Category Archives: Taxation

Kansas (State of) – Retained pension funding, vetoed tax relief are credit positive

Source: Matthew Butler, Moody’s, Issuer Comment, June 6, 2019
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On May 29, the Kansas legislature voted to override several spending vetoes that Governor Laura Kelly made when she authorized the state’s fiscal 2020 budget. One of the vetoes was of a supplemental payment to the Kansas Public Employees Retirement System (KPERS). The lawmakers’ action preserves a $51 million supplemental contribution to KPERS, a credit positive for the state. At the same time, the legislature failed to override a veto of an income tax relief bill that would have cost the state an estimated $240 million over three years. This is also credit positive, because it reduces the amount of budget reserves Kansas will use to make the supplemental pension payment, increase school funding and more quickly retire an internal loan.

Evading the Catastrophic Costs of Nursing Home Care: A Theoretical Inquiry

Source: Gideon Yaniv, Public Finance Review, Volume: 47 issue: 4, July 2019
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From the abstract:
While many countries operate publicly funded programs to help care-needing elderly people finance the catastrophic costs of nursing home care, eligibility to public assistance may be means tested. To qualify for a means-tested program, applicants must first exhaust (spend down) their financial assets on privately paying for nursing home care, thereby wiping out their lifetime savings and children’s inheritance. They may naturally consider the possibility of hiding assets from the health agency, consequently shifting the financial burden to taxpayers. The present article adjusts two classical tax evasion models to capture the decision to evade the costs of nursing home care, focusing on the implications on the evaded costs and the program’s deficit of attempting to cope with the escalating costs of nursing home care by imposing a cost-sharing premium on the applicants’ adult children. Some insights on the socially optimal level of the cost-sharing premium are finally discussed.

U.S. States Take Advantage Of A Prolonged Economic Expansion

Source: S&P Global Ratings, May 16, 2019
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– Consistent with a prolonged national economic expansion, overall state credit quality remains high.
– Even oil- and gas-reliant states have shown recent gains.
– Most states forecast improvement in fiscal 2019 fund balances, and preliminary indications are that April income tax collections will be strong.
– Most states project to build or maintain reserves in fiscal 2020, despite cautious revenue projections.
– Some states propose raising top taxpayers’ income taxes; others will increase gas taxes; and marijuana, sugary drinks, and plastics bags might become the new “sin” tax targets.
– Other state budgets will include funding for education, workforce development, and infrastructure.

Flat debt total signals cautious borrowing, despite infrastructure needs

Source: Ted Hampton, Chandra Ghosal, Emily Raimes, Nicholas Samuels, Timothy Blake, Moody’s, Sector Profile, State government – US Medians, June 3, 2019
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Total net tax-supported debt (NTSD) for the 50 states was virtually unchanged in 2018, as governments maintained a cautious approach to bond issuance and increased their reliance on operating revenue for transportation infrastructure. The $523 billion in NTSD marked the eighth straight year with minimal change, putting average annual growth at 0.6% since 2011.

As Airbnb grows, this is exactly how much it’s bringing down hotel prices and occupancy

Source: Tarik Dogru, The Conversation, May 24, 2019

…. Research I recently conducted with colleagues Makarand Mody and Courtney C. Suess studied Airbnb’s impact on hotels’ performance in 10 major U.S. cities to determine how the fast-growing company has influenced three key metrics: room prices, hotel revenues and occupancy rates. Our research included data from 2008 to 2017 in Boston, Chicago, Denver, Houston, Los Angeles, Miami, Nashville, New York, San Francisco and Seattle.

In those cities, the number of properties on Airbnb – from room shares to entire houses – surged from just 51 in its first year of operation to more to 50,000 five years later and to over half a million in 2017. ….

….[A]nother important factor is the lack of regulation Airbnb faced during its first decades, which gave it more flexibility and made it easier to add new properties to its inventory.

While this is now changing as cities clamp down, this provided Airbnb with a significant competitive advantage against the hotel industry. Indeed, the typical regulatory framework in cities across America means it can take several years to add a new hotel to the market and requires permits, adherence to safety codes and more tax collection…..

See also:
York County gets small revenue boost thanks to new Airbnb tax regulations
Source: Lindsey O’Laughlin, York Dispatch, May 29, 2019

Municipalities and state eye regulation for Airbnb, growing home-sharing industry
Source: Joe Cooper, Hartford Business, May 27, 2019

City exploring Airbnb zoning, tax questions
Source: Rosalind Essig, Journal Courier, May 20, 2019

Airbnb guests would pay sales tax under proposed bill
Source: Diane Rey, Maryland Reporter, March 3, 2019

It’s Getting Worse: The IRS Now Audits Poor Americans at About the Same Rate as the Top 1%

Source: Paul Kiel, ProPublica, May 30, 2019

As the agency’s ability to audit the rich crumbles, its scrutiny of the poor has held steady in recent years. Meanwhile, a new study shows that audits of poor taxpayers make them far less likely to claim credits they might be entitled to.

Related:
The Effects of EITC Correspondence Audits on Low-Income Earners
Source: John Guyto, Kara Leibel, Day Manol, Ankur Patel, Mark Payne, Brenda Schafer, May 2019

From the abstract:
Each year, the United States Internal Revenue Service identifies taxpayers who may have erroneously claimed Earned Income Tax credit (EITC) benefits and requests additional documentation from these taxpayers to verify these claims. This paper exploits random variation inherent in audit selection processes to estimate the impacts of these EITC correspondence audits on taxpayer behaviors. Roughly 80% of EITC correspondence audits in the analysis sample have full disallowances due to undelivered mail, nonresponse or insufficient response. Cases of disallowances with confirmed ineligibility make up 15% of EITC correspondence audits in the analysis sample. In years after being audited, taxpayers have decreases in the likelihoods of claiming EITC benefits and filing tax returns so that they subsequently forego benefits from potentially legitimate EITC claims, other refundable credit claims and withholdings. For every $1 that is audited, roughly $0.63 to $0.73 of tax refunds is unclaimed in years after the audits. Additionally, spillovers from audited taxpayers to other taxpayers arise because qualifying children on audited returns are more likely to be subsequently claimed by other taxpayers after the audits. These spillovers indicate that net overpayments may be less than gross overpayments since ineligible qualifying children on audited returns could be potentially eligible qualifying children on other taxpayers’ returns. Lastly, EITC correspondence audits affect real economic activity as wage earners have changes in the likelihood of having wage employment in the years after being audited.

The Economic Effects of the 2017 Tax Revision: Preliminary Observations

Source: Jane G. Gravelle, Donald J. Marples, Congressional Research Service, CRS Report, R45736, May 22, 2019

The 2017 tax revision, P.L. 115-97, often referred to as the Tax Cuts and Jobs Act, and referred to subsequently as the Act, was estimated to reduce taxes by $1.5 trillion over 10 years. The Act permanently reduced the corporate tax rate to 21%, made a number of revisions in business tax deductions (including limits on interest deductions), and provided a major revision in the international tax rules. It also substantially revised individual income taxes, including an increase in the standard deduction and child credit largely offset by eliminating personal exemptions, along with rate cuts, limits on itemized deductions (primarily a dollar cap on the state and local tax deduction), and a 20% deduction for pass-through businesses (businesses taxed under the individual rather than the corporate tax, such as partnerships). These individual provisions are temporary and are scheduled to expire after 2025. The Act also adopted temporary provisions allowing the immediate deduction for equipment investment and an increase in the exemption for estate and gift taxes…..

….This analysis examines the preliminary effects of the Act during the first year, 2018. In some cases it is difficult to determine the effects of the tax cuts (e.g., on economic growth) given the other factors that affect outcomes. In other cases, such as the level of repatriation and use of repatriated funds, the evidence is more compelling. This report discusses these potential consequences in light of the data available after the first year…..

Property Tax Exemptions for Nonprofit Hospitals: What Are They Worth? Do They Earn Them? Evidence From New York City

Source: Geoffrey Propheter, Public Budgeting and Finance, Early View, First published: March 25, 2019
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From the abstract:
This study estimates the property tax expenditure for nonprofit hospitals (NPHs) in New York City using Medicare and IRS data from 2011 through 2013. After comparing the estimates to various definitions of community benefits, it is concluded that NPHs generally earn their property tax break. Evidence is also presented that using book values is a reasonably accurate method for estimating the property tax expenditure nationwide. Finally, econometric analyses reveals that net income is negatively associated with community benefits, suggesting justification for taxing higher net income hospitals and reallocating the funds to similarly sized but lower net income hospitals.

The Impact of the Amazon Tax on Local Sales Tax Revenue in Urban and Rural Jurisdictions

Source: Whitney B. Afonso, Public Budgeting and Finance, Early View, First published: April 5, 2019
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From the abstract:
E‐commerce has become an integral part of Americans’ lives and while it offers many benefits, it also represents forgone sales tax revenue for governments. Using a difference‐in‐differences model, this analysis examines how the Amazon tax affected local sales tax collections in North Carolina and whether that impact has been greater for urban, rural, or tourism‐rich counties. The results suggest that the Amazon tax increased revenues and urban jurisdictions benefit most. This finding is important for practitioners and policymakers as they consider the impact of policy changes, such as the South Dakota v. Wayfair ruling, on revenue capacity and financial management.