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
A number of large, profitable corporations in Wisconsin pay little or nothing in state corporate income tax, according to a new report. Loopholes, tax credits, and creating accounting keep the amount these corporations pay in income tax to a minimum.
A constitutional amendment that would make tax reform more difficult, could deepen recessions, and potentially make it more expensive for the state to invest in building projects is making its way through the Wisconsin legislature.
The proposed amendment would change the state’s Constitution to require a two-thirds majority of both houses of the Legislature to pass an increase in the rate of the state individual income tax, corporate income tax, or sales tax. Under this amendment, the Legislature could raise tax rates without a supermajority if voters approved the change in a statewide referendum.
This proposed amendment was approved by the Assembly earlier in February, and is now under consideration in the Senate. A proposed constitutional amendment requires passage by two consecutive legislatures and approval by voters to be enacted.
If implemented, this constitutional amendment could cause a number of problems, including making it more difficult to reform the tax system, limiting options for cushioning the effects of a recession on Wisconsin’s families, and causing fees to rise. Read more
Tax Package Costs at least $30 Million More than Generally Acknowledged
Descriptions of the Governor’s tax plan by the executive branch and the media have pretty consistently understated both the total cost and the amount of the income tax portion of the tax cutting that will benefit wealthy Wisconsinites. The reason for that is that the Governor and most reporters have failed to point out that part of the plan is a set of changes in the state’s Alternative Minimum Tax (AMT). Within a few years that part of the Governor’s proposals will increase the size of the income tax cut by about 50%, but it will only benefit a relatively small number of wealthy state residents.
In his “state of the state” address a few weeks ago, Governor Walker described his income tax plan as providing a $58 savings to a family of four making $40,000, and he added that “no one will get a bigger savings than that.” That would have been an accurate assessment if the Governor had made it clear that he was talking about just a portion of his income tax plan, but he seemed to be describing the full plan. Read more
A proposed amendment to the Wisconsin Constitution amendment limits budget options without offering any meaningful advantages in return, according to a new analysis from the Wisconsin Budget Project.
Under the amendment, a two-thirds majority of both houses of the Legislature would be required to pass an increase in the rate of the state individual income tax, corporate income tax, or sales tax. A supermajority vote would not be required to increase the gas tax or increase fees.
Supporters argue that supermajority requirements keep state taxes lower than they otherwise would be. However, history shows this not to be the case. Tax increases are extremely rare in Wisconsin. The sales tax and corporate income tax rates have not been raised in 32 years. The only increase in the individual income tax rate in the last 28 years, which took place in 2009, affected only about one out of every hundred tax filers. Read more
A constitutional amendment proposed by Wisconsin legislators would restrict the budget options of future lawmakers by making it harder to raise taxes. It would have the effect of making it more difficult to manage the state’s finances, and would probably shift costs from some residents to others and raise the cost of capital projects.
The amendment would change the state’s constitution to require a two-thirds majority of both houses of the Legislature to pass an increase in the rate of the state individual income tax, corporate income tax, or sales tax. The legislature could raise tax rates without a supermajority if voters passed a statewide referendum approving the change. A proposed constitutional amendment requires passage by two consecutive legislatures and a statewide referendum in order to go into effect.
A supermajority requirement would damage Wisconsin’s capacity to manage its budget in way that helps families and businesses. Here’s how:
- The amendment would tie legislators’ hands and make it harder to respond to recessions.
A careful analysis of the four most prominent “business climate” ratings of state tax systems finds them to be “deeply flawed and of no value to informing state policy.” A report published today by Good Jobs First (“Grading Places: What Do the Business Climate Rankings Really Tell Us?”) concludes that business climate studies are actually “politicized grab-bags of data” that contradict each other wildly.
The “Grading Places” report is authored by Dr. Peter Fisher, an economist who has written extensively on economic development. According to Dr. Fisher:
“When we scrutinized the business climate methodologies, we found profound and elementary errors. We found effects presented as causes. We found factors that have no empirically proven relationship to economic growth. And we found scores that ignore major differences among state tax systems.”
You can find the complete report and the executive summary here.
Jon Peacock Read more
Mining Bill Reduces Resources for Local Governments to Address Impact of Mine
Local governments affected by a proposed mine in northern Wisconsin might not have sufficient resources to offset the increased public costs associated with the mine. That’s because the proposed mining bill, which has passed the Joint Finance Committee and heads to the Senate Wednesday, diverts part of the revenue from the mining tax away from a fund set to offset mine-related costs of local governments, and instead sends it to the Wisconsin Economic Development Corporation.
Under current mining tax law, all proceeds from the mining tax are set aside to provide financial assistance to local governments experiencing social, environmental, or economic impacts from the mine.
The mining bill currently under consideration in the Senate changes the law and instead allocates only 60% of the proceeds from the mining tax to the fund to address local impacts. The remaining 40% of proceeds would be sent to the Wisconsin Economic Development Corporation, with no specific requirements as to how the money must be spent. Read more
New Report Estimates Tax Haven Abuse Cost Wisconsin $814 Million in 2011
It has long been known that corporations and individuals are able to dodge federal taxes by sheltering profits in financial institutions in other counties. A new study, which was published last week by the U.S. PIRG Education Fund, also examines the effect on state revenue collections. It estimates that off-shore accounts maintained by corporations and wealthy individuals reduced state tax collections by nearly $40 billion in 2011. That’s on top of an estimated $150 billion that year in lost federal tax revenue.
The report’s authors estimate that foreign tax havens cost Wisconsin $814 million of tax revenue in 2011. That’s the 15th highest amount among all the states.
This federal issue filters down to the state level because states typically link their own tax policies to federal law. Because it’s unlikely that Congress can get past its gridlock and address the problem anytime soon, U.S. Read more
Big Change #2: Corporations and Well-Off Are Paying Less in Taxes, and Working Families are Paying More
One year into the state’s two-year budget period, corporations and well-off individuals are paying less in taxes than they did before the budget, and working class individuals and families are paying more.
The budget included two significant tax breaks that have already kicked in. One tax change that benefits multi-state corporations partially rolls back a recent law that made it difficult for big businesses to shift their income between different states to avoid taxation. This tax break reduced the state income tax these corporations pay in Wisconsin by $9 million in fiscal year 2012 (which ended on June 30, 2012), and will cut their tax liability by another $37 million this fiscal year.
A second tax cut in the budget reduced the tax that individuals pay on their capital gains, or profits from investments. Read more