Top Ten Tax Charts

With the April 18 tax filing deadline fast approaching, we’ve the CBPP assembled these charts to provide a big-picture look at the U.S. tax system.

The United States Is a Low-Tax Country

Federal Income Taxes on Average Families are Historically Low

Corporate Tax Revenues are Historically Low

Effective Tax Rates on Wealthiest People have Fallen Dramatically

Bush Tax Cuts Tilted Heavily Towards the Top

Rise in Debt Could be Halted by Letting Bush Tax Cuts Expire

Tax Ependitures are Substantial

Income Gains at the Top Dwarfed those of Low and Middle Income Households

Top 1 Percent's Share of Total After Tax Income Has More than Doubled Over the Past Thirty Years

Most of Budget Goes Toward Defense, Social Security, and Major Health Programs

FY 2011 Budget Agreement: Projections for West Virginia

Last week, members of Congress avoided a government shutdown and came to an agreement to fund the federal government for the rest of the fiscal year. Over all the agreement contains a $38 billion reduction in appropriations for FY 2011, compared to FY 2010.

Included in the agreement is a 0.2 percent across the board reduction in discretionary spending, which contains a great deal of funding for states in the form of grants. However, the agreement does specify larger cuts for some programs, many of which provide important services to many in West Virginia, while others benefit us all. 
 
The below table shows the impact of these target program cuts in West Virginia.
 
Projected cuts for selected programs in WV under FY2011 budget agreement compared to FY2010 levels

Source: Federal Funds Information for States

While these cuts are less severe than those originally proposed, and do a better job protecting education, the agreement still puts the burden of deficit reduction mainly on the poor and children. Investments in health, workforce, community development, and the environment all help ensure a prosperous future. Deficit reduction is important, but it needs to have balance.

Why state tax cuts do not = Jobs (Volume 123, Issue 8)

A former Wisconsin Secretary of Development under Gov. Lee Dreyfus (R) has a great op-ed in the Milwaukee Journal saying what (unfortunately) can’t be said enough times: 

“The things that create the conditions that lead to the
growth of good jobs are a skilled, educated, stable and dedicated
workforce, a substantial group of highly educated and motivated
entrepreneurs, above-average infrastructure and government services, a
high overall quality of life and a sufficient pool of investment
capital. Low tax rates, lax regulations and enfeebled employees come in
way down the list of factors that create a positive business
environment.”

And here’s a funny photo from our friends at Demos.

Surplus Business Tax Collection Results from Poor Initial Tax Collection Estimates

A recent editorial in the Daily Mail claims that West Virginia’s recent business tax cuts have resulted in surplus revenues for March 2011 ($25.7 million) and fiscal year to date ($79.5 million). Following a similar pattern, there was no evidence provided for this assertion other than anecdotal platitudes.

In making its case, the Daily Mail told readers that the recent business tax reductions increased the number of businesses locating in the state. The West Virginia Chamber of Commerce agreed, concluding, “As West Virginia corporate tax rates become more competitive, we’ll see a broadening of corporate activity.”

However, if the lowering of Corporate Net Income and Business Franchise tax rates makes West Virginia more “friendly” to businesses, we should expect to see an increase in the number of businesses coming into West Virginia. The chart below identifies the number of new corporation filings from 2006 to 2010. These new filings represent C corporations, the only businesses subject to paying the Corporate Net Income Tax. If C corporations were sensitive to changes in the Corporate Net Income tax rate we should expect to see an increase in the number of new filings as the tax rate lowers.


The data clearly shows that there has been a drop in new filings for C corporations from 2006 to 2010, declining from about 1,200 in 2006 to about 850 in 2010, a decline of 41%.

In 2006, there were 46 new partnership filings in the state, and in 2010, the number of new filings was 41. This decline happened after the Business Franchise tax had been reduced from 0.7 percent of capital value versus 0.41 percent in 2010.

The low and unrevised revenue estimate forecast accounts for the surplus. Corporate revenues estimates for both the month of March and for the entire fiscal year have declined precipitously since 2006. Revenue estimates from 2006 to 2009 for the month of March ranged from $60.2 million to $58.1 million. Since the Great Recession, however, estimates for the month of March dropped to $41.2 million in 2010 and $30.1 million in 2011, reflecting a 50 percent decline since 2006.



Finally, we can review the corporate business tax revenue estimates and actual collections from fiscal year 2006 to 2011.  The data reveals reveals that the revenue collection estimate for FY 2011 of $209.5 million is lower than any prior recent fiscal year.

 Actual business tax collections appear to be normal when compared to the pre-recession trend in actual revenue collections since 2006.

Finally, today’s article in the Daily Mail acknowledged that estimating errors were to blame for inaccurate revenue estimate. Yet, the Daily Mail and the State Chamber of Commerce relied on the state’s own inaccurate and pessimistic business revenue estimates to draw their favorite conclusion that improved business tax collections are the result of policy changes that lowered Corporate Net Income and the Business Franchise taxes.