Maryland just declared a Republican Larry Hogan winner of race for governor and he ran on a platform of reducing taxes. Larry is a neo-con who will continue to grow global corporations and markets as a replacement of domestic small and regional businesses and the tax cuts he will bring will be just the same as a neo-liberal Anthony Brown would have brought----corporate tax breaks, subsidy, and continuation of widespread corporate fraud and corruption. He will reduce further the taxes on the rich and believe me----after all of those tax breaks, the working and middle-class will have to keep paying high taxes. Hogan will probably get rid of the symbolic 'rain tax'.Let's look at what a 'business-friendly' neo-con and neo-liberal thinks needs to be done besides all of the above.
This is exactly what happens when politicians claim business-friendly tax policies that end with citizen taxes climbing ever higher. Remember, if corporations' tax rate falls to plus or minus 20%----even if they paid taxes----that lost revenue would come in higher taxes and fees for people at state and local level. We need Republican voters to stop being sold on the idea that tax cuts are somehow going to come to the people. Small businesses need protection from high taxes, but corporations do not. We have Clinton neo-liberals as in Maryland and Bush neo-cons who are going to make these two years about gutting the New Deal policy of corporate taxation just as the economic crash of 2015 hits.
THIS IS NOT BUSINESS-FRIENDLY AS IT WILL PUT SMALL BUSINESSES OUT OF BUSINESS.
Below is an article that shows the reasoning for these policies don't add up----what he doesn't say, and which does make them add up----is the coming economic crash is meant to privatize all of government through the starving of coffers. Union pensions will be a goner as this crash will come from a collapsing bond market where pension fund management corporations have loaded pension plans. Remember where pensions plans ended last crash? Buoying collapsing Wall Street banks. This time they will buoy collapsing state and local governments and will be taken out again!
No, tax cuts will not improve the Maryland business climate.
Entrepreneurs leave the state for many reasons. For one, once you get to be a certain size, the talent pool of experienced managers and mentors in the software development industry is just not here. As Matt Yglesias notes, dreams of Maryland and Washington D.C. being high-tech start-hubs just never work out. They are not leaving for low tax states. They leave for NY and CA – because the venture capital is there, the mentors are there, and the talent is there. Business who stay have ties to the government.
Plus, who is going to believe in tax cuts when the budget is being supported by shams and gimmickry like lowering pension contributions? Again. Still. Unfunded pension benefits dwarf what the state collects in sales and income taxes – long term, either taxes need to go up 15-20% to fund pensions within the next 10 years, or pension benefits need to be cut. Do you really think that the unions will just sit back and allow tax cuts and reduced pension contributions, knowing that it likely leads to cuts in pension benefits? At best, they will sit back and allow it this year with a wink and a nod so that their friends get elected, so that benefits do not get cut next year. But, if they are not getting cut, taxes are going up. The legislature of Maryland has a lot of power, but repealing the laws of math is not one of them.
Tax cuts will lead to lower revenues, unless the Democrats have suddenly bought into supply-side economics. Lower revenues mean that the budget needs to be balanced with spending reductions or taxes elsewhere.
Plus, if the Democrats have suddenly bought into supply-side economics, why are they still supporting a minimum wage hike? Firms – you know, the supply-side – will react to higher labor costs by cutting hours, jobs, or both.
Sure, I am in favor of tax cuts. Who isn’t? But, until the legislature has a credible plan for dealing with the fiscal mess, tax cuts are not credible and will not fix what ails Maryland.
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Republicans call the estate tax a death tax-----the founding fathers called it the anti-aristocracy tax. This tax is critical in keeping the US from reverting back to the extreme wealth and captured politics we are seeing take hold right now. That is why it was written by these founding fathers. Obama allowed the Federal estate tax fall ever further. Do we need a state estate tax? Maybe not, but it appears that when the Maryland Assembly knows there is a huge structural deficit in our budget from all of the corporate tax breaks, subsidies, and corporate tax evasion and fraud-----you do not cut taxes on the rich right now.
You do of course if you are working for the rich which Clinton neo-liberals and Bush neo-cons.
Maryland was hit in this regard a few years ago when the tax designation for working farms lowered property tax for these land holders all under the guise of smart development. What happened is more of Maryland's small farms are being gobbled up into large estates that pretend they are active farms and are not-----losing local farming and tax revenue for nothing.
Taxes 3/20/2014 @ 6:26PM
Maryland To Cut Estate Tax As Blue States Fall In Line
Maryland is the latest state to make its estate tax less onerous, and it’s significant because it’s a staunchly Democratic state indicating that easing the pain of the death tax isn’t just a Republican issue. Today the Maryland Senate passed the measure, already passed by the House, gradually raising the amount exempt from the state’s estate tax to match the generous federal estate tax exemption. Gov. Martin O’Malley’s signature is expected shortly.
Maryland is one of 19 states plus the District of Columbia that impose state death taxes. In the last four years, Indiana, Kansas, North Carolina, Ohio and Oklahoma have all repealed their state death taxes, and Tennessee’s is on its way out by Jan. 1, 2016.
Other changes are afoot in the District of Columbia, Minnesota, Maine, New York and Georgia, and a vote on the fate of the federal estate tax might come as early as this summer.
“It’s encouraging that a blue state is taking action, and we’re working hard to make sure that more follow suit,” says Palmer Schoening, executive director of the Family Business Coalition, adding that the group’s ultimate goal is for every state death tax—and the federal estate tax—to be repealed. Sometimes that starts with weakening the tax.
The Maryland measure gradually increases the amount exempt from the state estate tax from $1 million this year, to $1.5 million in 2015, $2 million in 2016, $3 million in 2017, and $4 million in 2018. Finally, in 2019 it will match the federal exemption which is projected to be $5.9 million, up from $5.34 million today (it’s indexed for inflation).
The Maryland estate tax change provides serious relief, but there’s a big catch for some: even if no estate tax is due, depending whom you leave your assets to at death, a separate inheritance tax may be assessed. Spouses, children (and their spouses and children), parents, and siblings are all exempt from the state inheritance tax, but a niece or aunt or friend, for example, would owe the inheritance tax at a rate of 10%. Maryland and New Jersey are the only two states that have an inheritance tax in addition to an estate tax.
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O'Malley set the citizens of Maryland on a tee ready to allow global corporations to take over after the coming economic crash. He tied the state to high levels of credit bond leverage----high levels of corporate tax breaks, subsidy, and systemic corporate fraud and tied Maryland's economy to global corporations and markets giving global corporations the foot in the door to take over completely after this coming crash. Now, the Maryland Assembly is ready to further starve state coffers in favor of corporations with more revenue cuts for the rich and corporations. This is what Clinton Wall Street neo-liberals and Bush neo-cons do and ALL OF MARYLAND POLS ARE GLOBAL CORPORATE POLS! GET RID OF THEM.
Remember, Mike Miller made the comment last year that he intends on ending state funding of public schools and universities.
Maryland politicians plan wave of business tax cuts
By Trent Novak
11 March 2014
The Maryland state legislature is deliberating over various proposals aimed at cutting taxes for corporations and the state’s wealthiest residents. Plans are underway to implement sweeping reductions in income tax rates for both individuals and businesses, and to massively inflate tax exemptions for millionaires and their estates.
Republicans in the Maryland House of Representatives have authored and supported the Income Tax Relief Act of 2014, which would reduce personal income taxes by 10 percent over the next 10 years.
Another bill, with bipartisan sponsorship, would establish a flat 3.5 percent income tax on every resident making more than $30,000 a year, scrapping an established eight-tier rating system. In the present system, the lowest rate stands at 2 percent, while the highest stands just under 6 percent, with rates between 5 and 6 percent reserved for those making $100,000 or more.
Since January, as many as six bipartisan bills have been put forward to lower the corporate tax rate, which is currently 8.25 percent, to rates between 4 and 7 percent over varying periods of time.
Republican state delegate Andrew Sarafini, one of the main figures involved in these legislative efforts, favors the 4 percent corporate rate. Douglas Gansler, the state’s current attorney general, has announced his support for the 6 percent rate in his bid to win the Democratic candidacy for governor.
Legislative committees have also been hearing various bills aimed at raising the estate tax threshold. The two bills with the greatest amount of support in this area are predominately backed by Democrats, and would raise the threshold from $1 million to just over $5 million. This means that each millionaire residing in the state of Maryland would effectively receive an extra $4 million “window” before taxes are levied against their holdings.
Local news agencies have mentioned that several less “popular” proposals being considered would have dispensed with the estate tax, inheritance taxes, or both.
The arguments being used to advance and justify these measures revolve around the notion that Maryland needs to persuade its more prosperous residents to continue living in the state, to encourage consumption to boost its stagnating economy, and to make the state a serious regional competitor for corporate investment. In official quarters, there is a general sense that Maryland either has to equal or undercut Virginia’s corporate tax rate of 6 percent if it hopes to rescue its chances for meaningful “job creation.”
Attempts to paper over this transparent agenda have consisted of false cries of concern for average workers and residents in the state.
Ben Wilterdink, a research analyst who spoke after Sarafini in testimony at the General Assembly in Annapolis last month, exemplified this approach: “The corporate income tax burden is passed on to the consumer, to the shareholder, and even to employees who have to work for lower wages than they otherwise would be.” Wilterdink cited a recent Treasury Department study, which purports that laborers bear at least 40 percent of the cost of higher corporate taxes.
In reality, American corporations are gorged with record levels of money, having amassed record financial reserves estimated to be about $1.5 trillion. Rather than use these resources to hire workers or invest in the productive levers of society, there has been a concerted effort to drive wages and benefits to record lows, while artificially stimulating share values through stock buybacks and various other schemes.
Corporations have also received billions of dollars in tax abatements and other payments handed over to them from virtually every level of government. A report in The New York Times earlier this year estimated that state and local governments spend roughly $80 billion annually in such corporate welfare measures. (See “States, cities, hand out billions in tax abatements”)
President Obama’s latest attempt to feign concern over social inequality involves the creation of five urban “promise zones,” which are essentially areas where taxes and regulations on businesses will be stripped down to minimal levels. These initiatives have been coupled with drastic attacks on the living conditions of workers and the absence of any public works programs or serious reforms to alleviate poverty and social misery.
On Thursday, Peter Franchot, the comptroller of Maryland, abruptly announced that there had been a $238 million decline in state revenues for the last quarter of 2013, which must be made up for through $127 million in cuts this fiscal year and $111 million in the next. The drop in revenue was mostly attributed to a drop in retail sales during the winter months, but commentators could not avoid mentioning declining wages and salaries, persistently high unemployment, and rising expenditures on food, energy and other basic commodities.
In remarks that can only be read as a sign of things to come, Franchot stressed the need to act “with the utmost caution” and urged the state “to invest in the things we truly need” and “forego many of the things we simply want.”
As if on cue, Maryland’s Department of Legislative Services immediately stepped in to suggest cuts to state workers’ salaries, education funding, and the Chesapeake Bay Trust Fund, as well as canceling proposals for expanded prekindergarten services.
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The Federal government has super-sized corporate profits through public private partnerships, corporate subsidy, and allowing massive corporate fraud and now they are moving to state and local government to protect wealth and corporate profit. None of this has to do with job creation or helping small business. It further consolidates wealth at the top and will create the condition for every higher taxation on the people.
The Revolutionary War was fought for just this reason and the US Constitution was written to keep this from happening. Clinton neo-liberals and Bush neo-cons are re-writing the Constitution they say to hand our rights to global corporations and taxing them is not a policy they support. You can see why the election rigging that happened in the Democratic primary was so important---they would not want a progressive labor and justice candidate like me in office with this coming economic crash---
Michigan taxes: Businesses pay less, you pay more
Stephen Henderson and Kristi Tanner, Detroit Free Press Staff Writers 11:59 p.m. EDT October 4, 2014
People pay more.
Businesses pay less.
And the jobs picture is still clouded by slow growth and unemployment.
Four years into Gov. Rick Snyder's first term in office, that's the net effect of the signature tax reforms he pushed through the Legislature in 2011.
Snyder's plans relied heavily on the premise that lower taxes for businesses would create a stellar turnaround, ending the depression that gripped the state when he took office. And many of his changes made good policy sense.
But a close analysis of tax incomes shows that the cost of funding state government has shifted to those who can least afford it, and the job growth that would have justified that shift hasn't materialized.
That's a hard sell for a governor seeking re-election in a competitive race with a challenger who vows to reverse some of Snyder's most significant changes.
And with just a month before the election, Snyder has neither acknowledged the deficiencies of his tax policy, nor indicated that he's open to changing course.
How you're paying more
For some Michigan families, changes to tax credits and deductions have been deeply felt.
The state is collecting nearly $900 million a year more from individuals, many of them poor people who have lost tax credits or deductions.
Meanwhile, businesses pay about $1.7 billion less in taxes, all while job growth has slowed each year since the tax cuts took effect.
Michigan's individual income tax revenue jumped 25% between 2011 and 2012, a $1.4-billion increase. About $560 million of that is because of income growth, and much of that is because of a one-time spike in national income tied to changes in the federal tax code.
The remainder of the increase can be explained by deductions and tax credits that were either eliminated or modified significantly. For millions of Michigan residents, these were experienced as tax increases.
They include:
■ $270 million from a decrease in the homestead property tax credit.
■ $240 million from cuts to the Earned Income Tax Credit (EITC).
■ $200 million from the pension tax changes.
■ $50 million from the elimination of deductions for children.
■ $50 million from the elimination of the special exemption for age and unemployment compensation.
■ $90 million from elimination of other nonrefundable credits, such as city income tax, homeless/food bank contributions and contributions to public universities and public broadcasting.
The average taxpayer received half as much in credits in 2012 as in 2011. In addition, the new tax code freezes the individual income tax rate at 4.25%; before the changes, that rate was scheduled to drop 0.1 percentage point each year until it reached 3.9% in 2015.
In fact, Michigan had the fifth largest percentage increase in tax revenue collected from individuals, according to a survey of government tax collections by the U.S. Census Bureau during fiscal year 2013.
"By taking away taxes on business, you are increasing the burden on everything on else," said Norton Francis, a senior research associate at the Urban-Brookings Tax Policy Center. "The money has to come from somewhere."
Shifting tax burden toward individuals tends to hit the low-income population the hardest, Francis said: "High-income individuals tend to save more, those receiving the Earned Income Tax Credit pour that money right back into the economy and tend to spend locally."
Michigan taxpayers claiming the EITC and seniors able to claim property tax credits experienced some of the largest tax increases. About 793,000 tax returns qualified for the Michigan EITC in 2011; the average return was $450. In 2012, the average EITC credit dropped to $140 among 772,000 returns filed by Michigan residents. Senior citizens averaged about $740 in property tax credits in 2011, down to $590 in 2012.
The revamping of Michigan's tax code — described as some of the most sweeping tax reforms the state has seen since the mid-1990s, "involved a fairly significant tax burden shift; reducing business taxes and increasing individual taxes," according to a report by the Citizens Research Council, a nonpartisan research group.
It's a different story for businesses.
Revenue from business taxes fell by about $1.7 billion after the elimination of the Michigan Business Tax (MBT), replaced in 2012 by a 6% flat corporate income tax. About 95,000 businesses no longer pay state taxes. In addition, the repeal of the business personal property tax passed this year by the Legislature is estimated to reduce state revenue from business by $350 million in fiscal year 2017.
Where are the jobs?
While businesses have paid less in taxes, job growth is slowing. It's an astonishing outcome for a tax policy whose sole purpose was to put Michiganders back to work.
In 2009, at the end of the great recession, Michigan unemployment spiked at 14.2%, largely because of massive automotive and manufacturing job losses. Nationally, unemployment stood at 9.6%. Yet despite the overall decline, jobs began returning to Michigan in 2010, the last year of then-Gov. Jennifer Granholm's administration, as the auto industry improved. While the unemployment rate was 11%, Michigan added about 76,000 payroll jobs -- more jobs than in any year since Snyder's tax cuts took effect, but still a fraction compared to the nearly 800,000 jobs lost over that decade.
At the end of Snyder's first year in office, Michigan added 97,000 jobs. The unemployment rate was 9%, a percentage point above the national rate of 8%. But in 2012, the first year of Snyder's business tax cuts, hiring grew by only 75,000 jobs. Between 2013 and 2014, just 32,000 jobs were added.
"It's fair to say that job growth has been slower in Michigan after the tax shift went into effect than the first year of Gov. Snyder's administration," said Charles Ballard, an economics professor at Michigan State University. "It doesn't mean that his policy wasn't successful, so much is determined by forces beyond control of the governor."
Ways to help the people
Taken individually, many of the changes that Snyder pushed made sense, say policy watchers and economists who saw the old tax code as antiquated and complicated.
The Michigan Business Tax, for instance, was almost universally loathed, and considered a disincentive for companies to locate or operate in the state.
"MBT was a labyrinthine business tax," said Ballard, "such a godawful mess — it was a mighty bad tax."
The hope, falsely placed or not, was that a simpler business tax that produced a reduction for thousands of businesses would jump-start hiring.
Snyder's pension tax was even described by the Free Press editorial page as a move toward fairness: Retirees with 401(k) accounts paid income taxes, so it didn't make sense to treat pensioners differently.
Other changes were simply part of the governor's fiscal philosophy, such as his overall dislike of tax credits, which he has described as built-in budget liabilities. His effort to balance a state budget that was routinely at least a billion dollars out of whack relied heavily on removing those kinds of liabilities up front.
But viewed in totality, Snyder's tax code revisions have placed a much heavier burden on individuals, and haven't resulted in sufficient job growth to bring Michigan in line with national unemployment numbers. In Michigan, the August unemployment rate was 7.4%, compared to the national rate of 6.1% in the same month.
In addition, the governor has balked at enacting other sensible tax changes that could help turn the jobs tide.
There has been no talk, for instance, of tying the new tax breaks for businesses to job creation, or of tax penalties for companies that eliminate jobs in Michigan or move them elsewhere.
Nor has Snyder discussed ideas such as a progressive individual income tax, which would require a constitutional change. Under many models, that would lower rates for the vast majority of low- and middle-income taxpayers, while raising rates for top earners to those similar in other states.
And Michigan is an outlier there: In 2012, only six other states had flat income taxes, while 34 had graduated tax rates.
Policy wonks can argue about business versus individual taxes, how to grow jobs, and how to keep more money in families' pockets. But analysis of results — and data — matter.
Credit where it's due
Most people, Ballard says, think of a business tax as "a tax on fat cats." But that's not entirely true, the Tax Policy Center's research shows: On average, taxes levied on business income are funded roughly 80% by shareholders, but about 20% by workers, in the form of lower wages.
But economists like Ballard and Francis say cuts to business taxes are unlikely to produce real employment changes.
For most businesses, the economy, not tax policy, guides investment, Francis said: "The literature suggests tax policy may make a marginal difference, but companies tend to make location decisions based on labor force, market and infrastructure."
Snyder is an accountant, a data guy whose entire leadership pitch hinges on Michigan's financial recovery. Four years into his term, there's no question that Michigan's economy has improved — along with the nation's.
Can Snyder take credit? That's the question voters should be asking.
Michigan's changing business tax structure (numbers for fiscal year 2013, in millions)
Below are revenue estimates for the impact of changes to Michigan business taxes for fiscal year 2013.
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Obama and Congressional neo-liberals have spent several years cutting Federal funding and have allowed corporate tax evasion in the hundreds of billions. This has lowered the amounts of revenue coming to states and localities even after the massive corporate frauds that brought the 2008 crash starved government coffers. Now these same neo-liberals along with Republicans are cutting more tax base from corporate taxes at the state and local level under the guise of job creation. As this article states----none of this has anything to do with job creation or small business-friendly----it will do the opposite. IT IS CRITICAL THAT LABOR AND JUSTICE STOP SUPPORTING THESE FRAUDULENT SCHEMES THAT HAVE NOTHING TO DO WITH JOBS OR HELPING SMALL BUSINESS. THESE POLICIES SIMPLY MOVE MORE OF THE TAX BURDEN TO THE PEOPLE WHO THEN CANNOT CONSUME TO KEEP SMALL BUSINESSES ALIVE.
Remember, global corporations do not want any competition so killing small and regional business is a goal of global corporate pols!
Cutting State Personal Income Taxes Won’t Help Small Businesses Create Jobs and May Harm State Economies PDF of this report (18pp.)
By Michael Mazerov
February 19, 2013
Cutting state personal income taxes not only won’t promote small business growth and job creation, but it is also likely over time to threaten the success of entrepreneurs by taking resources away from critical services like education.
Until recently, most proposals to cut state taxes in the name of boosting economic growth and job creation focused on cutting business taxes like the state corporate tax. But in the past several years a growing number of elected officials and business organizations have called for cuts in state personal income taxes. They contend that because owners of most small businesses take advantage of provisions that allow them to pay personal income taxes on their profits — rather than corporate taxes — a personal income tax cut is required for small business to get the economic benefits of tax reduction. Supporters of such tax cuts argue that the level of state personal income taxes is a significant factor in small businesses’ ability, and incentive, to create jobs despite the fact that there is virtually no evidence to support this claim.
Proposals include cutting state income tax rates across the board, reducing tax rates for the highest income brackets, cutting or eliminating state taxation of “small business” income, or entirely repealing the state income tax.
Regardless of the specific form they take, state personal income tax cuts will almost inevitably provide disproportionate tax savings to the most affluent households in a state. At the same time, cutting income taxes is a poor strategy for stoking small business growth and job creation.
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By now most Americans know an economic crash is coming next year as the bond market collapses. Know who feels the pain of a bond market crash the most? Government coffers. Job loses as public sector jobs are slashed and employment in general falls as with the 2008 crash. So, when a Clinton neo-liberal like Cuomo does a great big tax slash----with big savings for the rich and corporations----he is moving to starve government coffers of revenue just as they will need it the most. When the crash comes and revenue is needed these corporate pols will be back with more taxes and fees on the people. Maryland is so leveraged on credit bond debt that when the Maryland Assembly works with our Republican governor for these same business-friendly tax cuts----our government coffers will be empty. Baltimore has super-sized this scenario and will see bankruptcy from these policies.
YOU WILL SEE BOTH CLINTON NEO-LIBERALS AND BUSH NEO-CONS MOVING THESE TAX POLICIES KNOWING THEY WILL RAISE TAXES ON THE PEOPLE AND KILL SMALL BUSINESS.
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Below is an example of where all of this state and local business-friendly tax cutting will go. State and local government coffers are already starved so bringing less to government from the people most able to do so starves government investment and consumption both of which kills small business.
Republicans and Clinton neo-liberals do this to end War on Poverty and New Deal programs and pesky public services like public schools, public water and waste, and public transportation. If you think these are good things and allowing global corporations to control every aspect of your life while soaking you for more and more taxes and fees YOU DO NOT UNDERSTAND WHERE THESE POLICIES LEAD!
STOP ALLOWING THESE GLOBAL CORPORATE POLS TO LIE TO YOU!
Remember, if you think you are getting a tax break at the level of main Street with these tax policies only meant to boost the rich and corporate wealth.....think what happens to replace that missing revenue -----fees, tolls, fines, and more taxes on the working and middle-class.
Busting the Budget Yes, if You Cut Taxes, You Get Less Tax Revenue Kansas Tax Cut Leaves Brownback With Less Money
JUNE 27, 2014
Kansas has a problem. In April and May, the state planned to collect $651 million from personal income tax. But instead, it received only $369 million.
In 2012, Kansas lawmakers passed a large and rather unusual income tax cut. It was expected to reduce state tax revenue by more than 10 percent, and Gov. Sam Brownback said it would create “tens of thousands of jobs.”
In part, the tax cut worked in the typical way, by cutting tax rates and increasing the standard deduction. But Kansas also eliminated tax on various kinds of income, including income described commonly — and sometimes misleadingly — as “small-business income.” Basically, if your income results in the generation of a Form 1099-MISC instead of a W-2, it’s probably not taxable anymore in Kansas.
Consider me. I draw a salary from The New York Times; if I lived in Kansas, I’d pay state income tax on it. I also earn income from other news outlets, including MSNBC, where I am not a payroll employee. That makes me a “small-business owner” in the eyes of the government, and if I lived in Kansas, my income from MSNBC would be tax-free.
While no state has gone as far as Kansas, four others — Missouri, Ohio, Oregon and South Carolina — have passed laws in the last decade that give some small-business owners lower tax rates than wage earners.
By creating this preference for some types of income over others, Kansas has run into at least five problems:
It’s sometimes possible to turn taxable salary income into untaxed “business” income.
The Times has me on its staff, but it could commission freelance work from me instead. Income from the same work would then become tax-free under the Kansas rules.
Jim Dunning Jr., managing partner of Dunning & Associates C.P.A.s in Wichita, says he has seen a few clients change the way their businesses are incorporated to take advantage of the tax law. Many small firms are structured as S-corporations, and federal law requires an S-corporation’s owner-managers to pay themselves at least a “reasonable” salary. But by converting to a limited liability company, or L.L.C., owners can set their salaries to zero and take all of their income from the company as profits, thus avoiding any Kansas tax.
A lot of the beneficiaries of the tax break won’t be small businesses.
Many are sole proprietors like me, who are fundamentally engaged in labor, not entrepreneurship, and aren’t likely to hire anybody just because they receive a tax break.
At the other end of the spectrum, there’s no size limit on “small businesses” as defined by Kansas and the Internal Revenue Service. The Kansas tax break does not extend to C-corporations, the typical corporate form used by large publicly traded companies. But large companies can be structured in forms typically used by small businesses. For example, as of 2005, only 0.2 percent of business partnerships — which Kansas counts as small businesses — had earnings of more than $50 million, but they accounted for 57 percent of all partnership earnings.
The investment giant Fidelity Investments converted from a C-corporation to an L.L.C. in 2007, and thus stopped paying corporate-level income tax. Fidelity’s owners pay federal tax on the share of Fidelity’s income attributable to them, but in Kansas the income would not face state income tax at either the corporate or the individual level.
It’s not clear that there’s anything special about small businesses for the purpose of job creation.
A 2013 study by economists from the Census Bureau and the University of Maryland found that while young firms add jobs more quickly than older ones, the size of a firm does not appear to drive job growth.
And indeed, while Governor Brownback wrote last month that the tax cuts were allowing businesses to “hire more people and invest in needed equipment,” job growth in Kansas has been modest since he signed the bill, trailing the national average and the rate in three of its four neighboring states.
Some of the revenue loss doesn’t even benefit taxpayers.
Let’s say you own an L.L.C. in Kansas but live in Oklahoma. Mr. Dunning, the accountant in Wichita, described clients in this situation who have oil and gas interests along the state border. The tax change in Kansas relieves those business owners of their obligation to pay income tax to Kansas — but they also lose a credit on their Oklahoma tax returns for taxes paid to Kansas, so they just end up paying more to Oklahoma. This provides no particular incentive to do business in Kansas.
Small-business owners who switch from an S-corporation to a limited liability company also face a federal tax hit that partly offsets their Kansas tax savings, again enriching another government at Kansas’ expense, and blunting the tax changes’ benefit to businesses. All of which brings us to the last issue.
The state budget is suffering.
Of course, lawmakers in Kansas knew when they passed the tax cuts that this would happen; the question is whether they will lose even more revenue than they expected over the long run.
The Kansas Legislative Research Department — the state-level equivalent of the Congressional Budget Office — issued a memo this month saying that “it appears that some of the fiscal notes associated with various income tax law changes enacted in 2012 and 2013 were understated.” Translation: It looks as if we gave out a bigger tax cut than we thought.
Steve Stotts, the director of taxation at the Kansas Department of Revenue, disagrees. He says the April and May shortfall is driven by a one-time federal tax event unrelated to Kansas state policy that isn’t indicative of future revenue shortfalls.
The “fiscal cliff” at the end of 2012 induced people to shift whatever income they could into 2012 to take advantage of low capital-gains tax rates before they went up. That lifted income tax collections, but only for one year (2013, when final payments for tax year 2012 were made). As a result, income tax receipts in 2014 are lower than they were in 2013, and many states underestimated just how much they would drop.
But Kansas missed by more than most. According to data collected by the Rockefeller Institute, of 17 states that produce public monthly income tax revenue projections, Kansas’ April error — off by 28 percent — was by far the largest. No other state missed by more than 16 percent, suggesting that a failure to anticipate falling capital gains tax revenue was not the only problem in Kansas.
As revenue comes in over the next few months, Kansas will learn just how big of a tax cut it’s given out in the name of small business, and what it will have to do to the rest of the state budget to make the tax cut affordable.
This is exactly what happens when politicians claim business-friendly tax policies that end with citizen taxes climbing ever higher. Remember, if corporations' tax rate falls to plus or minus 20%----even if they paid taxes----that lost revenue would come in higher taxes and fees for people at state and local level. We need Republican voters to stop being sold on the idea that tax cuts are somehow going to come to the people. Small businesses need protection from high taxes, but corporations do not. We have Clinton neo-liberals as in Maryland and Bush neo-cons who are going to make these two years about gutting the New Deal policy of corporate taxation just as the economic crash of 2015 hits.
THIS IS NOT BUSINESS-FRIENDLY AS IT WILL PUT SMALL BUSINESSES OUT OF BUSINESS.
Below is an article that shows the reasoning for these policies don't add up----what he doesn't say, and which does make them add up----is the coming economic crash is meant to privatize all of government through the starving of coffers. Union pensions will be a goner as this crash will come from a collapsing bond market where pension fund management corporations have loaded pension plans. Remember where pensions plans ended last crash? Buoying collapsing Wall Street banks. This time they will buoy collapsing state and local governments and will be taken out again!
No, tax cuts will not improve the Maryland business climate.
Entrepreneurs leave the state for many reasons. For one, once you get to be a certain size, the talent pool of experienced managers and mentors in the software development industry is just not here. As Matt Yglesias notes, dreams of Maryland and Washington D.C. being high-tech start-hubs just never work out. They are not leaving for low tax states. They leave for NY and CA – because the venture capital is there, the mentors are there, and the talent is there. Business who stay have ties to the government.
Plus, who is going to believe in tax cuts when the budget is being supported by shams and gimmickry like lowering pension contributions? Again. Still. Unfunded pension benefits dwarf what the state collects in sales and income taxes – long term, either taxes need to go up 15-20% to fund pensions within the next 10 years, or pension benefits need to be cut. Do you really think that the unions will just sit back and allow tax cuts and reduced pension contributions, knowing that it likely leads to cuts in pension benefits? At best, they will sit back and allow it this year with a wink and a nod so that their friends get elected, so that benefits do not get cut next year. But, if they are not getting cut, taxes are going up. The legislature of Maryland has a lot of power, but repealing the laws of math is not one of them.
Tax cuts will lead to lower revenues, unless the Democrats have suddenly bought into supply-side economics. Lower revenues mean that the budget needs to be balanced with spending reductions or taxes elsewhere.
Plus, if the Democrats have suddenly bought into supply-side economics, why are they still supporting a minimum wage hike? Firms – you know, the supply-side – will react to higher labor costs by cutting hours, jobs, or both.
Sure, I am in favor of tax cuts. Who isn’t? But, until the legislature has a credible plan for dealing with the fiscal mess, tax cuts are not credible and will not fix what ails Maryland.
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Republicans call the estate tax a death tax-----the founding fathers called it the anti-aristocracy tax. This tax is critical in keeping the US from reverting back to the extreme wealth and captured politics we are seeing take hold right now. That is why it was written by these founding fathers. Obama allowed the Federal estate tax fall ever further. Do we need a state estate tax? Maybe not, but it appears that when the Maryland Assembly knows there is a huge structural deficit in our budget from all of the corporate tax breaks, subsidies, and corporate tax evasion and fraud-----you do not cut taxes on the rich right now.
You do of course if you are working for the rich which Clinton neo-liberals and Bush neo-cons.
Maryland was hit in this regard a few years ago when the tax designation for working farms lowered property tax for these land holders all under the guise of smart development. What happened is more of Maryland's small farms are being gobbled up into large estates that pretend they are active farms and are not-----losing local farming and tax revenue for nothing.
Taxes 3/20/2014 @ 6:26PM
Maryland To Cut Estate Tax As Blue States Fall In Line
Maryland is the latest state to make its estate tax less onerous, and it’s significant because it’s a staunchly Democratic state indicating that easing the pain of the death tax isn’t just a Republican issue. Today the Maryland Senate passed the measure, already passed by the House, gradually raising the amount exempt from the state’s estate tax to match the generous federal estate tax exemption. Gov. Martin O’Malley’s signature is expected shortly.
Maryland is one of 19 states plus the District of Columbia that impose state death taxes. In the last four years, Indiana, Kansas, North Carolina, Ohio and Oklahoma have all repealed their state death taxes, and Tennessee’s is on its way out by Jan. 1, 2016.
Other changes are afoot in the District of Columbia, Minnesota, Maine, New York and Georgia, and a vote on the fate of the federal estate tax might come as early as this summer.
“It’s encouraging that a blue state is taking action, and we’re working hard to make sure that more follow suit,” says Palmer Schoening, executive director of the Family Business Coalition, adding that the group’s ultimate goal is for every state death tax—and the federal estate tax—to be repealed. Sometimes that starts with weakening the tax.
The Maryland measure gradually increases the amount exempt from the state estate tax from $1 million this year, to $1.5 million in 2015, $2 million in 2016, $3 million in 2017, and $4 million in 2018. Finally, in 2019 it will match the federal exemption which is projected to be $5.9 million, up from $5.34 million today (it’s indexed for inflation).
The Maryland estate tax change provides serious relief, but there’s a big catch for some: even if no estate tax is due, depending whom you leave your assets to at death, a separate inheritance tax may be assessed. Spouses, children (and their spouses and children), parents, and siblings are all exempt from the state inheritance tax, but a niece or aunt or friend, for example, would owe the inheritance tax at a rate of 10%. Maryland and New Jersey are the only two states that have an inheritance tax in addition to an estate tax.
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O'Malley set the citizens of Maryland on a tee ready to allow global corporations to take over after the coming economic crash. He tied the state to high levels of credit bond leverage----high levels of corporate tax breaks, subsidy, and systemic corporate fraud and tied Maryland's economy to global corporations and markets giving global corporations the foot in the door to take over completely after this coming crash. Now, the Maryland Assembly is ready to further starve state coffers in favor of corporations with more revenue cuts for the rich and corporations. This is what Clinton Wall Street neo-liberals and Bush neo-cons do and ALL OF MARYLAND POLS ARE GLOBAL CORPORATE POLS! GET RID OF THEM.
Remember, Mike Miller made the comment last year that he intends on ending state funding of public schools and universities.
Maryland politicians plan wave of business tax cuts
By Trent Novak
11 March 2014
The Maryland state legislature is deliberating over various proposals aimed at cutting taxes for corporations and the state’s wealthiest residents. Plans are underway to implement sweeping reductions in income tax rates for both individuals and businesses, and to massively inflate tax exemptions for millionaires and their estates.
Republicans in the Maryland House of Representatives have authored and supported the Income Tax Relief Act of 2014, which would reduce personal income taxes by 10 percent over the next 10 years.
Another bill, with bipartisan sponsorship, would establish a flat 3.5 percent income tax on every resident making more than $30,000 a year, scrapping an established eight-tier rating system. In the present system, the lowest rate stands at 2 percent, while the highest stands just under 6 percent, with rates between 5 and 6 percent reserved for those making $100,000 or more.
Since January, as many as six bipartisan bills have been put forward to lower the corporate tax rate, which is currently 8.25 percent, to rates between 4 and 7 percent over varying periods of time.
Republican state delegate Andrew Sarafini, one of the main figures involved in these legislative efforts, favors the 4 percent corporate rate. Douglas Gansler, the state’s current attorney general, has announced his support for the 6 percent rate in his bid to win the Democratic candidacy for governor.
Legislative committees have also been hearing various bills aimed at raising the estate tax threshold. The two bills with the greatest amount of support in this area are predominately backed by Democrats, and would raise the threshold from $1 million to just over $5 million. This means that each millionaire residing in the state of Maryland would effectively receive an extra $4 million “window” before taxes are levied against their holdings.
Local news agencies have mentioned that several less “popular” proposals being considered would have dispensed with the estate tax, inheritance taxes, or both.
The arguments being used to advance and justify these measures revolve around the notion that Maryland needs to persuade its more prosperous residents to continue living in the state, to encourage consumption to boost its stagnating economy, and to make the state a serious regional competitor for corporate investment. In official quarters, there is a general sense that Maryland either has to equal or undercut Virginia’s corporate tax rate of 6 percent if it hopes to rescue its chances for meaningful “job creation.”
Attempts to paper over this transparent agenda have consisted of false cries of concern for average workers and residents in the state.
Ben Wilterdink, a research analyst who spoke after Sarafini in testimony at the General Assembly in Annapolis last month, exemplified this approach: “The corporate income tax burden is passed on to the consumer, to the shareholder, and even to employees who have to work for lower wages than they otherwise would be.” Wilterdink cited a recent Treasury Department study, which purports that laborers bear at least 40 percent of the cost of higher corporate taxes.
In reality, American corporations are gorged with record levels of money, having amassed record financial reserves estimated to be about $1.5 trillion. Rather than use these resources to hire workers or invest in the productive levers of society, there has been a concerted effort to drive wages and benefits to record lows, while artificially stimulating share values through stock buybacks and various other schemes.
Corporations have also received billions of dollars in tax abatements and other payments handed over to them from virtually every level of government. A report in The New York Times earlier this year estimated that state and local governments spend roughly $80 billion annually in such corporate welfare measures. (See “States, cities, hand out billions in tax abatements”)
President Obama’s latest attempt to feign concern over social inequality involves the creation of five urban “promise zones,” which are essentially areas where taxes and regulations on businesses will be stripped down to minimal levels. These initiatives have been coupled with drastic attacks on the living conditions of workers and the absence of any public works programs or serious reforms to alleviate poverty and social misery.
On Thursday, Peter Franchot, the comptroller of Maryland, abruptly announced that there had been a $238 million decline in state revenues for the last quarter of 2013, which must be made up for through $127 million in cuts this fiscal year and $111 million in the next. The drop in revenue was mostly attributed to a drop in retail sales during the winter months, but commentators could not avoid mentioning declining wages and salaries, persistently high unemployment, and rising expenditures on food, energy and other basic commodities.
In remarks that can only be read as a sign of things to come, Franchot stressed the need to act “with the utmost caution” and urged the state “to invest in the things we truly need” and “forego many of the things we simply want.”
As if on cue, Maryland’s Department of Legislative Services immediately stepped in to suggest cuts to state workers’ salaries, education funding, and the Chesapeake Bay Trust Fund, as well as canceling proposals for expanded prekindergarten services.
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The Federal government has super-sized corporate profits through public private partnerships, corporate subsidy, and allowing massive corporate fraud and now they are moving to state and local government to protect wealth and corporate profit. None of this has to do with job creation or helping small business. It further consolidates wealth at the top and will create the condition for every higher taxation on the people.
The Revolutionary War was fought for just this reason and the US Constitution was written to keep this from happening. Clinton neo-liberals and Bush neo-cons are re-writing the Constitution they say to hand our rights to global corporations and taxing them is not a policy they support. You can see why the election rigging that happened in the Democratic primary was so important---they would not want a progressive labor and justice candidate like me in office with this coming economic crash---
Michigan taxes: Businesses pay less, you pay more
Stephen Henderson and Kristi Tanner, Detroit Free Press Staff Writers 11:59 p.m. EDT October 4, 2014
People pay more.
Businesses pay less.
And the jobs picture is still clouded by slow growth and unemployment.
Four years into Gov. Rick Snyder's first term in office, that's the net effect of the signature tax reforms he pushed through the Legislature in 2011.
Snyder's plans relied heavily on the premise that lower taxes for businesses would create a stellar turnaround, ending the depression that gripped the state when he took office. And many of his changes made good policy sense.
But a close analysis of tax incomes shows that the cost of funding state government has shifted to those who can least afford it, and the job growth that would have justified that shift hasn't materialized.
That's a hard sell for a governor seeking re-election in a competitive race with a challenger who vows to reverse some of Snyder's most significant changes.
And with just a month before the election, Snyder has neither acknowledged the deficiencies of his tax policy, nor indicated that he's open to changing course.
How you're paying more
For some Michigan families, changes to tax credits and deductions have been deeply felt.
The state is collecting nearly $900 million a year more from individuals, many of them poor people who have lost tax credits or deductions.
Meanwhile, businesses pay about $1.7 billion less in taxes, all while job growth has slowed each year since the tax cuts took effect.
Michigan's individual income tax revenue jumped 25% between 2011 and 2012, a $1.4-billion increase. About $560 million of that is because of income growth, and much of that is because of a one-time spike in national income tied to changes in the federal tax code.
The remainder of the increase can be explained by deductions and tax credits that were either eliminated or modified significantly. For millions of Michigan residents, these were experienced as tax increases.
They include:
■ $270 million from a decrease in the homestead property tax credit.
■ $240 million from cuts to the Earned Income Tax Credit (EITC).
■ $200 million from the pension tax changes.
■ $50 million from the elimination of deductions for children.
■ $50 million from the elimination of the special exemption for age and unemployment compensation.
■ $90 million from elimination of other nonrefundable credits, such as city income tax, homeless/food bank contributions and contributions to public universities and public broadcasting.
The average taxpayer received half as much in credits in 2012 as in 2011. In addition, the new tax code freezes the individual income tax rate at 4.25%; before the changes, that rate was scheduled to drop 0.1 percentage point each year until it reached 3.9% in 2015.
In fact, Michigan had the fifth largest percentage increase in tax revenue collected from individuals, according to a survey of government tax collections by the U.S. Census Bureau during fiscal year 2013.
"By taking away taxes on business, you are increasing the burden on everything on else," said Norton Francis, a senior research associate at the Urban-Brookings Tax Policy Center. "The money has to come from somewhere."
Shifting tax burden toward individuals tends to hit the low-income population the hardest, Francis said: "High-income individuals tend to save more, those receiving the Earned Income Tax Credit pour that money right back into the economy and tend to spend locally."
Michigan taxpayers claiming the EITC and seniors able to claim property tax credits experienced some of the largest tax increases. About 793,000 tax returns qualified for the Michigan EITC in 2011; the average return was $450. In 2012, the average EITC credit dropped to $140 among 772,000 returns filed by Michigan residents. Senior citizens averaged about $740 in property tax credits in 2011, down to $590 in 2012.
The revamping of Michigan's tax code — described as some of the most sweeping tax reforms the state has seen since the mid-1990s, "involved a fairly significant tax burden shift; reducing business taxes and increasing individual taxes," according to a report by the Citizens Research Council, a nonpartisan research group.
It's a different story for businesses.
Revenue from business taxes fell by about $1.7 billion after the elimination of the Michigan Business Tax (MBT), replaced in 2012 by a 6% flat corporate income tax. About 95,000 businesses no longer pay state taxes. In addition, the repeal of the business personal property tax passed this year by the Legislature is estimated to reduce state revenue from business by $350 million in fiscal year 2017.
Where are the jobs?
While businesses have paid less in taxes, job growth is slowing. It's an astonishing outcome for a tax policy whose sole purpose was to put Michiganders back to work.
In 2009, at the end of the great recession, Michigan unemployment spiked at 14.2%, largely because of massive automotive and manufacturing job losses. Nationally, unemployment stood at 9.6%. Yet despite the overall decline, jobs began returning to Michigan in 2010, the last year of then-Gov. Jennifer Granholm's administration, as the auto industry improved. While the unemployment rate was 11%, Michigan added about 76,000 payroll jobs -- more jobs than in any year since Snyder's tax cuts took effect, but still a fraction compared to the nearly 800,000 jobs lost over that decade.
At the end of Snyder's first year in office, Michigan added 97,000 jobs. The unemployment rate was 9%, a percentage point above the national rate of 8%. But in 2012, the first year of Snyder's business tax cuts, hiring grew by only 75,000 jobs. Between 2013 and 2014, just 32,000 jobs were added.
"It's fair to say that job growth has been slower in Michigan after the tax shift went into effect than the first year of Gov. Snyder's administration," said Charles Ballard, an economics professor at Michigan State University. "It doesn't mean that his policy wasn't successful, so much is determined by forces beyond control of the governor."
Ways to help the people
Taken individually, many of the changes that Snyder pushed made sense, say policy watchers and economists who saw the old tax code as antiquated and complicated.
The Michigan Business Tax, for instance, was almost universally loathed, and considered a disincentive for companies to locate or operate in the state.
"MBT was a labyrinthine business tax," said Ballard, "such a godawful mess — it was a mighty bad tax."
The hope, falsely placed or not, was that a simpler business tax that produced a reduction for thousands of businesses would jump-start hiring.
Snyder's pension tax was even described by the Free Press editorial page as a move toward fairness: Retirees with 401(k) accounts paid income taxes, so it didn't make sense to treat pensioners differently.
Other changes were simply part of the governor's fiscal philosophy, such as his overall dislike of tax credits, which he has described as built-in budget liabilities. His effort to balance a state budget that was routinely at least a billion dollars out of whack relied heavily on removing those kinds of liabilities up front.
But viewed in totality, Snyder's tax code revisions have placed a much heavier burden on individuals, and haven't resulted in sufficient job growth to bring Michigan in line with national unemployment numbers. In Michigan, the August unemployment rate was 7.4%, compared to the national rate of 6.1% in the same month.
In addition, the governor has balked at enacting other sensible tax changes that could help turn the jobs tide.
There has been no talk, for instance, of tying the new tax breaks for businesses to job creation, or of tax penalties for companies that eliminate jobs in Michigan or move them elsewhere.
Nor has Snyder discussed ideas such as a progressive individual income tax, which would require a constitutional change. Under many models, that would lower rates for the vast majority of low- and middle-income taxpayers, while raising rates for top earners to those similar in other states.
And Michigan is an outlier there: In 2012, only six other states had flat income taxes, while 34 had graduated tax rates.
Policy wonks can argue about business versus individual taxes, how to grow jobs, and how to keep more money in families' pockets. But analysis of results — and data — matter.
Credit where it's due
Most people, Ballard says, think of a business tax as "a tax on fat cats." But that's not entirely true, the Tax Policy Center's research shows: On average, taxes levied on business income are funded roughly 80% by shareholders, but about 20% by workers, in the form of lower wages.
But economists like Ballard and Francis say cuts to business taxes are unlikely to produce real employment changes.
For most businesses, the economy, not tax policy, guides investment, Francis said: "The literature suggests tax policy may make a marginal difference, but companies tend to make location decisions based on labor force, market and infrastructure."
Snyder is an accountant, a data guy whose entire leadership pitch hinges on Michigan's financial recovery. Four years into his term, there's no question that Michigan's economy has improved — along with the nation's.
Can Snyder take credit? That's the question voters should be asking.
Michigan's changing business tax structure (numbers for fiscal year 2013, in millions)
Below are revenue estimates for the impact of changes to Michigan business taxes for fiscal year 2013.
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Obama and Congressional neo-liberals have spent several years cutting Federal funding and have allowed corporate tax evasion in the hundreds of billions. This has lowered the amounts of revenue coming to states and localities even after the massive corporate frauds that brought the 2008 crash starved government coffers. Now these same neo-liberals along with Republicans are cutting more tax base from corporate taxes at the state and local level under the guise of job creation. As this article states----none of this has anything to do with job creation or small business-friendly----it will do the opposite. IT IS CRITICAL THAT LABOR AND JUSTICE STOP SUPPORTING THESE FRAUDULENT SCHEMES THAT HAVE NOTHING TO DO WITH JOBS OR HELPING SMALL BUSINESS. THESE POLICIES SIMPLY MOVE MORE OF THE TAX BURDEN TO THE PEOPLE WHO THEN CANNOT CONSUME TO KEEP SMALL BUSINESSES ALIVE.
Remember, global corporations do not want any competition so killing small and regional business is a goal of global corporate pols!
Cutting State Personal Income Taxes Won’t Help Small Businesses Create Jobs and May Harm State Economies PDF of this report (18pp.)
By Michael Mazerov
February 19, 2013
Cutting state personal income taxes not only won’t promote small business growth and job creation, but it is also likely over time to threaten the success of entrepreneurs by taking resources away from critical services like education.
Until recently, most proposals to cut state taxes in the name of boosting economic growth and job creation focused on cutting business taxes like the state corporate tax. But in the past several years a growing number of elected officials and business organizations have called for cuts in state personal income taxes. They contend that because owners of most small businesses take advantage of provisions that allow them to pay personal income taxes on their profits — rather than corporate taxes — a personal income tax cut is required for small business to get the economic benefits of tax reduction. Supporters of such tax cuts argue that the level of state personal income taxes is a significant factor in small businesses’ ability, and incentive, to create jobs despite the fact that there is virtually no evidence to support this claim.
Proposals include cutting state income tax rates across the board, reducing tax rates for the highest income brackets, cutting or eliminating state taxation of “small business” income, or entirely repealing the state income tax.
Regardless of the specific form they take, state personal income tax cuts will almost inevitably provide disproportionate tax savings to the most affluent households in a state. At the same time, cutting income taxes is a poor strategy for stoking small business growth and job creation.
- The vast majority of those who would get a personal income tax cut are in no position to create small-business jobs. Only 2.7 percent of all personal income taxpayers are owners of bona fide small businesses that have any employees other than the owner or owners. Most high-income households — the group that likely would get the most money back from a personal income tax cut — are not small business owners. And many who do have ownership interests receive only a small portion of their income from their business investments. Profits from the ownership of small businesses that have paid employees account for less than 4 percent of the income of households with incomes over $100,000.
- Most small businesses make too little money for tax cuts to produce enough income to pay new employees. Only 13 percent of small businesses have $50,000 or more in taxable income in a given year. The rest make less than that or lose money. State income tax rates on income at this level already are so low, typically no more than 6 percent, or just a few thousand dollars for most of them, that even eliminating the personal income tax would generate negligible additional cash flow for the average small business — not nearly enough to pay one full-time worker’s salary. For innovative start-up businesses that create a disproportionate share of jobs, tax breaks are even less important. These operations account for 3 percent of all businesses and 20 percent of gross job creation. But they generally plow all their cash flow into new facilities, marketing, and R&D and have little taxable income.
- Most small business owners are not significant “job creators” and have no plans to be. Only 11 percent of taxpayers reporting business income own a bona fide small business with employees other than the owner(s). Even among recipients of business income who are true small business owners, most will not create jobs in response to a small increase in their after-tax incomes resulting from a state income tax cut. Most small business owners do not have the goal of expanding their business, according to a recent survey. This group includes self-employed skilled tradesmen, lawyers, accountants, real estate agents, consultants, and others with no need or desire to employ anyone else other than perhaps an office administrator. Many others are passive investors who do not have the authority to hire additional workers. Still others (like owners of restaurants, bars, and beauty shops) might have some employees, but the business serves a highly local market for an existing good or service; any job growth these firms experience is likely to come at the expense of jobs at competitor firms.
- Small businesses hire employees based on product demand, not tax levels. Big or small, businesses typically hire when demand for what they make or sell exceeds what the existing workforce can produce. Savings from a state income tax cut matters very little to hiring decisions — businesses are likely to hire when demand increases, and not hire when demand is flat or declining, regardless of tax rates. Employee wages are fully deductible in calculating state income tax liability, so the presence of taxes is not likely to discourage hiring.
- Careful economic studies issued by organizations across the political spectrum show that there is just no relationship between state personal income tax levels and the decisions of people in a state to start a business and of would-be entrepreneurs to move to the state. A rigorous 2012 study commissioned by the U.S. Small Business Administration found “no evidence of an economically significant effect of state tax portfolios on entrepreneurial activity.[1] In fact, considerable research shows that many entrepreneurial firms spin off from or otherwise “cluster” in geographic areas where other firms in the industry have concentrated. It is highly unlikely that the meager tax savings arising from state personal income tax cuts would overcome the benefits of locating near other firms in the same industry.
If Tax Cuts Won’t Create Small Business Jobs, Tax Increases Won’t Eliminate Them This paper argues that state personal income tax cuts won’t help small businesses create jobs, and in fact could harm the ability of the small-business sector to contribute to economic growth. For all the reasons stated in this paper, the converse is also true: personal income tax increases, including those on the highest earners, won’t harm small-business job creation. They could even contribute to a stronger business climate for entrepreneurs if the proceeds are invested wisely in better state schools and universities, roads and bridges, police and fire protection, and other critical services.
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By now most Americans know an economic crash is coming next year as the bond market collapses. Know who feels the pain of a bond market crash the most? Government coffers. Job loses as public sector jobs are slashed and employment in general falls as with the 2008 crash. So, when a Clinton neo-liberal like Cuomo does a great big tax slash----with big savings for the rich and corporations----he is moving to starve government coffers of revenue just as they will need it the most. When the crash comes and revenue is needed these corporate pols will be back with more taxes and fees on the people. Maryland is so leveraged on credit bond debt that when the Maryland Assembly works with our Republican governor for these same business-friendly tax cuts----our government coffers will be empty. Baltimore has super-sized this scenario and will see bankruptcy from these policies.
YOU WILL SEE BOTH CLINTON NEO-LIBERALS AND BUSH NEO-CONS MOVING THESE TAX POLICIES KNOWING THEY WILL RAISE TAXES ON THE PEOPLE AND KILL SMALL BUSINESS.
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Below is an example of where all of this state and local business-friendly tax cutting will go. State and local government coffers are already starved so bringing less to government from the people most able to do so starves government investment and consumption both of which kills small business.
Republicans and Clinton neo-liberals do this to end War on Poverty and New Deal programs and pesky public services like public schools, public water and waste, and public transportation. If you think these are good things and allowing global corporations to control every aspect of your life while soaking you for more and more taxes and fees YOU DO NOT UNDERSTAND WHERE THESE POLICIES LEAD!
STOP ALLOWING THESE GLOBAL CORPORATE POLS TO LIE TO YOU!
Remember, if you think you are getting a tax break at the level of main Street with these tax policies only meant to boost the rich and corporate wealth.....think what happens to replace that missing revenue -----fees, tolls, fines, and more taxes on the working and middle-class.
Busting the Budget Yes, if You Cut Taxes, You Get Less Tax Revenue Kansas Tax Cut Leaves Brownback With Less Money
JUNE 27, 2014
Kansas has a problem. In April and May, the state planned to collect $651 million from personal income tax. But instead, it received only $369 million.
In 2012, Kansas lawmakers passed a large and rather unusual income tax cut. It was expected to reduce state tax revenue by more than 10 percent, and Gov. Sam Brownback said it would create “tens of thousands of jobs.”
In part, the tax cut worked in the typical way, by cutting tax rates and increasing the standard deduction. But Kansas also eliminated tax on various kinds of income, including income described commonly — and sometimes misleadingly — as “small-business income.” Basically, if your income results in the generation of a Form 1099-MISC instead of a W-2, it’s probably not taxable anymore in Kansas.
Consider me. I draw a salary from The New York Times; if I lived in Kansas, I’d pay state income tax on it. I also earn income from other news outlets, including MSNBC, where I am not a payroll employee. That makes me a “small-business owner” in the eyes of the government, and if I lived in Kansas, my income from MSNBC would be tax-free.
While no state has gone as far as Kansas, four others — Missouri, Ohio, Oregon and South Carolina — have passed laws in the last decade that give some small-business owners lower tax rates than wage earners.
By creating this preference for some types of income over others, Kansas has run into at least five problems:
It’s sometimes possible to turn taxable salary income into untaxed “business” income.
The Times has me on its staff, but it could commission freelance work from me instead. Income from the same work would then become tax-free under the Kansas rules.
Jim Dunning Jr., managing partner of Dunning & Associates C.P.A.s in Wichita, says he has seen a few clients change the way their businesses are incorporated to take advantage of the tax law. Many small firms are structured as S-corporations, and federal law requires an S-corporation’s owner-managers to pay themselves at least a “reasonable” salary. But by converting to a limited liability company, or L.L.C., owners can set their salaries to zero and take all of their income from the company as profits, thus avoiding any Kansas tax.
A lot of the beneficiaries of the tax break won’t be small businesses.
Many are sole proprietors like me, who are fundamentally engaged in labor, not entrepreneurship, and aren’t likely to hire anybody just because they receive a tax break.
At the other end of the spectrum, there’s no size limit on “small businesses” as defined by Kansas and the Internal Revenue Service. The Kansas tax break does not extend to C-corporations, the typical corporate form used by large publicly traded companies. But large companies can be structured in forms typically used by small businesses. For example, as of 2005, only 0.2 percent of business partnerships — which Kansas counts as small businesses — had earnings of more than $50 million, but they accounted for 57 percent of all partnership earnings.
The investment giant Fidelity Investments converted from a C-corporation to an L.L.C. in 2007, and thus stopped paying corporate-level income tax. Fidelity’s owners pay federal tax on the share of Fidelity’s income attributable to them, but in Kansas the income would not face state income tax at either the corporate or the individual level.
It’s not clear that there’s anything special about small businesses for the purpose of job creation.
A 2013 study by economists from the Census Bureau and the University of Maryland found that while young firms add jobs more quickly than older ones, the size of a firm does not appear to drive job growth.
And indeed, while Governor Brownback wrote last month that the tax cuts were allowing businesses to “hire more people and invest in needed equipment,” job growth in Kansas has been modest since he signed the bill, trailing the national average and the rate in three of its four neighboring states.
Some of the revenue loss doesn’t even benefit taxpayers.
Let’s say you own an L.L.C. in Kansas but live in Oklahoma. Mr. Dunning, the accountant in Wichita, described clients in this situation who have oil and gas interests along the state border. The tax change in Kansas relieves those business owners of their obligation to pay income tax to Kansas — but they also lose a credit on their Oklahoma tax returns for taxes paid to Kansas, so they just end up paying more to Oklahoma. This provides no particular incentive to do business in Kansas.
Small-business owners who switch from an S-corporation to a limited liability company also face a federal tax hit that partly offsets their Kansas tax savings, again enriching another government at Kansas’ expense, and blunting the tax changes’ benefit to businesses. All of which brings us to the last issue.
The state budget is suffering.
Of course, lawmakers in Kansas knew when they passed the tax cuts that this would happen; the question is whether they will lose even more revenue than they expected over the long run.
The Kansas Legislative Research Department — the state-level equivalent of the Congressional Budget Office — issued a memo this month saying that “it appears that some of the fiscal notes associated with various income tax law changes enacted in 2012 and 2013 were understated.” Translation: It looks as if we gave out a bigger tax cut than we thought.
Steve Stotts, the director of taxation at the Kansas Department of Revenue, disagrees. He says the April and May shortfall is driven by a one-time federal tax event unrelated to Kansas state policy that isn’t indicative of future revenue shortfalls.
The “fiscal cliff” at the end of 2012 induced people to shift whatever income they could into 2012 to take advantage of low capital-gains tax rates before they went up. That lifted income tax collections, but only for one year (2013, when final payments for tax year 2012 were made). As a result, income tax receipts in 2014 are lower than they were in 2013, and many states underestimated just how much they would drop.
But Kansas missed by more than most. According to data collected by the Rockefeller Institute, of 17 states that produce public monthly income tax revenue projections, Kansas’ April error — off by 28 percent — was by far the largest. No other state missed by more than 16 percent, suggesting that a failure to anticipate falling capital gains tax revenue was not the only problem in Kansas.
As revenue comes in over the next few months, Kansas will learn just how big of a tax cut it’s given out in the name of small business, and what it will have to do to the rest of the state budget to make the tax cut affordable.
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