Category Archives: Taxation

Local Governments and Economic Freedom: A Test of the Leviathan Hypothesis

Source: Adam A. Millsap, Bradley K. Hobbs, Dean Stansel, OnlineFirst, February 6, 2019
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From the abstract:
Brennan and Buchanan’s Leviathan hypothesis states that “potential for fiscal exploitation varies inversely with the number of competing governmental units” (p. 211) and that “total government intrusion into the economy should be smaller, ceteris paribus, the greater the extent to which taxes and expenditures are decentralized [and]…the smaller the jurisdictions” (p. 185). Using data for US metropolitan statistical areas, we provide the first local-level test of that hypothesis (that we are aware of) that uses “economic freedom” as the dependent variable, which provides a better measure of “total government intrusion into the economy” than the less comprehensive measures (taxes or spending) used in the previous literature. We find mixed support for the Leviathan hypothesis. The number of competing jurisdictions is positively associated with economic freedom, driven largely by the labor market freedom component as opposed to the government spending and tax components (the very measures used in the previous literature).

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

Source: Howard Chernick, Cordelia Reimers, Public Finance Review, Volume 47 Issue 2, March 2019
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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.

Impact of Tax and Expenditure Limits on Local Government Use of Tax-supported Debt

Source: Sharon N. Kioko, Pengju Zhang, Public Finance Review, Volume 47 Issue 2, March 2019
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From the abstract:
This study seeks to broaden our understanding of the impact tax and expenditure limits (TELs) have had on local governments. We chose to focus on local government use of tax-supported debt as TELs are limits on the property tax base and related revenues, two essential components used to determine a government’s legal authority to issue tax-supported debt and its fiscal capacity to maintain long-term solvency. Using county-level data, our analysis finds TELs have a negative impact on local government use of tax-supported debt, especially if the government is subject to a limitation on assessed valuation or the property tax levy.

Who Are the Getters? The Federal Workforce and Low Income States Get the Most

Source: Laura Schultz, Rockefeller Institute of Government, February 1, 2019

In the recent report, Giving or Getting? New York’s Balance of Payments with the Federal Government, Rockefeller Institute evaluated how all fifty states compared in the tax revenue they sent to the federal government (receipts) and the levels of spending they received from the federal government (expenditures). Forty states had a positive balance of payments; they received more money from Washington than they sent. In our last blog post we looked at “the givers.” These states have high income levels and, as a result, pay more in payroll taxes than other states. These high tax burdens were not offset by high levels of federal spending, leading to negative balances of payments. In this post we take a closer look at the winners, the states with high balances of payments. Our analysis finds there are two categories of getters: states with large federal workforces and states with low incomes.
Table 1 shows the ten states with the highest per capita balance of payments. The ratio of expenditures to receipts tells us how much each state receives in federal spending for each dollar it sends in taxes. For every $1 Virginians pay in taxes, the residents receive twice as much in federal spending.

Here’s How U.S. Businesses Actually Used Their Tax Cuts

Source: Laura Davison, Bloomberg Businessweek, January 16, 2019

Republicans predicted a growth explosion while Democrats warned of fat-cat investors. Both sides were wrong.

On Jan. 1, 2018, the biggest, most sweeping U.S. corporate tax cut ever enacted went into effect. A year later, we’re able to see how businesses used all that extra cash.

The short answer: to buy back shares. The long answer is slightly more nuanced, but not by much.

As Albany Debates a Permanent Property Tax Cap, How Is the Cap Affecting School Budgets?

Source: Jim Malatras, Nicholas Simons, Michelle Cummings, Rockefeller Institute of Government, January 23, 2019

This is the first in a series on property taxes in New York State by the Rockefeller Institute of Government. Collaborating with other organizations, the Rockefeller Institute will take an in-depth look into various issues surrounding property taxes including their impact on local governments, case studies of how the tax cap is working in school districts, the future of education financing and its reliance on local property taxes, and property tax assessments.

To Cap or Not to Cap, That Is the Question
As Albany Debates a Permanent Property Tax Cap, How Is the Cap Affecting School Budgets?

Newly minted Democratic Majority Leader and Temporary President of the State Senate, Andrea Stewart Cousins, said the Senate would take up a bill to make the local property tax cap permanent this week. New York State has some of the nation’s highest property taxes, be it in total dollars paid (in the downstate suburbs, like Nassau and Westchester Counties) or by home value (in many upstate counties, like Orleans and Wayne). In response, the state enacted in 2011 a local property tax cap law that restricted annual property tax increases to 2 percent or the rate of inflation, whichever is less. While the tax cap has limited local property taxes, it also has an effect on the distribution of school revenue (with more money coming from progressive state income taxes) and higher passage rates for school budgets.

The property tax cap was not made permanent. It was part of a larger horse-trading deal that included strengthening and extending rent regulations on housing, primarily in New York City. As part of the original deal, the local property tax cap was scheduled to sunset after four years unless reauthorized by the state legislature and signed by the governor. The tax cap was extended once in 2015 and is once again up for renewal in 2020…..

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

Source: Laura Schultz, Michelle Cummings, Rockefeller Institute of Government, January 8, 2019

From the summary:
In its second year of annual analysis, the Rockefeller Institute of Government has examined the distribution of Federal Budget receipts and expenditures across the United States. This report examines where Federal funds are generated and spent, the balance of payments differential that exists between states, the primary explanations for those differences, and how these gaps may change over time.

Our annual analysis is designed to aid policymakers as they continue to discuss whether there is too much redistribution or too little, and the impact of those redistribution decisions on states. The Rockefeller Institute examined detailed revenue and spending data for Federal Fiscal Year (FFY) 2016 and developed a preliminary data series for FFY 2017, paying close attention to New York….

The 401(k) Student Loan Repayment Benefit Program

Source: John G. Kilgour, Compensation & Benefits Review, OnlineFirst, Published January 7, 2019
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From the abstract:
In recent years, student loan repayment programs have emerged as the hot new employee benefit. However, their growth has been restricted by their lack of favored tax status. On August 17, 2018, the Internal Revenue Service issued a private letter ruling approving a proposal to create such a program within a 401(k) plan. In a deft piece of reasoning, the private letter ruling provides relief from the so-called “contingent benefit prohibition.” This article examines student loan borrowing, the private letter ruling and its likely consequences and limitations.