA will help the IRS claw back $8.7 billion that would otherwise have been lost to tax evasion over the next decade.

In other words, the GOP platform is effectively advocating for tax evaders who would benefit to the tune of billions of dollars if the legislation is repealed.

5. Oppose any further increase in the gas tax.

In its section on transportation policy, the GOP platform opposes any increase in the federal gas tax, despite the fact that the federal gas tax has not been raised since 1993. Because of inflation, this means that the value of the 18.4 cent per gallon level has eroded nearly 40 percent over the past two decades. This erosion in value has led to a perpetual lack of revenue to adequately fund the infrastructure spending programs that lawmakers support, which has led them to embrace less- than-ideal funding sources for making up the difference. Last year for example, Congress essentially searched under the couch cushions for infrastructure funding by paying for it with things like higher user fees on unrelated transactions and selling off oil from the strategic petroleum reserve.

Rather than continuing its piecemeal approach, Congress should shore up transportation funding by increasing the gas tax now and indexing it to inflation. 

Donald Trump's Tax Plan: How to Sell a Dream

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The theme of day two of the Republican National Convention was “Make America Work Again,” but there was mostly fire and brimstone (even a mention of Lucifer) and little concrete discussion about how to boost workforce participation rates, create more good-paying jobs, and ensure more American workers have the skills necessary to access good-paying jobs.   

For now, the only tangible details the public has about how a Trump Administration allegedly would put Americans to work are his business record and his economic policy proposals. Others have done a keen job of dissecting his business record and projecting what it could mean for a Trump Administration. So we won’t opine on that. But we’ll continue to trumpet the fact that Trump’s tax proposals will not benefit working people, the constituency on whose behalf he claims he is campaigning.

Earlier this year, CTJ released an analysis of Trump’s national debt-inflating tax proposal. Since then, the candidate has been cagey about his real intentions. And a few people affiliated with the campaign have said he’s cooking up a revised plan (that will still focus on tax cuts, of course).  For now, rather than submit to frequent whiplash and reading tea leaves, we’ll assume the proposal that remains on his campaign website is the one he intends to pursue if elected president.

And that proposal, aside from inflating the national debt, would deliver a windfall to the top 1 percent of taxpayers. If Franklin Roosevelt was a traitor to his class, then Donald Trump is an ally to his class whose tax policies would accelerate a reprehensible, slow return to the gilded age



VP Nominee Mike Pence is a Long Time Advocate of Supply-Side Tax Cuts

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The upcoming week undoubtedly will yield a plethora of articles on Donald Trump and VP pick Gov. Mike Pence’s differences and similarities. From a tax policy perspective, a review of the Indiana governor’s record reveals he and Donald Trump are on the same page.

Whether in his current position as governor of Indiana or as a member of the House of Representatives for more than a decade, Pence (who is a devotee of Arthur Laffer and has signed Grover Norquist’s no tax pledge) has fought time and again to enact extremely regressive and unaffordable tax cuts.

He has been a longtime advocate of the discredited supply-side economic policies that purport tax cuts for the rich will generate rapid economic growth. In one particularly telling television appearance in 2010, Pence made the bizarre claim that raising income tax rates would “actually reduce federal revenues,” a claim that the fact checkers at PolitiFact rated as simply “False.”

In picking Pence, Donald Trump has chosen someone whose tax policy positions fall in line with his recent tax policy declarations. While Trump has been inconsistent on tax policy in the past, his most recent tax plan would cut taxes by $12 trillion over the next decade and direct 70 percent of that tax cut to the top 20 percent of taxpayers, a skewed tax policy approach that Pence’s record indicates he would support.

Member of the House of Representatives

As a member of the House of Representatives from 2001-2012, Pence advocated and voted for a series of unaffordable tax cuts for the wealthy. For example, Pence earned an “F” on CTJ’s 2006 congressional tax policy scorecard for his votes for the extremely costly and regressive Bush tax cuts as well as an additional measure that would have repealed the very progressive federal estate tax.

Building on this, when the Bush tax cuts expired in 2010 and at the end of 2012, Pence fought to have those tax cuts fully extended, even though they would be twice as costly in the second decade as they were in the first. When pressed about the huge unpaid for cost of the tax cuts, Pence resorted to supply-side rhetoric saying that revenue would in fact expand as the economy expands due to the tax cuts. Unfortunately, Pence and congressional Republicans largely got their way in 2013 when Congress passed a tax deal that made 85 percent of the Bush tax cuts permanent. In other words, Pence not only advocated for tax cuts for the rich, he was part of a majority of representatives who passed them into law.

Besides his support for the Bush tax cuts, Pence also supported a series of other extremely regressive tax cuts. Mostly strikingly, Pence repeatedly co-sponsored the radically regressive “Fair Tax Act,” a bill that would replace the entire federal tax system with a national sales tax. According to an analysis of this plan by the Institute on Taxation and Economic Policy (ITEP), a national sales tax would raise taxes on the bottom 80 percent of taxpayers by an average of $3,200 a year, while cutting taxes by an average of $225,000 annually for the top 1 percent.

In addition, Pence has been a vocal opponent of the capital gains tax, which is overwhelmingly paid by the wealthiest Americans. To this end, Pence was the lead sponsor of legislation in 2003 that would have cut the capital gains tax from its already low rate of 15 percent at the time to 10 percent. A few years later, Pence sponsored another piece of legislation that would have allowed a partial exemption for capital gains income based on inflation that had taken place since the asset’s purchase.

Pence’s last notable position on federal tax policy was his staunch opposition to any legislation supporting clean energy and reducing fossil fuel emissions. For instance, Pence repeatedly voted against measures that would have ended tax subsidies for oil and gas companies. More broadly, Pence strongly opposed any kind of carbon tax or cap-and-trade legislation and called 2009 cap-and-trade legislation an “economic declaration of war.”

Governor of Indiana

Following very much in line with his time in the House of Representatives, Pence made a huge cut in the state’s income tax one of the main planks of his platform when running for governor of Indiana in 2012. An ITEP analysis of his campaign tax proposal found that it would have cost the state as much as $453 million a year, while cutting taxes on average by $2,264 for the top one percent and only $102 for the middle 20 percent of taxpayers.

After Hoosiers elected him governor, Pence failed to muster the political will to pass a tax cut as large as the one he proposed during his campaign. Still, he pushed through a tax cut in 2013 with an annual price tag of $250 million, roughly half the size of his original plan. At the time, an ITEP analysis found the plan would overwhelmingly benefit the top 1 percent of taxpayers. In addition, the legislation accelerated the repeal of the state’s progressive inheritance tax. In other words, Pence supported tax cuts that not only deprived Indiana of sorely needed revenue, but also further cemented Indiana’s status as one of the states with the most regressive tax systems in the country.

In 2014, Pence pledged to make additional tax code changes his priority for that year during a conference that also included speakers like the infamous anti-tax advocate Grover Norquist and the father of supply-side economics himself, Arthur Laffer. Pence’s push for tax cuts that time took aim at the corporate income tax rate and business personal property taxes. Ultimately, the legislature passed and Pence signed into law a cut in the corporate tax rate from 6.5 to 4.9 percent and another measure that allowed counties to cut business personal property taxes. Given the progressivity of corporate taxes, this cut further increased the regressivity of the state’s tax system and reduced much-needed revenues.

In 2016, many Republican lawmakers in Indiana pushed for raising the state’s gas and cigarette taxes as a fiscally prudent, though regressive, move to shore up the state’s transportation funding. Rather than allow for the possibility of new revenues, however, Pence and state lawmakers eventually passed legislation that depended on merely shifting revenue, including transferring ‘surplus’ revenue from the state’s general revenue fund to the state highway fund. The practical result of this shell game will be more funding for infrastructure, but only at the expense of less funding for other areas of the budget such as education and health.

Pence’s decision to join Trump on the presidential ticket might actually be good news for tax fairness in Indiana since he will no longer be able to run for a second term as governor and continue to push aggressively for more regressive tax cuts. The bad news is that Trump and Pence are on the same page when it comes to regressive, trickle-down tax policies. Given the nation’s current budget situation, it can ill afford tax cuts for the very rich or supply-side tax experiments that falsely promise long-term economic gains for the masses in exchange for huge tax cuts for the rich today.

Ryan's New Tax Plan Aligns with Trump's, Though in Some Ways It's More Extreme

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Since House Speaker Paul Ryan signaled his support of Republican presidential candidate Donald Trump earlier this month, the pundit class has continually speculated whether Trump is “conservative enough” and how Trump’s policy agenda would align with the party’s standard bearers.

With last Friday’s release of Ryan’s blueprint for tax overhaul called “A Better Way”, it is apparent Ryan’s view of tax policy has much in common with the regressive, budget-busting plan Trump sketched out last fall — and in some ways is even more extreme.

The most obvious similarity between the two plans is their cost. At a time when the nation faces pressing budget shortfalls in both the short- and long-run, further reducing our already low tax receipts is a recipe for fiscal disaster. Yet both Ryan and Trump seem unconcerned by this. While the $4 trillion, 10-year estimated cost of Ryan’s tax cuts is dwarfed by the $12 trillion cost of Trump’s plan, any tax reform proposal with a price tag that includes the word “trillions” is exceedingly out of touch with the harsh fiscal realities facing the federal budget going forward.

Speaker Ryan and Trump also appear to have similar philosophies about who should be the biggest beneficiary of their tax largesse. Ryan’s proposal raises the stakes, taking Trump’s top-heavy approach to a new level. CTJ’s analysis finds that candidate Trump would give 37 percent of his tax cuts to the top 1 percent of Americans. Our analysis of Ryan’s plan finds it would reserve a staggering 60 percent of its tax breaks for this small privileged group. In fact, the top one-tenth of the top 1 percent would enjoy 35 percent of the Ryan tax cuts.

Candidate Trump and Speaker Ryan also appear to have similar views about corporate taxes. Trump’s plan would reduce the yield of the corporate tax by $2 trillion over the next decade. Ryan’s plan outdoes Trump’s, with an estimated price tag of $2.5 trillion over 10 years. To put this in context, the price tag of Ryan’s plan is more than half of what the corporate income tax is projected to bring in over the next 10 years. While both candidates would sharply reduce corporate tax rates, Ryan would make matters worse by moving to a territorial tax system that would allow multinational corporations to indefinitely continue the charade of pretending that a large share of their profits are earned in foreign tax havens. Both proposals to slash corporate tax collections come at a time when profitable Fortune 500 companies are paying only about half the current statutory tax rate, federal tax collections are at record low levels and U.S. corporate taxes as a share of the economy are substantially smaller than corporate tax collections in most other developed nations.

To be sure, there are differences between the approaches Ryan and Trump would take to cripple our revenue-raising capacity. But the two blueprints for tax change outlined by Ryan and Trump are notable both for their stark favoritism toward the rich and the yawning budget holes they would create for our nation in years to come.

Read the full analysis of Ryan’s tax plan.

Donald Trump's Nonsense Rhetorical Appeal to Bernie Sanders Supporters

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It appears Donald Trump wants Bernie Sanders supporters to buy into the patently false notion that Trump is a populist candidate and their next best option. But Mr. Trump’s disingenuous rhetoric doesn’t pass the sniff test. 

During a teleprompter-aided speech on Wednesday, a pandering Trump made a direct appeal to Sanders’ supporters, saying that he would “fix a rigged system” that allows insiders to “keep themselves in power and in the money.”

The truth is that Trump’s proposals are quite the opposite of Sanders’. One clear illustration of Trump’s enrich-the-wealthy agenda is his tax plan, which hugely favors the top 1 percent. Sanders, of course, proposes big tax increases on the rich.

Trump would slash taxes by $12 trillion over ten years, while Sanders’ health care tax plan (which forms the bulk of his tax plan) would increase taxes by $13 trillion over 10 years. This means that Sanders and Trump have more than a $25 trillion disagreement on how much the federal government should collect in taxes over the next decade.

Trump and Sanders also have very different ideas on how taxes should be distributed and what they should be used to pay for. For his part, Sanders would focus his tax increases on the very wealthiest Americans. He would use that new revenue to enact a single-payer health care system that would mostly benefit low- and middle-income Americans. Overall, Sanders’ health care and tax plan would increase after-tax income for the middle 20 percent of Americans by an average of $3,240 a year, while cutting after-tax income for the top one percent of Americans by an average of $159,980 annually.

In utter contrast, Trump’s tax cut plan would increase income inequality by distributing trillions in tax cuts to the wealthy. In fact, the top 1 percent of Americans would receive 37 percent of the benefits from Trump’s $12 trillion tax cut. Making matters worse for those who are not among the wealthiest Americans, a tax cut of such dramatic size would inevitably require enormous cuts to spending programs and/or substantial tax increases to pay for its cost. When Citizens for Tax Justice (CTJ) produced a distributional analysis of his tax plan plus a probable scenario of spending cuts and tax increases to pay for the plan, it found that the middle 20 percent of Americans would  see a net loss of $2,076 on average annually under the Trump plan, while the wealthiest 1 percent would see a net benefit of $161,740. In other words, Trump’s tax plan would represent an unprecedented shift of income to the wealthy, while taking away substantial income and public services from the overwhelming majority of Americans.

It may sound good for Trump to claim that “together we can fix a rigged system.” Polls show a vast majority of Americans thing the deck is stacked against ordinary hardworking Americans. But no one should mistake Trump — who by the way won’t release his tax returns, which can reveal quite a bit about whether he has exploited our rigged system — for an economic populist. His rhetoric doesn’t match up with his explicit policy proposals. Instead, his tax policies would ensure that those who have the most wealth and power would get an even larger share of the income pie than they do now.  

Why Donald Trump May Be Hiding His Tax Returns

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Donald Trump said Tuesday he will not release his tax returns before the election because “there’s nothing to be learned from them,” potentially making him the first major presidential nominee not to release a full return in 40 years.  

Perhaps what the presumptive Republican presidential nominee really means is that he has nothing to gain politically by releasing his returns, but the public could learn quite a bit.

For instance, we might discover that despite Trump’s actual earnings, his taxable income isn’t much at all because, as some suspect, he may write off most of his lavish life style as “business expenses.”

If widespread speculation is true, this would mean that American taxpayers are footing the bill for a big share of Trump’s private jet, his golf outings, his mansions, and who knows what else. In a February 2016 article for The National Memo, David Cay Johnston outlines nine “bombshells,” that Trump’s tax returns may reveal, including how arcane tax rules may allow him to remain relatively tax free.

If Trump, who is vying to be the next president of the United States, is living large at the expense of the rest of us, doesn’t the public deserve to know?

During the thick of the Republican primary, Trump vowed to release his tax returns, but he has since resisted by claiming that he cannot release them while the IRS is auditing them. This flimsy excuse is simply not true. In a statement, the IRS wrote, “nothing prevents individuals from sharing their tax information.”

Ironically, Trump in 2012 said that Republican presidential candidate Mitt Romney was “hurt really very badly” by not releasing his tax returns and that Romney should have released them by April 1. No word on why what was good for Romney is not good for him.

Trump in so many words has declared that his business acumen and negotiating skills qualify him for the highest office in the land. In that vein, his tax returns may contain critical insights into how he is using the tax code to build his wealth.

During the 2012 campaign, for example, Mitt Romney’s tax returns exposed a myriad of loopholes that allowed him to pay a paltry 14 percent tax rate on millions in earnings. Specifically, Romney’s returns brought attention to the preferential rate on capital gains and also illustrated how some wealthy individuals use offshore shell companies or avoid taxes through special IRAs.

Given that Trump’s tax plan includes trillions in tax cuts for the wealthy, it isn’t surprising that he may be trying to hide from the public’s view the numerous ways that tax system is already rigged in favor of wealthy individuals like him.

But here’s the thing. A president is accountable to the American people. The electorate must demand more than bombastic proclamations and shouldn’t concede the point when a politician declares, “trust me I know how to get it done.” We should also be wary of allowing a presidential contender to go against the grain of what almost every presidential candidate in the last two generations has done--release at least one detailed tax return. 

Donald Trump may have turned conventional wisdom on its head this election cycle, but we shouldn’t allow him to rewrite critical rules that have helped reveal the character and agenda of our presidential contenders. 


Trump Implies Failure to Effectively Negotiate His Tax Plan Would Be the Best Outcome

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Throughout the 2016 campaign, presidential candidate Donald Trump has claimed he would raise taxes on himself and other rich individuals, even while promoting a detailed tax plan that would do precisely the opposite.                          

Trump this weekend attempted to clarify this inconsistency. He remains, he says, committed to his regressive tax proposal, but he’ll rely on legislative negotiations with Congress to ensure the middle class doesn’t get the short end of the stick. If he means what he says, that’s a novel political tactic, to say the least.

Trump’s inconsistency on taxes came to a head last week, when he responded to criticisms that his plan would lavish huge tax cuts on wealthy Americans by saying ambiguously that he is “not such a huge fan of that.” Trump added that he is “so much more into the middle class” in his approach to tax reform.

Yet Trump’s comments are incompatible with the tax plan he announced last fall, which would reserve a stunning 37 percent of its tax breaks for the very richest 1 percent of Americans while cutting federal revenues by $12 trillion over a decade.

On the Sunday talk-show circuit, a number of interviewers sought to clarify this discrepancy. Speaking on “Meet the Press,” Trump reiterated that his plan would “lower the taxes on everybody very substantially,” but clarified that his negotiations with congressional leaders would likely turn his plan upside down: “For the wealthy, I think, frankly, it’s going to go up. And you know what, it really should go up.”

Trump made a similar forecast in his appearance on “This Week”: “On my plan, they’re going down. But by the time it’s negotiated, they’ll go up.” In other words, Trump stands behind the details of his plan but expects that a Congress suddenly hungry to tax the rich more would turn it upside down. If this is truly his position, it’s perplexing but it means he believes a wholesale failure to pass his tax proposal would qualify as effective leadership.

Presidential candidates routinely seek to appeal to the voting public by proposing vague tax platforms that promise big tax cuts to middle-income families, but they often omit the vital details that would be required to score these plans. Trump has emphatically not taken this approach. To his credit, Trump months ago released a comprehensive and detailed plan that left little open to interpretation. If Trump now thinks his plan is bad policy, he owes it to the American public to outline, in similar detail, what he thinks tax reform should look like.

Donald Trump the Farmer?

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People may disagree about what exactly Donald Trump is, but almost no one would call him a farmer. Well, no one except the property tax department of New Jersey. According to a recent report from the Wall Street Journal, Donald Trump has saved tens of thousands of dollars in property taxes on two golf courses in New Jersey through the use of a farmland tax break.

To qualify for the tax break, Trump maintains a small goat herd, hay farming and woodcutting operation on his New Jersey golf courses. The properties include just enough of these activities to qualify for a rather generous farmland tax break, which by one calculation has allowed Trump to pay less than $1,000 annually in property taxes on a property on which he would otherwise have owed around $80,000.

Trump is the latest of many high profile examples of wealthy individuals taking advantage of tax breaks meant for farmers. In 2011, reporting found that Tom Cruise managed to pay a measly $400 in property tax on an $18 million Colorado property by allowing sheep to occasionally graze on his land. Similarly, Senator Bill Nelson was able to reduce his property taxes from over $45,000 to just $3,700 by allowing cows to graze on his land in Florida.

What the cases of Trump, Nelson and Cruise reveal is that it is often difficult to craft tax breaks so that they can only be obtained by those individuals they are meant for. In the case of the farmland tax break, presumably the goal is to provide support to and help conserve small family farms, yet loose definitions of what constitutes an eligible farm allow it to be gamed by wealthy individuals.

To ensure that the Trumps of the world are not getting tax breaks for farmers, states can take a number of approaches. To start, states could tighten the rules around what constitutes an eligible farm, which is exactly what Colorado did after the revelations around Tom Cruise and other celebrities taking advantage of the system. Alternatively, states could trade-in their farmland tax breaks for an agricultural circuit breaker, which would only allow for a tax break in the case of real low- and middle-income farmers.

In any case, everyone should be able to agree that Trump is no farmer, even if he played a singing one at the Emmy’s. 

CTJ's Super Tuesday Tax Policy Guide to the Presidential Candidates

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This Super Tuesday the presidential primary season will finally kick into high gear, as millions of Americans go to the polls. Taxes have been a key issue this election season, with all of the candidates spelling out substantial tax reform agendas. Over the past year, we have kept a close eye on each candidate’s proposals and provided full distributional analyses of their plans when possible.

Below are short summaries of each candidate’s record and recent tax reform proposals.


Hillary Clinton

Throughout her career, Clinton has pursued incremental changes that would significantly improve the fairness of the tax code. As a candidate, Clinton has proposed a series of progressive revenue-raisers, including estate tax reform, enacting a surcharge on multimillionaires and limiting the value of itemized deductions. In addition, she has proposed a variety of tax breaks (to be offset by the aforementioned tax increases) to address issues ranging from incentivizing companies to engage in profit sharing to helping individuals pay for the expense of taking care of a loved one.

For more:
CTJ Commentary on Clinton’s Tax Fairness Proposals 

CTJ Commentary on Clinton’s Anti-Inversion Proposals 

CTJ Commentary on Clinton’s Proposal to Pay for College Affordability 

Hillary Clinton’s Record on Tax Issues 


Bernie Sanders

Sanders has a long record of championing tax fairness through his many progressive legislative proposals, such as his bill to end offshore tax dodging and another to substantially reform the estate tax. During the campaign, Sanders has proposed more than $13 trillion in mostly progressive tax increases to fund his expansive agenda: moving to a single-payer healthcare system, increasing infrastructure spending and expanding access to college education.

For more:
CTJ Analysis of Sanders Health Tax Plan 

Bernie Sanders’ Record on Tax Issues 



Ben Carson

Though he has not held any elected office, Ben Carson has used his position as a public figure to advocate for a flat income tax system based on the biblical tithe of 10 percent. As a candidate, he has proposed a 15 percent flat income tax – but in truth, the income tax rate would be 30.2 percent for many since his plan retains payroll taxes. A CTJ analysis finds Carson’s plan would cost $9.6 trillion in revenue over 10 years, actually increase taxes on the bottom 50 percent of Americans and provide the top 1 percent with two-thirds of the overall tax break.

For more:

CTJ Analysis of Ben Carson’s Tax Plan 

Ben Carson’s Record on Tax Issues 


Ted Cruz

Ted Cruz has made a name for himself as one of the most radical anti-tax lawmakers in the country by calling for the abolition of the IRS and for a move to an extremely regressive flat tax system. A CTJ analysis of Cruz’s tax reform plan found that his plan was the most costly, losing $16.2 trillion over 10 years. Even that number assumes he doesn’t eliminate tax collection altogether by following through on his call to eliminate the IRS.

For more:

CTJ Commentary on Ted Cruz’s Tax Plan 

Ted Cruz’s Record on Tax Issues 

John Kasich

While John Kasich has sought to portray himself as the moderate choice in the GOP race, his record as governor of Ohio is very conservative on tax issues. Kasich relentlessly pushed for largely regressive tax cut and reform measures. Unfortunately, Kasich has not specified his tax reform agenda in enough detail for CTJ to analyze, but what he has released indicates that his plan would follow the pattern of other candidates in cutting taxes by trillions of dollars, mostly for the rich.

For more:

CTJ Commentary on John Kasich’s Tax Plan

John Kasich’s Record on Tax Issues


Marco Rubio

Rubio has sought to set himself apart from other candidates by highlighting his proposals to replace the standard deduction with a refundable tax credit and to adopt a more robust refundable child tax credit. While this effort is commendable, CTJ’s analysis of Rubio’s plan found that only 6 percent of the $11.8 trillion in tax cuts he proposes would go to the bottom 20 percent, while over a third of the total would go just to the top 1 percent of taxpayers.

For more:

CTJ Analysis of Marco Rubio’s Tax Plan

Marco Rubio’s Record on Tax Issues

Donald Trump

Donald Trump has been all over the place on tax policy during his career, proposing at one time to impose a heavy tax on wealthy individuals and later proposing massive tax cuts for those same individuals. Early in the campaign, Trump indicated that he would raise taxes on the well-off, but his tax reform plan would likely lower taxes for the rich (including himself). According to a CTJ analysis, his plan would cost an astounding $12 trillion in revenue over the next ten years, with a majority of the tax breaks going to just the richest 5 percent of taxpayers.

For more:
CTJ Analysis of Donald Trump’s Tax Plan

Donald Trump’s Record on Tax Issues

Hillary Clinton's New Tax Proposals: Steps Toward Making the Wealthy Pay Their Fair Share

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Hillary Clinton on Tuesday released a series of new proposals that she says would help restore “basic fairness to our tax code.” The proposals, which she estimates would raise about $500 billion over the next decade, include a multi-millionaire income tax surcharge, a Buffett Rule-style tax increase and closing several prominent loopholes and reforms to the estate tax. These proposals would represent a positive step toward ensuring that the wealthy pay their fair share in taxes.

What Are Clinton’s Tax Reform Proposals?

Clinton’s plan includes what she calls a “Fair Share Surcharge,” which would impose an additional 4 percent tax on adjusted gross income (AGI) over $5 million. Because the tax applies to AGI–including both wages and capital gains–it would effectively decrease the benefit of the special preferential tax rate on investment income, which makes up the largest share of income for many multi-millionaires. This provision would raise roughly $204 billion over 10 years.

In addition to the surcharge, Clinton proposes to implement the Buffett rule, which would create a minimum tax of 30 percent on millionaires. The rule was originally inspired by billionaire Warren Buffett’s call for higher taxes on millionaires because he said he pays a lower effective tax rate than his secretary. This provision would raise about $50 billion over 10 years.

The third plank of Clinton’s tax reform plan would close down three egregious tax loopholes. Like many other candidates, including both Republicans and Democrats, Clinton proposes to end the carried interest loophole, which allows investment managers to misclassify their earnings as capital gains income to pay a lower preferential tax rate on this income. The plan also calls for eliminating the reinsurance loophole, which allows super-wealthy investors to use derivatives to avoid paying the normal (and higher) tax rate on short-term capital gains. The plan would also eliminate the so-called “Romney Loophole,” which allows some wealthy families to use retirement accounts to shelter large swathes of their income from taxation. Eliminating these three loopholes would raise about $51 billion.

While the Buffett Rule, the Fair Share Surcharge, and other loophole closers would help level the playing field between wealthy investors and average taxpayers, Clinton’s proposals avoid dealing directly with the federal tax code’s central problem: the preferential tax treatment on investment income, which is both taxed at a lower-than-normal rate and is often not taxed at all. Rather than creating two new taxes and engaging in a never-ending game of whack-a-loophole, a more straightforward solution would be to tax capital gains and dividend income the same as wage income, and to make more transfers of appreciated assets subject to tax on gains. A Citizens for Tax Justice (CTJ) report has found that eliminating the preferential tax rate would raise $533 billion over a decade and would be extremely progressive.

The final plank of Clinton’s plan would lower the estate tax exemption from $5 million to $3.5 million and increase the top estate tax rate from 40 to 45 percent, which would raise about $189 billion over 10 years. According to the campaign, lowering the threshold to $3.5 million would still mean only the wealthiest 4 out of 1,000 estates would owe even a penny in estate taxes. Clinton is also proposing to curb estate tax avoidance through closing down certain estate-tax shelters, such as the infamous GRAT loophole. These proposals represent significant steps in restoring the robustness of the estate tax, which is crucial to counteract the increasing growth in wealth inequality.

Clinton’s revenue-raising proposals are in stark contrast to every single one of the Republican presidential candidates’ plans, all of which would cut taxes by trillions of dollars. The GOP plans would also make the tax system much less progressive by providing the wealthy with massive new tax cuts. CTJ analyses have shown that candidates Trump, Bush, Rubio and Carson would each give the wealthiest 1 percent of Americans tax breaks averaging more than $170,000 a year.

However, Clinton has not specified how she would propose using the revenue raised if her reforms were implemented. Given the nation’s dire need for more revenue to pay for public investments, using the revenue to finance tax cuts would be ill-advised. 

Late last year, the New York Times published an article revealing the disturbing but not surprising news that the nation has separate and unequal tax systems: one for the rich and powerful who have created a cottage “income defense industry” and another one for we regular Joes and JoAnnes.

The same day, the IRS released data showing that the average effective tax rate for the richest 400 Americans rose to 22.9 percent in 2013 (the latest year for which data are available), a substantial increase over the historically low effective rate of 16.7 percent that the group collectively paid the previous year.  How this happened is no mystery. Tax changes enacted at the end of 2012 as part of the “fiscal cliff” deal as well as Affordable Care Act tax provisions that took effect in 2013 increased top income tax rates on both wages and capital gains.

Members of the exclusive, richest 400 club on average derive 70 percent or more of their income from capital gains. They also each enjoyed $100 million or more in income in 2013. The increase in their tax rate in 2013 is notable for several reasons. One, it is 6 percent more than the average from the previous year. Two, the rate, nonetheless, remains far below the nearly 30 percent average rate the group paid in the 1990s when the IRS first began publishing these data.

Average tax rates for the richest remain well below 1990s-era levels because even after the fiscal cliff deal, the top tax rate on capital gains is still only 23.8 percent, compared to the 28/29 percent capital gains tax rate in the early 1990s and the 39.6 percent top tax rate now applicable to wages. The way the IRS taxes income from wages versus income from wealth creates a disparity in the tax system that favors the wealthiest Americans and allows them to reduce their effective tax rates to well below the rates paid by less affluent Americans.

This is important information in the context of a presidential election in which all of the major Republican presidential contenders have proposed top-heavy tax cut proposals that would mostly benefit the wealthiest Americans while adding trillions of dollars to the national debt. On the Democratic side, none of the candidates have yet released comprehensive tax proposals. However, Hillary Clinton this week released a plan that, among other things, would close “certain” tax loopholes, impose a 4 percent surtax on households with income over $5 million, restore the estate tax to 2009 levels and increase the tax rate, a move the campaign says would raise $400 billion to $500 billion over a decade.

The next president’s policy on taxes will determine whether an elite sliver of the nation’s population will see their effective tax rates go back down to historically low levels or inch up and move the nation toward a more progressive federal tax system.

The sheer amount of wealth held by the top 400 means that tax increases on this group would have a measurable effect on the nation’s revenues and its ability to fund roads, bridges, education, public safety, public health, nutrition and other vital programs and services. Ending special tax breaks for capital gains would have an even better effect on tax fairness and our budget deficit.

And because the nation’s income continues to concentrate at the top—the richest 400 Americans, a tiny group, enjoyed 1.17 percent of nationwide AGI in 2013, more than twice as big as their 1992 share of nationwide income—failing to end tax breaks for these best-off Americans hurts public investments more and more each year. Obviously, the answer to the nation’s need to raise more revenue cannot solely be to tax this exclusive group more. Lawmakers and candidates, though, must stop peddling massive tax cuts--especially for the rich--as a policy panacea at a time when the nation isn't raising enough revenue to meet its priorities.

It’s welcome news that tax rates on the top 400 Americans have rebounded from their recent historic lows. But the recent reversal of the downward trend in tax rates for the richest Americans is only a first step toward undoing the regressive, top-heavy tax cuts of the past 20 years rather than a sea-level change in tax fairness. 

Ben Carson's 14.9% Flat Tax Would Really Be 30.2 Percent Tax for Most

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Presidential candidate Ben Carson, who had previously outlined his general support for a flat tax based on the biblical “tithe,” laid out more details of his tax plan earlier this week. The plan’s $9.6 trillion 10-year cost puts it squarely in the footsteps of the tax giveaways proposed by other candidates. Carson is pitching the plan as a 14.9 percent flat tax that would be simpler and fairer, but in reality the plan would be a major giveaway to the wealthiest Americans and, in fact, would impose a 30.2 percent tax rate on most working people. 

The Carson campaign’s PR effort is focused on the flat 14.9 percent tax with which he would replace the current graduated federal income tax. But Carson’s campaign literature fails to mention that the plan would leave in the federal payroll (FICA) tax. Counting the employer and employee side of the FICA and Medicare tax, both of which are generally thought to fall ultimately on workers, the payroll tax clocks in as a 15.3 percent tax rate on salaries and wages. Carson would leave this unchanged. So when Carson claims his plan would tax “income at a uniform 14.9 percent rate,” he’s understating the actual tax rate on working families by a factor of two. Overall, the wages of working families would see a tax rate of 30.2 percent under Carson’s tax plan.

In addition to the move from a graduated-rate to a flat-rate tax, Carson would repeal virtually all of the income tax deductions and credits currently in place. Everything from the Earned Income Tax Credit and the Child Tax Credit to itemized deductions would be eliminated. In lieu of these tax breaks, Carson would introduce one new deduction that exempts income below 150 percent of the federal poverty line, imposing only a small “de minimus” tax on this income.

Carson’s plan also contains the usual array of goodies for the best-off Americans: estate tax repeal, a zero tax rate on capital gains, dividends and interest, and an end to the alternative minimum tax. CTJ’s new analysis shows that fully two-thirds of the tax cuts under Carson’s plan would go to the very wealthiest 1 percent of Americans. This is roughly twice as big a share as this best-off group received from the tax cuts engineered by President George W. Bush more than a decade ago. 

As a new Citizens for Tax Justice analysis shows, on balance these proposed changes would have a disastrous effect on both tax fairness and the federal budget. Not only is the plan misleading when it asserts everyone would pay a 14.9 percent flat tax, the poorest 40 percent of Americans would see big tax hikes and federal revenues would be decimated by $9.6 trillion over ten years.

Carson’s plan, like the other Republican proposals before it, is selling a dream that experience has shown will never come true. The nation cannot have drastic tax cuts that disproportionately benefit the wealthy and also fund basic programs and services and grow the economy.



How Citizens for Tax Justice Models the Impact of Tax Proposals

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Over the course of the year, CTJ has published a series of analyses estimating the revenue impact of tax plans proposed by half a dozen Republican presidential candidates. It published a summary of the findings earlier today in a blog post.

These findings have sensibly drawn a lot of media attention, and the first question CTJ staff usually gets is “how do you come up with these numbers?” Here’s a quick answer to this question.

The starting point for Citizens for Tax Justice and the Institute on Taxation and Economic Policy’s work is the ITEP Microsimulation Model. This is a computer model built on a large database of more than 150,000 records, each representing a tax payer’s actual federal tax return.  Since 1960, the Internal Revenue Service (IRS) has made these databases available to researchers seeking to understand the nation’s tax system and the impact of proposed changes.

The result is a researcher’s dream: mountains of data showing everything from basic data on wages and capital gains to details of itemized deductions and business tax breaks.

Starting with this database’s economic profile of the incomes of all Americans, the ITEP model can easily be used to estimate the effect of different tax rules. With a point and a click, the ITEP model can show the effect of, for example, increasing the top capital gains tax rate from 20 to 25 percent, or repealing the itemized deduction for charitable contributions on the taxes paid by every single one of these 150,000 records. The result is a statistically valid estimate of how much federal tax revenues would increase (or fall) as a result of such a tax change, which means we can use the model to generate revenue estimates on federal tax reform plans.

Because we know the income levels of every single one of these records, we can also use these results to show how tax changes would affect different income groups, from the poorest twenty percent to the very wealthiest 1 percent.

The ITEP model produces a traditional or “static” revenue estimate, meaning that in general it does not calculate how tax changes affect behavior as does “dynamic” modeling. The latter is a type of modeling advocated by those who support supply-side economic theories, which claim dramatic tax changes will spur economic growth. But as we have noted elsewhere, economists can’t agree on whether such an effect exists, which means that the most responsible approach to revenue estimating is to present a static analysis.

Taken on its own, the ITEP Model can only analyze changes in taxes that already exist at the federal level. This means that when we want to analyze an entirely new proposed tax at the federal level, such as a value-added tax or a national sales tax, we supplement the model using other data sources to augment the economic profile we get from the IRS’ income tax database.

We use a similar process to analyze taxes levied by state and local governments, such as property taxes and sales and excise taxes, that aren’t included in the IRS data. 

Every Major Republican Candidate's Tax Plan Would Lose Trillions in Revenue

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As the Republican presidential candidates meet once again to debate, now is a good time to take stock of their various plans for tax reform. Using the Institute on Taxation and Economic Policy’s microsimulation model, we have calculated the revenue impact of the six major candidates’ tax plans.

According to the graph below, every Republican candidate who has published a tax plan would either balloon the deficit by trillions or have to impose draconian cuts to programs to finance their massive tax cut plans. Even the so-called “moderate” tax plan from Jeb Bush would cost more than $7 trillion over the next ten years.

At the furthest end of the spectrum, Rand Paul and Ted Cruz’s plans are more than double the size of Jeb Bush’s plan at a cost of $14.8 trillion and $16.2 trillion over 10 years. Not too far behind are Marco Rubio’s $11.8 trillion plan, Donald Trump’s $12 trillion plan and Ben Carson's $9.6 trillion plan.

Even without making needed additional public investments in infrastructure, research and healthcare, the Congressional Budget Office (CBO) projects that the nation is on course to add $7 trillion to the national debt over the next decade. This means the federal government must raise more revenue over the next 10 years just to prevent a massive rise in the nation’s indebtedness. Yet each of the Republican candidates’ proposals would double, triple, or even quadruple the fiscal hole over the next decade. At a time when lawmakers are struggling to find ways to pay for basic services such as highways, let’s please stop this tax cut crazy talk now.

Updated January 16 to reflect the release of Ben Carson's more detailed flat tax plan.

Hillary Clinton's Tax Proposal is Right on Inversions, Wrong on New Tax Cuts

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Earlier this week, Hillary Clinton outlined a new plan to combat the growth of inversions, a loophole through which U.S. companies pretend to be foreign in order to avoid taxes. Taken together, her plan to enact an exit tax, limit earnings stripping and to change the ownership threshold for becoming a foreign company would likely stop inversions in their tracks. Unfortunately, Clinton’s inversion plan also includes a fiscally imprudent proposal to use all of the added revenue from shutting down inversions to pay for new corporate tax breaks.

Clinton’s inversion proposals come in the midst of the growing outrage over Pfizer’s plan to pursue the largest inversion in history. Unless action is taken, Pfizer will use a merger with the company Allergan to shift its headquarters, on paper, to Ireland, which some say could allow it to avoid paying U.S. taxes on as much as $148 billion in earnings that it is holding offshore. To be clear, Pfizer will continue to be managed in the U.S. and will still benefit from government contracts and services. But inverting will allow the company to get out of paying its fair share of taxes.

While some in Congress are weirdly using inversions as an excuse to call for lower taxes on multinational corporations, Clinton’s proposals show that inversions can easily be stopped without broader tax reform or tax cuts. For example, Clinton has proposed to curb earnings stripping, a practice in which a U.S. subsidiary is loaded up with debt and makes large interest payments to its foreign parent company in order to lower its U.S. income taxes. By inverting, companies can more easily use earnings stripping to shift income earned in the U.S. into offshore low-tax jurisdictions. Clinton’s plan apparently follows President Obama’s approach in this area, by limiting the share of interest expense that can be deducted by the U.S. subsidiary. Obama’s proposal would raise about $50 billion over 10 years.

Clinton has also proposed to limit inversions by treating a company resulting from a merger of a U.S. and a foreign company to be recognized as having a foreign tax domicile only if the resulting company is majority owned by shareholders of the foreign rather than U.S. company. Under current regulations, only 20 percent of the new company has to be owned by the foreign shareholders. This allows U.S. companies to merge with substantially smaller foreign companies and move their tax domicile. This proposal would raise an estimated $17 billion in tax revenue over 10 years.

Clinton’s third and potentially most powerful proposal to curb inversions would impose an “exit tax” on companies that change their tax domicile to a foreign jurisdiction. The exit tax would require companies to pay the U.S. taxes they have “deferred” on their accumulated untaxed foreign income. Clinton does not specify what rate her exit tax would impose, but the ideal rate would be the full 35 percent rate (minus foreign tax credits) that companies would normally owe upon repatriation.

As noted above, combating inversions would not only make our tax system fairer, but it could also produce desperately needed revenue. The bitter fights over how to pay for even popular spending like sequester relief or the highway bill show that our country has a huge revenue problem, which is largely driven by the irresponsible decision to make permanent 85 percent of the Bush tax cuts, at a cost of $3.3 trillion over a decade.

Sadly, however, Clinton is not proposing to use any revenue generated by closing the inversion loophole to make new public investments (or reduce the deficit). Instead, she proposes to use all of the revenue gained from inversion reform to give new tax breaks to corporations! This does not make any sense considering that U.S. corporate taxes are already near historic lows. Like so many others, she seems to miss the point of why we need corporate tax reform.

Trump's Criticism of Jeff Bezos as a Tax Dodger is Half-Right

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Earlier this week Donald Trump criticized Amazon chief Jeff Bezos for allegedly using his purchase of the Washington Post as a tax dodge. Trump’s claim that Bezos is using the Post’s losses to reduce Amazon’s profit is clearly wrong since the newspaper is owned by Bezos, not by Amazon. But by making this claim, Trump does draw attention to the fact that Amazon pays a low effective corporate tax rate and has dodged $1 billion in taxes thanks to various loopholes. In fact, Amazon has often incorporated tax avoidance strategies into its business plan.

For example, it’s well documented that Amazon’s growth as a retail giant was fueled by the company’s ability to avoid collecting sales taxes on its retail sales. Not collecting sales tax gave the company an immediate advantage over its brick-and-mortar competitors. For years, the company fought tooth and nail against sensible legislative efforts to put the company on a level playing field with mom and pop retailers. Yet, thanks to hard fought reforms in the states, this will be the first holiday season when Amazon will be collecting sales taxes in a majority of states.

Amazon has been equally adept at avoiding the corporate income tax. A 2014 Citizens for Tax Justice and Institute on Taxation and Economic Policy report found that Amazon paid just a 9.3 percent effective federal income tax rate over a five-year period between 2008 and 2012. In other words, the company found ways to avoid paying taxes on almost three-quarters of its U.S. profits during this period. The same report found that Amazon reduced its tax bills by $1 billion through an arcane tax dodge generated by lavish executive stock options—more than any Fortune 500 corporation other than Google, Facebook, ExxonMobil and J.P. Morgan.

Donald Trump has shown little evidence that he’s concerned about making our tax system more sustainable. But he’s likely correct about one thing: Amazon would not be where it is today absent the company’s long-term pattern of aggressively avoiding taxes at the federal, state and local levels. 

Ted Cruz's Tax Plan Would Cost $16.2 Trillion over 10 Years--Or Maybe Altogether Eliminate Tax Collection

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Update March 9th, 2016: We have since revised downward our analysis from $16.2 trillion to $13.9 trillion, to reflect that Ted Cruz's staff has informed the media that the actual VAT rate will be 18.56 percent, rather than the 16 percent that he had been advertising. 

During Tuesday’s Republican presidential candidates’ debate, Sen. Ted Cruz (R-TX) made a claim that, in theory, shouldn’t be too hard to live up to. He said his tax plan is less irresponsible than plans put forth by his competitors, and he claimed the ten-year cost of his plan is less than a trillion. “It costs less than virtually every other plan people have put up here,” Cruz said.

Being less irresponsible than Jeb Bush, Marco Rubio and Donald Trump—each of whom have proposed tax plans that would cost $7 trillion or more over the next decade—is a low bar to hurdle. Yet contrary to his assertions, Cruz’s plan would be more costly than any of the other plans put forth by his competitors. A Citizens for Tax Justice (CTJ) analysis of the Cruz tax plan finds that it would cost $1.3 trillion in its first year alone and a staggering $16.2 trillion over ten years.

Cruz’s plan would eliminate the corporate income tax, the estate tax, and the payroll tax, digging an $18 trillion hole in federal revenues over a decade. He also proposes to sharply reduce the personal income tax, replacing the current graduated rate system with a flat-rate 10 percent.  Cruz’s plan would repeal most itemized deductions and tax credits, but it would leave the mortgage interest and charitable deductions largely intact, along with the Child Tax Credit and the Earned Income Tax Credit. On balance, these personal income tax changes would lower income tax revenues by 60 percent and add another $12.8 trillion to the plan’s 10-year cost.

Cruz proposes making up for the $31 trillion in lost revenue by introducing a regressive value-added tax (VAT), and, it seems, a healthy dose of magic pixie dust.

Cruz’s claim that his plan would cost “less than a trillion” depends critically on raising an enormous amount from his 16 percent VAT, which would apply to almost everything American consumers purchase. The remaining revenue shortfall would, in Cruz’s estimate, be offset by a supposed economic boom based on the discredited supply-side magic that has been part of the far right’s economic fantasies for decades.   

But Cruz’s math has a gigantic hole in it. He wouldn’t just make consumers pay his VAT, he would also make the government pay the tax (to itself) on all of its purchases, from warplanes to paper clips and the wages it pays to its employees. Cruz’s claim that the government can raise money by taxing itself accounts for a third of the alleged yield from his VAT.

Without this sleight of hand, Cruz’s overall plan would cost more than $16 trillion over a decade and reduce total federal revenues by well over a third.

Even this enormous amount may be a low-ball estimate since Cruz insists that he would “eliminate the IRS.” If he really means that, then he would apparently reduce total federal revenues by closer to 100 percent. After all, without a tax collection agency, why would anyone pay taxes?

Candidates' Tax Cuts Unequivocally Skew Toward the Wealthy

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As Citizens for Tax Justice (CTJ) outlined in a post last week, most major Republican presidential candidates have released tax proposals that would overwhelmingly benefit the wealthy and balloon the national debt. No one can refute this, but candidates and anti-tax, trickle-down economics supporters are trying to obscure the facts.

Last week, the business-backed Tax Foundation released a blog that chides reporters for using dollar amounts instead of percentages to inform the public about how generous candidates’ tax cuts would be for the top 1 percent.  They may as well dangle a shiny object. Shifting the debate toward an analytic discussion of percentages versus average dollars is a distraction. The real issue is why are candidates and their allies trying to convince the public that corporations and the wealthy need more budget-busting tax breaks in the first place?

Federal lawmakers are struggling to find ways to fund the Highway Transportation Fund, pay for debts that have been built up over the past four decades and maintain essential public services. How enormous tax cuts fit into this equation is a far better issue to debate than average dollars versus percentages or shares. Better still, why not call candidates on the carpet and ask them to explain why the nation needs massive tax cuts and what programs they would cut as a result of the lost revenue?

The tax cuts for “jobs creators,” and trickle-down, stimulate-the-economy argument is tired, shopworn and unproven. The public has previously been sold the vision of a future in which everybody—but mostly and especially the rich—gets a tax cut and the nation’s economy grows by leaps and bounds. It didn’t happen in the past, and no serious person thinks it will happen in the future.

When CTJ analyzes tax proposals, its tables show average tax changes in dollars by income group, tax changes as a share of income and the overall share of the tax cut that each income group would receive. Including all three columns of data reveals a complete picture of the distributional effects, as opposed to just the change in after tax income which, in isolation, can obscure the impact.

The most important figures regarding the GOP candidates' tax plans are the enormous revenue losses that each would incur. In the case of Sen. Marco Rubio, CTJ estimates it would lose $11.8 trillion over a decade. Jeb Bush’s plan would add $7.1 trillion to the national debt over 10 years. Donald Trump’s plan would blow a $12 trillion hole in the federal budget over a decade. An analysis of Rand Paul’s flat tax plan found it would starve the federal government of $15 trillion over a decade, and a forthcoming CTJ analysis of Ted Cruz’s plan likely will find it would be equally as devastating to the federal budget.

It is fair game to evaluate whether the nation can afford a tax proposal in which the biggest share and dollar amount flow to the wealthy.

CTJ director Bob McIntyre says criticisms of using dollars to evaluate candidates’ tax plan are a ruse.

“Why is anyone even talking about tax cuts?” McIntyre said. “We already don’t raise enough revenue to pay for existing programs, and as more and more Baby Boomers continue to retire, we’ll need a lot more revenue to pay back IOUs to Social Security, while maintaining other essential programs.”

By trumpeting tax cuts without talking about the consequence and then attempting to shift the public debate toward theoretical discussions about percentages versus whole numbers, candidates and anti-tax advocates are trying to obfuscate the real issue, McIntyre said.

Given the reality of our nation’s fiscal situation, neither dollars nor percentages can justify more huge tax cuts for the wealthy. That’s the substantive discussion we should be having.

Tax Cut Crazy Talk

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

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

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

If this story sounds familiar, well, it is.  

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

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

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

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

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

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

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

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

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

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

Please. Stop.

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

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

Marco Rubio's Tax Plan Would Pile $11.8 Trillion on the National Debt

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

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

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

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

New CTJ Report: Guiding Principles for Tax Reform

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

Read it here.

Although He Left out Key Details, It's Clear Kasich's Tax Plan Is a Deficit-Busting Giveaway to the Wealthy

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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.



Trump Tax Plan Would Cost Nearly $12 Trillion Over 10 Years

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*Updated as of November 4, 2015

Donald Trump released a tax plan today that is missing some details. But a preliminary analysis of the plan by Citizens for Tax Justice finds that it would cost $12 trillion in its first decade. The plan would reduce taxes on all income groups, but by far the biggest beneficiaries would be the very wealthy.

This is yet another example of a presidential candidate making a mockery of populism by trumpeting a massive tax break for the rich as a plan that will benefit average Americans. The top 1 percent of Americans will receive an average tax break of $227,000 per year while the bottom 20 percent will receive an average tax cut of only $250.

Trump claims the plan will be revenue neutral, but he has made bombastic exaggerations before and this time is no different. In fact, there is no possibility that this plan would not be a gigantic tax cut for the rich and a gigantic revenue loser for the government.

Trump also claims he will pay for the plan by closing tax loopholes for the rich. But in truth, his plan would expand loopholes for the rich and cut their tax rate by 40 percent. His plan also would cut the corporate tax from 35 to 15 percent, which also would mainly benefit the rich. And his plan repeals the estate tax, a tax that only the very richest of the rich pay.

Click here to read CTJ's full analysis of Trump's proposal. 


Bush and Trump's "Populist" Tax Rhetoric Is All Talk

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Presidential candidate Donald Trump made headlines last week for saying that hedge fund managers are “getting away with murder” in their tax-avoidance behavior. He said he would put a stop to this by closing the infamous carried interest tax loophole, leading to a rush of articles declaring that Trump is threatening to “blow up” the Republican Party’s orthodox support of tax cuts for the rich. This week, former Florida governor Jeb Bush followed suit in calling for the closure of the loophole and received similar accolades for challenging the “long-held tenets of conservative tax policy.”

But the populist rhetoric of both Trump and Bush around carried interest should not distract from their broader plans to dramatically cut taxes for wealthy investors in other ways. Their campaign rhetoric does not deserve accolades; it requires greater scrutiny.

Hedge fund and private equity managers usually structure investment deals in such a way that they receive a percent of an investment’s profits as compensation–carried interest–even if they do not invest their own capital. A loophole in our tax laws allows investment managers to claim this income as capital gains rather than normal income, allowing money managers to pay the special lower tax rate for investment income.

For the last decade, Democrats have called for Congress to close this loophole. Populist Sen. Elizabeth Warren has often railed against it. Democratic presidential candidate Bernie Sanders recently said the Treasury Department has the authority to close this loophole. And President Barack Obama, along with current presidential contenders Hillary Clinton, Bernie Sanders and Martin O’Malley, all have proposed closing the carried interest loophole.

Mostly, calling for closing the egregious carried interest loophole has been the purview of Democrats, although former Ways and Means Chairman Dave Camp proposed closing the loophole as part of his broad tax reform plan last year. So, it is to be expected that some would call Trump and Bush’s plans to close the loophole a “populist” policy position. But they also both propose to pile tax cuts on the rich many times larger than the roughly $2 billion a year that could be raised by taxing carried interest at the same rate as normal compensation.

Bush’s plan includes several substantial tax cuts that would directly benefit wealthy investors. To start, it would cut the already low preferential tax rate on capital gains from 23.8 percent to 20 percent, giving wealthy investors an annual tax cut of $30 billion (a break 15 times the size of the carried interest loophole). In addition, Bush is proposing to give corporations hundreds of billions of dollars in new tax breaks over the next decade.

As for Trump, if his soon-to-be-released tax plan resembles his most recent tax reform proposal, anti-tax conservatives and wealthy investors won’t have anything to fear after all. In his 2011 tax reform proposal, Trump proposed to eliminate the corporate income tax and the estate tax, drop the tax rate on capital gains income and cut marginal income tax rates. This  would result in huge tax cuts for the wealthy. The roughly $500 billion annual cost of eliminating the corporate income tax would pay back wealthy investors 250 times over for the tax hike they’d see from closing the carried interest loophole.

Residual public disdain for Wall Street due to the financial crisis makes it politically expedient to bash wealthy money managers. But the tax agendas outlined by Trump and Bush would lavish huge tax breaks on the very same wealthy investors they claim to be taking on.

Ben Carson's 10 Percent Flat Tax is Utterly Implausible

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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.

What Trump Gets All Wrong About Immigration and Taxes

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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.

George Pataki's History of Irresponsible and Regressive Tax Cuts

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Former New York Gov. and now presidential candidate George Pataki has made cutting taxes one of the central themes of his political career. In fact, Pataki has repeatedly said over the years that "I’ve never met a tax cut I didn’t like." His tax cuts largely went to New York's wealthiest taxpayers and deprived the state of critical revenue over his tenure as governor.

Tax Record as Governor of New York

From the outset, Pataki pushed a series of regressive tax cuts including dropping income tax rates 25 percent across the board, cutting the corporate tax rate, and expanding areas with low taxes called enterprise zones, special districts with lower tax rates. These were followed by a series of cuts to other taxes, including the beer tax to the bank tax. By his own estimate, Pataki claims to have cut 19 different taxes and "saved" New Yorkers $140 billion during his entire time as governor.

Pataki’s fervor triggered a destructive tax-cutting competition with the legislature in the late 1990s when the speculative boom on Wall Street temporarily fueled state tax revenues. It was in the midst of this fiscal recklessness that the governor and the legislature eliminated New York City’s commuter income tax over the objections of New York City’s then Mayor Rudolph Giuliani, and despite the fact that the average commuter enjoyed salaries twice as high as those of the average New York City resident.

While Pataki is happy to tout his tax cuts at the state level, he conveniently leaves out the fact that these cuts meant substantial reduction in aid to local governments and schools. This actually compelled local governments across the state to increase property taxes (which are significantly more regressive than the state-level income taxes) to make up the difference, with lower-income school districts bearing even more of the brunt.

The damage to the state's public investments did not end there. The tax cuts meant devastating cuts to the Metropolitan Transit Authority's capital spending. Just a few years after Pataki’s final term, lawmakers had to pass a massive financial rescue of the MTA system.

The consequences of his irresponsible tax cutting would have been even more devastating, but two things helped cushion the impact. First, in 2003 state lawmakers overrode a veto by Pataki and enacted income tax surcharges on taxpayers with incomes over $100,000 to help cover the substantial state budget gap caused by the early 2000s recession, corporate financial scandals and the aftermath of the 9/11 World Trade Center attacks. In addition, Pataki's tax cuts were aided by the run-up in the stock market during his early years as governor, which provided a larger base of revenue.

It is also worth noting that Pataki sold his tax cut along classic supply-side lines, meaning that he argued that tax cuts would jumpstart the economy to such an extent that they would be well worth it. After all was said and done however, Pataki's tax cuts are yet another example of how tax cut-driven economic growth strategies always fall flat.

Record as a National Figure and Candidate for President

During his time as governor and in the years since, Pataki has staked out several positions on federal tax policy issues.

Pataki has explicitly staked out a position against the creation of a national sales tax. The resolution that he endorsed makes a federalist case against the tax, pointing out that the sales tax base has historically been "reserved for and relied on by state and local governments."

Despite his experience running up the debt in New York, Pataki attempted to stake out a position as a deficit and debt hawk in 2011 by starting an advocacy group called "No America Debt." While his group was supposed to be anti-debt, the reality is that it was counter-productive to this effort in that it advocated against any form of revenue increases as part of an ultimate debt reduction agreement, a position rejected by most of the public.

In the early stages of his candidacy for president, Pataki has been vague about his vision for reforming the federal tax system, crucially leaving out whether he believes more revenue should be raised through tax reform. His announcement speech, for example, noted that the tax code should be replaced with one that is "simpler" and has "lower rates that are fair to us all." While this says very little about what he would actually do in real terms, he did go a step further at an event in Iowa where he said that he would eliminate virtually all tax exemptions and credits with the exception of the mortgage interest deduction and child tax credit. The key question is whether Pataki would really advocate eliminating very popular tax breaks like the charitable deduction and how he would structure any sort of tax rate reductions. Without knowing this, it’s impossible to know whether he would seek a tax reform that would be revenue reducing and how it would impact the distribution of the tax code.

John Kasich's Uncompassionate Conservatism

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Nine-term congressman and current Ohio Gov. John Kasich has received  accolades for his perceived position as the “moderate” or “compassionate” candidate in the 2016 GOP presidential race. It’s true that he embraced a few policies benefiting low-income families, notably the expansion of Medicaid, but a handful of progressive policies do not a moderate make. The bulk of Kasich’s economic agenda as a governor and former congressman has been pursuing tax cuts for the wealthy and increasing taxes on low- and middle-income families.

Record as Governor of Ohio

As a gubernatorial candidate, Kasich took a radically regressive position on tax policy by calling for the phase out the Ohio’s personal income tax. As the Institute on Taxation and Economic Policy (ITEP) notes, income taxes are the only progressive portion of state revenue, so its elimination in Ohio would have made the state’s already regressive tax system even more so.

Early in his term, Kasich dialed down his ambitions, choosing instead to push for cutting the state’s income tax on capital gains. An ITEP analysis of a legislative proposal to cut the capital gains tax in Ohio found that three-quarters of the benefit would have gone just to the wealthiest one percent of taxpayers, who would have received an average cut of more than $6,500 a year. The governor had to back off his capital gains proposal due to constitutional concerns.

Ultimately, state lawmakers passed a budget that included regressive tax cuts, including a complete repeal of Ohio’s estate tax (at an annual cost of $286 million), a credit for investments in small businesses and a smattering of other provisions. The estate tax repeal was especially harmful since 80 percent of its revenue was distributed to local governments, meaning that its repeal forced local governments to cut critical services like education or raise substantially more regressive property taxes to compensate for the lost revenue.

In 2013, Kasich proposed a massive tax shift away from the progressive income tax toward a broader sales tax. After much wrangling in the state legislature, the tax cut package that emerged included a 10 percent across-the-board cut in income tax rates, a 50 percent deduction for pass-through business income up to $250,000, an increase in the state’s regressive sales tax from 5.5 to 5.75 percent and the introduction of a 5 percent, capped non-refundable earned income tax credit (EITC). Despite the inclusion of the EITC, the reality is that overall the tax-cut package resulted in a slight tax increase on the bottom 40 percent of taxpayers, even as the top one percent of taxpayers received an average annual tax break of $6,083.

Kasich worked in 2014 to increase the state’s EITC from 5 to 10 percent of the federal EITC. He has since used his support for the EITC to boost his bona fides as a compassionate conservative, but the credit  is nonrefundable and thus provides little or no help many of the state’s lowest income residents. Furthermore, boosting the state credit by 5 percent does not negate his tax giveaways to wealthier residents and businesses.

In 2015, Kasich continued his push toward shifting more of the share of taxes owed from the well-off to low- and middle-income families by calling for more cuts in state income tax rates and offsetting the lost revenue with an increase in regressive sales taxes. While Kasich’s initial proposal was even more regressive, the compromise proposal enacted into law will still result in an average annual tax break of $10,236 for those making over $388,000  and a slight tax increase for the bottom 20 percent of taxpayers. The compromise includes a 6.3 percent across-the-board income tax cut, a 35 cent increase in the cigarette tax and an increase in the income tax deduction on the first $250,000 of business income from 50 to 100 percent.

Kasich’s legacy in Ohio is a substantial tax shift from the wealthy taxpayers of his state toward low- and middle income families. At the same time, he has deprived the state of revenue to pay for critical investments in infrastructure, education and public safety.

Record as Congressman

During his nine terms in Congress, Kasich was an avid anti-tax conservative, who worked relentlessly to cut taxes for the rich. As early as his first term in Congress, Kasich co-sponsored a radically regressive piece of legislation that would replace the progressive federal income tax with a flat rate 10 percent tax. Because the federal income tax is one of the most progressive parts of the tax code, replacing it with a flat rate tax would result in a massive tax cut for wealthy taxpayers, while at the same time raising taxes for low- and middle-income families.

 Kasich also supported efforts to repeal the estate tax, and substantial cuts to the capital gains tax rate, both of which overwhelmingly benefitted the wealthy. Near the end of his term, Kasich proposed legislation that would have cut income tax rates by 10 percent, a move that would have provided very little benefit to lower-income taxpayers, while providing huge breaks to the wealthy.

Not only did Kasich seek to cut taxes for the rich, he also sought to impede the federal government’s ability to raise adequate revenue by supporting a radical constitutional amendment that would require a two-thirds majority for any tax increase. For proof of the potential harm of this policy, one does not have to look any further than the more than a dozen states that have seen their ability to raise adequate revenue significantly restricted by similar limitations.

In the mid-90s, Kasich got a lot of media attention for joining with Ralph Nader and others to campaign against tax loopholes and subsidies for the rich. As Citizens for Tax Justice (CTJ) pointed out at the time however, Kasich quickly “made a mockery” of his pledge to crack down on corporate subsidies by supporting $144 billion in new special-interest corporate subsidies.

In touting his record as the chairman of the House Budget Committee during his announcement speech, Kasich noted he led the congressional effort that created federal budget surpluses in the late 1990s. The reality is that the most significant policy drivers of budget surpluses were the passage of the Omnibus Budget Reconciliation Acts of 1990 and 1993, which included a series of tax increases and spending cuts, and both of which Kasich voted against. Kasich is trying to rewrite history by claiming that the Balanced Budget Act of 1997, which had little effect, led to  surpluses that began in 1998.

Record as a Presidential Candidate

As a presidential candidate, Kasich has yet to announce an official tax reform plan, instead saying so far that “flatter makers more sense” and that the corporate tax rate should be lower. There are reports however that he is talking seriously with flat tax advocate Steve Forbes about the idea of proposing an optional flat tax. Under such a plan, a taxpayer would have the choice to either pay a flat tax rate or pay under the current system. In 2012, CTJ estimated that an optional flat tax proposal, as proposed by Texas Gov. Rick Perry, would blow a $10.5 trillion hole in the budget and give that top 1 percent of taxpayers an average annual tax break of $272,730, a tax cut more than 270 times the size that middle-income taxpayers would receive.

Kasich has also used his status as a national figure to promote the passage of a balanced-budget amendment through a constitutional convention. To this end, Kasich created a non-profit called Balanced Budget Forever that is seeking to get 34 states to pass the necessary resolution to convene a constitution convention on a balanced budget amendment. While Kasich’s group has not specified the exact parameters they would like to see in such an amendment, a balanced budget amendment would be very harmful to the economy.

Kasich’s reputation as a moderate or compassionate governor is a ruse. He has pushed for right-wing anti-tax policies that would result in substantial cuts in taxes for the very wealthy and higher taxes on the very low-income families that he has said he wants to help.

Another Day, Another Republican Presidential Candidate with a Tax-Cutting Agenda

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Former Virginia Gov. Jim Gilmore became the seventeenth and likely final major candidate to announce his candidacy for the Republican nomination for president.

While running for governor in 1997, Gilmore made the implausible promise that he would repeal Virginia’s car tax, but once elected he was unable to deliver when the real cost of repeal became apparent.

As a national figure and presidential candidate, Gilmore has pushed an extremely regressive tax reform agenda, dubbed “The Growth Code,” that would provide massive tax cuts for the rich and likely blow a major hole in the federal budget.

Record as Governor

Gilmore ran and won the governorship of Virginia on the promise of repealing the state’s personal property tax on cars. Car taxes are sometimes perceived as progressive, but they are in fact regressive, capturing a greater share income from poorer Virginians compared to higher-income individuals.

In his first year in office, Gilmore secured legislation phasing out the car tax over five years by first reimbursing individuals and then local governments for an increasing percentage of the tax each year until it was 100 percent offset with the reimbursement. This legislation failed to provide a fiscally prudent way of making up for the substantial loss in revenue from the phase-out.

During his campaign, Gilmore estimated that a complete phase-out of the tax would cost $620 million annually, a claim that a Republican lawmaker who felt mislead by the estimate referred to as “utterly erroneous.” A more realistic estimate pegged the cost at $1.4 billion, more than twice the size of Gilmore’s estimate. To make up for the lost revenue, Gilmore pushed a whole slew of budget shenanigans, such as borrowing against a one-time legal settlement and requiring retailers to prepay sales tax. Despite his objections, more fiscally prudent lawmakers ultimately voted to freeze the reimbursement rate for the tax at 70 percent in 2002 and later to cap the reimbursement expenditure at $950 million each year from 2006 to the present.

Altogether, the phase-out of the car tax during his governorship blew a $2 billion hole in the state’s budget and continues to sap the state of $950 million in much-needed revenue each year. While Gilmore has touted his fiscal responsibility by claiming he left the state with a balanced budget, the reality is the budget was only “balanced” due to fiscal chicanery, and he left an estimated $4 billion structural deficit to his predecessor.

Record as a National Figure and Presidential Candidate

In 2008, Gilmore attempted to recreate the political success of his anti-tax campaign for governor in a run to represent Virgina in the U.S. Senate. Gilmore’s anti-tax Senate campaign floundered however, proving that voters will not automatically vote for any politician who rails against taxes.

Following his failed run for Senate, Gilmore became the President and CEO of the Free Congress Foundation. Gilmore developed a regressive tax reform package called the “The Growth Code.” The regressive provisions of the proposal include eliminating of taxes on capital gains and dividends, immediate expensing of capital equipment, lowering the top marginal tax rate to 25 percent and the implementation of a territorial tax system.

Although a report detailing the reform package claims it would be revenue-neutral, the outline of the proposal does not include a single reference to how it would make up for the trillions in lost revenue that the cuts it proposes would generate. Even assuming a Herculean amount of base broadening (which again the document does not mention), it is likely that the proposal would still create a massive hole in the federal budget. As the Director of Citizens for Tax Justice Bob McIntyre put it, Gilmore’s plan “clearly would be an enormous tax cut for the rich, a big tax increase for the poor, a bankruptcy plan for the federal government, and a disaster for the economy.”

Scott Walker's Tax-Cut-Driven Economic Plan

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After his 2011 election, Wisconsin Gov. Scott Walker aggressively pursued and helped pass a series of tax cuts in 2011, 2013, 2014 and 2015. His policies pushed the state into bad fiscal straits and there is no evidence that tax changes enacted under his leadership have had the positive impact on the state’s economy that he promised. In addition, Gov. Walker has hinted that he favors repealing state and federal income taxes, a move that would make the tax system substantially more regressive.

Record as Governor of Wisconsin

How did Wisconsin’s fiscal situation get so bad that it had to skip $100 million in debt payments earlier this year? The answer is Gov. Walker’s relentless push for ever more wasteful tax cuts.

When Gov. Walker took office in January 2011, Wisconsin faced a significant budget shortfall. The Center on Wisconsin Strategy and other public interest groups called his budget proposal a betrayal of Wisconsin values. The final legislation reduced the Earned Income Tax Credit (EITC), thus increasing taxes on the state’s poorest working families, and the budget capped growth of a property tax credit for low-income families. That budget also included an estimated $135 million in tax breaks in just one year, with these breaks set to become more costly year after year. These breaks took the form of a domestic production activities credit, two different capital gains tax breaks for the rich, and a variety of new sales tax exemptions, including for snowmaking and snow grooming equipment.

Earlier in the budget process, Walker had sought to repeal combined reporting, an important reform that requires companies in the state to report their income for tax purposes on the total profit of all their combined subsidiaries, regardless of the state in which they are located. Ultimately, the Governor was not able to repeal the provision, but lawmakers agreed to cut taxes on corporations by allowing them to carry forward losses and deduct their liability in future years, thus reducing their tax bills by an estimated $40 million annually.

In late 2013, the Governor notoriously toyed with the extremely regressive idea of eliminating the state’s income tax and increasing the regressive sales tax rate to compensate. ITEP crunched the numbers and found that the new state sales tax rate would have to be 13.5 percent to ensure a revenue neutral tax change. Ultimately, lawmakers put aside the income tax elimination plan for unspecified reasons.

His proposed budget for 2013-15 included a plan to cut the bottom three income tax rates. Lawmakers signed a tax cut proposal into law that reduced income tax rates and reduced the number of tax brackets from five to four. According to the Legislative Fiscal Bureau, these tax cuts cost $647.9 million over two years.

In October 2013, with an unexpected $100 million budget surplus, Gov. Walker signed a law that added $100 million in state aid to local school districts over the next two myears—which, due to the state’s strict local revenue limits, meant that local governments receiving the new aid were forced to reduce their property taxes dollar for dollar. This was a short-sighted approach to tax cutting because the forecasted $100 million surplus could be just a memory in future years, but the new state aid will be permanently on the books. As the Wisconsin Budget Project (WBP) points out, using a one-time budget surplus to fund a permanent property tax cut is a recipe for long-term fiscal difficulties.

Walker’s January 2014 budget proposal included yet another round of tax cuts. His proposal, which ultimately passed in March, included $537 million (over two years) in property and income tax cuts. He proposed the tax cuts as a way to “return the state’s surplus to the people who earned it.” The cuts included $404 million in across the board property tax cuts and $133 million in income tax cuts that resulted from lowering the bottom income tax rate from 4.4 to 4.0 percent and reducing the Alternative Minimum Tax.

Taken together, these three tax cut packages cut taxes for all income groups according to an ITEP analysis, but did not meaningfully change the state’s regressive tax system. Between 2011 and 2014, these cuts did however blow a $2 billion cumulative hole in the state’s budget.

The governor’s most recent budget, released in early 2015, proposed expanding a property tax credit and included deep cuts to K-12 education, higher education and conservation efforts. This year’s legislative session was especially contentious and there was much push back to his proposals. In fact, much of his proposed cuts to K-12 education were restored. Ultimately, the governor was able to pass about $262 million in additional annual cuts in revenue, including an increase in the school levy tax credit, increased school aid that required offsetting property tax cuts, the near elimination of the alternative minimum tax and an increase in the standard deduction.

The stated goal of Gov. Walker’s tax cuts is that they will help the state create jobs and lead to economic growth. The problem, however, is that this strategy has not worked out all that well. While his tax cuts have not delivered significant growth, they have forced the underfunding of the real long term drivers of economic growth like the state’s education system and infrastructure.

Approach to Federal Tax Reform

Unlike many of his rivals for the Republican nomination, Gov. Walker has not laid out any clear vision for how he would change the federal tax system as president. Talking broadly, Gov. Walker has outlined his admiration for President Ronald Reagan’s approach to taxes, which he says means lowering the tax rate and simplifying the tax code. In another interview, Gov. Walker said that he thought eliminating the federal income tax “sounds pretty tempting.” He did not however provide any sense of how he would fill in the $1.4 trillion dollar hole in the annual budget that such a move would create.

In talking about taxes on the campaign trail, Gov. Walker relates his strategy to that used by the department store Kohl’s, in which they lower the prices of goods in order to sell a higher volume of goods to consumers. He calls this strategy the “Kohl’s Curve” and believes that for the tax system it means we should lower the tax rate and expand the number of people who pay taxes. This new Kohl’s Curve is supposed to mirror the Laffer Curve, which has been used to promote failed tax-cutting economic policies throughout the country. 

Jeb Bush Loves Tax Cuts, Especially for the Rich

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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.

Jim Webb's Confusing Stance(s) on Taxes

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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. 

Chris Christie's Long History of Opposition to Progressive Tax Policy

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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.

Bobby Jindal's Louisiana is a Cautionary Tale for the Nation

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While Louisiana Governor Bobby Jindal has yet to lay out a specific tax plan in the run up to his presidential campaign announcement, he has fought to reduce taxes for the wealthy and corporations at the expense of everyone else. He outlined his vision in his 2013 plan that sought to eliminate the state’s income tax and replace it with revenue from an expanded sales tax, a reform that would dramatically cut taxes for the wealthy while increasing them for at the expense of low- and middle-income people.

Record as Governor of Louisiana

Just a few months into his first term in 2008, Gov. Jindal signed into law the largest tax cut package in Louisiana history. At the time, the state had a nearly $1 billion surplus.  But this additional revenue quickly deteriorated due to the tax cut and the state’s failure to rein in ever-growing tax expenditures, such as the state’s expensive and wasteful film tax credit program. By 2015, the state faced a budget gap of $1.6 billion, even after years of harsh budget cuts across the state and the depletion of the state’s rainy day funds.

Despite the collapse of the state’s fiscal situation, Gov. Jindal stuck to Grover Norquist’s no-tax pledge, which requires politicians to never raise a penny in new tax revenue. The spending cuts that would have been needed to close the state’s 2015 budget gap, however, were so large that legislators insisted that raising tax revenue was necessary. Given his national ambitions, Gov. Jindal craftily structured his response so that he could increase tax revenues without technically violating the no-tax-pledge popular among many primary voters.

How can a governor raise taxes without violating the no-tax pledge? Gov. Jindal’s created a Rube Goldberg-like budget gimmick. Gov. Jindal passed a massive increase in college fees, which he then exactly offset with a new tax credit, resulting in no actual increase in cost for students. Because college “fee” increases do not technically count as a “tax” under Norquist’s formula, Gov. Jindal could claim that the tax credit half of his plan was a substantial new tax cut. Gov. Jindal could then sign an increase in actual taxes (including cigarette taxes and other levies) without violating the pledge under the dubious claim that the “tax” portion of this package was revenue-neutral. The tax increase piece of the package includes a substantial increase in the state’s cigarette tax, an annual cap of $180 million on the film tax credit and a series of smaller temporary revenue measures.

Putting aside Gov. Jindal’s budget shenanigans, the governor also has a history of trying to make Louisiana’s already regressive tax system even more so. In 2013, Gov. Jindal pushed to replace the state’s personal and corporate income taxes with an expanded sales tax. According to an analysis by the Institute on Taxation and Economic Policy (ITEP), the governor’s plan would have significantly increased taxes on the bottom 80 percent of Louisianans, while at the same time giving the top 1 percent of Louisianans an average tax break of $25,423 annually. Fortunately, Gov. Jindal’s plan quickly collapsed as the data on the unfairness of the plan spread throughout the state.

Record on Federal Tax Issues

Gov. Jindal’s support for deficit-inducing tax cuts for the rich on the state level mirrors his support for such policies at the federal level. During his campaign for Congress in 2004, Gov. Jindal advocated for making the Bush tax cuts permanent. As a member of Congress, Gov. Jindal voted for Bush’s extension of a preferential tax rate on capital gains and dividend income and for a permanent repeal of the estate tax, two of the most regressive aspects of the Bush tax cut package.

The closest that Gov. Jindal has come so far to laying out his vision for federal tax reform overall came in 2012 when he voiced his support for former Texas Gov. Rick Perry’s flat tax plan, which would have blown a $10.5 trillion hole in the budget over ten years and provided the richest one percent of taxpayers an average annual tax cut of over $272,000.

While Gov. Jindal has not yet laid out a specific tax reform plan as part of his newly launched presidential campaign, he has clearly demonstrated his support for regressive and fiscally imprudent tax cuts at the state and federal level.

Donald Trump's Regressive and Retrograde Tax Plan

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Billionaire businessman, television personality and now presidential candidate Donald Trump is the latest candidate to jump into the race. He has made a number of tax proposals. His more recent proposals, in contrast to ones he proposed back around the 2000 election, would likely sharply increase the national debt and make the U.S. tax system substantially more regressive by both cutting taxes for the rich and creating a massive new tax that would disproportionately hurt lower-income Americans.

What exactly are Trump’s tax plans? The most recent detailed plan that Trump has offered is contained within his 2011 book, Time to Get Tough. His five-step plan includes eliminating the estate tax and the corporate income tax, lowering the tax rate on capital gains and dividends, enacting a 20 percent tariff on all imported goods and creating a new, lower income tax rate structure. The income tax would include a tax rate structure of 1 percent for up to $30,000; 5 percent for $30,000-$100,000; 10 percent for $100,000-$1,000,000; and 15 percent for income over $1,000,000.

As Citizens for Tax Justice (CTJ) has shown, the benefits of eliminating both the estate and corporate tax and lowering the capital gains tax rate would go overwhelming to the wealthiest Americans. In addition, the lower tax rate structure would provide the wealthy with huge tax cuts on top of the already large tax breaks just mentioned.

Of the five planks, the only one that would potentially raise revenue is Trump’s proposal to place a 20 percent tariff on all imported goods. This proposal is very much in line with 19th century tax policy in America, in which the federal government got most of its revenue from high-rate tariffs. Fortunately, high-rate tariffs have become a thing of the past thanks to the efforts of progressive reformers, who recognized both the regressive impact of the tariff (consumers end up bearing most of the burden) as well as the economic damage that high-rate tariffs cause by disrupting trade between nations. The idea of imposing such a high-rate tariff today would fly in the face of 100 years of economic progress and would violate the many treaties that have reduced tariffs at our instigation. The economic costs would likely be very substantial.

Taken together, these five proposals would also create a multi-trillion dollar hole in the federal budget that Trump has not outlined any substantial plan to fill.

While Trump has not specified a new tax plan in the run-up to his 2016 candidacy, he has indicated that he supports a flat tax and the so-called “Fair Tax” (a national sales tax). If Trump ends up proposing a flat tax, he would not be alone considering that other presidential candidate supporters of a flat tax include Gov. Rick PerrySen. Ted CruzSen. Rand PaulBen Carson, Sen. Lindsey Graham and yet to announce candidate Gov. John Kasich, while the national sales tax is supported by both Mike Huckabee and Sen. Cruz. If enacted in a revenue-neutral way, both the Fair Tax and a flat tax would likely cut taxes on the wealthiest American by an average of over $200,000, while significantly increasing taxes on the vast majority of Americans.

The oddest thing about Trump’s recent support for a flat tax is that it represents a significant reversal from his previously stated opposition to a flat tax. During the 2000 election Trump released a book, titled The America We Deserve, in which he explicitly rejected the flat tax. He said that a flat tax would be “unfair to the poor,” who would be forced to pay more in taxes due in part to the repeal of the earned income tax credit. He also said that it would be unfair to allow the wealthy to get away with not paying any taxes on income from dividends, capital gains and interest.

Instead of a flat tax or a series of regressive proposals, the major tax proposal that Trump made during the 2000 election was a one-time 14.25 percent wealth tax on individuals and trusts with a net worth over $10 million, which he proposed to use to eliminate the national debt. Putting aside the debate over the administration and constitutionality of a wealth tax, Trump defended his proposal on equity grounds, writing that while some might argue that his plan is “unfair to the extremely wealthy,” he believed that “it is only reasonable to shift the burden to those most able to pay.” In other words, Trump actually made the case for a progressive tax proposal during the 2000 election, in stark contrast to his latest tax proposals.

One last notable discontinuity between Trump’s latest tax positions and the proposals he made in 2000 is the fact that he proposed the creation of a $3,000 annual tax credit for individuals that purchase health insurance (outside of employer-subsidized health insurance). While the details differ, Trump’s health insurance tax credit is broadly in line with Obamacare’s health insurance premium tax credits, which coincidently provide an average annual benefit of just over $3,000 to those who qualify. The discontinuity at play here is the fact that Trump has also called for the complete repeal of Obamacare in his latest book, without mentioning that the bulk of what he would repeal is similar to his own previous tax proposal to make healthcare more affordable.

Given his recent musings on a flat tax and a national sales tax, it’s likely that Trump will use his current presidential campaign to push for regressive tax changes. Whether it’s a flat tax, some version of his tax plan from 2011, or some new and wacky plan remains to be seen. 

Detractor Dangles Shiny Objects to Obscure Facts about Rand Paul's Deficit-Inflating Flat Tax Proposal

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Since Sen. Rand Paul (R-KY) announced the broad outlines of his plan for restructuring the federal tax system yesterday, a number of research groups have weighed in on the question of how Paul’s proposed Value Added Tax (VAT) would work—and, critically, how much revenue such a tax could raise. This question is of vital importance in evaluating Paul’s plan because if his tax cuts add huge amounts to the budget deficit, there’s no way he will be able to keep his campaign promise to balance the federal budget.

Yesterday, a CTJ blog post estimated that Paul’s VAT would likely raise about $1.1 trillion a year if fully implemented in 2016—far below the $2.3 trillion in annual tax cuts that would result from other components of Paul’s plan. We estimated that this would translate into a $1.2 trillion revenue loss in the first year—and a $15 trillion budgetary hole over the next decade. 

The rightwing Tax Foundation has since claimed that CTJ understated the revenues that Rand Paul's VAT would raise by a huge amount, citing a 2012 analysis from the Tax Policy Center (TPC) for support. The Tax Foundation specifically claims that a VAT could actually raise about $2 trillion a year, far above our $1.1 trillion estimate. But a closer examination of the Tax Policy Center's VAT analysis proves just the opposite.

According to the Tax Foundation, Senator Paul’s VAT would include government spending in the VAT base. But the TPC analysis points out the obvious absurdity of this: "inclusion of government in the tax base has no effect on real federal spending or deficits. At the federal level, the government is simply paying tax to itself." The TPC goes on to add that taxing state and local governments under a VAT would also have to be offset by federal rebates so that those taxes can’t plausibly be counted as new revenue either.

TPC estimates that sensibly removing these phantom taxes reduces the VAT base by almost a quarter. Put another way, ending this shell game reduces the annual yield of Sen. Paul’s VAT from the Tax Foundation’s $2 trillion estimate to about $1.5 trillion.

Moving beyond the cheap parlor trick of government paying taxes to itself, the next question is whether it is politically feasible to tax every element of personal consumption. An analysis from the Congressional Budget Office (CBO) weighs in on this question. CBO’s analysis showed what a VAT might raise if private spending on health care, education, and religion  were excluded from the VAT base, as is commonly the case with existing European VATs and sales taxes in the United States. That, plus some other differences between CBO's analysis and TPC's, meant that the CBO's plausible VAT base clocked in at just 61 percent of total NIPA personal consumption.

We used CBO's 61 percent figure in calculating the tax base and potential revenue from a plausible VAT. Had we used an implausible 75 percent figure, our results would not have changed much—the Paul plan would still cost about $1 trillion per year or $12 trillion over a decade.

The main difference between our analysis and the Tax Foundation's is that the Tax Foundation is prepared to pretend that the government paying taxes to itself would be a huge revenue raiser. Alas, that's simply not true.

For more on this odd idea, see: http://ctj.org/pdf/fairtax1998.pdf

Lincoln Chafee's Record of Fiscal Responsibility

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As a presidential candidate running for the Democratic nomination in 2016, Lincoln Chafee has yet to lay out a vision on tax issues, so the only indications so far of what his positions may be lie within his record as a former U.S. Senator and Governor in Rhode Island. And the evidence suggests that Chafee largely supported fiscally responsible tax policies, even when such positions were unpopular among his fellow lawmakers.

While representing Rhode Island in the U.S. Senate, Chafee was one of the few Republicans to consistently vote against the fiscally irresponsible and regressive Bush tax cuts. A congressional report card by Citizens for Tax Justice (CTJ) gave Chafee a “B,” the highest grade earned by any Senate Republican and a grade higher than many Senate Democrats earned, for his four votes against the Bush tax cuts. In fact, his votes on the Bush tax cuts line up exactly with his fellow presidential aspirant Hillary Clinton. The one vote that prevented both Chafee and Clinton from earning an “A” was their vote, along with 67 other senators, for the American Jobs Creation Act, which infamously included a disastrous repatriation holiday.

Rather than run away from his opposition to the Bush tax cuts, Chafee has highlighted in recent days the fiscal irresponsibility of the cuts, noting how hard it had been to win the fiscal surpluses of the late 1990s and how the Bush tax cuts reversed the revenue increases necessary to create them.

During his first two years as Rhode Island governor (Chafee was elected as an Independent and then became a Democrat in 2012), Chafee stood out as one of the few state executives willing to call for revenue increases to counter shortfalls stemming from the recession. Specifically, Chafee fought for a sales tax reform package that would have expanded the tax to a host of exempt services and products and filled half of the state’s budget gap. Unfortunately, Rhode Island legislators substantially scaled back his package, applying the sales tax to only five additional items and raising only $30 million in new revenue through the reform.

Another notable reform Chafee enacted was the passage of a law requiring Rhode Island’s state analysts to evaluate the impact of the state’s economic development tax breaks. The issue was that Rhode Island, along with a host of other states, did not require any sort of analysis as to whether its costly economic development tax incentives actually produced results in terms of jobs and economic growth. The new law helps lawmakers decide whether they should continue the breaks or opt to spend the money on other priorities.

In the last year of his term Chafee allowed the passage of a tax reform package that had regressive elements to it, though he was not the architect of the policy. The reform increased the state’s estate tax exemption from $921,655 to $1.5 million, providing a significant tax break to a very small subset of the wealthiest estates. Worse, the reform eliminated the state’s property tax circuit breaker for the non-elderly and non-disabled, which provided critical assistance to many low-income homeowners and renters to help offset the regressive impact of property taxes. Additionally, the state’s earned income tax credit (EITC) was converted from a partially refundable credit to a fully refundable credit at 10% of the federal EITC, which boosted the value of the credit for low-income households while at the same time scaling back the credit for moderate-income families who do not benefit from the refundability. On the positive side, the tax reform package did include the enactment of combined reporting and a net increase in revenue from corporate taxes.

Chafee has largely stood up against fiscally irresponsible tax cuts, and hopefully he will bring this stance to bear in tax policy discussions during his presidential campaign. 

Rand Paul's Tax Plan Would Blow a $15 Trillion Hole in the Federal Budget

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Sen. Rand Paul (R-KY) outlined the broad contours of his plan for restructuring the federal tax system in a Wall Street Journal op-ed today.  He proposes replacing the personal income tax and payroll taxes with a flat-rate14.5 percent income tax, and replacing the corporate income tax with what amounts to a value-added tax (VAT). A CTJ preliminary analysis of the plan finds that it would likely cost $1.2 trillion a year and $15 trillion over a decade.

Paul’s plan would repeal the progressive personal income tax, the estate tax, and the federal payroll tax and replace them with a single 14.5 percent “flat tax” on all types of personal income. The plan would keep a few features of the current tax code, including itemized deductions for mortgage interest and charitable contributions and the Earned Income Tax Credit, and would create a large “no tax floor” by exempting the first $50,000 of income (for married couples) from the new income tax. A CTJ analysis estimates that the switch from the progressive personal income tax to the new flat-rate tax on personal income would cost more than $700 billion in 2016 alone.

Repealing payroll taxes, the estate tax and all customs duties would cost an additional $1.6 trillion, leaving a $2.3 trillion hole in the budget. Paul proposes to fill some of that hole with a 14.5 percent “business activity tax,” which appears to be conceptually identical to a VAT. While it’s uncertain exactly what would be included in the base of Senator Paul’s VAT, a VAT at this rate could plausibly raise about $1.1 trillion a year.

When the dust clears, this would leave the federal government with $1.2 trillion less in tax revenue in fiscal year 2016 if the plan were implemented immediately—a reduction of about one-third in total federal revenues. Over a decade, the plan would cost a stunning $15 trillion.

Sen. Paul seems unfazed by this math, arguing that these massive tax cuts would act as “an economic steroid injection” that would make it possible to balance the federal budget—something Paul has proposed he would do as President. (If this line seems familiar to residents of Kansas, it’s because they’ve heard it from their governor repeatedly over the past four years.)

But it’s hard to see how this could be possible. Even the Tax Foundation, which he cites as providing evidence that his plan wouldn’t cost anything, finds that the Paul plan would cost $960 billion over ten years when “dynamic scoring” is factored in. And the Tax Foundation’s approach to dynamic scoring notoriously assumes that while tax cuts always spur economic growth, government spending on education, roads and health care has no positive impact on the economy at all. A more clear-eyed approach to measuring the “dynamic” effect of federal tax changes would at least attempt to quantify the very real—and very beneficial—effect of public investments on the national economy.

It should go without saying that given the fiscal challenges facing America—and given the chronic deficits Congress and the President have authorized in recent years—the most sensible first step toward sustainable tax reform should be to raise more revenue. But it seems very likely that Paul’s plan would blow a trillion-dollar hole in the federal budget each year. That’s the furthest thing from a sustainable tax plan. 

Lindsey Graham's Moments of Moderation and Extremism on Tax Issues

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South Carolina Senator Lindsey Graham, yet another entrant into the 2016 GOP presidential race, has a history of supporting extremely regressive tax proposals, yet at the same time has deviated from anti-tax conservatives on a number of issues.

In terms of regressive tax proposals, Sen. Graham is the latest candidate in the presidential race to voice his support for the extremely regressive flat tax. Other supporters of the flat tax include Gov. Rick Perry, Sen. Ted Cruz, Sen. Rand Paul, Ben Carson and yet to announce candidate Gov. John Kasich.

While none of the candidates, including Sen. Graham, have specified the exact details of their proposed flat tax plans, a flat tax would make our tax system substantially more regressive and likely actually increase taxes on all but the wealthiest Americans. An analysis of a flat tax proposal by Citizens for Tax Justice (CTJ) found that the plan would actually increase taxes on the bottom 95 percent of Americans by an average of $2,887 annually, but at the same time provide the top one percent of taxpayers with an annual tax break of $209,562.

Sen. Graham's enthusiastic support on the campaign trail for a flat tax should come as no surprise given the senator's history of supporting extremely regressive tax reform proposals in the U.S. senate. For example, Sen. Graham co-sponsored legislation that would have replaced the federal income tax with an 8.4 percent consumption tax, which he dubbed the "BEST tax." Given that the federal income tax is the most progressive part of the federal tax code, replacing it with a regressive consumption tax would substantially increase taxes on low- and middle-income families, while at the time providing the wealthiest Americans a massive tax cut.

Sen. Graham’s support for regressive tax change goes well beyond his support for the flat tax. During the mid-2000s for instance, Sen. Graham earned an “F” on a CTJ congressional report card for his support of the regressive and budget-busting Bush tax cuts. In addition, Sen. Graham has co-sponsored a bill to repeal the estate tax entirely, a move that would provide the richest 0.2 percent of estates with $268 billion in tax breaks over the next decade.

Although Sen. Graham has fought to make our tax system more regressive, he has shown a few moments of moderation on tax issues relative to his more conservative colleagues. The biggest deviation has been his willingness to push back against the anti-tax militancy of many of his GOP colleagues. In 2012, Sen. Graham rejected Grover Norquist’s infamous taxpayer pledge saying that he was “willing to move my party, or try to, on the tax issue.” Similarly, Sen. Graham said that he would accept a deficit reduction deal in which there were three dollars in spending cuts for every one dollar in revenue raised, which makes him distinct from Rick Perry, Rick Santorum and the entire 2012 GOP field that rejected the notion of even a ten dollars in spending cuts to one dollar in tax increases deal.

One other sensible tax position that Sen. Graham has taken is his support of the Marketplace Fairness Act, which would empower states to collect sales tax on online and other remote purchases. The move would finally end the special competitive tax advantage given to Amazon and other online retailers and provide states with additional much needed revenue.

A final, potentially praiseworthy deviation by Sen. Graham from anti-tax conservatives was his support for a cap-and-trade system. Whether it’s through an explicit carbon tax or a cap-and-trade system, either way would help combat global climate change by putting a price on to carbon and thus creating a market incentive against its use. Of course, adjustments would have to be made to other taxes to mitigate the regresssivity of a carbon tax, and it’s not clear that Graham would support these essential adjustments.

While Sen. Graham’s support of regressive tax proposals and the flat tax specifically place him well within the rightwing tax camp, his support for a variety of revenue-raising measures sets him somewhat apart from his rabidly anti-tax colleagues.


Rick Perry Supports a Federal Tax System Akin to Texas's Regressive Tax System

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If his 2012 presidential campaign is any indication, former Texas Gov. Rick Perry will continue making a pitch in his 2016 presidential campaign for regressive tax policies and cuts in essential public services to fund tax breaks for the wealthy and corporations.

During his 2012 presidential campaign, Perry proposed to replace the individual income tax with a flat tax, at a rate of 20 percent. According to an analysis by Citizens for Tax Justice (CTJ), Perry’s flat tax plan would have cut taxes by an average of $272,730 annually for the top 1 percent of Americans, while reducing taxes by an average of $1,000 for those in the middle 20 percent.

This regressive tax plan would have exploded the deficit by $10.5 trillion in its first decade. While Perry did spell out some ill-advised program cuts, he never explained how he could possibly pay for a full $10.5 trillion in tax cuts.

Perry’s 2012 flat tax plan was essentially a call to replace our current federal tax system with something like the regressive and revenue-starved tax system already in place in Texas. That would be a boon for wealthy people at the expense of the vast majority of Americans.

His regressive federal tax proposals aren’t surprising based on his record as a three-term governor of Texas. During that time, Perry repeatedly demonstrated his support for tax cuts for the rich, even when it would mean tax increases—or reductions in public services—for low- and middle-income families.

High-Tax Texas

One of Perry’s biggest talking points is touting Texas’s low taxes. In reality, however, Texas taxes are only low for the state’s wealthiest residents. According to the Institute on Taxation and Economic Policy (ITEP), the wealthiest one percent of Texans pay only 2.9 percent of their income in state taxes on average. In contrast, the bottom 20 percent of taxpayers pay, on average, as much as 12.5 percent of their income in state taxes, meaning they pay a rate that is four times higher than the state’s richest residents. Because of this, Texas’s tax system is one of the most regressive in the entire nation. For low-income families, Texas is actually the 7th highest tax state in the country.

While Texas’s tax system is tough on lower-income taxpayers, it’s a haven for businesses seeking corporate tax breaks and other handouts. A 2012 analysis using data from Good Jobs First found that Texas gives more special tax incentives for business, totaling around $19 billion annually, than any other state in the country. In other words, Perry is more than happy to let working families pick up the tab for billions in tax breaks for big corporations.

Building on this, Perry has worked in recent years to ensure that Texas and its local governments are perpetually unable to raise adequate revenue to provide funding for critical public services. For example, in 2012, Perry campaigned around Texas calling on lawmakers to sign his Texas Budget Compact, which included promising to oppose any new taxes or tax increases, as well as setting a constitutional limit on spending increases. In addition, he fought to tighten the state’s already debilitating property tax cap, a policy that would have made it even more difficult for local governments to adequately fund education.

Perry’s record on taxes is nothing to brag about. As a presidential candidate in 2016, he is likely to continue making the same pitch for the benefits of regressive tax cuts and reductions in essential government investments. Such policies are only good for  corporations and an elite sliver of the population.

Martin O'Malley's Record on Taxes is Progressive

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At a time when many governors stubbornly rejected new revenues despite their states’ weak fiscal positions, former Maryland Gov. Martin O’Malley’s was one of only a few governors who championed tax increases to preserve his state’s public investments even during the Great Recession.

Early in his term, O'Malley made a substantial revenue increase the centerpiece of his economic agenda. The most notable piece of this package was a progressive measure, the "millionaires tax," which temporarily created a slightly higher new tax bracket applicable solely to taxpayers with taxable income in excess of $1 million. This change raised millions in much-needed revenue from the very wealthiest Marylanders—a group that could clearly afford to pay more since, at that time (PDF), the top 1 percent of taxpayers in Maryland paid just 6.2 percent of their income in state and local taxes compared to an effective tax rate of almost 10 percent for the bottom 20 percent of earners.

Unfortunately, the millionaire's tax faced substantial opposition from anti-tax conservatives who claimed that the tax was driving wealthy individuals to leave the state. In reality, these claims turned out to be entirely fallacious and were driven in large part by the Wall Street Journal’s reckless misreading of data.

Additionally, the package contained other regressive revenue raisers, which were more of a mixed bag. For example, O'Malley approved increases to the regressive sales tax and cigarette tax. He also attempted to substantially expand the sale tax base through taxing services, a smart move in terms of policy, but one that turned out to be to politically toxic.

Each of these tax increases disproportionately affected low- and middle-income taxpayers. However, these increases were part of a broadly progressive package and were critical in maintaining public services that benefit all families in the state.

Five years later, O'Malley moved to increase the sustainability and progressivity of the tax code by raising income tax rates and limiting tax exemptions for Marylanders earning more than $100,000. According to an analysis by the Institute on Taxation and Economic Policy (ITEP), these changes only affected 11 percent of Maryland taxpayers and a majority of it was borne by the wealthiest 1 percent of taxpayers in the state.

In terms of enhancing the sustainability of Maryland’s tax system, one of the best moves made by O'Malley was his push to reform Maryland's gasoline tax, which is the state's main funding source for transportation projects. Like most states throughout the country, Maryland had allowed inflation to gradually chip away at the value of the gas tax. If lawmakers failed to act, the tax was on its way to its lowest level (adjusted for inflation) in 91 years. Fortunately, O'Malley was able to usher through a reform that both raised the gas tax rate in the short term, and allows for further adjustments in the future to keep the rate in line with inflation and gas prices.

One of the more noteworthy ways that O'Malley improved his state’s tax system was with expansions of the state's Earned Income Tax Credit (EITC) in both 2007 and 2014. According to an ITEP analysis, the state's expanded EITC made the state's tax system significantly less regressive for low- and middle-income families.

O'Malley has yet to articulate a detailed vision on federal tax policy, but he recently laid out some broader progressive principles. In a recent speech at Harvard, O'Malley lambasted the failure of "supply-side economics" and called for an end to "tax policies that not only underinvest in our nation, but grossly and disproportionately benefit corporations and the ultra-wealthy."

In addition, he has recently argued in favor of raising the capital gains tax rate, which would make the tax system significantly more fair considering that capital gains receive a preferential rate compared to wages and primarily are received by wealthier Americans. This move could potentially position him to the left of Hillary Clinton, who has been mum on raising the capital gains tax rate so far this election and has expressed skepticism of increasing the rate in the past. 

There's Nothing Blue-Collar About Rick Santorum's Tax Proposals

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Former Pennsylvania senator and now Republican presidential candidate Rick Santorum has long touted himself as a champion of the “blue-collar” crowd, yet his record on tax policy indicates he’s more interested in championing hedge-fund moguls.

During his time in the U.S. senate, Santorum voted continually for the budget-busting and extremely regressive Bush tax cuts, earning him an “F” in Citizens for Tax Justice’s (CTJ) congressional scorecard. Nearly a third of the benefits of the Bush tax cuts went to just the wealthiest 1 percent of taxpayers and added $2.5 trillion to the deficit through 2010.

Not only did Santorum help usher in the Bush tax cuts, 85 percent of which have been made permanent, as a presidential candidate in 2012 he also promised to double down on this blunder by proposing another $9.4 trillion in regressive tax cuts over a decade. A preliminary CTJ analysis of Santorum’s 2012 tax plan found that the wealthiest one percent of taxpayers would receive an average annual tax break of $217,000, while the middle fifth of Americans would receive an average tax break of $2,160. Because the tax cuts aren't paid for, the plan would require either draconian cuts in basic public services or would it would explode the deficit going forward.

During a GOP primary debate in 2012, the moderator asked if any of the candidates would support a deal that included ten dollars in spending cuts for every one dollar in new tax revenues, at which point Santorum joined the other candidates to affirm that he would absolutely reject such a deal.

In the years since his 2012 run, Santorum has spelled out a series of problematic corporate tax cuts he supports. For example, in his 2014 book “Blue Collar Conservatives,” Santorum advocates cutting the corporate income tax rate from 35 percent to 20 percent for all corporations except for manufacturers, for which he proposed a zero tax rate.

Like Santorum’s other tax proposals, his corporate tax plan would substantially increase the deficit, since even eliminating all corporate tax expenditures (with the exception of “deferral” on “foreign” profits) would only allow the rate to be lowered to 29.4 percent without losing revenue over the long term. Although Santorum does vaguely propose to eliminate most corporate tax expenditures, he would retain and double the size of the broken research credit, while creating a massive new and economically distortive tax expenditure by exempting manufacturers and expanding the exemption of foreign corporate profits from taxation. Altogether, Santorum’s corporate tax plan would blow a massive hole in the budget to provide a large windfall to corporations, which already face relatively low tax levels.

In contrast to his slew of regressive proposals, Santorum has recently proposed one progressive tax change: doubling the child tax credit. Doubling the credit could provide a much needed boost to many families, although not to those with the lowest incomes. Such a substantial expansion to the credit could also add to the deficit if revenue is not raised in some other way to pay for it. In a recent interview, Santorum suggested that this idea could be a potential opportunity for the left and right to come together to help working families.

Finally, while he has not explicitly endorsed the so-called “Fair Tax,” a regressive plan to replace all federal taxes with a national sales tax, in his book he wrote that there is “much to commend it as a starting point for discussion.” A study by the Institute on Taxation and Economic Policy (ITEP) found that a revenue-neutral national sales tax would increase taxes on the bottom 80 percent of taxpayers by an average of $3,200 a year, while cutting taxes by an average of $225,000 a year on the top one percent. This radically regressive tax shift is not a sound “starting point” for discussion.

Santorum’s overall tax policy platform would likely increase the deficit, reduce funding for basic services and do nothing for working families.

How to Master the Fine Art of Talking out of Both Sides of Your Mouth

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The issue of how to improve the lot of poor and moderate-income folks has traditionally been the terrain of Democrats. But earlier this year, Republican leadership decided they should get on the band wagon and start talking about income inequality, particularly as the 2016 election approaches.

This is a dramatic shift from three years ago when Democratic attempts to make income inequality a core component of the 2012 campaign elicited dismissive, tone-deaf accusations of class warfare and attacks on poor and low-income people for being “takers."

Now, as the presidential campaign season heats up, Republican candidates are rehashing their shopworn tax-cuts-for-the-rich policies as prescriptions for addressing the growing income divide.

The Republican formula for discussing income inequality is transparent: first, talk about how the rich have gotten richer on President Obama’s watch; second, talk about how the nation needs to do more to stimulate growth to benefit the middle class; and third, trot out policy proposals that focus on big tax cuts for the rich and corporations.

New Jersey Gov. Chris Christie, speaking in New Hampshire on Tuesday to drum up support for his possible presidential run, made it laughably easy to point out the lack of sincerity in his party’s claim that it cares about the vast chasm between the super rich and everyone else.

The governor unsurprisingly said President Obama has “worsened income inequality through his policies,” but provided no specific details to back up such a bold criticism. Instead, he offered a rebooted version of Mitt Romney’s 2012 tax proposal as a remedy, as CTJ Director Bob McIntyre outlined in a blog post. Deficit-busting tax breaks for the rich and tax giveaways to corporations? Check. Less government regulation? Check. Cuts in Social Security benefits? Check.

Just as global warming is a myth to some right-wingers despite copious science proving otherwise, supply-side economics really makes sense in their alternate universe, despite real-life results and mounds of research to the contrary.

Gov. Christie is in the GOP mainstream in offering trickle-down theories as an economic panacea. Sens. Ted Cruz, Rand Paul and Marco Rubio earlier this year participated in a forum with wealthy donors in which they feigned concern about income inequality. Ted Cruz said the rich “have gotten fat and happy” on Obama’s watch. Nice sound bite. But as CTJ pointed out in a March blog post, Sen. Cruz’s fantastical tax policy proposals would make the income divide much worse by increasing taxes on everyone but the rich. He proposes a so-called “Fair Tax” that would replace all federal taxes with a hugely regressive national sales tax.

Sen. Rubio’s recipe for economic growth and reducing income inequality calls for the nation to tax cut its way to prosperity; his plan sprinkles in an increase in the child tax credit that has some commenters lauding the lawmaker for taking a different tack than other Republicans. But don’t be fooled. A linchpin of his tax plan is eliminating taxes on capital gains and dividend income, which would primarily benefit the top 1 percent of Americans.

Sen. Paul has been publicly speaking about income inequality since last fall. In April of this year before a gathering sponsored by Americans for Prosperity, the campaign arm of the billionaire Koch brothers, he implored, “We can’t be the party of the plutocrats and the rich people!” But then he said that he would give everyone a tax cut. Translation: Don’t you worry about your taxes, rich people, wink, wink. He then clarified that "poor people don’t create jobs." He proposes a regressive flat tax that would eliminate taxes on most of the income of the wealthy (i.e., their capital gains, dividends and interest). In the Senate, he has vehemently advocated for wealthy tax cheats, single-handedly blocking a treaty that would allow the federal government to go after U.S. citizens who illegally hide their money in offshore bank accounts.

For the last six years, Tea Party and rightwing rhetoric have labeled the president a socialist determined to redistribute income to the poor. Now, with the public’s growing awareness of rising income inequality, the rightwing insists President Obama has caused this 35-year trend. Which is it? By definition you cannot be a socialist and also a shill for the wealthy.

Republican presidential candidates are trying to have it both ways. They give a nod to Americans’ concerns over mounting inequality, but then offer the same old top-heavy tax-cut proposals designed to placate the billionaires who bankroll their campaigns.

Carly Fiorina Has Toed the Party Line on Taxes

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Former Hewlett-Packard (HP) CEO and now presidential candidate Carly Fiorina says she should be president because she knows how the economy works. She entreated those who “believe that it's time for citizens to stand up to the political class and say enough,” to give her their support.

Soaring rhetoric fits an announcement for political office but doesn’t answer questions about where a candidate stands on important issues. Based on what we know from her time as a corporate CEO and a candidate for the U.S. Senate, Fiorina’s call for the public to stand up to the political class may be all talk. Instead, she may ally with corporate influencers.

As a U.S. Senate candidate in California in 2010, for example, Fiorina called for a lower tax rate for multinational corporations that repatriate offshore income as part of a laundry list of shortsighted tax policy proposals in her economic platform. Her support for a lower tax rate on repatriated profits is not surprising given how much it benefited her former employer.

HP used a one-time repatriation holiday during Fiorina’s tenure and likely avoided billions in taxes. In 2004, Congress passed a repatriation holiday as part of the American Jobs Creation Act. The holiday allowed companies to repatriate their offshore income at a maximum rate of 5.25 percent, rather than the 35 percent that they would normally owe (minus what they have already paid in taxes to foreign countries). The alleged idea behind the holiday was that it would spur companies to invest these earnings in their American operations and create more jobs.

Under Fiorina’s leadership, HP repatriated $14.5 billion using the repatriation holiday, meaning that it likely received billions in tax breaks compared to what it would have paid if it had been subject to the 35 percent rate. Despite receiving this generous tax break—intended to create jobs--HP cut 14,500 jobs from its workforce during the two years following the holiday. HP’s job cutting is indicative of the fact that many companies that used the repatriation holiday used these earnings to benefit wealthy shareholders by issuing dividends or buying back stock, rather than making new investments that would lead to job creation.

As CTJ has repeatedly pointed out, “repatriation holidays” incentivize corporations to hold more of their profits offshore in anticipation on Congress passing another tax reprieve. Before the 2004 holiday, HP held about $15 billion offshore, most of which it repatriated in 2005. Since then, HP has accumulated a staggering $42.9 billion in profits offshore.

We don’t know whether a new repatriation holiday will be part of Fiorina’s presidential campaign, but the idea she championed as a Senate candidate and used to her company’s advantage as a CEO has unfortunately begun to gain steam in Congress as a way to pay for much needed infrastructure spending through the Highway Trust Fund (HTF).

A better way to address the perennial funding gap in the HTF would be to increase the federal gas tax, which has not been raised since 1993, while gas prices are remain low. Fiorina has opposed this approach, writing in a February op-ed that the federal government should instead eliminate all of its investments in mass transit and other alternative transportation infrastructure.

Fiorina’s opposition to raising the gas tax and her support for a repatriation holiday are just two of her bad policy proposals. She also has called for repeal of the estate tax and previously supported full extension of the Bush tax cuts. Fiorina may have said she “understands how the economy works” and intends to “stand up to the political class,” but based on the limited amount we know about her tax policy so far she hasn’t deviated from the Republican political class’s standard agenda.

Would the Real Mike Huckabee Please Stand Up?

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Despite having a relatively moderate record on tax policy as the governor of Arkansas, Mike Huckabee has wholeheartedly embraced a radically regressive tax plan as a central plank of his presidential candidate platform.

For years, Huckabee has been one of the main proponents of the “Fair Tax,” a plan that would replace all federal taxes with a national sales tax. Citizens for Tax Justice and the congressional Joint Committee on Taxation have each found that to raise the same amount of revenue as current law, the sales tax rate would have to be about 50 percent.

A study by the Institute on Taxation and Economic Policy (ITEP) found that under the “Fair Tax,” the top 1 percent of taxpayers would receive an average annual tax cut of $225,000. Meanwhile, the plan would increase taxes by about $3,200 on average on the bottom 80 percent of taxpayers. In other words, Huckabee’s tax plan would significantly increase taxes on the overwhelming majority of Americans to pay for huge tax cuts for the very wealthiest Americans.

While Senator Ted Cruz also has endorsed a national sales tax, Huckabee has been much more outspoken in his support. Just last year he appeared in and promoted the right-wing documentary, “Unfair: Exposing the IRS,” which lauded the “Fair Tax” as the best way to reform our tax system and as a way to abolish the Internal Revenue Service (IRS). To make its case for eliminating the IRS, the film called IRS agents “jack-booted thugs” and implied that, if left unchecked, the IRS will create concentration camps in America. 

The ironic thing about Huckabee’s call to abolish the IRS is that the “Fair Tax” would hardly collect itself. Rather than having a federal revenue agency, the plan would just shift the responsibility to already strapped state governments.

Huckabee’s advocacy for this radically unfair tax plan does not comport with his relatively moderate tax record as the governor of Arkansas. Largely in response to an Arkansas court ruling declaring education funding in the state constitutionally inadequate, Huckabee sensibly worked to enact a series of tax increases to increase funding for education in his state. An analysis by Arkansas’s Department of Finance and Administration actually found that over his time as governor Huckabee increased revenue raised via taxes by $505 million.

Even though Huckabee is outspoken in his support for the radical conservative agenda on taxes through his support of the “Fair Tax,” he has still earned the continuing ire of militant anti-tax conservative groups for his deviations from their anti-tax philosophy as governor of Arkansas. In fact, the Club for Growth is already running campaign ads against Huckabee’s presidential candidacy based on his Arkansas tax record. This move by the Club for Growth reveals the extremism of this and other anti-tax groups, considering how fully Huckabee has now embraced their tax-cuts-for-the-rich agenda. 

Dr. Ben Carson enters the Republican presidential field without any significant legislative experience so he doesn’t have a record on tax policy. But in a 2013 op-ed, the well-respected neurosurgeon explained his avid support for a flat tax system. The case Carson made then and more recently in an interview on Fox News for the flat tax is based on a number of falsehoods about our current tax system and how a flat tax would work in practice. 

Below are some truths about the flat tax that Carson should consider:

1. Flat tax proposals typically do not tax capital income, even though they should.

Carson argued that a flat tax would ensure that the wealthy are paying at least the same amount in taxes as everyone else, compared to our current system where Warren Buffett pays a lower rate than his secretary. Most flat tax proposals, however, exempt capital gains and dividends from taxes, meaning that under such plans someone like Buffett would typically pay no taxes on the bulk of his income rather than the current, maximum rate of 23.8 percent A truly proportional tax system would specify that capital income be taxed the same as normal income.

2. A flat tax would increase taxes on low- and middle-income families.

Carson has bought into the widely disproven notion that low-income people don’t pay taxes, and his op-ed argued that a flat tax would guarantee that low-income individuals pay something in taxes. While the federal tax code means poor and very low-income people pay little or nothing in federal income taxes, the truth is that all working people pay federal payroll taxes, not to mention a plethora of state and local taxes.

A Citizens for Tax Justice study of one flat tax proposal found that the bottom 95 percent of taxpayers would see their taxes go up by an average of $2,887, while the top 1 percent of taxpayers would receive a tax break of $209,562.

3. Deductions and credits make the tax code complicated, not the progressive rate structure.

One of the typical arguments for the flat tax is that it would simplify the tax code. Carson wholly buys into this, claiming a flat or proportionate tax would substantially simplify the tax system. Our current, federal progressive rate structure, however, is not the reason for our tax code’s complexity. It is the myriad tax deductions, credits and loopholes that Congress continually creates. We could simplify the tax system by reforming tax expenditures, as Carson argued, but this would not benefit from or require eliminating the progressive rate structure.

4. A flat tax would still require a revenue collections agency.

In his op-ed, Carson trots out the same irresponsible talking point as Sens. Ted Cruz and Rand Paul, arguing that a flat tax system would allow for the abolition of the Internal Revenue Service (IRS). The truth is that even under a radically simplified tax code, there is no way for a modern state to collect revenue without some agency like the IRS. While calling for the abolition of the IRS may be a good line in a presidential stump speech, it serves to demonize an agency that is woefully underfunded and simply carrying out the role that Congress created for it.

Bernie Sanders is a Champion for Tax Fairness

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Senator and now presidential candidate Bernie Sanders has one of the strongest records of any elected official when it comes to standing up for tax fairness. In many cases, Sen. Sanders has been the lone voice in the Senate fighting for legislation that would ensure that corporations and the wealthy pay their fair share.

For example, Sen. Sanders is a long-time champion of legislation that would end offshore tax avoidance by no longer allowing multinational corporations to “defer” (forever) paying taxes on their foreign income. While some other proposals would narrow offshore loopholes, ending deferral would totally eliminate the incentive for companies to shift profits to tax havens because it would require them to pay taxes on these profits regardless of where they are held.

Adding to this, Sen. Sanders has introduced legislation that would return the estate tax exemption levels to the more robust 2009 levels ($3.5 million for individuals). This increase in the estate tax would still mean that only the top 0.3 percent of all estates (as opposed to the just the top 0.1 percent as is the case now) would owe anything in estate taxes.

Looking back, Sen. Sanders has repeatedly fought against regressive tax cuts.  During his time in the House of Representatives, he received a perfect score on the Citizens for Tax Justice “Congressional Tax Report Card” for his repeated votes against the Bush-era tax cut bills, including the 2004 bill that included a repatriation tax holiday for multinational corporations, a bill that many Democrats, like then-Senator Hillary Clinton, voted for. In 2010, Sen. Sanders spoke for nearly nine hours straight in the Senate chamber to make the case against extending the temporary Bush tax cuts.

Looking forward, Sen. Sanders' early campaign materials indicate that tax fairness will be a major part of his presidential campaign. Sen. Sanders laments that many “major profitable corporations have paid nothing in federal income taxes” and that “corporate CEOs in this country often enjoy an effective tax rate which is lower than their secretaries.” With any luck, the addition of Sen. Sanders to the presidential race will serve to bring much needed attention to the egregious inequities in our tax system as well as to his many sensible proposals to correct these same inequities. 

Marco Rubio: The Great Tax Deformer

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Just over a month before announcing his run for president, Sen. Marco Rubio released a tax reform plan that provides trillions in deficit-busting tax cuts for the wealthy and corporations.

Some news outlets lauded the plan as a moderate approach on tax issues that stands in contrast to the supply-side tax cut plans of previous GOP presidential candidates. The only explanation for such misguided praise is that the plan, while top-heavy, also includes some tax cuts for middle-income Americans.  

Like many radical, rightwing tax plans before it, Sen. Rubio’s plan calls for elimination of taxes on capital gain and dividend income and movement toward a territorial corporate tax system. These two changes would lavish multinational corporations and the wealthiest Americans with trillions of dollars in additional tax breaks over the next decade.

In spite of these old hat ideological tax proposals, some commentators claim Sen. Rubio’s plan diverges from the supply-side plans of years past. Perhaps they are focused on the provision that would increase the child tax credit, taking it from a maximum of $1,000 to $2,500. In other words, Sen. Rubio’s plan attempts to make the massive tax cuts for the rich more palatable by also throwing a bone to low- and middle-income taxpayers.

The problem with this approach is that you can’t tax cut your way to economic growth and also pay for the nation’s basic priorities. Even with the tiny handful of revenue-raising offsets outlined in the plan, it would likely lose trillions of dollars in revenue over the next decade, ballooning the deficit to unsustainable levels or requiring draconian cuts in public investments.

Supporters of Sen. Rubio’s tax reform plan have attempted to use fantastical math to paper over gigantic revenue loss by arguing that the plan will cause such a surge in economic growth that it will more than pay for itself over the long term. Top-heavy tax cuts leading to economic growth is a familiar refrain that has been repeatedly disproven. The math of Sen. Rubio's allies is so fantastical however, that even conservative economist Laurence Kotlikoff said that it would “not pass muster as an undergraduate’s model at a top university.”

Sen. Rubio’s newest tax deform plan is a much larger version of his gimmicky tax proposals of years past. In each case, he attempts to get credit for touting tax cuts, while at the same time hiding the real cost of his proposals. The crucial difference this time around is the sheer scale of the damage his tax reform plan would do to tax fairness, public programs and the U.S. economy if it were ever enacted. 

What We Know About Hillary Clinton's Positions on Tax Issues

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All eyes will be on former Secretary of State, and now presidential candidate, Hillary Clinton as she sets out a policy agenda during the opening months of her campaign. While in recent years Clinton has not gotten into the nitty-gritty of tax policy, she does have a long voting record on these issues as a senator from New York, as a presidential candidate in 2008 and as a major public figure. Taken together, Clinton has frequently shown a willingness to take a stand for tax fairness but has never fleshed out a clear agenda on these issues and has occasionally embraced regressive or gimmicky tax policies.

Record as Senator from New York

In a 2006 report card, Citizens for Tax Justice gave Clinton a "B" overall for her votes on five important pieces of tax legislation passed between 2000-2006. She received four "A" grades for her votes against the Bush cuts and a 2006 proposal to permanently repeal the estate tax. She received an "F" for her vote in favor of the "American Jobs Creation Act of 2004," legislation that we nicknamed the 2004 Corporate Tax Giveaway Bill.

Clinton was one of 69 Senators who voted for the disastrous American Jobs Creation Act, which included a repatriation holiday for corporations. This holiday turned out to be a debacle. The lavish tax breaks it gave to multinational corporations did not lead to any job creation and gave companies a green light to stash even more of their profits offshore to avoid taxes in hopes of receiving another holiday in the future.

These votes show that when it came to major pieces of tax legislation, Clinton largely and rightly rejected the disastrous Bush tax cut agenda. We noted in 2005 that Clinton was relatively outspoken in her criticism of Bush's tax policy approach.

One gimmicky tax policy proposal that then Sen. Clinton embraced, along with Sen. John McCain, would have temporarily lifted the gas tax in the summer of 2008. This proposal would have provided families with very little relief (maybe enough to fill half a tank of gas), while at the same time it would have done real damage to the Highway Trust Fund. In other words, it was a shortsighted proposal that would have generated some positive headlines without providing much benefit.

Record as 2008 Presidential Candidate

During the 2008 Democratic primary, Clinton frequently stood up, at least rhetorically, for making our tax system more progressive overall. In one particularly poignant exchange on tax fairness, Clinton noted that it's unfair for wealthy billionaires like Warren Buffett to pay a low tax rate and that "we've got to get back to having those with the most contribute to this country." Putting a bit of substance behind this rhetoric, Clinton came out strong against the carried-interest loophole and repealing tax subsidies for oil companies during the 2008 campaign.

At the time, Clinton was unwilling to take the bigger step of advocating that investment income be taxed at the same rate as labor income. When pressed during a debate as to whether she would increase capital gains taxes, Clinton said that if she raised it all she would only raise it to 20 percent, well below the rate for ordinary income.

While running for president, Clinton also advocated repealing the Bush tax cuts for those making over $250,000. While this was very much in line with President Barack Obama and the Democratic Party more generally, this policy also meant extending about three-quarters of the Bush tax cuts and adding trillions to the deficit. Even so, sticking to the $250,000 threshold would have been better than the ultimate deal that President Obama cut (and Clinton may have cut as well), which only repealed the Bush tax cuts for those making over $450,000.

Recent Controversies

In 2014, Clinton ran into some trouble over statements she made about her own tax rate and tax planning efforts.

On tax planning, it was reported that she had engaged in a standard, but notably problematic, form of estate tax avoidance using a pair of qualified personal residence trusts. The good news is that Clinton has long supported policies to strengthen the estate tax, including advocating in 2008 to restore the tax to its 2009 exemption level of $3.5 million.

On her own tax rate, Clinton said that she pays an ordinary tax rate "unlike a lot of people who are truly well off." Critics jumped on the fact that she implied that she is not well-off, but missed her broader and correct point that she pays a significantly higher tax rate than many other wealthy individuals who receive most of their income through investments.

Looking Forward to 2016

Although her presidential campaign officially begins Sunday, Clinton has been making all kinds of statements across the country touching on policy issues. Although her statement relating to tax issues have come in broad strokes so far, they have hinted toward a progressive approach to tax issues for the campaign. For example, in October, Clinton noted that handing out tax breaks to corporations that "outsource jobs or stash their profits overseas" does not help grow the economy. Hopefully, this and similar statements are indicative of Clinton’s desire to make ensuring that corporations and the wealthy are paying their fair share in taxes an important part of her candidacy going forward. 

Rand Paul's Record Shows He's a Champion for Tax Cheats and the Wealthy

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No member of Congress has been more active in the cause of protecting tax cheaters and tax avoidance by our nation’s wealthiest individuals and corporations than Sen.(now presidential candidate) Rand Paul.

While Paul is a standard bearer of anti-tax conservatives through his advocacy of radical policies such as the flat tax, his advocacy of tax avoidance and his lead role in blocking or even trying to repeal basic anti-tax-evasion measures makes him a radical outlier.

Tax Evasion and Avoidance

Most prominently, Sen. Paul, for years, has single-handedly blocked ratification of a critical tax treaty with Switzerland that would allow the United States to go after the thousands of tax cheaters who hide their income in Swiss bank accounts to evade taxes. In addition, Sen. Paul has been a leader in the movement to repeal the Foreign Account Tax Compliance Act (FATCA), vital law enforcement legislation that helps tax authorities collect information on offshore bank accounts. In both cases, the beneficiaries of his policies are tax evaders and the losers are honest taxpayers who are forced to pick up the tab for the billions lost each year to tax evasion.

Another critical component of Sen. Paul’s pro-tax evasion agenda has been his long time assault on the Internal Revenue Service (IRS). Like fellow presidential candidate Sen. Ted Cruz, Sen. Paul has recklessly called for the abolition of the IRS without explaining how the government would function without any sort of revenue collection agency akin to the IRS. While this kind of rhetoric is largely blather, it has real world consequences. Sen. Paul's language has led directly to the deep and devastating cuts to the IRS in recent years that have hamstrung the agency’s ability to go after tax evaders and perform basic functions.

On the issue of corporate tax avoidance, Sen. Paul has been a prominent advocate for the aggressive use of loopholes by our nation’s largest corporations. During the Senate Permanent Subcommittee on Investigation’s infamous hearing on Apple’s avoidance of tens of billions of dollars in taxes using Ireland subsidiaries and accounting gimmicks, Sen. Paul sided with Apple, saying that the Senate should apologize to the company and that discussions of tax reform should not include examining specific tax avoidance practices of companies.

Taking this to the next level, Sen. Paul wants to reward offshore tax avoidance through a repatriation holiday. This would give an enormous tax break to the worst tax avoiders, including Apple and dozens of other companies, by allowing them to pay a 6.5 percent rather than 35 percent tax rate on their offshore profits upon repatriation. While proponents of a repatriation holiday, like Sen. Paul, argue that such a proposal could be used to pay for infrastructure, the nonpartisan Joint Committee on Taxation found that a holiday would lose $95 billion in revenue over ten years.

Tax Cuts for the Rich

Sen. Paul has also proposed changes that would increase taxes on the overwhelming majority of Americans, while at the same time providing massive tax breaks to the very wealthy. For instance, Sen. Paul has proposed the implementation of a flat tax, which would tax income at a single flat rate and entirely exempt capital gains, dividends and interest from taxation. A Citizens for Tax Justice analysis of a similar flat tax proposal found that it would increase taxes on the bottom 95 percent of Americans by almost $3,000 on average and at the same time give the richest 1 percent of Americans an average tax cut of nearly $210,000.

This stark unfairness should be no surprise. In fact, the authors of the "Flat Tax" endorsed by Sen. Paul had this to say about their proposal in their 1983 book: It “will be a tremendous boon to the economic elite,” they admitted. And they also added, “Now for some bad news. . . . It is an obvious mathematical law that lower taxes on the successful will have to be made up by higher taxes on average people.”

Besides advocating for a regressive flat tax, Sen. Paul has indicated that he will soon “propose the largest tax cut in American history.” What’s striking about this is that any tax cut, let alone an extremely large one, is out of touch with the dire fiscal realities our nation is facing. Even the most recent budget proposal by the House Republicans, which includes trillions in draconian and infeasible cuts to critical public programs, assumes that revenue levels need to stay at the already low level of current policy.

While Sen. Paul has a reputation as a maverick on many issues, when it comes to tax issues, he adheres to the worst excesses of the anti-tax, anti-middle-class conservative movement. 

How Presidential Candidate Ted Cruz Would Radically Increase Taxes on Everyone But the Rich

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Texas Senator, and now presidential candidate, Ted Cruz is a supporter of radical tax plans that would dramatically increase taxes on poor and middle class Americans in order to pay for huge tax cuts for the wealthiest Americans. While he has not clearly established which he favors more, Cruz has endorsed both the creation of a flat income tax and a bill that would replace the progressive income tax system with a national sales tax, a plan misleadingly called the "Fair Tax."

While Ted Cruz may portray himself as wanting to lower taxes, the reality is that under the tax plans he has endorsed, the overwhelming majority of Americans would likely see their taxes go up considerably. Looking at the "Fair Tax," an Institute on Taxation and Economic Policy (ITEP) study found that the bottom 80 percent of taxpayers would see their federal taxes go up by about $3,200 on average annually. In contrast, ITEP found that the top 1 percent of taxpayers would receive an average annual tax cut of $225,000.

On the flat tax, Cruz has not yet spelled out a specific plan that he would like to see enacted, but it's unlikely that any plan he proposed will be significantly better than the extremely regressive flat tax proposals that have been offered in the past. For example, an ITEP analysis of Senator Arlen Specter's flat tax proposal found that the bottom 95 percent of Americans would see their annual taxes increase by $2,900 on average, while the top 1 percent of taxpayers would see their taxes decrease by $210,000 on average.

When speaking about the tax system, Cruz has also peddled a patently irresponsible promise to abolish the IRS, without specifying how our country might go about collecting tax revenues (including Social Security and Medicare taxes) without a revenue collection agency. Even though much of Cruz’s rhetoric is likely bluster and contains factual inaccuracies, it's still dangerous demagoguery.

Cruz's approach on taxes is so unfair that even some conservatives suspect that it will not prove politically popular. Making this point, Pew Research recently found that even 45 percent of Republicans believe some wealthy people don't pay their fair share in taxes, meaning a substantial portion of the Republican primary voters may not be able to stomach the massive tax breaks for the wealthy that Cruz is advocating.

Looking forward, here's hoping that we see other presidential candidates reject Cruz's regressive tax approach in favor of tax reform ideas that ensure that the rich and profitable corporations are paying their fair share. 

Clinton Family Finances Highlight Issues with Taxation of the Wealthy

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With the release of her new book and the 2016 election just around the corner, Hillary Clinton's wealth and tax rate have been fodder for talking heads the past couple weeks. Both the report on the Clintons estate tax planning and Ms. Clinton's comments that she pays "ordinary income tax" provide useful lessons on the problems with the way the United States taxes wealthy individuals.

When Avoiding the Estate Tax Becomes the "Standard"

According to an in-depth report in Bloomberg, Bill and Hillary Clinton transferred the ownership of their New York residence into a pair of Qualified Personal Residence Trusts (QPRT), which tax experts believe could allow them to avoid hundreds of thousands of dollars in estate taxes.

The substantial tax benefit that the Clintons generated is driven by two key aspects of the QPRT. Most importantly, placing the residence into the QPRT locks in its current value as part of the estate, so all the future growth in the house's value will not be taxable as part of the estate. In addition, because the residence ownership is split in half between two QPRTs, the total valuation of both trusts is discounted because partial ownership stakes are considered by the IRS to have a lower value.

In other words, the Clintons are indeed using a tax dodge. They are using a method that, unfortunately, has become "pretty standard" for wealthy individuals and, also unfortunately, is entirely legal under our broken estate tax system.

Unlike wealthy individuals such as Sheldon Adelson, the Clintons have historically supported strengthening the estate tax rather than dismantling it further. During the 2008 campaign for example, Ms. Clinton supported capping the per-person exemption at $3.5 million, which mirrors President Obama's current proposal to strengthen the estate tax in his most recent budget (PDF).

Noting the Difference between the Tax Treatment Investment and Wage Income

In a much publicized interview with The Guardian, Ms. Clinton noted that she pays "ordinary income tax, unlike a lot of people who are truly well off." While she certainly opened her mouth and inserted her foot, her adversaries attacks on her poor phrasing misses the point.  A big part of the problem with our tax code is the preferential treatment it gives to income derived from wealth (e.g. capital gains, stock dividends) versus income derived from work. So, indeed, the Clintons are wealthy by any standards. Between 2000 and 2007 had $109 million in adjusted gross income, and they paid a 31 percent tax rate. Their tax rate is more akin to the rate paid by working people because they derive a significant portion of their high annual income from speaking fees, book royalties and other activities that are classified as work.

A wealthy investor, like Mitt Romney and Warren Buffet, with the same income but all of it derived from capital gains and stock dividends would have paid about half the rate the Clintons paid. This preferential treatment helps to perpetuate income inequality.

Hopefully, Mrs. Clinton's criticism of these low rates is an indication that she favors substantially curtailing or even ending the preferential rate on capital gains. If so, it would mark a positive shift from her position during the 2008 campaign, when she stated that she would not try to raise the top capital gains tax rate above 20 percent (the level it is today). 

Go Read This New Research on Corporate Taxes, Lobbyists and Our New Fiscal Reality

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While Citizens for Tax Justice has been taking a deep dive into offshore-tax sheltering and why the corporate tax is indispensable, some friends and allies have put out a series of reports over the past week on the economic impact (or not) of corporate taxes, the enduring dominance of corporate lobbyists and the need to revisit our fiscal policy debate in light of new evidence. Below we highlight the most crucial findings of these must-read reports.

Economic Policy Institute: Corporate Tax Rates and Economic Growth Since 1947

The Economic Policy Institute's (EPI) most recent report on corporate taxes by Thomas Hungerford (author of that high profile Congressional Research Service report showing income tax cuts create more inequality than jobs) debunks the pervasive myth that the US's corporate tax rate is harmful to the economy. For one, Hungerford notes that although the US has a high on-paper marginal rate compared to other countries, its effective corporate tax rate is just about average compared to other rich, developed countries. In addition, Hungerford notes that despite all the claims about corporate taxes preventing growth, corporate profits in the US are actually at an historic high.

Backing up these points (for our stats-minded readers), Hungerford performed a multivariate analysis comparing GDP growth and corporate tax rates and found that corporate tax rates (including the effective and statutory rate) have no correlation with economic growth. This conclusion even held true when controlling for other economic factors and for a lag effect on growth. In other words, the idea that cutting corporate taxes will increase growth in the US has no basis in the historic evidence.

Public Citizen: Lax Taxes

In it's report Lax Taxes, Public Citizen makes case studies of the lobbying around three pieces of progressive tax legislation to demonstrate the disproportionate firepower of corporate lobbyists versus public interest groups. Appallingly (though not surprisingly), Public Citizen found that 86 percent of the lobbyists who reported lobbying on the Stop Tax Haven Abuse Act (STHA), the CUT Loopholes Act, and the Wall Street Trading and Speculators Tax Act represented corporate clients. Looking at the STHA specifically, the group found that for every one pro-tax reform lobbyist there were 20 lobbyists representing industry interests.

Perhaps even more disturbing, Public Citizen found that of those lobbyists with previous government experience working on these bills, 96 percent of them represented corporate clients rather than ordinary Americans. This dynamic not only means that industry advocates have deeper connections to Congress, but also that current lawmakers and Congressional staffers have an incentive to appease corporate interests if they themselves want to get a job a lobbying gig after they leave Capitol Hill.

Further, Public Citizen also notes that groups opposing these pieces of legislation donated about four times as much in campaign contributions to lawmakers that those supporting them, which may explain why these common sense reforms have failed to move despite overwhelming public support for closing corporate tax loopholes.

Center for American Progress: It's Time to Hit the Reset Button on the Fiscal Debate

The prevailing ethos in Washington over the past few years is that budget deficits are out of control and that austerity measures must be taken in order to prevent economic catastrophe. A new report from the Center for American Progress (CAP) shows that this conventional wisdom is all wrong given recent policy actions and mounting evidence.

Most importantly, CAP points out in their report that Congress and the President have already enacted $2.5 trillion worth of deficit reduction (three-quarters of which took the form of spending cuts) since the start of fiscal year 2011. While many lawmakers and pundits are still warning that without additional and immediate deficit reduction the debt will spin out of control, the reality is that the current level of deficit reduction is already enough to stabilize the debt as a percentage of GDP through 2023.

CAP also notes that a research paper often cited by debt alarmists to argue for immediate deficit reduction has been pretty thoroughly debunked. Specifically, the claim by Carmen Reinhart and Kenneth Rogoff that a debt level over 90 percent of GDP jeopardizes economic growth is based on a calculation error (oops!) and does not take into account that causation can work both ways. 

One final important point in CAP’s report is growing evidence from Europe that austerity has actually made the economic situation there worse rather than better. Why? Budget cuts create a downward spiral by increasing unemployment and reducing consumption, which then results in even lower revenues and higher deficits. Some proponents of austerity have tried to counter this evidence by arguing that it's austerity in the form of tax increases that is driving lower growth, but this logic has also been debunked.

First it was Mitt Romney, and now two more aspiring public servants are in the spotlight for questionable tax maneuvers – Penny Pritzker, President Obama’s Commerce Secretary Nominee, and Massachusetts Republican Senate candidate, Gabriel Gomez.  The complex tax avoidance strategies exercised by both these two candidates for federal office demonstrate the stunning extent to which wealthy individuals of all stripes can play by a different set of tax rules than everyone else.

Avoiding Every Last Penny of Taxes

While many wealthy families go to great lengths to avoid taxes, the Pritzker family (most famous for it’s ownership of the Hyatt hotel chain) is unique in its role as “pioneers” in the use of offshore tax shelters. Many of its existing offshore trusts were set up as long as five decades ago, and some have allowed the family to continue benefitting from tax loopholes that have long since been closed.

As the graphic below from a 2003 Forbes story details, one of the primary ways the Pritzker family uses offshore trusts to avoid taxes is by having income from their businesses funneled into offshore trusts. Those trusts then pay debt service to a bank, owned by the family trust, that loans that money right back to the business. The upshot is that all the taxable profits disappear and the family wealth accumulates unabated. A more recent Forbes article looking at the Pritzker family fortune notes that these trusts were not at the margin but rather “played a substantial role in the growth of the Pritzker fortune.” The same article notes that this fortune makes up the vast majority of Pritzker’s $1.85 billion empire and has allowed 10 members of the Pritzker family to earn a spot on the list of Forbes 400 richest people in America.

When the New York Times asked Penny Pritzker for her thoughts on the ethical implications of her family’s use of offshore trusts, she remarked that the trust was set up when she was only a child, after all, and that she does not control how the offshore trusts are administered. Her continued vagueness on these issues makes it likely that she will face more questions about her views of offshore tax avoidance more generally next week when she goes before the Senate for her confirmation hearing.

While Pritzker’s personal involvement with her family’s most infamous tax avoidance legacy is unclear, it is clear that she has actively used tax avoidance strategies in her own professional and private life. For example, a family member in this Bloomberg News profile from 2008 recounts one of her very first assignments working for Hyatt, which was to set up a like-kind property exchange to help avoid taxes on a property owned by Hyatt.

It turned out Penny was a natural at this particular tax avoidance scheme, in which a company takes deductions for the purported depreciation of their property and then sells the property at an appreciated price, but avoids paying capital gains tax by swapping the property for another like-kind property. (Originally created for use by farmers trading acreage, this tax break is a perfect example of a loophole in the tax code that is abused by companies and should be eliminated (PDF).)

In her personal finances, Penny Pritzker has run into criticism for making 10 appeals to lower the property tax assessment for her mansion in Chicago’s Lincoln Park. Like many wealthy taxpayers, Pritzker is able to retain lawyers who, through repeated appeals, have been able to save her an estimated $175,905 (PDF), even though their appeals have only succeeded half the time.

Gabriel Gomez and the Façade of Charitable Donations

While not on the same scale, according to the Boston Globe, U.S. Senate candidate Gabriel Gomez claimed a $281,500 income tax deduction in 2005 for “pledging not to make any visible changes to the façade of his 112-year-old Cohasset home” because the value of such an agreement is considered a charitable deduction by federal law. The only problem is that local laws already prohibit he and his wife from making any changes to the exterior of their home, meaning that his “agreement” to leave the façade alone is more like complying with local laws rather than a choice, so it may not have an actual “value” that is deductible.

In fact, just five weeks after Gomez claimed this deduction, the IRS listed the abuse of historic façade easements as one of its “Dirty Dozen” tax scams. Moreover, the organization with which Gomez made the agreement, the Trust for Architectural Easements, has been criticized by the IRS, Department of Justice, and Congress for encouraging tax avoidance. Altogether the IRS estimates that the Trust cost American taxpayers $250 million in lost revenue.

Fortunately for Gomez, the IRS did not challenge his use of this deduction, as it has with hundreds of others. If they had done so, they likely would have rejected the deduction and Gomez would have had to pay thousands in back taxes and an additional penalty. For his part, Gomez’s lawyer argues that the restrictiveness of the agreement goes further than local zoning laws, but it appears unlikely that the additional restrictions are so great as to justify such a substantial deduction.

State of the Union Address: Good on Principles, Weak on Policy

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During his State of the Union Address, President Barack Obama reiterated the principle that the United States must prioritize getting rid of tax loopholes for the wealthiest individuals and most profitable corporations in order to ensure that everyone is paying their “fair share” to reduce the deficit. While in principle it’s hard to argue with this approach, the tax policy agenda the President laid out during his speech does not go nearly as far as it should both in terms of deficit reduction and correcting the inequities in our tax code.

Buffett Rule Not Enough to Ensure Fairness
For example, during the speech President Obama called for a tax code that would ensure that “billionaires with high-powered accountants” do not pay a lower tax rate that their “hard-working secretaries.” His proposal to accompany this principle has been the so-called “Buffett Rule,” which would require everyone making over a million dollars to pay a minimum effective tax rate over at least 30 percent.

But this would still leave in place the preferential rate on capital gains and dividends that is the primary reason that wealthy investors like Warren Buffett have such low effective tax rates. A better approach would be to end the special treatment of capital gains and dividends, which would both raise more revenue and deal with the core issue of fairness.

Truly Ending Offshore Corporate Tax Dodging Requires More
Turning to corporate taxes, President Obama said that we need a tax code that “lowers incentives to move jobs overseas and lowers tax rates for businesses and manufacturers that are creating jobs right here in the United States of America.”

To start, rather than calling for a measure that simply “lowers incentives,” Obama should address the problem at its root, by repealing the rule allowing corporations to defer – indefinitely – taxes on their offshore profits.  (Those profits, of course, are often artificially shifted offshore with the goal of avoiding taxes.) This exact reform was recently introduced in both the House and Senate in the “Corporate Tax Dodging Prevention Act.”

Corporate Tax Reform Must Raise Revenue

In addition, while it’s great that President Obama is proposing to get rid of a myriad of corporate tax breaks, it is not entirely clear that he intends to wisely use the revenues it would generate. His 2012 corporate tax framework, for example, calls for the revenue generated by closing loopholes to be spent on lowering the overall corporate tax rate and even expanding some of the breaks for manufacturers (which really don’t warrant the special treatment); this proposal to keep corporate tax reform revenue-neutral meant that corporations would continue to pay a low effective corporate tax rate overall and have no positive impact on the budget.

In his State of the Union Speech, however, he implied that corporate tax reform should also result in revenues to help bring down the deficit, and this more recent rhetoric about using the revenues for deficit reduction is certainly promising. What should come next is a clear rejection of revenue-neutral corporate tax reform and an explicit commitment to boosting corporate tax revenues in order to fund investments that benefit all Americans, including the consumers that keep corporations profitable.

Balanced Approach? Spending Cuts for Deficit-Reduction Have Already Been Enacted

Addressing the sequestration cuts scheduled to kick in March 1, President Obama used the State of the Union address to reiterate his commitment to include a mix of revenues and spending cuts as part of a “balanced approach” to deficit reduction, saying we should not “make deeper cuts to education and Medicare just to protect special interest tax breaks." Citizens for Tax Justice has noted (as did the President in his speech) that the last several rounds of deficit reduction have already relied primarily on spending cuts.  Logically, then, to achieve true “balance” in reducing the deficit, the sequester should be replaced almost entirely by revenue increases.  That makes the President’s offer of more cuts unwarranted.

If enacted as is, the tax ideas President Obama outlined in his State of the Union address would be important steps towards reducing the deficit and improving the fairness of our tax system. If enacted following legislative compromise, they would likely be much smaller steps. But in any event, the President’s articulated goals would still leave gaping inequities in our tax code, and not do enough to ensure that we have the resources to make critical investments in our long term economic health. 

What Obama Should Tell America: Reducing the Deficit is Not that Hard

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We can probably expect the President’s first State of the Union address since being re-elected to include yet another plea to his Congressional adversaries to just be reasonable and meet him somewhere between his already compromised position and their Tea Party-enforced ideology.

We can probably expect the President to continue his calls for legislation that replaces all or part of the automatic spending cuts (sequestration) scheduled to begin March 1 with a mix of both revenue increases and spending cuts.  He calls this mix a “balanced approach” in spite of the fact that spending cuts have already been the main source of deficit reduction over the past two years, meaning that the only truly “balanced” way to replace sequestration at this point would be almost entirely by revenue increases.

We can also expect more talk of sacrifice from all Americans, and for the President to reiterate his openness to cutting programs that low- and middle-income Americans rely on – so long as the opposition agrees to some modest tax increases, on those who will hardly notice them.

A new working paper from Citizens for Tax Justice (CTJ) shows that all of this lopsided compromising is unnecessary and that Congress could raise enough new revenues to replace the entire scheduled sequestration and avoid the cuts everyone agrees will weaken our economy.  Sequestration, remember, was supposed to be a poison pill because of its unnecessarily blunt, across-the-board cuts of $85 billion from every program and agency this year, and $1.2 trillion over the next decade.

CTJ’s paper shows that such revenue increases can be achieved without affecting low- and middle-income Americans by instead asking profitable corporations, wealthy individuals – particularly those wealthy individuals sheltering their investment income – to pay their fair share in taxes.

For example, Congress could raise around $600 billion over a decade by ending “deferral” of U.S. taxes on offshore corporate profits.

In other words, Congress would repeal the rule allowing U.S. corporations to “defer” (delay indefinitely) paying U.S. taxes on their offshore profits until they bring those profits to the U.S.

Even if Congress didn’t need the revenue, there are still extremely important reasons to end deferral, as a new proposal from Senator Bernie Sanders and Congresswoman Jan Schakowsky would do. In some cases, for example, deferral encourages corporations to shift operations (and jobs) offshore; in other cases, it encourages corporations to use accounting gimmicks to disguise their U.S. profits as “foreign” profits generated in a tax haven like the Cayman Islands or Bermuda.

Another revenue raising option is taxing capital gains at death.

Under the current rules, income that takes the form of capital gains on assets that are not sold during the owner’s lifetime escape taxation entirely. The rationale for this special treatment seems to be that it would be difficult to determine exactly how much an asset has appreciated if it’s been held for many years, but that’s a red herring because the current break applies to assets that have been held for even just a couple years.

It is not known exactly how much revenue would be raised by ending this break, but the Joint Committee on Taxation has estimated that this break will cost the Treasury over $250 billion in just the next five years.

Another option is the President’s own proposal to limit the tax savings that wealthy individuals get from each dollar of deductions and certain exclusions to 28 cents.

The tax code is filled with deductions and exclusions that effectively subsidize certain activities and behaviors, like buying a home, giving to charity, obtaining health care and many others. But providing subsidies through the tax code in this way means that the wealthiest people, those in the top, 39.6 percent tax bracket, are saving almost 40 cents for each dollar they spend on home mortgage interest, charitable giving and health care.  Middle-income people, on the other hand, might (if they’re lucky) be in the 25 percent bracket and save just 25 cents for each dollar spent on these things.

Limiting the tax savings to 28 percent would at least reduce that unfairness and it would raise over half a trillion dollars over a decade. Sadly, there is talk that the President, responding to misinformation about how it would impact charitable giving, is open to diluting his proposal so that the charitable deduction is not much affected.

The President can champion policies that large majorities of Americans support.

New polling shows the public is on board with the proposals outlined above. About two-thirds of Americans say corporations should pay more in taxes and two-thirds say the rich should pay more than they pay today. Significantly, this poll was taken more than two weeks after the New Year’s Day deal that allowed tax cuts to expire for the rich, aka “raised taxes” on the wealthiest Americans.

The only thing standing in the way of progressive tax reforms that raise enough revenue to replace the sequestration is the same thing that always stands in the way: the interests of powerful corporations and wealthy investors.  Those special interest groups aside, the vast majority of Americans would support the President in a more progressive approach to tax reform.

For Immediate Release: November 9, 2012

Obama’s Proposed Extension of the Bush Tax Cuts Is Costly, But Can Be Followed with Real Revenue-Raising Tax Reforms

Citizens for Tax Justice Responds to President’s Fiscal Cliff Remarks Today

Washington, DC -- Arguing that it would create certainty as he undertakes negotiations over the year-end fiscal cliff, today President Obama called on Congress to extend for another year most of the Bush-era tax cuts scheduled to expire at the end of this year under current law. He noted that such a bill has already been approved by the Senate and only needs the approval of the Republican-controlled House of Representatives.

“Deficit reduction is getting off to a terrible start, when the President’s opening offer to Republicans is a huge tax cut that will add $250 billion or more to federal borrowing in 2013 alone,” said Bob McIntyre, director of Citizens for Tax Justice.

Under the President’s approach, 78 percent of the cost of the Bush tax cuts would be extended through 2013, which is far too much. The Senate bill that the President has endorsed would extend for one year the Bush income tax cuts for the first $250,000 a married couple makes and the first $200,000 a single taxpayer makes. Most people don’t realize that this would allow taxpayers who make as much as half a million dollars a year to keep most of their Bush income tax cuts.

But Obama’s approach is certainly superior to the approach advocated by the Republican-led House, which would extend the tax cuts for all income levels, including the very richest Americans.

As the President said during his remarks today, voters want progressive revenue increases. Exit polls show that 60 percent of voters want taxes to go up for the people making over $250,000. An election night poll from Hart Research found that 62 percent of voters were sending a message that we should “make sure the wealthy start paying their fair share of taxes.”

If President Obama caves to the demand of House Speaker John Boehner that Bush-era income tax rate reductions must be extended even for the richest Americans, the President will have given up the enormous leverage he has gained following the election, and will have ignored the clear mandate the voters gave him to end tax cuts for the rich.


Citizens for Tax Justice (CTJ), founded in 1979, is a 501 (c)(4) public interest research and advocacy organization focusing on federal, state and local tax policies and their impact upon our nation (www.ctj.org).


Election Day Polls Empower President, Congress To Raise Taxes

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According to the official exit polls on Election Day a combined 60 percent of voters support increasing taxes, with 47 percent supporting an increase in taxes on those making over $250,000 and 13 percent supporting a tax increase on everyone. Barely one third of voters think no one’s taxes should be increased. This support for higher taxes reinforces the fact that only small minority (21 percent) support the disastrous spending cuts-only approach to deficit reduction, as represented by the debt ceiling deal.

Making the voters' views even more clear, an election night poll by Hart Research found that 62 percent of voters said that they were trying to send the message that the Congress should make sure the wealthy pay their fair share in taxes. In addition, the Hart poll found that 73 percent of voters said that Medicare and Social Security benefits should be protected from cuts.

This is important: while lawmakers in DC have been focused on deficit reduction over the last couple years, most voters do not share their concern. In fact, 59 percent told pollsters on Election Day that unemployment was the most important economic issue facing the country, which is almost four times the percentage of voters that said the deficit was the most important economic issue.

The results of these Election Day polls mirror a plethora of public polling over the past couple of years on how to handle deficit reduction. Earlier this year, for example, a Washington Post-ABC News poll found that as many as 72 percent of Americans support increasing taxes on millionaires. Making the public preference clear, former Reagan official Bruce Bartlett compiled 19 different polls during the debt ceiling fight last year showing there is wide support among Americans for raising taxes to deal with the deficit.

Taken together, the Election Day polls once again reveal the substantial gap between the kinds of policies that the public would like Congress to pursue and the policies it’s actually pursuing. To start, the fact that the public is more concerned about the health of the economy than about deficit reduction should make Congress reverse course and actually increase government spending and investment, which is several times more stimulative to the economy than making the Bush tax cuts permanent, i.e. permanently cutting taxes. Second, Congress should recognize that to the extent that deficit reduction is needed over the long term, the public heavily favors a balanced approach that includes significant immediate revenue increases and spending cuts, rather than the spending cuts-only approach favored by Congress in recent years. Voters told Washington to get real about taxes because voters themselves are realistic about revenues. The message couldn’t be more clear.

Grover Norquist Becoming A Political Ball and Chain?

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For years, conservatives and many moderates have believed that signing Grover Norquist’s no-tax pledge was a ticket to electoral success. Maybe it was, maybe it wasn’t. But on election night 2012, it began to look like the pledge was actually a liability as signatories to it were sent packing by voters in states from New Hampshire to Ohio to California. While the results are still coming in, at least 55 House incumbents or candidates and 24 Senators or Senate hopefuls who signed the pledge lost on Election Day.  That means in the next Congress, the number of pledge-signers will be 264 at most, down from 279, and Grover’s fans could potentially become the minority in the House, with only 216 seats, according to reports from Bloomberg (link not available).

Rather than a boon, in many Senate races signing Grover’s pledge turned out to be a burden this election year. In the Ohio Senatorial race for instance, Republican State Treasurer Josh Mandel attempted to portray himself as an independent and principled thinker, but this image was tarnished by the fact that he had signed the no-tax pledge. In fact, Mandel gave a pretty limp response to his opponent, Democratic Senator Sherrod Brown (who ultimately won the race), who pointed out during a debate that signing the pledge equaled “giving away your right to think.”

Similarly in Massachusetts, tax policy became the focal point of difference between Republican Senator Scott Brown and Democratic candidate Elizabeth Warren. During a debate between the candidates, Warren warned voters that “instead of working for the people of Massa­chusetts” Brown had “taken a pledge to work for Grover Norquist.” Such criticism helped voters see that he was not as independent from conservative influence and the Republican Party as he liked to portray himself in deep blue Massachusetts.

Earlier this year, the stranglehold of the no-tax pledge on the Republican Party and candidates was already showing signs of cracking as a substantial number of Republican candidates either refused to sign the pledge or repudiated their former fealty to it. Leading the charge, Virginia Republican Representative Scott Rigell advised fellow Republicans to not sign the pledge and ran explicitly on the platform of taking a balanced approach to deficit reduction. In contrast to many of his colleagues who lost running on the no-tax pledge, Rigell was easily re-elected to his House seat.

Moving forward, we expect more lawmakers will realize that taking a dogmatic anti-tax approach is not only bad policy, but that it’s also increasingly bad politics.

Picture of Norquist in a bathtub courtesy the New Yorker magazine. 

The Voters Have Spoken: It's Time to Get Real About Taxes

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If yesterday’s election was a referendum on taxes, what voters rejected was the tired oldargument that cutting taxes is good for an ailing economy, and that is a welcome development. For his part, President Obama has said winning would give him a mandate to raise revenue by ending the Bush tax cuts for the wealthiest Americans, one of his campaign promises. Republicans have said if he follows through on that promise, it will destroy any chance of the two parties working together in the coming years.

As we head into the lame duck Congressional session that begins next week and look ahead to 2013, let’s review the (frankly) uninspiring policy options both parties are proposing – proposing for a country where tax rates are at historic lows, income inequality is at historic highs, tax avoidance by the wealthy and corporations is epidemic and revenues are anemic.

Sadly, President Obama’s “balanced” fiscal plan comes up short.  Far from raising needed revenues or “raising taxes on the rich” as many describe it, the President’s plan actually cuts taxes dramatically for most Americans. If President Obama's plan to keep all but the high end Bush tax cuts in place is implemented, the lion's share of the unaffordable and unfair tax cuts pushed through by President George W. Bush more than a decade ago would remain in place for another year, through the end of 2013 – at a one-year cost of $250 billion or more.

Whether the President succeeds in getting a grand bargain that includes a one year extension of most of the Bush tax cuts, or we end up with the Republicans’ latest idea for a six month “bridge” across the fiscal cliff, what both parties are saying is that the time they buy with these bargains will be used to rewrite the tax code in a permanent way. And while we agree that some kind of tax code overhaul is necessary, any overhaul that fails to raise revenue and increase tax fairness is not worthy of the word “reform.” 

Our corporate tax system is currently in a shambles, with hugely profitable multinational corporations aggressively using shady tax dodges as well as tax breaks enacted by Congress to zero out their tax bills.  Unfortunately, most Democrats and Republicans are listening to corporate lobbyists’ complaints that the U.S. statutory corporate income tax rate of 35 percent is too high.  This complaint is largely baseless.  We studied most of the Fortune 500 corporations that were consistently profitable in recent years and found that they collectively paid just 18.5 percent of their profits in taxes, and many paid nothing at all.  Still, most plans for corporate tax reform from both sides of the aisle call for closing loopholes only to lower the rate, resulting in no new revenues for the Treasury. 

We acknowledge, however, that Democrats have articulated some encouraging goals. In Congress, for example, Senator Carl Levin is actively working to close loopholes that allow corporations to shift profits to offshore tax havens. And President Obama has indicated he wants to restrict the most egregious corporate loophole, the rule allowing corporations to “defer” paying taxes on their foreign profits (which are often U.S. profits artificially shifted offshore).  Contrasted with the Republican Party’s support of a territorial tax system that permanently widens that loophole and exempts all foreign profits, the President’s corporate tax framework looks progressive, even if it is woefully short on detail.

Our view, though, is that ending “deferral” entirely is the only road to real reform of the corporate tax. In this global economy, deferral is the massive hole in which our most profitable companies can legally hide their profits, even as those profits are at historic highs.  

And the personal income tax, with or without the Bush tax cuts in place, contains expensive and unwarranted loopholes that make it possible for wealthy investors to pay taxes at a lower rate than middle-income workers – as Warren Buffett has so helpfully illustrated.  There is a simple way to fix this, of course, and that is to tax capital gains and dividends the same way we tax income from salaries and wages.  Other provisions of the personal income tax (like tax breaks for charitable deductions on appreciated property and the “carried interest” loophole) can be reformed or eliminated so that they no longer provide tax shelters for the richest Americans.  But it’s the low rates on capital gains (and dividends) that overwhelmingly benefit the very wealthiest Americans, and tax reform that maintains a progressive federal income tax must end that special break.

Tax policy is often inscrutable, and one aspect that can complicate and thwart a constructive public discussion is the issue of which “baseline” or assumptions an analysis begins with.  For example, there are those who characterize the scheduled expiration of the Bush tax cuts as a tax increase.  Don’t believe them. Nor should you believe those who say that President Obama’s proposal to extend most of the Bush tax cuts would “raise revenue.” By law, the Bush tax cuts are still temporary and are set to expire at the end of this year.  Allowing them all to expire is not a tax increase, and the President’s approach to extending most of them would result in less revenue (and a much higher budget deficit) than we’d get if Congress just did nothing, let the Bush cuts (and scores of smaller temporary tax expenditures) expire and went home.

Indeed, Congress simply going home next month and allowing the Bush tax cuts to expire on January 1, 2013 would not be the worst result.  You hear people say that we can’t possibly allow all the Bush tax cuts to expire because they benefit low- and middle-income Americans who need help, especially right now. But this is no reason to enact a bill that also extends tax cuts for the rich, which are far larger, and that’s exactly what it would mean to extend the Bush tax cuts wholesale. We’ve estimated that if Congressional Republicans get their way and all the Bush tax cuts are extended, 32 percent of the benefits would go to the richest one percent of Americans and just one percent of the benefits would go to the poorest fifth of Americans. Under President Obama’s approach, 11 percent of the benefits of the extended tax cuts would go to the richest one percent of Americans and three percent of the benefits would go to the poorest fifth of Americans. Clearly Obama’s plan is the fairer one, though it’s hardly something to celebrate.

The White House and Congress will be working on a deal during the lame duck session to tide us over through 2013. If the only deal they can reach is a bad deal – one that preserves all those expensive Bush tax cuts – the President should reject that deal.  We believe the public would support him if he did.

While we aren’t enthusiastic about any of the short term deals we know of, we are hopeful that 2013 can bring positive change to our tax code if Congress follows some basic principles.  Like the historic tax reform of 1986, reform next year should close loopholes in the personal and corporate income taxes.  Unlike ’86, however, it should not be revenue-neutral.  Today, following decades of tax cuts, we have shrinking revenues and swelling deficits.  So the next tax overhaul must raise revenues sufficient to fund the government and provide services citizens deserve and depend on. Real reform will also leave the code fairer than it is today by closing loopholes that have slowly eroded the progressivity the federal income tax was designed to deliver. We know that when you include local and state taxes, lower and middle income Americans are, in fact, paying their fare share.  At Citizens for Tax Justice, our mission is advocating for those taxpayers, and we will continue to do so into 2013 as a still divided Congress and Democratic White House debate reform of the entire tax code.

Romney's Tax Rate Is Not "Fair," And Neither Are His Tax Policies

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In a 60 Minutes interview after his 2011 tax returns were released, Republican presidential candidate Mitt Romney was asked if his federal income tax rate was fair.

CBS’s Scott Pelley: And you paid 14 percent in federal taxes. That's the capital gains rate. Is that fair to the guy who makes $50,000 and paid a higher rate than you did?

Romney: It is a low rate. And one of the reasons why the capital gains tax rate is lower is because capital has already been taxed once at the corporate level, as high as 35 percent.

Pelley: So you think it is fair?

Romney: Yeah, I think it's the right way to encourage economic growth, to get people to invest, to start businesses, to put people to work.

Mitt Romney is wrong, and so is the tax system that he defends. His proposals would make it even worse.

In defending his tax rate, Romney is relying on the double taxation argument – that it’s fair to tax capital gain and dividend income at a much lower rate than other income, like salaries and wages, because it’s already been taxed once at the corporate level.

Here are three reasons why the double-taxation argument is unconvincing:

Ÿ1) Much of the income qualifying for the low rate is not related to corporations
2) Even the income that is related to corporations may not have been previously taxed
3) Romney’s income in particular is not from corporate profits

For one thing, all kinds of income that didn’t come from corporations is taxed at the special low rate, such as profits from selling office buildings, corn futures and exotic sports cars. Romney’s own reported income is dominated by so-called capital gains that are really “carried interest” – compensation from managing Bain Capital, his leveraged-buyout firm, that he can restructure as investment income so it doesn’t get taxed like ordinary salary or wages. Romney also has millions in gains from hedge funds, bonds, and foreign corporations, none of which was subject to the U.S. corporate income tax.

Even when corporate dividends are paid to shareholders, it’s highly likely that the corporation hasn’t paid much tax on the income they use to cover those dividend payments. Take G.E., for example. Over the last decade the company has paid out $87 billion in dividends but paid an average federal income tax rate of just 1.8 percent.

Significantly, many of the companies managed by Romney’s Bain Capital aren’t paying income tax either. Sensata Technologies, for example, used to pay tax – before Bain loaded it up with debt and started moving its operations offshore. Now it doesn’t have any U.S. income to tax

But wait, defenders of low- or no-capital gains taxes say – the money Romney earned to make those investments was taxed when he earned it, and then the government taxes it again when the investments go up in value. Not true! Only the appreciation in the investments is taxed when you sell. The original investment isn’t taxed again.

When all is said and done, the low capital gains tax rate is a windfall for the wealthy. In 2013, it’s estimated that the share of capital gains going to the top five percent will be 83 percent. This low tax rate on capital gains and dividends is also the reason that Warren Buffett pays a lower tax rate than his secretary and that Mitt Romney pays a lower rate than the middle-income worker 60 Minutes asked him about.

Whether you make $60,000 or $60 million, if your income is from work you’ll pay more than twice as much federal income tax than someone whose income is from wealth, and you’ll pay payroll taxes on top of that.  Romney’s tax plan would make it even worse because he’s proposing to completely exempt up to $200,000 of interest, dividends, and capital gains from income taxes.

Now, this might sound great to a lot of middle-income Americans who have a little bit of investment income – saving the tax on their interest from the bank or on dividends from that mutual fund. But consider this: under Romney’s plan, an heiress or day trader with $200,000 of investment income but no salary or business income would pay zero federal income tax, while working Americans with that much income would pay plenty of tax on their salaries and wages.

Getting rid of the unwarranted tax breaks for wealthy investors and treating working taxpayers more fairly should be at the heart of real tax reform. But real tax reform is just the opposite of what Mitt Romney has in mind.

Presidential candidate Mitt Romney has proposed to make permanent the Bush tax cuts without offsetting the costs and also enact new, additional tax cuts that would be paid for by limiting tax expenditures (special breaks or loopholes in the tax code). Romney recently suggested that his new tax cuts could be paid for by limiting itemized deductions to $25,000 per tax return, which we estimate would offset just 36 percent of their costs. The percentage of Romney’s new tax cuts offset by this limit on itemized deductions would vary dramatically by state.

Read the report.

Tax Policy Invades the Foreign Policy Presidential Debate

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When most people think of major foreign policy issues facing the U.S., they rarely think of taxes and budget deficits. But during the foreign policy-focused final presidential debate on Monday night, the candidates delved into tax and budget issues – domestic ones, that is, but not those related to foreign policy. Below, we break down the most important tax policy moments of the night.

The Debt “Crisis”
Romney came out swinging saying that President Barack Obama had put the U.S. on a path “heading towards Greece” and that by the end of his second term Obama will have pushed the debt to $20 trillion. He added that a former Chairman of the Joint Chiefs of Staff has called the debt “the biggest national security threat we face.” There is a lot to unpack in this line of attack.

To start, even alarmist estimates, like those by the conservative Heritage Foundation, show that on its “current” path the U.S. still has twenty years before it reaches a debt-to-GDP ratio on par with Greece. More importantly, however, such projections assume that Congress and the President will extend the Bush tax cuts and reverse the spending cuts contained within the sequester; and in truth, that combination is the most serious long term debt threat U.S. faces.

It is also true that Obama’s approach to our long term debt comes up short. Citizens for Tax Justice (CTJ) has criticized Obama’s plan that would increase the deficit by $4.2 trillion over the next ten years by extending a full 78 percent of the Bush tax cuts. But it’s quite a thing for Romney to point fingers at Obama regarding the debt since Romney is proposing an approach far and away more reckless, one that includes about $5 trillion in additional tax cuts on top of the $5.4 trillion cost of a full extension of the Bush tax cuts over the next ten years, which he also endorses.

Compounding this, Romney has not proposed enough specific spending cuts to get anywhere close to balancing the budget. In fact, the Congressional Budget Office has found that Romney’s number one recommendation to cut the deficit during the debate, his plan to “get rid” of Obamacare, would actually increase the deficit by $210 billion over ten years. In addition, even under Romney’s running-mate Representative Paul Ryan’s draconian budget plan, the debt would still increase to $19 trillion in 2016 by Ryan’s own estimations.

Making Romney’s budget math even more fantastical (as Obama correctly pointed out) is his proposal to increase military spending by about $2 trillion over the next ten years compared to Obama’s budget proposal, and about $2.5 trillion compared to what the sequester deal would require.  

Balancing Budgets at the State Level
To support his idea that it’s possible to enact massive tax cuts while also balancing the budget at the federal level, Romney pointed to his record as governor in Massachusetts, where he said he was able to balance the budget four years in a row while still cutting taxes “19 times.” In actuality, Romney was only able to balance the budget because he took the responsible position of actually raising more, rather than less revenue as governor.

According to an analysis by the Massachusetts Taxpayers Foundation, budgets enacted under Romney raised around $700 million in additional revenue annually through higher user fees (a popular approach of raising revenue among anti-tax governors) and closing tax loopholes. This increase in revenue outweighed the cost of his 19 tax cuts, which were mostly small and included gimmicky measures like a sales tax holiday. By contrast, Romney is now proposing tax cuts that would dwarf the revenues he would raise through loophole closing.

Candidates Barely Touch on International Tax Dodging

As we predicted, the candidates barely made a passing reference to the problems facing our international tax system, even though, for example, the U.S. loses an astounding $100 to $150 billion in tax revenues each year to offshore tax havens. The only mention of international tax issues came when Obama noted that the current system “rewards companies that are shipping jobs overseas” and when he repeated the point previously made by Vice President Joe Biden that the territorial tax system Romney supports will create 800,000 jobs – but in places like China rather than the U.S.

Biden and Obama are right, and they cite this study showing that the territorial tax system (PDF) Romney proposes would even further encourage corporations to move jobs offshore and disguise their U.S. income as foreign income in order to avoid U.S. taxes. Rather than moving backwards with a territorial tax system, the U.S. should end deferral of taxes on foreign profits by U.S. corporations, which would immediately solve the issue of companies holding $1.5 trillion of income offshore to avoid taxes on the billions they owe in taxes on that income.

The International Relations Issue the Candidates Probably Won't Debate: Territorial Taxes

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As President Obama and Governor Romney discuss foreign policy in their final debate, there’s a major issue that they will, unfortunately, probably ignore: the tangle of international tax rules that allow offshore tax dodging.

The U.S. tax system is already in a mess when it comes to the rules we use to determine how profits of multinational companies are taxed. President Obama has proposed some steps to rein in the worst abuses, but most of these are relatively timid or vague. Meanwhile, Romney proposes that the U.S. follow the example of other countries that have a “territorial” system, which has facilitated high-profile tax avoidance schemes by major multinational corporations. On this issue, the U.S. needs to show leadership that has been lacking so far.

Here are the basics: The U.S. could either have a “worldwide” tax system, in which we tax the offshore profits of our corporations (but provide a credit for foreign taxes paid, to prevent double-taxation) or the U.S. could have a “territorial” tax system, which exempts the offshore profits of our corporations from U.S. taxes. What we have now is a hybrid of the two systems. The U.S. does tax the offshore profits of U.S. corporations and provides a credit for foreign taxes paid, but also allows the corporations to “defer” (delay indefinitely) those U.S. taxes, until the profits are brought to the U.S.

Under the current rules, U.S. corporations have a reason to prefer offshore profits over U.S. profits, because they benefit from the rule allowing them to “defer” U.S. taxes on offshore profits indefinitely. So they may shift operations (and jobs) to a country with lower taxes, or engage in convoluted transactions that make their U.S. profits appear to be earned by subsidiaries in countries with no (or almost no) corporate tax (i.e., offshore tax havens).

The offshore subsidiary may be nothing more than a post office box in the Cayman Islands. CTJ recently explained that Nike, Microsoft, Apple and several other companies essentially admit in their public documents that they engage in these tricks.

If allowing corporations to “defer” U.S. taxes on offshore profits causes them to prefer offshore profits over U.S. profits, then eliminating U.S. taxes on offshore profits would logically increase that preference, and increase these abuses. And that’s exactly what a territorial system, which Romney supports, would do.

CTJ has explained in a fact sheet and a more detailed report that we should move in the opposite direction by simply repealing “deferral” so that we have a true “worldwide” tax system. A CTJ report on options to raise revenue explains that repealing deferral would raise $583 billion over a decade.

President Obama has proposed far more limited steps. His most recent budget blueprint proposes to raise $148 billion over ten years with a package of provisions to crack down on the worst abuses of deferral. (The official revenue estimators for Congress projected that the provisions would raise a little more, $168 billion over a decade.)

These proposals would do some good. For example, one would end the practice of companies taking immediate deductions against their U.S. taxes for interest expenses associated with their offshore operations while they defer (not pay) the U.S. taxes on the resulting offshore profits indefinitely. Another would help ensure that the foreign tax credit, which is supposed to prevent double-taxation of foreign profits, does not exceed the amount necessary to achieve that goal. Still another would reduce abuses involving intangible property like patents and trademarks, which are particularly easy to shift to tax haven-based subsidiaries that are really no more than a post office box.

But none of these reforms proposed as part the President’s budget really addresses the underlying problem with a deferral system or a territorial system: The IRS cannot figure out which portion of a multinational corporation’s profits are truly generated in the U.S. and which portion is truly generated overseas. If a U.S. corporation tells the IRS that a transaction with an offshore subsidiary wiped out its profits, the IRS cannot challenge the company unless it can prove that the transaction was unreasonable. And that’s difficult to do, especially when the transaction involves some product or service that is not comparable to anything else in the market (like a new invention, pharmaceutical, or software program).

President Obama has also proposed, as part of his “framework” for corporate tax reform, a minimum tax on offshore corporate profits. Because he has not yet specified any rate for this minimum tax, it’s impossible to say whether it would be effective. If the rate is set extremely low, then it would change very little. In theory, if the rate was set high enough, it would almost have the same effect as ending deferral — but no one in the administration is talking about anything that dramatic. (Read CTJ’s response to the President’s “framework” for corporate tax reform.)

There are some members of Congress looking very seriously at offshore tax dodging by corporations (like Senator Carl Levin). But serious leadership is unlikely to come from the presidential candidates anytime soon.

Photo of Barack Obama, Mitt Romney, and Cayman Islands Flag via Austen Hufford, Justin Sloan, and J. Stephen Con Creative Commons Attribution License 2.0 

Context Lacking in Presidential Town Hall Tax Debate

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The discussion over tax policy during Tuesday night’s town hall debate between President Barack Obama and former Massachusetts Governor Mitt Romney is a case study in how candidates can make selective use of facts. Below we bring some context to some of the most significant points made about tax policy during the debate.

Canada and the “High” Corporate Tax Rate

One area of unfortunate mutual agreement between Obama and Romney is, as Obama put it during the debate, that our corporate tax rate is “too high.” Backing this notion up, Romney noted that Canada’s corporate tax rate is now “15 percent” while the U.S.’s “35 percent” and thus leaves the U.S. in a less “competitive” position.

The primary problem is that both candidates are focusing on the statutory rate (the written law), which is relatively high in the United States, rather than the effective rate (the percentage of profits that corporations actually pay in taxes), which is far lower than the 35 percent statutory rate due to tax loopholes that plague our corporate tax system. In fact, Citizens for Tax Justice (CTJ) has found that large profitable corporations pay about half the statutory rate on average, while some companies like General Electric and Verizon pay nothing at all in corporate taxes.

Turning back to Romney’s comparison of the U.S. corporate tax rate with Canada’s, a CTJ analysis of Organisation for Economic Co-operation and Development (OECD) data actually found that the U.S. collects half as much in corporate tax revenue as Canada when measured as a percentage of GDP.

Rewriting the Legacy of George W. Bush

Getting to the core of many undecided voters’ concerns about his candidacy, one of the questioners asked Romney how his policies would differ from those of former President George W. Bush. Romney responded that he, unlike Bush, would balance the budget and that Obama had actually doubled the size of the annual Bush deficits.

What’s bizarre about this statement is that Romney is saying he will balance the budget, unlike Bush, while simultaneously doubling down on many of the same policies that drove the Bush deficits to begin with. For example, the Bush tax cuts added $2.5 trillion to the deficits between 2001-2010, yet Romney supports extending the entirety of the Bush tax cuts, which over the next ten year are estimated to cost $5.4 trillion (twice as much as in the first decade). Building on this, Romney is actually proposing roughly $5 trillion in more tax cuts over the next ten years, the costs of which he cannot offset without taxing the middle-class (which he pledges not to do).

Romney was also off base when he said that Obama doubled the federal budget deficit. For one, Obama came into office 3 months after the start of fiscal year 2009, and CBO had already projected a $1.2 trillion dollar deficit for that year. In addition, the Center on Budget and Policy Priorities points out that the economic downturn, the bailouts, the war costs, and Bush-era tax cuts, all of which began under the Bush Administration, account for most of the budget deficit.

Taking an Interest in the Preferential Tax Rate for Capital Gains

During the discussion over which loopholes and deductions Romney would close, Obama rightfully noted that Romney has already taken off the table any option that would close or reduce the biggest tax loophole for the wealthy, the preferential rate for capital gains. As CTJ noted in a recent report, ending the preferential rate would improve tax fairness, raise revenue, and simplify the tax code. Surprisingly, Romney did not offer any defense of the preferential capital gains rate during the debate, which could be explained by the fact that he did not want to bring further attention to the fact that he personally saved $1.2 million in taxes due to the lower rate.

Instead of defending the merits of a lower rate, Romney instead highlighted his plan to eliminate taxes on interest, dividends, and capital gains for taxpayers with AGI below $200,000.  While this sounds like a boon to lower and middle-income taxpayers, the reality is that the only 6 percent of all capital gains income and 17 percent of dividend income is earned by the bottom 80 percent, so it would apply to relatively few taxpayers.

About that Cayman Islands Trust....

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In last night’s presidential debate, Governor Romney pointed out that President Obama’s pension holds investments in Chinese companies and even in a Cayman Islands trust. Unlike Romney’s self-directed Individual Retirement Account, the President’s pension is in a system over which the President has absolutely no control; it’s an account with the Illinois General Assembly Defined Benefit Pension Plan. To somehow compare that with the vast wealth that Romney has personally placed offshore is ludicrous.

While Romney was at the helm of Bain Capital, the private equity firm began forming all of its new funds in the Cayman Islands through labyrinthine structures that allow investors to legally avoid – and illegally evade – tax. In addition, Gov. Romney has a Bermuda corporation which has never been explained and, of course, there is that famous Swiss bank account. Over 250 of the 379 pages of Romney’s 2011 tax return are devoted to disclosing transactions with offshore corporations and partnerships.

If Romney was trying to make the point that most investors have some holdings in companies outside of the U.S., we buy that. But if Romney’s point was that facilitating tax avoidance and evasion through complicated offshore structures is both normal and acceptable or in any way ordinary, we could not disagree more.

Romney's Three Biggest Tax Whoppers in the Town Hall Presidential Debate

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During Tuesday night’s presidential candidate town hall debate, President Barack Obama and former Massachusetts Governor Mitt Romney went at it again over, among other things, their respective approaches to tax policy.  While both candidates come up short on proposing fair and sustainable tax policy, Romney was downright brazen in misrepresenting the facts about his own and Obama’s tax plans.  Here we break down his three biggest whoppers.

Romney Says “Of Course” His Tax Plan Adds Up

After months of criticism from all sides for failing to specify which deductions he would eliminate in order to make his tax plan add up,  Romney floated the idea during the debate of having a cap where each American gets up to $25,000 of deductions and credits. As Citizens for Tax Justice (CTJ) noted when Romney first floated a $17,000 cap a couple weeks ago, the reality is that even if Romney eliminated every single deduction for the wealthy, he would still violate his promise to “not under any circumstances reduce the share that's being paid by the highest income taxpayers.” The tax cuts in his plan (which he does specify) would result in a net tax reduction of $250,000 on average for millionaires, even if they had to give up all the tax expenditures they currently enjoy.

Seeming to contradict his own point about the share of taxes the wealthiest Americans would pay, Romney also said that he particularly wanted to bring personal income tax rates down for individuals at the high end of the income spectrum because so many small businesses are taxed under the personal income tax. Romney is again missing the point that only 3 to 5 percent of business owners (and the richest ones at that) would be affected by a high end rate change, and it would only be on the profits those business owners take home.

When Romney defends the arithmetic of his tax plan, he emphasizes that he will not reduce “the share” of taxes paid by the wealthiest Americans. We suspect this is so he can argue later that since his across-the-board tax breaks would reduce the tax burden on different income groups equally, even if it gives the wealthiest the largest tax breaks, the ratios stay the same. Of course, it would be impossible for Romney to cut high end rates without breaking his pledge to make his plan revenue-neutral. But it’s already been established (as discussed above) that his revenue pledge conflicts with his pledge to make these specific tax cuts and pay for them without raising the net taxes paid by the middle-class.

Romney Claims Middle Class Will See $4,000 Rise in Taxes Under Obama

Trying to deflect the argument that he would have no choice but to raise taxes on the middle class to pay for his across-the-board tax cuts, Romney tried to throw it back at Obama, saying that “people in the middle class will see $4,000 per year in higher taxes” under the President’s budget plan. This is jujitsu of epic proportions.

First, Romney misrepresents a study by the conservative American Enterprise Institute (AEI) which is NOT about higher taxes that would be levied next year, as the Governor suggested, but rather provides an estimate of what people who make between $100,000 and $200,000 could have to pay to cover their share of the debt accumulated under President Obama’s policies (both those implemented and those proposed).  Second, he’s not even talking about the middle class, because a truly middle-income taxpayer makes much less than $100,000.  Third, and most importantly, if Romney wants to say that tax proposals that would increase the debt are equivalent to future tax increases, then he needs to admit that his own plan, which likely increases the debt much more than Obama’s, is equivalent to a massive tax increase.  Indeed, Romney still hasn’t explained how he would pay for $10 trillion in tax cuts and another trillion in increased defense spending over the next ten years.

Romney Says He will Create 12 Million Jobs

One of Romney’s boldest claims of the night was that he had a “five-point plan that gets America 12 million new jobs in four years.” The numbers the Romney campaign uses to make this assertion, however, are so blatantly bunk that Romney earned 4 Pinocchios from the Washington Post’s fact checker.

Romney’s 12 million jobs claim relies most heavily on a study of Romney’s tax plan which found that it would create seven million jobs over 10 (as opposed to four) years. That study (PDF), however, rests on two false foundations. First, it overestimates the positive economic impact of tax reform, an impact which has been proven to be minimal at best. Second, because Romney has not yet laid out a plan that is even mathematically possible or detailed enough to model, the study necessarily rests on a whole series of assumptions about the plan that border on fictitious.

Romney’s evidence supporting the power of his plan to create the other five million jobs is even weaker than those he claims from tax reform. Three million of his alleged new jobs are among those that would already be created over the next eight (not four) years under current energy policies, some of which Romney actually opposes. Similarly misleading, Romney regularly points to a study with a speculative estimate that Chinese violation of U.S. intellectual property rights is costing two million jobs.  Romney wants us to infer that he would somehow save two million jobs by preventing China from pursuing this practice, even though he has never identified a truly effective tool the U.S. has at its disposal for changing the behavior of Chinese counterfeiters.

Top Ten Tax Moments from the VP Debate

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The first and only Vice Presidential Debate of the election season between Vice President Joe Biden and Wisconsin Congressman Paul Ryan featured a spirited discussion over their competing visions for tax policy. While watching, we began to genuinely wonder if Biden had spent time reading Citizens for Tax Justice (CTJ) materials considering that time and again he made precisely the points CTJ has been making for years. Ryan, on the other hand, repeatedly misrepresented the tax system and the two tickets’ tax plans.

Below we breakdown the most important tax policy moments in the debate:

1. Biden Highlights the Regressiveness of Extending All the Bush Tax Cuts

While the presidential candidates largely ignored the Bush tax cuts in their debate last week, Biden put them front and center during the VP debate when he pointed out that Romney and Ryan are proposing the “the continuation of a tax cut that will give an additional $500 billion in tax cuts to 120,000 families” over the next ten years, compared to the Obama Administration plan for the Bush tax cuts.

Biden’s formulation here is a little confusing but not incorrect. Of course, President Obama proposes to allow the Bush income tax cuts to expire for income in excess of $250,000 for couples and in excess of $200,000 for singles, and only 2 percent of taxpayers would lose any portion of their Bush income tax cuts under this approach. The administration has stated that this would cost $849 billion less, over ten years, than extending the Bush income tax cuts for all income levels, while our own estimate is that it would cost $887 billion less over ten years. Pretty close.

Biden is focusing specifically on the part of this figure that would benefit the richest 120,000 families, apparently based on figures from the Tax Policy Center. Our own calculations essentially back up Biden’s point. We estimate that the richest taxpayers with incomes exceeding $2 million in 2013 (the richest 135,000 families in 2013) would receive about 57 percent of the income tax cuts that would otherwise expire under Obama’s approach, which comes out to $507 billion over ten years.

2. Ryan Promises the Mathematically Impossible

In defending Romney’s tax plan, Ryan reiterated their ticket’s commitment to “lower tax rates across the board” and to “close loopholes,” while simultaneously sticking to the “bottom lines” of not raising the deficit, not increasing taxes on the middle class or lowering the share of income that is borne by high-income earners. But Ryan is defending a plan that CTJ has found is mathematically impossible. Even if Romney and Ryan eliminated all the tax expenditures for wealthy taxpayers that they have put on the table, our analysis has found that their across-the-board tax cuts would still require them to give an average tax break of $250,000 to individuals making over $1 million, which would violate their pledge not to lower the share of taxes borne by high-income earners.

Ryan said during the debate that there are six studies showing that their plan is possible, but Biden correctly pointed out that even the studies Ryan cites conclude that the plan would require increasing taxes on taxpayers who do not have particularly high incomes.

3. Biden Calls Ryan Out for Taking Capital Gains Tax Breaks Off the Table

One of the major reasons that the Romney campaign’s tax plan would be incapable of eliminating enough tax expenditures to add up is that Romney has specifically said that he would keep the tax breaks for capital gains and stock dividends. During the debate, Biden noted that this shows the lack of seriousness in Romney’s loophole-targeting approach because Romney has exempted the “biggest loophole” of all - the “capital gains loophole.”  As CTJ pointed out in a recent report, ending the capital gains tax preference would tremendously improve fairness, raise revenue, and simplify the tax code in one fell swoop. 

4. Ryan and Biden Dispute the Definition of Small Businesses

Repeating Romney’s line on small businesses from the first presidential debate, Ryan claimed that Obama is going to raise taxes on small businesses and kill 710,000 jobs by doing so. The reality, however, is that only the 3 to 5 percent richest business owners (individuals who could hardly be called “small business” owners) would lose any of their tax breaks, and the job loss claims are complete malarkey.

5. Biden Takes on Romney and Ryan’s Commitment to Grover Norquist

During the first presidential debate, Romney reiterated his pledge to not raise a single penny in revenue, even if the revenue was raised as part of a deal that included $10 in spending cuts for every $1 in revenue increases. Biden took issue with this commitment saying that “instead of signing pledges to Grover Norquist not to ask the wealthiest among us to contribute to bring back the middle class, they should be signing a pledge saying to the middle class we're going to level the playing field.”

Biden is absolutely right that we need to reject the extreme anti-tax approach taken by individuals like Grover Norquist and instead embrace a balanced approach to deficit reduction. The question for Romney is when he will recognize that a balanced approach is not only what the American people want, but also what business experts support as well.

6. Ryan Misrepresents History of 1986 Tax Reform

Responding to the question of what specific loopholes he and Romney are proposing to close, Ryan attempted to dodge the question by arguing that they should not lay out specific loopholes they want to close because doing so would prevent them from following the model that allowed Ronald Reagan and Tip O’Neill to produce the 1986 tax reform. The reality, however, as recounted by CTJ Director Bob McIntyre – whose work was integral to the passage of the 1986 reform – is that Reagan’s Treasury Department released a detailed tax reform plan explicitly laying out exactly which tax expenditures the Administration would like to see closed. In other words, the 1986 tax reform experience actually proves the opposite of what Ryan is saying about vagueness being some kind of asset.

7. Biden Revives Romney’s 47% Remark

Continuing his efforts to upend tax myths during the debate, Biden took issue with Romney’s earlier statement that 47 percent of Americans aren’t paying their fair share, and he noted that many middle income people actually “pay more effective tax than Governor Romney in his federal income tax.” Biden was right to push back against the notion that any Americans are not contributing their fair share since, on average, any American’s share of total taxes is already roughly equal to their share of total income. In addition, CTJ has found that individuals making around $60,000 do in fact pay an effective federal tax rate of 21.3% on average, which is a lot compared to Romney’s tax rate of 14% in 2011.

8. Ryan Claims Obamacare Includes 12 Middle Class Tax Hikes

During the debate, Ryan asserted, “Of the 21 tax increases in Obamacare, 12 of them hit the middle class.” The reality, according to a CTJ analysis, is that 95 percent of the tax increases included in the healthcare reform legislation would be borne by either companies or households making over $250,000. Adding to this, Ryan’s specific point about the 12 tax provisions is mostly false because 4 of the 12 provisions are not really taxes at all.

9. Biden Stumbles on the Primary Cause of Great Recession

The only significant tax policy stumble for Biden came when he argued that Ryan helped create the Great Recession by “voting to put two wars on a credit card, to at the same time put a prescription drug benefit on the credit card, a trillion-dollar tax cut for the very wealthy.” The problem of course is that the Great Recession was due primarily to a financial crisis, not some sudden crisis in government spending and deficits.

While extraordinary increases in deficit spending and tax cuts for the rich during President George W. Bush’s presidency, (which Ryan did vote for), did not cause the recession, they certainly caused an explosion in the national debt. In fact, if continued, the Bush tax cuts and the cost of the wars will account for nearly half of the public debt by 2019.

10. Ryan Wrong on How Much Revenue Could Be Raised by Taxes on the Rich

In an attempt to discredit the idea that allowing the Bush tax cuts to expire for the wealthiest Americans will help fix the deficit, Ryan argued that “if you taxed every person and successful business making over $250,000 at 100 percent, it would only run the government for 98 days.” To start, the entire premise of this argument is bogus because the Obama administration is not proposing a revenue-only approach to deficit reduction; in fact it has already signed into law over $2 trillion in spending cuts. In addition, Ryan ironically failed to discern, even by his own calculations, that 98 days worth of government spending would be more than enough to close the projected budget deficits and would be more than enough to pay down the national debt in the coming years.

Debate Debrief: What Romney and Obama Got Wrong on Business Taxes

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While most commentators have focused on the back-and-forth between President Barack Obama and former Governor Mitt Romney over tax rates and deficit reduction during the first presidential debate, we paid extra close attention to what the candidates said about corporate and small business taxes. Unfortunately, we found what both candidates had to say really wanting.

Corporate Tax Reform

Early in the debate, Obama noted that he and Romney have something of a consensus over corporate taxes in that they both believe that “our corporate tax rate is too high.” If there's such an agreement, it's based on a fundamental misunderstanding. While the U.S. has a relatively high statutory corporate tax rate of 35 percent, the effective corporate tax rate (the percentage of profits that corporations actually pay in taxes) is far lower because of the loopholes they use to shield their profits from taxes. CTJ has found that large profitable corporations pay about half the statutory rate on average, while some companies like General Electric and Verizon pay nothing at all in corporate taxes.

President Obama proposes to close corporate tax loopholes, but would give the revenue savings right back to corporations as a reduction in the statutory tax rate from 35 percent to 28 percent, resulting in no change in revenue, as outlined in his corporate tax reform framework released earlier this year. (During the debate Obama actually said he’d lower the statutory rate to 25 percent, which seems more likely a misstatement than an intentional policy shift.)

In contrast, 250 non-profits, consumer groups, labor unions and faith-based groups have called for a corporate tax reform that actually raises revenue in order to pay for critical government investments and reduce the budget deficit.

Of course, Governor Romney also proposes a deep cut in the statutory corporate tax rate (to 25 percent) and is far more vague on whether he would bother to offset the costs.

Romney took issue with Obama’s claim during the debate that the tax code currently allows companies to take a deduction for moving plants overseas, saying that he had “no idea” what Obama was talking about and that if such a deduction really exists that he may “need to get a new accountant.” Technically, Obama is right that the tax code currently allows companies to take a deduction for business expenses of moving a plant overseas, but he leaves out the fact that companies are allowed to deduct most business expenses, including those associated with moving facilities. In any case, Romney certainly does not to need to hire a new accountant.

What both candidates missed during this discussion was that our current tax system does in fact encourage corporations to move operations overseas by allowing them to defer taxes on foreign profits. To his credit, Obama proposed, as part of his 2013 budget and in his framework for corporate tax reform, several reforms to the international tax system that would reduce the size of this tax break, although he has not gone as far as to call for an end to deferral entirely. In contrast, Romney wants to blow a giant hole in our corporate tax by moving the US to territorial tax system, under which US companies would pay nothing on offshore profits.

Small Business Taxes

During the debate Romney revived a classic tax myth by claiming that allowing the Bush tax cuts to expire for income over $250,000 will harm small businesses because a lot of businesses “are taxed not at the corporate tax rate, but at the individual rate.” Obama pushed back noting that he had “lowered taxes for small businesses 18 times” and that under his plan “97 percent of small businesses would not see their income taxes go up.”

A Citizens for Tax Justice (CTJ) analysis found that only the 3 to 5 percent richest business owners would be lose any their tax breaks under Obama’s plan. The CTJ report also points out that if you’re a business owner, tax breaks affect how much of your profits you can take home, but not whether or not you have profits. A business owner will make investments that create jobs if, and only if, such investments will lead to profits, regardless of what tax rates apply.

In an attempt to push his small business claim even further, Romney cited a study by the National Federation of Independent Businesses (NFIB) claiming that Obama’s plan will force small business to cut 700,000 jobs. When the NFIB report came out during the summer, the White House did a fine job of pointing out the many, many outrageous distortions in the report. Just to take one, the NFIB report makes assumptions about the relationship between taxes and investment that are far out of line with those of the non-partisan Congressional Budget Office and even the Treasury Department during the Bush administration.

Oil and Gas Tax Breaks

President Obama stated that the oil industry receives “$4 billion a year in corporate welfare” and added that he didn’t think anyone believes that a corporation like ExxonMobil really needs extra money coming from the government. Romney hit back saying that the tax break for oil companies is only $2.8 billion a year and that Obama had enacted $90 billion worth of tax breaks in one year for green energy, which he said dwarfed the oil tax breaks 50 times over.

On the oil company tax break claims, Obama’s figure is much closer to the truth. The President’s 2013 budget has a package of provisions that would eliminate or reduce special tax breaks for the fossil fuel industry and the Treasury estimates this would raise $39 billion over a decade. (See page 80 of this budget document.) A CTJ report explains the arguments for these provisions. Ironically, the oil industry itself puts this number much higher, claiming that the Obama administration’s proposal would eliminate about $8.5 billion in tax breaks it receives annually.

In addition, FactCheck.org points out that Romney’s claims on Obama’s clean energy tax breaks were largely bogus. Just to list some of the problems with Romney’s $90 billion claim, FactCheck.org notes that these breaks were spent over two years not one, that the figure includes loan guarantees not just actual spending, and that many of these “breaks” were spent on infrastructure projects.

Debate Debrief: Romney and Obama Compare Tax Policies

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During the first presidential debate of this election season, President Barack Obama and former Governor Mitt Romney’s discussion focused primarily on what is arguably the most important issue of this election: tax policy. Over half of the debate was spent on the intricacies of tax policy, from the treatment of small businesses to the precise revenue cost of trillions of dollars in proposed tax cuts.  Here we offer some criticism and context.

Size of the Candidates’ Tax Cut Plans

Early in the debate Obama explained that Romney’s “central economic plan calls for a $5 trillion tax cut – on top of the extension of the Bush tax cuts.” Romney denied this, saying “I don’t have a $5 trillion cut. I don’t have a tax cut of the scale that you’re talking about.” Romney added that his plan would not “reduce the share of taxes paid by high-income people” and that it would “provide tax relief to people in the middle class.”

The truth is that Romney isn’t proposing a $5 trillion tax cut, he’s proposing to cut taxes by over $10 trillion over ten years. Romney proposes new tax cuts costing around $500 billion a year (according to the Tax Policy Center) on top of making permanent all the Bush tax cuts, which by themselves would cost $5.3 trillion over a decade.

Romney is proposing to make up some of the $5 trillion in additional tax cuts by closing loopholes, eliminating deductions and other tax expenditures, but he has kept his plan secret so far and has refused to name even a single tax expenditure he would eliminate or loophole he’d close.

An analysis by Citizens for Tax Justice found that even if millionaires were forced to give up all the tax expenditures that Romney has put on the table, his tax plan would still give a tax break of at least $250,000 on average for individuals making over $1 million. That is, he simply cannot back up his assertion that he is “not going to reduce the share of taxes paid by high- income people.” And if he really is going to make up the revenues we’ll lose to his rate cuts, taxes would have to go up for other taxpayers.

Throughout the debate, Romney referred to several studies showing that his plan is mathematically possible (a low standard to meet to be sure), but the reality is that the studies he’s referring to aren’t all actual studies, nor do they fully support his plan.

It’s important to note that while Romney’s tax plan is the height of fiscal irresponsibility, Obama himself is proposing to extend most of the Bush tax cuts, at a cost of $4.2 trillion over the next ten years. The President assured the audience that he wants to “continue the tax rates - the tax cuts that we put into place for small businesses and families.  But,” he continued, “for incomes over $250,000 a year that we should go back to the rates that we had when Bill Clinton was president,” that is, the pre-Bush tax cuts rate.

CTJ has analyzed Obama’s plan and found that extending 78 percent of the Bush tax cuts will lose far too much revenue in the long run. The President’s plan would extend the tax cuts for the first $250,000 a married couple makes. We also found that married couples making between $250,000 and $300,000 would still continue to enjoy, on average, 98 percent of the Bush tax cuts. Fewer than two percent of taxpayers would lose any part of the Bush tax cuts under Obama’s plan, so it’s hardly a bold proposal for reducing the deficit and restoring urgently needed revenues.

In other words, neither presidential candidate showed on Wednesday night that they have fully come to terms with the fact that the United States cannot afford continuing to hand out trillions of dollars in tax cuts.

Long Term Deficit Reduction Plans

At a Republican presidential debate over a year ago, Romney joined with all the other candidates in saying that they would reject any deal that raised tax revenues, even one that would include $10 in spending cuts for every $1 in additional tax revenue – ten times more in crippling spending cuts than tax increases. When pushed by the moderator during Wednesday’s presidential debate, Romney stood firm, saying that he had “absolutely” ruled out the possibility of raising additional revenue to reduce the deficit.

The Simpson-Bowles Commission plan to balance the budget, which Romney praised last night, however, requires a ratio of $1 in spending cuts to $1 in revenue increases (compared to the budget baseline that Obama and many members of Congress use). Ironically, by seemingly embracing Simpson-Bowles, Romney put himself to the left of Obama, whose own long term deficit reduction plan actually cuts fewer taxes and less spending than Simpson-Bowles. As Obama explained in the debate: “the way we do it is $2.50 for every cut, we ask for a dollar of additional revenue.”  (And he repeatedly points out, of course, that his health care legislation will slow the deficit’s growth by reducing Medicare costs.)

Neither candidate is acknowledging the elephant in the room. In the long-run, what they really have to do to fix the budget deficit is just to stop extending most or all of the Bush tax cuts, or find a way to pay for those parts they do extend.

Tax Questions and Tax Facts for the Presidential Candidates

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Read the PDF version of this document.

As President Barack Obama and former Massachusetts Governor Mitt Romney face off in their first debate, a number of big-picture questions about tax policy remain unanswered by either candidate.

Given the budget deficit, why should we extend all of the Bush tax cuts (as Romney proposes) or most of the Bush tax cuts (as Obama proposes)?

■ The Congressional Budget Office estimates that a full extension of the Bush tax cuts, which Governor Romney supports, would cost about $5.2 trillion over ten years, including interest, while President Obama’s proposal to extend most, but not all, of those tax cuts will cost about $4.3 trillion over ten years, including interest.

■ That means if Congress enacts one of these approaches, we lose either $5.2 trillion or $4.3 trillion, compared to current law (compared to what would happen if Congress does nothing).

Given that the Bush tax cuts, taken together, disproportionately benefit the rich, why should we extend all or most of them?

■ Citizens for Tax Justice estimates that the richest one percent of Americans would receive 32 percent of the benefits of a full extension of the Bush tax cuts, which Governor Romney supports.

■ CTJ finds that the richest one percent would receive 11 percent of the benefits from Obama’s proposal to extend most, but not all, of the Bush tax cuts (and the other tax cuts Obama wants to extend).

■ By way of comparison, the poorest fifth of Americans would get just one percent of the benefits from the Republican approach and just 3 percent of the benefits from Obama’s approach.

Why have neither Obama nor Romney proposed to end the tax loophole that is targeted to the richest one percent of taxpayers — the special, low tax rate for capital gains?

■ Romney proposes to enact new tax cuts (on top of extending the Bush tax cuts) but claims that he can offset the costs by limiting tax expenditures (tax deductions, exclusions, credits and other special breaks). But Romney pledges to retain the most unfair tax expenditure of all, the lower rate for capital gains, which allows wealthy investors like himself and Warren Buffett to pay a lower effective tax rate than many working people.

■ Meanwhile, Obama proposes to limit the value of each dollar of deductions and exclusions for the rich to 28 cents, and he would impose a minimum tax on people making more than $1 million. Both measures are relatively complicated and neither would entirely eliminate situations in which wealthy investors pay a lower effective tax rate than wage-earners.

■ The most straightforward reform would be to eliminate the most unfair tax expenditure by repealing the special rate for capital gains and simply taxing all personal income under the same tax rates. CTJ estimates this would raise at least $533 billion over a decade.

Why does neither candidate propose to raise needed revenue from corporate tax reform?

■ President Obama has proposed to close corporate tax loopholes, while Governor Romney has been unclear on this point. But any revenue saved from corporate loophole-closing under either candidate would be given back to corporations in the form of a reduction in their tax rate. Both candidates have proposed to reduce the official 35 percent corporate income tax rate (to 28 percent in the case of Obama and 25 percent in the case of Romney).

■ Corporations claim that they are burdened by the statutory tax rate of 35 percent, but their effective tax rate (the percentage of profits they actually pay in taxes) is usually far lower than that because they use loopholes to shield much of their profits from taxes.

■ Each of the reasons used by corporate lobbyists to argue for lower taxes is easily refuted. For example, they claim that the corporate tax is ultimately borne by the workers, but if that was true, then corporations wouldn’t bother lobbying Congress to lower it.

■ An obvious way to address our fiscal problems is to close corporate tax loopholes and use the revenue to reduce the deficit or pay for education, infrastructure or other investments.


Play Presidential Debate Tax Bingo

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To make watching the debates just a little more fun, we created a Bingo card with all the tax and budget related terms we expect the two candidates to trot out time and again over the coming debates. (If you want to make the debates even more fun you could have a drink everytime they use one of these words as well, but you didn't hear this from us.)

Bingo Card #1 Bingo Card #2 Bingo Card #3


Romney's Idea to Limit Deductions to $17,000 Cannot Make His Tax Plan Work

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CTJ Analysis Shows That Millionaires Would Get Average Tax Cut of $250,000 Even If Deductions and Exclusions Are Limited to Zero

Today, presidential candidate and former Massachusetts Governor Mitt Romney suggested that one way to offset the cost of his proposed tax cuts would be to limit deductions to $17,000.

“As an option you could say everybody’s going to get up to a $17,000 deduction; and you could use your charitable deduction, your home mortgage deduction, or others – your healthcare deduction. And you can fill that bucket, if you will, that $17,000 bucket that way,” he said on a local Denver news show. “And higher income people might have a lower number.”

In September, Romney argued that he would eliminate enough deductions, exclusions and other special breaks to offset the costs of the new tax cuts he proposes, and that the net result would not be a tax increase for the middle-class or a tax cut for the rich.

But an August analysis from Citizens for Tax Justice demonstrated that even if itemized deductions and exclusions were eliminated entirely, people who make over $1 million would still see an average net tax break of $250,000 in 2013 under Romney’s plan.

That’s partly because the new tax breaks that Romney proposes are so generous to the rich that they would outweigh the loss of any deductions or exclusions. In addition to making permanent all the Bush tax cuts, Romney would reduce income tax rates by a fifth and eliminate the AMT and the estate tax.

Another reason is that Romney pledges to keep the special breaks that benefit the wealthy most of all — breaks for investment and savings like the special low rate for capital gains.

As a result, there is simply no way to Romney could fill in the details of his tax plan in a way that will not result in huge tax cuts for the very rich.

For low- and middle-income people, the loss of tax expenditures (tax deductions, exclusions, credits and other breaks) under Romney’s plan could outweigh any gains from the tax rate reductions and other new tax cuts, resulting in a net tax increase. In fact, this result is inevitable if Romney is to accomplish his goal of not further increasing the deficit while at the same time cutting taxes for millionaires by at least $250,000 on average.

Tim Kaine Lurches Right in Quest for "Middle Ground"

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Former Virginia Governor and current Senate candidate Tim Kaine found himself in hot water after a Senatorial debate last week in which he expressed a willingness to consider “a proposal that would have some minimum tax level for everyone.” Perhaps even worse, Kaine has also proposed a so-called “Middle-Ground” approach to the Bush tax cuts, which he says in his TV ad is fiscally responsible. His middle ground position – putting him between a tax-averse Democratic president and a tax-loathing Republican rival – would extend the Bush tax cuts for the first $500,000 that a taxpayer makes in a year.

His fiscally irresponsible ideas about the expiring Bush tax cuts merit their own outrage. Kaine’s proposal to raise the income threshold above which the Bush tax cuts expire to $500,000 would save 22 percent less revenue than Obama’s $250,000 threshold, and 73 percent of the lost revenue would be paying for tax cuts for people making over $500,000.  A full 30 percent of the cost of Kaine’s extra tax cuts would go to people making over $1 million!

It’s not surprising that his statements regarding a minimum tax have caused an uproar considering that such proposals are usually the province of radical conservatives like Minnesota Republican Michelle Bachman, rather than that of moderate Democrats. Ironically, Kaine himself made a strong case against such a proposal in the debate when he noted that “everyone pays taxes,” a point Citizens for Tax Justice repeatedly makes.

What’s so disturbing about Kaine’s Bush tax cut proposal, as opposed to his openness to a minimum tax (which he’s already walked back), is that it isn’t out of the realm of possibility. Last May, Democratic House Minority Leader Nancy Pelosi proposed to raise the income threshold over which the Bush tax cuts should expire even higher, from $250,000 to $1 million. Kaine and like-minded Democrats need to reconsider their position because allowing even more of the Bush tax cuts to stay in place makes about zero fiscal sense.

Front Page Photo of Tim Kaine via Third Way Creative Commons Attribution License 2.0

Last year, when billionaire investor Warren Buffett created a storm by arguing that Congress should reform the tax system that allows him to pay a lower effective rate than his secretary, Senate Republican Leader Mitch McConnell quipped, “if he’s feeling guilty about it, I think he should send in a check.”

This is the common refrain from anti-tax lawmakers and pundits: rich people like Buffett who believe they pay too little in taxes should just make a voluntary contribution to the IRS and stop pestering Congress to raise taxes. Republicans in both chambers of Congress introduced bills to encourage such voluntary contributions, and one was approved by the House of Representatives last week.

Last week, we also learned that presidential candidate Mitt Romney, did, in effect, make a voluntary contribution to the IRS when he decided to forego almost half of the $4 million in charitable deductions that he was allowed under the law for 2011.

Clearly, we can’t expect this sort of voluntary contribution to occur very often. Romney initially resisted the idea strongly, going so far as to state, in January, “I pay all the taxes that are legally required and not a dollar more. I don't think you want someone as the candidate for president who pays more taxes than he owes.”

But this recent disclosure from Romney’s trustee says that Romney decided to forgo the charitable deductions so that his effective tax rate would “conform” with his earlier statements that he always paid at least 13 percent of his income in federal income taxes. CTJ senior counsel Rebecca Wilkins calculated that his effective tax rate would have been around 10.5 percent if he took all the charitable deductions he was allowed for 2011.

So aside from the occasional multi-millionaire who runs for president and wants to avoid answering difficult questions about the policies that allow him to pay so little, can we expect many wealthy Americans to voluntarily pay for public services and public investments?

No. We cannot pay for roads, schools, aircraft carriers and many, many other public goods with voluntary contributions. Even conservative writers for the Economist have skewered the idea, explaining that

A rationally self-interested individual will not voluntarily pay for public goods if she believes others will pay and she can get a free ride. But if we're all rationally self-interested, and we know we're all rationally self-interested, we know everyone else will also try to get a free ride, in which case it is doubly irrational to voluntarily pitch in. Even if you're not inclined to ride for free, why throw good money at an enterprise bound to fail?

In other words, “game theory” suggests that we would not bother to make a voluntary contribution to, say, build a highway, because we know the task will require contributions from many people who are unlikely to make them. As a result, we end up without the new highway, even if the majority of us want it to be built.

That highway can’t be built with the contributions of the occasional public figure who’s embarrassed about his tax loopholes. Not even one with Mitt Romney’s wealth.

Mitt Romney's 2011 Returns Reveal a Tax Code Stacked in Favor of the Very Rich

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Mitt Romney’s 2011 Returns Reveal a Tax Code Stacked in Favor of the Very Rich Because of Loopholes and Special Rates Not Available to Ordinary Taxpayers

Washington, DC – Since Citizens for Tax Justice (CTJ) first calculated that GOP Presidential candidate Mitt Romney likely paid a 2010 federal income tax rate of 14 percent in October of 2011, CTJ’s analysts have been helping to explain the features of our tax code that allow high wealth individuals like Romney to pay such a low federal income tax rate. The explanation is that loopholes in the tax code benefit the most affluent. 

After reviewing Mitt Romney’s 2011 return (an estimate of which he released in January), and the 20-year summary of the candidate’s taxes issued by his lawyer, CTJ’s Senior Counsel for Federal Tax Policy, Rebecca Wilkins, issued the following statement:

“It’s an indictment of the federal tax code that a man of Mitt Romney’s wealth could pay a federal tax rate as low as 10 percent. While he chose to forgo deductions for charitable contributions in order to keep his “commitment to the public that his tax rate would be above 13 percent,” bringing his rate up to 14 percent for 2011, it is still outrageous that the code allows such a low rate.

“He also takes advantage of a special low rate on investment income. The preferential rate on capital gains and dividends saved Mitt Romney a whopping $1.2 million in taxes in 2011, cutting his tax bill almost in half.  He would have paid $3.1 million in taxes without that special treatment. And much of his low-rate income is really compensation from Bain Capital that should have been taxed like regular wages or salary, but is disguised as capital gains using the “carried interest” loophole.

“Romney also paid $675,000 under the Alternative Minimum Tax (AMT). If his own tax plan, which eliminates the AMT, had been in place in 2011, he would have saved himself an additional $675,000, or one third of his entire federal tax bill, and reduced his effective rate to 9 percent.

“Also notice that Mitt Romney’s tax return for 2011 is almost twice as long as it was in 2010. It is 379 pages long, and 250 pages are foreign entity disclosure forms. Put simply, that’s 250 pages about his offshore investments.

“Further, the summary provided by his lawyer is playing games by averaging Romney’s 20-year tax rate. Including the years 1992-97 skewed his rate upwards because during those years, the capital gains rate was 28 percent instead of the 15 percent it is now. If they’d averaged only the last 15 years, his rate would have been much lower.

“And one final point is that Romney continued to work and make lots of money even when his capital gains tax rate was almost double the current rate, the rate he wants to retain.  Yet he says that the low capital gains rate is essential to incentivizing rich people to do what they do.  How does he explain that?”


Citizens for Tax Justice (CTJ), founded in 1979, is a 501 (c)(4) public interest research and advocacy organization focusing on federal, state and local tax policies and their impact upon our nation (www.ctj.org).

Three Things Romney Forgot to Say About Who Pays Taxes

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Republican Presidential Candidate Mitt Romney was caught on tape explaining to a group of prospective donors that 47 percent of Americans “pay no income tax” and generally fail to contribute their fair share. In identifying these presumed slackers who would never vote for him, Romney betrayed his own myopia about how the tax system works.

Here’s what Romney doesn’t talk about when he talks about taxes.

1. All Americans Pay Taxes

If you look at the tax system as a whole, the share of taxes paid by Americans in each income group is similar to their share of total income.




While Romney is about right that 47 percent of Americans do not specifically pay the federal income tax (according to Tax Policy Center Data), this statement is extremely misleading because it disappears the more than half of this same group that pays payroll taxes. And, every American pays state and local taxes – income, sales, property, etc.

In fact, the bottom 20 percent of taxpayers pays substantially more in state and local taxes as a percentage of their income than any other income group.

Are there people out there who don’t pay any taxes? When we went looking, we couldn’t find any, so we had to make one up.

2. Our Federal Tax System Rewards Work and Combats Poverty, and that’s Good

While every American pays some taxes, it is the case that about 18 percent of Americans pay neither payroll nor federal income taxes. Who are these alleged freeloaders? About 60 percent of them are elderly, meaning that they’re unable to work and are largely living on limited retirement income.

The rest of the households that don’t pay payroll or federal income taxes are low income households bringing in less than $20,000 each year, and who are benefitting from highly effective tax credits like the earned income tax credit (EITC) and child tax credit (CTC).  These credits incentivize work while providing much needed support to low and middle income family budgets, and in 2010 they were responsible for lifting 9.2 million people, including 4.9 million children, above the poverty line.

The effectiveness of these credits is so widely recognized across the political spectrum that every single president since Gerald Ford, from Reagan to Obama, has enacted expansions of the EITC or CTC.  Ronald Reagan once called the EITC the “the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress,” and George W. Bush expanded it as part of his 2001 tax cuts.

3. Also Paying No Federal Income Tax Are High Wealth Individuals and Highly Profitable Corporations

Low income families who pay nothing in federal income taxes are using provisions that were written into the tax code by Congress, just like wealthy corporations and individuals (including Romney himself) do to bring down their tax bills.

On the corporate side, Citizens for Tax Justice found that from 2008-2011, 30 Fortune 500 companies, including the likes of General Electric and Verizon, made $205 billion in profits, yet their overall tax bill was actually negative. The corporate tax system has become so full of loopholes and tax breaks (yes, written by Congress) that what even the most profitable companies actually pay on average is roughly half the statutory corporate tax rate.

As far as the wealthiest Americans, a recent IRS study found that in 2009 a shocking 35,000 Americans making over $200,000 paid not a dime in federal income tax. Similarly, many of the country’s wealthiest Americans, like billionaire investor Warren Buffet, pay lower tax rates than middle class Americans, largely due to the tax break on capital gains income and a plethora of other tax loopholes.

Fact Check: Romney Energy Adviser's Oil Company Pays 2.2 Percent Federal Tax Rate

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It turns out that Mitt Romney’s energy policy adviser, Harold Hamm, is the CEO of an oil company called Continental Resources, and we all know that energy companies get some of the most generous breaks in the U.S. corporate income tax code. When we learned Hamm had submitted testimony to the House Energy and Commerce Committee claiming that his company pays a 38% effective tax rate, we had to fact check it.  We reviewed data from the company’s own financial reports and ran the numbers, and it turns out Continental Resources has paid a mere 2.2% federal corporate income tax rate on its $1,872 million in profits over the last five years.  Read our one-pager here.

Romney Gets It From All Sides: Stop Dodging Tax Policy Details

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With just eight weeks to go until Election Day, Republican Presidential nominee Mitt Romney continues to channel former First Lady Nancy Reagan's "Just Say No" campaign. Romney first said "no" to releasing more of his federal income tax returns and now he's saying "no" to releasing details of his plans to change the tax code for the rest of us. But in the same way adults respond to a terrible-twos child with a serious case of the “No’s”, the adults are starting to demand better answers.

Only yesterday, editorials from both the New York Times and the Los Angeles Times took Romney to task over his and running mate Paul Ryan's failure to explain to the American taxpayer just what they would do tax policy-wise. And the Washington Post was clear in its editorial that Americans deserve to know whether Romney plans to follow in the footsteps of former President George W. Bush, who “enacted tax cuts that plunged the nation into debt.”

Politico, meanwhile, reported that Republicans and movement conservatives (from George Pataki to the Wall Street Journal) are warning that the GOP ticket better come clean on its policy plans or risk losing the election. (Evidently believing that once voters hear about their plans to coddle the rich and soak everyone else they will sweep them to electoral victory.)

Two weeks ago, CTJ’s Bob McIntyre also called for Romney to stop stalling and level with the public about his secret tax plan. We, too, have written at length on the lack of math (serious or otherwise) coming from the top of the Republican ticket.

Romney's refusal to release any more of his federal income tax returns tells us he doesn't want people to know how he made his money. Is his refusal to reveal the details of how, if elected, he'd change the tax code an indication he doesn't want you to know what might happen to your money?  

Romney's Bad Arithmetic: CTJ Report Disproves Claim that Romney Won't Lower Taxes for the Rich

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For Immediate Release: September 10, 2012
Contact: Anne Singer, 202-299-1066, ext. 27

Romney’s Bad Arithmetic: CTJ Report Disproves Claim that Romney Won’t Lower Taxes for the Rich

Washington, DC – On Sunday, September 9, presidential candidate Mitt Romney appeared with David Gregory on NBC’s “Meet the Press” and discussed his tax plan, which his campaign website explains would extend the Bush tax cuts, lower all income tax rates by a fifth, and introduce additional tax breaks. Romney claimed that his tax plan would not result in lower taxes for the rich because it would eliminate loopholes that currently reduce the tax bills of the rich. But Romney refused to identify those tax loopholes, or “tax expenditures” as they are often called, that he would eliminate.

“Well, I can tell you that people at the high end, high-income taxpayers, are going to have fewer deductions and exemptions,” Romney told Gregory. “Those numbers are going to come down. Otherwise they’d get a tax break. And I want to make sure people understand, despite what the Democrats said at their convention, I am not reducing taxes on high income taxpayers.” He also said that, “[w]e’re not going to have high-income people pay less of the tax burden than they pay today.”

“The question is not whether the rich will get a tax cut under Romney’s plan,” said CTJ director Robert S. McIntyre. “The question is how big the break for the richest Americans will be. We estimate that millionaires would get somewhere between $250,000 and $400,000 on average in 2013 if the plan was in effect then, no matter how Romney fills in the gaps – which are many.”

A recent CTJ report concluded that if Romney’s plan was in effect next year, people making over $1 million would get an average tax cut of $250,000 even if these wealthy taxpayers have to give up all of the tax loopholes or tax expenditures that Romney has put on the table. (This average break of $250,000 includes about $146,000 that millionaires would receive on average if Congress extended the Bush tax cuts in effect today but made no other changes.)

In other words, for very high-income taxpayers, the value of the tax rate reductions and other new breaks spelled out in Romney’s plan far outweigh the value of all of their tax loopholes and tax expenditures – meaning it would be impossible for Romney to implement his plan without lowering their taxes substantially.

The CTJ report also found that if Romney implemented his plan without touching tax loopholes or tax expenditures, then people who make over $1 million would receive an average tax cut of $400,000. This scenario seems very possible given that Romney has failed to specify a single tax loophole or tax expenditure that he would reduce or eliminate.

The Tax Loopholes Romney Took Off the Table Are the Most Targeted to the Rich

As the CTJ report explains, millionaires would not get such a large tax break under Romney’s plan if he eliminated the many tax loopholes and tax expenditures for investment income in the tax code – but Romney has taken these off the table. For example, the special break for capital gains and stock dividends mostly benefits the richest one percent of taxpayers, but Romney’s campaign website says that his plan would “maintain current tax rates on interest, dividends, and capital gains.”

Meanwhile, Romney’s running mate, Congressman Paul Ryan, told George Stephanopoulos on ABC’s “This Week” that most tax loopholes go to the rich, ignoring the fact that he and Romney have pledged to keep the main tax loophole for the rich, the preferential rates for capital gains and stock dividends.

“Now the question is not necessarily what loopholes go,” Ryan said “but who gets them. High income earners use most of the loopholes. That means they can shelter their income from taxation.”

Actually, the capital gains and dividends break provides the most widely-used tax shelters for the rich, including the technique by which Mitt Romney and other private equity fund managers characterize their compensation as “carried interest,” which they claim is a type of capital gains, in order to cut their tax rate by more than half.

In October of 2011, CTJ director Robert S. McIntyre was the first observer to calculate that Romney’s tax rate was likely about 14 percent because most of his income is characterized as capital gains using the loophole for “carried interest.”

By leaving in place the lower rates for capital gains and stock dividends, Romney’s plan would leave in place the existing incentives to engage in these types of tax shelters.

* * *

Citizens for Tax Justice (CTJ), founded in 1979, is a 501 (c)(4) public interest research and advocacy organization focusing on federal, state and local tax policies and their impact upon our nation (www.ctj.org).






How the Democratic National Convention Ended Better than We Expected

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We were not very hopeful that the Democratic National Convention (DNC) in Charlotte would be any more enlightening about tax policy than its Republican counterpart in Tampa. In a previous post we criticized the drafters of the Democratic platform for tripping over themselves to celebrate tax cuts and failing to say much about finding new revenue beyond allowing the Bush tax cuts to partially expire for the richest two percent of Americans.

But the DNC turned out better than we expected. It wasn’t just Obama’s mocking the GOP stance on taxes and smaller government (deservingly) as a cure for everything: “Feel a cold coming on? Take two tax cuts, roll back some regulations, and call us in the morning.” Several DNC speeches were surprisingly specific and brought to light some important issues. The following are some highlights.  

Joe Biden Blasts Romney’s “Territorial” Tax

Governor Romney believes that in the global economy, it doesn’t much matter where American companies put their money or where they create jobs. As a matter of fact, he has a new tax proposal — the “territorial” tax — that experts say will create 800,000 jobs, all of them overseas.

Biden was citing a study estimating that adoption of a territorial tax system by the U.S. would create 800,000 jobs overseas, and that during a recession those jobs would likely come at the cost of U.S. jobs.

There are many, many reasons to oppose a territorial tax system, which would essentially exempt the offshore profits of U.S. corporations from U.S. taxes. We have explained in a fact sheet and in a more detailed report that a territorial system would increase the already significant incentives for corporations to move operations (and jobs) offshore, or to just disguise their U.S. income as foreign income by using complex transactions involving tax havens.

Bill Clinton Dismantles Romney’s Tax Plan

We have a big debt problem, we got to reduce the debt, so what’s the first thing he [Romney] says he’s going to do? Well, to reduce the debt, we’re going to have another $5 trillion in tax cuts, heavily weighted to upper-income people… Now, when you say, what are you going to do about this $5 trillion you just added on? They say, oh, we’ll make it up by eliminating loopholes in the tax code. So then we ask, well, which loopholes, and how much? You know what they say? See me about that after the election…

This is the defining feature of Mitt Romney’s tax plan — he simply refuses to tell us which loopholes he would reduce or eliminate to make up the cost of his 20 percent reduction of personal income tax rates and the other new breaks he proposes. This makes it impossible for organizations like Citizens for Tax Justice and the Tax Policy Center to say exactly what the impact will be on different income groups — and we’d be naïve if we didn’t think this was intentional.

Clinton went on about the three possible ways Romney would have to fill in the details of his plan.

One, they’ll have to eliminate so many deductions, like the ones for home mortgages and charitable giving, that middle-class families will see their tax bills go up an average of $2,000, while anyone who makes $3 million or more will see their tax bill go down $250,000. Or, two, they’ll have to cut so much spending, that they’ll obliterate the budget for national parks, for ensuring clean air, clean water, safe food, safe air travel. They’ll cut way back on Pell Grants, college loans, early childhood education, child nutrition programs… Or, three… They’ll go and cut taxes way more than they cut spending… and they’ll just explode the debt and weaken the economy.

Our own analysis of Romney’s plan found that people who make over $1 million would get an average tax break of $400,000 if Romney didn’t bother to reduce or eliminate any of the tax loopholes enjoyed by the rich. On the other hand, we found that even if he took away all of the loopholes enjoyed by the rich, the people making over $1 million would still get an average break of $250,000. Millionaires would get huge breaks no matter what because the benefit of Romney’s rate reductions would outweigh all the tax loopholes they enjoy.

For middle- and lower-income families, the loss of these tax loopholes or tax expenditures could exceed the gains from Romney’s promised rate reductions, and this would have to be the case if Romney is to offset the costs of his tax breaks as he promises. Otherwise, the spending cuts or deficit-explosion described by Clinton would occur.

An analysis from the Tax Policy Center, which provided the figures quoted by Clinton, came to the same sort of conclusion.

Eva Longoria: I Don’t Need Romney’s Tax Cut for Millionaires

OK, we know, we know, you don’t normally expect to hear anything enlightening about tax policy from a celebrity best known for her role on Desperate Housewives. But Longoria did articulate a point that hasn’t always been made clearly.

Mitt Romney would raise taxes on middle-class families to cut his own and mine. And that’s not who we are as a nation, and let me tell you why. Because the Eva Longoria who worked at Wendy’s flipping burgers, she needed a tax break. But the Eva Longoria who works on movie sets does not.

That sums up the idea behind progressive taxes. Tax breaks like the Earned Income Tax Credit (and to an extent, the Making Work Pay Credit that was in effect for a couple years) are the types of tax cuts that help people who needed it — people struggling to get by on low-wage work. Sadly most of the tax breaks enacted in recent years are the other type, the tax cuts that go to people like Eva Longoria today.

This is reminiscent of the conversation in 2008 between candidate Obama and Joe Wurzelbacher, aka “Joe the Plumber.” Joe said it was wrong to end the Bush tax cuts for high-income people because he hoped to be one of those people one day. Obama replied that Joe needs a tax cut now, while he’s working to get his business off the ground, and not after he’s making over $250,000 a year.

Tax Ideas in the Democratic Platform: Obama as Tax-Cutter-In-Chief

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In its 2012 Platform, the Democratic Party broadly calls for a tax system that asks “the wealthiest and corporations to pay their fair share,” while also taking “decisive steps to restore fiscal responsibility.” The actual policy proposals called for in the platform, however, are wholly inadequate to achieve either tax fairness or fiscal sustainability.

The Bush Tax Cuts

The most important platform plank on the individual side of the tax system is the call to allow the “Bush tax cuts for the wealthiest to expire,” which reflects President Obama’s proposal to allow the Bush tax cuts to expire for income over $250,000. Under the president’s proposal, 98.1% of Americans would continue receiving the entirety of their Bush tax cuts. It’s important to note that while the wealthiest Americans would lose part of their tax cuts under President Obama’s proposal, they would still receive generous tax breaks because any income up to $250,000 (or $200,000 for singles) would continue to be taxed at the low, Bush tax cut rates. As a result, the wealthiest 1%, for example, would get an average tax break of $20,130 in 2013.

It is also important to note that even this partial extension of the Bush tax cuts the president proposes would increase the deficit by an astounding $4.2 trillion over the next decade. To be sure, President Obama’s plan is much more fiscally responsible than a full extension of the Bush tax cuts, which would increase the deficit by $5.4 trillion. But fiscal responsibility will eventually require something bolder than simply extending most of the tax cuts that are responsible for most of the deficit.

Corporate Tax Reform

Turning to corporate taxes, the Democratic platform follows the misguided “Framework for Corporate Tax Reform,” introduced by President Obama earlier this year, which proposes to use the closure of corporate tax loopholes to pay for lower corporate tax rates. It also proposes an expansion of the research and manufacturing tax credits. What this framework gets right is a call to end the egregious loopholes and tax breaks that allow major corporations to pay an average effective tax rate of half the statutory rate, with many corporations paying nothing at all.

The problem is that instead of using the revenue raised by eliminating tax loopholes and breaks to fund desperately needed government investments and reduce the deficit, the Democratic platform, like the president’s framework, squanders the revenue on lower corporate tax rates and/or additional wasteful tax breaks. In other words, this kind of “revenue-neutral” corporate tax reform is not what the US needs; instead, we need revenue-positive reform.

Stuck in the Anti-Tax Mindset

The Democratic Party 2012 platform reveals a party deeply committed to the anti-tax mindset that historically is associated with the Republican Party. Rather than laying out the cold, hard truth about how the US needs to raise a substantial amount of revenue to meet its commitment to future generations, the Democratic platform seems an attempt to one–up Republicans on the virtues of tax cutting by touting the wide variety of cuts Democrats already enacted, and the massive amount they plan to extend. Given the enormous need for revenue to fund public investments and eventually reduce the deficit, a record of tax-cutting should be a source of embarrassment rather than pride or celebration.

Convention Speaker Profiles: Governors Malloy, Hickenlooper, Markell & Schweitzer

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Like the Republicans last week, Democrats are featuring governors at their national nominating convention. Because convention speakers are chosen as the parties’ ambassadors to new audiences during these TV spectacles, the state policy team at the Institute on Taxation and Economic Policy are providing quick sketches of current governors from both parties who have been leaders – for better and for worse – in state tax policy. Below are profiles of tonight’s speakers, in order of appearance, at the DNC in Charlotte, NC. (The Sept. 5 speakers are profiled here.)

Connecticut Governor Dan Malloy: Connecticut Governor Dan Malloy championed a balanced and sensible approach to his state’s budget crunch last year (his first in office) that put the Nutmeg State on a path to fiscal sustainability while also protecting critical and core public services that all Connecticut residents depend on.  Malloy’s budget raised substantial new revenue by asking his state’s wealthiest residents and highly profitable corporations to pay more, and by broadening the sales tax base to include more goods and services.  At the same time, Malloy cut taxes for the state’s poorest working families with the introduction of a significant refundable state Earned Income Tax Credit (EITC), a great example of how the tax system plays a key role in alleviating hardship and boosting incomes for low-income working families.  Governor Malloy (who earned CTJ’s Most Likely to Make the Rich Pay Their Fair Share award)   frequently refers to himself as the “Anti-Christie” in juxtaposition to the New Jersey Governor who has rejected even a temporary tax increase on Garden State millionaires passed by his legislature, but has had no qualms about increasing taxes on his poorest constituents.

Colorado Governor John Hickenlooper: Despite coming into office after defeating two anti-tax candidates, Governor Hickenlooper has done very little to fix Colorado’s devastatingly regressive tax system. In fact, he refused to support a Democratic backed ballot initiative to raise taxes, Proposition 103, that would have protected funding for public schools and universities in Colorado. One small step he has taken was signing legislation that ended the agricultural property tax loophole, which had somewhat famously allowed Tom Cruise to claim massive tax breaks for letting sheep occasionally graze around his mansion.

Governor Hickenlooper has the chance to be a great reformer, however, if he uses his signature TBD Initiative (a year-long series of town halls across the state) to make the case for repealing Colorado’s crippling TABOR law and enacting graduated income tax brackets.

Delaware Governor Jack Markell: As the newly elected chair of the National Governor’s association, Governor Markell will play a leadership role in setting the policy agenda across the states over the next year. This could be a very good thing if Governor Markell sticks to the principles laid out his Washington Post op-ed, which argued that providing robust infrastructure, education, and other critical government services are more important to job creation than lower taxes. Unfortunately, last year Governor Markell did not fully stand by these principles when he squandered the improved budget outlook of Delaware by signing a wasteful tax break for banks in the state.

In addition, while Governor Markell cannot be blamed for making Delaware one of the world’s worst tax havens, he has been complicit in maintaining the low tax rates and corporate opacity that have allowed this tax haven to thrive.

Montana Governor Brian Schweitzer (not yet scheduled): Governor Schweitzer has yet to come out strongly in favor of significantly improving Montana’s regressive tax structure.  He has advocated for reducing taxes on business equipment and offering property tax breaks for homeowners. There is a lot of room for improvement in terms of fixes necessary to the Montana income tax, which currently offers a costly deduction for federal income taxes paid (PDF) and a capital gains tax break -- which both disproportionately benefit the wealthiest taxpayers. The Governor has missed an opportunity to come out squarely for repeal of these measures, but Schweitzer, who’s said he would boast about his state’s low taxes and strong finances during his DNC appearance, deserves credit for not squandering the state’s surplus on unjustified tax cuts, unlike governors in other states.

Convention Speaker Profiles: Governors Perdue, Quinn, Chafee, Patrick & O'Malley

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Like the Republicans last week, Democrats are featuring governors at their national nominating convention. Because convention speakers are chosen as the parties’ ambassadors to new audiences during these TV spectacles, the state policy team at the Institute on Taxation and Economic Policy are providing quick sketches of current governors from both parties who have been leaders – for better and for worse – in state tax policy. Below are profiles of tonight’s speakers, in order of appearance, at the DNC in Charlotte, NC.

North Carolina Governor Bev Perdue: Governor Bev Perdue took over leadership of the Tarheel state in 2009 during the worst economic recession in modern history, which had caused revenues to plummet and budget gaps to widen.  Perdue recognized the need for tax increases to be part of a balanced and sensible approach to solving North Carolina’s fiscal crisis.  The final budget adopted in 2009 included two temporary taxes – a one cent increase in the state’s sales tax rate and a personal income tax surcharge on the state’s wealthiest residents.  In 2011, revenues were still not fully recovered and Perdue proposed extending most of the temporary sales tax for another two years to prevent deeper cuts to education spending, but her proposal was blocked by the newly minted Republican majority in the state’s House and Senate.  She tried again in 2012, but was once again stopped in her tracks.  Perdue cannot be called the most progressive governor on taxes, but her strong commitment to public education gave her the courage to increase taxes early on and to later propose more, even in a politically challenging environment.  North Carolina Governor Bev Perdue announced earlier in the year that she is not seeking reelection for a second term in office.

Illinois Governor Pat Quinn: Illinois Governor Pat Quinn’s record on taxes is a mixed bag. While he’s shown leadership in terms of advocating for personal and corporate income tax increases and increasing the state’s personal exemption and Earned Income Tax Credit, the Governor has too often offered handouts to companies threatening to leave the state. Under this Governor’s watch, Illinois also stopped funding a property tax credit designed to specifically help low-income seniors and the disabled.  The Illinois tax structure is one of the worst in the country in terms of asking low-income people to pay far more than their fair share. So far, Governor Quinn has not stood up for real progressive policy changes and his piecemeal, situational approach to tax policy is only making his state’s tax code more complicated.

Rhode Island Governor Lincoln Chafee: Governor Lincoln Chafee, an independent, called for tax increases aimed at refilling Rhode Island’s depleted coffers during his election campaign in 2010.  Chafee made good on that promise and earned the A+ for Effort at Sales Tax Reform award in Citizens for Tax Justice’s Governors Yearbook.  In his first year in office, Chafee introduced a sensible tax reform package that would have modernized his state’s sales tax and raised revenue needed to mitigate spending cuts.  Chafee also supported changes to the Ocean State’s corporate income tax, including combined reporting, a smart rule that levels the playing field for small business by preventing multi-national corporations from sheltering profits in other states, as well as an improved corporate minimum tax.  Unfortunately, lawmakers rejected most of his proposal.  Chafee is one of only a handful of governors over the past two years to propose tax increases in order to restore investments or prevent deeper cuts in education, transportation, health care and other spending priorities.

Massachusetts Governor Deval Patrick: Massachusetts Governor Deval Patrick has spent his six years in office largely punting on tax policy for the Bay State.  With the exception of creating a Tax Expenditure Commission last year to examine the more than $26 billion in tax breaks the state hands out each year (which amounts to more money than the state is expected to take in this year!), Patrick has not proven himself to be a leader on improving his state’s tax system. Patrick has publicly supported making the state’s personal income tax more progressive by moving from a flat rate to a graduated rate, but also said he would not “pursue” it in his second term. The governor has supported some revenue increases in his two terms to prevent spending cuts, but mostly they have been  low-hanging fruit in the form of excise taxes (alcohol, tobacco, etc) or have relied heavily on the sales tax.  And last year, Patrick supported yet another annual sales tax holiday in his state despite admitting that he supported it, “frankly, not because it is particularly fiscally prudent, but because it is popular…. People want it."

Maryland Governor Martin O’Malley: Last but definitely not least, Governor O’Malley has been one of the nation’s boldest leaders in standing up to anti-tax forces and protecting critical public programs, which is why Citizens for Tax Justice gave him the Defender of Public Services award in our 2012 Governors Yearbook. While many governors across the nation were continuing to slash public services in order to expand unsustainable tax breaks, Governor O’Malley bucked the national trend and ushered in a progressive tax increase that allowed Maryland to stop further cuts to education, health services and other crucial state government services. Continuing his record, Governor O’Malley has also shown his willingness to stand up for good policy – even if it’s unpopular – with his advocacy of a responsible increase in the gas tax to improve Maryland’s transportation infrastructure.

On Taxes, Romney Projects onto His Opponent

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“Unlike President Obama, I will not raise taxes on the middle class,” Republican presidential candidate Mitt Romney said during his acceptance speech. It was a startling statement because it describes one of the facts about Romney’s own tax plan and attributes it to the policies of his opponent, President Obama.

Romney’s Tax Plan: Breaks for the Rich No Matter How You Look at It, Leaving the Bill for Low- and Middle-Income Americans

A recent CTJ report shows that the basics of Romney’s tax plan would give out huge tax cuts to those who make between half a million and one million dollars and those who make over a million dollars, no matter how the missing details are filled in. Romney cannot possibly meet his goal of offsetting the costs of the tax cuts (besides the enormous Bush tax cuts, which he doesn’t think need to be paid for) without raising taxes on people farther down on the income ladder.

The CTJ report finds that Romney’s proposed tax cuts would reduce taxes by an average $80,000 for people who make between half a million and one million dollars and by an average $400,000 for people who make over a million dollars.

Now, Romney promises to offset the cost of these tax cuts (aside from the enormous Bush tax cuts, which he would make permanent) by reducing or eliminating “tax expenditures,” which are the credits, deductions, exclusions and loopholes that lower people’s tax bills. But even if Romney made the very rich give up all the tax expenditures that he has put on the table, they’d still be getting huge tax cuts —  an average $48,000 for people who make between half a million and one million dollars, and an average $250,000 for people who make over a million dollars.[1]

If Romney’s plan is going to be revenue-neutral (not counting the huge cost of the Bush tax cuts) as he claims, then someone is going to have to pay higher taxes than they do now so that the people who make over half a million dollars a year can pay less. The loss of tax expenditures for low- and middle-income people can be larger than the benefits they receive from Romney’s rate reductions and other proposed breaks, meaning they face a net tax increase. In fact, this must happen for Romney to keep his promise about not losing more revenue, as the Tax Policy Center has already pointed out.

Obama’s Problem Is that He’s Cut Taxes Too Much, Not that He Raised Taxes

Romney’s claim that Obama has raised taxes on the middle-class is initially hard to understand, given Obama’s two-year extension of all the Bush tax cuts and his call to again extend the Bush tax cuts entirely for 98 percent of Americans while letting them expire partially for the richest 2 percent of Americans. (In fact, we pointed out that many of the taxpayers within the richest 2 percent, like those with incomes just over $250,000, would only have to give up a tiny fraction of their tax cuts under Obama’s plan.)

Romney’s claim that Obama has raised taxes on the middle-class appears to refer to the new mandate to obtain health insurance, which the Chief Justice of the Supreme Court decided was actually a tax and therefore within the Constitutional powers of Congress.

As we pointed out at the time the Supreme Court ruled on the health care mandate, very few people would ever actually pay the “tax,” which is the fee that will be imposed on people who choose to go without health insurance. As we explained,

It’s a tax that hardly anyone will pay.

That’s because for the vast majority of Americans who don’t have employer health coverage, the government subsidies to buy insurance will be so large that it would be foolish not to buy insurance.

For starters, any family with income less than 133 percent of the poverty line (that means all families of four with incomes of $30,000 or less) will be eligible to sign up for free coverage under Medicaid.

Above that level of income, the government will provide cash subsidies to buy insurance, starting at almost 100 percent of the cost and gradually phasing down. But the subsidies won’t disappear for a family of four until its income exceeds about $90,000.

An Urban Institute study found that fewer than 3 percent of households would be subject to the fee.

Another point that Romney and his allies seem to forget is that the 2009 economic recovery act that they criticize so much actually cut taxes for 98 percent of working families. (See the national and state-by-state estimates from CTJ.)  

If President Obama has made any mistakes on taxes, it’s that he has been entirely too willing to extend too many tax cuts for too many Americans at a time when we desperately need revenue.



[1] Notice we say that the $48,000 and $250,000 figures are the tax cuts these groups would get if they had to give up all the tax expenditures that Romney has put on the table. That’s because he has pledged to keep the tax expenditures that benefit the rich the most — breaks for investment, like the low rates for capital gains and stock dividends.


Tax Ideas in the Republican Platform, Part I: Same Old Supply-Side Stuff

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The GOP’s core philosophy about tax policy is perfectly distilled in its 2012 platform where it states simply that “[l]owering taxes promotes substantial economic growth.” What this one-sided analysis misses is that lower taxes do not promote economic growth, because they inevitably require (PDF) the government to either cut spending or to increase the deficit.

(Our GOP platform review Part II, Tax Ideas on the Fringe, is here.

Supports More Individual Tax Cuts

The fact that the GOP platform does not make the connection between tax cuts and deficits is starkly demonstrated by the platform’s warning that the US faces an “unprecedented legacy of enormous and unsustainable debt,” while at the same time calling for a complete extension of the Bush tax cuts, at a cost of $5.4 trillion (PDF). While some GOP leaders like to say that tax cuts boost the economy so much that they pay for themselves, there is no evidence to support that claim, and even economists from the Bush Administration and a former Reagan advisor have conceded that over the long run, the Bush tax cuts have no real discernable affect on economic growth.

Supports More Corporate Tax Cuts

Another misguided tax proposal in the GOP platform is the call for a lower corporate tax rate. For one, the platform rests on the mistaken assumption  that “American businesses now face the world’s highest corporate tax rate.” While it may be true that the US has the highest statutory rate on paper, the actual amount of taxes paid by US corporations is nowhere near the statutory rate because of the large swath of corporate tax breaks and loopholes that allow many enormously profitable companies, like General Electric and Verizon, to pay nothing at all in taxes.

Comparatively, the amount of corporate taxes paid as a percentage of GDP in the US is the second lowest in the developed world. In fact, a recent CTJ analysis found that two-thirds of the largest US multinational corporations with significant foreign profits paid a lower corporate tax rate on their US profits than the rate they paid to foreign governments on their foreign profits.

Rather than dealing with the breaks and loopholes that plague our corporate tax system, the GOP platform advocates expanding them, most notably by moving the US to a territorial tax system under which corporations would have a greater incentive to move profits and jobs offshore (a problem that can be solved by ending deferral).

The new Republican platform identifies high rates as the core problem with our current tax system, but the real problem is decades of cuts and proliferating breaks and loopholes are making it impossible over the long term for the government to provide critical services without dangerously increasing the national debt.

CTJ Report: How Big Is the Romney-Ryan Tax Cut for Millionaires?

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Romney and Ryan Both Propose Plans that Would Give Millionaires Average Breaks of at Least $250,000, and Possibly as High as $400,000

Presidential candidate Mitt Romney and his running mate, Congressman Paul Ryan, have both proposed tax plans that would make the Bush tax cuts permanent, further slash personal income tax rates, reduce the corporate income tax rate, and enact several other tax cuts.

Both candidates also say that they would reduce or eliminate many “tax expenditures” (deductions, credits, exclusions and loopholes) so that their plans would cost no more than making all the Bush tax cuts permanent would cost. That’s hard to believe because neither has specified a single tax expenditure they would target. But one thing is clear: for the richest Americans, the rate reductions and other breaks would be far more valuable than any tax expenditures they could lose under either plan. (The details of the Romney and Ryan tax plans are in the appendix.)

Both Romney and Ryan’s plans would give people making over $1 million an average tax cut of about $250,000 if these millionaires had to give up all of their tax expenditures. If Romney or Ryan’s plan was implemented without closing any tax expenditures for the rich, then people making over $1 million would receive an average tax cut of around $400,000.
Read the report.

Tax Ideas in the Republican Platform, Part II: On the Fringe

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The GOP’s 2012 platform contains many of the policies that you would expect from the party, such as calling for the extension of the Bush tax cuts and reducing corporate tax rates. Here we focus, however, on three planks in the platform that fall far outside the mainstream of tax policy.

(Our GOP platform review Part I, Same Old Supply Side Stuff, is here.)

1. Support for a Radical Constitutional Amendment to Restrict Taxes and Budgets

Following efforts by the House GOP last year to pass the most extreme balanced-budget amendment ever, the GOP platform calls for the passage of a constitutional amendment that would require that the federal government have a balanced budget, cap federal spending at its historical average share of GDP (around 18 percent), and require a super-majority for any tax increase (with an exception for war or national emergency). This kind of amendment poses all kinds of problems, not the least of which is that it would immediately cause unemployment to double (according to nonpartisan, private sector economists) and drive the economy into a deep recession.  Balanced budget amendments in all their forms (including state level versions) are disastrous, because they essentially tie the hands of legislators and cripple government functions.

2. Nod to National Consumption Tax

Warning that we must “guard against hypertaxation of the American people,” the GOP platform says that the creation of a national sales tax or value-added tax (VAT) can only happen in conjunction with the repeal of the Sixteenth Amendment, which allowed for the federal income tax.

On the one hand, this plank is odd because a national sales tax or VAT is not a political possibility; even the hint of it prompted the US Senate to pass a resolution explicitly rejecting a VAT by an 85 to 13 vote just a couple of years ago.  Anyway, the fear that a national consumption tax would lead to some sort of “hypertaxation” is unfounded. Its implementation in Canada (PDF) is a case study showing how overall taxes can actually decrease following the creation of a national consumption tax.

On the other hand, the existence of this plank in the GOP platform suggests that the Republican party’s establishment might actually be considering a radically regressive policy like the so-called “Fair Tax” (which is just a national sales tax) and elimination of the federal income tax (the primary source of fairness in the tax code and sustainable, sensible revenue source).

3. Opposition to a United Nations Global Tax

Perhaps the most inexplicable plank in the entire GOP platform is opposition to “any form of UN Global Tax.” While there are conspiracy theories, such as how the UN may very well invade in Texas in order to enforce its radical tax agenda during Obama’s second term, the reality is that no one takes the possibility of a UN global tax seriously. To be clear, there is no indication of support among US lawmakers to implement such a UN tax, nor does the UN have the power to impose one.

Mitt Romney's Much More Important Tax Secret

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by Robert S. McIntyre, CTJ Director

Almost a year ago, long before Mitt Romney became the Republican presidential nominee, CTJ was the first to figure out just how little Romney pays in federal income taxes. Based on Romney’s limited but useful financial disclosures at the time, we calculated that his 2010 effective federal tax rate was a ridiculously low 14 percent (on his reported income) — less than half of what Warren Buffett’s famous secretary pays.

Michael Scherer of Time Magazine, who’d asked us to do the analysis, posted our results on Time’s website on Oct. 3, 2011. The story got widespread attention, and led to growing demands that Romney release his actual federal income tax returns. After months of stonewalling, Romney finally released his 2010 return, which confirmed our prediction that he’d paid only 14 percent in federal income taxes.

Since then, Romney has adamantly refused to release any of his earlier tax returns, causing speculation that he has something even more damaging to hide (and keeping CTJ busy fielding media questions about what such things might be).

Looking at Romney’s past tax returns could provide some valuable information, not just about Romney himself but also about the egregious loopholes that allow him to pay so little.

But Romney is hiding a much more important tax secret: the truth about how the tax plan he’s campaigning on would affect the rest of us.

So far, all Romney has told us about his individual income tax plan is the following: First, he would extend all of the Bush tax cuts and permanently repeal the Alternative Minimum Tax. Second, he would make interest, dividends and capital gains tax-exempt for people with other income up to certain levels ($200,000 for couples). Third, he would reduce all federal personal income tax rates by a fifth (so, for example, the top income tax rate would fall to 28 percent). Fourth, well, the fourth item is the big secret.

Romney says that he would partially pay for the $8 trillion ten-year cost of the income tax cuts he proposes  by getting rid of many personal tax breaks. But he refuses to specify even a single one of them! To be sure, at one point, he suggested he might curb the mortgage interest deduction for vacation homes, but he quickly backed off even that tiny reform.

How can voters calculate even roughly how they would be affected by Romney’s tax plan without knowing the crucial details of which tax breaks he wants to eliminate? Will he crack down on tax breaks for wealthy investors like himself? Well, no, he’s ruled that out. Will he eliminate deductions for mortgage interest and property taxes? Tax credits for middle- and low-income families with children? The tax exemption for employer-paid health insurance? Tax deductions for extraordinary medical expenses? Who knows?

It’s all well and good that analysts with high-powered tax models (like ITEP’s) can calculate that even if Romney eliminated all non-investment-related personal tax breaks, his gargantuan tax plan can’t possibly break even — and thus will mean huge increases in budget deficits. But American voters also deserve to know whether Romney plans to raise taxes on them, and by how much.

Barring a speech tonight that answers these questions, that’s the crucial tax secret that the public and the media should be clamoring for Romney to reveal.

Convention Speaker Profiles: Governors Bobby Jindal and Susana Martinez

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Both Republicans and Democrats are featuring governors at their national nominating conventions. Because convention speakers are chosen as the parties’ ambassadors to new audiences during these TV spectacles, the state policy team at the Institute on Taxation and Economic Policy are providing quick sketches of current governors from both parties who have been leaders – for better and for worse – in state tax policy. Below are profiles of two governors: Louisiana's Bobby Jindal, who was scheduled to speak tonight but bowed out to handle Hurricane Isaac, and Susana Martinez of New Mexico.

Louisiana Governor Bobby Jindal: Last year, the Governor dismissed a legislative plan to eliminate the state’s personal and corporate income taxes as too radical. This year, the budget he ultimately signed was full of “one-time” money lifted from other parts of the budget to fill in gaps. Still, as he turns his attention toward reforming the state’s tax structure, he is opposed to raising more revenue, saying, “[w]e are not going to do anything that raises revenue. It needs to be revenue-neutral.”

New Mexico Governor Susana Martinez:  In her 2011 State of the State Address, Governor Martinez waxed eloquent about supporting small business, saying, "It's the small businesses — the mom-and-pop shops, the small startups — that get lost in the layers of red tape….We will help them…."  But the fact is, Martinez failed even in her ill-advised effort to exempt roughly half the state’s small businesses - those earning less than $50,000 per year - from the gross receipts tax. And, when she had a chance to sign a bill that really did support small business owners (and that had widespread support from business groups in her state!), Martinez vetoed it. She always said she would, actually, oppose combined reporting, which is a smart rule that levels the playing field for small business by preventing large corporations from creating subsidiaries in other states to avoid paying taxes.

Mitt Romney: I "Learned Leadership" From Tax Dodging Marriott CEO

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Presidential candidate Mitt Romney has been doing a lot of media interviews lately, and when the editors at Politico wrote up their sit-down with the GOP nominee, they characterized Romney’s answers to their questions as “the clearest window yet into how the lessons he gained in the corporate world would be applied to the presidency.

So what did he say? Romney told Politico “I learned leadership by watching people,” and named J.W. “Bill” Marriott, a fellow Mormon and the CEO of the hotel chain of the same name, as one of the people from whom he’s learned a lot about leadership. He put Marriott right up there with his mentor, Bill Bain.

While we can’t speak to Bill Marriott’s management style, we can tell you that during his 40-year tenure as CEO of Marriott International, the company engaged in aggressive tax avoiding – so aggressive that it later got them into trouble with the IRS.

The company used a tax shelter known as “Son of BOSS,” generating capital losses that a federal court deemed “fictitious,” “artificial” and a “scheme.” The government criminally prosecuted the promoters of this particular tax shelter and people are now serving federal prison sentences for it. In fact Romney himself, as a member of Marriott’s audit board, most likely signed off on this tax evasion strategy. The company has used other aggressive tax planning vehicles, too, even claiming a questionable tax credit for synthetic fuels.

Marriott also shows an ever-increasing ability to shift and shelter its profits offshore. While 3,122 of its 3,718 hotel properties are in the United States, the company pays more income tax in foreign jurisdictions than in the US, even though the majority of its profits must surely be generated here.

Marriott has over a hundred subsidiaries in known tax haven countries. For example, while it has only one hotel in the Cayman Islands, Marriott has 15 subsidiary companies there.  And in Luxembourg, where it has nine subsidiaries but zero hotels, Marriott uses one of its subsidiaries to collect royalties on its various brand names which the US cannot tax.

Does Romney admire and endorse these kinds of shenanigans? Hard to say for sure. But given his widely recognized use of some pretty aggressive (though legal, far as we know) strategies to avoid paying his personal taxes, we now have a glimpse into the values that inform his views on corporate tax policy.  We are beginning to sense a pattern in this presidential candidate, and it looks a little like disdain for our nation’s tax laws.


Convention Speaker Profile: Governor Chris Christie (R-NJ)

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Both Republicans and Democrats are featuring governors at their national nominating conventions. Because convention speakers are chosen as the parties’ ambassadors to new audiences during these TV spectacles, the state policy team at the Institute on Taxation and Economic Policy are providing quick sketches of current governors from both parties who have been leaders – for better and for worse – in state tax policy.

[UPDATE 8/30/12: The good people at FactCheck.org reviewed Governor Christie's RNC speech and call it a Fact Free Keynote. Read why here.]

Tonight, America will hear from New Jersey's Governor Chris Christie, a man known for his bombastic, no-apologies approach and who we crowned "Fiscal Drama Queen" in our 2012 gubernatorial yearbook.

Since taking the reigns as the Garden State’s leader in January 2010, Governor Christie’s fiscal agenda has done “serious damage to virtually every constituency imaginable in this state – except for corporations and the super-rich.”  Christie raised taxes on the working poor and on fixed-income seniors while at the same time insisting on tax cuts that disproportionately benefit the wealthiest New Jerseyans.  He has thrice vetoed a temporary millionaire’s tax (impacting a mere .2 percent of the state’s taxpayers, temporarily!) that would have prevented hundreds of millions of dollars in spending cuts to schools, health care for working families and legal assistance for low-income individuals, to name just a few programs impacted by Christie’s priorities. 

And now, Governor Christie wants a significant income tax cut so much that he continues to swear by a fantastical revenue forecast despite consensus among nonpartisan experts that 2013 revenues are likely to fall a staggering $1.3 billion below that projection, (much like the last fiscal year, which ended with $542 million less in the bank than predicted).

An ideologue with political ambitions who fails to serve his constituents, Christie is nonetheless the keynote darling of the 2012 GOP.


Mitt Romney's Huge Personal Financial Stake in the Upcoming Election

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Mitt Romney appears to have a lot at stake in the upcoming election when it comes to his own federal taxes.

If Obama wins and gets his tax plan adopted, then Romney will pay an effective federal tax rate of 34.3 percent.

If Romney wins and he successfully promotes the tax plan that his running mate, Paul Ryan, proposed in 2010 (the only Romney-Ryan tax plan spelled out in any detail), then Romney will pay only 0.4 percent.

The dollar difference, per year: $7.7 million!

In contrast, Obama would actually raise his own tax rate to 28.4 percent and Romney would lower it 18.1 percent, saving Obama some $67,000.

Note: All these figures are based on the income and deductions reported on Romney’s 2010 federal tax return, the only return he has yet been willing to release.

The Paul Ryan Budget Roundup

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Updated 3/10/2015

On Saturday morning, Republican Presidential Candidate Mitt Romney announced Wisconsin Representive Paul Ryan as his vice presidential running mate. Over the past eight years, Citizens for Tax Justice has crunched the numbers and provided in-depth analysis on the succession of regressive budget plans proposed by Rep. Ryan as the former Ranking Member, and current chairman, of the House Budget Committee.

Below is a roundup of our reports and commentary on Rep. Ryan's current and past budget plans:

Another Ryan Budget Gives Millionaires Average Tax Cut of At Least $200,000 - April 2, 2014

Paul Ryan's Latest Budget Plan Would Give Millionaires a Tax Cut of $200,000 or More - March 13, 2013

Top GOP Tax-Writer Proposes Fast-Track for Ryan Plan Tax Changes, Giving Millionaires Average Tax Cut of at Least $187,000 in 2014
- July 26, 2012

Starving the Census in the House GOP Budget: Penny Wise, and Dumb
- May 14, 2012

Ryan Budget Plan Would Cut Income Taxes for Millionaires by at Least $187,000 Annually and Facilitate Corporate Tax Avoidance
- March 22, 2012

CTJ Figures Used in Budget Debate Show Ryan Plan Would Give Huge Tax Cut to Millionaires
- May 26, 2011

Obama Blasts Ryan Budget Plan
- April 15, 2011

House Budget Chairman Paul Ryan's Goal Is to Shrink Government, Not the Deficit
- April 8, 2011

Rep. Ryan's House GOP Budget Plan: Federal Government Would Collect $2 Trillion Less Over a Decade and Yet Require Bottom 90 Percent to Pay Higher Taxes
- March 9, 2010

Update on House GOP Budget Plan
- April 2, 2009

House GOP Leaders' Budget Plan: Poor Pay More and Rich Pay Less Under Plan that Costs $300 Billion More Annually than President's Plan
- March 27, 2009

House GOP Tax and Entitlement Plan Would Raise Taxes on Four Fifths of Americans While Slashing Taxes on the Wealthy
- July 7, 2008

House GOP Pins Comeback Hopes on Social Security Privatization, Dismantling Medicare, and Slashing Public Services
- May 23, 2008

Republicans Call for Replacing Alternative Minimum Tax with Alternative Maximum Tax
- October 12, 2007


Anti-Tax Grandstanding of Olympic Proportions

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For someone who’s not interested in a high profile job like Vice President, Florida Senator Marco Rubio sure knows where the limelight shines. Earlier this week he introduced legislation that would create a new federal income tax break for the cash bonuses received by U.S. Olympic medalists. (It turns out that the United States Olympic Committee gives gold medal winners $25,000 cash bonuses, with smaller awards for silver or bronze.) With no apparent irony, Rubio issued a press release noting that the “tax code is a complicated and burdensome mess,” and then proposed a new tax break that would make it even more so.

How, at a time when Congress faces vital decisions over the basic structure of our tax system, did the Senator identify the tax treatment of Olympic bonuses as a pressing issue? It turns out that Americans for Tax Reform (ATR) put out a press release saying that medal winners will face a tax bill of almost $9,000 if they win a gold medal.  Rubio’s spokesperson said that’s what caught Rubio’s eye.

But the ATR numbers are complete bunk. Their calculations assume that a medal winner will pay tax at the 35 percent top rate, but less than one percent of Americans pay anything, even a dollar of income, at the 35 percent rate. (Politifact agrees, and rates ATR’s claim “mostly false.”) We can only think of a dozen or so gold medal winners who might, in fact, pay 35 percent on their gold medals: they are members of the US basketball team, and they are all millionaires. 

What Senator Rubio and his counterparts in the House are proposing is to add yet another exemption to our tax code, which is, of course, the main reason it’s so complicated – Congress insists on flagging more and more special types of income for special tax breaks.

If Rubio’s bill is really an honest attempt at tax reform rather than an attempt to capitalize on Olympics-related publicity, it’s actually doubly sad: not only did he get duped by misleading numbers from Grover Norquist, he also just doesn’t seem to understand that the “complicated and burdensome tax code” he bemoans will become even more so if his bill passes!

If, on the other hand, Rubio’s bill is the cynical grandstanding that it appears to be, it’s a real shame. As we've said elsewhere, our revenues are dwindling, the rich pay less and less in taxes every year and the tax code is a Rube Goldberg-ian mess. But it seems Senator Rubio is more interested in compounding these problems than solving them.

Photo from Politifact.com


Bill Clinton Falls for the Fiscal Cliff

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Former President Bill Clinton told CNBC that extending all the Bush tax cuts past their scheduled expiration at the end of the year “is probably the best thing to do right now” to help Congress and the country “avoid the fiscal cliff” of expiring tax cuts and scheduled spending cuts. The former policy-wonk-in-chief did not endorse extending the cuts permanently, but said “I don't have any problem with extending all of it now, including the current spending level.”

This is not helpful.

The term “fiscal cliff” sounds scary and implies a situation in which the budget deficit will dramatically worsen if no one intervenes.  But the undeniable fact is it would dramatically improve if Congress simply does nothing – and stops extending the tax cuts! In fact, the CBO has published yet another report indicating that the federal budget deficit would stabilize if not for the budget-busting legislation that most observers expect Congress to enact when it extends all kinds of tax breaks into 2013.  And the report confirms that the measure that would add the most to the deficit would be an extension of the Bush tax cuts.

Of course, it’s entirely true that Congress should set aside concerns about the budget deficit for the time-being and focus on job creation.  The thing is, this focus should lead to increasing federal spending, and NOT to tax cuts. As is often noted, most economists agree that spending measures would do more to stimulate job creation than making the Bush tax cuts permanent.

For example, the widely respected economist (and former adviser to John McCain) Mark Zandi has concluded that for every dollar of revenue the federal government would lose from making permanent the Bush income tax cuts, U.S. economic output would increase by only 35 cents. On the other hand, this private sector economist finds that for every dollar the federal government spends on increased food stamps, work share programs, or unemployment benefits, U.S. economic output would increase by $1.71, $1.64, and $1.55 respectively. Versus 35 cents. Tax cuts don’t work; spending does.

Extending the Bush tax cuts is not about protecting a fragile economy. At its worst, it’s about an ideology that most Americans reject, and at best, it’s passing the buck and kicking the can down the road and every other idiom we have for short-sighted and irresponsible fiscal behavior. Anyone with the clout, credibility and smarts of Bill Clinton knows that and should be making an unambiguous call for these disastrous tax breaks to expire, once and for all, at the end of this year.

(Photo courtesy PBS.org.)

Media Blast Pelosi's Move on Bush Tax Cuts, Cite CTJ

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On Wednesday, CTJ heard that House Minority Leader Nancy Pelosi had sent a letter to Speaker John Boehner asking for an immediate vote on extending the Bush tax cuts for incomes up to $1 million.  We crunched a few numbers and shot off a press release pointing out the fiscal folly of the plan.  Bloggers, reporters, pundits, outlets of all stripes and one very important editorial board cited CTJ’s numbers about the staggering cost of moving the threshold from the $250,000 mark previously set by President Obama.

In his article at RollingStone.com called “Democrats About to Give Away the Store on Bush Tax Cuts. Seriously?,” Jared Bernstein writes that “the (excellent) Citizens for Tax Justice – CTJ also points out that about half the benefits of this higher threshold accrue to – wait for it – millionaires.” He opined that moving the threshold to $1 million is “a bad genie to let out of the bottle.”

Also citing CTJ’s numbers, a Washington Post editorial decried Pelosi’s “risky pander” on the tax cuts, commenting on the minority leader’s “interesting definition of what constitutes the middle class.” The editorial ended with this question: “Do Democrats really want their new slogan to be ‘Almost as irresponsible as the Republicans?’”

The tax geek publication Bureau of National Affairs Daily Tax Report (subscription required) noted that “Citizens for Tax Justice skewered Pelosi’s request, saying that what she is actually proposing is a ‘windfall for millionaires.’”

In noting, “This town may never agree on who is middle-class, but surely we can agree it doesn't include anyone who makes over a million dollars a year,” CTJ’s Bob McIntyre helped frame the early coverage of what we hope will be a short lived idea on Capitol Hill.

What's Really "Nauseating": Tax Subsidies for Bain Capital Partners

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If your family makes around $60,000 a year and you work for a living, there’s a good chance you pay a larger percentage of your income in federal taxes than Mitt Romney and the other partners at Bain Capital.

We have explained before that a good portion of millionaires who live off investments pay a lower effective tax rate than people who work for their $60,000 a year.  Worse, the “carried interest” loophole allows people like Romney to enjoy the special low tax rate for investment income even though their income is really from work. CTJ’s Bob McIntyre was the first to predict that Mitt Romney’s effective federal rate was under 15 percent as a result.

Now comes Newark’s Democratic mayor, Cory Booker, defending Bain Capital and other “private equity” firms (really, buyout firms), calling attacks on Romney’s old firm “nauseating.”

Let’s put aside for a moment that fact that private equity firms buy up companies and fire people, and the fact that Mitt Romney doesn’t seem to see the difference between his former job of maximizing profits for investors and the job he seeks, which should be to maximize opportunities for all Americans.

Even if you accept all of that, do you believe that what Mitt Romney did at Bain Capital is so good for America that we should subsidize him through the tax code? Do you believe that discussing the role played by these buyout funds in our economy and in our public policies is off-limits?

Members of Congress, including Democrats and Republicans, have made claims in support of the carried interest loophole that defy common sense. They argue that millionaire fund managers like Mitt Romney should continue to enjoy this tax loophole because, for example, it encourages development in poor communities, helps minorities rise in the financial world, and helps cancer patients receive life-saving treatments.

These arguments are nonsensical for reasons we’ve explained before. The carried interest loophole does not encourage investment in poor communities or new technology or anything at all because it doesn’t affect the people who actually put up money to invest. The loophole subsidizes the people who manage the money, the fund managers who enjoy the special low tax rate on the compensation they receive so long as they maximize profits.

The arguments made in defense of the buyout firms’ privileges are so absurd that they beg the question of what really motivates their proponents in both parties. We cannot say why Mayor Booker does not express any outrage that the Bain partners can pay a lower effective tax rate than many working people in his city. But we are not blind to the many, many articles about campaign contributions from these fund managers and how they have attempted to use this money to protect their privileges. Now that’s nauseating.

Senator Rand Paul: Champion of Secret Swiss Bank Accounts

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Remember the Tea Party? Well, freshman Kentucky Senator Rand Paul is living up to his reputation as the darling of the Taxed Enough Already movement that shook the 2010 elections. 

Rand Paul, son of Libertarian firebrand and GOP presidential candidate Ron Paul, is currently blocking the Senate’s ratification of an amendment to the US-Swiss tax treaty, apparently worried about the right of tax evaders to financial privacy. He says the language is too “sweeping” and might jeopardize US constitutional protections against unreasonable search and seizure. But as one former Treasury Department official said, Paul's move “smacks of protecting financial secrecy for those who may have committed criminal tax fraud in the US.”

The US and Swiss governments renegotiated their bilateral tax treaty as part of the 2009 settlement of the UBS case. That case charged the Swiss mega-bank UBS with facilitating tax evasion by US customers. Under the settlement agreement, UBS paid $780 million in criminal penalties and agreed to provide the IRS with names of 4,450 US account holders.

Before it could supply those names, however, UBS needed to be shielded from Swiss penalties for violating that country’s legendary bank-secrecy laws. The renegotiation of the US-Swiss tax treaty addressed that problem by providing, as most other recent tax treaties do, that a nation’s bank-secrecy laws cannot be a barrier to exchange of tax information.

Many tax haven countries were hiding behind their bank secrecy laws to deflect requests for account holder information, and the IRS and Justice Department have been investigating 11 Swiss financial institutions on criminal charges of facilitating tax evasion.

The Senate must ratify the treaty changes – which is normally a routine procedure.

By blocking the ratification, Senator Paul is holding up the exchange of information in the UBS case (and others) and hampering IRS efforts to crack down on tax evasion by Americans.

Tax evasion by individual taxpayers is estimated to deprive the US Treasury of as much as $70 billion per year (corporate offshore tax avoidance is estimated to cost the Treasury an additional $90 billion per year).

Given Senator Paul’s obvious concern about the deficit, he might have a hard time explaining to honest American taxpayers how he justifies protecting tax evaders with Swiss bank accounts as the deficit grows ever larger.

Photo of Rand Paul via Gage Skidmore Creative Commons Attribution License 2.0

Romney: I Was For Closing The Mortgage Loophole on Second Homes Before I Was Against It

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Political leaders love to claim fealty to the idea of “loophole-closing” tax reform, but refuse to provide details on the specific tax breaks they would eliminate. As we’ve recently noted, House Budget Chair, Rep. Paul Ryan, is one of the worst offenders when it comes to punting on specific tax breaks he’d eliminate. President Obama has also avoided naming closeable loopholes in his outline for corporate tax reform. Yes, lawmakers are glad to pose convincingly as advocates of tax reform without assuming any of the political risks involved with real loophole-closing reforms.

Earlier this month, presidential candidate Mitt Romney took a welcome departure from this pattern, signaled by the headline, “Romney Specifies Deductions He'd Cut.”  The presumptive GOP nominee told a Florida audience that his plans for tax reform included eliminating the second home mortgage interest deduction for high earners.

This is a perfectly sensible reform, and is one that many tax reform advocates on both sides of the aisle (most recently, President Bush’s tax reform commission) have agreed on.  It also allows us to take Romney’s tax proposals a bit more seriously, since he has said he plans to cut income tax rates by 20 percent and pay for it with (as yet unspecified) loophole-closing reforms.

A few days later, however, Romney’s campaign backed away from this reform after Newt Gingrich accused him of surrenderring to "class warfare rhetoric of the Left." This and other pushback from within his own party led one Romney surrogate to explain it this way: the candidate “was just discussing ideas that came up on the campaign trail” with some friendly donors.

This strategic retreat may make sense politically (think of all the second homes in battleground states), but it also puts Romney’s tax plan squarely in talk-is-cheap territory—asking all the easy questions but answering none of the hard ones.

Photo of Mitt Romney via Dave Lawrence Creative Commons Attribution License 2.0

Step Aside, Tea Party - A New Kind of Tax Protest is Here

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On Tax Day 2012, thousands of people throughout the country rallied in favor of progressive taxation and against the low (or sometimes zero rates) paid by the wealthiest Americans and corporations. These protests were the latest in the growing progressive tax movement dubbed “Tax Revolt 2.0” for its focus on tax fairness rather than tax cuts.  As one commentator declared, "Tax Day doesn't belong to the Tea Party anymore."

The popularity of these protests should be no surprise considering that 68 percent of Americans believe the current tax system benefits the rich and is unfair to ordinary workers. While efforts by grassroots groups have begun to change the conversation about tax fairness, these tax day 2012 protests reveal a reach and momentum that show no signs of receding.

You could hardly travel around the US on tax day this year without running into one of over 200 rallies including: Los Angeles, Fort Worth, Kansas City, Boston, Duluth, Grand Rapids, Bangor, Chicago, Pittsburgh, Green Bay, New York City, Ames, Toledo, Kalamazoo, Newark, Seattle, and many, many more.

While the broad theme of the nationwide protests was tax fairness, the targets differed. In Jersey City, NJ for instance, protestors rallied at their local Wells Fargo bank to call out the company for its role as an infamous tax dodger, while protestors in Tuscon, AZ held their rally at a local post office to highlight how the failure to tax wealth results in the loss of jobs and critical public institutions like the Postal Service.

To be sure, the anti-tax lobby is well established, but you gotta’ believe that activists as energetic and creative as these will win the day:


Photo of the "Tax Dodgers" via  D*Unit Creative Commons Attribution License 2.0

Americans Want Fair Taxes. When Will Washington Listen?

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According to a CNN/ORC poll, one of many polls released around Tax Day 2012, a solid 68 percent of Americans said the current tax system benefits the rich and is unfair to ordinary workers. While this result is consistent with past poll results, a shocking number of lawmakers in Washington seem indifferent to the public’s hunger for more progressive taxes.

For example, one modest step toward tax fairness is the Buffet Rule, which would impose a minimum tax, equal to 30 percent of income, on millionaires in order to ensure that wealthy investors like Warren Buffett or Mitt Romney do not pay a lower tax rate than middle income Americans. Despite the fact that the Buffett Rule is favored by an overwhelming 72 percent of the American public, it was defeated in the US Senate on Monday and will likely not even come up for a vote in the House of Representatives.

Another tax day poll by Reuters/Ipsos found that 60 percent of Americans believe that tax revenues should play some part in deficit reduction efforts, while only 22 percent believe that spending cuts alone are the solution. This poll also reflects Washington’s huge disconnect with the American public as last year’s deficit reduction deal resulted in trillions of dollars of spending cuts and not a cent of additional revenue.

Even in the arena of corporate tax reform lawmakers find themselves at odds with public sentiment. In its tax day polling, Gallup found that 64 percent of Americans believe that corporations pay too little in taxes, meaning that the public would clearly favor revenue-positive corporate tax reform. And yet Republican and Democratic leaders, including the President, are proposing revenue-neutral corporate tax reform instead.

Washington’s conservative intransigence on tax issues is not going unnoticed by the public. Grassroots movements are spreading in protest of the unfairness of our tax system and pushing for progressive change. Lawmakers will find it increasingly difficult to ignore their constituents, especially as it becomes clear that other types of deficit reduction proposals (cuts in Social Security, Medicare, services for children) are far less popular than progressive tax increases.

American Taxpayers Subsidize Monday Night Racing

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Romney: I Have Friends Who Own NASCAR Teams

The 2012 NASCAR season kicked off Monday with the Daytona 500. The much-celebrated start to the racing season is a chance to remind Congress and the administration that it's time to end track owners' special tax break.

In 2004, President Bush signed a tax bill chock-full of special interest tax breaks, including one for his NASCAR friends. The legislation allowed track owners to write off the cost of motorsports facilities (track, grandstand, etc.) over seven years for tax purposes. For accounting purposes, these assets are written off over their useful lives, ranging from ten to thirty years. The accelerated write-off allowed by the tax break costs the U.S. Treasury an estimated $40 million per year.

This particular tax break, along with many others known as “the extenders,” expired on December 31 of 2011. With the projected deficits and the clamor for base-broadening corporate tax reform, you’d think this special-interest loophole would be an easy one to keep off the books. Even Oklahoma Republican Senator Coburn has called for its elimination. But Florida Rep. Vern Buchanan is pushing for bringing back the NASCAR tax break, while he's busy collecting campaign contributions from the industry. And President Obama's budget proposal also calls for extending it.

An interesting question is whether GOP Presidential hopeful Mitt Romney is a supporter of this tax break, too. As he said in an interview Sunday, "I have friends who own NASCAR teams," and it turns out some of those friends are also campaign donors.

As governor in Massachusetts, Romney made the decision to close a slew of corporate loopholes that brought in some $370 million to his state's treasury. Presidential candidate, Romney, however, doesn't like to talk about that.

So we will see: will we have a presidential race featuring two candidates who try to bolster their blue collar bona fides by supporting the NASCAR track owners' loophole, or two candidates who mean it when they say they want to simplify the tax code?

Photos of Nascar related materials via Side Hike  and Brian C Creative Commons Attribution License 2.0

New Polls Show Growing Sentiment that Wealthy and Corporations Don't Pay Enough Taxes

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A new Washington Post-ABC News poll shows that only nine percent of Americans believe the tax system works for the middle class, with 68 percent saying it actually favors the wealthy. The survey shows a public overwhelmingly convinced that our tax system is unfair and that taxes should be raised on wealthy Americans.

The belief that the tax system is unfair has surely been fueled by the recent revelation of presidential candidate Mitt Romney’s super low 14% tax rate on his $21 million income. In fact, the same poll found that 66 percent of the public generally – and even a near majority of Republicans! – believe that Romney is not paying his fair share in taxes.

Not surprisingly, then, Americans overwhelmingly support increasing taxes on the wealthy, according to this poll, with 72 percent saying that taxes should be increased on millionaires. Of course, time and time again polls have shown the public’s robust support for progressive taxation.

A Growing Gap Between Small and Big Business

In related news, a nationwide survey released by the American Sustainable Business Council, Main Street Alliance and Small Business Majority shows that small business owners are fed up with how our corporate tax system favors big corporations at the expense of small businesses.

Indeed, 9 out of 10 small business owners said that big corporations use loopholes to avoid taxes that small businesses have to pay, with three quarters of the small business owners noting that their business is harmed by such loopholes. The same survey found that 67 percent of small business owners believe big corporations pay less than their fair share.

Even when small and large busineses agree that they want more tax handouts from Congress, they're talking about very different things, according to a new Bloomberg (subscription only) poll.  Asked what tax changes would help them most, advisors to smaller businesses prioritize things like reducing payroll taxes on employers and making permanent the deduction for self-employment. Big business priorities included 100 percent expensing (a.k.a. bonus depreciation) of equipment and complete overhaul of the corporate tax code – including a reduced tax rate.

These studies are more reason corporate lobbyists and their patrons in Congress should stop pretending they’re all about small business. They’re not.

Breaking Down the Most Notable Quotes from the GOP Debates

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The rapid-fire succession of GOP debates has continued, with four more occurring in just the last couple weeks. Here we deconstruct the most ludicrous or notable quotes from each candidate:

Former House Speaker Newt Gingrich: …when I was speaker, we had four consecutive balanced budgets...

It was exciting to see Ron Paul finally call Gingrich out during the latest debate for repeatedly claiming that he balanced the federal budget four years in a row. Citizens for Tax Justice’s Bob McIntyre thoroughly debunked this claim over 9 months ago when Gingrich first starting making it, yet until now none of the GOP candidates have called him out for it.

Former Governor Mitt Romney:
I'm proud of the fact that I pay a lot of taxes.

Romney does not pay “a lot of taxes.” He paid an effective tax rate of less than 14% on his $22 million in 2010, which is actually a lower rate than many individuals making just $60,000 pay.

Former House Speaker Newt Gingrich: I'm prepared to describe my 15 percent flat tax as the Mitt Romney flat tax. I'd like to bring everybody else down to Mitt's rate, not try to bring him up to some other rate.

Gingrich’s $18 trillion tax plan would not bring everyone down to the rate that Romney pays because it would actually further reduce Romney’s tax rate to almost zero. Even Romney seemed to think that reducing his tax rate to zero would be going too far and went out of his way during a recent Republican debate to point this out to Gingrich.

Former Senator Rick Santorum: I talk about five areas where I allow deductions… one of them would be, be able to deduct losses from the sale of your home. Right now, you can't do that. You have to pay gains, depending on the amount, but you can't deduct the losses.

Ever trying to play the role of a blue collar populist, Santorum highlighted his idea to allow taxpayers to deduct losses from the sale of their home. He left out the fact that current law already allows an individual to exclude up to $250,000 of capital gains from the sale of a home. How could it be fair to exclude the gains but deduct the losses? He also ignores the fact that homeowners are already subsidized to the tune of $75 billion through the home mortgage interest deduction. A much more effective approach to helping struggling homeowners (and renters for that matter) would be for state lawmakers to enact strong property tax circuit breakers, which are better targeted to low-income households.

Representative Ron Paul: I would like to see income tax reduced to near zero as possible.

Although he has not laid out a specific long term tax plan, Paul has frequently called for the complete repeal of the 16th amendment (which allows the creation of the income tax) and might seek to replace it with a national sales or flat tax. He does not typically mention that such a plan would be extremely regressive no matter how you structure it.

CTJ Director in American Prospect: Gingrich and Romney's Capital Games

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Citizens for Tax Justice director Bob McIntyre wrote in the American Prospect this week, “With the two leading Republican presidential contenders arguing over whether super-wealthy investors should pay 15 percent or zero percent in federal taxes, it would seem that President Barack Obama has a potent campaign issue against either of them… Sadly, Obama hasn’t yet proposed to let all of the Bush tax cuts for the rich expire.”  

                                                                   Read the article.

After Mitt Romney conceded that CTJ’s estimate of his effective tax rate of 14 percent was correct, Newt Gingrich said that he believed everyone should pay a similar effective tax rate and that this was an argument for his proposed optional 15 percent “flat tax.” Gingrich fails to mention that his plan would actually lower Romney’s effective tax rate almost to zero percent.

CTJ epxlained to TIME that the optional “flat tax” in Gingrich’s plan actually has two tax rates — 15 percent for the income that most of us earn, and zero percent for the investment income that Romney lives on.

TIME also reported on CTJ’s findings that Romney would save $3.4 million a year under his own plan, but would save $6.4 million under Gingrich’s plan.

CTJ Analysis Shows Romney's Plan Would Cut His Own Taxes Almost in Half

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The Washington Posts's Greg Sargent cites figures from CTJ and concludes

If Romney, whose wealth is estimated at as much as $250 million, is elected president and gets his way on tax policy, he would pay barely more than half as much in taxes than he would if Obama is reelected and gets his way — and the Bush tax cuts on the wealthy expire and an additional Medicare tax as part of the Affordable Care Act kicks in.

Read the article.

Romney Confirms CTJ Calculation of His Super-Low Tax Rate, Demonstrates Why We Need Buffett Rule

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Three months ago, CTJ's Bob McIntyre told TIME that GOP candidate Mitt Romney likely has an effective federal tax rate of around 14 percent because of the tax break for investment income that Romney enjoys. Today, the candidate said, “What’s the effective rate I've been paying? It's probably closer to the 15 percent rate than anything.”

Romney went on to say, “Because my last 10 years, I've ... my income comes overwhelmingly from investments made in the past, rather than ordinary income or rather than earned annual.”

In other words, a wealthy person like Romney can receive most of his income in the form of capital gains and stock dividends, which are subject to a top rate of just 15 percent under the personal income tax and not subject to payroll taxes.

A CTJ report from last year explains that about one third of people with income in excess of $10 million annually get the majority of their income from investments and, because of these tax preferences, pay a lower effective tax rate than many middle-income taxpayers, who typically get their income from work. Romney is a member of this lucky group of wealthy individuals.

Ending the tax preference for capital gains and stock dividends is therefore the primary way to implement President Obama’s Buffett Rule, the principle that tax reform should reduce or eliminate those situations in which millionaires pay lower effective tax rates than middle-income people.

In Romney’s case, there is actually a very specific loophole that probably allows his income to be taxed as capital gains (taxed at the 15 percent rate) even when it is actually compensation for work. We call this the Romney Loophole, which allows wealthy fund managers to treat their “carried interest” (profits that they receive as compensation for their work) as capital gains and thus subject to the low 15 percent tax rate.

President Obama’s budget plans all contain a proposal to close the Romney Loophole, which would at least end the very worst abuse of the tax preference for capital gains and stock dividends. But to truly implement the Buffett Rule, the tax preference for investment income must be eliminated entirely.

Rhetoric vs. Reality: Judging the Latest from the GOP Presidential Candidates

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With the Republican primaries now in full swing, the GOP candidates’ rhetoric on taxes has become even more disconnected from reality.

Santorum is No Blue-Collar Populist

Former Senator Rick Santorum used his new spotlight during last Saturday’s ABC-Yahoo GOP presidential candidate debate to highlight his plan to cut the corporate tax rate in half and eliminate the tax entirely for domestic manufacturing. Santorum explained the need for cutting the 35 percent tax rate by arguing that our corporate tax rate is the “highest in the world.”

While we have the second highest statutory corporate tax rate on-paper, the excess of tax breaks and loopholes in our corporate tax code make it so the effective corporate tax rate (the amount actually paid) is close to half of that. In fact, the US actually has the second lowest level of corporate taxes, as a share of its overall economy, of any developed country in the world.

Although Santorum promotes the populist aspects of his tax plan, the truth is that the majority of his proposed tax cuts would go to the richest five percent of Americans. A new analysis by Citizens for Tax Justice shows that his tax plan would provide an average tax cut of $217,500 to the richest 1 percent, which is over 100 times the size of the average tax cut the middle fifth of Americans would receive.

Gingrich on a Tax By Any Other Name

Former House Speaker Newt Gingrich usually offers nothing but hot air when it comes to taxes, but this week the Gingrich campaign brought up an interesting point in a new campaign ad attacking Romney for raising user fees in Massachusetts. The ad uses Romney’s support of user fees to question his anti-tax credentials because it says that user fees are essentially a “tax by another name.”

Of course, Gingrich’s ultimate conclusion is mistaken in that he assumes Romney should not have raised user fees or taxes but should simply have left public services unfunded.

But Gingrich’s criticism nonetheless acknowledges the trend among even the most infamous anti-tax governors to substantially increase user fees to avoid officially raising taxes. In fact, since 1979 virtually every state in the nation has begun to rely more heavily on user fees to raise revenue.

Huntsman’s Tax Loophole Consolidation Plan

Rhetorically, former Governor Huntsman hit it out of the park during the NBC-Facebook GOP presidential candidate debate last Sunday by declaring that we need to “say so long to corporate welfare and subsidies” and that our tax code is chuck full of loop holes and deductions” which weigh it down to the tune of $1.1 trillion.

Unfortunately however, his tax plan, like the other GOP candidates’ tax plans, includes a “territorial” system that would exempt the offshore profits of U.S. corporations from U.S. taxes. This is essentially a way to expand and consolidate the existing loopholes that encourage U.S. companies to shift their investments offshore.

Similarly, Huntsman’s proposed changes to the personal income tax would actually add huge loopholes for the rich by exempting taxes on capital gains and stock dividends. In addition, while his plan would end a substantial amount of wasteful tax subsidies, it would also eliminate invaluable tax credits like the earned income tax credit.

In other words, Huntsman’s plan is more of a tax loophole consolidation plan for the rich and powerful, rather than a tax reform for everyone.

Comparing the GOP Presidential Candidates Tax Plans in Every State

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A new CTJ report shows how taxpayers in each state would be affected by the tax plans proposed by the Republican presidential candidates. The report finds that the cost of the tax plans would range from $6.6 trillion to $18 trillion over a decade. The share of tax cuts going to the richest one percent of Americans under these plans would range from over a third to almost half. The average tax cuts received by the richest one percent would be up to 270 times as large as the average tax cut received by middle-income Americans.

Read the report.

The Top Five Tax Myths to Watch Out for this Election Season

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As the presidential campaigns rev up, taxes are emerging as the defining issue of the election. Unfortunately, a lot of misinformation and myths about taxes are spreading as candidates and commentators look to push their different economic agendas.

To start the election season off, here is a breakdown of the five biggest tax whoppers being told by the candidates and commentators alike.

1) Myth: 47 Percent of Americans Do Not Pay Taxes

Fact: All Americans Pay Taxes

Pundits and politicians will continue to rile up audiences this election season by claiming that half of Americans in the U.S. do not pay any taxes. This talking point is used to deflect questions about why the rich should pay their fair share.

The basis of this claim is data showing that 47 percent of Americans did not owe federal income taxes in 2009, which the recession was at it's peak. The claim ignores the much more regressive federal payroll taxes or state and local sales, income, and property taxes that all Americans pay. The reality is that three-quarters of American households actually pay more in payroll taxes than federal income taxes.

Adding to this, the very reason many low income Americans do not pay federal income taxes is because they benefit from highly effective tax credits like the earned income tax credit (EITC), which incentivize work while providing much needed support to working low and middle class family budgets.

2) Myth: The American People and Corporations Pay High Taxes

Fact: The US Has the Third Lowest Taxes of Any Developed Country in the World

Total US taxes are actually at the lowest level they’ve been since 1958. The US has the third lowest level of total taxes of the Organisation for Economic Co-operation and Development (OECD) countries, with the exception of only Chile and Mexico. President Obama, who is often falsely accused of raising taxes, actually cut taxes for 98 percent of the country on top of temporarily extending the entirety of the Bush tax cuts.

A related claim is that the US has the second highest corporate tax rate in the world. This is misleading because it’s based on the on-paper (statutory) corporate rate rather than the actual (effective) rate that corporations pay. Because of the plethora of corporate tax breaks and loopholes, the US actually has the second lowest coporate taxes as a share of GDP in the OECD. In fact, 30 major corporations, including Verizon, Boeing and General Electric, paid nothing in corporate taxes over the last 3 years.  Rather than cutting corporate taxes, the sensible solution is to pass revenue-positive corporate tax reform.

3) Myth: Cutting Taxes Creates Jobs and Raises Revenue

Fact: Tax Cuts Reduce Revenue And Are Not Associated with Economic Growth

Since the rise of supply-side economics, tax cuts for the rich have been regarded as a magic elixir that could unleash economic growth, while simultaneously increasing government revenue.

The reality is that the tax cuts that have been tried for over 30 years have proven to be a stunning failure in all regards. In fact, history has shown that the tax rate on the wealthy simply has nothing to do with economic growth. Just consider the strong growth that occurred after President Clinton increased taxes versus the dismal growth following the Bush tax cuts.

Not surprisingly, tax cuts have been definitely proven to reduce revenue. Even President Bush's own Treasury Department concluded that tax cuts do not create enough economic growth to to come close to offsetting their costs or raising revenue. The Bush tax cuts cost $2.5 trillion in their first decade and the Reagan tax cuts cost $582 billion.

4) Myth: The US tax system is very progressive because wealthy individuals already pay a disproportionate amount of taxes.

Fact: At a Time of Growing Income Inequality, the US Tax System is Basically Flat.

Conservative commentators and politicians claim that it would be unfair to raise taxes on wealthy individuals because they already pay a disproportionate amount of taxes, usually citing the fact that the top one percent of income earners pay 38 percent of federal income taxes. Once again, such claims ignore the fact that the federal income tax is just one of many taxes that individuals pay.

When you take into account all of the taxes that individuals pay, the truth is that our tax system is relatively flat. The top one percent of income earners receives 20.3 percent of total income while paying 21.5 percent of total taxes and the lowest 20 percent of income earners receive 3.5 percent of total income while still paying out two percent of total taxes.

In other words, wealthy individuals pay a high percentage of taxes because they earn a highly disproportionate amount of income. This is, of course, a consequence of growing income inequality in the United States, which is at a level not seen since before the Great Depression

5) Myth : The “Fair Tax” or a flat tax would be more “fair”

Fact: The “Fair Tax” or a Flat Tax Would Make Our Tax System Even More Regressive

Whether it’s Steve Forbes promoting his flat tax proposal in 1996 and 2000 or Rick Perry and Newt Gingrich in the 2012 presidential race today, the idea to sweep away our current tax system and replace it with a single rate, flat income or national sales tax (called the “Fair Tax”) has become a perennial campaign issue for Republican presidential candidates.

The simplicity of these proposals has much appeal for many Americans, who believe they would make filing taxes less complex and, at the same time, stop wealthy individuals from being able to game the tax system.

A deeper look, however, reveals that both the “fair” and flat tax are very regressive compared to our current system. One recent analysis of a typical flat tax proposal from last year shows that it would result in an average tax increase of $2,887 for the bottom 95 percent of Americans, while those in the top one percent would receive an average tax cut of over $209,562. Furthermore, the Institute on Taxation and Economic Policy’s analysis of the Fair Tax points out the under this system, the sales tax rate would have to be set at a politically and administratively unfeasible rate of at least 45 percent, and, the result would be the bottom 80 percent of American’s paying an average of 51 percent more in taxes compared to our current system.

It’s also important to note that “complexity in the tax code,” which a flat tax system purports to fix, is not caused by our progressive rate structure; rather, it’s the multitude of loopholes and tax breaks, all of which could easily be eliminated while keeping a progressive tax rate structure in place. 


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UPDATE: Candidate Mitt Romney told MSNBC on December 22 that he does not intend to release his tax returns, even if he becomes his party's nominee. Watch CTJ's Rebecca Wilkins explain to ABC News Brian Ross what Romney's tax returns would show about his offshore investments and "carried interest" income. ABC video at this link.

End the Loophole Allowing Romney and other Fund Managers to have "Carried Interest" Taxed as "Capital Gains"

GOP presidential hopeful Mitt Romney's personal wealth, estimated at $190 to $250 million, has been in the news a lot lately, including the sweet retirement deal he negotiated with Bain Capital, the private equity firm he used to head. The stories confirm CTJ director Bob McIntyre's comments to Time Magazine that Romney's multi-million dollar income is likely taxed at the special low 15 percent rate imposed on dividends and long-term capital gains.

This makes Romney a good poster child for the "Buffett Rule," the principle that millionaires should not pay lower effective tax rates than middle-income people. One step towards implementing the Buffet Rule is to close the loophole that allows "carried interest" (the fund managers' share of the deal they get as compensation) to be taxed at the 15 percent rate even though it is not truly capital gain.

Much of Romney's income that is taxed at that super-low rate is actually compensation in the form of a "carried interest" in the private equity deals of Bain Capital. While CEO's, actors, and athletes with multi-million dollar salaries, bonuses, or stock options pay income tax rates of 35 percent (and payroll taxes) on their compensation, managers of private equity firms, hedge funds, and other investment funds pay only 15 percent income tax (and no payroll tax) on their share of the funds' profits that they get in exchange for their management services. Even some managers who benefit from the low rate admit it's not justified.

Since this loophole benefits those who make millions, hundreds of millions and sometimes over a billion dollars in a single year, it is truly a case of the richest one percent being subsidized by the other 99 percent who pay higher taxes or get less in services to pay for this tax break.

Various proposals have been offered to close this loophole and, in the last Congress, one of those measures passed the House (three times!) but didn't make it through the Senate. Republicans and many Democrats in the Senate claimed that the loophole somehow helps encourage investment in poor neighborhoods, helps minorities, small businesses and even cancer patients.

The truth is that it does not encourage any type of investment in any part of the country because it does not benefit the people putting up money for investment. It merely allows those who manage this money to pretend that they have invested their own cash and thus receive the capital gains tax break that is ostensibly in place to encourage investment.

Now that this loophole has the face of a very wealthy presidential candidate on it, perhaps the American public will start to notice and demand that it be eliminated. If you believe the tax code shouldn't favor the richest 1 percent over the 99 percent, here's a place to start: Close the Romney Loophole.

Putting a Cap on Gingrich's Tax Policy Hot Air

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Despite receiving increased attention after becoming the new GOP presidential frontrunner, former House Speaker Newt Gingrich continued his blunder-filled forays into tax policy at the ABC News Iowa Republican primary debate last Saturday.

The most outstanding of the Gingrich tax policy foibles in the debate was a flat-out lie about his past support of a cap-and-trade system to deal with climate change.

Responding to Minnesota Rep. Michele Bachmann’s charge that he supported cap-and-trade, Gingrich replied “I oppose cap-and-trade” and went on to say that he helped “defeat it in the Senate.” In reality however, Gingrich has said in the past that he would “strongly support” cap-and-trade and has repeatedly backed similar efforts to reduce carbon emissions.

Gingrich’s attempt to hide his past position on this issue highlights how anti-tax absolutists have pushed the entire Republican presidential field away from any policy that could increase revenue, even if it would help prevent a climate crisis. Economists agree that a cap and trade system, which would raise revenue, has the same effect as a direct tax on carbon-producing activities. Of course, Gingrich has tried to rewrite history before, and has been called out by CTJ’s director Bob McIntyre.

Gingrich also went on the offensive against former Massachusetts Governor Mitt Romney, criticizing Romney’s proposal to make capital gains tax-free only for taxpayers with income under $200,000 whereas Gingrich would make them tax-free for all taxpayers.  

What Gingrich failed to mention is how he would offset the $1.3 trillion revenue loss that would result or that the wealthiest 1 percent of taxpayers alone would receive three-quarters of the benefits. A fairer and more sustainable tax policy would actually be to end the special low income tax rate for capital gains so that they are treated like any other form of income.

As the new GOP frontrunner, Gingrich will quickly learn that people are paying close attention to his tax policy pronouncements, and CTJ will provide the missing facts whenever needed.

Michele Bachmann's Happy Meal Tax

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While all of the 2012 GOP presidential candidates have had their fair share of tax policy blunders, Minnesota Republican Representative Michele Bachmann has stood out among the field for her outrageous and often factually incorrect statements about our tax system.

During the recent CNBC GOP Debate, Bachmann mentioned “47 percent of Americans who pay no federal income tax” and then took this point a step further saying that “even if it means paying the price of two Happy Meals a year, like $10, everyone can afford at least that.”

Bachmann’s statement is intentionally misleading. While many Americans do not pay federal income taxes, all Americans pay other taxes such as payroll, property, sales taxes (often on the Happy Meals they buy), and other largely regressive taxes.

Some taxpayers don’t pay federal income taxes because they are working poor families who receive the refundable parts of the Earned Income Tax Credit and the Child Tax Credit (which are available only if an adult in the family is working). Other taxpayers don’t pay federal income taxes because they are recipients of Social Security benefits, most of which are not taxed.

One recent report from CTJ found that if we set aside Social Security recipients and combine just two taxes, federal income taxes and payroll taxes, the number of Americans “not paying” drops to 15 percent, and these are concentrated among the poor.

Michelle Bachmann said other wildly inaccurate things about taxes during the same debate. For example, she claimed that the United States has an “effective” corporate tax rate of about 40 percent. She apparently was referring to the federal statutory corporate tax rate of 35 percent, which, combined with the average state statutory corporate tax rate would be around 40 percent. Of course, this is entirely different from the effective corporate tax rate, which is the percentage of profits that corporations actually pay in taxes after accounting for the wide range of tax breaks and loopholes.

The recent CTJ-ITEP report “Corporate Taxpayers & Tax Dodgers,” examines most of the Fortune 500 companies that were profitable over the last three years and finds that their effective corporate income tax rate was just 18.5 percent on average. Many major corporations like General Electric or Verizon paid nothing at all.

These corporate tax breaks and loopholes have spun so out of control in the US that despite having the second highest statutory corporate tax rate in the developed world, the US actually has the second lowest rate of corporate tax collected as a percentage of GDP.

Although Bachmann was especially brazen in the most recent debate, she has a history of outrageous tax policy statements. For example, she has advocated for the elimination of all taxes, rewritten fiscal history by claiming that the Bush tax cuts aren’t the main driver of the deficit, and promoted a job killing corporate tax amnesty program.

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CTJ Statement on Rick Perry's Tax Plan

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Like many other presidential candidates, Texas Governor Rick Perry proposes massive tax cuts for the richest Americans, but he proposes to do so in the most complicated way possible. His plan would have taxpayers calculate their taxes twice — once under the existing rules, and again under an optional 20 percent “flat tax,” to see which would be a better deal.

This would not make anyone’s life easier on tax day — except the wealthy Americans whose investment income would be exempt from taxes under Perry’s optional flat tax. These lucky taxpayers would quickly find that the optional “flat tax” actually has two tax rates: zero percent for the investment income that mostly goes to the rich and 20 percent for the types of income that most of us depend on.

It’s also clear that the individual tax under Perry’s plan would lose a huge amount of revenue compared to the existing personal income tax. How could it not? If taxpayers are offered an alternative way to file, we assume they will choose this alternative only if it lowers their tax bills. The result will be, inevitably, a loss of revenue. If taxpayers truly preferred a simple tax over a lower tax, they could choose simplification right now by giving up the various adjustments, deductions and credits that lower their tax bills but make filing more complicated. We doubt many choose this.

Most plans to exempt investment income from taxes and shift towards a consumption tax result in tax increases for the poor. (This would be the result of the “flat tax” proposed by Senator Arlen Specter for several years and the “9-9-9” plan proposed by Herman Cain.) However, in recent years, Presidential candidate John McCain, House Budget Chairman Paul Ryan and other GOP leaders have tried to limit the terrible optics involved in raising taxes on the poor by making their regressive tax plans “optional.” This means that wealthy taxpayers with investment income would usually choose the alternative tax that exempts this income, while most ordinary people earning wages would end up sticking with the current rules.

What would stop taxpayers from simply switching back and forth each year, depending on which set of rules results in lower taxes? It’s unclear how Perry’s plan would address this, but some previous versions of this proposal claimed to address this by forcing taxpayers to choose which system to file under and then locking them into that choice for years to come. They would be allowed to change their minds one time during their lives and could also change whenever their filing status changes because they become married or divorced. For this reason, we have long thought of these proposals as a Divorce Lawyers Jobs Creation Act.

As more details of the plan become available, Citizens for Tax Justice will estimate its impacts on taxpayers at different income levels and its impact on revenue. But even the limited details available now make clear that this plan is not designed to help the working class.

Photos via Gage Skidmore Creative Commons Attribution License 2.0

With his recent dramatic rise to second place in the polls, Former CEO of Godfather’s Pizza Herman Cain and his infamous 9-9-9 plan were the belles of the ball at the last two Republican debates.

According to a full analysis by Citizens for Tax Justice, if Cain’s 9-9-9 plan was in effect in 2011 the poorest 60 percent of taxpayers would pay an average of $2,000 more in taxes, while the richest 1 percent of taxpayers would each pay an average of $210,000 less in annual taxes. Making matters worse, the plan would have actually raised $340 billion less in revenue in 2011, meaning that it would make our deficit much worse rather than better.

Since the CTJ analysis was released, the Cain campaign has been dribbling out additional details that change the plan in an ad-hoc fashion as he struggles to defend his tax proposals.

The Washington Post and Bloomberg economic debate on October 11 broke the record for most colorful tax policy jabs, as Former Utah Governor Jon Huntsman said he confused the 9-9-9 plan with “the price of a pizza”, while Minnesota Representative Michele Bachmann observed that “when you take the 999 plan and you turn it upside down, I think the devil is in the details.”

During the CNN Western debate on October 18, the candidates piled on the 9-9-9 plan, arguing that the imposition of a 9 percent new sales tax would ultimately lead to higher taxes because it would give the federal government another revenue stream and could be raised in the future. Interestingly, this particular charge is not borne out by the evidence from a plethora of countries that have imposed consumption taxes, including in Canada where total revenue collected actually went down after the imposition of its value-added tax.

As we have noted a few times, however, the regressiveness of the 9-9-9 plan is no joke. The plan would replace the entire federal tax code with a nine percent national sales tax, nine percent flat income tax, and a nine percent business flat tax. It’s important to note that although the last component is called a ‘business flat tax’, it’s essentially a payroll tax rather than a flat corporate income tax as the name would imply.

For his part, Cain defended the plan saying that reading his campaign’s full analysis of the 9-9-9 plan (which was only made available publically halfway through the CNN debate) would address the “knee-jerk” reactions to his plan.

His team’s own analysis directly contradicted Cain’s point during the debate that his plan does not contain a “value-added tax.” In reality, the report refers to the business flat tax as a “subtraction method value-added tax.”

Another problem for Cain is that his campaign’s own analysis provides no evidence that the 9-9-9 plan would not be extremely regressive, though it does include a previously unmentioned “poverty grant.”

Apparently, Cain himself knows that this “poverty grant” does not allay the concerns about the plan’s regressive impact, because Cain said the next day that he’s “not going to throw the people at the poverty level under the bus” and that he has “already made provisions for that,” but hasn’t “told the public and my opponents” about what those provisions are yet.

And just today Cain announced even more significant changes to his plan. His tax plan has always included “empowerment zones” that were not defined. The Cain campaign now calls these “opportunity zones” because the word “empowerment” sounded too liberal. It’s still unclear how living in or working in an “opportunity zone” would change one’s tax bill under Cain’s plan, but he announced today that these designated areas could be free of building codes and minimum wage laws.

The Washington Post reports that he will also change his individual tax from a single-rate tax to one with several brackets. If true, this means that Cain’s plan no longer consists of three flat 9 percent taxes… which means he has given up the “9-9-9” plan.

Republican Candidates Test Outer Limits of Their Own Anti-Tax Ideology

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The question from a Tea Party voter was this: “Out of every dollar I earn, how much do you think that I deserve to keep?”

It came during the Fox News and Google Republican presidential candidates debate last Thursday, and was directed at Minnesota Rep. Michele Bachmann.  It was her second crack at the question, so she’d had plenty of time to think it through. And her reply was this: “I think you earned every dollar. You should get to keep every dollar you earn.”

A few sentences later, however, the Congresswoman added, “Obviously, we have to give money back to the government so that we can run the government….”

The anti-tax orthodoxy has become so rigid that candidates like Bachmann, who also chairs the House Tea Party Caucus, must try to reconcile the position that no American should have to pay taxes even when they work for the government who collects those taxes and know perfectly that taxes are required to “run the government.”

Bachmann may have had the most telling (and head-exploding) tax policy moment during the last weekend’s three day series of major Republican presidential candidate events, but she was not alone among the candidates in stumbling over tax issues.

Former Utah Governor Jon Huntsman faced a tough question from the debate moderator Megyn Kelly who asked, “Is there any scenario under which you could side with the 66 percent of people who believe that it is a good idea to raise taxes on millionaires?” Despite his status as most moderate Republican candidate this season, Huntsman delivered the prefabricated anti-tax response: “This is the worst time to be raising taxes, and everybody knows that.”

Clearly, not “everybody” knows that. As Kelly’s question suggested, 66% of American’s support increasing taxes on the wealthy. Hewing to their anti-tax orthodoxy, Huntsman and the rest of the GOP field find themselves at odds with two thirds of the American public.

Former New Mexico Gov. Gary Johnson made his first major GOP debate appearance memorable by using his limited speaking time to call twice for replacing our current income tax system with the, so-called, Fair Tax, which is essentially a 30% national sales tax. As the Institute on Taxation and Economic Policy showed in its report on the Fair Tax, the plan is both unworkable and extremely regressive.

Although Gary Johnson is probably the most forthright in his support of the Fair Tax, at least half of the Republican field (and most notably current front-runner Texas Governor Rick Perry) have come out in favor of it. The one exception is former Massachusetts Governor Mitt Romney, who came out against the Fair Tax in the last debate, noting, quite sensibly and correctly, that it would cut taxes for the rich while increasing them on middle income families.

Former CEO of Godfather’s Pizza Herman Cain had a strong weekend, winning the Florida Straw poll with a surprising 37 percent of the vote. ABC News notes that his success was partially due to his ability to ‘strike a chord’ with his “9-9-9” tax plan, which he also touted proudly during the debate. His plan would replace the entire federal tax system with a 9 percent national sales tax, 9 percent income tax, and 9 percent business flax tax. As we’ve pointed out before, every aspect of this gimmicky and regressive plan would mean higher taxes on lower and middle income families and much lower taxes on the wealthy.

Former House Speaker Newt Gingrich took the debate as an opportunity to – and not for the first time – rewrite fiscal history by claiming that his ‘leadership’ led to four consecutive years of balanced budgets. We’ve said it once, we’ve said it twice, and we’ll say it again: sorry Newt, you never balanced the budget.

Watch this space for reviews of all things tax as the political campaign season kicks into high gear.

Fact Checking the Tea Party Debate: Republican Candidates Stumble on Tax Issues

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As soon as you thought you’d finally had a chance to catch your breath from last week’s Republican debate, the candidates were at it again Monday at CNN’s Tea Party Debate. As you may have to come to expect from anything associated with the Tea Party, the debate was heavy on misinformation about tax policy.
Here are some of the tax-related highlights and missteps:

Former Massachusetts Governor Mitt Romney made misleading statements about President Barack Obama’s tax record, claiming that Obama “had raised taxes $500 billion.” What’s deceptive about this is that while Obama raised taxes by $500 billion dollars (mostly through the progressive tax included in the healthcare reform bill), he has simultaneously cut taxes overall by more than double that. Specifically, Obama cut taxes by $243 billion as part of the economic recovery act in 2009, $654 billion as part of the tax compromise he signed at the end of 2010, and is now proposing $240 billion in additional payroll tax cuts, to say nothing of his proposal to continue 81 percent  of the Bush tax cuts and other smaller tax cuts at a cost of an additional $3.5 trillion.

Later in the debate however Romney got it right when asked by a member of the audience if he supported the so-called Fair Tax (a proposed national sales tax). Romney expressed skepticism toward the proposal saying that it would decrease taxes for the “very highest income folks” while increasing taxes for “middle income people.” An analysis by the Institute on Taxation and Economic Policy confirms this point showing that a Fair Tax would primarily benefit the super-wealthy, while increasing the taxes paid by the bottom 80 percent by more than half.

While rejecting the radically regressive Fair Tax may seem like a logical move for any presidential candidate who wants to be taken seriously, Romney is actually bucking at least half of the Republican field (and most notably current front-runner Texas Governor Rick Perry) who have come out in favor of it. 

Minnesota Rep. Michele Bachmann attempted to rewrite fiscal history by claiming that the reason the deficit went “up and up and up” during the past decade was not due to the Bush tax cuts, but rather trillions in increased spending. In reality however, the Bush tax cuts were the primary driver of the deficit during the Bush years, adding some $2.5 trillion to the deficit from 2001-2010.

Bachmann went on to call for a tax repatriation amnesty, making herself the latest of the GOP presidential candidates (joining with Herman Cain and Rick Santorum) to explicitly call for a tax amnesty during the debates. Bachmann and the other candidates all claim the amnesty will create jobs, though in reality it will actually encourage companies to move more jobs and profits offshore.

Former House Speaker Next Gingrich
brought up the topic of General Electric’s negative corporate tax rate in attempt to bash Obama’s choice of GE’s CEO Jeffrey Immelt as an adviser. Gingrich’s goal was to score points by arguing Obama’s choice of Immelt contradicts his own call to close tax loopholes.

Gingrich proceeded to contradict his own argument by saying that he is “cheerfully opposed” to raising taxes by closing the sorts of corporate loopholes that benefit GE and other corporations, while also conveniently leaving out that he actually works as an advisor to GE.


Just the (Tax) Facts: GOP Candidates Parade Terrible Tax Ideas, Huntsman Bucks Grover Norquist

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On Wednesday night, the GOP presidential candidates gathered at the Reagan Library for a particularly spirited debate in which candidates repeatedly turned back to tax policy. As with past debates, the GOP candidates attempted to rewrite tax history and reinforce their complete intransience on raising revenue, though there were a few glimmers of moderation.

Here are the highlights:

Former Utah Governor Jon Huntsman, in the most striking moment of the debate, called out the other candidates for signing Grover Norquist’s No-Tax Pledge, saying that he would “love to get everybody to sign a pledge to take no pledges,” noting that taking such pledges “jeopardizes your ability to lead.”

Unfortunately, he followed up this statement by pointing to his record of tax cuts in Utah, which Citizens for Tax Justice (CTJ) has called this a case study in bad tax policy. Adding to this, Huntsman’s recently released tax plan is regressive and is best characterized as tax loophole consolidation for the rich. He starts with a simplified tax system recommended by the Bowles Simpson commission, then adds huge loopholes for the rich by eliminating taxes on capital gains and stock dividends.

Texas Governor Rick Perry sought to make a name for himself at his first debate appearance by supporting the radical balanced budget amendment (BBA) promoted by Congressional Republicans, calling it a way to “start getting the snake’s head cut off.” Rather than killing some metaphoric government snake however, it is much more likely that a BBA would tie the hands of lawmakers to react to changing economic conditions and force immediate catastrophic cuts to critical government programs like Social Security, food inspection, and housing. Although Perry is one of the BBA’s most outspoken advocates, all of the GOP presidential candidates have voiced their support for it in principle.

Minnesota Rep. Michele Bachmann rewrote the legacy of Ronald Reagan in claiming that, like the entirely of the Republican field, Reagan would not embrace a deal involving $10 in spending cuts for every $1 increase in tax revenues. Her reasoning is that Reagan’s own 1982 3-to-1 deficit reduction deal failed because the spending cuts did not fully materialize (which is disputed). Bachmann’s logic break downs, however, when you consider that Reagan did not support increasing taxes just this one time, but actually increased taxes 10 more times after the 1982 deal. If anything, the lesson is that Reagan was more willing to compromise, as shown by his willingness to embrace much less lopsided deals than the candidates today reject outright.

Former Massachusetts Governor Mitt Romney did reject the claim that 47% of Americans pay no federal income taxes (a popular conservative talking point) when prompted by the moderator. Instead, Romney rightfully noted that every American feels that they are contributing “through the income tax or through other tax vehicles” and that he does not want “to raise taxes on the American people,” presumably even on those on low end who pay very little. 

Americans are, in fact, justified in feeling they contribute to government, and CTJ has provided estimates showing that all Americans pay taxes. Although Romney signaled his intention to not raise taxes on the poor, his recently released economic plan provides insignificant token relief for lower income Americans and heavily favors tax breaks for the wealthy and corporations.

Former CEO of Godfather’s Pizza Herman Cain was asked a fantastic question by the moderator on whether General Electric’s infamously low tax bill is fair. He answered that “the government needs to get out of the business of trying to figure out who gets a tax break here, who get’s a tax break there.” Though he started off well, Cain then pivoted into promoting his rather ridiculous “9-9-9” plan to replace the entire federal tax system with a 9% national sales tax, 9% income tax, and 9% corporate income tax rate. Needless to say, any plan advocating a national sales tax, a flat tax, and a 75% cut in the corporate income rate would be extremely regressive and almost certainly not raise enough revenue to fund basic government functions.

Former Georgia Rep. Newt Gingrich must not have read Bob McIntyre’s piece debunking the former House Speaker’s claims that he balanced the federal budget. Gingrich claimed during the debate that, as Speaker of the House, he “balanced the budget four straight years.” The problem, of course, is that economic growth and the 1993 repeal of the Reagan tax cuts (which every Republican including Gingrich opposed at the time) were what really led to the balanced budgets.

Former Pennsylvania Sen. Rick Santorum added his name to the long list of supporters of a repatriation amnesty, noting that such a provision is included in his plan to create jobs. In advocating for a repatriation amnesty, Santorum is following the leadership of the Republican Party and Cain, who has been the proposal’s most vocal proponent during the GOP debates.

Texas Rep. Ron Paul took his anti-government and anti-tax beliefs to their logical extreme in defending a letter he wrote during the Reagan administration informing the President that he was leaving the Republican Party. Whereas the rest of the Republican field admires Reagan without reservation, Paul called Reagan’s fiscal record during the 1980’s “a bad scene,” explaining that Reagan taxed and spent too much, leading to massive deficits. Though it’s absurd to claim Reagan taxed too much, Paul is right to point out that Reagan presided over such massive deficits that by the end of his tenure the national debt had tripled.

Corporations Are People... Who Should Pay More Taxes

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By now everyone has heard about presidential candidate Mitt Romney’s statement that “corporations are people.” “Everything corporations earn ultimately goes to people,” Romney explained to hecklers in Iowa.

Of course, it’s true that corporate earnings eventually go to people and that taxes on corporate earnings are borne by people. Those people are primarily the shareholders, who receive smaller stock dividends and or capital gains because companies pay corporate income taxes. Corporate executive pay is also affected by corporate taxes because so much of it is in the form of stock options and similar vehicles.

The serious problem is that the shareholders who own these corporations are not paying enough, thanks to the loopholes that allow corporations like GE, Boeing, Verizon and others to avoid taxation entirely.

However, some corporate lobbyists and economists who sympathize with them now argue that the people who ultimately pay corporate income taxes are actually the workers. Up to 80 percent of corporate income taxes, they claim, actually fall on labor, rather than the owners of capital. This happens, they argue, because corporations will respond to U.S. taxes by lowering wages or moving operations and jobs to countries with lower taxes, which will also hurt American workers.

They’re wrong. As we have advocated reforms to raise revenue by closing corporate tax loopholes, some have cited these misguided economic models and asked us whether or not higher corporate taxes would ultimately harm the working people we want to help. The answer is absolutely not. 

Tax expert Lee Sheppard makes the obvious point that we’ve often made (subscription required): “if labor bore 80 percent of the burden of the corporate income tax, corporations wouldn't care about it at all. They don't fight high value added taxes in Europe, because the burden is clearly borne by consumers.”

Indeed, corporations lobby Congress furiously for reduced corporate income taxes, and they would not bother if they did not believe their shareholders were the ones affected by them.

Higher Taxes Won’t Drive U.S. Corporations Offshore

American corporations certainly have been moving operations and jobs overseas in the past decades. But low labor costs in many foreign countries appears to the main force driving this trend, not lower foreign income taxes.

A recent article explains that GE has shifted operations offshore, but it actually pays higher taxes in those foreign countries than it does in the U.S. (Of course, one feature of our tax system, “deferral,” probably does encourage companies to move jobs offshore and we have urged Congress to repeal it.)

The Debate among Economists

ITEP and other organizations that provide distributional analyses of tax policies, including the non-partisan Congressional Budget Office, assume that corporate income taxes are ultimately borne by the owners of capital (corporate shareholders and owners of other businesses indirectly affected).  Since capital is disproportionately owned by the wealthy, corporate income taxes are therefore very progressive taxes.

But in recent years some economists have claimed that corporate taxes simply push investment out of the country, meaning workers in the U.S. lose their jobs or settle for lower-paying jobs (meaning labor ultimately bears the burden of the tax). 

But other economists and analysts disagree. For example, a working paper from the Congressional Budget Office suggests that investment cannot move across international borders with perfect ease and that goods produced in one country are not always perfectly substitutable for those produced in another country.

The working paper further suggests a model that takes into account the corporate taxes of other countries, meaning corporations cannot escape taxation so easily because most places where they could reasonably operate will have some level of corporate taxation.

When the economic models take all this into account, they lead to the conclusion that most of the corporate income tax is borne by capital.

The People Who Own Corporations Are Not Paying Enough in Taxes

Once we establish that the owners of capital are ultimately paying the corporate income tax, the next question is whether or not they should be paying more than they do now. Mitt Romney seems to believe they pay more than enough already.

As middle-class Americans are told they must sacrifice some of their public services in order to help balance the federal budget, the obvious question is whether or not the owners of capital, who ultimately pay corporate income taxes, can afford to sacrifice as well. The answer is: absolutely.

Many corporations use loopholes to avoid paying the corporate income tax, as our recent report on 12 corporate tax dodgers demonstrates.

Corporate profits can accumulate tax-free before they are paid out as dividends, and two-thirds of those dividends will go to tax-exempt entities like pension funds or university endowments where they can continue to accumulate tax-free before they reach any individuals. The one-third of corporate stock dividends that do go directly to individuals are currently taxed at a low, top rate of 15 percent. (We have explained before that these are reasons why corporate profits are not double-taxed, as some believe they are.)

So the short answer to Mitt Romney is, yes, corporate taxes are ultimately paid by people, the shareholders, and Congress needs to close the loopholes that currently allow them to avoid these taxes.

Photos via Gage Skidmore and IMF Creative Commons Attribution License 2.0

Texas Governor and presidential candidate Rick Perry has endorsed both the concept of a flat income tax and the so-called “Fair Tax,” which is a national sales tax. A three-page report from CTJ explains that both of these proposals would result in substantial tax increases for the poor and middle-class and significant tax cuts for the rich.

Read the report.

Photos via Gage Skidmore Creative Commons Attribution License 2.0

Texas Governor and presidential candidate Rick Perry said that he is “dismayed at the injustice that nearly half of all Americans don’t even pay any income tax.”

He should know that Americans pay other types of federal taxes besides just federal income taxes, and that they also pay state and local taxes. A two-page statement from CTJ explains that this is particularly true in Texas, which, despite its reputation, is actually a high-tax state for the poor.

The statement cites a recent ITEP finding that Texas imposes higher taxes on its poorest 20 percent of non-elderly residents than 45 other states. In other words, Texas has the fifth highest taxes for low-income families.  Texas also has the 17th highest taxes on the next 20 percent of non-elderly residents. These are the same families that Governor Perry believes should contribute more in taxes.

Photos via Gage Skidmore Creative Commons Attribution License 2.0

Grover Norquist Real Winner of Republican Debate

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Republican Candidates Completely Walk Away from Balanced Approach

“Just making sure everyone at home and everyone here knows that they all raised their hands. They’re all saying that they feel so strongly about not raising taxes that a 10 [spending cuts] to one [tax revenues] deal, they would walk away from,” Fox News host Bret Baier confirmed for the audience at the first Iowa Republican Primary debate.

With a simple raising of hands, the debate revealed that the entire Republican field would reject any sort of compromise measure that included revenue increases, even if such a compromise heavily favored spending cuts. Even a deal raising just one dollar in revenue for ten dollars in spending cuts is now off the table for the Republican candidates.

This no-compromise approach on taxes demonstrates that ultimately the winner of Thursday night’s Republican debate is Grover Norquist, whose no-tax pledge has become an absolute requirement which every Republican presidential candidate must religiously abide.

Republican Candidates Run Away from Previous Compromises

Not only did the candidates promise to not increase any taxes in the future, many of them ran away from their own record of raising taxes in the past.

During the debate, the Washington Examiner’s Byron York asked former Governors Tim Pawlenty, Mitt Romney, and Representative Michele Bachmann in turn about specific times that they had voted for or signed some form of a (gasp!) tax increase.

Each in turn, attempted to explain away their former support for the tax increases. Bachmann blamed Pawlenty for forcing her into a box, saying that she had to vote for the tax increase in order to support abortion restrictions. Pawlenty emphasized his high ratings from the CATO Institute and said that he regretted the cigarette fee he had agreed to in order to end a government shutdown. Romney did not dispute the specific incident brought up from his record, but he emphasized that he decreased taxes overall and that he had managed to get Massachusetts’s credit rating to be increased.

None of the candidates were willing to stand up and defend the core truth at issue: responsible lawmakers are sometimes required to make compromises based on the realities they face.

Each of these Republican candidates was forced at some point to make the responsible decision to vote for tax increases and defy Norquist’s absolutist pledge.

What makes these attempts to run away from their tax record particularly ironic is that both Romney and Pawlenty have long catered to anti-tax forces by advocating fiscally irresponsible policies.

Jon Huntsman Wrong on Flat Tax, Herman Cain Still Wrong on Repatriation

Although touting one’s opposition to any tax increase was the theme of the night, a couple candidates advocated their own problematic approaches to tax reform.

Former Utah Governor Jon Huntsman lauded his creation of a flat tax in Utah, saying that such an approach is “exactly what needs to happen in this country.” As Citizens for Tax Justice has noted before however, Huntsman’s flat tax made the state’s tax system even more regressive and lost an unexpectedly large amount of revenue, making it a case study of bad tax policy.

For his part, former CEO of Godfather’s Pizza Herman Cain had a moment of surprising candor when discussing the proposed repatriation holiday. When pressed on the failure of the 2004 repatriation holiday to create jobs, Cain admitted that he was “not concerned” with what actually happens to offshore corporate profits repatriated under the holiday, so long as the are back in the US. In other words, he does not care whether corporate tax breaks lead to job creation.

As we noted during the last debate, what Cain fails to realize is that a permanent or even temporary tax holiday on repatriated profits would ultimately incentivize companies to move more of their investment and jobs offshore.

Check out a complete transcript of the debate here

Getting Taxes Wrong: Fact-Checking the Republican Primary Debate

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With the Iowa Caucuses almost 8 months away, the Republican primary was in full swing on Monday night as 7 of the Republican contenders battled it out during a debate on CNN. Tax policy took center stage as every single one of the Republican contenders promoted lower taxes as central to their economic platform.

Predictably however, the candidates stayed relatively vague about their specific tax plans.

Former Minnesota governor Tim Pawlenty is the only candidate so far to release an official tax plan, which, among other things, proposes to eliminate the capital gains tax, create only two income tax brackets, and reduce the corporate income tax rate from 35 to 15%. Citizens for Tax Justice estimates that the plan would result in a 73% income tax cut for the Top 400 Taxpayers and cut taxes 41% for millionaires generally.

Even without getting into too many specific plans, the Republican contenders made a few curious claims about tax policy that are in dire need of fact checking:

Representative Michele Bachmann, Minnesota: “What we need to do is today the United States has the second highest corporate tax rate in the world…We've got to bring that tax rate down substantially so that we're among the lowest in the industrialized world.”

While Bachmann would be correct in claiming the United States' statutory tax rate of 39% (the federal income tax rate is 35 percent and the average state corporate income tax rate is about 4 percent) is on paper the second highest in the industrialized world, she fails to take into account the effect of special tax breaks and loopholes which make the effective rate paid by companies relatively low. According to a 2007 study by the Bush Treasury Department, between 2000-2005 US corporations paid only 13.4% of their profits in corporate income taxes, well below the Organization of Economic Cooperation and Development (OECD) average of 16.1%. The OECD is what Bachmann means by "industrialized world."

Demonstrating how big the difference between statutory and effective rates can be, a recent CTJ study showed that 12 US corporations together paid an effective corporate income tax rate of (negative) -1.5%, while earning $171 billion in profits over 3 years.

Former House Speaker Newt Gingrich: “The Reagan recovery, which I participated in passing…raised federal revenue by $800 billion a year in terms of the current economy, and clearly it worked. It's a historic fact.”

Rather than telling a ‘historic fact’, Gingrich is weaving a complete fiction. In claiming that Reagan’s tax cut efforts raised federal revenue $800 billion, Gingrich is assuming that all economic growth was due to Reagan’s efforts, while simultaneously ignoring the effect of inflation and population growth.

Citizens for Tax Justice’s internal estimates put the real cost of lost revenue due to the Reagan tax cuts at 3.97% of GDP or the equivalent of $581.2 billion today. Even former Reagan White House Senior Policy Analyst Bruce Bartlett admits that the Reagan tax cuts DECREASED revenue, adjusting for inflation, by $473.7 billion. In addition, it’s odd that Gingrich would point to the Reagan era to establish his fiscal credentials considering that the national debt tripled during Reagan’s two terms.

This is not Gingrich’s first foray into rewriting historic fiscal realities and it probably will not be his last.

Herman Cain, Godfather Pizza CEO: “We need an engine called the private sector. That means lower taxes…suspend taxes on repatriated profits, then make them permanent.”

Herman Cain’s call for an end to taxing repatriated profits puts him in good company with Republican establishment figures like Republican Speaker of the House John Boehner, who believe that moving the United States toward a territorial system of taxation would stimulate the economy by bringing home offshore capital.

In reality however, such a move would be disastrous for the US economy. Rather than encouraging investment in the United States, US corporations would have a much greater incentive to shift actual operations and jobs offshore because they would not have to pay US taxes on these profits. A better approach would be to end deferral, which would stop these current tax incentives pushing jobs offshore while also encouraging companies to bring more than a trillion dollars in offshore capital back to the US.

New from CTJ: Pawlenty Plan Would Cut Income Taxes for Richest 400 Americans by 73 Percent

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Plan Would Cut Personal Income Taxes by at Least 41 Percent for Millionaires Generally

Former Minnesota governor and presidential candidate Tim Pawlenty has released his proposed tax plan, including very specific rate cuts and exemptions for investment income, and vague promises to eliminate tax loopholes. Even if he eliminates all itemized deductions and credits, millionaires would still receive an enormous income tax break under the plan.

Read the report.

Results of Tax-Related Ballot Initiatives

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Earlier this week, voters in states across the nation voted overwhelmingly against implementing major changes to their states’ tax codes. Voters in Massachusetts defeated an effort to slash the state’s sales tax, preserving much-needed revenue to fund education, public safety and other vital services. In Colorado, three anti-tax measures that would have wreaked havoc on the state’s budget were also soundly defeated. Washington State voters rejected a plan that would have created an income tax while rolling back other taxes.

In other states, big business successfully used its money to influence the outcomes of ballot measures on tax issues. Voters in Missouri and Montana passed initiatives designed to ensure that neither state could implement a tax on the transfer of real estate. Neither state currently has a real estate transfer tax, yet the real estate lobby spent millions trying to pass the initiatives. In Washington and Massachusetts, the beverage and alcohol industries poured millions of dollars into campaigns to see that sales taxes levied on their products were rolled back.

And in California, corporations spent millions to defeat a ballot measure that would have repealed several poorly-thought out corporate tax breaks. As the New York Times noted earlier this week, Fox News aired a critical piece on the ballot measure as part of their "War on Business" series, as parent company News Corporation gave $1.3 million to defeat the measure. Fox executives said they "didn't know" the parent company had made these contributions.

Unfortunately, voters in a number of states also ratified measures that will make it harder to raise revenues going forward. California and Washington each face tighter supermajority constraints on revenue-raising, Indiana voters enshrined property tax caps in their constitution, and voters in Massachusetts and Washington retroactively rejected small tax increases enacted by state legislatures in the past year.

Here are the results of initiatives we’ve been following.

Personal Income Tax

Washington: Initiative 1098 - FAILED
Initiative 1098 would have introduced a limited personal income tax applicable only to the richest Washingtonians, reduced the state property tax and eliminated the Business and Occupation tax for many businesses.

Colorado: Proposition 101 - FAILED
Proposition 101 would have reduced Colorado’s income tax rate and eliminated various fees resulting in an estimated loss of $2.9 billion in state and local revenue once fully implemented.

Business Tax Breaks

California: Proposition 24 - FAILED
Proposition 24 would have eliminated several business tax breaks enacted in 2008 and 2009 and would have increased state revenues by more than $1.3 billion.

Super Majority Voting Requirements

California: Proposition 25 - PASSED
California: Proposition 26 - PASSED

The passage of California’s Proposition 25 removes the current two thirds super majority requirement needed to pass the state budget (replacing it with a simple majority vote). However, Proposition 26 institutes a new super majority requirement for raising certain fees (classifying them as taxes, which still require a two thirds vote).

Washington: Initiative 1053 - PASSED
Initiative 1053 will ensure that all tax increases (no matter their size) be approved either by a two thirds majority in the legislature or a public vote of the people.

Earnings Tax

Missouri: Proposition A - PASSED
Proposition A requires voters to decide whether two local earnings taxes levied in St. Louis and Kansas City should exist and also prohibits other localities from levying a local income tax.

Sales Taxes

Massachusetts: Question 1PASSED
Massachusetts: Question 3 - FAILED

Question 3 would have cut the state’s sales tax rate from 6.25 to 3 percent, resulting in an annual revenue loss of $2.5 billion.  Question 1 removes the sales tax on alcohol, which was just added last year in order to raise $80 million for substance abuse programs.

Washington: Initiative 1107 - PASSED
Initiative 1107 repeals a recently enacted sales tax increase on a variety of goods including soda, bottled water, and candy.

Property Tax Exemptions

Missouri: Constitutional Amendment 2 - PASSED
This constitutional amendment fully exempts disabled prisoners of war (POWs) from paying property taxes.

Virginia: Question 2 - PASSED
Question 2 changes Virginia’s constitution to exempt disabled veterans and their surviving spouses from paying property taxes.

Property Tax Caps

Indiana: Public Question #1 - PASSED
The amendment to Indiana’s state constitution permanently limits property taxes to 1 percent of assessed value for owner occupied residences, 2 percent for rental and farm property and 3 percent for business property. These limits already existed in statute. This ballot measure simply makes them more difficult to repeal.

Colorado: Amendment 60FAILED
Amendment 60 would have taken away the ability of voters to opt out of Colorado’s TABOR limitations as they relate to property taxes and require school districts to cut property tax rates in half over the next ten years, replacing the lost revenue for K-12 schools with state funding.

Real Estate Transfer Fees

Montana: Constitutional Initiative 105 - PASSED
Initiative 105 prohibits the state from enacting any type of real estate transfer tax.  

Missouri: Constitutional Amendment 3 - PASSED
Amendment 3 prohibits the state from enacting any type of real estate transfer tax.

Government Borrowing

Colorado: Amendment 61FAILED
Amendment 61 would have prohibited or restricted all levels and divisions of government from financing public infrastructure projects (such as building or repairing roads and schools) through borrowing.

California: Proposition 22PASSED
Proposition 22 amends California’s Constitution to take away the state’s ability to borrow or shift revenues that fund transportation programs.

Voters Embrace Higher Taxes at the Local Level

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Last week, the Associated Press took a close look at how local-level tax increases have fared on the ballot leading up to this week’s election.  Out of the 39 states surveyed by the AP, 22 of them held local primary elections or special elections where tax measures were voted on in 2010, and a whopping 19 of those states saw their residents approve more than half of all proposed local tax increases.

Some of the more interesting results highlighted by the AP include the approval of 83% of local tax increases in Louisiana, 72% in Ohio, and 66% in ArizonaKansas, Nebraska, and Washington also approved particularly high percentages of local tax increases.

It’s important to note that the AP study was conducted before this week’s election, and therefore doesn’t tell us how local measures fared on November 2.  Moreover, as the AP points out in their review, there is no single source for information on the results of local ballot measures, and even most states fail to publicize local results in a centralized location. 

Unless and until a study of this week’s local measures is completed, we’ll be left to wonder whether trends from earlier this year have continued to hold.  If they have, there could very well be many more stories of local ballot successes like this one in Colorado.

Federal Tax Policy and Election 2010: CTJ's Federal Tax Resources

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Over the past several months, CTJ has produced several resources that will help you to be informed about the tax issues at stake in the upcoming election. The first question many people will ask themselves on election day is, "What have the two parties done so far about taxes?" The second question is, "What do the two parties promise to do about taxes going forward?"

Our resources will help you answer both of those questions.

What Have the President and Congress Done So Far about Taxes?

The recovery act, which President Obama signed into law after it passed Congress without a single Republican vote in the House and just a few Republican votes in the Senate, cut taxes for 98 percent of working Americans. See CTJ's report and fact sheets:

President Obama Cut Taxes for 98 Percent of Working Families in 2009

State-by-state fact sheets are included.

What Do President Obama and the Congressional Democrats and Republicans Promise to Do about Taxes Going Forward?

CTJ has produced a report and state-by-state fact sheets comparing the impact of President Obama's tax plan and Congressional Republicans' tax plan on taxpayers in different income groups:

Comparing President Obama's Tax Plan and Senate Republicans' Tax Plan

CTJ has also created an online tax calculator that allows you to see how a given taxpayer would be affected by the competing tax plans.

CTJ's Online Income Tax Calculator

State Tax Policy and Election 2010: CTJ's News about Races and Ballot Measures in Your State

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Click on your state below to see what CTJ has written over the past several months about state-level races and ballot measures that will affect you.

State Tax Issues on the Ballot on Election Day

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The stakes will be high for state tax policy on Election Day, with tax-related issues on the ballot in several states. With a couple of notable exceptions (a new income tax in Washington and rollback of corporate tax breaks in California), these ballot initiatives would make state taxes less fair or less adequate (or both).

Personal Income Tax

Colorado: Proposition 101 would reduce or eliminate various fees and immediately reduce the state’s income tax rate from 4.63 to 4.5 percent and eventually to 3.5 percent).  If passed, Proposition 101 will result in an estimated loss of $2.9 billion in state and local revenue once fully implemented.

Washington: Initiative 1098 would introduce a personal income tax, reduce the state property tax and eliminate the Business and Occupation tax for small businesses. If passed, this legislation would improve tax fairness in the state with the most regressive tax structure in the country.  For more read CTJ's Digest articles about this initiative.

Business Tax Breaks

California: Proposition 24 would eliminate several business tax breaks enacted in 2008 and 2009 and increase state revenues by more than $1.3 billion.  For more details on these tax breaks, read the California Budget Project's Budget Brief on the initiative.

Super-Majority Voting Requirements

California: Proposition 25 would remove the current two-thirds super-majority requirement needed to pass the state budget (replacing it with a simple majority vote), while Proposition 26 would institute a new super-majority requirement for raising certain fees (classifying them as taxes).  For more details on these initiatives, read the California Budget Project’s initiative summaries.

Washington: Initiative 1053 would, if approved, ensure that no tax increases (no matter their size) become law without either approval by a two-thirds majority in the legislature or a public vote of the people. The Washington Budget and Policy Center gives a helpful summary of the initiative and its potential impact.   

Earnings Taxes

Missouri: Proposition A, if approved, would require that voters be asked every five years to decide whether or not local earnings taxes levied in St. Louis and Kansas City should exist. (If voters then decide to not allow them, they will be phased out over a ten-year period). The Proposition would also exclude any other local government from levying its own earnings taxes. For more on Proposition A, read Missouri Budget Project’s fact sheet.

Sales Taxes

Massachusetts: Question 1 and Question 3
A diverse coalition of businesses, advocacy organizations, citizens groups and political leaders have joined together to defeat Question 3, an initiative that would cut the state’s sales tax rate from 6.25 to 3 percent, resulting in an annual revenue loss of $2.5 billion.  Question 1 would remove the sales tax on alcohol which was just added last year in order to raise $80 million for substance abuse programs.

Washington: Initiative 1107 would repeal the new sales taxes on a variety of goods including soda, bottled water, and candy. For more information, read CTJ's Digest article on the issue and the Washington Budget and Policy Center’s summary.

Despite the regressive nature of the sales tax, it's an important revenue source. Slashing it in either Washington or Massachusetts without replacing the lost revenue with another source would cripple the ability of those states to provide core services such as education and public safety to their residents.

Property Tax Exemptions

Missouri: Constitutional Amendment 2 would exempt fully disabled prisoners of war (POWs) from paying property taxes. Read Missourians for Tax Justice’s take on this issue.

Virginia: Question 2 would change Virginia’s constitution to exempt veterans and their surviving spouse from paying property taxes if the veteran is 100 percent disabled.

Property Tax Caps

Colorado: Amendment 60 would take away the ability of voters to opt out of Colorado’s TABOR limitations as they relate to property taxes.  Currently, voters can approve an increase in property tax rates above the constitutional limit which caps increases at the rate of inflation plus a small measure of local growth.  The amendment would also require school districts to cut property tax rates in half over the next ten years and replace the lost revenue for K-12 schools with state funding (an estimated $1.5 billion will be required from the state, meaning reductions will have to made to other services to support an increase in K-12 spending).

Indiana: Public Question #1 will ask Indianans to decide if their state's constitution should be permanently altered to limit property taxes to 1 percent of assessed value for owner occupied residences, 2 percent for rental and farm property and 3 percent for business property. Voters may find it helpful to read this brief from the Indiana Institute for Working Families.

Real Estate Transfer Fees

Missouri: Constitutional Amendment 3 would prohibit the state from enacting any type of real estate transfer tax. Missouri currently doesn’t levy any such tax.  Placing the question before voters is seen as a preemptive move by the Missouri Association of Realtors to ensure that the state can’t create a transfer tax.

Montana: Constitutional Initiative 105 would, if approved, prohibit the state from enacting any type of real estate transfer tax.  The state currently doesn’t levy such a tax. The Billings Gazette has weighed in on this Initiative.

Government Borrowing

California: Proposition 22 would amend California’s Constitution to take away the state’s ability to borrow or shift revenues that fund transportation programs.  For more information, read the California Budget Project’s brief on the initiative.

Colorado: Amendment 61 would prohibit or restrict all levels and divisions of government from financing public infrastructure projects (such as building or repairing roads and schools) through borrowing.

Arlen Specter, Proponent of Regressive "Flat Tax," Loses Primary Battle

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Arlen Specter, a long-time U.S. Senator for Pennsylvania who recently switched from the Republican party to the Democratic party, lost his primary battle on Tuesday against Representative Joe Sestak.

Since 1995, Senator Specter introduced legislation to create a federal “flat tax” in every session of Congress, including this session.  This single-rate tax would replace the existing progressive personal income tax, as well as the corporate income tax and estate tax.

A recent report from Citizens for Tax Justice found that Specter's proposal would cut taxes for the richest five percent of taxpayers and raise taxes for everyone else.

The Specter plan was based on the “Flat Tax,” first proposed in a 1983 book by Robert Hall and Alvin Rabushka. The Flat-Tax authors wrote that it “will be a tremendous boon to the economic elite” and also admitted that “it is an obvious mathematical law that lower taxes on the successful will have to be made up by higher taxes on average people.”

Sestak will go on to face Republican Pat Toomey, a former Representative and a former president of the right-wing Club for Growth.


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Charges that Progressive Taxes Are "Socialism" Fail to Rally Support for Candidate McCain

Senator Barack Obama, who ran for president partly on a platform of ending George W. Bush's policies of cutting taxes for the wealthiest Americans, will be our new president starting January 20, 2009. He will have the support of a House of Representatives and Senate led by opponents of the Bush tax cuts.

His opponent, Senator John McCain, tried several times to frame the tax debate in a way that would lead average Americans to support tax cuts for the very wealthiest taxpayers. None of these attempts succeeded. At one point, the McCain campaign tried to get the public to pay more attention to Obama's vote for a non-binding budget resolution than Obama's actual tax plan. Later, a McCain surrogate argued that allowing the expiration of tax cuts for the richest 1.4 million taxpayers would be a tax increase on 23 million business owners. Near the end, McCain made an argument implying that the EITC, and really any progressive income tax, was socialism. Americans were not impressed with these arguments.

The 2008 election has important lessons for lawmakers regarding taxes. Arguments that taxes must be lowered for even the richest Americans simply do not work. Americans don't buy it. Nor do Americans buy it when proponents of tax cuts attempt to blur the details about who would benefit the most. There has always been polling that shows Americans do not support any and all tax cuts, but it took an election to make this real for many lawmakers.

The Path Ahead

Some people may speculate about whether the new President will muster the support needed to enact the proposals dear to them. We also feel this uncertainty, but it is mitigated by the crucial fact that the Bush tax cuts expire at the end of 2010. To put it a different way, if Congress simply does nothing, we will return to the tax policies in effect during the Clinton years, when the economy performed better than it does now, and when Americans were generally more positive about the direction of the country. That would be fine with us.

We know that Congress is not likely to do nothing. Congress, with President Obama's leadership, may enact tax cuts, including extending the Bush tax cuts for those who are not rich. (Since such a gigantic share of the Bush tax cuts currently goes to the rich, Obama's proposal will lose much less revenue than would candidate McCain's proposal to extend them for even the richest families.) And Congress is likely to act on at least some of President Obama's proposals to enact brand new tax cuts for low- and middle-income Americans.

But those lawmakers who insist on extending the Bush tax cuts for the even the richest Americans have no cards left to play. Their cherished handouts for the rich expire in a couple years and the new president is not likely to sign any bill that extends this party for the most privileged.

Of course, a great many details must be worked out. Obama wants to repeal the Bush tax cuts before they expire for the very richest families, and some lawmakers will dig in their heels to oppose this. Another question is the extent to which new tax cuts will be paid for. While most analysts agree that balancing the budget is not a priority during a severe economic downturn, we certainly hope that Congress will not enact huge, permanent tax cuts without replacing most of the revenue -- revenue needed to fund health care initiatives and other investments that have been short-changed during the Bush administration. There are ways that Congress can raise revenue that go beyond what is included in Obama's tax plan, and we will be making these suggestions to the new administration. And of course there are some tax cuts that Obama supports that would benefit the wealthy -- like a partial extension of the Bush tax cuts for dividends and estates -- and we're going to have an interesting conversation about that.

But the most salient fact is that the surreal era of leaders telling us that taxes must be cut most dramatically for the wealthy is over. This is a sea change. We may have trouble explaining to future generations how such a bizarre ideology ever took hold. But we will have no trouble explaining that on Tuesday Americans looked at the long list of problems facing this country and decided that cutting taxes for the rich should not be considered a priority.

For eight years we have had a White House fixated on tax cuts for the rich, at the expense of all other priorities. Now, the millions of Americans who lack health insurance or who are underinsured, the newly unemployed, the families losing their homes, and Americans serving their nation in the armed forces all know that their struggles are finally back at the top of the agenda in Washington.

The Effects of the Candidates' Tax Plans on Households at Different Income Levels: Examples

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New Report from Citizens for Tax Justice

A new report from Citizens for Tax Justice examines hypothetical households that are representative of different income groups to determine how they would fare under the tax plans proposed by the presidential candidates The report calculates the income tax liability of each hypothetical household under the tax plans and explains how and why the plans would affect them differently.

We find that our hypothetical households in the low- and middle-income groups would receive a larger tax cut under Obama's plan than under McCain's plan. Our hypothetical households in the top one percent would have a tax increase that would be fairly small (as a percentage of their income) under Obama's tax plan, but they would receive breathtaking tax cuts exceeding $270,000 under McCain's plan.

While presidential candidate John McCain has promised to make permanent the Bush income tax cuts for all Americans, his opponent, Barack Obama, promises to make them permanent for almost all Americans. A new analysis from Citizens for Tax Justice shows that only a small percentage of the taxpayers in each state would lose a portion of the Bush income tax cuts if Obama's plan is enacted. For these very rich taxpayers, Obama would repeal most of the Bush income tax cuts before their expiration date at the end of 2010. For everyone else -- for 97.5 percent of taxpayers nationally -- all of these tax cuts would be made permanent.

Obama proposes to make all of the Bush income tax cuts permanent for married couples with adjusted gross income (AGI) below $250,000 and unmarried taxpayers with AGI below $200,000.

Nationally, we find that only 2.5 percent of taxpayers will fall above the $250,000/$200,000 AGI threshold in 2009. The state with the largest percentage of taxpayers above this threshold is Connecticut (5.1 percent) and the state with the lowest is West Virginia (1.0 percent).

"Senator Obama wants to extend the Bush income tax cuts for 97.5 percent of taxpayers, and then enact more tax cuts for middle-income families," said CTJ director Robert McIntyre. "Obama even wants to extend a portion of the Bush income tax cuts for that richest 2.5 percent of taxpayers. Senator McCain defines a 'painful tax increase' as any plan that does not continue Bush's policy of giving huge tax cuts to these very richest taxpayers and having future generations of average Americans pick up the tab."


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The financial collapse and the economic downturn of the past months begs the question of whether the economic policies of the Bush administration will be repudiated. Supply-side economics, the ideology that has driven the economic agenda of President Bush, has survived for years despite its complete failure in practice. For example, some anti-tax lawmakers and activists now claim that the answer to the economic crisis is... more tax cuts for investors. But now that we have seen two presidents over the last thirty years run up massive budget deficits through supply-side tax cuts that did not seem to make the economy any stronger, there is reason to think that politicians may finally start to see the failures of this ideology.

The Supply-Side Theory

This issue of the Tax Justice Digest explores supply-side economics, which is generally the idea that policies, particularly tax cuts for investment or for those who invest, can change incentives to invest in a way that will yield huge increases in economic growth. Most incredibly of all, this resulting economic growth is often argued to result in so much new tax revenue that the tax cut can be cost-free or can even lead to increased revenues. Keep in mind there is no actual evidence that tax cuts can pay for themselves or actually lead to increased revenues. The Treasury Department under President Bush issued a report finding that there was no evidence for this, and Bush's current budget director has also said that tax cuts do not pay for themselves or lead to increased revenue. And yet, President Bush and many of his allies (including, recently, John McCain) have stated numerous times that tax cuts cause increases in revenue.

The Laffer Curve

This idea of revenue increases resulting from tax cuts -- the crown jewel of the supply-side belief system -- could of course be true in some conceivable context. The concept is illustrated by the Laffer curve, named after its creator, which is basically a diagram showing that tax hikes will increase revenues only up to a point, after which tax hikes will actually lead to a decrease in revenue because incentives to work and invest are so severely damaged. If profits are already taxed at 95 percent, raising that rate might, in fact, lead to less revenue, as people realize there is little to be gained from investing or running a business and there are consequently less profits to be taxed. Lowering that rate could instead lead to more business activity, more business profits, and even more taxes paid on business profits. (Or at the very least, more business profits might be reported, leading to more taxes paid.)

But supply-siders often take this idea, which might apply in very few situations in real life, and apply it to the United States today.

While this is the most bizarre form that supply-side economics takes, even the ideology's more mainstream adherents seem to believe that tax cuts will lead to economic growth that is so great that higher budget deficits and starved public services should be considered nothing more than a minor side-effect.

Lawmakers and Media: The At-Risk Community

When a person brings up the idea that a tax cut might lead to increased revenues, serious economists laugh, but lawmakers and reporters often find themselves strangely mesmerized. An idea that justifies offering constituents both a tax cut and higher spending on services is like a narcotic for some lawmakers, impossible to resist even though its ill effects are obvious to all observers. Meanwhile, reporters who find economics to be outside of their area of expertise give uncritical and expansive coverage to an idea that almost no serious economist actually believes in.

How It Began

The supply-side movement began with, to put it mildly, a colorful cast of characters, as Jonathan Chait describes in his excellent book, The Big Con. One is George Gilder, whose book Wealth and Poverty, helped launch the movement. He is also known for such quotes as "There is no such thing as a reasonably intelligent feminist," and he is a strong proponent of ESP (extrasensory perception). Another is Jude Wanniski, who wrote another important book (The Way the World Works) and preached that high taxes led to all evils, including Hitler's decision to invade his neighbors. He later compared Slobedan Milosevic to Abraham Lincoln and insisted that Saddam Hussein never gassed his people.

Then, of course, there is Arthur Laffer, who met with Wanniski and Dick Cheney one day, drew his diagram on a cocktail napkin and convinced Cheney that tax cuts could result in increased revenues. The Laffer curve was born, and progressives have been trying to throw it back into the fires of Mordor ever since.

Rather than dwelling on these interesting characters, we have decided to provide the following information for those who would like to know what supply-side economics is about, how it has influenced policy-making and how we can respond to it.

Two New Reports Explore the Strange Allure of Supply-Side Economic Policies and the Overwhelming Evidence of Their Failure

Supply-Side Ideas Influence the Presidential Race

Isn't It Time to Reassess the Bush Tax Cuts for Investment Income?

Supply-Side Disasters in the Making at the State Level

Supply-Side Ideas Influence the Presidential Race

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Presidential candidate John McCain has made statements in the last year indicating that he believes tax cuts pay for themselves. Whether he actually believes this and how he came to this conclusion is all very murky. Senator McCain famously voted against the Bush tax cuts in 2001 and 2003 and has now reversed himself by favoring a permanent extension of all the Bush tax cuts even for the richest Americans, plus a lower rate for corporations and other cuts for business. When asked to explain his previous votes and his reversals, McCain has always given baffling and incoherent answers.

John McCain now says that he opposed the Bush tax cuts in 2001 and 2003 because he thought they needed to be accompanied by cuts in spending to keep the budget deficit under control. Actually, what he said in 2000 about then-Governor George W. Bush's tax plan was, "I don't think the governor's tax cut is too big-it's just misplaced. Sixty percent of the benefits from his tax cuts go to the wealthiest 10% of Americans-and that's not the kind of tax relief that Americans need."

But even if we take his word that he was concerned about the budget, wouldn't that only mean he would be even more opposed to the Bush tax cuts now that we have deficits instead of surpluses? He explained at a debate on September 5 that he voted against the 2001 and 2003 tax cuts because they did not include cuts in spending, which he thought were also necessary. But then he claims that "it's very clear that the increase in revenue we've experienced is directly related to the tax cuts that were enacted, and they need to be permanent."

McCain claims he went from worrying about how tax cuts might damage a budget in surplus to believing tax cuts will help a budget that is in deficit. His conversion may be inexplicable, but it's very real. His tax plan would extend the Bush tax cuts for the rich and slash taxes for corporations, which would benefit stock-holders. He would create an alternative "simplified" tax that would generally make the tax code more complicated. Since it would be voluntary, people would calculate their taxes under the regular system and under the alternative system to see which yields a lower tax. Our estimates show that it would cost in the neighborhood of $98 billion in 2012, half of which would go to the richest one percent.

During his 2000 presidential campaign, Senator McCain said, "There's one big difference between me and the others -- I won't take every last dime of the surplus and spend it on tax cuts that mostly benefit the wealthy. I'll use the bulk of the surplus to secure Social Security far into the future to keep our promise to the greatest generation."

So McCain once said he won't spend an entire budget surplus on tax cuts for the wealthy, but apparently he has no problem cutting taxes for the wealthy when the budget is in deficit. We would like to say this reversal is surprising but, sadly, we've seen it before.

What about McCain's opponent? One would hope that presidential candidate Barack Obama would represent a clean break with the supply-side thinking of the past, but the reality is slightly more complicated. During his speech at the Democratic convention in Denver, Senator Obama said, "Change means a tax code that doesn't reward the lobbyists who wrote it, but the American workers and small businesses who deserve it." Curiously then, Senator Obama proposes to keep in place a loophole for corporate dividends created in the Bush years. President Bush and his allies in Congress enacted a special loophole for dividends (a top rate of 15 percent) that will expire at the end of 2010 along with the rest of the Bush tax cuts if Congress simply does nothing. Instead of allowing the dividends loophole to completely expire, Senator Obama wants dividends to be taxed at a top rate of 20 percent for, roughly, the richest two and a half percent of Americans and a top rate of 15 percent for everyone else.

At the time the dividend tax cut was enacted in 2003, Michael Kinsley pointed out that "[u]nlike, say, interest on a savings account or money-market fund, which are taxed every year, corporate profits are allowed to compound tax-free until they are paid out as dividends or the stock is sold. A notorious quirk in the tax law wipes out a lifetime of taxes on stock that is passed on to your heirs. Dividends and capital gains are also exempt from the Social Security and Medicare taxes. One way or another, it is the rare dollar of corporate profits that bears a tax burden heavier than the burden on an employee's wages."

True, Senator Obama does want to allow tax rates on ordinary income to revert to the rates that existed under Clinton for the very richest Americans, and he will allow the tax subsidy for capital gains to shrink back to the level that existed under Clinton (a top rate of 20 percent instead 15). But apparently Obama agrees with President Bush that taxing dividends just like the income most people receive as wages would be either unfair, or damaging to the economy, or both.

Of course, Obama certainly has never claimed that tax cuts can pay for themselves. But the less insane aspects of the supply-side ideology have influenced some of what he has said about taxes. In particular, he seems to believe that not allowing most Americans to keep the taxes they received under Bush would be bad for the economy. He told the multitudes in Denver, "I will -- listen now -- I will cut taxes -- cut taxes -- for 95 percent of all working families, because, in an economy like this, the last thing we should do is raise taxes on the middle class." We could probably think of all sorts of things that would be the "last" thing we want to do in an economy like this (cutting back on education spending, allowing the health care system to plod along in its current inefficient manner) and that would be worse than having a higher tax bill.

So Obama is certainly not a supply-sider, but he's not exactly facing down the supply-siders either. Allowing everyone but the richest 2 and a half percent to keep the Bush tax cuts (and even extending some cuts for these very richest taxpayers) is not exactly a clean break with the failed supply-side policies of Bush. At the same time, his tax cuts would be aimed at the middle-class and would make the tax code more progressive overall, which would be an enormous improvement over the policies of the current president.

(See CTJ's recent report, "The Tax Proposals of Presidential Candidates John McCain and Barack Obama.")

New Reports on McCain, Obama, and Tax Cuts from Citizens for Tax Justice

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Citizens for Tax Justice has recently released several reports on the tax issues being debated during this presidential election season.

1. The Tax Proposals of Presidential Candidates John McCain and Barack Obama

Last week CTJ released this 15-page report on the tax plans offered by the two candidates. The report includes estimates of the distributional and fiscal effects of both candidates' plans in 2012, a year when almost all of the provisions of either plan would be in effect if enacted. These estimates include the effects of making the Bush tax cuts permanent (partially, in Obama's plan, and almost entirely, in McCain's plan) as well as their proposed changes to the AMT, corporate tax, and the other tax changes they propose.

The report finds that Obama's tax plan would give a larger tax cut, on average, to taxpayers in the bottom 60 percent of the income distribution than McCain's plan. Interestingly, while Obama's plan would give a small tax cut, on average, to the richest one percent, McCain's plan would give this group an average tax cut that is 43 times as large.

2. Obama and McCain Propose New Stimulus Plans, Including More Tax Breaks

In addition to the tax plans that both candidates have been promoting for months, McCain and Obama both have recently proposed new, temporary tax cuts as a way to stimulate the economy and help people avoid the consequences of the downturn in the market. As this report explains, neither of the candidates' tax cuts seem very promising when it comes to helping Americans who are genuinely struggling, but McCain's proposals are particularly alarming because their benefits would be heavily targeted to the rich. He proposes to slash the capital gains rate, which would further bias the tax code against work and in favor of people who live off their wealth, and we estimate that over three fourths of the benefits would go to the richest one percent.

McCain also proposes that withdrawals of up to $50,000 from 401(k)s and IRAs, which are currently taxed as ordinary income, be subject to a top income tax rate of 10 percent. This obviously does nothing for a senior whose income is too low to trigger income tax liability or whose taxable income does not exceed the 10 percent bracket. But it would be a real boon for a very rich senior who would otherwise pay income taxes at a rate of 35 percent on such a withdrawal.

3. McCain's Proposal to Increase the Tax Loophole for Capital Gains Would Be Unfair and Counterproductive

This report explains in more detail why lawmakers should not take up McCain's proposal to expand the existing loophole for capital gains, and why they should move in the opposite direction and start taxing investment income just like any other income. Anyone who thinks that doing away with the lower rates for capital gains and dividends is too radical an idea is reminded that Congress has done it before -- under the leadership of President Reagan.

4. Does Joe the Plumber Need a Tax Break?

No discussion about this presidential race would be complete without some mention of Joe the Plumber, the man who asked Obama about how he would be affected by Obama's tax plan if he became a small business owner. Obama responded that someone like Joe needs a tax cut now, when he's working his way up and saving money, rather than later on when he's joined the ranks of the very richest Americans. We also note the oddity of McCain professing to be worried about a tax code that punishes this man's hard work while proposing to expand the very loopholes that bias the tax code against work.

Does the Government Have a Right to Put Conditions on Tax-Exempt Status?

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Just like individuals, entities that have any sort of income are required to pay taxes on that income. This is how we pay for roads, schools, tanks and many other things. But because life is complicated, we have made exceptions for some entities, allowing them to claim tax-exempt status. One would think that the taxpayers, acting through their elected officials, should be able to decide what the conditions are for enjoying such tax-exempt status. For example, there seems to be no reason to grant a tax subsidy to an organization that endorses a political candidate. Most people would agree that we should not grant a tax subsidy for activities geared towards winning political power for an individual or party.

But there is at least one organization that disagrees. The conservative Alliance Defense Fund seems to believe that Congress has no right to set such conditions on an entity enjoying tax-exempt status. The ADF sponsored what it called "Pulpit Freedom Sunday" a week ago, which consisted of 33 conservative pastors endorsing presidential candidate John McCain during church services. If any church loses its tax-exempt status, the ADF wants to challenge this action by the IRS on the grounds that the right to free speech under the First Amendment is being violated.

As one preacher in Minnesota recently put it, "The scripture is very clear about our need to obey all laws," he said. "I want people to realize that there are two laws here that compete with each other. The IRS says that I cannot talk about politics. The Constitution says I can. Unless there's a court battle, we don't know which law to obey."

Actually, there is no conflict, and such a challenge will not stand up in court. Every organization is free to endorse whomever it wants for any political race. The law simply says the government will not grant any organization doing so an exemption from taxes.

Some of the pastors involved actually seemed quite aware of this. The same Minnesota pastor said he was aware that his church could lose its tax-exempt status "but it's not that big a deal... The church will go on." That's actually a rather startling admission. If the churches don't actually need a tax exemption, then there really is no conflict here after all.


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Fox News Anchor Demands that McCain Campaign Official Explain Why He Is Lying About Obama's Tax Plan

Think Progress caught Fox News anchor Megyn Kelly last week pushing back at McCain spokesman Tucker Bounds for defending his campaign's claims that Barack Obama intends to raise taxes on working-class people.

"But you guys have suggested he's going to raise taxes on the middle class and virtually every independent analyst who took a look at that claim said that's not true," Kelly said. "he'll raise it on people making $200,000 or $250,000, but not the middle class." When Bounds tried to defend his boss's honor, Kelly shot back, "I'm not giving him any credit. I'm saying what the independent analysts say. They say that claim is false."

Citizens for Tax Justice, along with many others, has made the same point in recent weeks. Last week CTJ released a fact sheet that refuted the McCain campaign's claims that Obama proposes "painful tax increases on working American families." Obama has proposed to repeal the Bush tax cuts for only married couples with incomes above $250,000 and singles with incomes above $200,000. Since the Bush tax cuts expire at the end of 2010 anyway, this means that for years after 2010, there would simply be no change in the law affecting taxpayers with incomes above those levels (except that a couple of Obama's tax cuts would benefit even these wealthy taxpayers). For everyone else, Obama proposes to extend the Bush tax cuts past 2010 and he also proposes a raft of new tax cuts targeting the middle-class.

Earlier this year CTJ found that only 2.1 percent of taxpayers have adjusted gross income (AGI) above $250,000 and only 3.2 percent have AGI over $200,000. Senator McCain has been telling crowds that "Senator Obama will raise your taxes." Unless Senator McCain is addressing only the richest 2 or 3 percent of Americans (which seems an unlikely campaign strategy) it's hard to avoid the conclusion that McCain has decided to mislead the public. In fact, it's so hard to avoid this conclusion that even Fox News has begun to accept it.

A new fact sheet from Citizens for Tax Justice clarifies some of the myths about presidential candidate Barack Obama's tax plan that have been perpetuated by the campaign of his opponent, John McCain. While CTJ does not think that new tax cuts will improve the lives of ordinary Americans, we do feel that the public should receive accurate information about the tax cuts both candidates are offering.

President Bush and his allies in Congress enacted tax cuts that are scheduled to expire after 2010. Obama would repeal the Bush tax cuts for the richest 2 or 3 percent, which means that for years after 2010 there would simply be no change in the law for these taxpayers. For everyone else, Senator Obama would change the law to make the Bush tax cuts permanent, and he also proposes many additional tax cuts for the middle-class. Even the richest taxpayers would enjoy some tax cuts under Obama's plan after 2010 that they would not receive under current law (a partial extension of the cut in the estate tax and a partial extension of the loophole for dividends).

Senator McCain voted against the Bush tax cuts but now insists that they must all be made permanent for all Americans regardless of how rich they are. The fact that Obama would not make them all permanent for the richest 2 or 3 percent has been falsely presented by the McCain campaign as "painful tax increases on working American families."

Both candidates also propose additional new tax cuts, but Obama's target low- and middle-income families while McCain's generally target businesses and corporations.

Read the fact sheet.

For someone who wants to make the Bush tax cuts permanent for all but the richest 2 or 3 percent of Americans, and add on top of that a lot of new tax cuts for middle-class Americans, it's surprising how often Senator Barack Obama is accused of proposing "painful tax increases" on American "families."

Few people remember the Clinton years as a time when the economy was strangled by taxes, but today almost no one in politics seems to consider allowing all of the Bush tax cuts to expire at the end of 2010, as they are scheduled to under current law. In keeping with this trend, Senator Obama proposes to make the Bush tax cuts permanent, except for those with incomes over $250,000 (or $200,000 for single people). Families with incomes under these levels would keep their Bush tax cuts and many would benefit from Obama's Making Work Pay Credit, his refundable education credit, his refundable mortgage credit and many other provisions. (In January CTJ found that only 3.2 percent of households in the U.S. will have adjusted gross income above $200,000 in 2008 and only 2.1 percent will have AGI over $250,000).

McCain Commercials Panned as Deceptive

Nonetheless, the McCain campaign has tried to paint Obama as a major tax-hiker. The campaign started out by trying to make hay of Obama's vote for the Democratic budget resolution for 2008 that assumed the extension of many -- but not all -- of the Bush tax cuts. That budget resolution assumed that the 25 percent rate would expire and revert to 28 percent, which could cause a tax increase for a single person with taxable income above $32,550, which comes out to almost $42,000 in total income.

Never mind that budget resolutions are not law and do not raise taxes. And never mind that Obama has repeated over and over that he would extend the Bush tax cuts for everyone except those with incomes over $250,000 (or $200,000 for singles).

As FactCheck explains, the McCain campaign aired a commercial saying Obama wanted to raise taxes for everyone making $32,000 a year, but even they realized this was an outright lie since taxable income is not the same thing as total income. So then they aired a commercial telling viewers that Obama would raise taxes on people making $42,000 a year and showed a woman reading to her two children. Of course, the $42,000 figure refers to a single person, and a head of household with two children could make more than $62,000 before falling into the bracket subject to the increased rate. And of course, none of this matters, because it is not part of Obama's tax plan.

The Latest Deceptions

The McCain people haven't stopped. The campaign has a new ad that speaks of Obama's "painful tax increases on working American families." Surrogates for the campaign have made statements that seem to indicate they are either proudly ignorant of the facts or outright liars. Media Matters points out that Senator Richard Burr (R-NC) told Tom Brokaw that Obama would raise taxes "across the board on the American people without exception."

McCain's Advisers Know Their Campaign Is Lying

The most damning aspect of these statements is that the chief economic adviser to Senator McCain has acknowledged that the Obama tax plan does not raise taxes. TIME's Michael Sherer wrote, back in July:

"Here is Douglas Holtz-Eakin, McCain's chief economic policy adviser. 'I used to say that Barack Obama raises taxes and John McCain cuts them, and I was convinced,' he told me in a phone interview this week. 'I stand corrected [about Obama's plans].'"

Right Wing Announces It Opposes Tax Cuts... For the Poor and Middle-Class

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Some anti-tax commentators and right-wing blogs have apparently given up trying to paint Barack Obama's tax plan as a tax increase on the middle-class (since that would be untrue in any interpretation humanly possible). Instead, they have settled on a novel argument: The Obama tax plan would unacceptably raise marginal tax rates on low- and middle-income people, as argued by Alex Brill and Allen Viard of the American Enterprise Institute.

People who don't live and breathe tax policy might scratch their heads and say, "Wait, I thought I heard that Obama wants to cut taxes for everyone except the rich."

He does. The critics' new argument is not that he would raise taxes but that he would raise the marginal rates, meaning the tax rate applicable to an additional dollar of income, for people in specific income ranges. This would occur, they complain, because the various new or improved tax credits that Obama proposes would be phased out for people above certain income levels.

Imagine a working person paying income taxes at the 25 percent rate. Imagine also that in 2009 this person benefits from a newly enacted tax credit that is phased out for people with higher income, at a rate of $100 for each $1,000 of income over some threshold, and that this taxpayer's earnings are just one dollar above that threshold. The critics reason that this would translate into a tax rate of 10 percent for each additional dollar earned, on top of the ordinary income tax rate of 25 percent, resulting in a marginal rate of 35 percent. This would be true even though the taxpayer has lower taxes as a result of the new credit. Surely, the critics argue, this person would be better off if she never received the tax credit, because then her marginal rate would be just 25 percent, and she would have greater incentive to work and save.

The right-wing critics want this working person to pay higher taxes? Are they against tax cuts? Yes, actually, if they're targeted towards poor or middle-class people. These critics are essentially against any tax benefit (or any public benefit, for that matter) that is made available only to people with incomes below a certain level because such income-targeting, in their view, discourages people from working harder to increase their income.

So would low-income people or middle-income people see a new credit on their federal tax form and decide that they should work fewer hours? No. Common sense, and the academic literature on this topic, tell us that people do not respond this way to tax policy.

The evidence that marginal tax rates really impact decisions about work is weak or nonexistent. The last time the right trotted this line out, it was to support the Bush income tax cuts, which reduced marginal rates, with most of the benefits going towards the well-off. (Put aside for a moment the tax cuts Bush has showered on people who live off their investments.) As the Center on Budget and Policy Priorities pointed out back when the 2001 Bush tax cut was being debated, it's not clear that higher marginal rates discourage work or savings, and they may even encourage it. Logically, if someone has a particular earnings goal or savings goal, the result of a higher marginal tax rate could be that they work more in order to meet that goal. The Center on Budget cited several economists who found that the evidence pointing towards reduced work was very weak.

It is extremely doubtful to us that cutting taxes for any income group is a wise policy right now given the budget deficit and the fact that people are paying relatively low taxes already. But Senator Obama has proposed tax cuts nonetheless, and he at least has ensured that the bulk of them would go to people who are not super-rich. Some right-wing activists feel like they've won the argument about whether tax cuts are good -- both candidates seem to think they are -- so now they want to argue with Obama because he refuses to target most of his tax cuts towards the wealthy instead of the poor and middle-class. It's a telling moment for the right. And it shows us what happens when you start to give in to anti-tax rhetoric.

Obama Calls for Tax Rebates Funded by Windfall Profits Tax on Oil Companies

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Presidential candidate Barack Obama has talked up several proposals relating to energy and taxes over the past couple weeks, including a one-time tax rebate of $500 per spouse that would be funded by a five-year windfall profits tax on oil companies. He also proposes a $7,000 tax credit for "advanced technology vehicles" which include hybrid cars that can be plugged into an electrical socket and flexible fuel vehicles (which can run on gasoline or ethanol). Obama has also supported eliminating tax loopholes for oil and gas companies. He also supports a cap and trade program in which businesses must obtain an allowance to emit carbon pollutants and all of these allowances (rather than just a portion of them) would be auctioned off, raising revenue that can be reinvested into alternative fuels and assistance to keep families from being harmed by the increased cost of energy.

His recent statements have caused some controversy, particularly his call to release oil from the Strategic Petroleum Reserve and his statement that he could be open to repealing the ban on offshore drilling if it was part of a larger compromise on energy policy. But some of the more strident criticism has been aimed at his desire to close tax loopholes and implement a windfall profits tax. Critics argue that many businesses have a period of unusually high profits and it's not clear why targeting the oil industry for a change in tax treatment makes any sense.

But that argument largely misses the point. The oil and gas industry has not just profited enormously. It has profited enormously partly because Americans are subsidizing it through the tax code -- and these tax subsidies have resulted in no clear benefit for the American public. Even if the tax subsidies are repealed, the public will never recoup the revenue showered on the oil and gas industry over the past years unless a windfall profits tax is implemented. The windfall profits tax blocked by Senate Republicans earlier this summer would sensibly ensure that any profits reinvested in renewable energy would not be subject to the tax.

A report released by Citizens for Tax Justice in July makes this argument and explains just how well oil and gas company stockholders are doing, just how little they invest in alternative energy, and how much they have siphoned from federal revenue through tax loopholes. For example, the report cites the American Petroleum Institute (API) which admits that in the six years stretching from 2000 through 2005 the oil industry only put a total of $1.2 billion towards investment in alternatives to fossil fuels, which is just 0.3 percent of its $383 billion in net profits over that period. If this figure had increased since then, the industry would surely be publicizing that fact.

But while the public has not benefited from the tax subsidies for the oil and gas industry, stockholders surely have. As the report explains, if you invested $10,000 in the top five oil companies 20 years ago, your portfolio would now be worth $100,000. That same $10,000 invested in an S&P 500 index fund is now worth $60,000. Oil shareholders enjoy a big advantage, and hardly seem in need of tax subsidies.

Whether a small tax rebate is what working families really need right now seems doubtful, but closing tax loopholes for oil and gas companies is a common sense policy, and a windfall profits tax might be a sensible supplement to this policy.

Some Politicians Cutting Their Own Taxes by Not Paying Them

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This week brought news that many politicians who see tax cuts as the solution to our economic woes tend to unilaterally cut their own taxes -- by not paying them. Needless to say, political candidates running on a platform of fiscal responsibility strain credibility when it's revealed that they cannot even keep their own fiscal house in order. On Wednesday, The Politico ran an article with a list of House challengers and incumbents who have suffered tax penalties for reasons ranging from misreporting to late payments of their property, business, and income taxes. Some even continue to have tax bills outstanding during their candidacies.

For example, Keith Fimian, a Republican running for an open seat in Northern Virginia was charged $16,000 for a lien filed against his home appraisal business in 2005 after the company lost track of some of its 5,000 subcontractors. Republican Luke Puckett running for a U.S. House seat in Indiana still owes nearly $2000 in property taxes due in 2006.

It's easy to be cynical when you see politicians like Mr. Fimian and Mr. Puckett respectively calling for "lower and fewer taxes" and "mak[ing] the Bush Tax Cuts permanent." Taxation is a necessary requirement of democratic governance and we expect our politicians, who should know better than anyone the importance of adequate tax revenues, to set a good example by paying their taxes in-full and on-time.

Unfortunately, one of this year's presidential candidates has had some oversights in the tax department himself. Newsweek reported several weeks ago that the McCain family failed to pay property taxes on one of their homes in La Jolla, California for four straight years.

Separately, Time Magazine reported that Sen. McCain commonly spends several thousands of dollars shooting craps at casinos. Yet for the past two years, he has failed to report any gambling gains or losses on his tax return. You're required to file a Form W-G if you win more than $600 at any one time.

Perhaps, we should give Senator McCain the benefit of the doubt and assume that he never purposely avoided paying taxes but merely erred unintentionally in these matters. This lack of attention to detail is not very comforting, especially when we consider some of the promises he has made that do not add up.

Carly Fiorina, a surrogate for the presidential campaign of Senator John McCain, said last week that under the tax plan of McCain's opponent, Senator Barack Obama, "23 million small businesses will see their taxes raised" because "23 million small businesses file their income tax as individuals."

Senator Obama has promised that, if elected, he will allow the Bush tax cuts to expire (as current law provides) only for people making more than $250,000 a year. Analysts generally agree that this means the lower rates Bush enacted for the top two tax brackets will expire. According to the U.S. Treasury Department, only 1.4 million taxpayers will be in the top two tax brackets this year.

Although it's impossible to determine how many of those 1.4 million taxpayers are small-business owners, two things are crystal clear: It's a lot less than all of them, and it's certainly not 23 million.

"John McCain has admitted that economics is not his strong suit," noted Robert S. McIntyre, director of Citizens for Tax Justice. "Apparently, he and his surrogates don't even grasp basic arithmetic."

Fiorina previously achieved notoriety as head of Hewlett-Packard, where she spearheaded HP's 2002 merger with Compaq Computer. That merger, which led to Fiorina's firing, turned out to be one of the biggest corporate follies since Dick Cheney, as head of Halliburton, bought an asbestos company in 1998, a deal that subsequently cost Halliburton billions of dollars to settle hundreds of thousands of medical-injury claims.

For more details, see the CTJ press release.

Media Matters for America Catches Numerous Attempts to Distort Obama's Tax Plan

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The right-wing talk show circuit has lately worked itself into a frenzy over one of its latest causes: trying to convince America that Barack Obama's tax plan will crush working class families and destroy the economy. Media Matters for America has done an incredible job of tracking the inaccurate statements that have been made on the air about Obama's tax plan without being challenged or corrected. Unsurprisingly, a number of these incidents occur on Fox News.

On June 11 they caught Ben Stein making the outlandish claim that people "that have incomes in the five digits" would pay more because of Obama's proposed changes in the capital gains tax rate. As pointed out in a recent report by CTJ, over 70 percent of the Bush tax cut for capital gains and dividends goes to the richest one percent of taxpayers. The bottom 60 percent of taxpayers only get about 2 percent of that tax cut -- and an average tax cut of about $16!

On June 15 Media Matters caught Mara Liasson telling America that the Tax Policy Center's report on the candidates' tax plans found that Obama's tax plan would increase the deficit more than McCain's tax plan. In fact, the report found the exact opposite.

Then on June 16 they found a Republican strategist claiming, without being challenged or questioned by the anchor, that under Obama's plan, taxes for "an average family making $61,000 -- just alone letting the tax cuts expire -- would go up $2,100. That's a lot of money for an average family." Of course, Obama's plans don't call for repealing the Bush tax cuts for anyone with an income lower than $250,000. (We wish Obama would repeal the Bush tax cuts for a far larger number of taxpayers. A report released by CTJ in January showed that only 2.1 percent of taxpayers will have incomes above this level in 2008.)

Keeping track of right-wing distortions about tax policy in the media is a hard job (covering Fox News alone is daunting) so Media Matters is an invaluable asset to us all.

Senator John McCain continues to make misleading and plainly incorrect statements about tax policy while on the campaign trail. On June 10 he told a group of small business owners that Senator Obama's tax plan would constitute the biggest tax increase since World War II. Annenberg Political Fact Check correctly points out that Obama's plan mainly involves allowing some of the Bush tax cuts to expire, and that expiration was written into law by President Bush and his allies in Congress, so it's difficult to see Obama's proposal as a "new" tax or a tax "increase." (Even if this did constitute a tax increase, measured as a percentage of gross domestic product this would constitute only the fifth largest since World War II.)

Even worse, McCain continues to claim that "Americans of every background would see their taxes rise" if any attempt is made to reduce the tax subsidy for capital gains and dividends. CTJ's recent report on this subject shows that 70 percent of the benefits of the Bush tax cuts for capital gains and dividends go to the richest one percent of Americans. The poorest 60 percent of Americans get next to nothing from this tax break. Most stock owned by middle-income people is in 401(k) plans, Individual Retirement Accounts (IRAs) or other similar retirement savings vehicles. Taxes on these investments are deferred until retirement, at which point they are taxed as "ordinary income," meaning they don't benefit from the tax cuts for capital gains and dividends.

The Clinton-McCain Gas Tax Proposal: Get Half a Tank Free This Summer

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This week, Senator Hillary Clinton came out in support of lifting the federal tax on gasoline during the summer months, an idea originally proposed by Senator John McCain. Senator Barack Obama publicly scoffed at the idea, saying "this isn't an idea designed to get you through the summer, it's designed to get them through an election." Obama explained that the overall savings for a family over the summer would probably average about "$25 to $30. Half a tank of gas."

The federal gas tax is currently 18.4 cents per gallon for gasoline and 24.4 cents per gallon for diesel. With the average gasoline price $3.60 per gallon this week, the federal gas tax is only around 5 percent of the total cost of gasoline.

While the benefit to the consumer may be too small to even notice, this proposal could have a very real and very negative effect on the Highway Trust Fund which is supported by the gas tax and which we depend on to fix and improve congested highways and roads in need or repair. The American Society of Civil Engineers points out that every dollar spent on highway construction is estimated to bring $5.40 in benefits and every billion dollars spent on highway construction generates about 30,000 jobs each year, according to the Department of Transportation. Repealing the gas tax for a summer would cost the Highway Trust Fund about $8.5 billion.

It's true that the gas tax is a regressive tax, requiring low-income drivers to pay more of their income in tax than wealthier drivers. But the gas tax is different from most other taxes in ways that minimize the importance of tax fairness. Most notably, the gas tax can serve to help reduce demand in a market where many would agree demand is far too high. With gasoline in limited supply (Paul Krugman explains that the supply is actually fixed for the next few months), environmental concerns continuing to mount, and traffic congestion remaining a problem, any effect the gas tax has on reducing demand should be a welcome one.

Senator Clinton would replace the money in the Highway Trust Fund by enacting a new windfall profits tax for oil companies. With a White House opposed to anything that can conceivably be called a tax increase and a Senate that has trouble paying its bills, it's hard to imagine this part of the proposal being enacted during this Congress. President Bush said he was open to considering the idea of a gas tax holiday, but there appears to be no chance he would ever support a windfall tax on oil companies to pay for it.

John McCain: If the Issue Is Health Care, the Answer Is... Tax Cuts!

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On Tuesday, Senator John McCain refined his health care proposal a little bit in a speech in Florida. The main thrust of his plan is still to allow a tax credit for the purchase of health insurance, including non-group insurance (insurance purchased on the individual market rather than through an employer). The credit amount would be $2,500 for individuals and $5,000 for families.

To pay for this, McCain would eliminate the exemption for employer-provided health insurance. This would basically make the tax code tilted towards individually purchased health care and perhaps even high-deductible health care. There would no longer be any tax incentive for employers to provide health care, so many could "cash out" the health care benefits they currently offer, meaning some employees would receive additional monetary compensation instead of health insurance.

The problem is that these employees would have to turn to the individual health insurance market, where plans offered are much more expensive and less generous.

Responding to criticisms that people with preexisting health conditions would never be offered adequate health insurance, McCain on Tuesday added a detail that he calls a "Guaranteed Access Plan" which would "reflect the best experience of the states to ensure these patients have access to health coverage." Jonathan Cohn at The New Republic explains why the programs set up by the states to do this so far utterly fail to provide affordable care to the people who have a preexisting condition. In these state plans the premiums can run in the neighborhood of $600-$850 per month, cost-sharing runs in the thousands and the preexisting condition won't even be covered for at least several months.

McCain also wants to pass legislation that would make it easier for health insurance companies to sell policies across state lines, but health care advocates have opposed similar legislation because it would make null and void the differing regulations and standards that states have enacted for health insurance companies operating within their borders. McCain also said he would expand Health Savings Accounts (HSAs). Introduced as part of the Medicare prescription drug law in 2003, HSAs are accounts to which individuals can make tax-deductible contributions and which are connected with a high-deductible health insurance plan. They offer the most benefit to those who are in the highest tax bracket and need no or little medical care, and can therefore serve as tax shelters. The Government Accountability Office just found that HSAs are typically used by people with incomes far higher than average.

McCain's Transformation Complete: Tax Cuts for the Rich, Even if We Cannot Pay for Them

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Last week Senator John McCain finally completed a process that has been underway for some time now. McCain has worked his way back into his party's good graces by coming out in support of running massive budget deficits to extend the Bush tax breaks and give new tax breaks to business.

It's difficult to remember now, but Senator McCain had said back in 2000, "There's one big difference between me and the others -- I won't take every last dime of the surplus and spend it on tax cuts that mostly benefit the wealthy." He also said of the tax plan George W. Bush proposed while running for president in 2000, "Sixty percent of the benefits from his tax cuts go to the wealthiest 10% of Americans -- and that's not the kind of tax relief that Americans need."

The New John McCain

Let's compare this to the new John McCain, who fleshed out his latest ideas a bit more during a tax day speech in Pittsburgh.

McCain said he would extend the Bush tax cuts, even though over half of the benefits would go to the richest one percent and the cost would be $5 trillion over a decade. He would cut the corporate tax rate down from 35 percent to 25 percent, even though measured as a percentage of GDP, U.S. corporate taxes are among the lowest of any developed country. He would double the personal income tax exemption for dependents to $7,000, which would do the most for those families in higher income tax rates and nothing for low-income people who pay payroll taxes but who do not have taxable income (meaning a family of four with income of less than $25,000). He would abolish the Alternative Minimum Tax, even though about 9 tenths of it is paid by people with incomes over $100,000.

He would enact first-year deduction or "expensing" of "equipment and technology investments, which, along with a lower corporate tax rate, will create new opportunities for tax sheltering by the wealthy. He would ban internet and cell phone taxes permanently because he seems to believe that new technologies need to be granted a waiver from taxes that lasts forever. (If only Thomas Edison had thought to lobby for laws shielding his inventions from taxes.) He would make permanent the research and development credit because he believes innovation comes from the private sector, except not really, because apparently he also believes that no one will invent anything unless we give them a subsidy through the tax code.

And, most tantalizingly, he would offer a simplified alternative income tax that people can choose, at their option, to file. It's optional, presumably because everyone claims they want a simpler tax form but no one can agree on actually giving up the various deductions and credits that make filing ones' taxes complicated. Rather than simplifying tax filing, this will probably lead some people to calculate their tax liability under two different systems to determine which will result in lower taxes.

Massive Cuts in Public Services Would Be Necessary to Pay for McCain's Tax Plan

The Tax Policy Center has calculated that McCain's plans would cost $553 billion in 2012 alone. That's not even including the interest payments on the additional debt that will result, but let's put that aside for a second. McCain claims he can avoid increasing the national debt, at least to a degree, by cutting spending. But the cost of his plan in 2012 is about 17 percent of all projected federal spending that year according to estimates from the OMB (on page 134 for anyone interested). That's a whole lot of spending to cut. Looked at another way, it's more than all the non-defense discretionary spending that year and about equal to discretionary spending on defense.

During his Pittsburgh speech, McCain said he could get $100 billion in "savings from earmark, program review, and other budget reforms" but was not any more specific. The Senator's oft-mentioned earmarks are said to account for only around $18 billion at the most.

McCain has also said that he will obtain $30 billion in revenue by closing corporate tax loopholes. But his corporate tax cut alone is estimated to cost $143 in 2012.

Actually, You Should Just Bill My Grandkids

Then finally, on Sunday, McCain said on ABC's "This Week" that his tax cuts would take priority over balancing the budget.

To get a sense of what a huge shift this is for McCain, remember that during presidential debates he tried to explain away his opposition to President Bush's tax cuts in 2001 and 2003 by claiming that he thought cuts in federal spending should have accompanied those tax cuts to ensure that the nation's fiscal health would not deteriorate.

Of course, what he said back in 2000 also touched on the fact that the benefits of the Bush tax cuts would go mostly to the rich, but the new McCain is apparently unwilling to remind anyone about this.

On "This Week," George Stephanopoulos asked McCain, "If Congress does not give you the spending cuts you say you can get, will you hold off on signing the tax cuts?"

McCain replied, "Uh, no, of course not, because we don't want to increase people's taxes during a recession..."

It's worth pointing out that none of the candidates are actually talking about raising taxes (with the possible exception of the capital gains tax). Allowing parts of the tax cuts to expire exactly as the Republican House, Republican Senate and Republican White House wrote them to expire can hardly be called a tax increase. Further, it would be interesting to know how McCain might explain the prosperity that followed Clinton's tax increase or the economic doldrums that have followed George W. Bush's tax cuts.

Charlie Gibson Repeats Misinformation at Democratic Presidential Debate

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ABC news anchor Charlie Gibson perpetuated a myth about taxes at the Democratic presidential debate on Wednesday night. Gibson said of the capital gains tax that "in each instance, when the rate dropped, revenues from the tax increased. The government took in more money. And in the 1980s, when the tax was increased to 28 percent, the revenues went down." He asked Senator Obama, who has signaled that he would raise the capital gains tax from its current level of 15 percent to 28 percent, why he would bother doing this if it would actually reduce revenues.

There is just one problem. What Charlie Gibson said is not true. Revenues from capital gains do not rise when the tax is cut. They rise when the economy is booming and they collapse when the economy tanks. In fact, revenue from capital gains taxes is currently well below the peak it reached during the Clinton era ¢Â€Â” when taxes were higher.

A small group of ideologues associated with "supply-side economics" believes that tax cuts can actually increase revenues. While this notion is rejected by most mainstream economists and sounds ludicrous to the average person, members of the media and Congress seem unusually susceptible to being hoodwinked into believing it. Their general idea is that if we lower capital gains taxes, there will be more capital gains realizations (meaning more people sell their property that has gone up in value) because the tax on that profit has been cut, and this will lead to revenue increasing overall.

Even if there are more realizations as a result of a capital gains tax cut, the resulting revenue will be nowhere near enough to make the tax cut budget-neutral, much less revenue-enhancing.

The ups and downs in revenue collected by the capital gains tax seem to have more to do with what's happening in the broader economy than with tax policy. In the early and mid-1990s, when the top capital gains tax rate was 28 percent, the revenues collected by the tax shot through the roof. They continued to climb after the rate was lowered to 20 percent in 1997, but this looks more like the continuation of a preexisting trend linked to economic prosperity rather than a response to the change in the rate. Then in 2001 and 2002 the revenues collected by this tax fell precipitously. This was not following any change in tax policy at all, but clearly linked to the bursting of the dot.com bubble and its ramifications on the stock market.

Capital gains tax revenue did increase after 2003, when the rate was cut again to 15 percent, but we would expect the revenue to rise from the low point of the recession, regardless of what changes were made to the tax code. More importantly, the revenue obviously has not reached the high level of the Clinton years when the rate was higher. Measured as a percentage of GDP, the capital gains tax will probably collect only half as much revenue this year as it did in 2000, when the rate was higher.

Can support for the supply-siders' argument be found if one looks further back in time? No. Charlie Gibson seems to think that capital gains tax revenue fell when the rate was raised as part of the 1986 Tax Reform Act that was signed by President Reagan. The reality is that capital gains realizations surged in anticipation of the rate increase (which took effect in 1987). In other words, an increase in the rate actually increased revenues, albeit temporarily. After that, with fewer gains to realize, realizations predictably declined, and eventually returned to their normal level -- until the Clinton adminstration, when the stock market went up so much that realizations boomed.

When Gibson pressed Senator Obama a second time, insisting that cutting the capital gains tax rate would raise revenue, Obama replied, "Well, that might happen or it might not. It depends on what's happening on Wall Street and how business is going." Obama also brought up the issue of fairness in the tax code, and the fact that wealthy people with capital gains can pay less in taxes than middle-class Americans, which is an unacceptable feature of our system.

Senator Clinton, however, stated, "wouldn't raise [the capital gains tax rate] above the 20 percent if I raised it at all. I would not raise it above what it was during the Clinton administration." This is an unfortunate response. The rate was higher than 20 percent during most of the Clinton administration and the economy thrived and revenues poured in. And, since the revenue "baseline" used by Congress already assumes that the rate will revert to 20 percent when the Bush tax cuts expire at the end of 2010, no "new" revenue will be raised to pay for the candidates' health care proposals or other new initiatives by simply letting the rate revert to 20 percent.

A new report from the Center for American Progress examines presidential candidate John McCain's tax plan and finds that it costs even more than the Bush tax cuts and is even more regressive. The report assumes the extension of the Bush tax cuts, which McCain has promised to champion despite his opposition i