Category Archives: Taxation

State Film Production Incentives and Programs

Source: National Conference of State Legislatures (NCSL), April 12, 2016

From the summary:
….Most states’ policymakers walk a fine line and try to balance film production incentives in ways that limit forgone revenue, yet still reduce the chances of losing the state’s film industry to competing incentive programs. Since 2009, 10 states have ended their incentive programs. Most recently, growing budget deficits or unclear economic benefits caused Michigan, New Jersey, and Alaska to cut their incentive programs. No additional states have introduced programs since Nevada in 2014. However, Kentucky, Maryland, and California have expanded or extended their programs to better compete with other states’ film industries…..

Overall, states are increasing evaluation and oversight of film incentive programs. A number of states have performed a cost benefit analysis of their film incentive program, or require an audit before a production can receive a rebate or credit. At least 55 percent of all states offering incentives now require an audit or other verification from production companies. This percentage has increased from 38 percent in 2014…..

How to Tax Capital

Source: Mark P. Gergen, University of California, Berkeley – School of Law, UC Berkeley Public Law Research Paper No. 2749422, February 13, 2016

From the abstract:
This paper proposes a new system for taxing capital that can collect the same amount of revenue as the existing system with much lower administrative and compliance costs, and with somewhat lower distortionary impact. Its pillar is a flat annual tax assessed on the market value of publicly traded securities paid by an issuer. Wealth represented by a string of publicly traded securities is taxed once by giving an issuer a credit for amounts remitted with respect to publicly traded securities it owns. The securities tax will cover around 75 to 80 percent of income producing capital that is presently subject to the individual and corporate income taxes.

Income producing capital held by households and nonprofits that is not subject to the securities tax, e.g. interests in closely held businesses and real estate held for investment, is covered by a complementary tax. The complementary tax is paid on the estimated value of an asset assuming an investment yields a normal return in cash or appreciation. An entity is required to estimate value and remit the tax on an interest in the entity. If an interest is of a class, such as a unit in a private equity fund, then an entity is required to revalue all interests in a class when there is a redemption or trade of any interest in the class. This brings the incidence of the complementary tax roughly into line with the incidence of the securities tax with respect to relatively liquid assets, like interests in hedge funds, through periodic revaluations.

The securities tax and the complementary tax are intended to replace the entire existing patchwork system for taxing capital income. With an annual rate of .8 percent (.008) the securities tax and the complementary tax will impose a tax burden on capital roughly comparable to the burden imposed by the existing patchwork system for taxing capital that the two taxes are intended to replace. If the average real rate of return on capital is 4 percent, then the tax is equivalent to an income tax with a rate of 20 percent on the average real rate of return. From the perspective of a firm the tax raises the cost of capital by .8 percent or 80 basis points. A companion article will address the taxation of global capital under the two taxes.

Better Incentive Information: Three strategies for states to use economic development data effectively

Source: Pew Charitable Trusts, Issue Brief, April 2016

From the overview:
Economic development incentives are one of the primary tools states use to try to strengthen their economies. Every state uses a mix of tax incentives, grants, and loans in an effort to create jobs, encourage business expansions, and achieve other goals. Collectively, states spend billions of dollars a year on incentives, which can significantly affect their budgets, businesses, and economies.
To make these programs work as well as they can, states need good data. Data are necessary for officials to administer incentives and measure their effectiveness.

There are multiple sources of these data. Relevant information can come from businesses, federal records, and other third-party databases. In fact, states already possess, in some form, much of the data they need. But they must ensure that the right people have access to these data; the information needs to be of high quality and analyzed effectively. Many states have struggled with these challenges, leaving officials without the information they need to administer incentives well and policymakers unsure of whether the programs are working as intended.

To identify solutions, The Pew Charitable Trusts partnered with the Center for Regional Economic Competitiveness (CREC) to create the business incentives initiative in 2014. Through the initiative, cross-agency work groups from Indiana, Maryland, Michigan, Oklahoma, Tennessee, and Virginia worked closely with Pew and CREC to provide in-depth access to their economic development oversight and management procedures. While the initiative focused primarily on these six states, Pew and CREC also convened stakeholders from 22 additional states. The initiative built on Pew’s ongoing work to help states establish processes to regularly and rigorously evaluate the results of their tax incentives.
From March 2014 to December 2015, Pew conducted numerous interviews and site visits with participating states’ elected lawmakers and economic development, tax, and budget officials in the legislative and executive branches. The six states reviewed their incentive policies and practices to identify possible strengths and weaknesses, and received technical assistance from Pew to design and implement policy improvements.

The business incentives initiative provided strategies on how states can:
• Share relevant data.
• Ensure data are high-quality.
• Analyze data effectively.

Could the Saver’s Credit Enhance State Coverage Initiatives?

Source: Alicia H. Munnell and Anqi Chen, Center for Retirement Research at Boston College, IB#16-7, April 2016

The brief’s key findings are:
• States are introducing initiatives to provide retirement plan coverage to private sector workers who lack it.
• These initiatives could be supplemented by the Saver’s Credit, a federal tax incentive for low- and moderate-income savers.
• The existing Saver’s Credit is limited and not refundable, but proposed legislation would extend the Credit and make it refundable.
• Our analysis shows that the proposed Credit could considerably enhance state efforts by encouraging participation and savings.

Why America’s Schools Have A Money Problem

Source: Cory Turner, Reema Khrais, Tim Lloyd, Alexandra Olgin, Laura Isensee, Becky Vevea, Dan Carsen, NPR, Morning Edition, April 18, 2016

How much money a school can spend on its students still depends, in large part, on local property taxes. And many states aren’t doing much to level the field for poor kids. ….

About The ‘School Money’ Project
School Money is a nationwide collaboration between NPR’s Ed Team and 20 member station reporters exploring how states pay for their public schools and why many are failing to meet the needs of their most vulnerable students. This story is Part 1 of 3. Next week, we ask: Does money matter? …

Federal Minimum Wage, Tax-Transfer Earnings Supplements, and Poverty, 2016 Update: In Brief

Source: Gene Falk, Congressional Research Service, CRS Report, R44449, April 8, 2016

This report updates information from CRS Report R43409, Federal Minimum Wage, Tax-Transfer Earnings Supplements, and Poverty. It provides illustrative examples of how families’ earnings at the minimum wage interact with the federal tax system (both federal payroll and income taxes) and Supplemental Nutrition Assistance Program (SNAP) benefits. The original report examined earnings, federal taxes, and SNAP benefits for families with a worker earning the current federal minimum wage ($7.25 per hour) and earning a proposed $10.10 per hour minimum wage. This report examines those wage levels and a proposed $15.00 per hour minimum wage based on tax and benefit rules in effect in 2016. Earnings and “net income” (after federal taxes and SNAP)are also examined in this report relative to the 2016 Federal Poverty Level (FPL).

Who Pays Taxes in America in 2016?

Source: Citizens for Tax Justice, April 12, 2016

From the summary:
…Estimates from the Institute on Taxation and Economic Policy tax model, which are illustrated in these charts and tables, include the following key findings:
■ The richest one percent of Americans have 21.6 percent of total income and pay 23.6 percent of total taxes.
■ The poorest one-fifth of Americans have 3.3 percent of total income and pay 2.1 percent of total taxes.
■ Each income group’s share of taxes is quite similar to each group’s share of total income.
■ Contrary to popular belief, when all taxes are considered, the rich do not pay a dispropor­tionately high share of taxes. Although each income quintile pays combined federal, state and local taxes that are roughly equivalent to their share of the nation’s income, this by no means indicates our tax system is fine as is. In a truly progressive tax system, millionaires and billionaires wouldn’t be paying roughly the same tax rates as working families earning $100,000 per year.

Corporate Income Tax: Most Large Profitable U.S. Corporations Paid Tax but Effective Tax Rates Differed Significantly from the Statutory Rate

Source: United States Government Accountability Office, GAO-16-363, March 2016

From the summary:
In each year from 2006 to 2012, at least two-thirds of all active corporations had no federal income tax liability. Larger corporations were more likely to owe tax. Among large corporations (generally those with at least $10 million in assets) less than half—42.3 percent—paid no federal income tax in 2012. Of those large corporations whose financial statements reported a profit, 19.5 percent paid no federal income tax that year. Reasons why even profitable corporations may have paid no federal tax in a given year include the use of tax deductions for losses carried forward from prior years and tax incentives, such as depreciation allowances that are more generous in the federal tax code than those allowed for financial accounting purposes. Corporations that did have a federal corporate income tax liability for tax year 2012 owed $267.5 billion….

State Efforts to Collect Taxes from Remote Sellers

Source: Max Behlke, Legisbrief, Vol. 24 no. 13, April 2016

In 2016 sessions so far, 24 bills have been introduced in 16 states that would require out-of-state companies to collect and remit taxes on Internet sales. State action is heating up because of the proliferation of e-commerce and frustration with Congress’ unwillingness to act on remote sales tax collection.

The Excise Tax on High-Cost Health Plans

Source: Stephen Blakely, Employee Benefit Research Institute (EBRI), EBRI Notes, Vol. 37 No. 2, March 2016

From the abstract:
In December 2015 Congress enacted a two-year delay in the controversial excise tax on high-cost health plans under the Affordable Care Act (ACA), postponing its effective date from 2018 to 2020 and making a number of other modest changes to the tax. Nevertheless, the tax remains wildly unpopular with private-sector sponsors of employee health programs, and its potential effects are widely debated — even though the general public (and most workers in general) have little awareness that the tax has been enacted by Congress and that its potential implementation could cause major changes to how they get health coverage and how much they pay. To further public debate over the issue, the nonpartisan Employee Benefit Research Institute (EBRI) held a policy forum on Dec. 10, 2015, attended by about a hundred health experts and other benefits professionals, to discuss “The Excise Tax on High-Cost Health Plans” — both to clarify what the tax would do and how employers and health-plan sponsors are reacting to it. This paper summarizes the presentations and discussions at that forum, including a review of the purposes, goals, and key provisions of the excise tax on health plans as it was included in the Affordable Care Act; efforts to repeal the tax; the perspective and reactions to the tax by a large employer; and the broader perspective in employer options and strategies in dealing with the excise tax. As private-sector health experts pointed out at the EBRI forum, despite the delay in the effective date of the so-called “Cadillac tax” on high-cost health plans, the tax has already been causing changes, as many employers have begun reducing benefits or shifting costs now to avoid the tax if and when it later goes into effect.