Conscious Uncoupling To Save Us All (With Video!)
Why You Might Want To Read This: ***911 ALERT***! It’s time for states to decouple from federal tax law to save billions of dollars that will be sucked away from states because of the insane tax bill passed this year. Even more fun: we’ve got video about this, and a bit about a wealth tax proposal, with the nation’s organizational leader on taxes, Amy Hanauer, executive director of the Institute on Taxation and Economic Policy. And what you can do about it.
I know what you thought but…I’m not a relationship counselor. Somewhere, in the back of my grey matter, I had stored the phrase “conscious uncoupling”. I knew it was from some dumb popular culture fad but I could not remember from where. So, I did look it up—and, boy, am I sorry I lost that time in life.
So, here’s the story: Out of pure convenience, states typically adopt automatically federal tax law provisions. Basically, it goes like this, as my friends from the Institute on Taxation and Economic Policy explain: states calculate corporate taxes by:
Taking the company’s nationwide gross receipts,
Subtracting nationwide deductions, and
Taxing the state’s share of that nationwide profit.
This has always meant states get less than they should. Add to that the Reagan-Clinton push for smaller government which, over the past half century roughly, has meant a 50 percent cut in federal aid to states (for example, slashing welfare for the poorest Americans), and there’s just a drip-drip of states losing money—which translates into workers losing their jobs and underfunded services (yes, the wealthy don’t pay their fair share, which is why I have been advocating state-based wealth taxes)
It’s even more of a crazy, debilitating system now because of the Trumpers tax bill.
Let’s take one example: the Qualified Small Business Stock (QSBS) deduction.
A general point: one way the tax system rips us all off if you aren’t wealthy is by burying what is happening in either very arcane terms and/or Orwellian language.
QSBS fits the bill. The regular human being sees “Qualified Small Business Stock” and s/he has no idea what it means AND would be excused for also believing that it helps “small business”.
And the tale of QSBS is really a window into how wealthy, powerful interests have corrupted the tax system.
The deduction does not help “small business”
It’s always been a fraud, a fraud engineered into the tax code by lobbyists for very wealthy people. Because the deduction is only available to businesses classified as “C corporations” and, you’d likely know this, most “small businesses” are formed as sole proprietorships, LLCs, partnerships or “S” Corporations.
There is a lot of twists and turns here with the minutiae of the deduction. But just know this, as ITEP concludes: “Nearly 94 percent of the exclusions were claimed by people with more than $1 million of annual income derived either from QSBS or other sources – the top one-half of 1 percent of the U.S. income distribution.”
This scam has especially hurt states because companies use this deduction to lower state tax bills even when the alleged investment had ZERO to do with creating in-state jobs.
Look at how many states are getting slammed just by this one provision:
Decoupling from this nonsense would bring in a total of roughly $685 million for states.
What can YOU do? Pick up the phone, or write to, your state representative and ask that person (or the policy operative) what is being done to decouple from federal tax law.
Let’s go to the videotape as Amy and I talk about how to decouple!