Category Archives: Taxation

Consumption Taxes, Income Taxes, and Revenue Sensitivity: States and the Great Recession

Source: Howard Chernick, Cordelia Reimers, Public Finance Review, OnlineFirst, Published November 30, 2017

From the abstract:
This article uses an income-distributional approach to state tax sensitivity to examine the assumption that consumption taxes are more stable than income taxes. We estimate the 2007 to 2009 change in tax revenues as a function of state income distributions and tax burdens by income class. We estimate tax burdens as a function of income tax shares and consumption tax shares. We then simulate the change in tax revenues with tax shares at the national average. If high-income-tax states were to lower their reliance on this tax, the revenue decline during the recession would have been greater. For high consumption tax states, the revenue decline under higher income tax shares would have been smaller. Had they shifted toward consumption taxes, income tax reliant states would not have reduced the cyclical sensitivity of tax revenues during the Great Recession. The interaction between tax burdens and recession shocks by income class is key to these results.

Taxpayers are subsidizing hush money for sexual harassment and assault

Source: Peter J. Henning, The Conversation, November 5, 2017

Many of the recent stories about sexual abuse claims against disgraced Hollywood mogul Harvey Weinstein, former Fox News host Bill O’Reilly and other powerful actors, journalists and executives mention settlements either they or their employers made to silence women who accused them of misconduct.

These settlements often require alleged victims to sign a nondisclosure agreement – essentially a pledge of secrecy – in exchange for a cash payment. They are designed to keep the reputations of allegedly abusive high-flyers intact, an arrangement that can allow repeated wrongdoing.

As a law professor who focuses on white-collar crime, what I find striking about these contracts is how they can be treated as tax-deductible business expenses. That means American taxpayers are helping foot the bill for keeping despicable behavior in the shadows.

I don’t believe that secret payments to settle sexual abuse claims should be tax-deductible. Here’s why…..

Richest Americans Benefit Most from The Tax Cuts and Jobs Act

Source: Institute on Taxation and Economic Policy (ITEP), November 2017

From the introduction:
The Tax Cuts and Jobs Act, which was introduced on November 2 in the House of Representatives, would raise taxes on some Americans and cut taxes on others while also providing significant savings to foreign investors. Of those tax cuts that would benefit Americans, nearly a third would go to the richest one percent in 2018, and by 2027 that fraction would rise to nearly half. Because the legislation, which will be simply called the House bill in this report, includes provisions that raise taxes and provisions that cut taxes, the net effect for any particular family depends on their situation.  This report includes estimates of the House bill’s average impact on each income group and estimates of the fraction of each income group facing a tax cut or a tax hike. The estimates incorporate all the significant changes that the bill would make to the federal personal income tax, corporate income tax and estate tax, as explained in more detail in the methodology section. (See Table 1 and Table 2 for a detailed distributional analysis of the House Bill in 2018 and 2027.)

Some of the provisions in the House bill that benefit the middle-class — like lower tax rates and fewer brackets, an increased standard deduction, and a $300 tax credit for each adult in a household — are designed to expire or become less generous over time. Some of the provisions that benefit the wealthy, such as the reduction and eventual repeal of the estate tax, become more generous over time. The result is that by 2027, the benefits of the House bill become increasingly generous for the richest one percent compared to other income groups…..
Related:
State data
Spreadsheet of data

The Tax Debate We Need

Source: Marshall Steinbaum, Jacobin, October 20, 2017

Progressive taxation curbs the power of the wealthy — and that’s exactly why the Right hates it. ….

…. Given the Republicans’ control of every branch of government, their plan has a high probability of becoming law. This article will forecast the contours of the “tax debate” in the coming months, as they attempt to shepherd their legislative obscenity to passage.

But it will then take a step back and consider the role that progressive taxation plays in the economy, and why it must be at the top of any left-oriented policy agenda: because without progressive taxation, the privileged have never been peacefully toppled from their position of power over the economy. ….

Millionaires or Job Creators: What Really Happens to Employment Growth When You Stick It to the Rich?

Source: Ahiteme N. Houndonougbo, Matthew N. Murray, Public Finance Review, Online First, Published September 27, 2017
(subscription required)

From the abstract:
We provide empirical evidence on the consequences of relatively higher tax burdens on the rich for aggregate employment growth using a newly constructed time series for 1947 through 2011 derived from the US Statistics of Income. In response to shifts in the relative federal tax burden toward the rich, we find statistically significant positive effects on employment growth in the short run and some evidence of negative effects on employment growth in the long run. Among our robustness checks, we use the Romer and Romer narrative record analysis to restrict our sample to a period of exclusively exogenous tax changes. The results hold in the restricted sample and are also consistent across alternative specifications and estimation methods, including unrestricted and Bayesian vector autoregressive.

A Preliminary Analysis of the Unified Framework

Source: Tax Policy Center, Research report, September 29, 2017

From the abstract:
The Tax Policy Center has produced preliminary estimates of the potential impact proposals included in the “Unified Framework for Fixing our Broken Tax Code.” We find they would reduce federal revenue by $2.4 trillion over ten years and $3.2 trillion over the second decade (not including any dynamic feedback). In 2018, all income groups would see their average taxes fall, but some taxpayers in each group would face tax increases. Those with the very highest incomes would receive the biggest tax cuts. The tax cuts are smaller as a percentage of income in 2027, and taxpayers in the 80th to 95th income percentiles would, on average, experience a tax increase.

Related:
Indiana’s Tax Cuts Under Mike Pence Are Not a Model for the Nation
Source: Carl Davis, Institute on Taxation and Economic Policy (ITEP), Just Taxes blog, September 29, 2017
Trump Hands 80 Percent of Proposed Tax Cut to Top 1 Percent
Source: Noah Lanard, Mother Jones, September 29, 2017

New study shows the super-rich will end up getting $1 million per year.

Giving or Getting: New York’s Balance of Payments with the Federal Government

Source: Donald J. Boyd, Lucy Dadayan, and Jim DeWan, Nelson A. Rockefeller Institute of Government, September 2017

From the press release:
Today, the Rockefeller Institute of Government released a new report, Giving or Getting: New York’s Balance of Payments with the Federal Government, to examine what states gave in tax dollars versus what states got from the federal government.
Modeled off of the “Fisc” reports issued by Daniel Patrick Moynihan, the former United States senator from New York, the Rockefeller Institute of Government report found that:
• Thirteen states had a “negative” balance of payment with the federal government. From worst to least they are: New York, New Jersey, Illinois, California, Massachusetts, Connecticut, Minnesota, Texas, North Dakota, Colorado, New Hampshire, Nebraska, and Wyoming. New York’s residents and economy contributed approximately $48 billion more in taxes to the federal government than New York received in federal spending —- the largest of any state.
• New York’s negative balance of payments roughly equals the combined shortfalls of 2nd ranked New Jersey and 3rd ranked Illinois. California and Massachusetts rounded out the list of top five states.
• On a per-capita basis, New York had the third-worst balance of payments, after New Jersey and Connecticut. New York’s people and economy paid the federal government $2,425 more per person than they received. By contrast, the average state experienced a positive balance of payments of about $1,305 per capita.
• New York’s negative balance of payments is driven primarily by federal taxes, rather than spending. Payments from New York to the federal government were $12,820 per capita, or approximately $3,401 higher than the national average.
• Federal spending in New York was $329 lower than the U.S. average, adding to the revenue disparity, but the revenue difference is much larger than the spending difference. ….

Can State Tax Policy Increase Economic Activity and Reduce Inequality?

Source: Harvey Cutler, Martin Shields and Stephen Davies, Growth and Change, Early View, September 10, 2017
(subscription required)

From the abstract:
Previous research shows that when changes in national commodity and income tax rates affect labor supply decisions differently, relative rates can be altered to increase welfare. In the U.S., 40 states impose both a sales and income tax; however, the reliance varies widely. This paper uses a computable general equilibrium model to examine tax policy changes in Colorado. The findings suggest that the revenue neutral changes to income and sales tax rates can affect both the level of economic activity and the distribution of income. When labor force participation is highly sensitive to income tax rate changes—which this paper suggests is the case—progressive changes to Colorado’s tax policy changes can both reduce inequality and increase output and employment.

Why American Workers Pay Twice as Much in Taxes as Wealthy Investors

Source: Ben Steverman, Bloomberg, September 12, 2017

What’s best for the country? What’s fair? And will either matter when Congress takes up tax reform this fall? ….

…. Let’s say you and I are neighbors. You’re an emergency room doctor, and I don’t work, thanks to a pile of money my grandparents left me.

You spend your days and nights stitching up gunshot wounds and helping children survive asthma attacks. I’ve gotten really good at World of Warcraft, winning EBay auctions, and frying shishito peppers to just the right crispiness.

Let’s also say we both report $300,000 in income to the Internal Revenue Service this year. Who pays more in taxes?

You do, by a lot. You owe the IRS about $38,500 more, assuming each of us pays the maximum with no special deductions. I also have more flexibility to lower my burden with tax planning strategies and other tricks, and I get to skip about $24,000 in payroll taxes that you and your employer must fork over each year. ….

…. By taxing investors less, some economists argue, you give taxpayers more of an incentive to save. The more savings in the economy, the more capital that companies and entrepreneurs can invest in ways that expand the economy and make workers more productive. Everyone, including workers, wins, according to this theory.

But there are potential negative consequences to such a policy. By lowering taxes on investors, you shift more of the tax burden to well-paid workers. This may give highly skilled and creative people a disincentive to work hard or improve their skills so they can earn more money, while also giving children of wealthy parents another reason not to work at all. ….