Category Archives: Taxation

Congress snuck dozens of tax breaks into the budget deal. Here’s where they went.

Source: Dave Levinthal, Center for Public Integrity, March 13, 2018

“Tax extenders” are overlooked, underpublicized and painfully arcane, known by a name that doesn’t even make sense — they should be called “tax cut extenders,” because extending the duration of temporary tax cuts is what they do.

In practice, tax extenders are legislative favors, often slipped into folds of federal bills notable for funding bigger-ticket items — such as military programs, disaster relief, infrastructure overhauls. And despite President Donald Trump’s promise to drain the Washington “swamp,” elected officials and lobbyists conceived a new round of extenders, where they became law inside the bloat of last month’s 652-page budget bill with little public input….

U.S. tax law fuels changes to employee benefit and compensation programs

Source: Willis Towers Watson, February 21, 2018

Willis Towers Watson’s recent pulse survey on impacts from the new tax law reveals that the most common changes organizations have made or are planning or considering include expanding personal financial planning, increasing 401(k) contributions, and increasing or accelerating pension plan contributions. Other potential changes include increasing the employer health care subsidy, reducing or holding flat the employee payroll deduction, or adding a new paid family leave program in accordance with the Family Medical and Leave Act’s tax credit available for paid leave for certain employees.

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Who Benefits from Targeted Property Tax Relief? Evidence from Virginia Elections

Source: Jeremy G. Moulton, Bennie D. Waller, Scott A. Wentland, Journal of Policy Analysis and Management, Early View, First published: February 21, 2018
(subscription required)

From the abstract:
This study examines the market impact of targeted property tax relief, which is critical for understanding who exactly benefits from a widely used local policy. Specifically, we investigate this in the context of two statewide ballot measures in Virginia that provided property tax relief or heightened expectations for future relief intended to aid disabled veterans and seniors, respectively. Using residential multiple listing service microdata from Virginia, results from a regression discontinuity analysis show that once the 2010 tax relief measures passed on Election Day, property values rose sharply in response to the sudden increase in demand for homeownership among the targeted groups. We find that senior preferred housing and properties within areas with higher proportions of seniors and veterans experienced the highest price appreciation, while areas with fewer veterans or seniors saw little impact. The findings suggest that this type of policy provides an immediate benefit to current homeowners, thereby offsetting benefits for subsequent homeowners within the targeted groups. This effect represents an unintended consequence of targeted property tax relief as a policy tool more generally, as immediate capitalization into home prices subsequently increases the cost of housing for many individuals the relief was intended to help.

Tax Reform and Municipal Finance

Source: Ed Friedman, Regional Financial Review, Vol. 28 no. 4, January 2018
(subscription required)

The cost of municipal financing is likely to be higher following the tax overhaul enacted in January. Various provisions will affect both demand and supply of municipal debt. Further, because of the deficit-increasing effects of the tax changes, interest rates are projected to rise more than they would have without the legislation.

The Relationship between Union Membership and Net Fiscal Impact

Source: Aaron Sojourner, José Pacas, IZA – Institute of Labor Economics, IZA DP No. 11310, January 2018

This paper develops the first evidence on how individuals’ union membership status affects their net fiscal impact, the difference between taxes they pay and cost of public benefits they receive, enriching our understanding of how labor relations interacts with public economics. Current Population Survey data between 1994 and 2015 in pooled crosssections and individual first-difference models yield evidence that union membership has a positive net fiscal impact through the worker-level channels studied.

What’s the matter with Oklahoma?

Source: The Economist, January 30, 2018

Low teacher pay and severe budget cuts are driving schools to the brink. ….

Forty miles from Tulsa, sometimes along unpaved roads, sits Wagoner High School, with its 650 pupils, championship-calibre football team and show barn—a seemingly ordinary small-town school. But unlike most high schools, Wagoner is closed on Mondays. The reason, a severe reduction in state funds, has pushed 90 other school districts in Oklahoma to do the same. Teacher pay is the third-lowest in the country and has triggered a statewide shortage, as teachers flee to neighbouring states like Arkansas and Texas or to private schools. “Most of our teachers work second jobs,” says Darlene Adair, Wagoner’s principal. “A lot of them work at Walmart on nights and weekends, or in local restaurants.” Ms Adair hopes that Walmart does not offer her teachers a full-time job, which would be a pay rise for many.

The roots of the fiasco are not hard to determine. As in Oklahoma’s northern neighbour, Kansas, deep tax cuts have wrecked the state’s finances. During the shale boom, lawmakers gave a sweetheart deal to its oilmen, costing $470m in a single year, by slashing the gross production tax on horizontal drilling from 7% to 1%. North Dakota, by contrast, taxes production at 11.5%. The crash in global oil prices in 2014 did not help state coffers either. Oklahoma has also cut income taxes, first under Democrats desperate to maintain control over a state that was trending Republican, and then under Republicans, who swept to power anyway. Mary Fallin, the Republican governor, came to office pledging to eliminate the income tax altogether. Since 2008 general state funds for K-12 education in Oklahoma have been slashed by 28.2%—the biggest cut in the country. Property taxes, which might have made up the difference, are constitutionally limited….

….No fact embarrasses Oklahomans more, or repels prospective businesses more, than the number of cash-strapped districts that have gone to four-day weeks……

How Should States Respond to Recent Federal Tax Changes?

Source: Michael Leachman and Michael Mazerov, January 23, 2018

From the summary:
Many states expect to see a change in revenues due to the major federal tax legislation enacted last December. States should respond with substantial caution to the possibility of a revenue boost and focus their response on preparing for potential cuts in federal funding for states, as well as the next recession. They also should strongly consider raising revenue from corporations and other wealthy interests that just received a large federal tax break in order to invest in stronger education systems, more efficient transportation networks, and other public services that undergird broadly shared prosperity.

Some have called for states to cut taxes, claiming that most states will see revenue “windfalls” thanks to the federal changes. That’s overstated. Roughly 29 states will lose revenue, see no impact, or see modest revenue gains totaling less than 1 percent of general fund revenue, according to early estimates.  And in many of those states that could see larger revenue boosts, the added revenue would come disproportionately from lower-income families (due to the elimination of the states’ personal exemptions), which would partially reverse states’ substantial progress in recent decades in eliminating income taxes for families in poverty.  At least some of these states are unlikely to allow this to occur.

The real windfall from the federal changes will go to corporations and the highest-income households, whose annual tax cuts will vastly exceed any revenue gain for states. States’ revenue gains — in the aggregate — will also be much smaller as a share of their revenue than what they received from the last major federal tax overhaul, in 1986…..

Kansas Provides Compelling Evidence of Failure of “Supply-Side” Tax Cuts

Source: Michael Mazerov, Center on Budget and Policy Priorities, January 22, 2018

from the summary:
The deep income cuts that Kansas enacted in 2012 and 2013 for many business owners and other high-income Kansans failed to achieve their goal of boosting business formation and job creation, and lawmakers substantially repealed the tax cuts earlier this year. Former supporters have offered explanations for this failure to prevent the Kansas experience from discrediting “supply-side” economic strategies more broadly.  But the evidence does not support these explanations.  Rather, the Kansas experience adds to the already compelling evidence that cutting taxes does not improve state economic performance…..

Funding and Financing Highways and Public Transportation

Source: Robert S. Kirk, William J. Mallett, Congressional Research Service, R44674, CRS Report, January 11, 2018

Almost every conversation about surface transportation finance begins with a two-part question: What are the “needs” of the national transportation system, and how does the nation pay for them? This report is aimed almost entirely at discussing the “how to pay for them” question. Since 1956, federal surface transportation programs have been funded largely by taxes on motor fuels that flow into the Highway Trust Fund (HTF). A steady increase in the revenues flowing into the HTF due to increased motor vehicle use and occasional increases in fuel tax rates accommodated growth in surface transportation spending over several decades. In 2001, though, trust fund revenues stopped growing faster than spending. In 2008 Congress began providing Treasury general fund transfers to keep the HTF solvent….

Repealing, or Working Around, the Cap on State and Local Tax Deductions Would Make the Trump-GOP Tax Law Even More Unfair

Source: Steve Wamhoff, Institute on Taxation and Economic Policy (ITEP), Just Taxes blog, January 17, 2018

A bipartisan proposal in Congress to eliminate the new $10,000 cap on federal deductions for state and local taxes (SALT) would cost more than $86 billion in 2019 alone and two-thirds of the benefits would go to the richest 1 percent of households. Unfortunately, “work around” proposals in some states to allow their residents to avoid the new federal cap would likely have the same regressive effect on the overall tax code. ….

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