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From bad to worse, regressive to more regressive
The new federal tax law caps the amount of state and local taxes (SALT) filers can deduct at $10,000. A bi-partisan proposal in Congress would roll back this provision. Meanwhile, states, particularly those with a larger concentration of high-income earners, have been trying to figure out a way to use their tax codes to restore this benefit to taxpayers. Recent ITEP analyses and reports explain that undoing the SALT cap is neither easy nor desirable.

  • Federal SALT repeal would make the tax overhaul even more regressive: The $10,000 SALT cap mostly affects the highest-income households. And it’s already well known that the federal tax law showers the most of its benefits on those very same households. ITEP senior fellow Steve Wamhoff writes that repealing the SALT cap while leaving the remainder of the tax bill in place would make the federal tax system more regressive. The analysis includes national and state-by-state data on the effect of SALT repeal.
  • State SALT fixes would benefit the rich and may be unworkable: States are considering varied schemes to “work around” the new SALT caps, including replacing state income taxes with payroll taxes or converting state and local taxes into charitable contributions so taxpayers can deduct them on their federal taxes. ITEP Executive Director Alan Essig writes that both ideas would create more problems than they would solve.

Corporations are giving out teaspoons of sugar to help the bad medicine go down
Opinion polling shows the public continues to think the new corporate tax cuts will benefit corporations, not workers. This has prompted a far-reaching corporate campaign to convince the public that trickle-down tax policies truly work.

  • Apple is obscures a massive tax cut by announcing a big tax payment: The iPhone maker recently announced that it will pay $38 billion in taxes on its offshore cash. This sounds incredible, but it masks how much of a tax break the company is getting. At the end of 2017, it had $252 billion offshore, on which it had paid little to no tax to any country. This means that, absent its new tax break, Apple would have owed $78 billion in U.S. taxes when these profits were repatriated. So the correct interpretation is not that the company paid $38 billion in taxes but that it avoided $40 billion.
  • Walmart’s attempt to demonstrate it is a good corporate citizen isn’t going well: The retail behemoth announced last week that it will boost its wage for entry-level retail work to $11 an hour in addition to giving bonuses. ITEP Senior Fellow Matthew Gardner writes that the give back to employees amounts to a tiny fraction of the company’s $2.2 billion tax cut windfall. He also notes that this wage boost comes on the heels of a $1 per hour increases in 2015 and 2016. The company is likely just trying to remain competitive. Target Inc., for example, already has an $11 hourly wage.
  • Many profitable corporations already were paying average effective rates of 21 percent or less: More than 80 companies have jumped on the bandwagon and announced jobs creation, investment or bonuses as a result of the tax bill. In a recent post, ITEP Senior Fellow Steve Wamhoff looks at the effective tax rates of some of these companies that had been consistently profitable over last decade. Thirteen of the companies announcing wage boosts or new investments were included in ITEP’s most recent corporate study — and they had a combined average effective tax rate of 19.1 percent from 2008 to 2015.

Tax breaks intended for craft breweries are really going to corporate giants
The tax bill cuts federal excise taxes on the production and distribution of beer, wine and distilled spirits, including (but not limited to) craft brewers. But 83 percent of all beer produced in the United States comes from a handful of companies that crank out at least 2 million barrels a year. This means that the vast majority of the beer tax cut in the new tax law goes to very large companies. Read more

New tax law allows the affluent to write off costs of private school education Taxpayers are still learning about the intended and unintended consequences of the major tax overhaul that Republican leaders ramrodded through late last year. One little-noted provision subverts state laws that prohibit the use of public dollars for private schools by allowing taxpayers to use 529 plans to pay for K-12 tuition. Read more

Outsourcing IRS business to the private sector has failed taxpayers
Lawmakers on both sides of the aisle have championed using private companies to collect IRS debts. Turns out this has been a lousy deal for taxpayers but lucrative for companies. A report released last week found that the use of private debt collectors has cost the federal government $3 for every dollar of unpaid tax it brings in. In contrast, directly funding the IRS routinely yields between $4 and $10 for each dollar of enforcement spending. Read more

We Must Protect Dreamers
ITEP research has revealed undocumented immigrants contribute significantly to state and local tax systems. Beyond immigrants’ economic contributions, a DACA fix is simply the right thing to do. Read more

ITEP State Rundown: Budget Deficits, Online Sales Tax and More
The U.S. Supreme Court has agreed to take on the issue of online sales tax collection. States have lost billions in sales tax revenues as more transactions have shifted online from brick-and-mortar stores, and the laws determining who is required to collect and remit sales taxes haven’t kept up. In other news, grappling with the local impact of federal tax reform remains front and center in states including Idaho, Michigan, Montana, and New York. And while some states like Texas and West Virginia are advocating for measures that would increase procedural hurdles to raising needed revenue in the future, other states like Hawaii and Washington State are advocating progressive proposals to make a new state EITC refundable and enacting a carbon tax. Read more

Institute on Taxation and Economic Policy (ITEP) - 1616 P Street NW, Suite 200 - Washington, DC 20036 - 202.299.1066

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