Category Archives: Taxation

Flexible Social Security and Medicare Payroll Tax Rates for Different Times: Achieving Multiple Benefits

Source: Leonard Santow and Mark Santow, Challenge, Volume 55, Number 1, January-February 2012
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From the abstract:
Here is some fresh thinking on using our tax system more flexibly to create different incentives under differing conditions. Why not a flexible payroll tax, which could raise adequate money over time to finance Social Security but also reduce taxes when needed to create incentives to hire? This father and son, an economist and a historian, present an interesting and novel approach.

Curbing Tax Expenditures

Source: Daniel Baneman, Joseph Rosenberg, Eric Toder, Roberton Williams, Urban-Brookings Tax Policy Center, January 30, 2012

This paper takes a broad look at tax expenditures in the context of revenue raising tax reform.It first reviews how tax expenditures have changed over the past 25 years and provides estimates of the distribution of tax savings resulting from tax expenditures today. The paper then examines three comprehensive approaches for applying across-the-board limits to a selected group of the largest and most widely utilized tax preferences. The three options–a fixed percentage credit, a cap based on income, and a constant percentage reduction–can all be designed to raise significant revenue for deficit reduction. While the effects of the options vary across the income distribution and depend on the types of tax expenditures subject to the limitations, variants of all three options can be designed to be progressive in the sense that the limits would reduce after-tax income for higher income taxpayers by more than they would reduce incomes of lower-income taxpayers.

Do Income Taxes Affect the Progressivity of Social Security?

Source: Norma B. Coe, Zhenya Karamcheva, Richard Kopcke, and Alicia H. Munnell, Center for Retirement Research at Boston College, IB#12-3, January 2012

From the abstract:
Policymakers have designed Social Security to be a progressive retirement program that replaces a larger share of monthly earnings for low- and middle-income workers than for high earners. However, previous research has found that, although the Disability Insurance (DI) component of Social Security is very progressive, the Old-Age and Survivors Insurance (OASI) component may be less progressive than intended. One reason is that high earners tend to live longer than low earners. Since Social Security pays an annuity that lasts throughout retirement, it benefits high earners with greater longevity.
See also:
Working paper

Money-Back Guarantees For Taxpayers: Clawbacks and Other Enforcement Safeguards in State Economic Development Subsidy Programs

Source: Philip Mattera, Thomas Cafcas, Leigh McIlvaine, Andrew Seifter and Kasia Tarczynska, Good Jobs First, January 2012

From the press release:
Despite the fact that many economic development deals fall short on job creation or other benefits, states are highly inconsistent in how they monitor, verify and enforce the terms of job subsidies that cost taxpayers billions of dollars per year. Many states fail to even verify that companies receiving subsidies are meeting their job creation and other commitments, and many more have weak penalty policies for addressing non‐compliance.
These are the key findings of Money‐Back Guarantees for Taxpayers: Clawbacks and Other Enforcement Safeguards in State Economic Development Subsidy Programs, a study published today by Good Jobs First, a non‐profit, non‐partisan research center based in Washington, DC. The report is a companion to Money for Something, a Good Jobs First study issued last month on the performance standards built into subsidy programs. Money‐Back Guarantees rates states on how well they enforce those standards.

Representation Without Taxation: Fortune 500 Companies that Spend Big on Lobbying and Avoid Taxes

Source: Blair Bowie, Dan Smith, Richard Phillips, Steve Wamhoff, U.S. PIRG & Citizens for Tax Justice, January 2012

From the summary:
Marking the second anniversary of the Supreme Court’s decision in the Citizens United vs. Federal Election Commission case, this report takes a hard look at the lobbying activities of profitable Fortune 500 companies that exploit loopholes and distort the tax code to avoid billions of dollars in taxes.

We identify the “Dirty Thirty” companies that were especially aggressive at dodging taxes and lobbying Congress. These companies so deftly exploited carve outs and loopholes in the tax code that all but one of them enjoyed a negative tax rate over the three year period of the study, while spending nearly half a billion dollars to lobby Congress on issues including tax policy. Altogether they collected $10.6 billion in tax rebates from the federal government.

IRS Releases 2006 Tax Gap Estimates

Source: Internal Revenue Service, FS-2012-6, January 2012

The tax gap is defined as the amount of tax liability faced by taxpayers that is not paid on time. The Internal Revenue Service collects more than $2 trillion annually in taxes so producing an estimate of the tax gap is a major statistical effort that it undertakes every few years.

This month, the IRS released a new set of tax gap estimates for tax year 2006. The new tax gap estimate represents the first full update of the report in five years, and it shows the nation’s compliance rate is essentially unchanged at about 83 percent from the last review covering tax year 2001.

The net tax gap for 2006 is estimated to be $385 billion. The net tax gap takes into account receipts from enforcement activities and late payments.
See also:
IR-2012-4: IRS Releases New Tax Gap Estimates; Compliance Rates Remain Statistically Unchanged From Previous Study, Jan. 6, 2012
Tax Gap Map 2006
Overview Tax Gap for Tax Year 2006
Summary of Methods Tax Gap
Additional Materials on the Tax Gap
Tax Cheaters Cost Law Abiding Taxpayers $385 Billion in a Single Year
Source: Citizens for Tax Justice, January 11, 2012

Changes in the Distribution of Income Among Tax Filers Between 1996 and 2006: The Role of Labor Income, Capital Income, and Tax Policy

Source: Thomas L. Hungerford, Congressional Research Service, R42131, December 29, 2011

…In the second session of the 112th, Congress will likely debate the scheduled expiration (at the end of 2012) of the 2001 and 2003 Bush tax cuts, which could affect income inequality. This report examines changes in income inequality among tax filers between 1996 and 2006. In particular, the role of changes in wages, capital income, and tax policy is investigated.

Inflation-adjusted average after-tax income grew by 25% between 1996 and 2006 (the last year for which individual income tax data is publicly available). This average increase, however, obscures a great deal of variation. The poorest 20% of tax filers experienced a 6% reduction in income while the top 0.1% of tax filers saw their income almost double. Tax filers in the middle of the income distribution experienced about a 10% increase in income. Also during this period, the proportion of income from capital increased for the top 0.1% from 64% to 70%.

Income inequality, as measured by the Gini coefficient, increased between 1996 and 2006; this is true for both before-tax and after-tax income….

…Three potential causes of the increase in after-tax income inequality between 1996 and 2006 are changes in labor income (wages and salaries), changes in capital income (capital gains, dividends, and business income), and changes in taxes. To evaluate these potential reasons for increasing income inequality, a technique to decompose income inequality by income source is used. While earnings inequality increased between 1996 and 2006, this was not the major source of increasing income inequality over this period. Capital gains and dividends were a larger share of total income in 2006 than in 1996 (especially for high-income taxpayers) and were more unequally distributed in 2006 than in 1996. Changes in capital gains and dividends were the largest contributor to the increase in the overall income inequality. Taxes were less progressive in 2006 than in 1996, and consequently, tax policy also contributed to the increase in income inequality between 1996 and 2006. But overall income inequality would likely have increased even in the absence of tax policy changes.

2011 3rd Quarter Summary of State and Local Government Tax Revenue

Source: U.S. Census Bureau, December 2011

This summary shows quarterly tax revenue statistics on property, sales, license, income and other taxes. Statistics are shown for individual state governments as well as national estimates of total state and local taxes, including 12-month calculations. This quarterly survey has been conducted continuously since 1962.

State Expenditure Report 2010

Source: Brian Sigritz, National Association of State Budget Officers, December 2011

From the summary:
This annual report examines spending in the functional areas of state budgets: elementary and secondary education, higher education, public assistance, Medicaid, corrections, transportation, and all other. It also includes data on the State Children’s Health Insurance Program and on revenue sources in state general funds.

State expenditures have been severely impacted by the national recession and downturn that began in December 2007. The economic downturn created a unique and in some ways unprecedented fiscal situation for states. Spending from state funds (general funds and other state funds combined) declined in both fiscal 2009 and in fiscal 2010, marking the first occurrences of outright spending declines in the 24-year history of the State Expenditure Report. The reduction in spending from state funds was due to a rapid decline in state revenue. During the two-year period from fiscal 2008-2010 state general fund revenues decreased nearly 12 percent, or by $78 billion.

Not all components of state expenditures declined during the recent downturn. Spending from federal funds increased sharply in both fiscal 2009 and fiscal 2010. Due to the influx of these additional federal dollars, total state expenditures grew modestly in both fiscal 2009 and fiscal 2010. It is estimated that in fiscal 2011 total state expenditures will once again experience moderate growth. In addition to continued growth in federal funds, both general funds and state revenue are estimated to have increased in fiscal 2011 for the first time since fiscal 2008. However, even after this growth, general funds and state revenue remain well below prerecession levels.

IRS Announces 2012 Standard Mileage Rates, Most Rates Are the Same as in July

Source: Internal Revenue Service, Press Release, IR-2011-116, December 9, 2011

The Internal Revenue Service today issued the 2012 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2012, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
• 55.5 cents per mile for business miles driven
• 23 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations

The rate for business miles driven is unchanged from the mid-year adjustment that became effective on July 1, 2011. The medical and moving rate has been reduced by 0.5 cents per mile.