- Policy Resources
- News & Analysis
- Your State
Tax and Budget Reforms (Agenda)
Building a Progressive Majority in the States:
Tax and Budget Reforms
In a debate too often dominated by rightwing tax cut rhetoric, there is a real opening for progressives to demand a fairer, more accountable tax and budget system. State residents are frustrated by governments that they believe tax low- and middle-income residents too much and upper-income people and corporations too little. And hidden economic giveaways to companies receiving tax breaks and government contracts just adds to voter distrust that state budgets serve those with money, not the average taxpayer. In response, a range of reforms at the state level are showing the way to creating more transparent tax and budget decisions, transparency that strengthens voter trust that their tax money is actually going for the important public services that they do support.
A core goal of progressives has to be tax reform that eases the burden on working families while demanding that the wealthy and corporations pay their fair share. A recent Gallup poll showed that 67% of Americans think upper-income people and corporations are paying "too little" in taxes, while almost no one says that about middle-income or lower-income Americans. This view is a pretty fair complaint by voters, since the wealthy and corporations pay a lower percentage of their income in state and local taxes than do working families. So tax reforms that redistribute the tax burden away from working families are a key part of creating broader political support for new funding for social programs and public investments.
A prime strategy should be promoting truth in budget reforms that track what the tax burden is for different income groups, the extent of corporate loopholes and other tax giveaways, and which companies receive state economic development money and government contracts. Such reforms give the public the tools for a more robust understanding of what really goes on with state money. And once special deals for corporate interests are exposed, it becomes easier to enact reforms that save taxpayers money and frees up resources for other needed state programs.
What we know is that more transparency will highlight that tens of billions of dollars each year are lost to these corporate tax loopholes and subsidies that deliver little in return. One of the grossest signs of the problem is that Wal-Mart has managed to squeeze over $1 billion in government subsidies for opening stores the company was planning to build anyways. Voters clearly are repelled by these corporate deals and loopholes: according to a Center for American Progress poll, the public overwhelmingly (77 percent to 20 percent) supports reforms to increase corporate taxes and "close loopholes used by companies to avoid taxes." In a 2004 Wisconsin poll, four in five Wisconsinites favor closing corporate tax loopholes and a similar poll in Maryland found 86% supporting closing corporate tax loopholes as a desired policy. Progressives need to establish clear policies to eliminate such wasteful use of taxpayer dollars.
The other side of budget malfeasance are deals that often hand fat public contracts to politically connected corporations. All across the country, "pay to play" corruption has led to indictments of public officials selling off government to the highest bidder. And the cost is not only the public trust, but poorly delivered public services, fraud, and the undermining of state economies as companies pay poverty wages and even offshore jobs overseas. Policies that create accountable standards for government contracts therefore prevent corruption and help guarantee that public money is used to promote broader public policy goals.
Key Tax and Budget Reform Policies:
Creating a Fair and Accountable Tax System: Easing the tax burden on working families is a key to creating broader public support for funding needed government programs-and states are helping to accomplish this with policies that:
- Disclose Who Pays for Taxes: The first step is a legal requirement, already enacted in a few states, for a tax analysis that measures the impact of all taxes on residents at different income levels.
- Make Taxes More Progressive: Income, corporate, sales and excise taxes should be reformed to lessen the burden on working families and assure that the wealthy pay their fair share of state taxes.
- Reform Property Taxes: Because home values and associated taxes can rise arbitrarily, property taxes can easily feed rightwing tax revolts unless progressives establish 'circuit breakers' that limit those taxes as a percentage of working families' incomes or create other measures that take the burden off cash-poor homeowners during times of housing inflation.
- Stop TABOR and Other Rightwing Tax Campaigns: A top priority has to be blocking these campaigns; tax limitation initiatives are designed to put budget decisions in a straightjacket that pit different social needs against each other in an induced funding crisis.
Fixing Failed Tax Subsidies: With hundreds of billions handed out in corporate tax subsidies and development deals, states in order to better target money are passing legislation to:
- Review and Sunset Tax Expenditures: Since tax loopholes usually don't appear in annual budgets, some states have required tax expenditure budgets and corporate income tax reports to evaluate how much states are spending on tax subsidies and corporate loopholes and whether they are being effective in promoting public policy goals. An even more comprehensive solution is to automatically sunset all tax subsidies every few years unless they are affirmatively renewed by the legislature.
- Disclose Economic Development Deals: In addition to budgetary disclosure, the subsidies offered in individual development deals to companies should be publicly disclosed, including electronically on the web, to allow better oversight of their value to taxpayers.
- Require Job Quality Standards and Other Reforms for Subsidy Recipients: To assure that jobs created build a strong economy, states and communities increasingly have required subsidy recipients to pay a living or prevailing wage, enacted "clawback" provisions to make company commitments binding, and to promote smart growth in plant location.
Reforming Government Contracts: With scandals revealing how the scramble for government contracts corrupts government and its agencies, states are taking action to assure integrity in the contracting process and guarantee that public contracts strengthen their states' economies through policies that:
- Require Contract Reports and Audits: A few states report partial information on what parts of the budget are going to contractors and who they are, but all could do a better job letting the public know which business interests are getting the contracts for public services and whether they are delivering them in a cost-effective way.
- Force Contractors to Prove Privatization is Cost-Effective: The best approaches are those like in Massachusetts which prohibits private contracting of government services unless private companies prove they can perform those functions more efficiently than government workers -- an automatic check on corruption that studies have found saved that state millions of dollars.
- Tighten Contracting Standards: Where private companies do perform public functions, the tighter the standards for companies bidding on contracts -- including requiring decent wages, a record of obeying relevant labor and fraud laws, and a ban on campaign contributions by contractors -- the less likely incompetent or corrupt companies will get public money.