Two winning tickets for this week’s $587.5 million Powerball lottery were sold, one each in Missouri and Arizona. Of course, state governments will be receiving a share of the pot via the taxes imposed on lottery winnings.

Missouri state budget director Linda Luebbering said the revenue would have a “good, positive effect” for her state. About 35 percent of the money dedicated to lotteries eventually winds up back in state coffers.

Many states use lotteries as a way to raise money, often dedicating the revenue to education. However, research has found that states using lotteries to boost their education spending actually end up putting less money into classrooms than states that simply budget appropriately for their schools:

The educational “bonus” appears to be nonexistent. Miller and Pierce (1997) studied the short- and long-term effect of education lotteries. They found that lottery states did indeed increase per-capita spending on education during the lottery’s early years. However, after some time these states actually decreased their overall spending on education. In contrast, states without lotteries increased education spending over time. In fact, nonlottery states spend, on average, 10 percent more of their budgets on education than lottery states (Gearey 1997).

The Nelson A. Rockefeller Institute of Government actually found that “new gambling operations that are intended to pay for normal increases in general state spending may add to, rather than ease, state budget imbalances.”

Lotteries are also extremely detrimental to the poor, acting as, in essence, a regressive tax, with about a 38 percent tax rate (a rate usually reserved for the very richest Americans). “Lotteries are the worst expected return of just about any gambling you can do,” said economist Victor Matheson, who estimates that “where slots pay 95 cents to the dollar in terms of prizes and a good Black Jack player can earn as much as 98 cents, lotteries pay a mere 50- to 60-cent return per dollar.” According to the Bloomberg News “Sucker Index,” residents of Georgia do the most damage to their own finances through the lottery.

On her campaign website, Republican senate candidate Linda McMahon (CT) rails against “reckless” and “out of control” government spending. She calls for the institution of a Balanced Budget Amendment (despite the widespread economic damage such an amendment could cause), and specifically singles out earmarks, claiming that they displace private sector job creation. McMahon has also called for “an end to corporate welfare.”

However, at the CT Post reported, McMahon was all too happy to accept government subsidies for her company, World Wrestling Entertainment, even when the company was laying off workers:

The Stamford-based WWE empire received about $37 million in state tax credits for staging and recording its wrestling spectacles dating back to July of 2009, state officials reported Friday.

The state Department of Economic and Community Development (DECD), in response to a request by Hearst Connecticut Newspapers, indicated that the WWE has received 20 separate tax credits totaling $36.7 million.

Three of the 20 credits, awarded as part of state legislation aimed at fostering film, TV and digital production in the state, totaled more than $5 million each in 2010, 2011 and 2012, according to a summary released under the state’s Freedom of Information Act.

Jim Watson, spokesman for the DECD, said Friday that the credits were granted, without strings, based on how much money the WWE had spent in Connecticut on producing its events.

“There are no job creation or retention requirements for them to earn the credits,” Watson said. “The credits are awarded based on qualified expenditures made in the state.”

In 2009, WWE collected $9 million in subsidies after announcing plans to lay off 60 workers.

Most states in the U.S. provide tax credits for movie and television production, despite the dubious effect they have promoting job creation. In 2007, Connecticut’s own Department of Community and Economic Development found that its film production credits were not worth the cost. (HT: Kenneth Thomas)

Eleven states will give voters an opportunity to change state tax policy on election day this year. However, most of these initiatives — according to Citizens for Tax Justice — “would make state taxes less fair or less adequate (or both).”

But some ideas are worse than others. Here are the three worst ideas voters will decide on:

So-called “Taxpayer Bill of Rights” (TABOR): Florida voters will decide whether to accept Amendment 3, which limits public spending and revenue collection through a proscribed and — according to the Center on Budget and Policy Priorities (CBPP) — flawed formula. It also requires a supermajority of the legislature to override the revenue limit. TABOR virtually guarantees revenue shortages and makes it extremely difficult to raise more, so Amendment 3 will likely lead to drastic cuts in public spending. As the CBPP shows, if all the spending cuts were enacted at once, revenue losses would exceed $11 billion in ten years.

Colorado is the only state to have enacted TABOR, but after 13 years of harmful budget cuts, Colorado voters suspended it in 2005.

Supermajority requirements for changing tax policy: Both Michigan and Washington are debating requiring a two-thirds legislative supermajority in order to end tax breaks or increase tax rates. Such a requirement virtually guarantees legislative gridlock and a host of other problems.
In 2010, Washington put in place a supermajority requirement for revenue changes, known as I-1053, but it was struck down as unconstitutional in May 2012.

Again, history provides a useful lesson. California passed a supermajority requirement in 1978, Prop 13, which Time called “the root of California’s misery.” Among the many problems Prop 13 caused, it resulted in legislative dysfunction and multi-billion dollar drops in spending and revenue. By design, revenue plunged 60 percent the first year after the law’s passage, and education funding dropped.

Since the legislature is virtualy unable to raise taxes, proposals to increase taxes come through popular referendum.

Repealing the estate tax: Oregon voters will decide on Measure 84, which gradually repeals the estate tax and will cause a $120 million loss in revenue for the state every year. Though other parts of the law are unclear, it could potentially “open a new egregious loophole allowing individuals to avoid capital gains taxes on the sale of land and stock by simply selling property to family members.” If this analysis is accurate, Oregon would lose up to $175 million by 2021.

There is no evidence to suggest repealing the estate tax increases the number of wealthy tax payers who live in a state, a constant claim of proponents. In the end, repealing the estate tax would be an extremely regressive move and would only benefit the very wealthy.

– Greg Noth

According to Good Jobs First, an organization that promotes accountability in economic development, several states allow corporations to literally pocket their employees’ tax payments. Rather than having those taxes go towards public services, the companies withhold money from their workers’ paychecks and just keep it, never remitting it to the state, under the guise of a job creation program.

Good Jobs First found that “nearly $700 million is getting diverted each year. And it is very unlikely that the affected workers are aware, given that no state requires that the diversion be disclosed on pay stubs.” Now, Pennsylvania is considering becoming the latest state to participate, as the Philadelphia City Paper reported:

Republican Governor Tom Corbett is deciding whether or not to sign legislation that would require some workers to pay taxes to their bosses. Yes, you read that right. The bill, which would allow companies that hire at least 250 new workers in the state to keep 95-percent of the workers’ withheld income tax, is an effort to to recruit Oracle to the state.

Your taxes would get withheld by your boss like normal, but they would then keep them and spend it on private jets or monogrammed bathroom fixtures or whatever instead of turning them over to the state–turning your tax dollars over to the state being the whole reason they were ostensibly “withheld” in the first place.

“These deals typify corporate socialism, in which business gains are privatized and costs socialized,” wrote Reuters David Cay Johnson. “Leaders in both parties embrace these giveaways because they draw campaign donations from corporate interests and votes from people who do not understand that they are subsidizing huge companies.” The Pennsylvania Budget and Policy Center listed a host of reasons that Gov. Tom Corbett (R-PA) should reject the law, including its effect on state revenue and its loopholes that will allow companies to collect their workers’ tax payments even if they create no new jobs.

According to an investigation by The Knoxville News Sentinel, wealthy individuals — including corporate CEOs and country music stars — are taking advantage of a loophole in Tennessee law to claims huge tax breaks on their property. This tax provision is meant to help farmers, but instead is helping members of the 1 percent save tens of thousands of dollars on their property taxes every year:

An investigation by The Knoxville News Sentinel and The Commercial Appeal found…an impressive roster of wealthy Tennesseans who make their millions elsewhere but use the farmland protection law to escape much of their local property tax bills — from Fortune 500 executives to country music stars. [...]

In Williamson County, the local assessor has enrolled well-known country music stars such as Billy Ray Cyrus, and Naomi and Wynonna Judd in the program, yet public records reveal little about those operations.

Cyrus, for example, receives a $29,000-a-year tax break on a 467-acre, $6.5 million spread with a tree-topped hill near Thompson Station, Tenn., where the “Achy Breaky Heart” star owns a 7,850-square-foot home. Williamson County records show Cyrus, who’s also lived at times in Los Angeles, holds separate farming greenbelts on six of seven parcels that comprise the 467-acre tract. By law, applications for greenbelt are supposed to be filed with the local Register of Deeds. Yet a check of records there revealed applications for just two of the six farming greenbelts, both from 1994, when the singer disclosed that he intended to raise corn, horses and cattle.

Sadly, this is not a phenomenon confined to the Volunteer State. Sen. Bill Nelson (D-FL) took advantage of lax Florida tax laws and some cows to lower his property tax bill. Tom Cruise pulled the same trick with sheep in Colorado, as did Bon Jovi with beehives in New Jersey. Some corporate campuses even qualify as “farms” because they let a few cows graze on the land.

States can ill-afford to let revenue slip away, as they’re still combating the effects of the Great Recession. Eliminating a loophole that allows the wealthiest citizens to avoid paying property taxes seems like a no-brainer. (HT: Citizens for Tax Justice)

Gov. Sam Brownback (R-KS) recently signed into law massively regressive tax cuts that were so huge that many Republicans in the state opposed them. Budget analysts have found that Kansas will have to gut important public services for low-income Kansans and their children in order to pay for the tax cuts.

But Brownback has a plan if Kansas residents start to complain about the impact of those budget cuts — blame Europe:

Gov. Sam Brownback’s administration already has developed talking points to deflect anticipated criticism of the newly enacted massive income tax cuts should Kansas face significant budget problems next year. [...]

The administration is fashioning a narrative that suggests budget cuts may be necessary because the nation’s economy may remain stagnant. Europe’s financial crisis also looms as a potential threat.

“There are forces beyond the state’s control,” Brownback spokeswoman Sherriene Jones-Sontag said last week. “There’s still a great deal of uncertainty with the economy.”

Citizens for Tax Justice reacted to the governor’s plan by saying, “looks like the ‘spin room’ in Topeka has been busy lately.” After all, no one (and particularly no one in Europe) forced Brownback to sign a huge tax cut. Brownback justified the move by saying it would boost the Kansas economy, though there is scant evidence to back up that assertion.

Under Brownback’s plan, the richest Kansans will receive tax breaks worth about $20,000, while the poorest residents will actually see their taxes go up due to the elimination of tax credits that aid the poor.

As ThinkProgress has noted, the “47 percent” that Mitt Romney derided for paying no federal income tax, and thus taking no “personal responsibility and care for their lives,” actually pay a slew of other taxes at rates higher than Romney himself pays. The lion’s share of the tax breaks handed out by the U.S. don’t go to low-income households or the middle class, but to the rich.

And according to a new report from the Institute for Taxation and Economic Policy, things are even worse at the state and local level level. In fact, all 50 states impose higher tax rates on low-income households than their richest 1 percent, when state and local taxes are taken into account:

The fact is that nearly every state and local tax system takes a much greater share of income from middle- and low-income families than from the wealthy. This “tax the poor” strategy is problematic because hiking taxes on low-income families pushes them further into poverty and increases the likelihood that they will need to rely on safety net programs. From a state budgeting perspective, this “soak the poor” strategy also doesn’t yield much revenue compared to modest taxes on the rich. It’s no wonder that so many states with regressive tax structures are facing long-term structural budget deficits. They‘re continually imposing higher taxes on people without much money.

Some of the worst offenders are Florida, where the top 1 percent pays a 2.1 percent tax rate while the bottom 20 percent of households pay 13.5 percent; Illinois, 4.1 percent and 13 percent, respectively; Nevada, 1.6 percent and 8.9 percent, respectively; Texas, 3 percent and 12.2 percent, respectively; and South Dakota, 1.9 percent and 11 percent, respectively. Washington state though, is the worst, where the richest 1 percent pay a 2.6 percent tax rate while the poorest 20 percent pay a whopping 17 percent in taxes.

In the entire U.S., only the District of Columbia charges the richest 1 percent a higher tax rate than the poorest 20 percent, according to the report.