Rebuilding Prosperity for States and Families

This and more from the Progressive States Network:

Progressive Tax Reform and Revenue Generation
Context: Although the recession may have subsided at the national level, 2011 still finds states reeling from historic budget shortfalls, high unemployment, and significant revenue declines, and will continue to face fiscal challenges in the upcoming year. The lingering effects of the downturn and subsequent revenue shortfalls have forced state lawmakers to consider extreme fiscal measures to confront budgetary constraints. What’s more, states have already utilized a substantial portion of the federal funds available for state fiscal relief through the American Recovery and Reinvestment Act (ARRA).

Why this Matters: These dire circumstances merit progressive tax and budget policy as a means to provide essential services, make critical investments in public structures and long-term growth areas, support working and middle-class families who have been disproportionately hit by the impact of the downturn, alleviate the disturbing regressivity of state tax structures, and ensure that all taxpayers are contributing their fair share.

Some states and localities have unfortunately reverted to regressive proposals that will only exacerbate economic pain. For instance, conservative officials in some states are proposing providing large corporations with enormous tax breaks and reducing or even eliminating corporate, personal income, and estate taxes. In Michigan, lawmakers are attempting to push through over $1 billion in corporate tax breaks and considering cutting the state’s earned income tax credit (EITC), a tax credit that not only assists working families, but also has a direct positive impact on the economy. Similarly, Arizona Gov. Jan Brewer aims to balance her state’s budget on the backs of the vulnerable. Brewer has expressed her intent to cut health care for 280,000 Arizonans, while advocating for a slew of imprudent business tax cuts. These proposals would do little more than exacerbate fiscal pain, halt economic growth, and increase the burden on the middle class and working families.

While the right-wing continues on its anti-tax crusade, Colorado’s experience with the so-called Taxpayer Bill of Rights, or TABOR, exposes the fallacy of their manipulative rhetoric on the economic impact of tax cuts. In 1992, the state instituted TABOR, which places extremely strict limits on state and local revenue growth. Following implementation, TABOR resulted in: enormous declines in K-12 education funding and investments in students, increased tuition rates, the elimination of an affordable housing loan and grant program, an exponential rise in the number of children and adults who lacked health insurance, hindered essential services for vulnerable populations in the state, and limited the ability of the state to invest in infrastructure and other public structures that contribute to a healthy economy. Coloradans, including a range of elected officials and business leaders, were extremely dissatisfied with the insidious policy and, in 2005, voted to weaken TABOR rules.

Research and historical precedent demonstrate that raising revenue in a progressive manner is economically sound, politically feasible, and popular with the public - especially compared to massive cuts in investments in education, infrastructure, and health care that endanger a state's economic security and social vitality.

States should institute tax reforms that benefit the middle class. While the Right commonly argues that the tax onus falls squarely on the high-income families, the reality is that the richest have not been contributing their fair share for years. When you factor in sales and excise, property, and income taxes, states tax working families far more heavily than richer individuals, according to Who Pays?, a report from the Institute for Taxation and Economic Policy.

Moreover, corporate income tax revenue as a share of all taxes has fallen dramatically. In 1979, the corporate income tax accounted for 10.2 percent of total state tax revenue. In 2005, the figure fell to 6.5 percent. At the federal level, two thirds of American corporations and foreign corporations doing business in the United States pay absolutely no taxes, despite taking $2.5 trillion in sales.

The public also views the tax system as skewed to benefit the affluent. Sixty percent of voters say that “upper income people” are not paying their fair share, while 67 percent say that corporations are not.

Additionally, common-sense revenue solutions are needed to invest in the economy. As a report by the
Economic Opportunity Institute denotes, "every dollar of state spending generates $1.41 of economic activity. Much of that spending – 62%, or 88 cents – boosts the private sector. Cutting state spending means fewer purchases from suppliers, reduced contracts with service providers, less money from public and private employee paychecks circulating through local businesses – and of course, fewer public services."

Polling suggests strong public support to achieve these ends. In fact, a 2009 poll found that 79 percent of the public believes “government investments in education, infrastructure, and science are necessary to ensure America’s long-term economic growth.”

A joint statement released by the AFL-CIO and Chamber of Commerce -- two organizations that are usually on opposite ends of the ideological spectrum from one another -- expressed a similar sentiment on the need for investment and improvement in infrastructure. This illustrates that investment in economic growth is not a partisan issue -- it is a necessary step to prosperity that should garner support from both progressives and conservatives. As the statement reads, "whether it is building roads, bridges, high-speed broadband, energy systems and schools, these projects not only create jobs and demand for businesses, they are an investment in building the modern infrastructure our country needs to compete in a global economy... we hope that Democrats and Republicans in Congress will also join together to build America's infrastructure."