Category Archives: Taxation

Implications of the Covid-19 Pandemic for State Government Tax Revenues

Source: Jeffrey Clemens, Stan Veuger, NBER Working Paper No. 27426, June 2020
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From the abstract:
We assess the Covid-19 pandemic’s implications for state government sales and income tax revenues. We estimate that the economic declines implied by recent forecasts from the Congressional Budget Office will lead to a shortfall of roughly $106 billion in states’ sales and income tax revenues for the 2021 fiscal year. This is equivalent to 0.5 percent of GDP and 11.5 percent of our pre-Covid sales and income tax projection. Additional tax shortfalls from the second quarter of 2020 may amount to roughly $42 billion. We discuss how these revenue declines fit into several pieces of the broader economic context. These include other revenues (e.g., university tuition and fees) that are also at risk, as well as assets (e.g., pension plan holdings) that are at risk. Further dimensions of context include support enacted through several pieces of federal legislation, as well as spending needs necessitated by the public health crisis itself.

Coronavirus-driven filing extension will delay income tax revenue, but states have resources to bridge the gap

Source: Moody’s, March 27, 2020
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The Internal Revenue Service (IRS) extended the deadline for filing federal income taxes and tax payments by three months, and many if not all states that levy personal income taxes will follow suit. States will therefore receive a large portion of their income tax revenue in July rather than April, which will force them to make adjustments to bridge budget gaps, but most have considerable financial flexibility to blunt the credit-negative effects of the delays.

Revenue securing certain US state and local debt will weaken as coronavirus slows economy and travel

Source: Moody’s, March 30, 2020
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Tax revenue used to repay state and local special tax debt — debt secured by specific tax revenue streams such as hotel or car rental taxes — will rapidly decline amid the coronavirus-related economic downturn. A state or local government with a dedicated reserve fund or the ability and willingness to cover a gap in pledged revenue bolsters the credit quality of certain special tax debt.

Tax incentives for business leave states worse off

Source: Matt Shipman, Futurity, February 27, 2020

The vast majority of tax incentives aimed at attracting and retaining businesses ultimately leave states worse off than if they had done nothing, researchers report.


For the study, researchers examined data from 32 states from 1990-2015. The researchers evaluated all of the state and local tax incentives available in the 32 states, as well as an array of economic, political, governmental, and demographic data.


A computational model assessed the extent to which the effects of attracting or retaining businesses in a state offset the state’s related tax incentives.


“We found that, in almost all instances, these corporate tax incentives cost states millions of dollars—if not more—and the returns were minimal,” says corresponding author Bruce McDonald, an associate professor of public administration at North Carolina State University.


“In fact, the combination of costly tax incentives and limited returns ultimately left states in worse financial condition than they were to begin with.”


The two exceptions to the finding were job creation tax credits and job training grants.

Related:
You Don’t Always Get What You Want: The Effect of Financial Incentives on State Fiscal Health
Source: Bruce D. McDonald III, J. W. Decker, Brad A. M. Johnson, Public Administration Review, Early View, First published: February 27, 2020
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From the abstract:
Governments frequently use financial incentives to encourage the creation, expansion, or relocation of businesses within their borders. Research on financial incentives gives little clarity as to what impact these incentives may have on governments. While incentives may draw in more economic growth, they also pull resources from government coffers, and they may commit governments to future funding for public services that benefit the incentivized businesses. The authors use a panel of 32 states and data from 1990 to 2015 to understand how incentives affect states’ fiscal health. They find that after controlling for the governmental, political, economic, and demographic characteristics of states, incentives draw resources away from states. Ultimately, the results show that financial incentives negatively affect the overall fiscal health of states.

Racial Disparities and the Income Tax System

Source: Tax Policy Center, January 30, 2020
The Internal Revenue Service does not ask for a tax filer’s race or ethnicity on tax forms, but that does not mean the tax system affects people of different races in the same way.

Overall, federal income taxes are progressive: people with higher incomes pay a larger share of their income in taxes than those with lower incomes, and this can help close racial income gaps.

But some tax policies can also exacerbate income and wealth inequalities stemming from long-standing discrimination in areas such as housing, education, and employment.

Using the individual income tax Form 1040 as a guide, we explore how the federal income tax code interacts with existing racial inequities.

Tax Break Tracker

Source: Good Jobs First, 2020

Discover How Much Revenue Governments in the United States Lose Every Year to Tax Abatement Programs

TAX BREAK TRACKER is the first national search engine for tax abatement disclosures per Statement No.77 of the Generally Accepted Accounting Principles (GAAP) for governmental entities – set forth by the Governmental Accounting Standards Board (GASB). For more information about this new accounting rule, visit our GASB-77 Resource Center.

This database already includes nearly 20,000 individual entries extracted from Comprehensive Annual Financial Reports (CAFRs) – each represents a reduction in tax revenue due to one or more economic development tax abatement programs as reported by a jurisdiction in a particular year, or the lack thereof: Many jurisdictions failed to comply with GASB 77.

Search by state or local governments from the drop-down menus below to find out the cost of economic development incentive programs to public services. For additional explanations, check out this user guide. If you do not see the locality you are looking for, you might find it here in this list of localities that failed to disclose their revenue losses: 1/6/2020

Taxation by Citation? Exploring Local Governments’ Revenue Motive for Traffic Fines

Source: Min Su, Public Administration Review, Volume 80 Issue 1, January/February 2020
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From the abstract:
Anecdotal evidence suggests that local governments may have a revenue motive for traffic fines, beyond public safety concerns. Using California’s county‐level data over a 12‐year period, this article shows that counties increased per capita traffic fines by 40 to 42 cents immediately after a 10 percentage point tax revenue loss in the previous year; however, these counties did not reduce traffic fines if they experienced a tax revenue increase in the previous year. This finding indicates that county governments probably view traffic fines as a revenue source to offset tax revenue loss, but not as a revenue stabilizer to manage revenue fluctuation. This article also finds that low‐income and Hispanic‐majority counties raised more traffic fines. Counties that generated more revenue from the hotel tax—a tax typically paid by travelers and visitors—raised more traffic fines, indicating a possible tax‐exporting behavior by shifting the traffic fine burden to nonlocal drivers.

Six tax-based ways to tackle US income inequality

Source: Jeffrey Frankel, The Guardian, December 18, 2019

….The first policy proposal would be to reinforce the estate tax. ….
Second, policymakers should give the IRS the resources it needs to collect taxes that are owed…..
Third, expanding the Earned Income Tax Credit (EITC) would help to “make work pay”. ….
Fourth, the payroll tax should be made more progressive…..
Fifth, the US government also should make the income tax more progressive – for example, by cutting the gap between the tax rates on investment income and wages. ….
Finally, Congress should revisit the December 2017 corporate-tax cut to make it revenue-neutral…..

Tax Justice Is Gender Justice

Source: National Women’s Law Center, November 2019

From the abstract:
The tax code sets the rules that shape our economy, reflecting and perpetuating notions of who and what our society values. It’s an opportunity to fight inequality. But today’s tax code contains outdated and often biased assumptions about family structures, marriage, participation in the paid workforce, and more that work together to perpetuate structural barriers against women, families with low incomes, and people of color. The tax code can be a barrier for realizing gender justice – but it can also be a tool. It’s time we take advantage.

Related:
Executive Summary

Reports include:
The Faulty Foundations of the Tax Code
Source: Ariel Jurow Kleiman (University of San Diego School of Law), Amy K. Matsui, and Estelle Mitchell, National Women’s Law Center, November 2019

This paper examines the outdated assumptions and gender and racial biases embedded in the U.S. tax code. It highlights tax code provisions that reflect and exacerbate gender disparities, with particular attention to those that disadvantage women with low incomes, women of color, members of the LGBTQ community, people with disabilities, and immigrants.

Reckoning With the Hidden Rules of Gender in the Tax Code
Source: Katy Milani, Melissa Boteach,Steph Sterling, Sarah Hassmer, Roosevelt Institute & National Women’s Law Center, November 2019

Low taxes for the wealthy and corporations have played a role in enabling – and in some cases encouraging – those with the highest incomes and the most capital to accumulate outsized wealth and power in our economy. Centuries of discrimination and subjugation of women and people of color interact today with widening income inequality, such that white, non-Hispanic men are disproportionately represented among the wealthiest households, while labor and economic contributions from women of color are consistently undervalued. An agenda to advance racial and gender justice must reckon with provisions in our tax code perpetuate and enable these inequities.

A Tax Code for the Rest of Us: A Framework & Recommendations for Advancing Gender & Racial Equity Through Tax Credits
Source: Melissa Boteach, Amy K. Matsui, Indivar Dutta-Gupta, Kali Grant, Funke Aderonmu, Rachel Black, Georgetown Institute on Poverty and Inequality & National Women’s Law Center, November 2019

While the U.S. income tax system is progressive overall, many aspects of the tax code reward wealth-building by the already wealthy and exclude low- and moderate-income families. Given the historical discrimination and ongoing structural barriers that have locked women and people of color out of economic opportunity, such tax provisions not only exacerbate economic inequality, but also amplify gender and racial disparities. This report considers the question: how can our tax code build on the success of the EITC and CTC to better dismantle structural barriers that impede economic security and wealth-building for women and people of color? It ultimately proposes a framework to help policymakers, advocates, and the public evaluate when and how refundable tax credits can advance equity, economic mobility, and opportunity for all.

Tax Increment Financing in Chicago: The Perplexing Relationship Between Blight, Race, and Property Values

Source: Twyla Blackmond Larnell, Davia Cox Downey, Economic Development Quarterly, Volume: 33 issue: 4 November 2019
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From the abstract:
Cities use tax increment financing (TIF) to trigger growth in blighted communities. Critics argue that Chicago’s broad conceptualization of “blight” facilitates the designation of TIF districts that do not resemble conventional notions of blight, bolstering their natural ability to generate capital, thereby exacerbating the gap between wealthy and poor minority spaces. This study examines Chicago’s TIF districts to determine whether blight levels and percentage of non-White residents interact to reduce the effectiveness of TIFs measured as the change in the equalized assessed valuation (EAV) of properties. Using composite indices to measure physical and economic blight, the results of a quantile regression analysis indicate that economically blighted TIFs with predominantly non-White populations outperform other districts. These findings run counter to expectations given that TIFs report high rates of growth in property values, yet they remain substantially blighted. This suggests a need to reconsider change in equalized assessed valuation as the measure of TIF effectiveness given that the “growth” in TIFs does not seem to reflect a higher quality of life for residents.