2017

What Real Tax Reform Should Look Like

Regardless of party affiliation, most politicians will concede that the middle-class is hollowing out, good jobs are too few, and ordinary Americans are financially standing still. Yet policy prescriptions from the Trump Administration and Congress pay lip service to these realities while recycling old hat policy proposals that would cut taxes primarily for the wealthy and corporations. This drive to use the tax code to redistribute money to corporate shareholders and the wealthy does not comport with the idea of economic populism, nor is it the will of the people. If lawmakers truly want to create an environment in which economic mobility is possible for more working people, budget-busting tax cuts are the wrong way to achieve this goal. Dramatic tax giveaways would force cuts to programs that provide early education, health care, job training, affordable housing, nutrition assistance, and other vital services that promote economic mobility. Further, current tax proposals from Congress and the Trump Administration defy what most Americans would consider true reform and, instead, embrace supply-side economic theories. This policy brief outlines two sensible, broad objectives for meaningful federal tax reform and discusses six tax policies that can help achieve these objectives.

3 Percent and Dropping: State Corporate Tax Avoidance in the Fortune 500, 2008 to 2015

The trend is clear: states are experiencing a rapid decline in state corporate income tax revenue. Despite rebounding and even booming bottom lines for many corporations, this downward trend has become increasingly apparent in recent years. Since our last analysis of these data, in 2014, the state effective corporate tax rate paid by profitable Fortune 500 corporations has declined, dropping from 3.1 percent to 2.9 percent of their U.S. profits. A number of factors are driving this decline, including: a race to the bottom by states providing significant "incentives" for specific companies to relocate or stay put; blatant manipulation of loopholes in state tax systems by corporate accountants; significant cuts in state corporate tax rates; and the erosion of state corporate tax bases, largely due to ill-advised state-level linkages to the federal system.

Trump Tax Plan Revives Economic Voodoo

Following is a statement by Alan Essig, executive director of the Institute on Taxation and Economic Policy, regarding the tax plan released today by the Trump Administration. The administration has said that this plan will be the "largest tax cut in history."

State & Local Tax Contributions of Young Undocumented Immigrants

The Trump administration's immigration policies have broken apart families and removed established members of communities. The administration's disregard for the contributions of immigrants, regardless of their legal status, is of real concern for young immigrants whose parents brought them to the United States as children. Many of those young immigrants qualify for deferred deportation action and legal work authorization under Deferred Action for Childhood Arrivals (DACA), a 2012 executive order under President Barack Obama.

Comparing the Distributional Impact of Revenue Options in Alaska

Alaska is facing a significant budget gap because of a sharp decline in the oil tax and royalty revenue that has traditionally been relied upon to fund government. This report examines five approaches for replacing some of the oil revenue that is no longer available: enacting a broad personal income tax, state sales tax, payroll tax, investment income tax, or cutting the Permanent Fund Dividend (PFD). Any of the options examined in this report could make a meaningful contribution toward closing Alaska's budget gap. To allow for comparisons across options, this report examines policy changes designed to generate $500 million annually. This amount would be insufficient to close Alaska's $3 billion budget gap, but any of these options could be modified to raise additional revenue, or could be incorporated into a larger package of changes designed to close the gap.

State and Local Tax Contributions of Undocumented Californians: County-by- County Data

Public debates in California over immigrants, specifically around undocumented immigrants, often suffer from insufficient and inaccurate information about the contributions of undocumented immigrants, particularly their tax contributions at the local and state level. The fact of the matter is undocumented immigrants living in the California pay millions of dollars each year in local taxes to the counties where they live (estimated to be more than $1.5 billion) and collectively an estimated $3 billion combined in state and local taxes. A little more than half of the total state and local taxes undocumented immigrants in California pay flow to local governments. The following tables provide county-by-county estimates on the current state and local level tax contributions of California's 2.7 million undocumented immigrants and the increase in contributions if all these taxpayers were granted legal status as part of comprehensive reform. As California policymakers at the state and local level debate their approach to immigration policy, this data will provide much needed context on the tax contributions of undocumented immigrants living and working in California.

10 Things You Should Know on Tax Day

Every year around Tax Day, ITEP updates some of its key reports to help put the nation's tax system in proper context. This year, as people around the country march to demand President Trump release his tax returns and as policymakers consider overhauling our federal tax system, these reports are especially critical. Read 10 Things You Should Know on Tax Day.

Who Pays Taxes in America in 2017?

All Americans pay taxes. Most of us pay federal and state income taxes. Everyone who works pays federal payroll taxes. Everyone who buys gasoline pays federal and state gas taxes. Everyone who owns or rents a home directly or indirectly pays property taxes. Anyone who shops pays sales taxes in most states.

Fifteen (of Many) Reasons We Need Corporate Tax Reform

Profitable Fortune 500 companies in a range of economic sectors have been remarkably successful in manipulating the tax system to avoid paying even a dime in tax on billions of dollars in U.S. profits. This ITEP report examines a select, diverse group of 15 corporations' tax situations to shed light on the widespread nature of corporate tax avoidance. As a group, these companies paid no federal income tax on $21 billion in profits in 2016, and they paid almost no federal income tax on $111 billion in profits over the past five years. All but one received federal tax rebates in 2016, and almost all paid exceedingly low rates over five years.

The U.S. Is One of the Least Taxed Developed Countries

The most recent data from the Organization for Economic Cooperation and Development (OECD) show that the United States is one of the least taxed developed nations.

U.S. Collects Smaller Share of Corporate Taxes Than Developed Country Average

Corporate income taxes in the United States as a share of the economy are well below the average among developed nations, according to an analysis of the most recent data from the Organization for Economic Cooperation and Development (OECD). Data from the OECD show that U.S. corporate taxes as a percentage of GDP are 2.2 percent, which is 24 percent less than the 2.9 percent weighted average among the 34 other OECD countries for which data were available.

Testimony before the Alaska House Labor & Commerce Committee On House Bill 36

Thank you for the opportunity to testify on the changes House Bill 36 would make to Alaska's tax treatment of pass-through income. The taxation of pass-through business entities has been a focal point of state and federal tax reform debates for over a quarter century, with a dual focus on minimizing the role of tax laws in determining the choice of business entity and on ensuring that the income of all business entities is subject to at least a minimal tax. My testimony makes two main points: 1. Alaska is one of a small number of states that do not currently impose either an entity-level tax or a personal income tax on the income generated by pass-through businesses. 2. But Alaska fully taxes the income of traditional C corporations, creating a clear incentive for businesses to structure as pass-throughs to avoid income tax. In the absence of a statewide personal income tax, imposing an entity-level tax on the net income of pass-through businesses, as HB36 would do, is a straightforward approach to leveling the playing field between different types of business entities, while ensuring these businesses help to fund public investments.

Assessing the Distributional Consequences of Alaska's House Bill 115 (Version L)

This report contains ITEP's analysis of the distributional and revenue consequences of the revised version of House Bill 115 (Version L) as proposed on March 23, 2017. This proposal would reduce Alaska's Permanent Fund Dividend (PFD) payout and implement a personal income tax based on a modified version of Federal Adjusted Gross Income, with rates ranging from 0 to 7 percent. The analysis was produced using ITEP's Microsimulation Tax Model.

Fortune 500 Companies Hold a Record $2.6 Trillion Offshore

All told, Fortune 500 corporations are avoiding up to $767 billion in U.S. federal income taxes by holding more than $2.6 trillion of "permanently reinvested" profits offshore. In their latest annual financial reports, 29 of these corporations reveal that they have paid an income tax rate of 10 percent or less in countries where these profits are officially held, indicating that most of these profits are likely in offshore tax havens.

Corporations' Offshore Cash Hoard Grew to $2.6 Trillion in 2016

U.S. corporations now hold a record $2.6 trillion offshore, a sum that ballooned by more than $200 billion over the last year as companies moved more aggressively to shift their profits offshore, according to a new report, Fortune 500 Companies Hold a Record $2.6 Trillion Offshore, released today by the Institute on Taxation and Economic Policy (ITEP).

Affordable Care Act Repeal Includes a $31 Billion Tax Cut for a Handful of the Wealthiest Taxpayers: 50-State Breakdown

Congressional Republicans have proposed legislation that would repeal the Affordable Care Act (ACA), including rolling back a number of tax changes that were enacted to pay for the ACA's health care expansions. Among these tax changes are two targeted income tax increases that took effect in 2013, each of which apply only to a small number of the wealthiest Americans: the net investment tax and additional Medicare tax. Repealing these two taxes would cost over $31 billion a year if implemented in tax year 2016, and 85 percent of the benefit from repealing these taxes would go to the best off 1 percent of Americans nationwide. This analysis includes a 50-state breakdown of these impacts.

Taxes and the On-Demand Economy

A growing number of Americans are getting rides or booking short-term accommodations through online platforms such as Uber and Airbnb. This is nothing new in concept; brokers have operated for hundreds of years as go-betweens for producers and consumers. The ease with which this can be done through the Internet, however, has led to millions of people using these services, and to some of the nation's fastest-growing, high-profile businesses. The rise of this on-demand sector, sometimes referred to as the "gig economy" or, by its promoters, the "sharing economy," has raised a host of questions. For state and local governments, one of them is: How do the services provided by these companies fit into the current tax system? All three of the major categories of revenue sources relied upon by state and local governments, including consumption taxes, income taxes, and property taxes, are impacted to some extent by the on-demand economy. While Uber, Airbnb, and similar on-demand companies are still relatively small in relation to the overall U.S. economy (accounting for 0.5 percent of the U.S. workforce), they are large enough to have a meaningful impact on state tax collections, and their explosive growth and entry into new lines of business will amplify their importance in the years ahead.

The 35 Percent Corporate Tax Myth

Profitable corporations are subject to a 35 percent federal income tax rate on their U.S. profits. But many corporations pay far less, or nothing at all, because of the many tax loopholes and special breaks they enjoy. This report documents just how successful many Fortune 500 corporations have been at using loopholes and special breaks over the past eight years. As lawmakers look to reform the corporate tax code, this report shows that the focus of any overhaul should be on closing loopholes rather than on cutting tax rates.

ITEP and CTJ Boards Announce Alan Essig as New Executive Director

The Institute on Taxation and Economic Policy Board of Directors and the Citizens for Tax Justice Board of Directors are pleased to announce that Alan Essig has been named the next executive director of both organizations. Robert McIntyre, director of CTJ, will retire effective March 31, and Matthew Gardner, former executive director of ITEP, has assumed the position of senior fellow. Mr. Essig will begin his new role on April 3, 2017.

Undocumented Immigrants' State & Local Tax Contributions

Public debates over federal immigration reform, specifically around undocumented immigrants, often suffer from insufficient and inaccurate information about the tax contributions of undocumented immigrants, particularly at the state level. The truth is that undocumented immigrants living in the United States paybillions of dollars each year in state and local taxes. Further, these tax contributions would increase significantly if all undocumented immigrants currently living in the United States were granted a pathway to citizenship as part of a comprehensive immigration reform. Or put in the reverse, if undocumented immigrants are deported in high numbers, state and local revenues could take a substantial hit.

Contrary to Rhetoric, President's Tax Plan Will Disproportionately Benefit Wealthy Taxpayers and Corporations

Following is a statement by Matthew Gardner, senior fellow at the Institute on Taxation and Economic Policy, regarding President Donald Trump's address to Congress. During the speech, Trump said he will reduce the corporate tax rate and provide "massive" tax relief for the middle class.

Combined Reporting of State Corporate Income Taxes: A Primer

Over the past several decades, state corporate income taxes have declined markedly. One of the factors contributing to this decline has been aggressive tax avoidance on the part of large, multi-state corporations, costing states billions of dollars. The most effective approach to combating corporate tax avoidance is combined reporting, a method of taxation currently employed in more than half of the states that tax corporate income. The two most recent states to enact combined reporting are Rhode Island in 2014 and Connecticut in 2015. In several states, including Connecticut, Illinois, Massachusetts, Rhode Island, and Vermont, lawmakers adopted the policy after first carrying out in-depth studies of its potential effects. This policy brief explains how combined reporting works.

Regressive and Loophole-Ridden: Issues with the House GOP Border Adjustment Tax Proposal

In the summer of 2016, House Republicans released a blueprint for tax reform that is likely to be used as the starting point for major tax legislation in 2017.[1] One of the most radical provisions is a proposal to shift the corporate tax code from a residence-based to a destination-based system through applying a border adjustment on exports and imports. This proposal has major flaws that would make it a challenge to implement. Further, it is inherently regressive, rife with loopholes and would violate international agreements.

State Gasoline Taxes: Built to Fail, But Fixable

Every state levies taxes on gasoline and diesel fuel, usually just called "gas taxes." These taxes are an important source of state revenue--particularly for transportation--but their poor design has resulted in sluggish revenue growth that fails to keep pace with state infrastructure needs. This ITEP Policy Brief explains how state gas taxes work, their importance as a transportation revenue source, the problems confronting gas taxes, and the types of gas tax reforms that are needed to overcome these problems.

Fairness Matters: A Chart Book on Who Pays State and Local Taxes

When states shy away from personal income taxes in favor of higher sales and excise taxes, high-income taxpayers benefit at the expense of low- and moderate-income families who often face above-average tax rates to pick up the slack. This chart book demonstrates this basic reality by examining the distribution of taxes in states that have pursued these types of policies. Given the detrimental impact that regressive tax policies have on economic opportunity, income inequality, revenue adequacy, and long-run revenue sustainability, tax reform proponents should look to the least regressive, rather than most regressive, states in crafting their proposals.

Alaska's Motor Fuel Tax: A National and Historical Outlier

Alaska Gov. Bill Walker recently proposed tripling his state's motor fuel tax rates.[1] While a variety of fuel types would be affected by this proposal, three-fourths (or $60 million) of the revenue raised each year would come from higher taxes on gasoline and diesel fuel--sometimes referred to as highway fuels--purchased by Alaska motorists. Absent any national or historical context, tripling Alaska's gasoline and diesel fuel tax rates may sound like a radical policy change. But an adjustment of this size is necessary because Alaska lawmakers have not updated the state's basic highway fuel tax rate since May 1970--almost 47 years ago.[2] Because of this inaction, Alaska's highway fuel tax has become an outlier when compared to other states' tax rates, or when compared to Alaska's own history. This brief discusses four ways in which Alaska's highway fuel tax is an outlier:

Multinational Corporations Would Receive Half a Trillion in Tax Breaks from Trump's Repatriation Tax Proposal

One of the central questions for lawmakers looking to reform the federal tax code this year is how to address the $2.5 trillion in earnings that U.S. companies are holding offshore to avoid taxes. Lawmakers on both sides of the aisle have supported proposals that would either require or allow companies to repatriate these earnings to the United States at a discounted tax rate. These proposals have ranged from letting companies repatriate their earnings tax-free to requiring them to immediately pay a discounted rate of 20 percent. All of the proposals would give corporations a substantial tax discount and forego much-needed revenue.

Trump/Congressional Tax Holiday Would Net $514 Billion Corporate Tax Break

Fortune 500 corporations stand to reap $514 billion in tax breaks under President-elect Trump's proposal to allow companies to pay only a 10 percent tax rate on offshore profits. And the 10 firms that have most aggressively shifted their profits offshore would glean fully 25 percent of this massive corporate tax break, the Institute on Taxation and Economic Policy (ITEP) said today.

Most Americans Live in States with Variable-Rate Gas Taxes

The federal government and many states are unable to adequately maintain the nation's transportation infrastructure in part because the gasoline taxes intended to fund infrastructure projects are often poorly designed. Thirty states and the federal government levy fixed-rate gas taxes where the tax rate does not change even when the cost of infrastructure materials rises or when drivers transition toward more fuel-efficient vehicles and pay less in gas tax. The federal government's 18.4 cent gas tax, for example, has not increased in over twenty-three years. Likewise, more than twenty states have waited a decade or more since last raising their own gas tax rates.

How Long Has It Been Since Your State Raised Its Gas Tax?

Many state governments are struggling to repair and expand their transportation infrastructure because they are attempting to cover the rising cost of asphalt, machinery, and other construction materials with fixed-rate gasoline taxes that are rarely increased. The chart accompanying this brief shows (as of January 1, 2017) the number of years that have elapsed since each state's gas tax was last increased.