Friday, August 2, 2013
Although capital income taxes penalize saving and slow long-run growth, the federal tax system imposes multiple such taxes. Seven increases in capital income taxes took effect at the beginning of 2013, and President Obama’s 2014 budget plan proposes further increases. In upcoming decades, rising revenue needs fueled by entitlement growth will create pressure to further expand capital income taxation despite its negative economic effects. Opponents of capital income taxation must reframe the policy debate by explaining the economic disadvantages of capital income taxes and proposing alternative budgetary measures that maintain tax fairness.
Monday, July 29, 2013
Citizens for Tax Justice, Reforming Individual Income Tax Expenditures: Congress Should End the Most Regressive Ones, Maintain the Progressive Ones, and Reform the Rest to Be More Progressive and Better Achieve Policy Goals:
To restore funding for public investments, Congress should enact a tax reform that reduces tax expenditures (subsidies provided through the tax code) to raise revenue. Some lawmakers have debated whether or not revenue saved from reducing tax expenditures should be used to reduce tax rates rather than finance needed public investments, an issue that has been addressed in previous CTJ reports. Less attention has been given to how Congress should prioritize which tax expenditures should be limited or reformed. This is particularly true of tax expenditures for individuals. (A future CTJ report will address tax expenditures for businesses.)
Tax expenditures can be evaluated based on three criteria: cost, progressivity and effectiveness in achieving non-tax policy goals. This report takes cost into account by focusing on the ten most costly tax expenditures for individuals, illustrated in the bar graph on the following page. This report evaluates these tax expenditures based on progressivity and effectiveness in achieving non-tax policy goals — which include subsidizing home ownership and encouraging charitable giving, increasing investment, encouraging work, and many other stated goals. Based on data from Congressional Budget Office (CBO) and from the Institute on Taxation and Economic Policy (ITEP), this report
- Tax expenditures that take the form of breaks for investment income (capital gains and stock dividends) are the most regressive and least effective in achieving their stated policy goals, and therefore should be repealed.
- Tax expenditures that take the form of refundable credits based on earnings, like the Earned Income Tax Credit (EITC) and the Child Tax Credit, are progressive and achieve their other main policy goal (encouraging work) and therefore should be preserved.
- Tax expenditures that take the form of itemized deductions are regressive and have mixed results in achieving their policy goals, and therefore should be reformed.
- Tax expenditures that take the form of exclusions for some forms of compensation from taxable income (like the exclusion of employer-provided health insurance and pension contributions) are not particularly regressive and have some success in achieving their policy goals, and therefore should be generally preserved.
This report draws partly on recent data from the Congressional Budget Office on the ten largest tax expenditures affecting individuals, which CBO concludes will cost more than $900 billion in 2013 and make up two-thirds of the cost of all federal tax expenditures. The graph above illustrates the revenue foregone in 2013 for each of the top ten tax expenditures for individuals in 2013.
These revenue amounts do not necessarily indicate how much would be raised by repealing one or more of these tax expenditures. (This is because people may respond to the repeal of one tax break by utilizing another more heavily or changing their behavior in other ways.) Nonetheless, these figures are useful for comparing the relative importance of tax expenditures.
Saturday, July 13, 2013
Given the nation’s long-term fiscal pressures, increases in revenues need to make a significant contribution to deficit reduction, alongside reductions in spending for mandatory programs. Deficit-neutral tax reform would, as a result, be highly problematic.
Thursday, July 11, 2013
Tax Policy Center: Evaluating Broad-Based Approaches for Limiting Tax Expenditures, by Eric Toder, Joseph Rosenberg & Amanda Eng:
This paper evaluates six options to achieve across-the-board reductions to a group of major exclusions and deductions in the income tax: (1) limiting their tax benefit to a maximum percentage of income, (2) imposing a fixed dollar cap, (3) reducing them by fixed-percentage amount, (4) limiting their tax saving to a maximum percentage of their dollar value, (5) replacing them with fixed rate refundable credits, and (6) including them in the base of the existing Alternative Minimum Tax (AMT). We discuss issues of design, implementation, and administration, and simulate the revenue, distributional, and incentive effects of the various options.
Wednesday, July 10, 2013
Institute on Taxation and Economic Policy, Undocumented Immigrants’ State and Local Tax Contributions:
The potential fiscal costs of legalizing undocumented immigrants have been central to the immigration reform debate. This report contributes the most reliable figures available about the potential benefits to state governments, showing that the 11.2 million undocumented immigrants living in the United States are already paying a significant share of their income in state and local taxes, and that figure would rise under immigration reform.
A report from the non-partisan Congressional Budget Office (CBO) estimated the impact the immigration bill passed in the Senate would have at the federal level and found that it would decrease the deficit and generate more than $450 billion in additional federal revenue over the next decade.
This report provides state-by-state estimates of the state and local tax contributions of the 11.2 million undocumented immigrants living in the United States.
The key findings are:
- Undocumented immigrants currently contribute significantly to state and local taxes, collectively paying an estimated $10.6 billion in 2010 with contributions ranging from less than $2 million in Montana to more than $2.2 billion in California. This means these families are likely paying about 6.4 percent on average of their income in state and local taxes.
- Allowing undocumented immigrants to work in the United States legally would increase their state and local tax contributions by an estimated $2 billion a year. Their effective state and local tax rate would also increase to 7 percent on average, which would put their tax contributions more in line with documented taxpayers with similar incomes.
Saturday, July 6, 2013
Saturday, June 29, 2013
The Brookings Institution hoasted a program yesterday on Tools for Supporting the Housing Market: Evaluating the Homebuyer Tax Credit and Other Policies:
After the bursting of the home price bubble in the mid-2000s sent the housing market into a downward spiral, the government introduced a variety of new measures aimed at sustaining the flow of mortgage credit and boosting housing demand. One such measure was a program that provided a tax credit to homebuyers of up to $8,000. Although advocates of the program argued that it was a critical tool for absorbing excess inventories, critics complained that it simply accelerated sales that would have occurred anyway. Other measures aimed at stabilizing the housing market included various foreclosure prevention and mitigation initiatives, programs that facilitated refinancing, and the Federal Reserve’s considerable efforts to reduce interest rates.
With several years of experience of these policies now behind us, it is time to take stock of their effects. Establishing a better understanding of how they worked will help us learn what tools to use to combat future episodes of housing market distress and what measures the government should have in place now to encourage the nascent housing market recovery that has emerged over the past year.
Co-Directors of Economic Studies Karen Dynan and Ted Gayer presented a new paper on the impact of the federal and state homebuyer tax credits [An Evaluation of Federal and State Homebuyer Tax Incentives (Presentation]. A panel discussion followed to discuss how it compared to other government efforts to help the housing market:
- William G. Gale (Co-Director, Urban-Brookings Tax Policy Center) (moderator)
- Ed Brady (National Association of Home Builders)
- Jonathan Hanks (Sr. Vice President and COO, Utah Housing Corporation)
- Jed Kolko (Chief Economist and Vice President of Analytics, Trulia)
- Christopher J. Mayer (Professor, Columbia Business School)
Sunday, June 23, 2013
Wednesday, June 19, 2013
Curtis S. Dubay (Heritage Foundation):
- PEP and Pease Hurt Larger Families Most and Slow Growth: "In the fiscal cliff deal, President Barack Obama and Congress surprisingly reinstated two long dormant tax policies: the personal exemption phaseout (PEP) and “Pease,” a cap on itemized deductions. The 2001 Bush tax cuts rightfully abolished them because they are bad policies. Now they are back, raising taxes on larger families and reducing the incentives to work and save. These reduced incentives will slow economic growth and, like the tax increase, hit larger families hardest. Pease is similar to the cap on deductions and exemptions that President Obama has proposed in his budgets. Fundamental tax reform is the best way for Congress to fix its mistake of reviving these policies."
- CBO Report on “Tax Expenditures” Has It Wrong: "The Congressional Budget Office (CBO) released a report on the distribution of tax expenditures” that some are wrongly using to push for additional tax increases. This was inevitable because the report takes the wrong approach to the issue."
- E-sales Tax No Bargain: "Gov. Bob McDonnell’s transportation plan includes a unique provision. If Congress passes the Marketplace Fairness Act, Virginia would use the new revenue from Internet sales taxes for transportation projects, sparing Virginians an increase of the gas tax. A respite from higher gas taxes sounds good. But Virginia’s businesses will pay a hefty compliance toll if the bill becomes law. And Virginians who shop online will pay the tab that drivers would’ve paid had the bill not become law."
- Senate Immigration Bill Does Not Require Payment of All Back Taxes: "There are many serious flaws in the controversial Senate immigration bill, the Border Security, Economic Opportunity, and Immigration Modernization Act (S. 744). One such flaw is that it fails a standard of basic fairness to which immigration has long been held: It does not meaningfully require illegal immigrants to pay back taxes, interest, and penalties on all the income they earned while here in the U.S. illegally before being granted legal status."
Tuesday, June 18, 2013
Center on Budget and Policy Priorities: States Should React Cautiously to Recent Income Tax Growth April Surge Provides Opportunity to Invest in Infrastructure, Boost Reserves:
Recent tax collections are considerably higher than last year in most states and, in many cases, exceed states’ projections when they adopted their current budgets in the spring of 2012. In 32 states for which data are available, state tax collections in the first ten months of fiscal year 2013 were 5.7 percent higher than in the same period last year, on average.
A closer look into the tax collection reports reveals that:
- Much of the recent growth is in the income tax. With two months left in the fiscal year, the typical state has collected 8.9 percent more personal income taxes than it did in the same period last year. Sales taxes have grown more slowly. This is, in part, the latest demonstration of the fact than income taxes rise more rapidly than sales taxes during periods of economic growth.
- The revenue growth and particularly income tax growth is nationwide. Some 26 of the 30 states for which data are available experienced double-digit growth in income taxes between April 2012 and April 2013.
- While a portion of the income tax growth reflects the economic recovery, an additional portion reflects wealthy taxpayers shifting income into 2012 that they would have received in 2013 in anticipation of federal tax rate increases in 2013.
- Even with this recent growth, state tax revenues have not recovered from the Great Recession. Revenues likely still remain more than 3 percent below pre-recession levels, after adjusting for inflation. And because of the one-time nature of much of the recent revenue growth, revenue growth is likely to slow again.
Monday, June 17, 2013
Legislation in Congress that would address tax loopholes, raise revenue, increase the fairness of the tax code and provide stability to the financial system are subject to lobbying efforts that are overwhelmingly lopsided in favor of industry interests, a new Public Citizen report shows. The report analyzes lobbying disclosure data to illustrate the number of lobbyists that are working on each of three bills: the Cut Unjustified Tax Loopholes Act (CUT Loopholes), the Stop Tax Haven Abuse Act and the Wall Street Trading and Speculators Tax Act – finding that 331 of the 383, or 86 percent, of lobbyists who have worked on these bills in the past two Congresses represent industry clients.
(Hat Tip: Citizens for Tax Justice.)
Economic Policy Institute: Corporate Tax Rates and Economic Growth Since 1947, by Thomas L. Hungerford:
This brief examines corporate income-tax rates, and the argument linking low corporate tax rates with higher economic growth. The principal findings are:
- Claims that the United States’ corporate tax rate is uniquely burdensome to U.S. business when compared with the corporate tax rates of its industrial peers are incorrect. While the United States has one of the highest statutory corporate income-tax rates among advanced countries, the effective corporate income-tax rate (27.7 percent) is quite close to the average of rich countries (27.2 percent, weighted by GDP).
- The U.S. corporate income-tax rate is also not high by historic standards. The statutory corporate tax rate has gradually been reduced from over 50 percent in the 1950s to its current 35 percent.
- The current U.S. corporate tax rate does not appear to be impeding corporate profits. Both before-tax and after-tax corporate profits as a percentage of national income are at post–World War II highs; they were 13.6 percent and 11.4 percent, respectively, in 2012.
- Lowering the corporate income-tax rate would not spur economic growth. The analysis finds no evidence that high corporate tax rates have a negative impact on economic growth (i.e., it finds no evidence that changes in either the statutory corporate tax rate or the effective marginal tax rate on capital income are correlated with economic growth).
(Hat Tip: Citizens for Tax Justice.)
Saturday, June 15, 2013
Sunday, June 2, 2013
The Motley Fool: The 6 Most Generous States in America:
- Maryland (40.1% of tax returns; $2,969 median contribution)
- New Jersey (36.0%; $2,181)
- Connecticut (35.9%; $1,916)
- Utah (33.1%; $5,255)
- Minnesota (32.7%; $2,213)
- Virginia (32.5%; $2,790)
Friday, May 17, 2013
In two recent cases, the U.S. Supreme Court considered constitutional challenges to the federal Defense of Marriage Act—which denies federal recognition of same-sex marriage—and to California’s Proposition 8, a constitutional amendment banning same-sex marriage. Regardless of the outcomes of these two cases, the controversy over same-sex marriage highlights an important tax policy question: should the US tax code treat people as families, as it currently does, or as individuals? This paper considers the costs and benefits of switching to a tax system based on individual, rather than family, income.
Wednesday, May 15, 2013
American Enterprise Institute Podcast: Tax Policy and the Nobel Prize:
What will you do with your Nobel Prize Money? On the latest episode of Banter, AEI economist Aparna Mathur discusses the tax policy surrounding academic, scientific, and philanthropic prize winnings. America is the only country that taxes these earnings and as a result, many give their winnings to charity. Should these winners, who’ve contributed so much to society already, be allowed to keep the fruits of their labor or should they be encouraged to contribute to further social good? Plus, Stu and Andrew play a round of “guess the feminist critique.”
Saturday, May 11, 2013
Saturday, May 4, 2013
Friday, May 3, 2013
Good Jobs First: Grading Places: What Do the Business Climate Rankings Really Tell Us?:
Prominent studies that purport to measure and rank the states’ “business climates” are actually politicized grab-bags of data. They contradict each other wildly, have no predictive value, and should not be used to inform public policies. This is only the third such analysis of pseudo-social science “business climatology” in 27 years.
Press and blogosphere coverage:
- Citizens for Tax Justice, Rich States, Poor States and Fake Research: "Business Climate" Rankings Mislead Lawmakers by Design
- Crain's Chicago Business, Why State Business Climate Rankings Are Bunk: Study
For criticism of the Good Jobs First study, see:
- Tax Foundation, Response to Good Jobs First’s “Grading Places”
- Tax Update Blog, Peter Fisher takes on The Tax Foundation
Thursday, April 25, 2013
Earlier this year, Citizens for Tax Justice reported that Facebook Inc. had used a single tax break, for executive stock options, to avoid paying even a dime of federal and state income taxes in 2012. Since then, CTJ has investigated the extent to which other large companies are using the same tax break. This short report presents data for 280 Fortune 500 corporations that, like Facebook, disclose a portion of the tax benefits they receive from this tax break.
- These 280 corporations reduced their federal and state corporate income taxes by a total of $27.3 billion over the last three years, by using the so-called “excess stock option” tax break.
- In 2012 alone, the tax break cut Fortune 500 income taxes by $11.2 billion.
- Just 25 companies received more than half of the total excess stock option tax benefits accruing to Fortune 500 corporations over the past three years.
- Apple alone received 12 percent of the total excess stock option tax benefits during this period, enjoying $3.2 billion in stock option tax breaks during the past three years. JP Morgan, Goldman Sachs and ExxonMobil collectively enjoyed 10 percent of the total.
- In 2012, Facebook wiped out its entire U.S. income tax liability by using excess stock option tax breaks.
- Over the past three years, Apple slashed its federal and state income taxes by 20 percent using this single tax break.
How It Works: Companies Deduct Executive Compensation Costs They Never Actually Paid
Most big corporations give their executives (and sometimes other employees) options to buy the company’s stock at a favorable price in the future. When those options are exercised, corporations can take a tax deduction for the difference between what the employees pay for the stock and what it’s worth (while employees report this difference as taxable wages).
Before 2006, companies could deduct the “cost” of the stock options on their tax returns, reducing their taxable profits as reported to the IRS, but didn’t have to reduce the profits they reported to their shareholders in the same way, creating a big gap between “book” and “tax” income. Some observers, including CTJ, argued that the most sensible way to resolve this would be to deny companies any tax deduction for an alleged “cost” that doesn’t require an actual cash outlay, and to require the same treatment for shareholder reporting purposes.
But instead, rules in place since 2006 maintained the tax write-off, but now require companies to lower their “book” profits somewhat to take account of options. But the book write-offs are still usually considerably less than what the companies take as tax deductions. That’s because the oddly-designed rules require the value of the stock options for book purposes to be calculated — or guessed at — when the options are issued, while the tax deductions reflect the actual value when the options are exercised. Because companies typically low-ball the estimated values, they usually end up with much bigger tax write-offs than the amounts they deduct in computing the profits they report to shareholders.
- Forbes: Stock Options Meant Big Tax Savings For Apple And JPMorgan, As Well As Facebook, by Janet Novack
- Huffington Post: McDonald's, Starbucks, Apple Reaping Billions Of Dollars From Little-Known Tax Break: Study, by Jillian Berman
- Tax Update Blog: Is it a Loophole if it Increases Taxes?, by Joe Kristan
(Hat Tip: Francine Lipman.)
Thursday, April 18, 2013
Today is Tax Freedom Day, the day on which Americans will have earned enough money to pay all federal, state, and local taxes for the year:
Tax Freedom Day is the day when the nation as a whole has earned enough money to pay its total tax bill for the year. A vivid, calendar based illustration of the cost of government, Tax Freedom Day divides all federal, state, and local taxes by the nation’s income. In 2013, Americans will pay $2.76 trillion in federal taxes and $1.45 trillion in state taxes, for a total tax bill of $4.22 trillion, or 29.4 percent of income. April 18 is 29.4 percent, or 108 days, into the year.
Tax Freedom Day is five days later than last year, due mainly to the fiscal cliff deal that raised federal taxes on individual income and payroll. Additionally, the Affordable Care Act’s investment tax and excise tax went into effect. Finally, despite these tax increases, the economy is expected to continue its slow recovery, boosting profits, incomes, and tax revenues. ...
The total tax burden borne by residents of different states varies considerably, due to differing state tax policies and because of the steep progressivity of the federal tax system. This means higher income states celebrate Tax Freedom Day later: Connecticut (May 13), New York (May 6), and New Jersey (May 4). Residents of Mississippi will bear the lowest average tax burden in 2013, with Tax Freedom Day arriving for them on March 29. Also early are Louisiana (March 29) and Tennessee (April 2).
to Pay Taxes
Tax Freedom Day
Citizens for Tax Justice, Ten (of Many) Reasons Why We Need Corporate Tax Reform:
This CTJ report illustrates how profitable Fortune 500 companies in a range of sectors of the U.S. economy have been remarkably successful in manipulating the tax system to avoid paying even a dime of tax on billions of dollars in profits. These ten corporations’ tax situations shed light on the widespread nature of corporate tax avoidance. As a group, the ten companies paid no federal income tax on $16 billion in profits in 2012, and they paid zero federal income tax on $57 billion in profits over the past five years. All but one paid less than zero federal income tax in 2012; all paid exceedingly low rates over five years.
Sunday, April 14, 2013
Tuesday, April 9, 2013
The Transactional Records Access Clearinghouse at Syracuse University has released a report, IRS Audits Slump, Staff Down Long-term Impact Uncertain:
The IRS plans to expend 18% percent less effort auditing businesses with assets of $10 million or more compared with just two years ago, according to a very timely IRS planning document.
For the same period, the IRS also projects a 14% drop in the amount of available time for the specialized revenue agents it needs to conduct these audits in FY 2013 — the year ending on September 30 — compared to what it was in FY 2011.
These declines — neither of which take into account the probable impact of the sequestration cuts in the months ahead — were described in a special agency report now being made available to the Transactional Records Access Clearinghouse (TRAC) on a monthly basis. This series of internal IRS management reports — the last one covers the period ending in January 2013 — are provided by the IRS thanks to a court order granted TRAC as a result of a suit filed under the Freedom of Information Act.
IRS Large Business and International Division Direct Examination Staff Years
Change 2013 v. 2011
Annual Plan Total 3,567 3,320 2,935 -18% Individual 189 173 306 62% Corporations 1,103 1,043 807 -27% Partnership 191 196 159 -17% Subchapter S Corp 184 180 115 -37% Coordinated Industry Cases 1,083 1,081 1,011 -7% Other 816 647 537 -34% Actual Revenue Agent Years Total 3,319 3,155 2,852 -14% Individual 258 214 283 9% Corporations 864 912 762 -12% Partnership 211 215 179 -15% Subchapter S Corp 185 225 205 11% Coordinated Industry Cases 1,011 952 865 -14% Other 790 637 559 -29%
Citizens for Tax Justice, The U.S. Continues to Be One of the Least Taxed of the Developed Countries:
The U.S. was the third least taxed country in the Organization for Economic Cooperation and Development (OECD) in 2010, the most recent year for which OECD has complete data.
Of all the OECD countries, which are essentially the countries the U.S. trades with and competes with, only Chile and Mexico collect less taxes as a percentage of their overall economy (as a percentage of gross domestic product, or GDP).
This sharply contradicts the widely held view among many members of Congress that taxes are already high enough in the U.S. and that any efforts to reduce the federal deficit should therefore take the form of cuts in government spending.
As the graph to the right illustrates, in 2010, the total (federal, state and local) tax revenue collected in the U.S. was equal to 24.8 percent of the U.S.’s GDP.
The total taxes collected by other OECD countries that year was equal to 33.4 percent of combined GDP of those countries....
In 1979, the U.S. had the 16th highest taxes as a percentage of GDP, out of 24 countries at that time.
In 2010, the U.S. had the 32nd highest taxes as a percentage of GDP, out of 34 OECD countries.
Friday, April 5, 2013
- International Consortium of Investigative Journalists, Secrecy for Sale: Inside the Global Offshore Money Maze
- U.S. Public Interest Research Group, Picking up the Tab: Average Citizens and Small Businesses Pay the Price for Offshore Tax Havens
Press and blogosphere coverage:
- New York Times, Data Leak Shakes Notion of Secret Offshore Havens and, Possibly, Nerves
- Slate, The Secret World of Tax Havens Just Got a Whole Lot Less Secret
- Tax Justice Network, Offshore Secrets: Time Is Ripe for a European FATCA
- Washington Post, 2.5 Million Leaked Files Reveal Stunning Extent of Global Tax Havens
- Washington Post, Piercing the Secrecy of Offshore Tax Havens
- Washington Post, Tax Haven Data Leak Names Names, Raises Questions About Future of Offshore Bank Accounts
Thursday, April 4, 2013
According to the OECD, the present situation calls for a review of the fundamentals of the international tax system. Changes to the current international tax rules should reflect how MNCs operate today, and seek to redress the unjust distribution of the global tax base. MNCs should report their profits and pay their taxes where their economic activities and investment are actually located, rather than in jurisdictions where the presence of the MNC is sometimes fictitious and explained by the adoption of tax-avoidance strategies.
Given the relevance of the analysis provided by the OECD in its report, which is supported by the findings of our own research, we suggest that the OECD and the United Nations Tax Committee jointly explore to what extent would an evolution towards unitary taxation with profit apportionment be more appropriate for the taxation of MNCs and lead to a fairer international tax system.
(Hat Tip: Mike McIntyre.)
Wednesday, April 3, 2013
Peterson Institute for International Economics, Corporate Taxation and U.S. MNCs: Ensuring a Competitive Economy (April 2013):
The debate about “tax reform,” a focus of the 2012 presidential race and the congressional budget battles this year, has centered on closing loopholes, creating new incentives for growth, and of course raising revenue through higher personal taxation of well-off Americans. This emphasis is understandable in light of the need to close the federal deficit and the fact that a majority of federal revenue comes from personal taxes. But the debate overlooks an important priority for future U.S. economic growth: the urgent need to reform the corporate tax. Without reform, U.S.-based multinational corporations (MNCs) will continue to be hobbled by an outmoded tax structure as they compete in the age of globalization. Reform would not only make American MNCs stronger competitors in markets abroad but also enable them to expand and invest more at home.
This policy brief proposes that tax rates should be lowered, both on profits earned in the United States and profits earned abroad. These reforms will encourage greater, not less, investment at home, as well as expanded foreign direct investment abroad by American MNCs. This is the best path toward more employment, investment, exports and R&D in the United States. Yes, this proposal might seem counterintuitive to some. Indeed the Obama administration has suggested that taxes should be used to discourage outward FDI by American MNCs, on the ground that such investment hinders U.S. prosperity. We present evidence that the administration’s concern is the wrong starting point for launching corporate tax reforms. This policy brief first summarizes research that shows a complementary relationship between outward foreign direct investment by U.S. MNCs and positive effects in the U.S. economy, and then proceeds to suggest constructive corporate tax reforms. The policy brief argues that fears of lost revenues from lowering taxes on corporate profits earned at home and abroad are exaggerated, and that MNCs which engage in FDI are in the best position to create jobs and promote prosperity at home.
(Hat Tip: Bruce Bartlett.)
Tuesday, April 2, 2013
Citizens for Tax Justice, Who Pays Taxes in America in 2013?:
It is sometimes claimed that many low- and middle-income Americans don’t pay taxes while the richest Americans pay a hugely disproportionate share of taxes, especially after enactment of the “fiscal cliff” deal that allowed some taxes to go up.
As the table ... illustrates, America’s tax system is just barely progressive even after the fiscal cliff deal’s effects. Claims that the rich pay a disproportionate share of taxes often focus only on the federal personal income tax and ignore the other taxes that people pay, like federal payroll taxes, federal excise taxes, and state and local taxes. Many of these other taxes are regressive, meaning they take a larger share of income from poor and middle-income families than they take from the rich.
The table shows the share of total taxes (all federal, state and local taxes) that will be paid by Americans in different income.
- Citizens for Tax Justice, New Tax Laws in Effect in 2013 Have Modest Progressive Impact
Thursday, March 21, 2013
The Urban Institute announced yesterday that Donald Marron, the director of the Urban-Brookings Tax Policy Center, will become the Institute's first director of economic policy initiatives in June. Len Burman, former director of the Tax Policy Center and currently a professor at Syracuse University, will return to lead the center he co-founded in 2002
Donald Marron, Director of Economic Policy Initiatives
A former member of the Council of Economic Advisers and former acting director of the Congressional Budget Office, Marron has led the Urban-Brookings Tax Policy Center since 2010. This year, he sought a new perch that would enable him to explore a broader range of economic and fiscal policy issues across the Urban Institute. In his new role, Marron will direct a diverse portfolio of research initiatives. His work will deepen the Urban Institute’s engagement with the policy community and bring the Institute’s independent and rigorous research to new audiences.
“Donald Marron has wide-ranging interests and an unparalleled ability to explain clearly complex economic concepts and analyses,” said Sarah Rosen Wartell, president of the Urban Institute. “In his new role, he can design cross-cutting research, drawing upon the breadth of the organization’s expertise and analytic tools, to inform high-level policymakers tackling the biggest spending, revenue, and growth issues facing the nation.”
Len Burman, Director, Tax Policy Center
Burman served as director of the Urban-Brookings Tax Policy Center from 2002 to 2009, and he has remained an Urban Institute affiliated scholar while at Syracuse. After working on the Tax Reform Act at the U.S. Treasury Department in the 1980s, Burman went on to the Congressional Budget Office. He later served as deputy assistant secretary of the Treasury in 1998.
“In searching for a successor to Donald, we were thrilled to entice back TPC’s very own co-founder, Len Burman,” continued Wartell. ... Urban Institute Trustee Erskine Bowles has described TPC as a “national treasure,” noting that the Simpson-Bowles Commission recently relied upon the center for assistance in developing the tax elements of its deficit reduction plans. ...
Burman noted, “Working as a scholar at the Maxwell School of Syracuse University for the past four years, I’ve developed a new appreciation for how TPC’s clear, timely, and impartial analysis informs the tax policy debate outside the Beltway. I’m excited about rejoining the fantastic TPC team at a time when tax policy is sure to be front and center on the national nd state and local agendas." ...
Other original members of the TPC leadership team will remain in their current roles: co-directors Bill Gale (Brookings Institution) and Eric Toder (Urban Institute) as well as Urban Institute Fellow Eugene Steuerle.
Monday, March 18, 2013
Following up on my previous post, Do Capital Income Taxes Hinder Growth?: Chris William Sanchirico (Pennsylvania), “Common Sense” Aside, What Do We Really Know About Capital Income Taxes and Growth?:
If you’re discussing tax policy with someone who asserts that his or her point is “just common sense,” this could indicate one of two things: Either no deep thought is required—as the person would have you believe. Or no deep thought has been applied. The “common sense” notion that capital income taxes hinder growth seems to be more a case of the latter. Long term capital gains are taxed only when the asset is sold and at roughly half the rate on wages and salaries. Dare to suggest that the rate on investment profits could be raised a bit—so that perhaps the rate on labor income could lowered—and you’re liable to be reprimanded for failing to understand something as plain as the nose on your face: To tax capital income is to tax the reward for saving and thus to discourage saving. Less saving means less investment and less investment means slower growth, fewer jobs, and lower wages.
Everyone knows that.
Everyone, that is, except the people who study the issue.
Economic theory teaches that the impact of capital income taxes on savings is robustly ambiguous. Empirical research has yielded mixed results, but overall the data seem to indicate that reducing capital income taxes decreases rather than increases savings. In addition, lowering capital income taxes is likely to go hand in hand with raising labor income taxes or government borrowing, both of which are arguably at least as harmful to growth as capital income taxation. ... [T]rying to spur growth by keeping capital income taxes low seems—at best—like trying to fix one side of the roof with shingles from the other.
Tuesday, March 12, 2013
The American Prospect: Five Lessons for Progressives From Our First Century of Income Taxes:
- Steeply graduated income tax rates can help societies do big things
- Progressive tax rates can do much more than raise significant amounts of revenue
- Progressive income tax rates don’t just happen. People have to battle for them
- Tax loopholes cost our society more than just tax revenue
- Just copying our progressive tax-rate past won’t ensure a progressive tax future
By learning the lessons from our income tax past, these and other progressive forces will have a better chance of pushing through the tax changes we need to allow our society to do big things in the century ahead.
Thursday, March 7, 2013
Aparna Mathur (American Enterprise Institute) has posted several tax papers on SSRN:
- An Empirical Analysis of Middle Class Welfare: Testing Alternative Approaches (2006)
- Predicting Tax Reform (2007)
- The Consumer Burden of a Carbon Tax on Gasoline (2009)
- A Spatial Model of the Impact of Bankruptcy Law on Entrepreneurship (2009)
- Taxes Around the World: A Brief History of World Tax Policy, 1981-2007 (2009)
- The Effect of Labor Market Regulations on Educational Attainment (2010)
- Spatial Tax Competition and Domestic Wages (2010)
- Corporate Tax Burden on Labor: Theory and Empirical Evidence (2011)
- Foreign Direct Investment, Corruption, and Democracy (2011)
- The Impact of Improved Detection Technology on Drug Quality: A Case Study of Lagos, Nigeria (2011)
- Distributional Effects of a Carbon Tax in Broader US Fiscal Reform (2012)
- Health Expenditures and Personal Bankruptcies (2012)
- A New Measure of Consumption Inequality (2012)
Monday, March 4, 2013
The Tax Policy Center hosts a program today on States in Flux: State Tax Reform, the ACA, and Sequestration at noon-1:30 p.m. EST (webcast here):
State governments face extraordinary challenges in coming years. Tepid recovery from the Great Recession has limited the ability of state governments to expand and add jobs, unlike past recoveries. Concerned about traditional revenue streams, some governors and state legislatures are proposing drastic changes to their tax structures. And the rapidly changing federal landscape—notably health reforms in the Affordable Care Act and budget caps and threat of sequester from the Budget Control Act—pose further challenges for state governments.
This forum will address key challenges facing states. Topics include:
- How have state governments contributed to this recovery compared to past recoveries?
- How might state revenue streams change in the future? What are the consequences of these changes?
- How will the sequester affect the states?
- How are states keeping up with new market reforms in the Affordable Care Act?
- Teresa Coughlin (Urban Institute)
- Zachary Goldfarb (Washington Post) (moderator)
- Ben Harris (Urban Institute)
- Joseph Henchman (Tax Foundation)
- Nick Johnson (Center on Budget and Policy Priorities)
Friday, March 1, 2013
One of the main arguments against raising capital income tax rates is that doing so discourages savings and investment and hinders economic growth. However, academic research on taxes and growth suggests that this argument has no real basis. And the primary alternatives to capital income taxation—labor income taxes and increased government borrowing—carry their own potentially adverse effects on growth.
Thursday, February 28, 2013
The Tax Policy Center hosts a program today on The Charitable Deduction: A View from the Other Side of the Cliff (free webcast here):
As the vehicle of state leaned over one fiscal cliff, Congress pulled it back but kept the motor running. In this session, we will examine the recent debate over tax changes, the resulting effect on charities, and the likely forthcoming debate in early 2013. Panelists will discuss how federal fiscal policy and proposed changes to tax law, in particular the charitable deduction, may affect charitable giving and the political scene for nonprofits going forward into an uncertain future.
Looking Back at the Cliff
This panel will take a look back at the debate leading up to the “fiscal cliff.” The panelists will discuss the various proposals that would have affected the charitable deduction, the response of the nonprofit sector, and the effect of the ultimate deal that was reached.
Moderator: Eugene Steuerle, Urban Institute
Diana Aviv, Independent Sector
Jon Bakija, Williams College
Rick Cohen, Nonprofit Quarterly
Joseph Rosenberg, Urban-Brookings Tax Policy Center
The Road Forward
This panel will discuss what lies ahead for the charitable deduction in an environment of continued budget pressure. The speakers will describe various proposed reforms to the charitable deduction and discuss how these reforms may affect nonprofits, for better or for worse.
Moderator: Elizabeth Boris, Urban Institute
Joseph Cordes, George Washington University
Tim Delaney, National Council of Nonprofits
Brian Flahaven, Council for Advancement and Support of Education
Jane Gravelle, Congressional Research Service
With Washington gearing up for additional high-stakes budget battles over the next few months, Congress has continued to ignore a solution worth about $90 billion annually: closing loopholes that allow corporations to avoid taxes by pretending their profits are earned in offshore tax havens. Corporate lobbyists often claim that closing these loopholes would drive companies to flee the U.S. and re-register themselves in low-tax countries. U.S. PIRG’s new analysis explains why this is not the case.
Thursday, February 21, 2013
Tax Foundation: The High Burden of State and Federal Capital Gains Taxes:
As Congress begins to debate tax reform in the coming months, there is one tax that they should pay close attention to: the capital gains tax. The capital gains tax is a tax on profit through the sale of property or investments. At the beginning of this year, the top marginal statutory capital gains tax rate was increased to 23.8% from 15%. Although lower than the tax on ordinary income, states also tax capital gains, some of them as high as 13.3%, adding an additional tax burden to savers and investors. Some taxpayers could pay up to a 33% tax on capital gains, a rate that far exceeds rates throughout the world. This high tax rate has long-term negative implications for the economy as people save and invest less and capital seeks higher returns in other countries.
Long-term Capital Gains Rate
Capital Gains Rate
District of Columbia
Wednesday, February 20, 2013
Center on Budget and Policy Priorities: Cutting State Personal Income Taxes Won’t Help Small Businesses Create Jobs and May Harm State Economies, by Michael Mazerov:
There is almost nothing in economic theory or empirical research to support an assertion that cutting state personal income taxes will have a significant impact on the emergence, success, or job-creation performance of small businesses. The vast majority of any revenue forgone from such tax cuts will flow to people who don’t own businesses, and of the limited tax savings that does happen to flow to business owners, the vast majority will be received by people with no intent or authority to hire additional people. State personal income tax cuts do not increase the cash flow of most small businesses sufficiently to finance the creation of new jobs, and, conversely, small businesses with good growth prospects do not need to rely on their own cash flow to finance expansion.
Neither economic theory nor empirical research support the assertion that personal income tax cuts inherently encourage increased work-effort on the part of small business owners that could generate additional hiring as a side-effect. Nor is there any evidence that entrepreneurs on the cusp of starting their ventures are likely to be attracted to a state merely because it cuts its personal income taxes. Perhaps most importantly, a very detailed and careful empirical study commissioned by the U.S. Small Business Administration concluded, in the words of the authors, that there is “no evidence of an economically significant effect of state tax [policy] portfolios on entrepreneurial activity. . . .”
While there is no compelling evidence that the large state income tax cuts promoted by a number of governors would be a cost-effective means of encouraging entrepreneurship, there is a significant risk that the cuts would seriously impair the ability of these states to fund infrastructure, education, public safety, and other services that are a critical underpinning of a healthy state economy. Policymakers should therefore reject proposals for state personal income tax cuts as a means of encouraging the birth and growth of small businesses and focus instead on more targeted approaches to assisting these firms.
Saturday, February 16, 2013
Tax Foundation: State and Local Sales Tax Rates in 2013:
1. Tennessee (9.44%)
2. Arizona (9.16%)
3. Louisiana (8.87%)
4. Washington (8.86%)
5. Oklahoma (8.67%)
6. Arkansas (8.61%)
7. New York (8.48%)
8. Alabama (8.45%)
9. California (8.38%)
10. Kansas (8.25%)
41. Wisconsin (5.43%)
42. Wyoming (5.34%)
43. Maine (5.00%)
43. Virginia (5.00%)
45. Hawaii (4.35%)
46. Alaska (1.69%)
47. Delaware (None)
47. Montana (None)
47. New Hampshire (None)
47. Oregon (None)
Thursday, February 14, 2013
This paper examines the pros and cons of using a carbon tax to help finance corporate tax reform. Revenues from a plausible carbon tax would be large relative to corporate tax revenues and could thus help finance lower corporate tax rates, extension of business tax preferences, or other corporate tax reforms. Done well, such a tax swap could reduce the environmental risks of carbon emissions and improve the efficiency of America’s corporate tax system. But a carbon-for-corporate tax swap poses a significant distributional challenge. A carbon tax would fall disproportionately on low-income families, while a reduction in corporate taxes would disproportionately benefit those with high incomes. Policymakers can offset some of those impacts through other policy measures, such as paying lump-sum tax rebates. But doing so would reduce the swap’s efficiency benefits. Policymakers may also want to use some carbon revenues for deficit reduction. One option would be to aim for revenue neutrality over an initial period, after which a widening spread between growing carbon revenues and relatively stable corporate tax cuts would reduce the deficit.
Wednesday, February 13, 2013
Adam J. Hoffer (University of Wisconsin-La Crosse, Department of Economics), William F. Shughart II (Utah State University, Hunstman School of Business) & Michael D. Thomas (Utah State University, Hunstman School of Business), Sin Taxes: Size, Growth, and Creation of the Sindustry (Mercatus Center, George Mason University):
Revenue shortfalls have undermined states’ ability to balance their budgets. Particularly attractive places for new revenue creation are taxes levied selectively on specific goods whose consumption public policy makers want to discourage, arguing that they impair the consumer’s health, generate negative externalities, or both. These selective taxes collectively are known as “sin taxes” because of their historical association with vice. This paper explores three criticisms of sin taxes. First, the taxation of selected goods as a source of general budget revenue contradicts the standard Pigouvian social welfare argument. Second, the economic burden of sin taxes falls disproportionately on low-income households. Third, the expanding number of goods being taxed in this way results in unproductive preventive and defensive lobbying by the affected industries.
Tuesday, February 12, 2013
The Tax Policy Center hosts a program tomorrow on Tax Expenditures and the Deficit: Time to Rethink Retirement Saving Policy?:
As policymakers continue to search for ways to shore up the nation’s fiscal status, tax subsidies may be ripe for the picking. Tax subsidies for retirement saving account for more than $90 billion annually in lost Treasury revenue. New research suggests that the tax subsidy for contributions to retirement accounts only affects the behavior of certain financially sophisticated households and does not raise overall saving significantly, however, automatic enrollment can raise both retirement saving and overall saving. Over 60 million Americans participate in 401(k) plans. Are there less expensive, more progressive ways to generate the same or more retirement saving and overall saving than the current tax treatment of contributions to retirement accounts? ...
[A] new study ... examines whether a nudge or a subsidy is a better way to increase saving. [Active vs. Passive Decisions and Crowd-Out in Retirement Savings Accounts] The study also draws crucial distinctions between active and passive savers and the implications of the two groups for retirement saving policy. Speakers include study co-authors Raj Chetty and John Friedman of Harvard University, as well as Director of the Retirement Security Project William Gale.
Wednesday, February 6, 2013
American Council for an Energy-Efficient Economy, Tax Reforms to Advance Energy Efficiency:
At the beginning of President Obama’s second term, tax reform has become a frequently-cited concern. Both Democrats and Republicans are supporting tax reform and actual work on legislation is likely to begin in 2013. Key elements of reform are likely to include simplifying the tax code in some respects and reducing marginal tax rates by eliminating many credits and deductions.
Tax reform provides us with an opportunity to remove barriers to efficiency investments imbedded in the current tax code and to use the tax code as a tool to support energy efficiency in the future more than current provisions do. In this report, we suggest policies in six areas that could be used to encourage energy efficiency: existing energy efficiency tax incentives; depreciation; low-cost strategies for promoting investment in manufacturing; fees on emissions; treatment of expenses in business taxes; and ending or reducing subsidies for fossil fuels. We propose several policy options designed to encourage investment in energy efficiency that may be used as a starting point for future tax policy discussion.
Tuesday, February 5, 2013
Tax havens are countries or jurisdictions with minimal or no taxes. Corporations and individuals shift earnings to financial institutions in these countries to reduce their U.S. income tax liability—costing the federal government $150 billion in lost revenues each year.
Federal taxpayers are not the only victims of offshore tax havens. Tax havens deprive state governments of billions of dollars in badly needed revenues as well. Based how much income is federally reported in each state, and on state tax rates, it is possible to calculate how much each of the state governments lose as a result of offshore tax dodging.
In 2011, states lost approximately $39.8 billion in tax revenues from corporations and wealthy individuals who sheltered money in foreign tax havens. Multinational corporations account for more than $26 billion of the lost tax revenue, and wealthy individuals account for the rest.
Thursday, January 31, 2013
Steve Rosenthal (Tax Policy Center), Taxing Private Equity Funds as Corporate 'Developers', 138 Tax Notes 361 (Jan. 21, 2013):
Private equity funds manage vast amounts of money: $2.5 trillion in 2010, much more than the $100 billion in 1994. They earn immense profits, largely from selling the stock of acquired and improved companies. This article focuses on the character of the funds' profits. It recommends that the IRS write new regulations to treat the funds' profits as ordinary income in light of the law, Congress's original intent, and tax policy.
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U.S. wireless consumers pay an average 17.18% in taxes and fees on their cell phone bill, including 11.36% in state and local charges, according to a newly released study that identifies and calculates wireless taxes and fees.
In Nebraska, the combined federal-state-local average rate is 24.49%, and in six other states (Washington, New York, Florida, Illinois, Rhode Island, and Missouri) it exceeds 20%. Twenty-six states have average state-local wireless taxes and fees in excess of 10%, and taking into account the infamous federal telephone excise tax (dating to the Spanish-American War and partly repealed in 2006), cell phone subscribers in seven states pay more than 20 percent in taxes. (See the table for a full list.)
Table: Taxes and Fees on Wireless Service, July 2012
Combined Federal-State-Local Rate
U.S. Simple Average
U.S. Weighted Average
District of Columbia
Wednesday, January 30, 2013
The Institute on Taxation & Economic Policy today released Who Pays? A Distributional Analysis of the Tax Systems in All 50 States (4th ed. Jan. 2013):
The 2013 Who Pays: A Distributional Analysis of the Tax Systems in All Fifty States (the fourth edition of the report) assesses the fairness of state and local tax systems. The report measures the state and local taxes paid by different income groups in 2013 (at 2010 income levels including the impact of tax changes enacted through January 2, 2013) as shares of income for every state and the District of Columbia. It discusses state tax policy features and includes detailed state-by-state profiles providing essential baseline data for lawmakers seeking to understand the effect tax reform proposals will have on constituents at all income levels.
The main finding of this report is that virtually every state’s tax system is fundamentally unfair, taking a much greater share of income from middle- and low-income families than from wealthy families. The absence of a graduated personal income tax and the over reliance on consumption taxes exacerbate this problem in many states. ...
Ten states rank as having the most regressive overall tax systems. In these “Terrible Ten” states, the bottom 20 percent pay up to six times as much of their income in taxes as their wealthy counterparts.