From the Dispatch

Eye on the Right: Adding Anti-Gay Provision to Wasteful Film Tax Credits in Florida

Altaf Rahamatulla — Thu, 11 Mar 2010 18:00:00 +0000

In recent years, states have become enamored with the film industry, offering generous tax credits to lure the next Hollywood blockbuster. As PSN has noted in previous Dispatches, these credits are costly, favor out-of-state workers, offer minimal to no returns, do not create permanent jobs, and place an excessive burden on taxpayers in a time of economic uncertainty. The Massachusetts Department of Revenue recently determined that in twelve states that administer a film tax credit, the return is extremely meager-- finding that states were only getting back "$.0.07 to $.0.28 per dollar of tax credit granted."

Adding a discriminatory twist on a fiscally inefficient program, Florida conservatives are advancing HB697, a $75 million film tax credit bill, that contains a clause prohibiting movies that display "nontraditional family values" from receiving state dollars. Lawmakers have declined to specify what they actually consider "traditional" or "nontraditional" family values. Although the bill's sponsor, Rep. Stephen Precourt, claimed that he did not intend to target the gay community, when asked if films with gay characters should receive the credit, he responded, "[t]hat would not be the kind of thing I'd say that we want to invest public dollars in."

Using wasteful tax credits to advance right-wing social values is just another indication of the hollowness of conservative claims of "fiscal responsibility." Even as Florida is facing a $147 million mid-year budget gap and a projected $4.7 billion FY2011 deficit, right-wing lawmakers have somehow found revenue to fund an ineffective program that intentionally discriminates against the gay community.

Resources:
Good Jobs First - More States Yell "Cut" on Film Tax Credits
Iowa Department of Management - Tax Credit Review Report
The Massachusetts Department of Revenue - A Report on the Massachusetts Film Industry Tax Incentives
Massachusetts Rep. Steven D'Amico - A Primer on the Massachusetts Film Incentives
Tax Foundation - Movie Production Incentives: Blockbuster Support for Lackluster Policy

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Revenue Options in 2010: Making the Case and Debunking the Myths

Altaf Rahamatulla — Mon, 01 Feb 2010 18:22:15 +0000

Last Tuesday, Oregonians overwhelmingly approved two ballot initiatives that ratified legislative action last year to increase high-end personal income and corporate taxes. The initiatives, put on the ballot by corporate interests, will impact just 2.5 percent of the state -- the richest individuals and corporations -- and generate over $700 million in the upcoming fiscal year to protect vital services.

The failure of the anti-tax movement in Oregon is one more in a long stream of right-wing initiatives rejected by voters at the ballot box. In fact, progressive revenue generation as part of a balanced approach to addressing state deficits has been popular with both voters and legislatures for years. This Dispatch will provide both the facts and messages to debunk opposition to smart revenue options, while outlining a few of the best revenue approaches to filling budget holes.

The right-wing may try to pretend that voters oppose taxing the wealthy or that voters prefer to cut education or health services instead of raising needed revenue, but recent history actually shows broad rejection of anti-tax initiatives. Economic reports have consistently shown that states that have raised revenue have not suffered lower growth than states that have relied predominantly on cutting services. Raising revenue in a progressive manner is sound, politically feasible, and popular with the public, especially compared to massive cuts in investments in education, infrastructure, and health care that endanger a state's economic and social vitality.

Demand Federal Help on State Revenues
Beyond raising taxes in the states, swift and bold action by federal lawmakers on job creation and state fiscal relief is also needed. PSN encourages legislators to sign on to our letter calling on President Barack Obama and the US Congress to enact a new, broad-based job plan, including fiscal relief to states and local governments to foster growth and create jobs across the nation. Advocates can email legislators encouraging them to sign the letter using this online tool.

Demand Federal Help on State Revenues

Beyond raising taxes in the states, swift and bold action by federal lawmakers on job creation and state fiscal relief is also needed. PSN encourages legislators to sign on to our letter calling on President Barack Obama and the US Congress to enact a new, broad-based job plan, including fiscal relief to states and local governments to foster growth and create jobs across the nation. Advocates can email legislators encouraging them to sign the letter using this online tool.

Table of Contents:

- Public Support for Progressive Taxation & The Failure of the Anti-Tax Movement

- Debunking Myths that Taxes Undermine Economic Growth

- New Revenue is Needed to Invest in Economic Recovery

- Corporate Tax Reform and Eliminating Wasteful Economic Subsidies

- Corporate Transparency in State Budgets

- Expanding the Sales Tax Base

- Conclusion

Public Support for Progressive Taxation & The Failure of the Anti-Tax Movement

By approving Measures 66 and 67 this week, Oregonians not only expressed their desire to protect services, but became the latest state to reject the hollow manipulations of right-wing anti-tax rhetoric.

Just last November, voters in Maine and Washington rejected anti-tax initiatives , including so-called "Taxpayer Bill of Rights" (TABOR) initiatives meant to impose a rigid strait jacket on revenue options for state legislatures.
In 2008, similar measures were defeated overwhelmingly in Massachusetts, North Dakota and Oregon. In all three states, proposed initiatives that would have slashed or, in the case of Massachusetts, completely eliminated the income tax, were rejected at the polls.
In 2006, voters in Maine, Nebraska and Oregon each rejected TABOR ballot initiatives. This came on top of judges and other officials rejecting TABOR initiatives in Michigan, Montana, Nevada, Oklahoma and Missouri due to fraud and manipulation by anti-tax campaigns.
In 2005, voters in Colorado--the only state ever to approve a TABOR initiative--decided by initiative to significantly weaken the TABOR rules. This followed years of declining education and health standards due to the state's as a result of the implementation of the TABOR.

State Legislatures Reject Anti-Tax Rhetoric: The string of failures of the anti-tax movement at the ballot box is paralleled by state legislatures passing revenue increases across the country. In 2009 alone, California, Connecticut, Colorado, Delaware, Hawaii, New Jersey, New York, North Carolina, Oregon, Rhode Island, Vermont, and Wisconsin instituted either a permanent or temporary reform of personal income taxes. Another 11 states considered or enacted business tax increases to help deal with budget deficits and even more states raised other taxes or fees to address the fiscal crisis in state across the country.

The Ballot Initiative Strategy Center (BISC) notes that out of the 28 right-wing attempts by to introduce TABOR legislatively, Colorado is the only state that has adopted this disastrous policy. State lawmakers have watched as Colorado's experience with TABOR has led to an increase in the number of adults and children without health insurance and a severe decline in education funding.

Empty Threats by the Anti-Tax Right: While right-wing leaders like Grover Norquist and his Americans for Tax Reform like to make threats of punishing legislators who raise taxes, anti-tax forces have largely revealed themselves to be weak paper tigers. After New Jersey increased taxes on the wealthy in 2004, the Democratic House majority increased to its largest size in three decades the following year, while progressives in Maryland and Minnesota continued to maintain and grow strong legislative majorities in the wake of approving increased taxes on high-income earners in 2008 and 2007.

In 2009, BISC found that "[t]he Grover Norquist, Club for Growth, Glenn Beck, Tea Party crowd tried to use the bleak budget picture as an opportunity to ratchet down even harder as states look to find the revenue necessary to protect priorities, create jobs, and get their economies going-- but voters rejected that failed approach."

Even many conservative politicians have rejected these type of policies. For instance, Tom Slade, the former head of the Florida Republican party, dismisses Norquist's ideas and finds his anti-tax pledge to be illogical and dangerous. Slade states, "[y]ou don't know how wide or deep the river's going to get. Saying I'm never going to use a life boat seemed foolish to me." After a Republican State Senator from Virginia, Robert Hurt, voted for a $1.4 billion tax increase, Norquist vowed to back a primary challenge against him. Despite this, the Senator won re-election and is now favored to win the party's nomination for Congress.

Public Opinion Supports Funding Public Investments: Polling shows that 79 percent of the public believes "[g]overnment investments in education, infrastructure, and science are necessary to ensure America’s long-term economic growth." Accordingly, during an economic downturn when so many working families are struggling, voters are likely to support policies to raise revenue, strengthen public programs, and provide safeguards to those who have been hurt by the recession.

Resources:
Ballot Initiative Strategy Center - Fiscal/Budget Issues
The Oregonian - Oregon voters pass tax increasing measure by big margin
Center on Budget and Policy Priorities - Raising State Income Taxes on High-Income Taxpayers
Center on Budget and Policy Priorities - Tax Measures Help Balance State Budgets
Center for American Progress report, State of American Political Ideology, 2009: A National Study of Values and Beliefs

Debunking Myths that Taxes Undermine Economic Growth

One reason states are readily raising revenue as an alternative to more cuts is that they can turn to a wealth of examples to debunk the rhetoric that raising taxes to fund services in a state is harmful to the economy.

Taxes Do Not Undermine State Economic Growth: As we've highlighted in previous Dispatches, research consistently shows that, contrary to right-wing rhetoric, there is no link between tax increases and job loss.

States with higher personal income tax rates experienced significant job growth in the past decade, as the Fiscal Policy Institute and Center for Working Families point out in their report, Back on Track and as the Center on Budget and Policy Priorities found in a similar report.
Moreover, according to a 2008 Information Technology & Innovation Foundation analysis, states with some of the higher marginal income tax rates, including New York and Maryland, have more innovative new economy industries. Likely as a result of larger investments in infrastructure, education, and technology, these states are better suited to foster economic growth that is sustainable and well-paying in an increasingly fierce global competition for jobs.
This builds on analysis by the Institute on Taxation and Economic Policy (ITEP) detailing that states that collect the highest percentage of personal income in taxes actually sustain higher income growth.
Similarly, an older study by the California Budget Project (CBP) analyzed state economies and concludes, "[s]tates that enacted large tax cuts between 1994 and 2001 — reducing revenue by at least 7 percent — subsequently experienced weaker growth in jobs and personal income and larger increases in the unemployment rate, on average, than other states."

Progressive Taxes Don't Cause Out-Migration of Wealthy Residents: Opponents of progressive income tax reform like to argue that tax increases cause wealthy residents to leave a state. In fact, states that have increased the top rate in recent years have not experienced any significant out-migration of wealthy residents:

California: The California Budget Project found that there was a significant growth in millionaire households after California passed higher PIT rates in the 1990s and again in 2004. In fact, the number of California millionaires increased by 37.8 percent between 2004 and 2006.
New Jersey: A Princeton University report discovered that the passage of a higher top rate in 2002 had "little effect on migration patterns among half-millionaire households.”
New York: After the state temporarily raised income taxes on the wealthy from 2003 to 2005, the number of high income tax returns grew 30 percent, from 250,000 to 325,000.

A New York Times article, entitled "Taxes Not Seen as Making the Rich Flee New York" succinctly articulates:

[T]here is surprisingly little evidence to support the proposition that rich New Yorkers would bolt if forced to pay higher income taxes. Though tracking the movement of wealthy taxpayers from state to state is difficult, experts on public finance and migration say they have yet to document a substantial 'rich drain' in states that have raised income taxes in recent years.

Resources:
Progressive States Network - Taxing High-Income Residents: Better than Budget Cuts, Better for Economic Growth
Progressive States Network - Right-Wing Fraud Derails Tax Revolt
Center for Working Families and Fiscal Policy Institute - Back on Track: Why Progressive Tax Reform is an Essential Part of New York's Budget Solution
California Budget Project - Budget Cuts or Tax Increases: Which are Preferable During an Economic Downturn?
California Budget Project - The Number of High-Income Taxpayers Increased During a Period With 10 Percent and 11 Percent Tax Rates on High-Income Earners
Princeton University Policy Research Institute for the Region - Trends in New Jersey Migration: Housing Employment and Taxation
Institute on Taxation and Economic Policy - High Income Tax States Have Strong Economies

New Revenue is Needed to Invest in Economic Recovery

As 48 states confront monetary shortfalls this fiscal year, the budget will undoubtedly be the predominant focus of lawmakers. In fact, the Center on Budget and Policy Priorities (CBPP) estimates that states will face cumulative deficits of approximately $350 billion in 2010 and 2011. The downturn has also taken an enormous toll on tax revenue. Mark Zandi, Chief Economist at Moody's Economy.com, reports that state and local tax revenues have dropped 9 percent from last year, "the largest decline on record going back to just after World War II."

During an economic downturn, progressive revenue generation is far preferable to deep cuts, as it allows states to provide funding for essential programs, pump money into the economy, and protect working families in this time of hardship. A budget that relies too heavily on cuts will not only force layoffs of state employees, but will also cut off funding for crucial services and reduce spending in the private sector.

Peter Orszag, Director of the Office of Management and Budget, and Nobel prize winning economist, Joseph Stiglitz confirm:

[T]ax increases on higher-income families are the least damaging mechanism for closing state fiscal deficits in the short run. Reductions in government spending on goods and services, or reductions in transfer payments to lower-income families, are likely to be more damaging to the economy in the short run than tax increases focused on higher-income families.

As a recent report by the Economic Opportunity Institute denotes, "every dollar of state spending generates $1.41 of economic activity. Much of that spending — 62%, or 88 cents — boosts the private sector. Cutting state spending means fewer purchases from suppliers, reduced contracts with service providers, less money from public and private employee paychecks circulating through local businesses — and of course, fewer public services."

Spending on programs that assist low and middle-income families is smart economic policy. By assisting working families, who will more readily spend their funds on basic necessities, the government is boosting short-run demand and fostering market activity. For instance, Zandi finds that increasing food stamps spending creates $1.73 in demand for each dollar spent by the federal government.

Cuts Hurt the Economy: Unfortunately, several states have responded to the fiscal crisis with deep service cuts:

28 states instituted cuts that will limit low-income children's access to health care
24 states have slashed services for the elderly and disabled
36 states have reduced funding for higher education
42 states implemented cuts that affect state employees, including 26 that have hiring freezes, 14 that have announced layoffs and 26 that have decreased wages

If new revenues are not generated, further cuts will continue a cycle of job layoffs by states, lower spending on crucial programs, diminished economic growth, and deep budget cuts. The Economic Policy Institute (EPI) provides the following chart illustrating the danger of state budget cuts as they ripple through the economy; teachers, nurses and police are laid off, state funds supporting private sector activity are reduced, and individuals receiving state support stop spending in their local communities.

Working and Middle Class Families Have the Highest Tax Burdens On Average: A common misconception about state and local taxes is the idea that the wealthy have incredibly high tax burdens. The reality is the richest taxpayers have not been contributing their fair share for years. When you factor in sales and excise, property, and income taxes, states tax working families far more heavily than richer individuals, according to Who Pays?, a report from ITEP. As the graph below highlights, the lowest 20 percent of earners pay about 11 percent of their income in state and local taxes while the top 1 percent pay a little over 6 percent of their income to state and local governments.

Resources:
Additional Federal Fiscal Relief Needed to Help States Address Recession's Impact
Economic Policy Institute - Dire states--State and local budget relief needed
National Governors Association and the National Association of State Budget Officers - Fall 2009 Fiscal Survey of States
California Budget Project - Budget Cuts or Tax Increases: Which Are Preferable During An Economic Downturn?
California Budget Project - The Number of High-Income Taxpayers Increased During a Period With 10 Percent and 11 Percent Tax Rates on High-Income Earners
Fiscal Policy Institute - Balancing New York State’s 2009-2010 Budget in an Economically Sensible Manner
Institute for Taxation and Economic Policy - Who Pays?
The New York Times - Taxes Not Seen as Making the Rich Flee New York
Princeton University - Trends in New Jersey Migration: Housing, Employment and Taxation

Corporate Tax Reform and Eliminating Wasteful Economic Subsidies

Corporations should also be paying their fair share in taxes. They benefit from state investments in education, infrastructure, and public safety, but unfortunately, corporations have repeatedly and excessively exploited the tax system.

Corporate income tax revenue as a share of all taxes has fallen dramatically. In 1979, the corporate income tax accounted for 10.2 percent of total state tax revenue. In 2005, the figure fell to 6.5 percent.
The Iowa Fiscal Partnership reported that approximately half of Iowa corporations with at least $1 million of sales in state pay no corporate income tax.
Similarly, the Oklahoma Tax Commission revealed that only 35 percent of corporations filing tax returns in 2000 reported positive taxable income— almost an anomaly considering the economy experienced substantial gains that year.
The problems are similar at the federal level. A Government Accountability Office report, Comparison of the Reported Tax Liabilities of Foreign- and U.S.-Controlled Corporations, 1998-2005, found almost two-thirds of all corporations reported no tax liability from 1998 to 2005.

Accordingly, there are a variety of corporate taxation policy options legislators can pursue to ensure businesses are contributing adequately to a state.

Close Tax Loopholes: Ending some of the egregious corporate tax loopholes that businesses abuse should be a top priority for lawmakers. States lose billions of dollars each year as a result of these loopholes. For instance, states should opt out of the "domestic production deduction" tax break that was passed by the federal government in 2004 and subsequently incorporated into the tax code in several states. Currently, 25 states allow the deduction, which by 2011, will cost states $500 million annually and favors large corporations over small businesses. States can also eliminate Net Operating Loss “Carryback” Deductions, reform the “cancellation of debt income” (CODI) provision, and reform the tax treatment of S-Corporations and Limited Liability Companies.
Combined Reporting: 23 states have implemented combined reporting, which requires multi-state corporations to report profits from all entities, including subsidiaries, for tax purposes. Combined reporting is a key policy to restrict tax avoidance. The policy makes the tax system fairer, brings in greater revenue, and does not impede economic growth. In fact, CBPP finds, "combined reporting states are well-represented among the most economically-successful states in the country."

The Film Tax Credit as Case Study of Corporate Giveaways: Several states are dealing with ineffective expenditures, a notorious recent example being the proliferation of film tax credits. In 2002, only three states offered incentives to the film industry. Currently, of the 44 states that offer some type of movie production incentive, 28 provide tax credits. The Tax Foundation provides a graphic that depicts states with incentives and the year in which they were approved.

Following an explosive scandal involving members of the Department of Economic Development and abuse of the film tax credit, Iowa Gov. Chet Culver ordered a review of credits the state provides. In early January, Iowa released the Tax Credit Review Report that recommended the state:

Provide greater transparency of tax credits;
Develop an effective return on investment calculation for all tax credits;
Establish a five-year sunset for all tax credits;
Cap all currently uncapped tax credits;
And eliminate certain tax credits.

Reports by many other advocacy organizations and government bodies, including the Oregon Center for Public Policy, Connecticut Voices for Children, New Mexico Fiscal Policy Project, the Massachusetts Department of Revenue and the Wisconsin Department of Commerce, indicate that offering these tax credits are ineffective and provide little to no economic benefit to a state or its residents. The Tax Foundation writes that states are greatly overestimating the impact of providing film tax credits and basing decisions "on fanciful estimates of economic activity and tax revenue (leading to) small returns and unnecessary risks with taxpayer dollars."

Other states have taken tangible steps to address these problems:

Connecticut: Gov. M. Jodi Rell estimated that a $25 million cap for film tax credits would save the state $70 million in the next two years.
Massachusetts: Rep. Steven D'Amico introduced legislation, HB 3854, to limit state spending on incentives for the film industry.
Michigan: Gov. Jennifer M. Granholm proposed reducing the 42% refundable tax credit to approximately 37%.
Wisconsin: Gov. Jim Doyle offered a plan to completely eliminate the state's 25% film tax credit and replace it with a two-year, $1 million grant program to create permanent film industry jobs
New Mexico: Rep. Dennis Kintigh has sponsored HB52 to limit the state's spending on film tax credits.

Discontinue Excessive Corporate Subsidies: Even as states confront massive gaps, many are still doling out huge subsidies to corporations. Many times, these subsidies do not produce long-term growth and may even result in lost revenue. In North Carolina, for instance, a Dell plant closed just a few years after it received a promise of up to $300 million in grants, an amount more than twice the cost of building the plant. As Good Jobs First explains, states waste money competing for firms to locate within their borders by providing extremely costly and ineffective incentives, rather than on fostering entrepreneurship and new jobs. The report details:

[T]ax reductions, exemptions or credits exert a very small marginal influence on corporate investment decisions... For the vast majority of companies, tax breaks are windfalls, not determinants, and are therefore wasted.

As government officials look to eliminate wasteful spending, they should also rethink allocating enormous and often inefficient business tax breaks as a better option than cutting programs for their most vulnerable residents. The public money squandered through tax credits and corporate subsidies demonstrates that blind giveaways are not a sustainable model for economic growth and a more transparent budget process is needed in the future.

Resources:
Center for American Progress - The Corporate Tax Dodge
Center on Budget and Policy Priorities - A Majority of States Have Now Adopted a Key Corporate Tax Reform - "Combined Reporting"
Center on Budget and Policy Priorities - States Can Opt Out of the Costly and Ineffective "Domestic Production Deduction" Corporate Tax Break
Citizens for Tax Justice - Judging Tax Expenditures
Good Jobs First - Growing Pennsylvania's High-Tech Economy: Choosing Effective Investments
Good Jobs First - More States Yell 'Cut" on Film Tax Credits
Iowa Fiscal Partnership - Revitalizing Iowa's Corporate Income Tax
New Jersey Policy Perspective - Big Firms Get Big Breaks
U.S. PIRG - Close Corporate Loopholes
Citizens for Tax Justice - State Film Tax Credits: Next on the Cutting Room Floor?
State of Iowa - Tax Credit Study Review Report
Tax Foundation - Movie Production Incentives: Blockbuster Support for Lackluster Policy

Corporate Transparency in State Budgets

Problems due to lack of transparency in subsidy distribution, contract allocation, and hidden tax breaks are well-documented. Almost every week there is a story relating to states distributing subsidies with little to nothing to show for it, failing to save money from utilizing contractor services rather than state employees, and providing huge tax breaks to large corporations that often do not reflect the greater public interest. Additionally, states have been losing millions of dollars from declining corporate tax revenue.

Lawmakers should enact more enhanced transparency requirements. PSN is advancing a model corporate transparency bill that aims to foster more comprehensive reporting of subsidy allocation, contract distribution, tax expenditures, and corporate taxation trends. For analysis of recent cases, ideas for messaging, fact sheets, reports, and a list of allied organizations, visit the campaign resource page.

There is significant bipartisan consensus that transparency is needed for a more targeted and equitable budget process. Lawmakers across the country have been moving corporate transparency bills.

Last week, Hawaii Sen. Les Ihara, Jr. and Rep. Roy Takumi introduced a corporate transparency bill, SB2868/HB2750, intending to augment disclosure of subsidies, contracts, tax expenditures, and corporate tax trends.
This month, New Mexico Sen. Tim Keller and Rep. Eleanor Chavez introduced bills to require the state to publish an annual tax expenditure budget, SB 23 and HB82. Sen. Keller additionally sponsored SB47, which establishes transparency guidelines for economic development subsidies and mandates that the state provide a list of taxpayers receiving incentives.
Former New Jersey Gov. Jon Corzine signed S3153 into law last month, requiring the Governor to include a tax expenditure report in the annual budget address. The bill's main sponsor, Sen. Barbara Buono commented, “[w]ithout an annual accounting for the cost and effectiveness of tax expenditure spending, New Jersey lawmakers cannot develop a full understanding of the State’s fiduciary obligations and expenses, and cannot act to end ineffective and costly programs. This new law will make sure that when reviewing the State’s annual budget, we have all the information we need to put together a complete profile of expenditures.”
In 2008, the Ohio legislature passed legislation that requires the state attorney general to review economic development awards received by entities. Attorney General Richard Codray's office began the process this past October by informing over 3,000 entities that they must provide his office with information, such as actual jobs created, efforts to attract minority or disadvantaged workers, and wage law compliance.

Resources:
Progressive States Network - Corporate Transparency in State Budgets

Expanding the Sales Tax Base

If states facing yawning deficits do need to enact broader-based revenue increases, another option is to extend the state sales tax to more services and to goods purchased over the Internet.

Broadening the Sales Tax by Including Services: The current sales tax in most states is outdated, designed for an industrial economy where most consumer spending went to buying goods, rather than services which remain largely untaxed in most states.

Services represent a broad range of industries that increasingly represent a much larger share of market activity including, medical, dental, automotive, telecommunications, home care, consulting engineer, dry cleaning, physical training, real estate, personal care, and residential utility services. As CBPP explains, expanding the sales tax to services, "makes state tax systems fairer, more stable, more economically neutral, and easier to administer."

Moreover, because state sales taxes are a major source of funding for schools, universities, health care, public safety, and other functions of state and local government, adding services to state sales tax bases can help states maintain their support for those functions, for instance during an economic downturn when state revenues are declining." Expanding the sales tax base will also help states avert unfavorable tax increases down the road. CBPP estimates that broadening the sales tax base could yield a total of $87 billion nationwide.

In the past few years, lawmakers proposed or enacted sales taxation on certain services.

Nebraska Sen. Cap Dierks introduced LB 1066, a measure to broaden the sales tax to services this January. Some of the services outlined in the bill include garment alterations, armored-car services, barber and beauty services, all farm-equipment repairs, financial institution, dating services, garbage collection and recycling services.
In June 2009, Maine passed legislation to broaden its sales tax to amusement, entertainment, recreation, installation, repair, and personal property services. The measure is estimated to generate $41 million in FY2010, representing 4.4 percent of projected sales tax revenue collections.
New Jersey implemented an expansion of its sales tax to some services in 2006.

Implement the "Amazon tax": States lose billions every year due to the "inability to collect all sales taxes that are legally due on purchases made over the Internet." In 2008, New York became the first state to require online retailers to collect sales tax on purchases to customers in the state. The state changed its tax code to mandate that an out-of-state retailer with more than $10,000 a year in sales generated through sales affiliates in the state has nexus and must collect sales and local taxes. After the bill's passage, Amazon.com immediately sued, but lost the case. The state expects to generate $47 million from the "Amazon tax." Rhode Island followed New York's lead and passed the Amazon tax last year. This year, New Mexico Rep. Eleanor Chavez sponsored HB 50 to extend the state's gross receipts tax to online sales.

Resources:
Center on Budget and Policy Priorities - Expanding Sales Taxation of Services: Options and Issues
Center on Budget and Policy Priorities - Maine Could Tax more Services under Its Sales Tax
Center on Budget and Policy Priorities - Amazon’s Arguments Against Collecting Sales Taxes Do Not Withstand Scrutiny
Center on Budget and Policy Priorities - New York's "Amazon Law": An Important Tool for Collection Taxes Owed on Internet Purchases

Conclusion

Given the fiscal and economic crisis facing states, public investments in jobs and services for those in need are critical. Lawmakers should not be intimidated by the virulent rhetoric of the anti-tax movement and ensure that everyone, including corporations and wealthy individuals, are contributing their fair share. Progressive approaches to raising revenue is not only effective and economically productive, but also popular with the public, especially compared to the alternative of slashing needed education, health, public safety and infrastructure investments.

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In Wake of Scandals, Lawmakers Seek to Limit Film Tax Credits

Altaf Rahamatulla — Thu, 08 Oct 2009 17:36:21 +0000

Two weeks ago, both the Director and Deputy Director of the Iowa Department of Economic Development (IDED), Mike Tramontina and Vince Lintz, resigned abruptly, and the manager of the Iowa Film Office, Tom Wheeler, was forced to step down following allegations of corruption and abuse of public funds. Specifically, an internal IDED audit discovered issues with the state’s film tax credit including improper oversight, the purchase of luxury vehicles unnecessary for the completion of films, and filmmakers claiming payments for multiple production jobs.

Concerned that an agency could so frivolously misuse taxpayer dollars as the state continues to search for methods to alleviate the fiscal crisis, Gov. Chet Culver temporarily suspended the program and Iowa lawmakers released information regarding applicants and recipients of film tax credits, which is normally not disclosed publicly.

This will certainly spur review of Iowa's tax credit program and disclosure policy. Transparency will allow Iowa to better evaluate whether or not the program provides sufficient social, economic, and fiscal benefits. Such accountability measures are undoubtedly necessary as state expenditures on business tax credits have increased at more than three times the rate of economic growth.

A National Film Credit Problem: This problem is not limited to Iowa, as reports by advocacy organizations and government bodies, including the Oregon Center for Public Policy, Connecticut Voices for Children, New Mexico Fiscal Policy Project, the Massachusetts Department of Revenue, and the Wisconsin Department of Commerce, have found that offering these tax credits are ineffective and provide little to no economic benefit to a state or its residents. Other states have taken tangible steps to address these problems:

Connecticut: Gov. M. Jodi Rell estimated that a $25 million cap for film tax credits would save the state $70 million in the next two years.
Massachusetts: Rep. Steven D'Amico introduced legislation, HB 3854, to limit state spending on incentives for the film industry.
Michigan: Gov. Jennifer M. Granholm proposed reducing the 42% refundable tax credit to approximately 37%.
Wisconsin: Gov. Jim Doyle offered a plan to completely eliminate the State's 25% film tax credit and replace it with a two-year, $1 million grant program to create permanent film industry jobs.

Eliminating Wasteful Tax Credits as a Budget Solution: According to the Center on Budget and Policy Priorities, Iowa had to close a $779 million gap coming into FY2010 and will likely face fiscal problems this year as well. This bleak projection is compounded by the $141 million, or 9.1%, decrease in overall state receipts in the past three months as compared to the same period last year. As government officials in Iowa and other states try to root out wasteful spending, they should also rethink allocating enormous and often inefficient business tax breaks as a better option than cutting programs for their most vulnerable residents. The public money squandered in this tax credit scandal demonstrates that blind giveaways are not a sustainable model for economic growth and a more transparent budget process is needed in the future.

Resources:
Oregon Center for Public Policy - OCPP Calls for Audit and Investigation of Film Subsidy Program
Connecticut Voices for Children - Fiddling While Rome Burns
New Mexico Fiscal Project - Economic Development Tax Credits: Are They Doing the Job in New Mexico?
Massachusetts Department of Revenue - Report on the Massachusetts Film Industry Tax Incentives
The Business Journal of Milwaukee - Commerce study slams film incentives
Wisconsin State Journal - Study: Film incentives cost 20 times more a job than other state programs
Citizens for Tax Justice - State Film Tax Credits: Next on the Cutting Room Floor?
Good Jobs First - More States Yell "Cut" on Film Tax Credits
Rep. Steven D'Amico - A Primer on the Massachusetts Film Incentives
Iowa Fiscal Partnership - Iowa Budget Belt-Tightening: Focusing on the Largest Wheels

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Assuring Accountability and Equity in Recovery Spending

Nathan Newman — Mon, 01 Jun 2009 16:20:48 +0000

In January, Progressive States Network highlighted the many reasons Why States Need to be a Focus for Any Economic Recovery Plan. Without help, states would catastrophically slash both spending and payrolls, deepening the economic crisis in communities across the nation, while undermining the investments needed to revive the economy in the long-term.

But we have also emphasized that any stimulus spending has to be tied to increased accountability and transparency in spending decisions, especially by government contractors who often operate like a shadow government with little oversight. One key reality, as this Dispatch will highlight, is that those most in need often don't receive help from government spending without transparency and accountability measures built into the rules. While the recent federal recovery plan made real strides in expanding such accountability, additional measures are still needed if the recovery plan is going to deliver real equity in our economic recovery.

- Assuring Recovery Funds Address Immediate Crisis

- The Link Between Accountability and Equity

- Demanding Transparency and Accountability in the States

- Conclusion

Assuring Recovery Funds Address Immediate Crisis

As the Center for Budget and Policy Priorities outlined in a recent report, federal aid is covering roughly 30-40 percent of state budget shortfalls. Virginia, for example, has been able keep open three mental health facilities, reverse a planned cut in Medicaid payments, lessen reduction in universities aid, avoid a major education budget cut, and avoid laying off an estimated 310 deputy sheriff positions.

For the economy, some of the most immediate money flowing into states is via the expansion of food stamps benefits in the recovery plan: 32.5 million people in April got a 13.6 percent monthly increase in benefits, averaging about $20 per person. Since the federal government pays 100% of food stamp benefits, states that vigorously sign up people who qualify can stave off some need to use other benefits directly funded by the states. While many states are stepping up outreach efforts, only 60 percent of eligible Americans received food stamps in 2004, the most recent year data are available. Signing up more people is a direct way to expand federal stimulus spending in states.

Assuring States Maintain Spending to Fuel Consumer Demand: While the federal government is dramatically expanding support for programs like education, food stamps, and Medicaid for state governments, the key caveat is that states can't use the funds just to paper over state cuts for the programs. In using state fiscal stabilization funds, states must assure that in fiscal years 2009, 2010, and 2011, they will maintain state support for elementary, secondary and public higher education institutions at fiscal year 2006 levels. The goal is to assure that the federal stimulus to expand the economy is not just undermined by state governments cutting spending -- avoiding what economist Paul Krugman calls "fifty Herbert Hoovers" promoting austerity economics and deepening the economic downturn.

"States Rights" versus Accountability: Some state leaders like Texas Governor Rick Perry have tried to argue that any conditions on federal money is a violation of states rights; Perry even supported a resolution asserting "sovereignty" for the state of Texas and arguing all federal legislation that "requires states to pass legislation or lose federal funding be prohibited or repealed." It is a bit strange to see some conservative leaders -- who usually argue that government spending should be tied to reciprocal responsibility by recipients -- suddenly demand that federal dollars be a blank check with no accountability for states receiving it. Of course, even most conservative leaders have agreed to the accountability measures required to qualify for funding under the federal recovery act. Ironically, South Carolina Governor Mark Sanford -- who is seeking to reject $700 million in education spending approved by his own state legislature -- has argued that federal courts, rather than state courts which are not seen as sympathetic to his position, should decide whether the governor can prevent the state from spending the money.

Fight over Unemployment Funds: That the strongest resistance to federal funds has come over funding unemployment insurance for many of the poorest unemployed workers is evidence that the fight over "states rights" is actually a fig leaf for ideological attacks on those most in need. As the National Employment Law Project has documented, incentives in the recovery act to encourage states to extend unemployment benefits to poor and part-time workers often excluded from unemployment systems, has been a major success of the recovery plan, with states across the country reforming their laws to improve equity in their systems. While both Republican and Democratic leaders in many states have readily expanded such benefits, it is a few ideologues on the right, such as Perry in Texas or Gov. Bobby Jindal in Louisiana, that have used the unemployed as whipping boys for their rhetoric. Even as many families continue to suffer post-Katrina in the state, Jindal chose to forego $100 million in federal unemployment dollars, as legislators have labored to override his opposition to unemployment insurance modernization. As Dan Lavoie of Policy Link argues, "This is a looming disaster for folks who’ve had too much disaster in their lives already."

Resources:
ProPublica - Stimulus Infrastructure Funding Short-Changes States With High Unemployment
Center for Budget and Policy Priorities - Federal Fiscal Relief for States Is Working As Intended: The Cases of New York and Virginia
U.S. Department of Education - Guidance on the Maintenance-of-Effort Requirements in the State Fiscal Stabilization Fund Program
National Employment Law Project - Modernizing Unemployment Insurance--The American Recovery and Reinvestment Act
Policy Link - Thousands to Protest Jindal Stimulus Rejection

The Link Between Accountability and Equity

The exclusion of many of the working poor from unemployment insurance systems is just part of the broader problem of equity in in state spending and assuring that the federal recovery plan is directed to reviving communities hardest hit by the global economic downturn. Unfortunately, state-by-state analysis of federal transportation recovery funds by the independent research organization ProPublica finds that "the higher a state’s unemployment, the less money it gets." States with the most people out-of-work are seeing fewer job openings on transportation projects.

Within states, the same phenomena seems to be happening. By basing dollars spent on transportation money on whether a community has "shovel ready" construction projects, the law has bypassed some communities with the highest unemployment. In Indiana:

An analysis of Indiana's per-capita transportation stimulus dollars committed through this month shows that of the state's 10 counties with the highest unemployment rates, three have received no funding, and four have received less than $37 per person, the median amount given to counties that did receive funding.

Building Equity into Transportation Budgets: Richer communities often already had more money in the pipeline for new projects, so they had "shovel-ready" projects ready to be funded. As a report by Policy Link and Transit Equity Network argues, "There is serious concern that the timeline for spending recovery dollars will reinforce historic inequities by concentrating funds on ex-urban highway projects versus maximizing low-income community benefits through investment in transit, pedestrian, and bicycle infrastructure." As report co-author Radhika Fox, an Associate Director at Policy Link argues:

Historically, the deck has been stacked against transportation projects that can improve the lives of low-income people and people of color. To ensure that the federal recovery package does not continue this imbalance, advocates and community leaders must be ready and prepared to fight to ensure their communities get a fair share of the recovery dollars.

“Accountability in government spending is job number one when it comes to the stimulus,” said Laura Barrett, national policy director for the Transportation Equity Network. “The nation's governors must make sure that all stimulus-spending targets distressed communities and brings jobs to low-income people, women and minorities. The public needs to know who got the jobs and who can be held accountable."

Lack of Data Has Held Up Addressing Inadequate Teaching in Poor Schools: Transparency in spending decisions is also the key to actually making sure poor schools receive the help they have usually been denied in the past. The stimulus measure’s provision on equitable distribution of teachers is identical to language in the federal No Child Left Behind Act that requires states to put plans in place to ensure that poor and minority students aren’t taught disproportionately by out-of-field, inexperienced, or unqualified teachers. Not much momentum on this goal was made under President George W. Bush, some experts say, in part because of states' archaic recordkeeping, a former Bush administration official indicated. “It was difficult to move the needle on teacher-quality efforts in the states at the time,” said M. René Islas, who oversaw the issue at the Education Department between 2002 and 2006. “They lacked the data systems and the incentive.”

Greater accountability and greater transparency in data for the recovery plan is a necessary step in making it possible for low-income and minority communities to be able to demand equity in the distribution of funds.

Resources:
Policy Link and Transportation Equity Network - An Engine of Opportunity: A User’s Guide to Advocate for Transportation Equity in the 2009 Recovery Act
Education Week - Stimulus Bill Spurs Focus on Teachers: Language on Fair Distribution, Effectiveness Offers Policy Clues

Demanding Transparency and Accountability in the States

Recognizing the need for broader accountability in the federal recovery plan, advocates have formed States for an Accountable and Transparent Recovery. In this effort, Progressive States Network has joined with a number of key allies -- including the Apollo Alliance, Center for Community Change, Common Cause, Consumer Federation of America, Good Jobs First, National Employment Law Project, National People's Action, OMB Watch, Partnership for Working Families, Policy Matters Ohio, Right to the City, Smart Growth America, Transportation Equity Network, U.S. PIRG, and Wider Opportunites for Women -- to work for both greater equity and accountability as the recovery plan is implemented in states across the country.

Limits of Federal Transparency Rules: The ARRA includes a wide range of accountability provisions and created a Recovery Accountability and Transparency Board. President Obama has announced that Vice President Joe Biden will “oversee the Administration’s implementation of the Recovery Act’s provisions." The Vice President issued his first quarterly ARRA progress report on May 13.

President Obama has made a broad commitment to create transparency for federal spending, but the problem is that as funds move from federal government to state to local government to hired contractors, the data to assure accountability starts to disappear. As the Washington Post highlighted in a recent article:

The Office of Management and Budget requires stimulus spending to be reported by primary and secondary recipients, but in many cases, this means the reporting will stop short of the contractors and subcontractors that are hired to do the work. For instance, if a state allocates transportation money to a local authority, such as Metro, that authority would not necessarily have to disclose what contractors were hired.

Earl E. Devaney, the Interior Department Inspector General who has been placed in charge of stimulus oversight, admits, "The law doesn't require [recipients] to go to the depth that people imagine it does."

State Accountability Sites: The States for a Transparent and Accountability Recovery site has a state-by-state review of accountability practices in each state, including overviews of state-level recovery act websites and other government-run accountability sites, how coordination and oversight for the recovery plan is being administered in each state, the in-state policy debates on the recovery plan, as well as a list of state watchdog groups and other resources. Some states are providing greater transparency than others, yet almost none yet provide the level of detail needed to monitor either the overall equity in distribution of funds or what contractors are really doing with the funds they receive.

Expanding Transparency and Accountability in the States: As PSN outlined in February, there are a number of models for state leaders seeking to expand transparency in their recovery and state contracting systems. These included:

Good Jobs First's model language for economic subsidy data collection
Contractor and subcontractor data collection language from Oregon's proposed HB 3366
Online transparency language from Massachusetts' proposed Act Relative to Transparency in State Revenues and Expenditures

As we emphasized, not only do such accountability measures assure that money goes where intended, they can actually save states money by streamlining spending decisions and eliminating spending abuses that thrive in secrecy.

Funding Transparency: One area where the federal government can step up is in making funding of state accountability systems a greater priority. An April Government Accountability Office report found that state funding for oversight was a problem:

Officials in most of the states and the District expressed concerns regarding the lack of Recovery Act funding provided for accountability and oversight. Due to fiscal constraints, many states reported significant declines in the number of oversight staff—limiting the ability to ensure proper implementation and management of Recovery Act funds.

If the feds are going to spend hundreds of billions of dollars on the recovery plan, providing the funds to protect and expand the capacity of states to build better accountability systems would be money well spent.

Resources:
Progressive States Network - Transparency and Economic Recovery: What States Are Required To Do and Why They Should Do It
States for an Accountable and Transparent Recovery
Coalition for an Accountable Recovery
Education Week - Initial Aid Is Puzzle to Track: Transparency Proves Elusive as Stimulus Funds Flow
ProPublica - Tracking States' Spending Sites

Conclusion

Accountability and transparency are not just "good government" issues. Without such measures, money inevitably flows to those who already have political and economic power. Only with clear accountability rules -- and data collected to assure such rules are being implemented -- will we see recovery funds go to those most in need and the money used to address the real problems of economic inequality in communities across our country.

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Report: Stop Retailers Pocketing over $1 Billion in Sales Tax Revenue

PSN — Tue, 25 Nov 2008 17:30:27 +0000

According to a new study by Good Jobs First, state and local governments lost over $1billion in sales tax revenue last year as a result of laws that allow retailers to retain a percentage of the sales tax they collect.

The study, Skimming the Sales Tax: How Wal-Mart and other Big Retailers (Legally) Keep a Cut of the Taxes We Pay on Everyday Purchase, finds that 26 states provide retailer compensation, and 13 of those states have no limit on the amount that individual businesses can retain. States without caps lose significant amounts of sales tax revenue annually; Illinois loses $126 million, Texas loses $89 million, Pennsylvania loses $72 million, and Colorado loses $68 million.

Good Jobs First Executive Director Greg LeRoy highlights the problematic nature of these polices, particularly as state and local governments face severe budget shortfalls, "This legal skimming is depriving governments of desperately needed revenue."

The practice of retailer compensation, often referred to as "vendor discount" or "dealer collection allowance" was first implemented when business records were kept by hand, and it was intended to compensate business owners for the additional burden of collecting sales tax on behalf of the government. Despite the advent of new technologies that greatly decrease this burden, outdated compensation policies remain in place in many states.

Large retailers, such as Wal-Mart, which receives an estimated $60 million per year from retailer compensation programs, benefit disproportionately from these laws, as the major costs associated with collecting sales tax are fixed costs (such as software programs) that do not rise with increased receipts.

In addition to addressing concerns regarding the existing retailer compensation practices, Good Jobs First also notes that states that currently do not provide compensation may have to do so in the future in order to participate in a new sales tax system for interstate transactions created by the Streamlined Sales and Use Tax Agreement (SSUTA). Proposed federal legislation (H.R. 3396 and S.34) to facilitate the collection of sales tax on interstate transactions requires states to provide "reasonable compensation" to all retailers, not only to those selling across state lines. The legislation does not explicitly define "reasonable compensation," and thus, it will be up to state policymakers to address this issue.

Good Jobs First also continues its investigation into economic development subsidies, which include sales tax rebates and sales tax increment financing (STIF), that result in significant revenue losses for local governments. Although national data is not available on such subsidies, the study finds that Wal-Mart projects have received a total of $130 million from sales tax-based subsidies over the past decade.

In light of the research presented, the study concludes with three main policy recommendations:

Put Limits on Current Retailer Compensation
Plan for Prudent Compensation Levels under SSUTA
Save Economic Development Subsidies for Truly Needy Areas

Given the current economic climate, it is critical that states make wise policy decisions regarding retailer compensation and economic development subsidies in order to reduce the amount of sales tax revenue that is lost by such practices and to protect essential public services that depend in part on this revenue.

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Dos and Dont's of Coping With State Budget Crises

Nathan Newman — Tue, 19 Feb 2008 11:40:14 +0000

The budget news is grim in some states. Twenty states face a combined budget shortfall of at least $35 billion for 2009, according to analysis by the Center on Budget Policy & Priorities (see CBPP graph below). Another 8 states will likely have budget problems next year or the year after.

The impulse by some state leaders is to slash state spending, but that could be disastrous for the economy if multiple states lay off state workers and cut-off help to those in need just as private spending is falling.

In fact, the right kind of revenue increases may be just what is needed for economic recovery. As Nobel Prize winning economist Joseph Stiglitz of Columbia University, and Peter Orzag, now the director of the Congressional Budget Office, have emphasized, budget cuts during a recession will usually hurt state economies far more than tax increases, since cuts come dollar-for-dollar out of the economy, while tax increases, especially if targeted at the wealthy, often "reduce saving rather than consumption, lessening its impact on the economy in the short run."

This Dispatch is designed to be a primer on what states can do to ease the burden on working families in distress, while asking wealthier taxpayers and corporations to shoulder their fair share during tough times.

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Have Wealthy Pay Fair Share, Cut Taxes for Working Families

The sad truth is that almost every state tax system requires working families to pay a higher percentage of their income in taxes than their wealthier citizens. In fact, as the Institute on Taxation & Economic Policy detailed in their 2003 study, Who Pays?: "[O]nly four states require their best-off citizens to pay as much of their incomes in taxes as middle-income families have to pay." As the graph below from ITEP shows, the average family pays significantly more of their income in state taxes than the wealthy.

States can actually raise revenue, protect social services and actually make the tax system fairer all at the same time.

Strengthen Progressive Income Tax: Creating higher tax brackets for wealthier taxpayers should be the prime tool for easing budget crises. For example, back in 2004, as New Jersey struggled with both a budget deficit and calls to lower the property tax burden, the state created a new 8.97% tax bracket for those making $500,000 per year or more. Only 30,000 households saw a tax increase, even as 1.8 million households saw a tax cut. Similarly, the Minnesota legislature approved a plan last year -- unfortunately vetoed by their governor -- that would have cut taxes for 90% of the populace while raising revenue with a new 9% tax rate for married couples making $400,000 per year or more. Both of these examples show that a fairer tax system can help middle class families without gutting social spending.

One other tool to help increase fairness in the tax code is creating or increasing State Earned Income Tax Credits to ease the tax burden on lower-income working families. It is worth remembering that in an economic slowdown, such tax cuts for working families will have the most immediate impact on the economy, since low-wage working families invariably have to spend those tax savings on immediate needs, usually at local retailers or other local services to strengthen local economies.

Circuit Breakers, Not Property Tax Caps: With the housing market meltdowns, we are seeing more proposals for across-the-board caps on property tax rates-- a bad idea that delivers most of the tax benefits to wealthier property owners who least need the help. Instead, a better approach are Property Tax Circuit Breakers, which limit property taxes to a percentage of a taxpayer's income, while fully taxing the property of wealthy homeowners. A new study from Connecticut emphasizes why circuit breakers, along with other reforms, are far better than a tax rate cap proposed by the governor in that state.

Broader-Based Sales Taxes: While sales taxes often contribute to tax inequality, they can be made fairer by broadening the tax base of goods and services covered, especially with an eye to taxing legal and financial services used more heavily by richer consumers. In dealing with its budget crisis last fall, Michigan approved a new budget that combined an increased income tax with expanding the sales tax to cover more services. See this New Jersey Policy Perspectives report on the wide range of services that different states tax.

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Cut Corporate Loopholes, Not Social Services

One reason social services face funding crises is that since 1980 state corporate income tax revenues have dropped from 9.7% of all state taxes down to just 5.7% by 2000. A 2005 study by Citizens for Tax Justice found that 252 of America's largest corporations failed to include two-thirds of their U.S. profits on state tax returns, avoiding an estimated $41.7 billion in state corporate income taxes over three years. (See CTJ chart to right for the low effective tax rate on corporations).

Corporate income taxes are often the main tax that out-of-state corporations and their shareholders pay for the public benefits enjoyed by those companies, so many states are increasingly using a variety of tools to have corporations pay their share.

Combined Reporting: States are increasingly requiring companies to use combined reporting, listing profit reports for all subsidiary companies together on state tax forms to prevent shell games where companies hide profits through phony transactions among different corporate entitites. Wal-Mart alone may have avoided $2.3 billion in state taxes between 1999 and 2005 through such gaming of the tax system--- something combined reporting can shut down.

Docoupling: States can save revenue just by refusing to automatically grant special interest tax breaks handed out by the federal government by "decoupling" their tax code from the feds. For example, at least 23 states would save $1.7 billion in revenue if they refuse to implement the "bonus depreciation" corporate tax break put into the recent federal stimulus package. Similarly, some states have already rejected one particular federal loophole, the "Qualified Production Activities Income" (QPAI) deduction, because it threatens to cost states over $1 billion per year as it is phased in.

Oil windfall taxes: A number of groups have advocated state Windfall Profits Taxes to capture the outsized oil company profits. Such a tax could raise billions for state coffers-- $500 million per year for the State of Washington alone according to the Economic Opportunity Institute, revenues which could be used to offset many of the environmental costs of fossil fuel use.

Tax disclosure: To highlight exactly which companies are abusing the tax code, states should require all large corporations to disclose whether they are paying their fair share of taxes on profits earned. In Requiring Corporate Tax Disclosure, the Center on Budget Policy & Priorities has outlined a model plan for how states can design such tax disclosure policy to allow legislators and tax authorities to identify likely corporate abuses more easily.

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Prune Economic Development Subsidies, Protect Social Investments

Too often, state leaders think handing out fat economic development checks to large companies is the route to economic growth. However, as author Robert Lynch outlined in Rethinking Growth Strategies, state and local taxes and development subsidis are too small a part of a typical company's costs to determine plant location, so any cuts in public services needed to pay for them are likely to cost more jobs than any jobs potentially attracted by economic development subsidies.

The worst thing to do during temporary hard times is to cut back on the investments in education, university research, physical infrastructure, and worker training that DO determine where companies want to do business in the long term. As CFED's A Progressive Economic Development Agenda for Shared Prosperity argues, low-tax strategies are a "get poor" strategy where the better approach to "local competitiveness needs to focus on meeting the workforce and infrastructure requirements of the New Economy..."

Unfortunately, billions of dollars are offered to large corporations in exchange for only a handful of jobs, instead of using those funds to invest in long-term upgrading of human and physical capital that could payoff in far more job creation.

The organization Good Jobs First has been the national leader in highlighting the problem of economic development giveaways. For example, its Illinois affiliate publicized problems in the Illinois subsidy program and then helped pass groundbreaking accountability legislation in 2003. One result of the new law is the Illinois Corporate Accountability website which tracks reports on every firm receiving different kinds of tax subsidies, the jobs they promised to create or retain, and the results year to year. Other leading states like Minnesota and Maine have enacted disclosure laws to track individual economic development deals and make the information accessible to the public. (See this study evaluating disclosure in different states.)

Good Jobs First also promotes model subsidy reform legislation with language requiring reporting and disclosure of subsidy information; the creation of quality jobs and a cap on the total subsidy amount; and recapture of subsidies in cases where companies are found noncompliant. When states enact legislation to review and disclose these deals, they then have the information needed to eliminate or reform overly generous subsidy programs to better serve a variety of community needs. And if states dump all the bad corporate giveaways, they'll actually have the funds for more effective economic growth programs.

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Conclusion

All of the above are key guidelines for managing shortfalls in revenue without cutting social services or long-term investments in state growth. As economic slowdowns hit state revenues, cutting off support for those whose family budgets are taking a hit themselves is not the answer. Instead, the real solution is to ask those who have done especially well during the good times to contribute more when things get tougher-- and gives states a chance to make regressive tax systems just a bit fairer over the long-term.

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Ranking the States on Online Disclosure of Govt Contracts, Subsidies and Lobbying

Nathan Newman — Thu, 15 Nov 2007 13:44:00 +0000

In the age of Google, citizens expect to be able to find core information on the Internet about government operations, but as a major new report being released today highlights, most states are failing on public transparency.

The report, The State of State Disclosure: An Evaluation of Online Public Information About Economic Development Subsidies, Procurement Contracts and Lobbying Activities, was prepared by Good Jobs First, which has been bird-dogging government giveaways of taxpayer money to corporations for years. The report surveyed state government websites and ranked them in three areas of transparency: government contracts, economic development subsidies, and lobbying disclosure.

While a few states have good public disclosure policies -- although none are perfect -- the sad reality is that the majority of states rated an F for failure in Good Jobs First rankings. Some states had pretty graphics and little data, while many others had only partial information online.

Who were the standout states with the highest overall rankings for online transparency? Connecticut, Indiana, Nebraska, New York and Missouri.
And which were the bottom-of-the-barrel in failure of disclosure? New Hampshire, South Carolina, Alabama, and (bringing up the rear) Wyoming.

In the report, Good Jobs First has links analyzing each state's disclosure practices here:
http://www.goodjobsfirst.org/news/article.cfm?id=338

While some states do a decent job on listing public contracts and lobbying activity, the biggest failure among almost all states is a lack of online information about which companies are getting economic subsidies from state governments. Even when states do disclose the existence of such deals, they often list only projected costs without listing projected benefits, making it impossible for taxpayers to even start to evaluate if they are worth the money handed out by economic development offices.

The good news is that states are increasingly enacting disclosure laws, the most recent example being New Jersey which just approved a new law to create company-specific reporting about individual deals and a "Unified Development Budget" to track total state spending on such subsidies.

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Economic Subsidy Recipients Who Fail on Job Promises to be Held Accountable in NY

Nathan Newman — Thu, 02 Aug 2007 12:20:00 +0000

State creates economic development program to encourage business investment in the state. State hands out billions in economic subsidies. State finds out many companies have taken the cash and failed to deliver on promised jobs.

This precise scenario is all too common in so many economic subsidy programs across the country.

But this week, New York took action to hold as many as 3000 companies accountable for the job creation promises they made through their "Empire Zone" program. The Empire State Development Corporation, which oversees the program, sent out letters to companies that had met less than 60% of their job creation goals saying that they may lose the tax breaks they received under the program. Companies sent letters include Wal-Mart, Lowe's and a range of other businesses across the state. These companies received over $3 billion in tax breaks since 2000, which shows both how badly the program had drifted and the seriousness of the new Spitzer administration in taking on the problem.

This action came two weeks after a report by consulting firm A.T. Kearney found that a program meant to help revitalize pockets of poverty had allowed new tax-subsidized zones to proliferate with little accountability based on "political patronage" and "commercial manipulation." A coalition in New York led by Jobs with Justice has been campaigning more generally to revise economic subsidies in the state, so this new drive by the Governor for accountability in development funds is welcome.

New York is hardly alone with this problem and there are good legislative solutions, with over twenty states enacting various forms of "clawback" provisions to make companies payback development funds when they fail to deliver on job promises. Notably, after studies showed that Minnesota was handing out high levels of subsidies with poor returns, that state enacted what many consider model legislation to enforce accountability standards on companies receiving public funds-- and require them to give the money back if they fail to deliver on promised quality jobs for their communities.

Hopefully, New York can learn from Minnesota's experience and create new rules to assure that economic subsidies actually build the state's economy, not just reward politically agile corporate lobbyists.

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Target's Tax Subsidies Under Scrutiny After Chicago Living Wage Fight

PSN — Thu, 17 Aug 2006 13:56:00 +0000

Target management apparently didn't get the memo. Faced with stagnating wages and increasing inequality, American workers and taxpayers are waking up to the big box gambit where irresponsible employers subsidize their low wages through favorable tax packages. When Target threatened to stop opening new stores in Chicago if the Windy City gave final approval to its ordinance requiring a living wage for retail workers (see this Dispatch for more details), it opened up a new debate over why cities are offering low-wage retail stores tax subsidies in the first place. As a new report produced by the Neighborhood Capital Budget Group documents, Target received $9.9 million in tax-increment financing (TIF) to subsidize its existing stores in Chicago.

The fight has spilled over to Target's home state, Minnesota, as Good Jobs First details:

Labor and community organizations are putting together a coalition to lobby the state legislature to end tax-increment financing (TIF) for retail projects in Minnesota. Angered by the position of Target Corp. in Chicago, United Food and Commercial Workers Local 789 President Don Seaquist said: "Taxpayers can no longer allow TIF to be used by retailers that don't pay a living wage, don't provide health care and aggressively deny their workers a voice at work."

Labor is working with ACORN and TakeAction Minnesota, the latter an organization with a long history of working to pass path-breaking economic subsidy disclosure reforms in Minnesota. If Target is going to resist paying decent wages, activists in Minnesota want reforms to end subsidies for Target or any company that doesn't use public money to promote decent jobs.

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Supremes May Undercut State Tax Powers

Nathan Newman — Thu, 02 Mar 2006 16:26:00 +0000

State governments offer businesses tens of billions in tax incentives each year to invest in their states-- corporate subsidies that many advocates see as wasteful giveways but that others see as a lifeline for their communities.

But the political debate could be irrelevant if the Supreme Court upholds a lower court's decision which declared an Ohio tax subsidy program unconstitutional.

Challengers to the Ohio tax system cite the "negative Commerce Clause" powers of the federal government as preventing states from giving tax preferences to in-state investments. This is part of a constitutional trend that has increasingly gutted state powers to regulate economic activity in their states, whether in the name of federal Commerce Clause powers or under federal laws regulating "free trade." These decisions undercutting state powers come with no real democratic debate at either the state or federal level, instead leaving it to the courts to strike down laws under abstract constitutional or free trade theories.

Progressive advocates are divided on the merits of many specific tax subsidies -- especially since the tax breaks to businesses actually exceed the corporate income taxes paid to the states -- but the larger trend of federal court preemption of state powers is disturbing, especially in the hands of the current conservative Supreme Court majority.

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