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Tag: tax code
Big Tax Bills For The Poor, Tiny Ones For The Rich

Big Tax Bills For The Poor, Tiny Ones For The Rich

American politics are dominated by those with money. As such, America’s tax debate is dominated by voices that insist the rich are unduly persecuted by high taxes and that low-income folks are living the high life. Indeed, a new survey by the Pew Research Center recently found that the most financially secure Americans believe “poor people today have it easy.”

The rich are certainly entitled to their own opinions — but, as the old saying goes, nobody is entitled to their own facts. With that in mind, here’s a set of tax facts that’s worth considering: Middle- and low-income Americans are facing far higher state and local tax rates than the wealthy. In all, a comprehensive analysis by the nonpartisan Institute on Taxation and Economic Policy finds that the poorest 20 percent of households pay on average more than twice the effective state and local tax rate (10.9 percent) as the richest 1 percent of taxpayers (5.4 percent).

ITEP researchers say the incongruity derives from state and local governments’ reliance on sales, excise and property taxes rather than on more progressively structured income taxes that increase rates on higher earnings. They argue that the tax disconnect is helping create the largest wealth gap between the rich and middle class in American history.

“In recent years, multiple studies have revealed the growing chasm between the wealthy and everyone else,” Matt Gardner, executive director of ITEP, said. “Upside-down state tax systems didn’t cause the growing income divide, but they certainly exacerbate the problem. State policymakers shouldn’t wring their hands or ignore the problem. They should thoroughly explore and enact tax reform policies that will make their tax systems fairer.”

The 10 states with the largest gap between tax rates on the rich and poor are a politically and geographically diverse group — from traditional Republican bastions such as Texas and Arizona to Democratic strongholds such as Illinois and Washington.

The latter state, reports ITEP, is the most regressive of all. Four years after billionaire moguls such as Amazon’s Jeff Bezos and Microsoft’s Steve Ballmer funded a campaign to defeat an income tax ballot measure, Washington now makes low-income families pay seven times the effective tax rate that the rich pay. That’s right, those in the poorest 20 percent of Washington households pay on average 16.8 percent of their income in state and local taxes, while Washington’s 1-percenters pay just 2.4 percent of their income. Like many of the other regressive tax states, Washington imposes no personal income tax all.

“The problem with our state tax systems is that we are asking far more of those who can afford the least,” concludes ITEM’s state director Wiehe.

By contrast, the states identified as having the smallest gap in effective tax rates are California, Delaware, Minnesota, Oregon and Vermont — all Democratic strongholds and all relying more heavily on progressively structured income taxes. Montana is the only Republican-leaning state ITEP researchers identify among the states with the least regressive tax rates.

Of course, if you aren’t poor, you may be reading this and thinking that these trends have no real-world impact on your life. But think again: In September, Standard & Poor’s released a study showing that increasing economic inequality hurts economic growth and subsequently reduces public revenue. As important, the report found that the correlation between high inequality and low economic growth was highest in states that relied most heavily on regressive levies such as sales taxes.

In other words, regressive state and local tax policies don’t just harm the poor — they end up harming entire economies. So if altruism doesn’t prompt you to care about unfair tax rates and economic inequality, then it seems self-interest should.

David Sirota is a senior writer at the International Business Times and the best-selling author of the books Hostile Takeover, The Uprising and Back to Our Future. Email him at ds@davidsirota.com, follow him on Twitter @davidsirota or visit his website at www.davidsirota.com.

AFP Photo/Paul J. Richards

House Republicans Vote To Reverse Billions In Deficit Savings

House Republicans Vote To Reverse Billions In Deficit Savings

On Wednesday, the House — by a vote of 230-188 — passed one of the six “tax extenders” bills recently approved by the Ways and Means Committee.

The measure, which accounts specifically for research and experimentation tax credit, could have served as a rare example of bipartisanship: both Republicans and Democrats support the broad ideas of an extension and expansion of the research and experimentation credit. But the bill’s actual provisions — or lack thereof — are the source of Democrats’ and President Obama’s opposition to the bill.

As a Center on Budget and Policy Priorities report explains, the GOP-backed bill permanently extends the research and experimentation tax credit, but does offset its cost by closing any loopholes within the current tax code. Thus, the extension and expansion of the credit greatly add to the deficit.

Closing tax loopholes, however, could offset the costs of the six tax extenders: $151 billion for research and experimentation credit; $301 billion for all six Ways and Means bills; and $560 billion for a permanent extension of all tax credits. Not offsetting the costs of extensions means that ultimately 75 percent of the $770 billion in revenue raised by the 2012 “fiscal cliff” deal would be reversed.

CBPP

Additionally, CBPP points out that the bill “violates budget enforcement rules,” like the 2013 Murray-Ryan resolution that requires lawmakers to “pay for any tax extenders that they continue or for any new tax cuts.” Adding to deficits is a clear contradiction of this provision and would hinder the resolution’s more specific measures that aim to balance the budget by 2024.

The White House has criticized the flawed bill, with the Office of Management and Budget reiterating that the president supports a permanent research and experimentation credit extension, but only if it follows or is joined by an elimination of sevearl loopholes found in the tax code.

“Making traditional tax extenders permanent without offset represents the wrong approach,” the Office of Management and Budget said in a statement.

The White House further threatened that President Obama would veto the bill in its current form — not that the bill is expected to pass the Senate.

Democrats are standing behind the president, calling out Republicans for their hypocritical position on deficits when it benefits their political agenda.

“This takes no courage to put on the floor or to vote for. None. Zip. Tax cuts are easy to vote for. Paying for what you buy is difficult to vote for,” said House Minority Whip Steny Hoyer (D-MD). “And all the wringing of hands and gnashing of teeth with reference to the deficit seems to go by the boards when the Republicans talk of tax cuts.”

The CBPP notes Democrats’ concerns in its report, saying that the tax extenders would “constitute a fiscal double standard” by contrasting “sharply with congressional demands to pay for other budget priorities.” Also, the research and development tax credit — claimed by some of the nation’s largest businesses and corporations — represents budget priorities that are “cherry picked” in ways that mirror heavy lobbying efforts. This explains why other budget priorities and credits — like emergency federal unemployment insurance, or the Child Tax Credit, both which benefit low-income families instead of big corporations — are either completely rejected, or put on the back burner by the GOP.

Those other budget priorities are often met with the typical Republican Party talking points. This usually means that any measure somehow related to the economy and government spending is met with a firm “no” from conservatives who say the measures add to the deficit, and criticize Democrats for seemingly ignoring deficit savings. In fact, the fear of increasing the deficit has served as the GOP’s argument against extending emergency federal unemployment insurance in recent months, as many on the right accuse Democrats of not providing a deficit-friendly way to pay for the benefits’ costs.

Still, Republicans argue that the legislation, as passed on Wednesday, offers domestic businesses and corporations an advantage over foreign competition, which overrides their concern for deficit reduction.

“It is allowing businesses who invest to keep more of that investment, to plow it back into research,” argues House Majority Leader Eric Cantor (R-VA).

The White House acknowledges the tax credit bills could “strengthen the economy and help middle-class families,” but still insists on a more fiscally responsible measure.

Photo: Gage Skidmore via Flickr

Chart via Center on Budget and Policy Priorities

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