It's the Revenue, Stupid!
Despite Far Right claims that the cause of state and local budget deficits is overspending, the facts show otherwise: The budget crises stem not from too much spending but from too little revenue. Some elected officials — even conservatives — are realizing that and acting to close corporate and other tax loopholes.
By Susan Ellen Holleran
I'm personally paying more taxes than Toys 'R' Us," says Chris Rogers. "The common person is getting hurt, and the multi-billion-dollar corporations aren't paying their fair share."
Rogers is a carpenter with the Missouri National Guard. He and his co-workers recently organized with Council 72, and he is on the contract negotiating committee. In Missouri, Toys "R" Us — which made $3.5 billion in profits last year — pays the ridiculous minimum of $200 a year in corporate income tax. In other states, that minimum tax is even less: $50 in Ohio, $10 in Oregon.
Over the years, the corporate share of the tax burden has shrunk due to a variety of tax-avoidance gimmicks. The "Geoffrey" loophole is one of the largest. Nicknamed for the Toys "R" Us giraffe, it siphons taxable income out of the jurisdictions in which it is earned into tax-shelter states like Delaware and Nevada.
REVENUE DRAIN. According to the Center on Budget and Policy Priorities, 43 states enacted significant tax cuts between 1994 and 2001, representing a loss of more than $40 billion a year in revenues. Corporate tax receipts have decreased by 8.2 percent nationally, leaving a greater share of state funds to come from individuals with relatively low incomes. Tax income has also declined because of the sagging economy.
But one of the largest problems is corporate-tax loopholes. In fact, corporations have turned tax avoidance into an art form — with departments specializing in discovering new methods of evading their obligations. Experts believe that half — or more — of the Fortune 500 are engaging in sham transactions that serve no business purpose except to avoid taxes. In the 1940s, corporations shared the federal income-tax burden pretty evenly with individuals. Today, businesses pay only 13.7 percent, sticking individuals with the rest of the bill. Even pro-business governors, like Bob Taft (R-Ohio) and Linda Lingle (R-Hawaii), have expressed outrage that corporations refuse to shoulder their share of the burden. But their well-funded lobbyists scream "tax increase" whenever elected officials consider tightening up some of the loopholes.
Just like the rest of us, businesses rely on services that are paid for with tax dollars. They need firefighters and police. They depend on the transportation infrastructure. Local schools and colleges educate their employees. And like the rest of us, corporate executives must have clean water to drink and fresh air to breathe. Truth be told, big corporations often use far more of a community's resources than its residents or small businesses.
JERSEY REVOLT. One state that has managed to rein in these corporate parasites is New Jersey. When Gov. James McGreevey (D) took office last year, he faced serious financial trouble. He went in search of revenue and found that 30 out of New Jersey's 50 largest corporations paid only $200 each in state taxes. That was much less than most of the state's small businesses — and substantially less than most individual taxpayers.
A labor/community coalition — in which AFSCME played a key role — provided crucial research and funded a media campaign to compel corporations to pay a larger share of taxes.
The campaign was successful. Through April of this year, the change had brought in $1.88 billion — about 50 percent more than the Garden State collected during the same period in 2002. Although the additional revenue hasn't filled the budget gap, McGreevey has been able to keep his promise to prevent public employee layoffs. "He grabbed the bull by the horns and made some extremely hard decisions," says Council 1 Exec. Director Sherryl Gordon, an AFSCME International vice president.
Many other states have studied New Jersey's actions, but very few elected officials have had the courage to follow its example.
NO SPENDTHRIFTS. Analysts have refuted charges by supporters of downsizing government that states are in hot water because they went on spending sprees. According to the Center for Budget and Policy Priorities, state spending grew more slowly during the 1990s than in any other decade since the 1940s. In fact, adjusting for population and inflation, some three out of four states cut spending between FY 2001 and FY 2002. That was true even though many formerly federal responsibilities had been passed on to the states. Some 75 percent of their new spending went to education, health care and public safety.
Just as the states were receiving unfunded mandates from the federal government, the Bush administration's 2001 tax cut took a major bite out of their tax revenues. That occurred primarily because most state income-tax systems were "coupled" with the federal: The U.S. government's repeal of the estate tax and the bonus depreciation allowance for businesses had a major impact on the states.
AFSCME's recent success in pressuring Congress to include $20 billion for aid to state governments in the FY 2004 budget was a step toward supporting vital state services. The funding for Medicaid and general revenue-sharing grants represents a down payment on essential resources. Although the victory was linked to a tax cut that is skewed to benefit wealthy Americans, it will give the states some tools for handling the fiscal crisis.
Having Our Say
As state officials, fearing corporate wrath, dither over which programs and human services to cut, communities are taking their futures into their own hands. In two counties, one in Ohio and the other in Oregon, they accomplished what most politicians don't have the courage to do: They took the revenue issue directly to the voters and won tax increases.
In early May, residents of Cuyahoga County, Ohio, faced with reduced state aid, adopted a ballot measure to increase property taxes. The $137-million-a-year income will be devoted to human services. It will also support Metro Hospital and prevent hundreds of layoffs.
Throughout the campaign, the community/ labor coalition — spearheaded by AFSCME — had some unusual allies. The Cleveland Plain Dealer, as well as other media, featured editorials and stories supporting the levy and admonishing its opponents.
SAVE OUR SCHOOLS. Voters in Multnomah County, Ore., mobilized to save schools and human services for Portland-area residents with a ballot measure: a 1.25-percent county income tax lasting three years. Council 75 members led the way. They staffed phone banks, canvassed neighborhoods, leafleted co-workers, and made presentations to groups of parents and senior citizens. Fearing the decline of area schools, some 1,900 parents became politically involved — many for the first time.
Supporters combined old-fashioned shoe leather and schmoozing with a high-tech, auto-dial phone bank and computer-savvy voter tracking. The Board of Elections provided updated lists showing who in Oregon's mail-in ballot system had voted. AFSCME volunteers contacted members who had not yet sent in their ballots. The one-on-one visits in the workplace or at home made sure supporters voted "yes" and returned their ballots.
Throughout the three-week campaign, AFSCME and its labor allies mailed 15,000 pieces of literature, placed 44,000 phone calls and distributed 9,000 flyers at worksites. Voter turnout totaled 56 percent; a stunning 58 percent adopted the measure.
Efforts to regain control of our communities are spreading. In early June, voters in Madison, Wis., voted for a tax increase to make up for a projected $12 million in state budget cuts for their schools. Referendums to support New York's deficit-ridden schools were on the ballot in 700 school districts. Voters — knowing that their taxes would increase — passed the initiatives in 94 percent of the districts.
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