Category Archives: Taxation

State Revenues and the Aging Population

Source: Katherine Barrett and Richard Greene, PA Times, June 13, 2017

…. Not only are older people likely to need more services, especially health care; they also are inclined to bring in smaller amounts of revenue dollars, largely because their earned incomes tend to decline. Equally important, many states have tax laws that do not fully cover income from Social Security or pensions. This issue is growing in significance as the makeup of the population shifts. The number of U.S. residents over 65 is anticipated to grow by one-third over the next 15 years, according to the Census Bureau….

State Tax Revenues in Flux

Source: Lucy Dadayan and Don Boyd, Rockefeller Institute of Government, State Revenue Report #107, June 2017

Today, the Rockefeller Institute of Government released a report finding that state and local government tax revenues continue to grow at an extremely slow pace. Specifically, the report finds that:
• State and local government revenue from major taxes increased 2.3 percent in the fourth quarter of 2016 compared to a year earlier, which is slightly slower than the 2.5 percent average growth for the four previous quarters.
• Local governments as a group rely heavily on property taxes, which are relatively stable but weakened somewhat in the fourth quarter, growing by 4.0 percent, compared with a 5.1 percent average in the prior four quarters.
• Total state government tax revenue from all sources grew 1.4 percent. This continues the weakness seen in recent quarters. It is slower than the 1.8 percent growth of the third quarter, and is slightly negative after adjusting for inflation. ….

The Diffusion of State Film Incentives: A Mixed-Methods Case Study

Source: Stephanie Leiser, Economic Development Quarterly, Online First, June 1, 2017
(subscription required)

From the abstract:
In 2000, only six states had tax incentives for film and video production, and by 2010, all but six states had film incentives. What accounts for this growth in popularity? This study combines quantitative event history analysis and qualitative interview methods to try to understand why states adopted film incentive programs and how they were influenced by the adoption of incentives in other states. The analysis suggests that the diffusion processes in state adoptions of film incentives can be largely explained by two factors: (a) the size and sophistication of the existing film industry in the state and (b) a competitive “bandwagon” effect based on the total number of states that had already adopted film incentives. The results emphasize the need to broaden the ways that competitive influences can be conceptualized and modeled in policy diffusion research, especially in economic development.

State Tax Actions 2016

Source: National Conference of State Legislatures, Special Fiscal Report, 2017

From the overview:
Following the same trend as in 2015, this past year saw net reductions in personal and corporate income taxes and increases across most other tax categories. This is a result of a continued phase-in of major tax reduction packages passed during previous legislative sessions. Increases in sales and use, health, tobacco, and motor-fuel-related taxes led to a $2.3 billion revenue increase across all reporting states. Illinois did not enact a FY 2017 budget during the 2016 legislative session, and some states—such as Texas, Montana and Nevada, where the legislature only convenes biennially—did not have significant tax changes to report.

This report includes tax actions taken during regular and special legislative sessions in 2016, as well as actions approved by voters during the November 2016 general election. Fifty states provided information, which was obtained through a survey of the National Association of Legislative Fiscal Offices.

Highlights include:
– Collective actions taken by the 50 states resulted in a net tax increase of $2.3 billion, representing 0.3 percent of the prior year’s tax collections. This compares to relatively little activity in 2015 and a $3.1 billion, or 0.4 percent, decrease in 2014.
– Illinois did not enact a FY 2017 budget during the 2016 legislative session, but Pennsylvania, which did not enact a budget during the 2015 legislative session, passed an extensive tax package in 2016, increasing net tax revenue for the state by $633 million, or 1.9 percent.
– Across the nation, the multiyear trend of lowering personal and corporate income taxes continues. Tax increases included motor fuel taxes to fund state infrastructure projects, substantial sales tax increases in two states, increased health care provider taxes to offset insurance costs and tax increases on many tobacco products.
– Of the 50 reporting states, five—Georgia, Indiana, Mississippi, New Mexico and Wisconsin—reduced net taxes by more than 1 percent. There were six states—Louisiana, New Jersey, Oklahoma, Pennsylvania, South Dakota and West Virginia—that reported a net tax increase of more than 1 percent. Thirty-nine states made no significant net tax changes in 2016. see Figure 2 above.
– In addition to tax changes, states approved nontax revenue changes, including fee increases or decreases, revenue accelerations or decelerations, and tax compliance initiatives for a net increase of $426 million. This resulted in a combined total revenue increase of about $2.8 billion in 2016.
Related:
Executive summary

Tax Revenue Has Recovered in 31 States, Despite Flat Q3

Source: Barb Rosewicz and Daniel Newman, Pew Charitable Trusts, May 17, 2017

Growth in total state tax revenue stalled in the third quarter of 2016, extending a rare drop in tax collections outside of a recession. Even so, more than seven years after the end of the Great Recession, receipts nationally and in 31 states have risen enough to recover from losses in the downturn, after accounting for inflation.

State tax revenue growth was flat even as the national economy continued to expand. In both the second and third quarters of 2016, collections nationally were 5.8 percent higher than they were before plunging in the first year of the recession, after adjusting for inflation and averaging across four quarters to smooth seasonal fluctuations. But that was down from a post-recession high of 6.9 percent in the first quarter of 2016.

The results mean that the 50 states combined had the equivalent of 5.8 cents more in purchasing power for every $1 they collected at their peak before receipts fell in 2008. But results varied widely from state to state…..

Trump’s Pass-Through Proposal: New Figures on High-End Tax Cuts

Source: Chuck Marr, Center on Budget and Policy Priorities blog, May 15, 2017

Millionaires would get average tax cuts of $114,000 in 2018 from a plan — very similar to what President Trump has proposed — to let the owners of “pass-through” such as partnerships, S corporations, and sole proprietorships pay only a maximum 15 percent rate on their business income, according to new estimates from the Tax Policy Center (TPC).

TPC estimates this proposal would cost some $1.9 trillion in lost federal revenue over the next decade — from the rate cut itself as well as the new tax avoidance opportunities that it would open for high-income individuals…..

How Do the U.S and Canadian Social Safety Nets Compare for Women and Children?

Source: Hilary Williamson Hoynes, Mark Stabile, University of California, Berkeley; National Bureau of Economic Research (NBER), NBER Working Paper No. w23380, May 2017
(subscription required)

From the abstract:
The past 25 years has seen substantial change in the social safety nets for families with children in the US and Canada. Both countries have moved away from cash welfare but the US has done so relying more exclusively on inwork benefits with work requirements. This paper examines this evolution across the two countries and examines the effects on employment and poverty. In particular, we focus on the two largest programs over this period: the U.S. EITC and the Canadian NCB/CCTB. In light of these policy changes, we examine trends in employment and poverty of the most affected families — single mothers with less than a college degree — across the two countries. We find that employment improved substantially in both countries, absolutely and relative to a control group of single women without children. The cross-country differences in relative trends are mainly explained by differences in the labor market conditions. Poverty rates for single mothers also declined in both countries with more of the decline coming through market income in the U.S. and benefit income in Canada.

How States Are Improving Tax Incentives for Jobs and Growth: A national assessment of evaluation practices

Source: Josh Goodman and Jeff Chapman, Pew Charitable Trusts, May 2017

From the overview:
Tax incentives—including credits, exemptions, and deductions—are one of the primary tools that states use to try to create jobs, attract new businesses, and strengthen their economies. Incentives are also major budget commitments, collectively costing states billions of dollars a year. Given this importance, policymakers across the country increasingly are demanding high-quality information on the results of tax incentives.

In the last five years, 27 states and the District of Columbia have made progress in gathering evidence on the results of their economic development tax incentives. Ten of these states are leaders in tax incentive evaluation. They have well-designed plans for regular reviews, experience in producing quality evaluations, and a process for informing policy choices. No state met these three criteria five years ago.

State Tax Incentive Evaluation Ratings
Source: Josh Goodman and Jeff Chapman, Pew Charitable Trusts, May 3, 2017

Tax incentives—including credits, exemptions, and deductions—are one of the primary tools that states use to try to create jobs, attract new businesses, and strengthen their economies. Incentives are also major budget commitments, collectively costing states billions of dollars a year. Given this importance, policymakers across the country increasingly are demanding high-quality information on the results of tax incentives.

Staff members of The Pew Charitable Trusts have assessed each state on the extent to which it has taken three steps to successfully evaluate tax incentives: making a plan, measuring the impact, and informing policy choices. These criteria were selected because they lead to regular, high-quality analyses that lawmakers use to improve the results of the state’s economic development efforts.
These ratings, originally published in May 2017, will be updated as state practices change.

What France and the UK can teach Trump about reviving America’s middle class

Source: Steven Pressman, The Conversation, May 11, 2017

America’s middle class is in deep trouble.

Signs of its decline are everywhere, from stagnant incomes and falling wealth to soaring household debt and the rise of populist politicians promising a return to the “glory days.”

While there is near universal agreement that a thriving middle class is essential to long-term economic prosperity, we’re deeply divided about what builds it. Conservatives, such as those in the White House and in control of Congress, contend that lower taxes are a key ingredient. Liberals argue it comes down to government policies that give low earners a leg up and support those already in the middle.
My own research on trends in the U.S. and eight other developed countries looks at what conditions create more middle-income households. If President Donald Trump really wants to help the working class voters who elected him, he should look to what other developed nations have been doing to sustain a large middle class.

His current proposals, I believe, will simply accelerate its erosion in the United States….

Related:
The fall of the USmiddle class and the hair-raising ascent of Donald Trump
Source: Steven Pressman, Real-World Economics Review, issue no. 78, 2017

According to Thomas Piketty (2014), between 1980 and 2010 the share of total US income going to the top 10% of earners rose from around 30 – 35%, where it stood for several decades, to nearly 50%. These are very conservative estimates. Piketty’s figures come from the distribution of adjusted gross income (AGI), reported by the US Internal Revenue Service. AGI subtracts from income things like investment losses, retirement account contributions and their returns (see Pressman 2015, Chapter 2). With large adjustments, someone can make a lot of money but have little AGI; or, as in the case of Donald Trump, you can report a negative AGI of nearly $1 billion. In addition, tax – free income (such as unrealized capital gains and interest on municipal bonds), as well as returns on money hidden in tax havens, are not reported to the IRS and do not appear in AGI. Like the adjustments helping Trump avoid taxes, this income mainly goes to the wealthy and has been growing for several decades (Zucman, 2015).

‘Competitive’ distractions

Source: Josh Bivens and Hunter Blair, Economic Policy Institute, May 9, 2017

From the summary:
Cutting corporate tax rates will not create jobs or boost incomes for the vast majority of American families.

What proponents of corporate tax cuts argue: A central argument proponents of corporate tax cuts make is that U.S. corporations face higher tax rates than those of our peer countries; they claim that this differential hurts U.S. “competitiveness” (a word they rarely define) and discourages companies from investing in the U.S. Consequently, they further claim that cutting corporate tax rates would increase American companies’ “competitiveness,” which they imply (but rarely argue directly) would redound to the benefit of most American families.

What this report finds: We find their central argument—that U.S. corporations face high corporate taxes—to be empirically false. While U.S. statutory tax rates are higher, the effective tax rate paid by corporations is in fact roughly equivalent to the effective tax rates of our peer countries, due to loopholes in the U.S. tax code. Further, we find that even if the effective corporate tax rate were higher (if loopholes were closed), economic theory and data do not support the idea that cutting these rates would encourage further investment in the U.S. or benefit Americans in general; we find that such cuts would primarily benefit a small number of high-income capital owners while increasing the regressivity of the tax system overall.

Recommendations: If we wish to reform corporate tax policy to benefit the vast majority of Americans—and not just a wealthy few—we should not be talking about lowering corporate tax rates or offering other tax breaks to corporations; we should instead be focusing on closing loopholes in the system that have eroded the corporate income tax base, to ensure the corporate sector is paying its appropriate share of taxes…..