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Even though today is the federal income tax filing deadline, I'm starting with the state tax news, because Congress is just spinning its wheels, whereas it's crunch time for Iowa state legislators.
April 17 was originally supposed to be the adjournment date for the state legislature, but leaders of the Republican-controlled House and Democratic-controlled Senate have yet to reach agreement on several major bills. According to James Q. Lynch, conference committee negotiations are bringing the two sides closer together on targets for the fiscal year 2013 budget. In fact, House Speaker Kraig Paulsen thinks there's a chance of adjourning the session as early as April 21, which I find hard to believe.
The Iowa House has yet to approve an expansion of the earned income tax credit this year, despite many good reasons to do so. The change is the Democrats' top tax priority and would help hundreds of thousands of working Iowans. Senate Ways and Means Committee Chair Joe Bolkcom has said repeatedly that no property tax cutting bill will pass his committee until Governor Terry Branstad has signed an earned income tax credit expansion into law.
Branstad said he doesn't see the income tax break for Iowa's low-income earners as a "big job creator" but added that it does provide additional income for families. "I would be willing to to accept it as part of a deal" to get permanent commercial tax reform passed, he said at the Iowa Partnership for Economic Progress meeting with top Iowa executives [on April 5].
Branstad has made similar comments before. A governor well into his fifth term should know that you can't use the same bargaining chip three times in a row. The earned income tax credit expansion was included in two wide-ranging bills during the 2011 legislative session. Branstad line-item vetoed the Democrats' top tax priority twice. There's no reason for Democrats to believe he is negotiating in good faith now.
Republican resistance to expanding the earned income tax credit is hard to fathom. Even if you feel no ethical obligation to help working people living in poverty or on the edge of poverty, there's a strong economic case for this tax policy. People living paycheck to paycheck are likely to spend any additional disposable income quickly, which means that expanding the earned income tax credit stimulates the economy.
Charles Bruner and Andrew Cannon of the Iowa Fiscal Partnership recently reviewed how this policy "would affect state and local economies, with information by current House legislative districts." Iowa lawmakers should be ashamed that our state is one of 15 that impose income tax on two-parent families of four with incomes at or below the poverty line, according to the Center for Budget Priorities. I'm not optimistic about this reform passing before the legislature adjourns, but I hope to be wrong.
Iowa legislators have approved two other tax-related bills already this month. One would restrict the use of tax-increment financing (TIF), which was originally intended to spur redevelopment of slum and blighted areas. When used appropriately, TIF is a powerful tool for revitalizing neighborhoods in decline. However, its use has broadened to promote suburban sprawl on farmland and poaching retail businesses from one municipality to another, with questionable "economic development" value. The Iowa Fiscal Partnership has made a strong case for TIF reform in several recent reports.
I haven't had a chance to study the details of House File 2460. I liked some of the points mentioned in this write-up. The House approved this bill on April 11 on a mostly party-line 54 to 43 vote. All 39 Iowa House Democrats present voted against the bill, as did Republican State Representatives Peter Cownie, Josh Byrnes, Ron Jorgensen, and Jeremy Taylor (click here for the roll call). Groups supporting the TIF reform included the Iowa Farm Bureau Federation, the Iowa Association of School Boards, and the Urban Education Network of Iowa. The non-profit organization 1000 Friends of Iowa (with which I'm involved) also supports House File 2460. Lobbyists representing many city governments and a few business organizations oppose the bill.
Meanwhile, the Iowa House and Senate already agreed on a narrowly targeted bill to promote development of the "Field of Dreams" into a baseball and softball complex. Senate File 2329 would give a sales tax rebate of up to $16.5 million to a company that plans to develop the site, Rod Boshart reported.
S.F. 2329 authorizes the Iowa Department of Revenue to rebate sales tax collected by retailers on purchases made at a baseball and softball tournament facility and movie site. The bill's language is crafted to apply only to the Dyersville project, stating that construction on the facility must commence not later than one year following the enactment of the bill and the cost of the construction must be at least $38 million.
The rebate of sales tax only applies to the sales tax collected on transactions occurring on or after Jan. 1, 2014, and before Jan. 1, 2024, and shall only be paid from the baseball and softball tournament facility and movie site sales tax rebate fund created in the bill. Backers said the provisions are similar to an incentive package the General Assembly approved for the Iowa Speedway in Newton.
This approach had supporters and detractors in both parties. Ten Republicans joined 24 Democrats to pass this bill in the Iowa Senate (the roll call is in this pdf file). Democrat Dick Dearden joined 13 Republicans to oppose it.
because it provided preferential state tax treatment for a local project. While I hope that the project becomes a commercial success, I believe this plan uses the Iowa Tax Code to pick winners and losers. Special tax advantages for one individual or entity results in unfair treatment for the rest of us.
The House Journal for April 4 includes the roll call (pdf). Senate File 2329 passed with support from 30 House Republicans and 23 Democrats, while 29 Republicans and 12 Democrats voted no.
One more state-level tax issue is worth mentioning. Iowa legislators voted in 2011 to create a Taxpayers Trust Fund, to be filled with surplus state revenues up to a maximum of $60 million per year. After the books are closed on the current fiscal year, the first $60 million will be deposited into that trust fund. But as Lynn Campbell reported last month for IowaPolitics.com, "no one yet knows how the money will be used." Bolkcom wants to use the money to pay for the earned income tax credit expansion, but some Republicans have other ideas.
Side note: IowaPolitics.com hasn't published any new material since March 30. I don't know why or whether there are plans to bring the site back to life.
Regarding the federal tax code, nothing important is going to happen until after the November election (maybe not even then). The U.S. Senate played out some kabuki theater yesterday on the "Buffett rule," which would set a minimum tax rate of 30 percent on people whose incomes exceed $1 million per year. Iowa's senators split on the predictable party lines. This issue will return to the Senate floor in the coming months, as will debate over whether to repeal tax breaks for large oil companies.
U.S. House Representative Steve King is scheduled to address a rally today for advocates of the so-called "fair tax." I could make a long list of GOP tax proposals I don't support (flat tax, eliminating the estate tax, cutting corporate income taxes, to name a few). Even in that context, the "fair tax" stands out as one of the worst tax policies ever floated in this country. Fortunately, we don't have to worry about it passing either chamber of Congress.
Today we are likely to hear many Republicans decry the fact that nearly half of U.S. households don't pay federal income taxes. The Center on Budget and Policy Priorities report on "Misconceptions and Realities About Who Pays Taxes" is a must-read. Click here for the full report (pdf). Excerpt from the executive summary:
* These figures cover only the federal income tax and ignore the substantial amounts of other federal taxes - especially the payroll tax - that many of these households pay. As a result, these figures greatly overstate the share of households that do not pay federal taxes. Tax Policy Center data show that only about 17 percent of households did not pay any federal income tax or payroll tax in 2009, despite the high unemployment and temporary tax cuts that marked that year. In 2007, a more typical year, the figure was 14 percent. This percentage would be even lower if it reflected other federal taxes that households pay, including excise taxes on gasoline and other items.
* Most of the people who pay neither federal income tax nor payroll taxes are low-income people who are elderly, unable to work due to a serious disability, or students, most of whom subsequently become taxpayers. (In years like the last few, this group also includes a significant number of people who have been unemployed the entire year and cannot find work.)
* Moreover, low-income households as a group do, in fact, pay federal taxes. Congressional Budget Office data show that the poorest fifth of households paid an average of 4.0 percent of their incomes in federal taxes in 2007, the latest year for which these data are available - not an insignificant amount given how modest these households' incomes are; the poorest fifth of households had average income of $18,400 in 2007. The next-to-the bottom fifth - those with incomes between $20,500 and $34,300 in 2007 - paid an average of 10.6 percent of their incomes in federal taxes.
* Moreover, even these figures greatly understate low-income households' totaltax burden because these households also pay substantial state and local taxes. Data from the Institute on Taxation and Economic Policy show that the poorest fifth of households paid a stunning 12.3 percent of their incomes in state and local taxes in 2011.
* When all federal, state, and local taxes are taken into account, the bottom fifth of households pays about 16 percent of their incomes in taxes, on average. The second-poorest fifth pays about 21 percent.
Along those lines, last week the Iowa Public Interest Research Group released a new report on the hidden costs of offshore tax havens. I enclose Iowa PIRG's April 12 press release:
Offshore Tax Havens Cost Average Iowa Taxpayers $310 a Year, Each Iowa Small Business $1,582, New Study Finds
April 12, Des Moines - With tax day approaching, a new study released by Iowa PIRG found that the average Iowa taxpayer in 2011 would have to shoulder an extra $310 tax burden to make up for revenue lost from corporations and wealthy individuals shifting income to offshore tax havens. The report additionally found that to cover the cost of the corporate abuse of tax havens in 2011, small businesses in Iowa would have to foot a bill of over $1,582 on average.
Every year, corporations and wealthy individuals avoid paying an estimated $100 billion in taxes by shifting income to low or no tax offshore tax havens. Of that $100 billion, $60 billion in taxes are avoided specifically by corporations. A GAO study found that at least 83 of the top 100 publically traded corporations use offshore tax havens.
"When corporations shirk their tax burden by using accounting gimmicks to stash profits legitimately made in the U.S. in offshore tax havens like the Caymans, the rest of us must pick up the tab," said Sonia Ashe. "Responsible small businesses don't just foot the bill for corporate tax dodging, they are put at a competitive disadvantage since they can't hire armies of well paid lawyers and accountants to use offshore tax loopholes."
The report recommends closing a number of offshore tax loopholes, many of which are included in the Stop Tax Haven Abuse Act (H.R. 2669) and Cut Unjustified Tax Loopholes Act (S.2075). Representatives Boswell, Rep. Braley & Rep. Loebsack have joined as cosponsors of the House legislation to show their support for ending tax haven abuse.
Congressman Boswell said, "In order for us to reduce our deficit, everyone must play by the rules. Unfortunately, not everyone does. The tax havens for big business need to come to an end and they need to pay their fair share just like responsible working Iowans are doing. These unfair practices hurt small businesses by putting them at a competitive disadvantage and ultimately hurt all taxpayers."
Using complex tax avoidance schemes, many of America's largest corporations drastically shrink their tax bill:
· Google uses techniques nicknamed the "double Irish" and the "Dutch sandwich," involving two Irish subsidiaries and one in Bermuda - a tax haven - that helped shrink its tax bill by $3.1 billion between 2008 and 2010.
· Wells Fargo paid no federal income taxes between 2008 and 2010 despite being profitable all three years in part due to its use of 58 offshore tax haven subsidiaries.
· G.E. received a $3.3 billion tax refund in 2010 despite reporting over $5 billion in U.S. profits to shareholders. The company has $94 billion parked offshore and uses 14 tax haven subsidiaries.
"It is appalling that these companies get out of paying for the nation's infrastructure, education system, security, and large market that help make them successful," added Sonia Ashe.
Click here for a copy of "Picking up the Tab: Average Citizens and Small Businesses Pay the Price for Offshore Tax Havens."
Click here to see an earlier study showing 30 companies that paid more in campaign contributions and lobbying expenses than they did in federal income taxes.
1. The [federal] government has collected less in taxes as a proportion of the economy in the past three years than it has in any three-year period since World War II, and tax rates are at historic lows.
SECOND UPDATE: Representative Steve King (R, IA-05) sent out this statement:
King: Jobs are with the FairTax, I stand with the FairTax
Washington, DC- Congressman Steve King released the following video of his speech at a FairTax press conference in front of the U.S. Capitol Building to commemorate National Tax Day.
"I've been for the FairTax since about 1980, well before there was a FairTax," said King. "Here we are on Tax Day today, this year on April 17, it's normally April 15. It's also the day of Tax Freedom Day by a lot of calculations. I want Tax Freedom day to be January 1, not April 17. Ronald Regan once said that "what you tax you get less of." The federal government has the first lean on all productivity in America. Earnings, savings and investment- they tax it. They punish our productivity, and not our consumption. It needs to be the other way around. That's where our freedom is rooted, it frees up our pastors, our free speech, the whole configuration of our energy, our minds and our economy that has to first jump through the tax hoop before it can figure out where to invest our dollars. Jobs are with the FairTax, and I stand with the FairTax."
Representative Dave Loebsack (D, IA-02) sent out this press release:
WASHINGTON, D.C. - Congressman Dave Loebsack, a member of the House Education and the Workforce Committee, released the following statement on Equal Pay Day, which is intended to bring attention to the inequality in pay between genders and marks how much longer a woman must work into 2012 to earn as much as a man earned in 2011. According to Census data, in 2011 women earned just 77 percent of what was earned by their male counterparts.
"Equal Pay is not a women's issue or a man's issue, it is a family issue. In today's tough economy, Iowa's working families are pinching every penny just to make ends meet and in most families with children, both parents work. It is now more critical than ever that our mothers, daughter, sisters and aunts receive the same pay for the same work as their male counterparts so our families do not have to sacrifice basic necessities.
"In the 49 years since the Equal Pay Act was first signed into law, substantial steps have been made in addressing the wage gap between men and women, but more must be done. I was proud to help introduce the Lilly Ledbetter Fair Pay Act, which restored a women's right to challenge unfair pay. This legislation was signed into law by the President in January 2009. I am also a cosponsor of the Paycheck Fairness Act that would not only give a much needed update to the Equal Pay Act, but it would also help working families by eliminating the wage gap.
"Standing up for equal pay benefits everyone - men, women and children. It also strengthens families across Iowa. It is time we pass the Paycheck Fairness Act and eliminate the wage gap."
Representative Leonard Boswell (D, IA-03) sent this e-mail blast to constituents:
Dear Fellow Iowan,
Today marks a very important day - Equal Pay Day - a day to reflect on the wage gap between men and women and its impact on our families and our nation's economy.
Equal Pay Day falls on this day to symbolize how far into 2012 women must work to match what men earned in 2011. Currently, a woman earns on average 77 cents to every dollar a man makes in our country. Thankfully, we have made great strides but more must be done to close this significant gap. In 2008, the first bill President Obama signed into law was the Lilly Ledbetter Fair Pay Act, which restores the right of women to challenge unfair pay - legislation I was proud to support but 98 percent of House Republicans voted against.
I also support the Paycheck Fairness Act - and was an original cosponsor when it was first introduced in the House. The legislation would update the 47-year-old Equal Pay Act by providing more effective remedies to women who are not being paid equal wages for doing equal work. There is overwhelming support for this legislation regardless of party affiliation - a national poll of registered voters found 84 percent are in favor of such a law.
Equal pay is not simply a women's issue, but a family issue. In fact, women are increasingly more responsible for the economic security of their families. According to the latest census data, over 113,000 Iowa households are headed by women. The wage gap hurts everyone - husbands, wives, children, and parents - because it lowers family incomes that pay for essentials, such as groceries, doctors' visits, and child care. When women earn more, an entire family benefits, that's why closing the wage gap must be an integral part of strengthening America's families.
Ensuring that women receive equal pay for equal work is a common-sense issue that affects all working women and their families. By eradicating unfair treatment in the labor market, we can help families gain the resources they need to ensure that their children have access to a better future.
THIRD UPDATE: Christie Vilsack's campaign in Iowa's new fourth district sent out a graphic on "4 Things You Need To Know About Steve King and Taxes":
Vilsack's campaign sent out this mass e-mail:
If you're like me, you've probably blocked out some time today to finally sit down and finish your taxes before the midnight deadline.
Not Steve King. He must have gotten his done early. Because Steve King is spending Tax Day pushing what he calls the "Fair Tax" -- a flat 23 percent national sales tax. That's after he voted to raise taxes by $1,500 for the average Iowa family earlier this year. The last thing anyone should be doing is trying to make it harder for Iowa families to get by. Help us show Steve King that he doesn't stand for Iowa by making a contribution to Christie's campaign today.
Will you make a contribution to support Christie's campaign, and fight back against Steve King's so-called "Fair Tax"?
Growing our economy today means rebuilding America's economic engine -- the middle class. It means getting people back to work. It means putting middle class priorities ahead of the interests of big corporations.
Instead, Steve King's "Fair Tax" would turn every day into Tax Day for middle class families and seniors. It would force consumers to pay, at minimum, a 23 percent sales tax on everything they buy -- from milk, to diapers, to medication.
We can't afford a representative that wants to make life harder for the middle class. We need to make sure that, come November, we send Steve King back home to Iowa to learn what middle class life is really like.
You can help us do that.
Will you make a contribution to support Christie's campaign, and fight back against Steve King's so-called "Fair Tax"?
Thank you for standing strong with Christie, and for showing your support for her campaign -- especially on Tax Day!
Jessica Vanden Berg
Christie Vilsack for Iowa