tax policy – RI Future

January 12, 2015January 12, 2015

Whitehouse to introduce progressive tax trifecta

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Senator Sheldon Whitehouse plans to introduce a trifecta of progressive tax bills this session including the Buffett Rule bill, the Offshore Prevention Act and the Stop Tax Haven Abuse Act, he told reporters at his Providence office Monday.

“I think the pressure is on to do something on tax reform,” Whitehouse said. “Now that the Republicans are in the majority they need to prove to the American people they can govern, that they are not just a bomb-throwing obstructive minority, so that changes their motivation on something like tax reform.”

Whitehouse has introduced the first two bills before. He inherits the third piece of legislation from former Michigan Senator Carl Levin the so-called “Stop Tax Haven Abuse Act” that would prevent corporations from shielding profits from tax responsibility.

“It would help us here in Rhode Island because here’s CVS, which like most of the retail industry pays the full freight, they pay the full 35 percent tax rate,” explained Whitehouse. “Meanwhile here’s Carnival Cruise Lines pays virtually zero because they pretend they exist only in offshore Caribbean destinations.”

The three bills would net more than $300 billion in ten years, Whitehouse said.

The Buffett Rule bill, or the Paying A Fair Share Act, would tax at 30 percent all annual income over $2 million and would net $70 million over ten years of missing revenue for the American people. The Offshore Prevention Act would end the corporate practice of deferring tax payments when a company moves jobs overseas and would net $20 million in 10 years. The Stop Tax Haven Abuse Act would net $220 billion over 10 years and prevents corporations from creating overseas tax shelters.

Despite the GOP’s reluctance to help level the tax-paying field, Whitehouse thinks he’s in a good position because he envisions Republicans having to make some concessions with Democrats if they hope to get tax legislation passed this year.

“I don’t think they have 60 votes for their plan and I’m sure they don’t have 67 votes for their plan so if they want to actually have something that gets signed into law by the president and actually changes the tax code they are going to have to work with Democrats,” he said.

Whitehouse handed out this one-pager to reporters to explain the three bills.

Here’s the contents:

THE PROBLEM

Right now America’s tax code is riddled with costly loopholes that benefit some of the highest earners and largest corporations. These special interest provisions have created two sets of tax rules: one for middle-class families and small businesses, and one for wealthy interests and multi-national corporations. With President Obama and Republican Leaders in Congress indicating that they plan to make tax reform a priority in the 114th Congress, Senator Sheldon Whitehouse is introducing a package of bills that would make the current system fairer while also raising billions of dollars in new revenue. This revenue could provide substantial resources for investments in infrastructure and education, or could serve as a fairer way to fund new Republican initiatives than cuts to benefits that people rely on.

SHELDON’S PLAN

Implement the Buffett Rule.

Thanks to a number of tax loopholes, America’s top earners often pay a lower effective tax rate than middle-class workers. Billionaire investor Warren Buffett has famously lamented he pays a lower tax rate than his secretary.

Senator Whitehouse’s Paying a Fair Share Act would require multi-million-dollar earners to pay a minimum 30 percent effective federal tax rate, regardless of the number of special credits, deduction, and rates they claim.

The bill would generate an estimated $71 billion over ten years.

End tax giveaway for sending jobs offshore.

Currently, U.S. companies that manufacture goods abroad for sale here at home are allowed to defer payment of federal income tax – waiting to pay taxes on foreign income in years that minimize their tax liability.

Senator Whitehouse’s Offshoring Prevention Act would require companies that send factories and jobs overseas to play by the same rules as ones supporting jobs in the U.S., removing an offshoring incentive and helping local businesses compete.

The bill would generate an estimated $19.5 billion in revenue over ten years.

Close loopholes that allow multi-national corporations to avoid taxes.

Some of America’s biggest corporations are able to dramatically reduce their taxes by funneling assets and profits through complex networks of offshore corporations.

The Stop Tax Haven Abuse Act, which was originally championed by former-Senator Carl Levin, closes these loopholes and requires large multinational corporations to pay a fair share in taxes.

The bill would generate at least $220 billion in revenue over ten years.

January 4, 2015January 7, 2015

RI’s tax cuts for the rich were 2nd biggest of decade

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Kansas’s tax cuts for the rich were one of the biggest state policy stories of 2014. Sam Brownback, an ambitious conservative Republican, swept into the Governor’s office in 2010 and pushed for massive tax cuts for the rich. And he got them. By 2014, the top marginal income tax rate had fallen by 1.65 points, and by 2018, if the law isn’t repealed, the rate will have fallen a full 2.55 points.

The results, predictably, were disastrous. The revenue promised from miraculous economic growth never materialized, and Kansas’s credit rating got cut. Moderate Republicans were livid. And Democrats came within four points of unseating Brownback in the middle of the 2014 red wave.

Since this debacle, there’s been a wave of think pieces about how income tax cuts for the rich as big as Kansas’s are just way too extreme, even for Republicans. But here’s the thing—Rhode Island’s tax cuts for the rich were even bigger. From 2006 to 2010, Rhode Island slashed the top marginal income tax rate for the rich by 3.91 points. That’s compared to 2.55 points in Kansas.

This all got me thinking about a question I’ve been wondering about for a while: In the past decade, has any state cut income taxes for the rich by as much as Rhode Island?

To answer this question, I compiled a list of the top marginal individual income tax rates for each state in both 2004 and 2014, using a database put together by the Tax Foundation, a right-wing think tank.

The only state with bigger cuts than Rhode Island was Montana. At 4.1 points instead of 3.91 points, they weren’t much bigger. And when you start digging into the details, it’s clear they weren’t as extreme as Rhode Island’s.

When Montana’s tax cuts were passed, they were barely projected to cut the wealthy’s tax burden at all. That’s because Montana also capped the deduction for federal income tax at $5,000 (or $10,000 for married couples). Before the law, a wealthy Montanan could deduct the 35% of their taxable income in the top federal tax bracket they paid in federal taxes. Because it’s a big giveaway to the rich, most states don’t do this. The idea was that this system effectively gave a top rate of 7.15 points, so capping the deduction and switching to a top rate of 6.9 points would barely represent a cut for the rich at all. This was key to selling the package.

Now, it turns out that the budget projections Montana Republicans put together were completely wrong. A lot of complications, including the AMT, kept them from raising as much money from capping the deduction as they said they could. The original budget projections showed a mere $6 million decrease in income tax revenue from households making $500,000 or more. The actual reduction was $48 million. Still, capping the big deduction for federal taxes kept Montana’s tax cuts from giving as much to the wealthy as Rhode Island’s. And when they passed the bill, Montana Republicans claimed they were barely cutting taxes for the rich at all.

Montanans weren’t fooled. The next year, the Democrats ran on a message of economic populism. They captured the state House, the state Senate, and the Governor’s mansion—all while Bush was thumping Kerry by twenty points.

Montana and Kansas reveal a lot about why so few Tea Party state governments have gone the full Rhode Island. They’re afraid of a revolt from their own Republicans. When they try, that’s what usually happens.

In Louisiana, Governor Bobby Jindal proposed an even bigger tax cut for the rich than Rhode Island’s. He wanted to eliminate the income tax and pay for it by hiking taxes on the poor and middle class. But Republicans revolted. Even the state’s top big business group opposed the plan. So Jindal had to scrap it.

In North Carolina, a similar proposal died because conservative megadonor Art Pope opposed it. (Pope funds a network of conservative think tanks and politicians, and he got himself appointed state budget director.)

In Alaska, there are no income or sales taxes, since the state gets so much money from oil taxes. So when Republican Governor of Alaska Sean Parnell slashed taxes for the oil companies, even Sarah Palin thought he had gone too far. She was so mad about the tax cuts that she endorsed the Independent-Democrat fusion ticket, which successfully unseated Parnell in the middle of the 2014 red wave.

Sometimes, smart people portray Rhode Island’s experiment in right-wing tax policy as a sort of moderate conservatism, on parallel with today’s more restrained Republican state governments. To be honest, I used to see it this way.

After all, a lot of the policies of the conservative machine that has taken over the Rhode Island Democratic Party really do fall in the mainstream wing of the national Republican Party. Our abortion restrictions, for instance, while more severe than any other blue state’s (according to NARAL’s ranking) are more mild than the extreme TRAP laws some Tea Party governments have pushed through.

Like most Republican states, we do have voting restrictions, including an ID law, but they aren’t quite as strict as what the reddest states have pushed through. Our war on workers, while severe, isn’t quite as bad as what has gone on in states like Wisconsin. And in a few select areas, like marriage equality, our policies have actually aligned with the national Democratic Party.

But when it comes to tax policy, the conservative Democratic machine that runs Rhode Island falls on the extreme right fringe of the national political spectrum. Even the most right-wing Republican state governments balk at tax cuts for the rich as large as what Rhode Island Democrats have done.

February 18, 2013February 18, 2013

New York Times Calls Foul On ‘Flight Of Earls’ Myth

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flight of earls — A sculpture in Ireland depicts the orginal “Flight of the Earls” during which some affluent Irish in the early 1600’s left for mainland Europe to recruit sympathisers against the British crown.

Can we finally put to rest the false idea that the rich will leave Rhode Island if the state raises taxes? The Earls aren’t fleeing the Ocean State, they flock here. We’ve got the best beaches and we treat our rich like they are royalty.

And even if we only had the best beaches, the New York Times this weekend threw more cold water on the tired old talking point that there will be a wealth exodus if we make the affluent pay their fair share.

It’s an article of faith among low-tax advocates that income tax increases aimed at the rich simply drive them away … That, at least, is what low-tax advocates want us to think, and on its face, it seems to make sense. But it’s not the case. It turns out that a large majority of people move for far more compelling reasons, like jobs, the cost of housing, family ties or a warmer climate. At least three recent academic studies have demonstrated that the number of people who move for tax reasons is negligible, even among the wealthy.

Yes, Rhode Island is going through a scary population decline. But it’s not because the rich are leaving Newport for Westport or Greenport. It’s because middle class folks can’t find jobs here anymore. This study of California shows that while the convention wisdom has been that rich people leave the Golden State because taxes are too high, it turns out that it’s actually the middle and low-income people who make up most of the out-migration.

From 2005 to 2011, California lost 158 people with household incomes under $20,000 for every 100 who arrived, and 165 for every 100 people with household incomes between $20,000 and $40,000. In contrast, just slightly more people with household incomes in the $100,000-$200,000 range left than came to California (103 out per 100 in), and California actually gained a hair more people in the $200,000+ range than it lost (99 out per 100 in). The rich aren’t leaving California, but the poor and the middle class are.

January 31, 2013

Nesi Takes On Tax Policy!

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ri regressive taxes — Chart courtesy of WhoPays.org

To my way of thinking, there are few things that would be better medicine for the debate on how to fix Rhode Island’s economy than for WPRI’s uber-influential blogger Ted Nesi to delve into the state’s tax policy in the same way he did for the pension debate.

And lately, he has!

Note the the last three headlines on Nesi’s Notes (as well as a number of posts on tax equity last week and the week before):

While all of Nesi’s posts haven’t furthered the liberal legislative agenda, that really isn’t what progressives want from the mainstream media; we want to have an intellectually honest and respectful debate about the issues that affect the community – be they tax policy, civil rights or social justice.

Nesi has a tough beat because he has to cover politics AND the economy – and these two forces of nature often collide in odd ways. But if he devotes a fraction of the pixels to tax policy that he gave to pension reform (or even just Raimondomania!), progressives, and everyone else, will get a great deal of very valuable information by which to measure the success and/or failure of our tax policies, which I think people of all political stripes can agree is of tantamount importance to the state.

The zeitgeist here in the Ocean State is that Keynsian economics doesn’t exist. That’s what happens when there are very few progressive pundits and a great many conservative pundits posing as economists. Even self-described moderate Ken Block traffics in this talking point.

A little bit of sunlight from the mainstream media will go a long way to dispelling some of these myths.

January 14, 2013January 14, 2013

Abolish the Property Tax

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In 2010, the property tax came into full view for me. That was the year the Providence City Council was forced to raise taxes on the East Side, whose property values had increased while the rest of the city’s had fallen. A friend of mine called me up to turn out with his family to the City Council meeting. Flanked by three landlords (all living on the property they rented) I sat through the proceedings, which brought cries of anguish from the watchers as the Council did what it felt necessary to prevent bankruptcy.

I was working on David Segal’s campaign at the time, and I went back to work the next day. Mr. Segal, himself a former Providence city councilor, later summed up the ills of the property tax in one very succinct sentence (as I recollect): “it’s the only tax that doesn’t take into account people’s ability to pay.”

Sometime after, we were canvassing voters in Woonsocket, and door after door, property taxes topped the list of complaints. It’s hard to stand there and listen to a woman describe how she’ll have to leave the home she raised her children in because she can’t pay the tax and knowing that there’s little the office your candidate is running for will have little to do with it.

Property tax seems to be the forgotten trio of the big three taxes in the state; the other two are sales and income. Duels over the latter two seem to be yearly battles; Governor Lincoln Chafee previously fought ineffectually to broaden and reduce the sales tax, while House Minority Leader Brian Newberry made it his opening salvo for the 2013 legislative session. The General Assembly, which implemented a “flat tax” and then handily “repealed” it by making it permanent. It seems to have had the intended effect, if that effect was for the economy to stay flat.

Property taxes, in the meantime, have shot up, with communities across the state asking to raise them beyond state caps. Anger over the car tax (a form of property tax) has become especially emblematic of the issue; worse, it has turned citizens against large nonprofit institutions who pay only voluntary payments to communities. Unrestricted by property tax, they’re free the purchase real estate and shrink a community’s tax base while greatly enriching the nonprofit.

But our communities have little choice to accept this; they are devoid of other funding mechanisms. The General Assembly is unwilling to provide funding for cities and towns, the same funding it cut off years ago. So now we are strangling ourselves with the property tax.

A solution to this revenue dilemma seems to lie in a post on The Urbanophile, (urban analyst Aaron Renn’s blog) post about New England vs. Midwest culture (and yes, I saw Mr. Renn recent post in GoLocal and did some reading):

The manner in which local taxes were levied in Connecticut is very different than in Ohio. In Ohio, income tax (charged where you work, not live) funds much of the local revenue for cities and townships, with property taxes going to fund school districts which are operated as separate governmental subdivisions. In Connecticut, property taxes support most of the local level spending, so property value is king. In a majority (although not all) of the communities the school district is only semi-autonomous and is funded directly as a line item in the municipal budget.

Would allowing Rhode Island’s communities to tax in this manner; levying an income tax based on employment location, while reducing property taxes to cover only school districts; create a better Rhode Island? It would drastically shift incentives, away from maintaining property values (which are already going to be high in one of the most densely populated states) towards job creation.

Furthermore, it would change the tax base away from those who can’t pay the tax to those who can. Rents, likewise, would lose some of their upwards pressure; renters might actually see savings afterwards, and rents might be likely to come down. Resentment towards large institutions might also dissipate. While protected from property taxes, I’m pretty sure nonprofits are not shielded from income taxes, meaning that they would be taxpayers along with the rest of Rhode Island’s citizenry. Negotiations over raising their voluntary payments might permanently end, especially if large institutions found ways to assist their local school systems.

It would undoubtedly be a radical action for the state to take. But when the moderate, timid actions have failed, what else is left? It’s time to give our communities better tools to defeat their fiscal fears.