Category Archives: Taxation

Tax Law’s Workplace Shift

Source: Shu-Yi Oei, Diane M. Ring, Boston College Law School Legal Studies Research Paper No. 506, Last revised: 16 May 2019

From the abstract:
In December 2017, Congress passed major tax reform. The reform included an important new provision that grants independent contractors and other passthrough taxpayers, but not employees or corporations, a potential tax deduction equal to 20% of their qualified business income. Critics have argued that this new deduction (26 U.S.C. § 199A) could lead to a widespread shift towards independent contractor jobs as workers seek to reduce taxes paid. This shift could cause workers to lose important employee protections and leave them more vulnerable.

This Article examines whether this new tax provision will create a large-scale workplace shift, and if it does, how that shift should be normatively evaluated. It argues that while tax law in general has important and underappreciated effects on work arrangements, it is difficult to isolate § 199A as the driver of a broad workplace shift. Several other non-tax legal changes and non-legal economic developments are transforming work arrangements and classification choices, and § 199A is only one factor. Moreover, § 199A is not even the only tax law change that is likely to impact classification choices.

We also argue, drawing on empirical data on contemporary workplace trends, that even if new § 199A induces a workplace shift, how this shift is evaluated must depend on the types of workers and work at issue. While an independent contractor shift may increase precariousness for some workers, empirical data suggests that for others, a shift may be less troubling, or troubling for different reasons. Our Article lays a framework for analyzing how tax law contributes to and interacts with other factors in ultimately shaping contemporary work arrangements.

Political Economy of the Parcel Tax in California School Districts

Source: Soomi Lee, Public Finance Review, OnlineFirst, Published July 16, 2019
(subscription required)

From the abstract:
This article examines the effect of home price distribution on the likelihood of parcel tax adoption in California school districts. A parcel tax is a regressive tax imposed as the same amount per unit of property regardless of property values and requires a two-thirds supermajority vote to be adopted. Despite the growing role that local parcel taxes have in funding public education, it has not been fully understood how their regressive nature influences adoption. I argue that because the regressive tax imposes different marginal property tax rates for voters, the distribution of home prices within a district determines the likelihood of parcel tax adoption. Using the Heckman selection models with California school district–level data, I find that a large gap in home values within a district significantly lowers the likelihood of parcel tax adoption.

U.S. Investment Since the Tax Cuts and Jobs Act of 2017

Source: Emanuel Kopp, Daniel Leigh, Susanna Mursula, Suchanan Tambunlertchai, International Monetary Fund (IMF), IMF Working Paper No. 19/120, May 2019

From the abstract:
There is no consensus on how strongly the Tax Cuts and Jobs Act (TCJA) has stimulated U.S. private fixed investment. Some argue that the business tax provisions spurred investment by cutting the cost of capital. Others see the TCJA primarily as a windfall for shareholders. We find that U.S. business investment since 2017 has grown strongly compared to pre-TCJA forecasts and that the overriding factor driving it has been the strength of expected aggregate demand. Investment has, so far, fallen short of predictions based on the postwar relation with tax cuts. Model simulations and firm-level data suggest that much of this weaker response reflects a lower sensitivity of investment to tax policy changes in the current environment of greater corporate market power. Economic policy uncertainty in 2018 played a relatively small role in dampening investment growth.

Evaluating the Effects of Childcare Policies on Children’s Cognitive Development and Maternal Labor Supply

Source: Andrew S. Griffen, Journal of Human Resources, Vol. 54 no. 3, Summer 2019
(subscription required)

From the abstract:
To explore the role of childcare policies in the development of early cognitive skills, this paper jointly estimates a cognitive achievement production function and a dynamic, discrete choice model of maternal labor supply and childcare decisions. Using counterfactuals from the model, I investigate how the designs of two childcare programs, Head Start and childcare subsidies, affect the formation of cognitive skills through maternal work and childcare decisions. The results suggest large impacts on cognitive skills from expanding Head Start to current noneligibles and negligible impacts of subsidies on cognitive skills of current eligibles.

Financial Frictions and Stimulative Effects of Temporary Corporate Tax Cuts

Source: William Gbohoui, Rui Castro, IMF Working Paper No. 19/97, May 2019

From the abstract:
This paper uses an industry equilibrium model where some firms are financially constrained to quantify the effects of a transitory corporate tax cut funded by a future tax increase on the U.S. economy. It finds that by increasing current cash-flows tax cuts alleviate financing frictions, hereby stimulating current investment. Per dollar of tax stimulus, aggregate investment increases by 26 cents on impact, and aggregate output by 3.5 cents. The average effect masks heterogeneity: multipliers are close to 1 for constrained firms, especially new entrants, and negative for larger and unconstrained firms. The output effects extend well past the period the policy is reversed, leading to a cumulative multiplier of 7.2 cents. Multipliers are significantly larger when controlling for the investment crowding-out effect among unconstrained firms.

In divided Alaska, the choice is between paying for government or giving residents bigger oil wealth check

Source: Paola Banchero, The Conversation, July 15, 2019

The Alaska legislature was unable to get enough support to block the cuts through a veto override late last week.

The budget cuts will be immediate, affecting most Alaskans. ….

….. How did Alaska, one of the country’s richest states with a $65 billion savings account fueled by oil royalties and leasing revenues, get into this position?

The troubles have been a long time coming.

As the state prepared to reap the benefits of its oil reserves in the 1970s as the trans-Alaska oil pipeline neared completion, voters approved in 1976 an amendment to the Alaska Constitution establishing the Alaska Permanent Fund.

The idea was to save a slice of the current oil windfall in a special fund for future generations when the oil ran out. Meanwhile, the rest of the massive oil royalties – $391.5 million in 1976, more than four times the amount collected the previous year – flowed into state coffers. That meant less need to rely on the traditional way government raises money: taxes. So the legislature repealed a state income tax and the Alaska school tax in 1980.

Now, most Alaska communities have no sales tax and property taxes are low. The total state and local tax burden on Alaskans is the lowest in the country.

In addition to repealing state taxes, Alaska legislators in 1980 approved a payout from mineral royalties to state residents called the Alaska Permanent Fund Dividend, or “PFD.” ….

Calculation and Corporate Tax Incentives

Source: Rosolino Candela, Peter Jacobsen, GMU Working Paper in Economics No. 19-21, July 1, 2019

From the abstract:
Amazon’s HQ2 campaign drew both large support at the possibility of job creation and backlash for perceived cronyism. In this paper we evaluate corporate tax incentive policies in light of the Austrian contribution to the problem of economic calculation. In doing so we highlight the contextual nature of the knowledge problem associated with policy packages and the potential cronyism arising from such a problem. We argue that because political decision-makers lack the knowledge generated via competition in the market process, they are unable to allocate resources in a way that achieves economic growth. In the place of this knowledge, they tend to gain knowledge from the political process which helps them respond to political incentives and rent-seeking behavior by special-interest groups.

The Nonprofit Hospital That Makes Millions, Owns a Collection Agency and Relentlessly Sues the Poor

Source: Wendi C. Thomas, MLK50 & ProPublica, June 27, 2019

Nonprofit hospitals pay virtually no local, state or federal income tax. In return, they provide community benefits, including charity care to low-income patients. In Memphis, Methodist Le Bonheur Healthcare has brought 8,300 lawsuits for unpaid medical bills in just five years. ….. Its own employees are no exception. Since 2014, Methodist has sued dozens of its workers for unpaid medical bills, including a hospital housekeeper sued in 2017 for more than $23,000. That year, she told the court, she made $16,000. She’s in a court-ordered payment plan, but in the case of more than 70 other employees, Methodist has garnished the wages it pays them to recoup its medical charges….

Related:
This Memphis Hospital System Flouts IRS Rules by Not Publicly Posting Financial Assistance Policies
Source: Wendi C. Thomas, MLK50 & ProPublica, June 27, 2019

Nonprofit hospitals must post financial assistance policies for the public to see, including in emergency rooms. But Methodist Le Bonheur Healthcare’s five Shelby County emergency rooms had no signs or displays when a reporter checked.

Prevalence and Characteristics of Virginia Hospitals Suing Patients and Garnishing Wages for Unpaid Medical Bills
Source: William E. Bruhn, Lainie Rutkow, Peiqi Wang, Stephen E. Tinker, BS3; Christine Fahim, Heidi N. Overton, Martin A. Makary, JAMA, Research Letter, June 25, 2019

An estimated 20% of US consumers had medical debt in collections in 2014. Medical debt has been increasing with direct patient billing, rising insurance deductibles, and more out-of-network care being delivered, even at in-network facilities. Bills sent directly to patients may use the undiscounted price of a hospital’s services and can result in financial hardship and avoidance of future medical care. Hospitals need to be paid for care delivered, but some bills are unpaid. Hospitals may negotiate, reduce, or write off payments. Some have begun adopting a range of aggressive strategies for collecting unpaid bills, including suing patients and garnishing their wages or bank savings. We examined garnishment legal actions among Virginia hospitals.

A Huge Tax Break Went to a Politically Connected Company in New Jersey Despite Red Flags

Source: Jeff Pillets and Nancy Solomon, WNYC, and Alex Mierjeski, ProPublica June 26, 2019

….Generous tax breaks from New Jersey’s new economic development program, he argued, could place Camden “on a level playing field” with Holtec’s other suitors. In return, the firm pledged the retention of 160 jobs and the creation of an additional 235 positions. Six months later, the EDA awarded the company $260 million in taxpayer assistance — the second-largest tax break in state history.

What Holtec didn’t reveal, though, was that just weeks before filing its application in New Jersey, Ohio had stripped the company of tax credits there for failing to create the jobs it had promised as part of a similar program. According to records obtained by WNYC and ProPublica, none of the 200 positions it had pledged in 2009 to bring to Orrville, a small town about 20 miles outside Akron, ever materialized….

An Estimate of the Local Economic Impact of State-Level Earned Income Tax Credits

Source: Eric James Stokan, Economic Development Quarterly, OnlineFirst, Published June 22, 2019
(subscription required)

From the abstract:
This study investigates the impact of state-level earned income tax credits on local economic outcomes (employment, wages, and establishments). The study employs difference-in-differences and triple-difference models to estimate the impact of these credits at the border of metropolitan areas where one side of the border adopts the credit between 1986 and 2012, and the other side of the border does not. Separate analyses are conducted for specific industries and subindustries. Synthetic control methods are used as a robustness check. The analyses suggest that state-level earned income tax credits do not have a significant impact on the local economic outcomes of metropolitan areas. At least one potential reason offered is that while these impacts are not a direct goal of the program, the credits may not be large enough to realize positive economic gains.