| Republicans always claim that their "answer" to every problem is tax cuts for the rich. What individuals and small businesses need to understand is that those tax cuts don't go to people who need them the most, or to people who think they are rich but aren't even close, in comparison to the top billionaires in the country who get the vast majority of the tax cuts. (The top 200 richest individuals in the country became $640 BILLION richer under the Bush (Jr.) Administration. How did you fare during that same time period?) The tax cuts which Republicans enact, are the ones which put even more tax burden on individuals and small businesses who are more likely to be middle-income, because they are paying for the tax cuts which benefit the super rich. Two-thirds of all businesses in Wisconsin and in the nation, don't pay any income taxes at all, because of tax loopholes or other exemptions. That has led to a huge reduction in tax receipts to the state and federal governments, which are needed to pay for our nation's infrastructure. Without those receipts, taxes have to go up on those businesses who DO pay taxes, or services go down. That has led to a downward spiral in government services, and an upward spike in costs to average Americans. And because some costs have to be covered whether there are tax receipts to pay for them or not, some communities have resorted to other means of collecting taxes, in the form of fees from people who need the services - like billing the families of people who needed a rescue crew, or firefighters to respond to emergencies, to cover the expenses and wages of the personnel involved in the response. This is nothing new. During the Reagan Administration, while Republicans were bragging about cutting taxes, they were actually creating "alternative means" to cover expenses which taxes usually covered, by increasing fees across the board, like in filing or permit fees, which companies have to pay on an annual basis. Those fees mean nothing to large businesses, but could bankrupt small businesses, because the new fees often outweighed the value of the services provided. But it also meant that only the larger companies could afford to continue to provide those services which those filing fees or permits authorized them to provide. It funneled the consumer purchasing towards only those large companies, which drained that income, now lost, from the smaller companies who could no longer compete. And many government bureacracies were made to be even more difficult for average people to navigate through, because insiders in those bureaucracies intentionally created those roadblocks to make it more difficult for businesses to get anything done. Then they created "private consulting firms" made up of former employees of those bureaucracies who could tell you how to resolve the problems you are having with the same bureaucracies which they created, for a fee - of course. All that, even though your tax dollars were supposed to cover the administration of those services in the first place. During the Congressional debates on how to stimulate the economy in late 2008, Republicans argued that provisions in the stimulus should be included, which would provide tax amnesty to individuals and corporations who/which had illegally held income in offshore banks in order to hide them from U.S. taxation. One Republican Congressman even went so far as to say that it would amount to as much as $20 TRILLION dollars being repatriated into the country. All we had to do was to waive all tax penalties and prison time. "Now we have $12 trillion of working capital moved offshore because our tax system has chased it away"...
and again later...
"And I do believe when you have an economy that brings that $12 trillion that's parked offshore -- bring it back to this country, then you have a true economic stimulus, more people going back to work in America, people making wages, and that's where -- that's where we start seeing the capacity to pay for Social Security". Republicans already KNEW about the fact that that capital was sitting in offshore bank accounts, instead of being used to stimulate the economy UNDER THE BUSH ADMINISTRATION, EVEN WITH THEIR MULTI-TRILLION DOLLAR TAX CUTS FOR THE RICH, which were supposed to stimulate jobs creation here at home! THERE WAS NO TRICKLE-DOWN! Even after eight years of these policies under George W. Bush, and eight years under Ronald Reagan, and four years under George H.W. Bush. There was no trickle-down!) The U.K. is also prosecuting military arms manufacturer BAE for transferring millions of pounds all over the world with the help of Lloyd's Bank, then going through an anonymous Panama corporation and then to a secret owner and bank account in Switzerland. Italy, Ireland, Australia and the Dutch have launched similar amnesty programs to collect back taxes in the face of the Global Financial Crisis. A legal advisor posted this to a Tax Problem Attorney Blog: On July 14, 2009 the IMF release an IMF Staff Position Note, SPN/09/17, prepared by John Brondolo, which stated that during times of economic crisis, there is a greater likelihood that companies and individuals would fail to comply with the tax laws while, at the same time, there would be growing need for taxpayer support in the face of budget cuts. He further goes on to state: In responding to the crisis, the paper encourages tax agencies to develop a tax compliance strategy that is structured around two objectives: containing the growth in noncompliance and helping taxpayers to cope with the crisis. To achieve these objectives, four sets of measures are identified: (1) expanding assistance to taxpayers, (2) refocusing enforcement on the highest revenue risks, (3) introducing legislative reforms that facilitate administration, and (4) improving communication and outreach programs. Some measures—such as tax amnesties and moratoria on audits—are counterproductive and should be avoided. Under George W. Bush, IRS taxpayer compliance resources were re-directed away from auditing the super rich, and instead focused on more middle-class Americans and small businesses, and even going after the poor. That guaranteed that more of the super-rich would get away with their tax evasion, and that more money would be spent by the agency in chasing smaller amounts of tax revenue from people who were even less likely to actually owe them. And even if they did owe taxes, the amount collected as a result of spending the time, money and resources investigating and prosecuting them, would be far less than what they could have collected had they gone after someone who owed Billions of dollars rather than a few thousands of dollars. Revenge of the rich Issue Number 52
August 14, 2003
There’s nothing the Bush men hate worse than taxes – except poor people. To further divert the Internal Revenue Service from the pockets of its friends, the White House set the IRS loose on millions of working families that have been, since 1975, collecting modest Earned Income Tax Credits (EITC), averaging around $2,000. As we reported in our July 31 commentary, “Bush Uses IRS to Push Around Poor People,” the scheme demands that the poor provide extensive documentation to prove that they are entitled to monies “that they have already earned through years of Social Security payments.” “The Bush men are carrying on the tradition of harassing the poor away from programs that might better their lives. While congressional strangulation has crippled the IRS’s ability to audit rich individuals, whose cheating costs the public an estimated $30 billion a year, the Bush Treasury Department proposes to force the poor to jump through impossible hoops to receive help in caring for their children. “ACORN successfully lobbied against some of the wickedest rule changes, including a requirement that caretakers prove they are related to the children they are raising ‘by submitting marriage certificates from marriages that occurred many years ago, or in other countries, or between two people other than the person filing the forms,’ said ACORN spokesman David Swanson. There can be no purpose to such torture by paperwork than to drive deserving families out of the program.” Bush’ grotesque assault on EITC is yet more proof of the utter cynicism of the Hard Right, as they “conspire to weaken both the extended families of the poor and the neighborhood ties that support these families.” Republicans Claim That They Are Always Fighting for Tax Breaks for the Common Man, while Democrats are Demonized for Raising Taxes. OH, REALLY? Let's Look at a Recent Vote in Congress on Extending Tax Breaks Why would Republicans (all but 2) vote AGAINST extending tax breaks, when that has been all they've been talking about for the last many DECADES? Perhaps it is because these tax breaks go to sales and property taxes, which would benefit the poor and middle class, more than the Rich? Perhaps because if the poor and middle class, pay less in taxes, then the Rich will have to pay more? (Yeah, yeah, I've heard all of the arguments that the rich pay more in taxes than the poor and the middle class, already, but that is because according to the Constitution, taxes are SUPPOSED to be APPORTIONED EQUALLY. If you make more you pay more in taxes. Given that the super rich have increased their income, on average, by 400-450 TIMES what the average worker earns, over the last thirty years, while the average worker's income has only kept up with standard of living increases (on paper anyhow), shouldn't they be paying more? Isn't THEIR income based on the productivity of the people who work for them, even though the people doing the work aren't being properly compensated for their work? Whatever happened to equal work, equal pay; and paying your share; or shared sacrifices? Oh, right, those are just campaign slogans for the gullible! Under George W. Bush, 200 of the RICHEST individuals in the United States, "earned" $640 BILLION in the eight years Bush was in office. How well did YOU fare under Bush? By the way, if YOU weren't one of the top 200, then you certainly weren't one of Dubya's "base". ‘Haven't we already given money to rich people? This second tax cut's gonna do it again,’” Now, his advisers, they say, ‘Well Mr. President, the upper class, they're the entrepreneurs. That's the standard response.’ And the president kind of goes, ‘OK.’ That's their response. And then, he comes back to it again. ‘Well, shouldn't we be giving money to the middle, won't people be able to say, ‘You did it once, and then you did it twice, and what was it good for?’"
But according to the transcript, White House political advisor Karl Rove jumped in.
“Karl Rove is saying to the president, a kind of mantra. ‘Stick to principle. Stick to principle.’ He says it over and over again,” says Suskind. “Don’t waver.”
In the end, the president didn't. And nine days after that meeting in which O'Neill made it clear he could not publicly support another tax cut, the vice president called and asked him to resign.
With the deficit now climbing towards $400 billion, O'Neill maintains he was in the right.) "I'm Not Giving Tax Cuts to the Rich." Senator John McCain —Discussion with media, reported in “Bush, McCain Snip Over
Tax Cut Plans,” Los Angeles Times, and “GOP Rivals Bicker on Taxes,” Washington Post, Jan. 5, 2000. ...Or after Bush was elected President? “Mr. President, the principle that guides my judgment of a tax reconciliation bill is tax relief for those who need it the most—lower- and middle-income working families. I am in favor of a tax cut, but a responsible one that provides significant tax relief for lower- and middle-income families. And I commend Sen. Grassley for moving in that direction. But I am concerned that debt will overwhelm many American households. That is why tax relief should be targeted to middle-income Americans. The more fortunate among us have less concern about debt. It is the parents struggling to make ends meet who are most in need of tax relief.
“I had expressed hope that when the reconciliation bill was reported out of the Senate Finance Committee, the tax cuts outlined would provide more tax relief to working, middle-income Americans. However, I am disappointed that the Senate Finance Committee preferred instead to cut the top tax rate of 39.6% to 36%, thereby granting generous tax relief to the wealthiest individuals of our country at the expense of lower- and middle-income American taxpayers.”
—Senate floor statement during debate over President Bush’s tax relief package, May 21, 2001. I guess Republicans have all forgotten their promises to the middle class. Everything changes when they need to have Rush Limbaugh's blessing. http://www.wbay.com/global/story.asp?s=11652219 House Roll Call: How they voted on tax break bill Posted: Dec 09, 2009 8:16 PM CST Updated: Dec 09, 2009 8:16 PM CST By The Associated Press The 241-181 roll call Wednesday by which the House voted to extend $31 billion in popular tax breaks, including an income tax deduction for sales and property taxes. A "yes" vote is a vote to pass the bill. Voting yes were 239 Democrats and 2 Republicans. Voting no were 10 Democrats and 171 Republicans. X denotes those not voting. Democrats - Bright, Y; Davis, Y; Griffith, Y. Republicans - Aderholt, N; Bachus, N; Bonner, N; Rogers, N. Republicans - Young, N. Democrats - Giffords, Y; Grijalva, Y; Kirkpatrick, Y; Mitchell, N; Pastor, Y. Republicans - Flake, N; Franks, N; Shadegg, N. Democrats - Berry, Y; Ross, Y; Snyder, Y. Republicans - Boozman, N. Democrats - Baca, Y; Becerra, Y; Berman, Y; Capps, Y; Cardoza, Y; Chu, Y; Costa, Y; Davis, Y; Eshoo, Y; Farr, Y; Filner, Y; Garamendi, Y; Harman, Y; Honda, Y; Lee, Y; Lofgren, Zoe, Y; Matsui, Y; McNerney, Y; Miller, George, Y; Napolitano, Y; Pelosi, X (the speaker by tradition often does not vote); Richardson, Y; Roybal-Allard, Y; Sanchez, Linda T., Y; Sanchez, Loretta, X; Schiff, Y; Sherman, Y; Speier, Y; Stark, Y; Thompson, Y; Waters, Y; Watson, Y; Waxman, Y; Woolsey, Y. Republicans - Bilbray, N; Bono Mack, N; Calvert, N; Campbell, N; Dreier, N; Gallegly, N; Herger, N; Hunter, N; Issa, N; Lewis, N; Lungren, Daniel E., N; McCarthy, N; McClintock, N; McKeon, N; Miller, Gary, N; Nunes, N; Radanovich, X; Rohrabacher, N; Royce, N. Democrats - DeGette, Y; Markey, Y; Perlmutter, Y; Polis, N; Salazar, Y. Republicans - Coffman, N; Lamborn, N. Democrats - Courtney, Y; DeLauro, Y; Himes, N; Larson, Y; Murphy, Y. Republicans - Castle, N. Democrats - Boyd, Y; Brown, Corrine, Y; Castor, Y; Grayson, Y; Hastings, Y; Klein, N; Kosmas, Y; Meek, Y; Wasserman Schultz, Y; Wexler, N. Republicans - Bilirakis, N; Brown-Waite, Ginny, N; Buchanan, N; Crenshaw, N; Diaz-Balart, L., N; Diaz-Balart, M., N; Mack, N; Mica, N; Miller, N; Posey, N; Putnam, N; Rooney, N; Ros-Lehtinen, N; Stearns, N; Young, N. Democrats - Barrow, Y; Bishop, Y; Johnson, Y; Lewis, X; Marshall, Y; Scott, Y. Republicans - Broun, N; Deal, N; Gingrey, N; Kingston, N; Linder, N; Price, N; Westmoreland, N. Democrats - Abercrombie, Y; Hirono, Y. Democrats - Minnick, Y. Republicans - Simpson, N. Democrats - Bean, N; Costello, Y; Davis, Y; Foster, Y; Gutierrez, Y; Halvorson, Y; Hare, Y; Jackson, Y; Lipinski, Y; Quigley, Y; Rush, Y; Schakowsky, Y. Republicans - Biggert, N; Johnson, N; Kirk, N; Manzullo, N; Roskam, N; Schock, N; Shimkus, N. Democrats - Carson, Y; Donnelly, Y; Ellsworth, Y; Hill, Y; Visclosky, Y. Republicans - Burton, N; Buyer, N; Pence, N; Souder, N. Democrats - Boswell, Y; Braley, Y; Loebsack, Y. Republicans - King, N; Latham, N. Democrats - Moore, Y. Republicans - Jenkins, N; Moran, N; Tiahrt, N. Democrats - Chandler, Y; Yarmuth, Y. Republicans - Davis, N; Guthrie, N; Rogers, N; Whitfield, N. Democrats - Melancon, Y. Republicans - Alexander, N; Boustany, N; Cao, Y; Cassidy, N; Fleming, N; Scalise, N. Democrats - Michaud, Y; Pingree, Y. Democrats - Cummings, Y; Edwards, Y; Hoyer, Y; Kratovil, Y; Ruppersberger, Y; Sarbanes, Y; Van Hollen, Y. Republicans - Bartlett, N. Democrats - Capuano, Y; Delahunt, Y; Frank, Y; Lynch, Y; Markey, Y; McGovern, Y; Neal, Y; Olver, Y; Tierney, Y; Tsongas, Y. Democrats - Conyers, Y; Dingell, Y; Kildee, Y; Kilpatrick, Y; Levin, Y; Peters, Y; Schauer, Y; Stupak, Y. Republicans - Camp, N; Ehlers, N; Hoekstra, N; McCotter, N; Miller, N; Rogers, N; Upton, N. Democrats - Ellison, Y; McCollum, Y; Oberstar, Y; Peterson, Y; Walz, Y. Republicans - Bachmann, N; Kline, N; Paulsen, N. Democrats - Childers, Y; Taylor, N; Thompson, Y. Republicans - Harper, N. Democrats - Carnahan, Y; Clay, Y; Cleaver, Y; Skelton, Y. Republicans - Akin, N; Blunt, N; Emerson, N; Graves, N; Luetkemeyer, N. Republicans - Rehberg, N. Republicans - Fortenberry, N; Smith, N; Terry, N. Democrats - Berkley, Y; Titus, Y. Republicans - Heller, N. Democrats - Hodes, Y; Shea-Porter, Y. Democrats - Adler, Y; Andrews, Y; Holt, Y; Pallone, Y; Pascrell, Y; Payne, Y; Rothman, Y; Sires, Y. Republicans - Frelinghuysen, N; Garrett, N; Lance, N; LoBiondo, N; Smith, N. Democrats - Heinrich, Y; Lujan, Y; Teague, Y. Democrats - Ackerman, Y; Arcuri, Y; Bishop, Y; Clarke, Y; Crowley, Y; Engel, Y; Hall, Y; Higgins, Y; Hinchey, X; Israel, Y; Lowey, Y; Maffei, N; Maloney, Y; Massa, Y; McCarthy, Y; McMahon, Y; Meeks, Y; Murphy, Y; Nadler, Y; Owens, Y; Rangel, Y; Serrano, Y; Slaughter, Y; Tonko, Y; Towns, Y; Velazquez, Y; Weiner, Y. Republicans - King, N; Lee, N. Democrats - Butterfield, Y; Etheridge, Y; Kissell, Y; McIntyre, Y; Miller, Y; Price, Y; Shuler, Y; Watt, Y. Republicans - Coble, N; Foxx, N; Jones, Y; McHenry, N; Myrick, N. Democrats - Pomeroy, Y. Democrats - Boccieri, Y; Driehaus, Y; Fudge, X; Kaptur, X; Kilroy, Y; Kucinich, Y; Ryan, Y; Space, Y; Sutton, Y; Wilson, Y. Republicans - Austria, N; Boehner, N; Jordan, N; LaTourette, N; Latta, N; Schmidt, N; Tiberi, N; Turner, N. Democrats - Boren, Y. Republicans - Cole, N; Fallin, N; Lucas, N; Sullivan, N. Democrats - Blumenauer, Y; DeFazio, Y; Schrader, N; Wu, Y. Republicans - Walden, N. Democrats - Altmire, Y; Brady, Y; Carney, Y; Dahlkemper, Y; Doyle, Y; Fattah, Y; Holden, Y; Kanjorski, Y; Murphy, Patrick, Y; Murtha, X; Schwartz, Y; Sestak, Y. Republicans - Dent, N; Gerlach, N; Murphy, Tim, N; Pitts, N; Platts, N; Shuster, N; Thompson, N. Democrats - Kennedy, Y; Langevin, Y. Democrats - Clyburn, Y; Spratt, Y. Republicans - Barrett, X; Brown, N; Inglis, N; Wilson, N. Democrats - Herseth Sandlin, Y. Democrats - Cohen, Y; Cooper, Y; Davis, Y; Gordon, Y; Tanner, Y. Republicans - Blackburn, N; Duncan, N; Roe, N; Wamp, N. Democrats - Cuellar, Y; Doggett, Y; Edwards, Y; Gonzalez, Y; Green, Al, Y; Green, Gene, Y; Hinojosa, Y; Jackson-Lee, Y; Johnson, E. B., Y; Ortiz, Y; Reyes, Y; Rodriguez, Y. Republicans - Barton, N; Brady, N; Burgess, N; Carter, X; Conaway, N; Culberson, N; Gohmert, N; Granger, X; Hall, N; Hensarling, N; Johnson, Sam, N; Marchant, N; McCaul, N; Neugebauer, N; Olson, N; Paul, N; Poe, N; Sessions, N; Smith, N; Thornberry, N. Democrats - Matheson, Y. Republicans - Bishop, N; Chaffetz, N. Democrats - Welch, Y. Democrats - Boucher, Y; Connolly, Y; Moran, X; Nye, Y; Perriello, Y; Scott, Y. Republicans - Cantor, N; Forbes, N; Goodlatte, N; Wittman, N; Wolf, N. Democrats - Baird, Y; Dicks, Y; Inslee, Y; Larsen, Y; McDermott, Y; Smith, N. Republicans - Hastings, N; McMorris Rodgers, N; Reichert, N. Democrats - Mollohan, Y; Rahall, Y. Republicans - Capito, N. Democrats - Baldwin, X; Kagen, Y; Kind, Y; Moore, Y; Obey, Y. Republicans - Petri, N; Ryan, N; Sensenbrenner, N. Republicans - Lummis, N.
Republican Hypocrisy 
Citizens for Tax Justice point out what I was saying just the other day: We only hear all this crying and moaning about the deficit when it's something for regular working people, and not a powerful lobby. And of course, the Republican'ts are right out there in front of the Hypocrisy Parade: And yet, many of the lawmakers who argue that the health care reform legislation is “too costly” are the same lawmakers who supported the Bush tax cuts. Their own voting record demonstrates that health care reform is not a matter of costs, but a matter of priorities. It’s difficult to see how the Bush tax cuts could provide us with two and a half times the benefits of health care reform. In 2010, when all the Bush tax cuts are finally phased in, a staggering 52.5 percent of the benefits will go to the richest 5 percent of taxpayers. President Bush and his supporters argued that these high-income tax cuts would benefit everybody because they would unleash investment that would spark widespread economic prosperity. There seems to be no evidence of this, particularly given the collapse of the economy at the end of the Bush years. The tax legislation enacted under President George W. Bush from 2001 through 2006 will cost $2.48
trillion over the 2001-2010 period. This includes the revenue loss of $2.11 trillion that results directly from the Bush tax cuts as well as the $379 billion in additional interest payments on the national debt that we must make since the tax cuts were deficit-financed. [...] Over the upcoming decade (2010-2019), the costs of the health care proposals approved by three committees in the U.S. House of Representatives are projected to be around $1 trillion. (One committee trimmed the costs of its health care bill below that amount, but an official estimate of the cost reductions was not available at the time of this writing.) The chairmen of the three House committees have explicitly stated that their goal is a final bill that
is deficit-neutral in the decade following enactment. It’s unclear if they have accomplished this yet, since the Congressional Budget Office has not yet issued final cost estimates of the bills, and the legislation is likely to change before the full House votes on a final bill. But President Obama and
Democratic leaders have also committed to ensuring that health care reform will not increase the budget deficit. Under the House bills, roughly half of the costs would be offset with savings in our existing health care programs, while the other half would be offset with a surcharge on the incomes of wealthy taxpayers. In contrast, President Bush and his allies in Congress never even attempted to replace the revenue lost as a result of their enormous tax cuts. The Bush tax cuts were deficit-financed, which increased the national debt and resulted in greater interest payments on that debt, as already explained. These figures make clear that costs cannot be the real concern of lawmakers who oppose the House health care legislation and yet supported the Bush tax cuts. Their position seems to be that showering benefits on the wealthiest five percent of taxpayers and leaving the bill for future generations is preferable to making health care available for all at a much lower cost and paying that cost up front. That demonstrates a different set of priorities than most Americans have, but it doesn’t demonstrate much concern about costs.
| | February 18, 2009 BIGGEST. TAX CUT. EVER. (REDUX).... We talked a week ago about the tax-cut provisions of the economic stimulus package, and how it turns out that President Obama proposed and passed one of the largest tax cuts in American history -- $282 billion over two years -- without Republican support. I'm glad to see some others are picking up on this. Yesterday, Marc Ambinder noted: Don't know if anybody has yet noticed in the Republican Party but President Obama was presented last week a major talking point for 2012. He'll sign today one of the largest tax cuts in history. In spite of the White House pointing this out to journalists, it is funny how little remarked-upon this is. It's hard imagine we won't hear about this four years from now. And if that's not boxing a future Republican candidate in ahead of time, I don't know what is.
Chris Hayes had a similar observation. On the politics side of the ledger, Ben Smith notes Obama's emphasis on the tax cuts in the bill. I'm not necessarily a fan, though politically it's true that every single Republican member of congress can now be accused of "Voting against the biggest tax cut in history" come next election." Clearly, this hasn't escaped the White House's notice.
It's good to see this observation gaining some traction, but I'd just reiterate one angle to this that shouldn't be overlooked: Obama's tax-cut plan in the recovery package is not only arguably bigger than any previous plan, but it's also better targeted. George W. Bush's tax cuts were long-term income-tax rate cuts, which amounted to a generous break for those at the top, since the wealthy pay most income taxes. A.L. reminds us today, "The Bush tax cuts were skewed dramatically toward the wealthy. In 2004, 60% of the tax cuts went to the top 20 percent of income earners with over 25% going to the top 1% of income earners. Those numbers have increased since then as the cuts to the estate tax have taken effect." Obama's tax cuts, meanwhile, are short-term refunds paid directly to working and middle class families (some of which Republicans have denounced as "welfare"). As such, GOP lawmakers have rejected one of the largest, if not the largest, tax cut ever proposed by a president -- which just so happens to be targeted at the working and middle class families Obama vowed to look out for. Expect to hear this point again at some point in the future. —Steve Benen |
TAXES February 2009 After Governor Doyle's speech on February 17, 2009 discussing Wisconsin's Budget, Wisconsin Public Television and Wisconsin Public Radio once again called on the supposedly "non-partisan" Wisconsin Taxpayer's Alliance's President, Todd Berry, to critique the budget. Berry promptly launched into obstructionist conservative arguments against the budget, including complaining that the $0.75 cent tax on a pack of cigarettes which Governor Doyle proposed, "wouldn't result in increased tax revenues", even though Governor Doyle specifically stated that the increase in taxes for a pack of cigarettes wasn't intended to raise revenues, but rather to discourage young children from starting smoking in the first place. But his conservative criticisms and ridiculous arguments are to be expected. Even though Wisconsin Taxpayer's Alliance has claimed to be non-partisan, it has long been a front group for Republicans to promote a Republican agenda. Along with WPRI, Wisconsin Policy Research Institute, the polling arm of the right-wing Bradley Foundation, they have both long been referenced by news organizations to get a "non-partisan" view point. They are commonly referenced by the Milwaukee Journal Sentinal, which along with WTMJ are both owned by the same company, and refer to them repeatedly as "non-partisan". They are also referenced by the Wisconsin State Journal and The Business Journal of Milwaukee, Wisconsin as being "non-partisan". These organizations' highly inaccurate and misleading claims of "non-partisanship" would not be successful without the willing (or incompetent), cooperation of our news media. Ed Garvey on "Fighting Bob" wrote an article exposing their charade, which you can find here. You can find other articles with more information on taxes in Wisconsin at FightingBob.com Former Madison Mayor, Paul Soglin writes on his website, waxingamerica.com on how the Wisconsin Taxpayers Alliance gets their "facts" wrong by twisting the truth and making things appear something that they aren't, in regards to teachers benefits and salaries. In the issue that he raises, he points out how WTA leaves out critical information so that a true comparison is never made by WTA, and left out so that readers of their information are never able to see how they came up with their final analysis, and recognize that it is wrong. Cory Liebman at http://www.onewisconsinnow.org/page/community/post/coryliebmann/C2fs , exposed the "non-partisan" Wisconsin Taxpayers Alliance in a piece where he referenced the campaign contributions that were made by WTA Officers and their Board of Directors, compiled from the WI Democracy Campaign Database. He pointed out that over 90% of all campaign contributions made by them, in January of 2006, went to Republicans. So much for non-partisanship. You can find the document here. For those of you that can't access PDF documents, here is a copy of the information in the document. WI Taxpayers Alliance Officers and Board of Directors | Campaign Contributions listed on WI Democracy Campaign Database | Contributions to | Contributions to | Name | Republicans | Democrats | Dale R. Schuh, Stevens Point, Chair * | 7,950.00$ | 7,200.00$ | Jay B. Williams, Mequon, Vice Chair ** | 450.00$ | 700.00$ | Jere D. McGaffey, Milwaukee, Secretary-Treasurer | 9,225.00$ | 3,600.00$ | Jeffrey L. Adams, Beloit | -$ | -$ | Mark D. Bugher, Madison | 2,465.00$ | -$ | Mark A. Cullen, Janesville * | 52,425.00$ | 3,500.00$ | Roger L. Fitzsimonds, Milwaukee ** | 30,660.00$ | 3,950.00$ | Carol W. Knox, Jefferson | 15,075.00$ | -$ | Dennis J. Kuester, Milwaukee ** | 48,825.00$ | 8,000.00$ | Sam W. Orr, Jr., Wausau ** | 49,415.00$ | 350.00$ | Robert J. O'Toole, Milwaukee ** | 23,540.00$ | 900.00$ | Jay D. Quick, Manitowoc * | 1,102.00$ | -$ | Andrew E. Randall, Milwaukee ** | -$ | -$ | Leonard S. Sosnowski, Madison | -$ | -$ | John B. Torinus, Jr., West Bend * | 10,500.00$ | 200.00$ | Willard T. Walker, Racine | 11,675.00$ | 250.00$ | TOTAL | 263,307.00$ | 28,650.00$ | TOTAL PERCENT | 90.2% | 9.8% | * Current Board Members of WMC | ** Former Board Members of WMC |
It should be noted that WTA has been in existence since 1932, and given the fact that they are primarily Republicans, who support Republican policies, and that the State of Wisconsin has primarily been run by Republicans until only recently, one has to wonder why it is that taxes on small business and individuals is so high as they continually complain. Given that WTA and the Republican Party had been in charge of things for so long, why is it that they never got around to actually reducing taxes for small businesses and average individuals? Could it be that they were so busy giving tax breaks to large corporations that pay absolutely NOTHING in taxes, even though they rake in Billions of dollars in revenue, that they just couldn't get around to giving tax breaks to small businesses and average individuals? If you don't already know it, two thirds of all corporations in the state of Wisconsin pay absolutely ZERO in corporate income taxes, although the rate of corporate taxes collected has increased somewhat recently under the Democrats who until this last election only just barely held control of the Legislature since 2006. This also matches the two thirds of all corporations in the United States which pay absolutely ZERO in corporate income taxes. And these aren't small corporations by any means. Most of these corporations rake in BILLION$ every year. If you haven't seen the documentation or articles with the evidence, you can scroll down to find them on this page. To her credit, however, Wisconsin Public Television's Frederica Freyberg, did ask Todd Berry, that given that he had so many criticisms of the budget, "If it were your budget, what would you do?" Berry ran circles around the question, complaining that the budget was written by Barach Obama and Dave Obey, and made additional complaints about where the money was going, but never really answered the question to him regarding how he would do anything differently. That figures. The only way that we can really get out of the mess that we and 45 other states are in with state budget deficits would be to actually collect taxes from the corporations that are actually raking in huge profits, and aren't paying taxes at all, or aren't paying their fair share of taxes. Maybe if our government would actually investigate individuals who are illegally hiding income so that they won't have to pay taxes, and collect the taxes owed, we might be able to balance the budget and pay down the deficits. Of course Republicans will point to the recent string of Democratic appointees who have been embarrassed by non-payment of taxes (but who ended up paying the back taxes and penalties after they were publicly embarrassed). It is time for turn around. Over five years ago a whistle blower from the Royal Bank of Liechtenstein (owned by the royal family), turned over evidence which showed that 1400 Americans had secret bank accounts held in the bank in order to hide over $1 TRILLION and avoid U.S. taxes. That is just ONE BANK. That isn't counting the Swiss banks, and the banks in the Cayman Islands and elsewhere. The Republicans who controlled Congress five years ago DIDN'T EVEN INVESTIGATE. No investigation took place until after Democrats took control of Congress in 2006, and even then, Attorney General Mukasey, who headed Bush's Justice Department DIDN'T FOLLOW UP. Let's hope that Obama's newly appointed Attorney General, Eric Holder, can do a better job. The obvious point, however, is that every dollar these tax cheats don't pay, gets added onto YOUR tax bill. The arguments have NEVER been about WHETHER taxes will be collected for public purposes. It has always been about WHO pays. And as long as the public ignores the facts, and buys into false "explanations" about how to run our economy, we'll continually be forced to live through the conditions created in the Great Depression, and which the Republican Party almost exactly duplicated to create the mess we are in now. There they go again! Tax misinformation from Nass and Lazich
Once again, legislators have pounced on shaky Tax Foundation data to try to convince voters that Wisconsin can't afford to adequately fund its public institutions.
The latest are Rep. Steve Nass (R-Whitewater) and Sen. Mary Lazich (R-New Berlin), who each cited a study by the conservative Tax Foundation that claims Wisconsin is among the top ten states in tax effort.
Not so! The latest Census data show that taxes and fees state and local government are 3% lower in Wisconsin than the U.S. average. The national average is $5,803 per person; Wisconsin's figure is $5,607.
The truth is, Wisconsin ranks 21st among the states for the taxes and fees paid by residents.
It's Confirmed, Not Only Do 2/3rds of Corporations Not Pay Income Taxes in Wisconsin, But 2/3rds of Corporations Don't Pay Federal Income Taxes Either So, who was saying that high taxes were driving Corporations out of the Country? The “two-thirds” corporate tax avoidance true for both Feds and Wisconsin "Here is a crazy idea to address the United States’ gaping fiscal deficit: persuade corporate America to start paying taxes,” states a New York Times editorial reacting to a new study from the US Government Accountability Office.
The study shows that that two-thirds of US firms paid no federal income tax between 1998 and 2005. This matches the IWF findings in Wisconsin that nearly two-thirds of corporate filers pay zero in state income tax. (Unlike IWF, the GAO report did not name names.) And Remember When They Were Saying Milwaukee's Business Taxes Were Also Too High? A New Study By Accountants Shows That Milwaukee Has Among The Nation's Lowest Business Taxes Accountants say Milwaukee has among the nation’s lowest business taxes
Yet another major accounting firm has put its quantitative stamp of approval on the fact that business taxes in Wisconsin are low. KPMG International’s study of business tax structures found Milwaukee with the 4th lowest taxes among 24 midsize U.S. cities and 15th lowest among 59 cities of all sizes. Among the cities with higher business taxes than Milwaukee are Chicago, Las Vegas, Minneapolis, Phoenix and Tampa. Who says that taxes destroy a business climate? http://www.huffingtonpost.com/robert-l-borosage/the-great-corporate-tax-h_b_118479.html Posted August 12, 2008 | 02:52 PM (EST)
Remember the old Steve Martin routine on how to make a million dollars and not pay taxes: "First, make a million dollars... Second, don't pay taxes." Turns out Martin's joke is standard operating procedure for corporations in the United States -- only, in comparison, Martin was a piker. Today, the Government Accountability Office (GAO) released a study on taxes paid by corporations. In what Sen. Byron L. Dorgan (D-ND) mildly called "a shocking indictment of the current tax system," the GAO found that about two-thirds of corporations operating in the US did not pay taxes annually from 1998 to 2005. Now most corporations in America are start-ups or small, mom and pop operations that have adopted a corporate form to lower their tax rates. And a greater percentage of large corporations do pay some taxes. But in 2005, with corporate profits reaching new heights as a percentage of national income, the GAO found that over one-fourth -- 28% of large corporations paid no taxes. (It defined large corporations as those with assets of at least $250 million dollars or gross receipts of at least $50 million dollars.) They can tell you how to make $50 million dollars and not pay taxes. Not surprisingly, the income collected from corporations has been declining as a percentage of GDP, with the burden transferred to your income and payroll taxes. According to a study by the Treasury Department, from 2000-2006, an average of 2.2% of GDP was collected in corporate taxes. This compares to an average of 3.4% in other industrial countries. The nonpartisan Congressional Budget Office projects that, under current law, corporate revenues will decline to 1.9% of GDP by 2017. Why is this important? Well, the Bush administration, led by Treasury Secretary Paulson and conservatives led by John McCain are mounting a major campaign to cut the corporate tax rate even more, arguing that we are crippled competitively by having a US rate higher than any industrial nation other than Japan. "America has the second highest business [tax]rate in the entire world,"says John McCain. "Is it any wonder that jobs are moving overseas? We're taxing them out of the country." But the GAO study confirms what we already knew: whatever the nominal tax rate, US corporations pay an effective rate among the lowest in the industrial world. Yet the core of McCain economic agenda consists of breath-taking corporate tax breaks. He calls for cutting the top corporate rate from 35% to 25% and allowing corporations to write off investments in the first year. Combined, the Tax Policy Center wonkscost these at over $1.3 trillion over 10 years. Len Burman of Tax Policy Center estimates that in total, McCain would cut corporate revenues by about 50% from current levels. They'll be making hundreds of millions of dollars and not paying taxes. This is no joke. To pay for these tax breaks, sustain the Bush tax cuts, add more tax breaks AND balance the budget in four years, as McCain promises, will require heroic cuts in spending. Not military spending; McCain promises to increase that. How will he do this? On the stump, McCain promises to veto any earmarked spending. But that is a gesture, providing about $18 billion a year. (And he isn't exactly consistent. McCain often tells folks who defend a local project that it is the process, not the individual project that he opposes.) Perhaps that's why McCain calls for raising Medicare taxes on seniors with over $50,000 a year in income and taxing employer-based health care benefits for families. Working people and seniors will help pay the tab for the corporate tax give-away. It's hard not to wonder about the pure, contrary, inanity of the current conservative position. Our military is by far the strongest in the world, while our trains are among the slowest and our sewers are collapsing. So they propose raising spending the military and cutting domestic investment. We suffer gilded age inequality, with the wealthiest 15,000 families -- one-one hundredth of one percent of the population -- capturing fully one-fourth of the entire income growth from 2000 to 2006. Their average income rose from $15.2 million per year to $29.7 million per year. Meanwhile, the rest of us -- 133 million households that make up 90% of the country -- divided up 4% of the nation's income, adding about $305 to our average $30,354 income. So conservatives push for more tax cuts for the wealthy, while proposing to tax employer based health benefits. Corporate profits (prior to the recession) have catapulted to what is by far the highest percentage of national income in the past half century. So they want to cut corporate taxes, inevitably increasing the burden on labor. The economic future looks dim because consumers, drowning in debt, are cutting back. So they suggest cutting taxes on corporate investments will generate new investments and growth -- as if companies don't need someone to buy the products they make. Maybe that will be Steve Martin's next routine: How to sell more stuff and not have customers. Somehow, it doesn't sound so funny. http://www.huffingtonpost.com/2008/08/12/representation-without-ta_n_118455.html JENNIFER C. KERR | August 12, 2008 06:31 AM EST |
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WASHINGTON — Two-thirds of U.S. corporations paid no federal income taxes between 1998 and 2005, according to a new report from Congress. The study by the Government Accountability Office, expected to be released Tuesday, said about 68 percent of foreign companies doing business in the U.S. avoided corporate taxes over the same period. Collectively, the companies reported trillions of dollars in sales, according to GAO's estimate. "It's shameful that so many corporations make big profits and pay nothing to support our country," said Sen. Byron Dorgan, D-N.D., who asked for the GAO study with Sen. Carl Levin, D-Mich. An outside tax expert, Chris Edwards of the libertarian Cato Institute in Washington, said increasing numbers of limited liability corporations and so-called "S" corporations pay taxes under individual tax codes. "Half of all business income in the United States now ends up going through the individual tax code," Edwards said. The GAO study did not investigate why corporations weren't paying federal income taxes or corporate taxes and it did not identify any corporations by name. It said companies may escape paying such taxes due to operating losses or because of tax credits. More than 38,000 foreign corporations had no tax liability in 2005 and 1.2 million U.S. companies paid no income tax, the GAO said. Combined, the companies had $2.5 trillion in sales. About 25 percent of the U.S. corporations not paying corporate taxes were considered large corporations, meaning they had at least $250 million in assets or $50 million in receipts. The GAO said it analyzed data from the Internal Revenue Service, examining samples of corporate returns for the years 1998 through 2005. For 2005, for example, it reviewed 110,003 tax returns from among more than 1.2 million corporations doing business in the U.S. Dorgan and Levin have complained about companies abusing transfer prices _ amounts charged on transactions between companies in a group, such as a parent and subsidiary. In some cases, multinational companies can manipulate transfer prices to shift income from higher to lower tax jurisdictions, cutting their tax liabilities. The GAO did not suggest which companies might be doing this. "It's time for the big corporations to pay their fair share," Dorgan said. ____ On the Net: Government Accountability Office: http://www.gao.gov http://economistsview.typepad.com/economistsview/2008/06/the-income-ineq.html « Paul Krugman: The Obama Agenda | Main | Brad DeLong: The Democrats' Line in the Sand » "The Income-Inequality Denialists" Speaking of "the George W. Bush administration ... quest to win the class war by making America’s income distribution more unequal," Justin Fox finds out what happens if you say the inequality in the U.S. has been increasing. I've been down this road: The strange fantasy world of the income-inequality denialists, by Justin Fox: One of the more interesting developments in the U.S. economy over the past few decades has been the dramatic rise in incomes at the very top of the scale. There's all sorts of anecdotal evidence for this... But the most exhaustive empirical evidence for this income explosion at the top has come from the work of economists Thomas Piketty and Emanuel Saez... Certain elements among the right-wing economic chattering classes ... have honed an interesting response to this rise in income inequality: They deny that it exists. My economic policy cover story of a while back, which cited Piketty and Saez, seems to be drawing these denialists out of the woodwork. Gary North is one, and now David Gitlitz joins in at National Review Online: On income inequality, Fox accepts as fact the findings of economists Thomas Piketty and Emanuel Saez that “75% of all income gains from 2002 to ’06 went to the top 1% — households making more than $382,600 a year.” But as Piketty and Saez have acknowledged, these results are significantly skewed by the fact that their data only includes income reported on individual tax returns. Following cuts in individual tax rates in 1986 (under Ronald Reagan) and 2003 (under George W. Bush), many of the businesses that had been reporting income under the corporate tax switched to the lower individual rate. In 1986, business income accounted for only 11 percent of the income reported by the top 1 percent of earners. By 2005 that share jumped to more than 29 percent. Clearly, much of the reported gain of the top 1 percent is accounted for in this bookkeeping shift. Uh, no it's not. That purported problem, raised by Alan Reynolds, was swatted down pretty convincingly by Piketty and Saez: Most of the scenarios described by Alan Reynolds, such as a shift from corporate income to individual income or from qualified stock-options to non-qualified stock options, would imply that high incomes used to receive capital gains instead of ordinary income. For example, a closely held C-corporation which does not distribute its profits increases in value and those accumulated profits would appear as realized capital gains on the owner individual tax return when the business is sold. Yet, our top 1% income share series including realized capital gains has also doubled from 10.0% in 1980 to 19.8% in 2004. A fair description of the current state of knowledge on the income distribution is that members of the economics establishment (from right-wingers to left) more or less unanimously accept the Piketty and Saez data as a more or less accurate representation of reality. There are big debates about what it all means, and why it's happening, but the only major objections that I know of to the Piketty-Saez data itself have been those raised on the op-ed page of the Wall Street Journal by Reynolds, a senior fellow at the libertarian Cato Institute who doesn't appear to have an advanced degree in economics or in anything else. It's a case where the scientific consensus says one thing, and this one guy says the opposite. I don't have an advanced degree in anything either, and I like to think that on occasion the scientific consensus will turn out to be wrong and the lone outsider right. But I'm pretty sure this isn't one of those cases. Why not? First, there's all that anecdotal evidence of vast new fortunes being created. Second, Piketty and Saez have pretty convincing answers to all of Reynolds' objections to their data. Third, Piketty and Saez come across as data jockeys with no particular axe to grind, while Reynolds is an overt ideologue. Finally, when Reynolds strays into an area that I actually know something about--the use of stock options in compensation--he is so clearly blowing smoke that it becomes difficult for me to trust anything else he says.... So here's where all that leaves me. I'm going to keep "accept[ing] as fact the findings of economists Thomas Piketty and Emanuel Saez." And anyone who says I shouldn't do so, without raising some major objections beyond the feeble array already trotted out by Reynolds, goes down in my book as something of a joker. Posted by Mark Thoma on Monday, June 30, 2008 at 03:42 PM in Economics, Income Distribution, Politics
See Snapshots archive.
Snapshot for April 9, 2008.
Corporate tax declines and U.S. inequality
by John Irons Over the last 60 years, the U.S. tax code has dramatically shifted away from corporate taxes and toward taxes on individuals, especially through the payroll tax, the financing backbone of Social Security and Medicare. In the 1950s, the corporate income tax brought in, on average, one of every four dollars in federal tax revenues. By the 2000s, however, it raised just one of every 10 tax dollars.
The shrinking share of corporate taxes was made up by an increase in payroll taxes to fund social insurance and retirement programs. Excise and other taxes—such as fuel taxes, phone taxes, etc.—shrank as well over the last 60 years, while the individual federal income tax rose slightly, from an average of 43% of total federal revenue in the 1950s to 46% in the 2000s (see chart).
This shift is important because of who pays these different taxes. The corporate income tax is significantly more progressive than other taxes. Those with incomes in the top 20% of the income distribution (those making more than about $86,000 a year in 2007) pay four times the average tax rate on corporate income than the middle 20% (those making between $27,000 and $48,000); while, for the payroll tax, those in the top 20% actually pay less than those in the middle as a share of their income.1
This shift has been one of the factors leading to the drop in average federal tax rates for the very highest earners. Between 1960 and 2004, the average tax rate has fallen by about 14 percentage points (from 44.4% to 30.4%) for the top 1% of earners (those making more than $435,000 in 2007), while it has increased slightly (from 15.9% to 16.1%) for those in the middle 20%. 2
Without offsets, further erosion of corporate tax revenues—either through lower statutory tax rates or through special preferences—would expand the already wide and growing income inequality in the United States.
Notes
1. See Tax Policy Center, Table T06-0308, "Current-Law Distribution of Federal Taxes By Cash Income Percentiles, 2007," November 30, 2006.
2. See Thomas Piketty and Emmanuel Saez, "How progressive is the U.S. federal tax system? A historical and international perspective." Journal of Economic Perspectives, Winter 2007; data at http://elsa.berkeley.edu/~saez/jep-results-standalone.xls.
Check out the archive for past Economic Snapshots.
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EPI Home http://www.epi.org/ The following study proves that the Bush tax cuts weren't for everybody. The highest income earners got the biggest tax breaks, while middle America got little more than rhetoric. http://www.cbpp.org/3-29-07tax.htm 
March 29, 2007 NEW STUDY FINDS "DRAMATIC" REDUCTION SINCE 1960
IN THE PROGRESSIVITY OF THE FEDERAL TAX SYSTEM:
Largest Reductions in Progressivity Occurred in 1980s and Since 2000
By Aviva Aron-Dine In a new study, Thomas Piketty and Emmanuel Saez, economists who have done groundbreaking work on the historical evolution of income inequality in the United States, examine how the progressivity of the federal tax system has changed over time.[1] Unlike previous analyses, theirs examines effective federal tax rates going back to 1960, including income, payroll, corporate, and estate taxes, and provides data for income groups reaching up to the top one-hundredth of one percent (.01 percent) of the population.[2] Several crucial findings emerge from their study. “The progressivity of the U.S. federal tax system at the top of the income distribution has declined dramatically since the 1960s.” 
As Figure 1 shows, since 1960, average federal tax rates for middle-income households have increased and then declined modestly. Over the same period, high-income households saw sharp drops in their federal tax rates.
Moreover, the drops were largest for the very highest-income households. The average tax rate declined by a larger amount for households in the top one hundredth of 1 percent of the income scale (where incomes in 2004 averaged about $15 million) than for households in the top tenth of 1 percent (where incomes averaged above $3.7 million) or for households in the top 1 percent (where incomes averaged about $850,000). Over the same period in which the progressivity of the tax system declined, pre-tax income inequality grew significantly (see Figure 2). In an earlier study that examined the distribution of income since 1913, Piketty and Saez showed that the concentration of pre-tax income has increased substantially since the 1970s, especially at the very top of the income spectrum. [3] According to their data, the share of the nation’s pre-tax income flowing to the top 1 percent of households more than doubled between 1970 and 2000. Income inequality decreased in 2001 and 2002, following the decline in the stock market, but then started growing again in 2003. In 2004 and 2005 (the latest year for which data are available), income concentration increased markedly. 
As a result, the share of the nation’s total income going to the top 1 percent of households jumped from 8.4 percent in 1970 to 19.3 percent in 2005, an increase of 10.8 percentage points. In 2005 terms, that increase works out to about $550,000 more in income per household for those in the top 1 percent. In other words, households in this income group received an average of about $550,000 more in income in 2005 than they would have if the group’s share of national had remained constant since 1970. Over the same period in which high-income households benefited the most from changes in the distribution of pre-tax income, they also benefited the most from changes in effective federal tax rates. In 1970, the top 1 percent of households paid an average of 47 percent of their income in federal taxes; under 2004 law, Piketty and Saez estimate they faced an average tax rate of just 30 percent, a difference of 17 percentage points.[4] (2004 is the last year for which Piketty and Saez provide tax rate estimates.[5]) In 2004 terms, this difference works out to an average of more than $200,000 per household in additional after-tax income. “Large reductions in tax progressivity since the 1960s took place primarily during two periods: the Reagan presidency in the 1980s and the Bush administration in the early 2000s.” Piketty and Saez attribute much of the decline in tax progressivity in the 1980s to a decline in corporate income tax and estate tax collections. But they note, “the tax reductions enacted in 2001 and 2003 have further weakened the redistributive power of the federal income tax.” As Piketty and Saez point out, economists generally assess whether a tax system is progressive based on whether the distribution of after-tax income is more equal than the distribution of pre-tax income. They assess whether a tax cut is progressive based on whether it makes the distribution of after-tax income more or less equal.[6] Like others who have examined the effects of the 2001 and 2003 tax cuts, Piketty and Saez find that the tax cuts made the distribution of after-tax income less equal. Specifically, their data show that, if 2004 tax rates (which reflect the impact of the tax cuts) had applied in 2000 (the year before the tax cuts took place), then the distribution of after-tax income in 2000 would have been more unequal than it actually was. Piketty and Saez estimate the tax rates in effect in 2004, based on 2004 tax law and 2000 income data.[7] According to their data, the top 1 percent of households held 16.6 percent of the nation’s total after-tax income in 2000. But if households had paid tax that year at the projected 2004 tax rates, the top 1 percent would have held 17.8 percent of after-tax income. In short, the tax cuts were regressive. Because it omits the effects of those tax cuts enacted in 2001 that were not fully phased in by 2004 (such as the repeal by 2010 of the estate tax and of the provisions of the tax code that reduce the value of itemized deductions and personal exemptions for households at high income levels), Piketty and Saez’s simulation substantially understates the regressivity of the tax cuts once they are fully in effect. Even so, it offers additional confirmation that the tax cuts were regressive. In sum, Piketty and Saez’s new study shows that the federal tax system has become much less progressive over the past several decades, and the 2001 and 2003 tax cuts have continued this trend. Over much the same several decades, pre-tax income inequality has grown as well. Thus, during a period in which economic forces have been generating increased pre-tax inequality, changes in the tax system have exacerbated rather than mitigated the widening of the income gap.
End Notes: [1] Thomas Piketty and Emmanuel Saez, “How Progressive Is the U.S. Federal Tax System? A Historical and International Perspective,” Journal of Economic Perspectives, Winter 2007. Thomas Piketty is a professor of economics at the Paris School of Economics. Emmanuel Saez is a professor of economics at the University of California Berkeley. This analysis also relies on data the authors made available on the web: http://elsa.berkeley.edu/~saez/jep-results-standalone.xls. [2] A household’s effective tax rate is the share of its income actually paid in taxes, taking into account deductions, exclusions, and other provisions that raise or lower tax liability. The Congressional Budget Office publishes data on effective federal tax rates going back to 1979 that include income, payroll, corporate, and excise taxes, but not estate taxes. CBO examines income groups up to the top 1 percent, but not groups within the top 1 percent. For those years and income groups for which CBO and Piketty and Saez both provide data, the trends in the data are very similar. [3] Congressional Budget Office data show the same trend. [4] For a discussion of the methodology Piketty and Saez use to calculate 2004 tax rates, see page 3. [5] High-income households likely faced somewhat higher effective federal tax rates in 2005 because corporate tax revenues increased significantly in 2005. Economists generally assume that the burden of corporate taxes falls on households in proportion to their shares of total investment income; high-income households hold the lion’s share of investment income. As a result, increases in corporate tax payments generally raise effective tax rates for these households. [6] Some supporters of recent tax cuts have claimed that these tax cuts are progressive because, since they were enacted, the share of taxes paid by high-income groups has increased. As Piketty and Saez point out, “when the share of income received by the top income groups is changing, the share of tax paid by those top income groups is a misleading method for evaluating the progressivity of the tax system.” This measure is also misleading when used to evaluate the progressivity of deficit-financed tax cuts. For further discussion, see Aviva Aron-Dine, “Have the 2001 and 2003 Tax Cuts Made the Tax Code More Progressive,” Center on Budget and Policy Priorities, March 19, 2007, http://www.cbpp.org/3-19-07tax.htm. [7] Specifically, they use the available data on aggregate income growth between 2000 and 2004, but assume the 2000 income distribution. That is, they simulate what tax rates would have been in 2004 had all households’ incomes grown at the same rates between 2000 and 2004. (This approach is similar to that used by the Urban Institute-Brookings Institution Tax Policy Center and many other analysts.) In fact, the incomes of the highest income households grew less between 2000 and 2004 than those of other households (due to large income losses in 2001 and 2002, following the decline in the stock market). In actuality, therefore, the incomes of the highest-income households were lower in 2004 than Piketty and Saez assume for purposes of their simulation, and these lower incomes likely translated into lower tax rates. Thus, the actual decline in tax rates at the pinnacle of the income scale was likely slightly larger than Piketty and Saez project. Piketty and Saez’s methodology captures only the decline in effective rates due to legislative changes, not the decline in effective rates due to changes in the income distribution. http://www.cbpp.org/8-31-06inc.htm
Revised March 29, 2007 SHARE OF NATIONAL INCOME GOING TO WAGES AND SALARIES AT RECORD LOW IN 2006: Share of Income Going to Corporate Profits at Record High
By Aviva Aron-Dine and Isaac Shapiro Commerce Department data released today show that the share of national income going to wages and salaries in 2006 was at its lowest level on record, with data going back to 1929.[1] The share of national income captured by corporate profits, in contrast, was at its highest level on record. [2] These findings reflect weak overall growth in wages and salaries — and rapid growth in corporate profits — since the current economic expansion began in November 2001. Growth in wage and salary income was exceptionally weak during the first stage of the recovery, though it has picked up in the last few years and was strong in 2006. The stronger recent growth, however, has not been enough to undo the effects of weak growth in previous years. Corporate profit growth, meanwhile, has been robust throughout nearly all of the current expansion and was especially rapid in 2006. Corporate profits have grown at a faster pace in the current recovery than in any other equivalent period since World War II. During the current expansion as a whole: · Wages and salaries have grown at a 1.9 percent average annual rate, after adjusting for inflation. In previous post-World War II recoveries, wages and salaries grew at an average annual rate of 3.8 percent. · Corporate profits have grown at a 12.8 percent average annual rate, after adjusting for inflation, as compared with an average annual growth rate of 8.3 percent in the equivalent periods of past post-World War II business cycles. ( See Appendix Table 1.) As a consequence, wages and salaries have captured an exceptionally small share of the total growth in national income that has occurred in the current period. Only 34 percent of the overall increase in national income since the end of 2001 has gone to increases in workers’ pay, a smaller fraction than in any other expansion since World War II. For the first time on record, corporate profits have captured a larger share of the income growth in a recovery — 46 percent of it — than wages and salaries have. (See Appendix Table 2.) Wages and Salaries’ Share Has Reached Lowest Level on Record The result of these trends is that, in 2006, the share of total national income going to wages and salaries was at the lowest level on record. (See Appendix Table 3.)[3] - Some 51.6 percent of total national income went to wages and salaries in 2006. This is a lower share than in any of the 77 previous years for which these data are available.
· At this stage of the 1990s business cycle, wages and salaries made up about 53 percent of national income — about 1½ percentage points more than today Each percentage point of national income is now equivalent to $117 billion. · Corporate profits captured 13.8 percent of national income in 2006, which is the largest share in any year on record. At this point in the business cycle of the 1990s, corporate profits were receiving less than 12 percent of national income. Growth of Total Employee Compensation Also Weak In contrast to wages and salaries, employer contributions for pensions and health insurance have increased at close to the average rate for a post-World War II recovery and have captured a considerably larger share of total income growth than is typical for a recovery period. Some have argued that the relatively strong growth in non-wage forms of employee compensation has crowded out wage growth. For example, Allan Hubbard, economic advisor to President Bush, stated, “Employers are spending more money on health care, and that’s robbing people of wage increases.”[4] Rising health care costs are clearly a concern and are likely to have contributed to the poor performance of wages and salaries. They do not seem, however, to be the primary cause of the declining share of national income that is paid out in wages and salaries. This can be seen by examining trends in total employee compensation as a share of national income (i.e., by tracking changes over time in the percentage of national income that is paid to, or on behalf of, employees as wages and salaries, pensions and health insurance contributions, and contributions for government social insurance). If wage stagnation had been largely or fully offset by increases in employer contributions for health and pensions, then total employee compensation (as distinguished from wages and salaries) would have performed about as well in the current recovery period as in past recoveries. It has not done so. [5] - The average annual growth rate of total employee compensation during the current recovery has been 2.5 percent, after adjusting for inflation. This is well below the 4.1 percent average growth rate for previous post-World War II recoveries.
· The share of national income going to total employee compensation in 2006 — 64.0 percent — is at its lowest level since 1968, except for 1997. [6] Data Consistent with Other Evidence That Workers Have Fared Poorly in Current Recovery The Commerce data show that workers as a group have reaped an unusually small share of the economic gains from the current recovery. These data are consistent with other evidence showing that working-age households have fared poorly. For example, employment has grown more slowly during the current recovery than in any comparable post-World War II period. In addition, average hourly wages, adjusted for inflation, rose over the first two years of the recovery but then fell in 2004 and 2005; at the beginning of 2006, the average hourly wage was lower than when the recession ended in November 2001. Moreover, according to Census data, median income among working-age households in 2005 — four years into the recovery — also was lower than during the recession, after adjusting for inflation. Median income among working-age households fell in each year from 2001 through 2005.[7] High-income households, meanwhile, have reaped large gains from the expansion. Recent data from economists Thomas Piketty and Emanuel Saez show that income concentration jumped dramatically in 2004 and 2005, and that in 2005 the share of national income going to the top one percent of households returned to its 2000 level, the highest since 1929. [8] The new Commerce Department data provide further evidence of this trend. The benefits of rapid growth in corporate profits tend to accrue largely to high-income households, since they hold a highly disproportionate share of corporate stock. Middle- and lower-income household typically are much more heavily dependent on wage and salary income. In the second half of 2006, average hourly wages, adjusted for inflation, increased, according to Labor Department measures. The hope is that these increases indicate a change of course and that working households will begin to see stronger income gains. As the Commerce data show, however, recent developments have not been nearly enough to reverse the effects of the trends of the past few years. 
End Notes: [1] Commerce Department, “Gross Domestic Product and Corporate Profits Release,” March 29, 2007. [2] Corporate profits as a share of national income were at a higher level in the second half of 1950, but not in the year as a whole. [3] National income provides a better measure than the Gross Domestic Product of the total income available in the economy because it takes into account the losses that result from depreciation of existing capital. In addition, for technical reasons, the Commerce Department data on national income are more directly comparable to the Commerce Department data on wages and salaries and corporate profits than the GDP data are. The essential trends described here are the same, however, regardless of whether national income or GDP is used. Considered as a percentage of GDP, wages and salaries in 2006 are at about the same level as in 2005 and are otherwise at their lowest level on record. Corporate profits are at their highest level since 1950. [4] John McKinnon and Sarah Lueck, “Bush Sets Focus on Health Care for 2006 Agenda,” Wall Street Journal, January 12, 2006. [5] There are also other reasons to question the claim that rising health care costs bear primary responsibility for slow wage growth. See Sylvia Allegretto and Jared Bernstein, “The Wage Squeeze and Higher Health Care Costs,” Economic Policy Institute, January 27, 2006. [6] Employee compensation’s share of national income was lower prior to 1968 due to lower employer contributions for insurance and pensions and for government social insurance. [7] “Poverty Remains Higher, and Median Income for Non-Elderly Is Lower, Than When Recession Hit Bottom,” Center on Budget and Policy Priorities, revised August 30, 2006. [8] See Aviva Aron-Dine, “New Data Show Income Concentration Jumped Again in 2005: Income Share of Top 1% Returned to Its 2000 Level, the Highest Since 1929,” Center on Budget and Policy Priorities, March 29, 2007, http://www.cbpp.org/3-29-07inc.htm. In viewing Appendix Table 2: Note that out of the last ten Recessions, all but three occurred under Republican Presidents: 1954 and 1958 under President Eisenhower (The 1961 Recession began shortly after Eisenhower left office); 1970 under President Nixon; 1975 under President Ford (who took office after Nixon resigned); 1982 under President Reagan; 1991 under President George H.W. Bush; and 2001 under President George W. Bush. Republicans controlled both Houses of Congress for six years prior to the 2001 recession. (2008 We are currently in another recession under Dubya, but we won’t know what the results will be until five years from now, so that obviously has been left off of the chart. Republicans controlled both Houses of Congress for 12 of the previous 14 years prior to this last recession. And while Democrats have a slight majority in both Houses of Congress now, they haven’t been able to pass any laws rescinding Bush’s and Republican policies because they don’t have enough votes – they need Republican votes in order for the bills to pass, and for Bush to sign them – not to mention the 2/3rds majority they need to override Bush’s vetoes.) The chart doesn't include the recession that we are currently in under President George W. Bush. Counting the current recession, that would be at least 8 recessions under Republican Presidents out of the last 11 recessions. Going back further to the Great Depression, Calvin Coolidge (Republican) was President 1923-1929, prior to and during the Great Depression, with Herbert Hoover (Republican) 1929-1933 following him. He didn't do a very good job at getting us out of the Depression, so he only served one term. Republicans also had complete dominance in both houses of Congress for the eight years prior to and during the Great Depression, and for three years after the Depression hit, with heavy majorities. Franklin Delano Roosevelt (Democrat) 1933-1945, did such a good job cleaning up their mess, that he was elected to four terms in office. Democrats in Congress also had much to do with the changes in policy that Roosevelt was able to get passed because they had been elected to replace the Republicans who had gotten them into the Depression in the first place. They enjoyed dominance in both houses for the twelve years during Roosevelt’s presidency and the two years after. Note also the highest wage and salary average percentage shares / (recovery) (percentage of the total national income growth) for the five years after the recessions, occurred under Democrats Harry S. Truman 59.9% (1945-1953), John F. Kennedy 49.8% (1961-1963) and President Jimmy Carter 50.6% (1976-1980); the lowest wage and salary percentage shares coming from Republican Administrations – Nixon (1969-1974) 35.3%, Reagan (1981-1989) 37.0%, and Bush (2001-2009) 34%; while corporate profits increased the most under Republican President George W. Bush 45.9% (2001-2009) followed by Bill Clinton 29.5%, John F. Kennedy 22.9% and Lyndon Baines Johnson 22.9%(1963-1969), all Democrats. Bill Clinton’s recovery after George H.W. Bush’s recession, was only a little under average for wage and salary percentage shares 45.9% (Eisenhower and Reagan did a little better at 48.9%, 49.6% and 49.2% respectively), and second only to George W. Bush’s for corporations at 29.5%. Wages and Salaries recovery fared the worst under George W. Bush 34% - even worse than under Nixon 35.3% and Reagan 37% and 49.2%. (Do you see a trend here?) McCain wants not only to continue Bush’s policies, but to reduce corporate taxes, while increasing taxes on the poor and middle income individuals as well as taxing Social Security and health benefits. It is clear that both wage and salary earners, and corporations do well under Democratic Presidents; but even taking into consideration that the latest numbers reflect excessive profit taking by the big Oil Companies, it is obvious that while wage earners don't do well, corporations are heavily favored under Republican Presidents. When it comes to the economy, if you are looking for a recovery, which political party is in the White House matters. And it matters a great deal. Click on the links below to find lies about the economy and taxes that McCain and the Republican Party are selling you to get him elected: http://www.factcheck.org/elections-2008/the_budget_according_to_mccain_part_i.html] http://www.factcheck.org/elections-2008/the_budget_according_to_mccain_part_ii.html] http://blog.washingtonpost.com/fact-checker/2008/05/mccains_fantasy_war_on_earmark.html] http://blog.washingtonpost.com/fact-checker/2008/06/mccain_vs_obama_on_taxes.html]
Who Has Profited the Most Under the Bush Administration? http://www.cbpp.org/3-29-07inc.htm
Revised October 24, 2007 NEW DATA SHOW INCOME CONCENTRATION JUMPED AGAIN IN 2005:
Income Share of Top 1% At Highest Level Since 1929
By Aviva Aron-Dine Economists Thomas Piketty and Emmanuel Saez recently made available an updated version of their groundbreaking data series on U.S. income inequality.[1] The data are unique because of the detailed information they provide regarding income gains at the top of the income scale and because they extend back to 1913. The data offer important insight into the distribution of income gains during the current economic expansion and may shed some light on recent revenue trends (see box below). The new data show: - Between 2004 and 2005, the average income of the highest-income 1 percent of households increased by $119,000, after adjusting for inflation. The average income of the bottom 90 percent of households increased by about $550.
- Income concentration, which increased in 2003 and rose sharply in 2004, jumped again in 2005. The share of pre-tax income in the nation that goes to the top 1 percent of households increased from 17.8 percent in 2004 to 19.4 percent in 2005. Only three times since World War II has the percentage of income received by the top 1 percent risen this much in a single year (in percentage point terms). One of those three times was 2004.
- The jump in income concentration in 2005 brought the percentage of income going to the top 1 percent of households to its highest level since 1929. [2]
- The large jump in income concentration reflects another year of very uneven income gains. From 2004 to 2005, the average incomes of the bottom 90 percent of households grew by less than 2 percent, after adjusting for inflation. In contrast, the average income of the top 1 percent of households experienced a jump of nearly 14 percent, after adjusting for inflation. Moreover, average income is pulled up by gains at the top of the income scale; IRS data suggest that even the less than 2 percent gain among the bottom 90 percent of households may well be due mostly to gains in the top half or top quartile of the income spectrum.
- The top 1 percent of households (those with annual incomes above about $350,000 in 2005) garnered 47 percent — nearly half — of the total income gains in 2005. More than two thirds of total income gains accrued to those in the top decile (the highest-income 10 percent) of the income scale. Less than one third of total income gains went to the bottom 90 percent of households.
- Income gains were even more pronounced among those with even higher incomes. The incomes of the top one-tenth of 1 percent (0.1 percent) of households grew more rapidly than the incomes of the top 1 percent of households. The share of national income received by the top one-tenth of 1 percent of households increased by 1.0 percentage point from 2004 to 2005 and was as high as in 2000, when it reached its highest level since 1929. (See Table 1.)
Table 1:
Change in Income Shares, 2004-2005 | Share of Households | Share of National Pre-tax Income, 2004 | Share of National Pre-tax Income, 2005 | Percentage Point Change | Bottom 99% | 82.2% | 80.6% | -1.6 | Top 1% | 17.8% | 19.4% | +1.6 | Top Tenth of 1% | 7.8% | 8.8% | +1.0 | Note: A percentage point of income was equivalent to $75 billion in 2005.
Figures may not add due to rounding. Data May Shed Some Light on Recent Revenue Trends In each of the past three years (fiscal years 2005, 2006, and 2007), federal revenues have come in considerably higher than expected. Each year, the Administration and other tax-cut supporters have credited the Administration’s tax cuts with the positive revenue “surprises.” Many tax policy experts, however, have warned against attaching too much significance to revenue surprises, noting that such surprises are common and that there were negative revenue surprises in 2001, 2002, and 2003. They have pointed out that revenues often come in higher than expected during expansions and lower than expected during recessions, regardless of tax policies. For example, there were substantial positive revenue surprises at the equivalent point in the 1990s business cycle, following tax increases in 1990 and 1993.* Some experts also have observed that part of the explanation for recent revenue surprises might be growing income inequality. High-income taxpayers pay taxes at higher rates. As a result, an increase in the share of the nation’s income that goes to these households leads to an increase in revenues, even if there is no increase in overall economic growth. The Congressional Budget Office and Goldman Sachs, among others, suggested that this might be part of the explanation for higher-than-expected 2006 revenues.** The new Piketty Saez data provide some support for this theory. Because of lags in the availability of data, CBO likely made its 2006 revenue projections based on income distribution data available only through 2003 and its 2007 revenue projections based on income distribution data only through 2004. But the new Piketty Saez data show that, between 2003 and 2005, the share of national pre-tax income going to the top 1 percent of households increased by 3.2 percentage points, the largest two-year increase since the 1920s; about half of this large jump occurred between 2004 and 2005.*** While data are not yet available for 2006 and 2007, it is highly unlikely that this increase in income concentration was reversed. Thus, the substantial increases in income concentration in 2004 and 2005 may have contributed to the 2005, 2006, and 2007 revenue “surprises.”
*See Jason Furman, “Do Revenue Surprises Tell Us Much About the Cost of Tax Cuts?” Center on Budget and Policy Priorities, July 18, 2006, http://www.cbpp.org/7-18-06tax.htm. **Congressional Budget Office, “Monthly Budget Review,” May 4, 2006, and Goldman Sachs, “The Macro Effects of Rising Income Inequality,” June 30, 2006. *** If capital gains, which are taxed at lower rates, are excluded, the income share of the top 1 percent increased by 2.5 percentage points between 2003 and 2005, the largest increase since the 1920s except for 1986-1988. |
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The Piketty and Saez data provide valuable insight into the distribution of income gains during the current economic expansion. The incomes of nearly all groups fell in 2001 and 2002. The incomes of those at the top of the income spectrum fell by the largest percentage (at least in part as a result of the decline in the stock market), and their share of total income consequently declined. In 2003, however, when income growth resumed, so did the long-term trend toward increased income inequality. And in 2004, when income growth accelerated, inequality rose sharply. The 2005 data provide further evidence that the long-term trend toward growing income concentration has resumed full force in this expansion. With the percentage of income going to the top 1 percent of households already above its 2000 level (the level it reached nine years into the 1990s expansion) — and with income concentration thus returning to its highest level since before the Great Depression — it is difficult to argue that these data depict an insignificant, short-term blip. Prominent Leaders, Including President Bush, Have Acknowledged a Need to Address Rising Inequality “I know some of our citizens worry about the fact that our dynamic economy is leaving working people behind. We have an obligation to help ensure that every citizen shares in this country's future. The fact is that income inequality is real; it's been rising for more than 25 years. ”
- President Bush, January 31, 2007 “[R]ising inequality is a concern in the American economy. It's important for our society that everyone feels that they have an opportunity to participate in the opportunities that the economy is creating.”
- Federal Reserve Chairman Bernanke, February 15, 2006 “[There is a] really serious problem here, as I’ve mentioned many times before this [House] committee, in the consequent concentration of income that is rising...”
- Former Fed. Chairman Greenspan, July 20, 2005 |
End Notes: [1] Piketty and Saez rely on detailed Internal Revenue Service micro-files for most years, but use more aggregated IRS data and statistical techniques to extend their series back to 1913 and forward to 2005 (years for which detailed micro-files are not available). They recently updated their 2005 estimates based on updated IRS data. For details, see Thomas Piketty and Emmanuel Saez, “Income Inequality in the United States: 1913-1998,” Quarterly Journal of Economics, February 2003. The updated data series is available at http://elsa.berkeley.edu/~saez/TabFig2005prel.xls. [2] Piketty and Saez present three different data series, each of which uses a different income concept and, therefore, yields somewhat different estimates of the share of income going to each income group. (For example, estimates of the share of income going to the top 1 percent in 2005 range from 17.4 in one series to 19.4 percent in the series we emphasize here to 21.9 percent in the third series that Piketty and Saez present.) We focus on the series that includes capital gains income in measuring the income that households receive, but ranks households according to their non-capital gains income. The authors indicate that this approach to sorting households gets around the volatility associated with capital gains realizations and provides a better measure of the underlying distribution of income than a measure that sorts households according to income that including capital gains. But the authors also present a data series that includes capital gains income and ranks households by income that includes capital gains and a series that excludes capital gains altogether. In the series that includes capital gains and ranks households by income including capital gains, the percentage of income going to the top 1 percent of households in 2005 was at its highest level since 1929. In the series that excludes capital gains, the percentage of income going to the top 1 percent of households in 2005 was at its highest level since 1936. The following is a report from the New York Times comparing income and taxes from 1979 to 1997. Apparently the gap demonstrated by this study wasn't enough for Bush and the Republican Party. They just had to expand it even further during Bush's terms in office. http://www.racematters.org/incomegaprichpoor.htm Study Details Income Gap Between Rich and PoorBy RICHARD W. STEVENSON WASHINGTON, May 30 -- The wealthiest households had income gains over the last two decades that far outstripped those of households at the other end of the spectrum, but the relative tax burden of people with the highest incomes also increased substantially, new government figures show. In a comprehensive look at incomes and taxation, the Congressional Budget Office found that the share of pretax income going to the top 20 percent of households rose to 53.2 percent in 1997 from 45.9 percent in 1979. In that period, the share of income going to the bottom 60 percent fell to 26.9 percent from 32.2 percent. For the bottom 20 percent, the share of income fell to 4 percent in 1997 from 5.3 percent in 1979. During the 18 years covered by the study, pretax and after-tax income increased for all except the bottom 20 percent of households. Average pretax income among the top 1 percent increased 142 percent, to $1.02 million in 1997 from $420,200 in 1979. Among the top 20 percent of households, average pretax income rose 52.9 percent, to $167,500 from $109,500. But pretax income for the lowest 20 percent of households declined 3.4 percent, to $11,400 in 1997 from $11,800 in 1979. All figures are adjusted for inflation. The budget office released its study last week, and its findings generally tracked other research into the gap between rich and poor. "The distribution of income among households grew substantially more unequal during the 1979-1997 period," the budget office said. An analysis of the budget office study released today by the Center on Budget and Policy Priorities, a liberal research group, reached a similar conclusion. The group said that "income gaps between rich and poor and between the rich and middle class widened in the 1980's and 1990's alike and reached their widest point on record in 1997." Income inequality is among the most politically charged of issues. Some economists, especially conservatives, say income distribution figures exaggerate the problem because they do not consider mobility -- that is, the fact that many people who have low incomes at one point in their lives earn substantially more and move up the income ladder. Conservatives also say that the real issue is not the distribution of income but whether people at all levels are better off. Confirming with statistics what common sense suggests, the study found that most people benefited from the generally strong economy of the last 20 years, with 80 percent of the nation's 103 million households enjoying income gains. Average pretax income for all households rose to $62,400 in 1997 from $48,500 in 1979, an increase of 28.7 percent. For the middle 20 percent, income rose to $45,100 from $41,400, a gain of 8.9 percent. As they have earned more, upper- income households have assumed a larger share of total federal tax liabilities. The top 20 percent of households paid 64.7 percent of taxes in 1997, up from 57.1 percent in 1979. The top 1 percent of households -- about one million of them -- paid 23 percent of total federal taxes in 1997, up from 15.5 percent in 1979. The top 1 percent of households, representing 15.8 percent of pretax income, paid 32.9 percent of individual federal income taxes in 1997. In 1979, the top 1 percent, representing 9.3 percent of pretax income, paid 18.7 percent of income taxes. The poorest households benefited from changes in tax policy that reduced their tax bills and in many cases provided larger cash payments to working families through the earned-income tax credit. The share of tax payments of the bottom 20 percent of households declined to 1 percent in 1997 from 1.9 percent in 1979. Partly because of the tax changes during the last decade, after-tax income among the poorest 20 percent of households rebounded somewhat in the 1990's after falling during much of the 1980's. After-tax income rose to $10,800 in the bottom 20 percent of households in 1997, from $10,400 in 1991. The figure was $10,900 in 1979. The share of total taxes fell for the middle 60 percent of households and the bottom 20 percent, in part because of the 1993 tax increase on upper-income people. The share of tax payments for the middle 20 percent of households declined to 10.7 percent from 12.9 percent. But the effective tax rates fell for all income groups over the 18 years covered by the study. The tax rate for the bottom 20 percent of households fell to 5.6 percent in 1997 from 8.1 percent in 1979, while the effective tax rate for the top 20 percent of households by income declined slightly, to 27.7 percent from 27.8 percent. For the top 1 percent, the effective tax rate fell to 33.3 percent from 37.3 percent. http://www.frbsf.org/publications/economics/letter/2006/el2006-35.html#sub1 FRBSF Economic Letter 2006-35; December 8, 2006 The Mystery of Falling State Corporate Income Taxes Download and Print PDF Version (323KB) The share of corporate profits in the U.S. collected by state governments via the corporate income tax has fallen sharply in the past quarter century. Some commentators have even referred to this as the "disappearance" of the state corporate income tax (SCIT). Such claims, of course, are an exaggeration—after all, a longer perspective reveals that the share of profits collected by state corporate income taxes was actually lower in the 1960s than it is now. Nonetheless, state public finance experts and state policymakers surely are correct in noting that, since around 1980, corporate income taxes have become an increasingly smaller share of total state tax revenues and a smaller share of businesses' costs. This Economic Letter attempts to unravel the mystery of falling state corporate income taxes by analyzing the primary determinants of these taxes and reviewing how they have changed in the last 25 years. The primary factors determining SCIT Before discussing the possible causes of the decline in SCIT/profits, it is useful to go over how corporate business income is taxed by states. First, a corporation determines its federal taxable income; in general, states use this as the basis for their own corporate income tax. The corporation then allocates this income to any state in which it has a sufficient presence—or "nexus"—according to each state's allocation formula. Once a business has allocated income to a state, it then subtracts any state-specific deductions (for example, federal tax payments are deductible in a small number of states) to arrive at state taxable income. Finally, the firm applies the legislated (or statutory) corporate income tax rate to its state taxable income and then reduces that amount by the value of any state-specific tax credits. Thus, three factors influence a state's corporate tax revenues as a share of profit (income)—its apportionment of federal taxable income, its legislated tax rate (adjusted for deductions), and its tax credits—and common trends in these factors among states will have similar effects on the aggregate share of profits captured by state taxes. In addition, this aggregate share will be affected by the share of corporate profits that is considered federally taxable and by the distribution of income across states. How have the primary SCIT factors changed? One area of change has been in the formulas dictating how businesses allocate federal taxable income to the states. Although each state has leeway in choosing its formula (subject to the strictures of Public Law 86-272, which bans states from taxing businesses with no physical presence in the state), traditionally, the formulas have required a business to allocate income to a state in proportion to its share of the business's nationwide sum of sales, payroll, and property, where each of the three is equally weighted. However, over the past 30 years or so, most states have increased the weight on sales in this formula (some all the way to 100%) to encourage businesses to invest and create jobs in their states. As a result of different apportionment formulas, it is quite possible for more or less than 100% of a business's income to be allocated among states. For example, a manufacturer located in state A that sells its product in state B could end up allocating much less than 100% of its federal taxable income to states A and B combined if state A's formula were based only on sales. Some states have "throwback" rules to tax at least a portion of the income that escapes state taxation, but these are limited and far from universal. The increasing non-uniformity across states in apportionment formulas over the past 30 years has afforded businesses increasing latitude to site operations so as to maximize the share of federal taxable income that escapes state taxation. It is likely that this increased non-uniformity has contributed to the declining share of profits captured by states. However, it also should be noted that the non-uniformity trend appears to have reversed itself somewhat in recent years, with the majority of states now weighting sales primarily or exclusively, so the contribution of this factor has probably waned.
A closely related factor that many state tax experts have pointed to for the decline in SCIT is increased tax planning or avoidance by businesses. As Figure 1 shows, it appears that avoidance of federal corporate income tax (FCIT) is probably not a significant part of this explanation, as SCIT has fallen not just relative to total profits but also relative to FCIT over the last 25 years. Still, there are other possibilities to consider. For example, in recent years, a good deal of attention has focused on the use of so-called passive investment companies or PICs. Because a handful of "tax haven" states do not tax specific forms of income, such as trademark royalties or interest income on loans, large multistate businesses often set up subsidiaries in these states to which the rest of the company pays large royalty fees or interest on loans. This effectively shifts income out of other states and into the tax haven states, avoiding state taxation on the income. The use of PICs has become increasingly common since the mid-1980s. Intracompany income transfers are not publicly reported, so the extent to which this could explain the decline in SCIT's share of profits is unknown, but it seems likely that it is of at least some significance. 
A third factor that would lower the share of profits captured by state corporate taxes could be a trend toward lower state tax rates, especially if it occurred disproportionately among states with large shares of national income. In fact, however, corporate tax rates have been roughly constant, on average, since 1980.This is shown in Figure 2, which plots the average top marginal corporate income tax rate among states from 1980 to 2004. (These rates have been adjusted for the deductibility of federal taxes from state income for those few states that allow such deductibility).The figure provides both an unweighted average and an average weighting states by their 2004 gross state products (as a proxy for corporate income).While both measures have fallen since 1992, they are at or above where they were in 1980.Thus, the decline in state corporate taxes’ share of profits since 1980 cannot be attributed to changes in legislated tax rates. A third factor A third factor Another possible factor behind the decline in state corporate taxes' share of profits could be shifts in economic activity toward states with lower tax rates. Fisher (2002) analyzed this possibility in detail and found that states with higher legislated tax rates actually have experienced faster economic growth than other states, at least since the late 1980s. Moreover, there is a zero, or a slightly negative, correlation between legislated tax rates and the sales-weight in apportionment formulas, so it does not appear that high tax rates are offset by more favorable apportionment rules. A third factor
A final important determinant of state corporate taxes is credits. Many states offer businesses various tax credits to encourage particular activities. The two most common types are investment tax credits (ITCs) and research and development (R&D) tax credits (RDTCs). The value of a credit is determined by multiplying the credit rate by some measure of the targeted activity, such as capital expenditures. A trend toward higher credit rates, even if the level of targeted activity remains the same, would have a negative effect on state corporate tax revenues. To the extent that these credits have shifted economic activity, and, hence, corporate income, toward states offering these credits, the negative effect is even greater.
Figure 3 shows that average credit rates for ITCs and RDTCs have indeed risen dramatically since 1980. The average ITC rate rose from 0.2% in 1980 to 1.4% by 2004, while the average RDTC rate rose from 0 to 3.5%. The increase in each of these average credit rates is due to a combination of an increase in the number of states with credits and an increase in the credit rates for those states with a credit. In 1980, just six states had an ITC and no state had an RDTC. By 2004, 20 states had an ITC and 31 had an RDTC. A simple back-of-the-envelope calculation provides a rough sense of the extent to which these tax credits could explain the declining SCIT share of profits. Based on national data on business investment in equipment and structures and R&D, combined with the average credit rates, I compute that the amount of these credits (combined) grew by $22.4 billion between 1980 and 2004. If average credit rates had not changed, the credit amount instead would have grown by just $1.7 billion; hence, about $21 billion can be attributed to the change in credit rates. If this $21 billion were added to 2004 state tax revenues, I calculate that the SCIT share of profits would have fallen by about 25% rather than the 50% fall that actually occurred. Conclusion This Economic Letter has discussed a number of possible factors behind the steep drop in state corporate tax revenues as a share of profits since 1980. The average credit rate for the two most common types of credits has risen considerably since 1980, while there has been no decline in corporate tax rates and no apparent shift in economic activity toward states with lower tax rates. I find the increase in average credit rates could explain around half of the decline in SCIT's share of profits. The increasing non-uniformity of taxation across states and the increasing exploitation of this non-uniformity also likely has played a role. Specifically, the non-uniformity in apportionment formulas and the use of passive investment companies likely have increased the share of federal taxable income that escapes state taxation altogether. Daniel Wilson
Economist Reference Fisher, Peter. 2002. "Tax Incentives and the Disappearing State Corporate Income Tax." State Tax Notes (March 4) pp. 767-774.
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January 14, 2008, 2:37 pm As the debate turns to economic stimulus, we’re starting to hear this: “Bush realized that the economy needed help, so he asked Congress to enact tax cuts to provide stimulus. And this turned the economy around.” None of this is true. There were two main Bush tax cuts — EGTRRA, enacted in mid-2001, and JGTRRA, enacted in 2003. (What do the letters stand for? All sorts of good stuff. If we ever have legislation decreeing death of the first-born, it will be named MPAPRA, the Motherhood Patriotism and Apple Pie Reconcilation Act, or something like that.) (I think I screwed up the letters on the chart, but it really doesn’t matter.) Here’s the employment-population ratio, which gives a pretty good read on the state of the economy, and the timing of the two tax cuts. Employment and tax cuts EGTRRA arrived in the middle of a recession, but that was an accident. It was devised in 1999, when the economy was booming, to defend Bush’s right flank against Steve Forbes. During the 2000 campaign, Bush sold it as a way of returning budget surpluses to the people, with not a hint that it had something to do with fighting recession. The recession story was an after-the-fact reinvention. And EGTRRA didn’t seem to help all that much. Formally, the recession ended in late 2001, but most labor-market indicators continued to worsen into mid-2003. JGTRRA, which mainly cut tax rates on capital gains and dividends, was followed by a real recovery. And the Bushies naturally claimed the credit. But the real source of the expansion was the housing boom, which had very little to do with the tax cut. This is today’s history lesson. January 14, 2008 3:19 pm How Much Do You Know About Taxes and Economics? From Pearson Prentiss Hall / R. Glenn Hubbard and Anthony Patrick O’Brien
Click on the link below for an Economics and Tax Quiz. See if you know as much as a college student taking a basic economics course.
http://wps.prenhall.com/bp_hubbard_econ_1/47/12095/3096334.cw/index.html Here's a short non-interactive version (you won't be able to click on the questions - just print out this section with the answers or scroll down to get the answers for each question): 
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