Cantor’s ‘Small Business’ Jobs Bill Gives Millionaires An Average Tax Cut Of $45,000

Seth Hanlon/guest blogger for Think Progress

Earlier today ThinkProgress reported that the House Ways and Means Committee is expected to approve a proposal by House Majority Leader Eric Cantor (R-VA) that is misleadingly entitled the Small Business Tax Cut Act.

People who have read the bill and not just its title, however, have noted that it is extremely poorly targeted at small businesses. It is, in fact, just another tax cut for rich people. Among the biggest beneficiaries would be the owners of extremely profitable businesses like Oprah Winfrey’s production company and professional sports teams like theSuper Bowl champion New York Giants, as well as highly paid professionals like lawyers, lobbyists, doctors, and consultants.

The Tax Policy Center has now estimated who benefits from Cantor’s bill. Among TPC’sfindings:

– The top 1 percent would receive an average tax cut that is 1000 times bigger than the average tax cut for people in the middle quintile ($23 vs. $23,000). The top 0.1 percent would receive an average tax cut of more than $130,000.

– Half of the tax benefits would go to millionaires, who comprise less than one-half of one percent of all taxpayers and only 4 percent of actual small business owners according to a recent Treasury study. Millionaires, on average, would get a tax cut of $45,000 — almost as much as median household income in 2010.

– Business owners with annual income of $200,000 or less — who comprise more than 75 percent of small business owners — would receive only 16 percent of the benefit from Cantor’s bill.

The Cantor bill would cost $46 billion and is not paid for. More debt-financed tax cuts for the rich: haven’t we tried that before?

Corporations get tax breaks thanks to ‘Citizens United’

by Justin Elliott, ProPublica/Via Raw Story

The Supreme Court’s 2010 Citizens United decision opened up the way for unlimited corporate spending on politics and has led to the proliferation of non-profit political groups that do not have to disclose the identities of their donors. But it turns out corporations may be getting another benefit from anonymous donations they give to these groups: a break on their taxes.

It all starts with the so-called “social welfare” groups that have become bigger players in the political world in the wake of Citizens United, which knocked down restrictions on campaign activity by such groups.

Tax experts say it’s possible that businesses are using an aggressive interpretation of the law to wring a tax advantage out of their donations to these groups.

It’s almost impossible to know whether it’s happening, partly because the groups— also known by their IRS designation as 501(c)(4)s—aren’t required to disclose their donors. (That’s why the contributions have been dubbed “dark money.”)

This state of affairs is not entirely new; social welfare groups have long been involved in politics. In 2000, for example, the NAACP National Voter Fund, which is a social welfare group,ran hard-hitting ads just days before the election criticizing George Bush for his opposition to hate-crimes legislation. What’s new is the scale of involvement of such groups in elections, which has expanded dramatically in the wake of Citizens United and is part of the increasing flood of money in elections.

The most prominent of a new crop of the groups is the Karl Rove-affiliated Crossroads GPS – which raised $43 million in the 2010 midterm elections and is expected to become an even bigger force this year after pledging to raise and spend $300 million with its sister super PAC, American Crossroads. Democrats are also expanding their use of the groups, led by pro-Obama Priorities USA, which raised $2 million last year.

Precisely because they offer anonymity, such groups may be attractive vehicles for companies that want to spend money electing a favored candidate or pushing an issue. In 2010, Targetgenerated a national backlash after giving $100,000 to a Minnesota group that ran ads supporting a candidate who opposed gay marriage. Liberal activists seized on the donation after it was revealed in state filings. If Target – or any other public or private corporation – gave to Crossroads GPS or Priorities USA, the public would never know.

Companies may also be deducting from their taxes the undisclosed donations they give to these groups.

There has always been this suspicion, but I can’t prove it,” says Frances Hill, a tax law professor at University of Miami who firstfloated the concept in a brief mention in the New York Times earlier this month. “It could be put into the advertising budgets, which for many companies are very large dollar amounts.”

This is where the aggressive interpretation of the tax code would come into play.

Corporations are allowed wide latitude in deducting business expenses from their taxes – everything from workers’ salaries to marketing expenses of all kinds. But one thing they’re explicitly barred from deducting is political expenditures.

As the law puts it, companies are not allowed to deduct money spent on “intervention in any political campaign” or “any attempt to influence the general public, or segments thereof, with respect to elections, legislative matters, or referendums.”

But tax experts say a company could argue that money given to “social welfare” groups isn’t political spending at all and that the donations are instead “ordinary and necessary” business expenses.

The company might argue, for example, that ads run by a social welfare group would favorably influence opinion on a public policy issue that affects the company’s business. Thus, say, an oil company would claim a business expense deduction on a donation to a social welfare group that was running ads criticizing President Obama’s policies on domestic drilling.

The company would also have to argue the money isn’t being used by the groups on political expenditures. So it comes down to where the IRS draws the line on what is a political expenditure, and whether ads run by such groups as Crossroads GPS or Priorities USA would cross the line.

Determining what is and is not a political expenditure is a matter of intense dispute. The IRS has historically looked at various factors in assessing nonprofit spending – things like whether an ad mentions a candidate for public office or whether it’s aired close to an election. But wiggle room remains.

“It’s a smell test,” says Lloyd Hitoshi Mayer, a Notre Dame professor who specializes in election and tax law. Donor corporations’ lawyers “could take the position that unless an ad is express advocacy, it’s not across the line for tax purposes.” Under this argument, an ad praising Obama’s stance on foreign policy wouldn’t be classified as political unless it explicitly told viewers to “vote for Obama.”

The social welfare groups themselves also have an interest in classifying their work as issue-based or educational since they risk losing their tax status if their primary purpose is political campaign activity. Campaign finance reformers have been pressing the IRS to crack down on the new social welfare groups that, they argue, are abusing their tax status.

“The organizations themselves may be arguing that their expenditures are not political, they are issue advocacy. If you accept that characterization, you would get a deduction,” says Marcus Owens, a partner at Caplin & Drysdale and former director of the IRS’ Exempt Organizations Division.

Crossroads GPS and Priorities USA did not respond to requests for comment about what proportion of their work they classify as political. The proportion matters because if corporations are in fact deducting donations as business expenses, they cannot deduct the part of the donation that was used for political purposes.

So where does all this leave us? If a company gave $1 million to Crossroads GPS or Priorities USA and claimed the donation was a business expense, that would be $1 million of the company’s revenue not subject to taxes. If the company was paying a 30 percent tax rate, that would mean savings of $300,000.

But this is entirely hypothetical because we can’t be sure whether this tax strategy is occurring. First, the social welfare groups don’t reveal their donors. So we don’t know which companies to ask about the deduction issue. Second, if companies are taking the deduction, it would be detailed in tax returns to the IRS that are confidential.

Missouri GOP Wants To Raise Taxes On 100,000 Seniors And Disabled Citizens To Pay For Corporate Tax Break

By Marie Diamond/Think Progress

Yesterday, Missouri lawmakers began a special session during which Republicans will try to pay for a business tax cut by eliminating a tax creditthat benefits more than 100,000 senior citizens and disabled people.

Missouri Republicans are just the latest in a long list of state legislatures that are funding morecorporate tax breaks on the backs of low- and middle-income residents. In this case, Republicans are targeting a property tax credit that helps offset higher rent for some of the state’s most vulnerable citizens:

At stake is a tax credit that provides up to $750 for lower-income elderly and disabled people. Called the “Circuit Breaker,” it is designed to be an offset for the property taxes included in the rent paid by people with incomes of $27,500 or less. The tax credit costs $53 million annually. Repeal is part of a package that also would impose limits and sunset dates on credits targeted to developers. The Circuit Breaker tax credit is the only credit slated for repeal.

“The real issue is that many people with disabilities simply can’t own their own homes because they live on a subsistence income,” said Edward Duff of Joplin, a member of the Governor’s Council on Disability. “It really is a sort of parity to offer these renters this shelter.”

Once again, Republicans have shown they are not averse to raising taxes, as long as they are on the poor. The “circuit-breaker” tax credit is such an important aid for low-income residents that29 other states offer property tax circuit-breakers or similar programs, according to the Center on Budget and Policy Priorities. Killing the credit would raise taxes on groups including disabed vets and senior citizens by up to $750 a year.

The proposal has drawn criticism from a diverse range of groups, from conservative anti-tax crusaders to liberal groups. Opponents include the AARP, the Association of Retired Missouri State Employees, the liberal-leaning Missouri Budget Project and the conservative United for Missouri, as well as agencies that work with the disabled on the local level.

The Post-Dispatch reports that Republicans have faced such a backlash for trying to repeal the tax credit that the tax-credit package they crafted may be unraveling. The bill’s sponsor, Sen. Chuck Purgason (R), has prepared an alternative plan aimed at spreading tax credit cutbacks more equally among low-income residents and developers.

“Republicans are always portrayed as taking from the poor and giving to the rich, and we didn’t want to do that,” Purgason said. However, it’s unclear if there’s enough of a consensus to pass the alternative bill.

Romney: Jobless Americans Have To Bear Burden Of Budget Cuts Because Corporations Need A Tax Cut

By Travis Waldron/Think Progress

A member of the local Rotary Club stood yesterday to ask former Massachusetts Gov. Mitt Romney (R) a question weighing on the minds of millions of jobless Americans: At a time when corporations are sitting on record amounts of cash, why are the Americans who can least afford it being asked to shoulder the burden of trillions of dollars in potential budget cuts?

But Romney dodged the question, ignoring the plight of the poor and unemployed, and instead launched into a speech about how American jobs were being outsourced to developing countries with cheap labor and miniscule tax rates because the U.S. has made itself unattractive to major corporations. Instead of sticking up for Americans who are facing cuts to the safety net programs they desperately need, Romney took the opportunity to proclaim that America’s problems could be fixed if it gave corporations yet another tax cut:

QUESTIONER: We obviously need cuts to the budget…but many of the recipients of those programs are Americans whose jobs have gone places where labor is cheap. So corporate profits remain high and in some cases higher than ever. Is it fair to ask those Americans to shoulder reductions in favor of businesses and corporations who have sent those jobs overseas?

ROMNEY: [...] We need to make ourselves the most attractive place in the world for entrepreneurs and pioneers and businesses, just like it was when the Founders created this country. How do you do that? One, you make sure our employer tax rates aren’t the highest in the world. Right now they’re tied with Japan as the highest in the world. They’re about 10 points higher than the corporate tax rates in many of the countries in Europe.

Watch it:

Not only did Romney seemingly ignore the concerns raised by the question, his answer perpetuated the false idea that American corporations are subject to the highest tax rate in the world. In reality, those corporations pay an effective rate that is among the lowest in the industrialized world. Some of the nation’s largest businesses, in fact, had effective tax rates that were actually negative.

Meanwhile, the GOP continues to support cutting funding from programs that help the jobless and the poor. But for Romney, that’s easily justifiable: corporations, already earning record profits, need a tax break to go along.

Republican Senators Defend Corporate Jet Tax Loophole

By Alex Seitz-Wald/Think Progress

President Obama’s call during a press conference yesterday to end a tax breaks for private jet owners has been met with derision and confusion by many the right, with most Republicans lawmakersdismissing it out of hand as just another tax hike. “Republicans weren’t having it,” the Wall Street Journal reported.

On MSNBC this afternoon, Sen. Mike Crapo (R-ID) dismissed ending the tax break as just “code for much broader, large tax increases,” saying that the jet tax break is “not the issue we’re debating here.” Watch it:

Sen. Marco Rubo (R-FL) meanwhile, told the National Review that Obama was suggesting corporate jet owners earn too much money. “[D]on’t go around telling people that the reason you are not doing well is because some rich guy is in a corporate jet or some oil company ismaking too much money,” he said. Senate Minority Leader Mitch McConnell’s (R-KY) spokesperson defended the tax break without really addressing the issue on its merits, quipping to reporters, “Interesting that he keeps pointing to corporate planes and oil/gas.”

Conservative media outlets took up the same line, dismissing Obama’s call as an empty “metaphor” and the “latest class warfare catchphrase.” The Wall Street Journal wrote a gleefully condescending blog post yesterday called, “Note To Obama: $250,000-a-Year Earners Can’t Afford Jets,” in which it sought to educate Obama about taxes. The only problem? The author assumed Obama was referring to the Bush cuts — he was not and the esteemed paper was forced to run a correction at the bottom of the story

But not only are Rubio, Crapo and the rest defending a tax loophole for the most fortunate Americans, they’re completely misunderstanding it. As hard as it to believe, the private jet tax break is no “metaphor” or “code” for people making too much money — it is an actual loophole in the tax code that applies to private jets and not commercial ones. The provision, created in 1987, allows corporate jets to be depreciated over a five-year period rather than the seven-year period required for commercial ones. It has been defended and supported by Republicans since.

The more sophisticated conservative defense of special tax breaks private corporate jets, advanced by the Hertiage Foundation, among others, is that it was created by the stimulus package. As ThinkProgress’ Matt Yglesias explained, this myth too is bunk.

While closing the loophole wouldn’t raise enough money to solve the deficit problem by any means, it points to the absurdity of much of the spending in the tax code and would surely be a step in the right direction. The conservative response to ending it, meanwhile, speaks to the priorities of their tax cut “theology” — fewer taxes for the wealthy above all else.

Bachmann Calls For Huge Corporate Tax Cut Alongside Tax Increase For The Working Poor

By Pat Garofalo

Several of the 2012 GOP presidential hopefuls have laid out economic platforms that would include huge cuts in the corporate tax rate. Former Massachusetts Gov. Mitt Romney (R) called for lowering the corporate tax ratefrom 35 percent to 25 percent, while former Minnesota Gov. Tim Pawlenty (R) went a step further, calling for a cut to 15 percent.

In an interview published today by the Wall Street Journal, Rep. Michele Bachmann (R-MN) — who is toying with a presidential run herself — decided to one-up both Romney and Pawlenty, calling for a reduction in the corporate tax rate to 9 percent. Adding insult to injury, Bachmann wants to pair that huge tax cut with giant tax reductions for the rich, as well as a tax increase on the working poor:

“In my perfect world,” she explains, “we’d take the 35% corporate tax rate down to nine so that we’re the most competitive in the industrialized world. Zero out capital gains. Zero out the alternative minimum tax. Zero out the death tax.” [...]

Her main goal is to get tax rates down with a broad-based income tax that everyone pays and that “gets rid of all the deductions.” A system in which 47% of Americans don’t pay any tax is ruinous for a democracy, she says, “because there is no tie to the government benefits that people demand. I think everyone should have to pay something.”

Let’s take these one at a time. First, cutting the corporate tax rate to 9 percent — a reduction about two and a half times larger than that called for in the radical House Republican budget — would cost more than $2 trillion over ten years. (The Tax Policy Center estimated that a 10 point reduction in the corporate tax rate would cost about $915 billion.)

Second, zeroing out the capital gains tax and the estate tax would overwhelmingly benefit the wealthy, as about 68 percent of capital gains taxes are paid by the richest one percent of the country, and fewer than the richest one quarter of one percent pay the estate tax.

Finally, Bachmann implies that she would raise taxes on those Americans who earn too little to have any income tax liability. (It’s simply not true that they pay nothing, as Bachmann seems to believe, since those who have no income tax liability still pay payroll taxes and any state and local taxes.)

The reason so much of the income tax liability has become concentrated at the top of the income scale is because over the last few decades income inequality has skyrocketed. The richest one percent of the country currently earn nearly one quarter of the income, and therefore pay the lion’s share of the income tax. Bachmann would raise taxes on those who have seen their incomes stagnate or even drop over the last ten years, even as she cuts taxes on the ultra-wealthy.

Boeing Paid No Corporate Taxes For Three Years, Still Wants A Tax Cut

By Pat Garofalo

Yesterday, Citizens for Tax Justice released a report showing that, over the last three years, 12 of the country’s biggest corporations made $171 bullion in pretax profits while paying a negative tax rate. So the U.S. taxpayer has been subsidizing these giant corporations, even as their profits soared.

One of the companies on the list was mega-manufacturer Boeing, whose vice president of tax, James Zrust, was on Capitol Hill today, testifying on corporate tax reform before the House Ways and Means Committee. Even though Boeing hasn’t paid a dime in federal taxes over the last three years, Zrust still asked for a cut in the corporate tax rate:

Everyone here today is well aware that the combined US statutory tax rate is almost 15 percentage points higher than the average combined rate of other OECD member countries. It is our view that significantly reducing the corporate tax rate will improve U.S. competitiveness. We believe lowering the corporate rate would dramatically reduce tax policy pressure and rhetoric by ensuring that U.S. companies are competitive, and importantly, would not tip the scale in favor of foreign production.

Boeing is far from alone in paying nothing into the federal coffers in recent years. General Electric, for example, made $7.7 billion in pretax profits over the last three years, and collected $4.7 billion in tax benefits. And even when corporations are paying something, it’s far below the statutory 35 percent tax rate. Last year, Google used tax havens to lower its tax rate all the way to 2.4 percent.

Zrust did say tax expenditures — the credits and deductions clogging up the tax code — would have to be “on the table” if the corporate tax rate were to be reduced. And corporate tax reform is something that both parties in Washington have expressed an interest in getting done. But they’re been focused on reform that is either revenue-neutral or even costs the government money (thus increasing the deficit).

CTJ’s numbers show, though, that revenue-positive corporate tax reform is possible and, given the deficits the country faces in the medium- to long-term, desirable to avoid pushing more of the burden of deficit reduction onto the middle class. “Our elected officials have a duty to the American public to make reducing or eliminating the vast array of corporate tax subsidies the centerpiece of any deficit-reduction strategy,” said Bob McIntyre, director of Citizens for Tax Justice.

UPDATE

Watch video of Rep. Pete Stark (D-CA) reacting with surprise to Boeing wanting a lower tax rate: