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
“With such a dramatic revision, one might expect that lagging corporate profits or a sudden economic disruption is to blame. In reality however, corporate tax revenue continues to limp in spite of the fact that corporate profits have rebounded to record highs. If corporate profits are not behind this $96 billion drop in expected corporate tax revenue, then what is?”
Deficit Reduction Is One of Six Standards in Center’s Checklist for Reforming Federal Business Taxes
- Contribute to long-term deficit reduction;
- Reduce the tax code’s bias toward overseas investments;
- Improve economic efficiency by reducing special preferences;
- Provide more neutral treatment of corporate and non-corporate businesses;
- Reduce the tax code’s bias towards debt financing; and
- Take specific steps to discourage tax sheltering.
Many consistently profitable corporations pay little or no state income tax, depriving state residents of the resources needed to support public education, a solid transportation system, and safe communities. A new report by Citizens for Tax Justice and the Institute on Taxation and Economic Policy profiles 265 Fortune 500 companies, and determines that 68 of them paid no state income tax in at least one year from 2008 through 2010. The companies reported almost $117 billion in pretax profits in those no-tax years. The New York Times covered the report this morning.
How is it that some large corporations are able to legally avoid paying state income tax? The report lays out three ways. First, state lawmakers continue to enact tax subsidies requested by corporations, even when those subsidies aren’t tied to job creation. Second, federal tax breaks enacted in the past decade further reduce state corporate income tax revenues since states generally accept corporations’ federal tax numbers. Read more