Report Released Today Recommends State and Federal Reforms to Close Offshore Tax Havens
Maine legislators recently gave preliminary approval to a bill that could make it the third state to pass legislation to crack down on corporate tax avoidance in off-shore tax havens. The proposed legislation would close the so-called “water’s edge” loophole by requiring corporations to report income from a list of 38 known offshore tax havens. Passage of the bill would generate an estimated $10 million per year (in a state less than a quarter of the size of Wisconsin).
Oregon and Montana have already enacted such legislation. In 2010, Montana recovered $7.2 million, and state analysts expect Oregon to recover $18 million this year. The problem costs states about $1 billion, according to a report by US PIRG report. You can read more about the bills in these three states in an April 3 Washington Post blog post. Read more
This week, on the same day that GOP legislators in Congress were unveiling a plan to sharply reduce federal income taxes for corporations, a DC-based think tank released a comprehensive study showing that many highly profitable Fortune 500 companies pay little or no federal corporate income tax. In fact, the analysis of five years of tax data during the period 2008 and 2012 from 288 profitable Fortune 500 companies finds that 26 paid no federal corporate income tax over that five-year period, and one-third paid a U.S. tax rate of less than 10 percent during that period.
The study by Citizens for Tax Justice and the Institute on Taxation and Economic Policy (The Sorry State of Corporate Taxes: What Fortune 500 Firms Pay (or Don’t Pay) in the USA and What They Pay Abroad — 2008–2012) also concludes that: “Most multinationals are paying lower tax rates here in the United States than they pay on their foreign operations.”
The study analyzed the taxes of the 288 Fortune 500 companies that met two criteria: 1) they were profitable in each of the 5 years, and 2) they provided sufficient, reliable information in their financial reports to allow calculation of their effective U.S. Read more
A broad range of Wisconsin organizations sent a letter to state senators today in opposition to the resolution (AJR 81) calling for a Constitutional Convention on a balanced budget amendment. The letter raises substantive concerns about putting a balanced budget amendment into the U.S. Constitution and procedural concerns about the risks of holding a convention to amend the Constitution for the first time in over 225 years. It cites the trepidations expressed by Constitutional experts regarding the unpredictability of what might emerge from a Constitutional amendments convention.
The substantive concerns about a balanced budget requirement include the following:
- It would deepen and lengthen recessions by making it extremely difficult for federal lawmakers to increase spending when it is most needed for counter-cyclical safety net programs, such as food stamps, unemployment insurance, and Medicaid. “Since tax revenue typically falls as the need for those programs rises, a balanced budget would require either making cuts to these safety net programs and other areas of spending at the worst possible time, or increasing taxes at a bad time for the economy.”
- “…Depending on how it is written, a balanced budget amendment might also make it very difficult for Congress to respond to national disasters and other emergencies.
A balanced budget amendment in the U.S. Constitution would result in much longer and deeper recessions and would cause unnecessary job losses. When the economy goes into a dive and people are without jobs, the need for food stamps, health insurance and unemployment insurance rise sharply. Since tax revenue typically falls as the need for those programs rises, a balanced budget would require cuts to these safety net programs and other areas of spending at the worst possible time.
Federal Lifeline for the Unemployed Ends Dec. 28th, but the Debate Will Continue
Federally funded unemployment insurance benefits, known as emergency unemployment compensation (EUC), will expire at the end of this week. However, the debate on this issue will continue into 2014, as Senate Democrats seek an opportunity to restore the EUC program. (See, for example, this article about Senator Reed’s proposal.)
Here are ten key things to know about the EUC program, which expires on December 28:
1) The maximum length of unemployment insurance benefits will immediately drop to the 26 weeks of state benefits, which is slightly less than half the current limit in Wisconsin of 54 weeks of combined state and federal benefits. (That has already been reduced from a maximum of 99 weeks during the worst of the recession.)
Negotiators in Congress announced this afternoon that they have reached a tentative agreement on the parameters of a budget compromise that would make modest reductions in the sequester cuts for fiscal years 2014 and 2015. The reductions in some of the across-the-board cuts will be more than offset by other cuts, such as reduced funding for retirement benefits of new federal employees, as well as increases in some fees, such as airline ticket fees, thereby slowing growth in the federal deficit.
As others have noted, this definitely isn’t the sort of “grand bargain” that some lawmakers may have hoped for. In addition, it isn’t certain that the votes will be there to pass this modest compromise. Some conservative groups are urging Republicans to vote no, and some Democrats are very reluctant to vote for a compromise that doesn’t extend the expiring federal Emergency Unemployment Compensation benefits, which provide assistance for workers who have been unemployed at least six months. Read more
A new interactive tool created by the National Priorities Project (NPP) provides a very interesting way to visualize the major federal income tax breaks. The data tool allows you to see the size of the 10 major federal income tax breaks, and the results might surprise you.
The combined cost of the ten largest tax breaks is more than $750 billion this year, and the top two account for nearly half of the total. This web page compares those amounts, and the interactive tool allows you to also see who benefits from each and how the costs have changed over time. As you move your mouse over the bars in the graph on the left, the charts on the right-hand side will change to show information about a specific tax break.
Wisconsin’s Federal Funds Conundrum: Inconsistent Approaches Undermine Arguments about Sustainability
Short-term Federal Dollars Build up the Balance Used for Permanent Tax Cuts
I find it very puzzling how state lawmakers decide if they will accept federal dollars and how they explain their choices. State budget writers routinely accept many sources of federal funds, such as highway dollars, yet they question the sustainability of other sources – such as the enhanced Medicaid funding that would actually save Wisconsin taxpayers $119 million during the 2013-15 biennium. At the same time, other much less reliable sources of federal funds are being used to generate lapses to the General Fund, thereby helping increase the size of the permanent tax cuts in the budget bill.
These inconsistencies in how lawmakers decide what to do with federal funding are timely this week because the Joint Finance Committee votes tomorrow (July 18th) on a plan for using lapsed funds (including a couple of federal funding sources), and because of the recent news about the state’s decision not to fully utilize additional federal dollars that could bolster employment services for people with disabilities. Read more
Interest rates for many subsidized student loans doubled on July 1, potentially raising education costs for thousands of students in Wisconsin.
The interest rate for subsidized Stafford loans increased from 3.4% to 6.8% last week. The federal government makes about $28 billion in subsidized Stafford loans a year, accounting for one out of every four dollars of loans provided by the federal government. The change in interest rates will affect new student loans, not the loans already in existence.
The 3.4% rate was originally set to expire in 2013, then pushed back to 2012 as part of a compromise with Republicans, and then changed again to 2013. This excellent explanation at the Washington Post has more details about the history of subsidized Stafford loan rates as well as the different plans advanced by various policymakers to address the increase in loan rates.
Higher interest rates on subsidized student loans would make higher education more expensive for students from low- and moderate-income families, and could increase the overall debt level for students. Read more
Senate Expected to Level Playing Field for Main Street Businesses
Legislation that would allow states to compel internet retailers to collect sales taxes is expected to pass the U.S. Senate in the next couple days. Passage of the Marketplace Fairness Act would be a first step towards leveling the playing field between internet retailers and bricks-and-mortar businesses.
Under current law, internet retailers are not required to charge customers sales tax unless the retailer has a physical presence in the state where the customer lives. Customers are still required to pay sales tax on on-line purchases, by declaring purchases on their income tax forms. Few customers do this, though. By not charging customers sales tax, online retailers can undercut bricks-and-mortar retailers on price.
Some states have undertaken their own efforts to compel internet retailers to collect the sales tax, with varying success. It seems clear that a federal approach to this challenge would ensure a more consistent approach among the states, but until now Congress has been slow to take action on this issue. Read more