Category Archives: Taxation

Contributions or Taxes? Two Social Security Funding Paradigms

Source: Benjamin Veghte, National Academy of Social Insurance, April 15, 2010

April 15th is a day we contemplate our financial relationship to government. It thus provides a suitable occasion to reflect on the distinction between Social Security contributions and income taxes. In discussions of Social Security, many disagreements stem from the fact that we view its funding from within different paradigms, namely some of us see these payments as insurance contributions, others as just another form of income tax. On this year’s Tax Day, this post considers the historical origins of this conceptual distinction, arguments for each of the two paradigms, and their implications for strategies of fiscal reform.

President Obama Cut Taxes for 98 Percent of Working Americans in 2009

Source: Citizens for Tax Justice, April 2009

From the summary:
CTJ has new state-specific reports that aim to clear up this widespread misunderstanding over President Obama’s tax policies. They show that the President cut taxes for working people at all income levels for 2009 and they show who was helped by each individual tax break.
See also:
All Americans Pay Taxes

Shifting Responsibility: How 50 Years of Tax Cuts Benefited the Wealthiest Americans

Source: Chuck Collins, Alison Goldberg, and Sam Pizzigati, Institute for Policy Studies, April 12, 2010

From the summary:
The scene has become depressingly familiar. A governor — or a mayor or a county executive — steps to the podium and somberly intones the necessity of making “hard choices” and “living within our means.” The elected leader then proceeds to announce prodigious budget cuts that will overcrowd classrooms, furlough public employees, and deny medications to poor families.

Some observers blame these painful podium processions on the Great Recession and the resulting drop-off in income that can be taxed. Others blame former President George W. Bush. His administration’s massive 2001 and 2003 tax cuts left the federal budget deeply in the red — and state and local governments on their own, overwhelmed by federal mandates for everything from Medicaid to special ed.

The recession and the second Bush administration no doubt contributed — and significantly so — to the fiscal crisis we face today. But the roots of today’s crisis go back farther. Indeed, by George W. Bush’s inauguration in 2001, the prime damage had already been done. By 2001, the United States had already stopped taxing the rich at the levels that had promoted middle-class prosperity in the mid 20th century.

Solutions that Work for Main Street: Progressive Guidelines for Closing Recessionary State Budget Gaps

Source: David Shreve, United for a Fair Economy, 2010

Virtually every state is groping for solutions to budget gaps of historic proportions. Unfortunately, most states are closing the shortfalls in counterproductive ways that deepen the recession, exacerbate hardships for residents, and stifle economic recovery.

Key points of the Guidelines include:

Closing Recessionary State Budge Gaps

* Make more money available to state governments
* Make tax increases and tax reform one and the same
* Encourage of federal-state revenue sharing

Defending a More Progressive and Economically Sound Approach

* Don’t equate frugality or efficiency with budget austerity
* Challenge anti-tax mythmakers

Tobacco Taxes: A Win-Win-Win for Cash-Strapped States

Source: Campaign for Tobacco-Free Kids, American Cancer Society Cancer Action Network, American Heart Association, American Lung Association and Robert Wood Johnson Foundation, February 10, 2010

From the summary:
By increasing cigarette taxes by $1 per pack, the states could raise more than $9 billion in new annual revenue to help close severe budget shortfalls, while also reducing smoking and saving lives, according to a new report released today by a coalition of public health organizations.

A national poll released along with the report finds that 67 percent of voters support a $1 tobacco tax increase. The poll also found that voters far prefer higher tobacco taxes to other options, such as other tax increases or budget cuts, for addressing state budget deficits.

The report details the revenue and health benefits to each state of increasing its cigarette tax by $1 per pack. If every state and Washington, D.C., did so, they would:

* Raise $9.1 billion in new annual revenue;
* Prevent more than 2.3 million kids from becoming smokers;
* Prompt more than 1.2 million adult smokers to quit;
* Prevent more than 1 million premature, smoking-caused deaths; and
* Save $52.8 billion in health care costs.

Business Investment and Employment Tax Incentives to Stimulate the Economy

Source: Thomas L. Hungerford and Jane G. Gravelle, Congressional Research Service, R41034, January 22, 2010

From the summary:
According to the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER), the U.S. economy has been in recession since December 2007. Congress passed and the President signed an economic stimulus package, the American Recovery and Reinvestment Act of 2009 (P.L. 111-5), in February 2009. The $787 billion package included $286 billion in tax cuts to help stimulate the economy. Among the tax reductions, many were tax incentives directed to business. The preliminary estimate of third quarter real gross domestic product (GDP) growth is 2.8%; the unemployment rate, a lagging indicator, averaged 9.6% in the third quarter and 10.0% in the fourth quarter of 2009. Federal Reserve Chairman Ben Bernanke expects the economy to continue growing at a modest pace, but predicts that bank lending will remain constrained and the job market will remain weak into at least 2010. To further assist unemployed workers, help business, and stimulate housing markets, Congress passed the Worker, Homeownership, and Business Assistance Act of 2009 (P.L. 111-92). The Obama Administration has advocated further business tax incentives to spur investment and employment, especially for small business.

The two most common measures to provide business tax incentives for new investment are investment tax credits and accelerated deductions for depreciation. The evidence, however, suggests that a business tax subsidy may not necessarily be the best choice for fiscal stimulus, largely because of the uncertainty of its success in stimulating aggregate demand. If such subsidies are used, however, the most effective short-run policy is probably a temporary investment subsidy. Permanent investment subsidies may distort the allocation of investment in the long run.

Do tax cuts starve the beast? The effect of tax changes on government spending

Source: Christina D. Romer and David H. Romer, Brookings Papers on Economic Activity, Spring 2009

From the abstract:
The hypothesis that decreases in taxes reduce future government spending is often cited as a reason for cutting taxes. However, because taxes change for many reasons, examinations of the relationship between overall measures of taxation and subsequent spending are plagued by problems of reverse causation and omitted variable bias. To derive more reliable estimates, this paper examines the behavior of government expenditure following legislated tax changes that narrative sources suggest are largely uncorrelated with other factors affecting spending. The results provide no support for the hypothesis that tax cuts restrain government spending; indeed, the point estimates suggest that tax cuts increase spending. The results also indicate that the main effect of tax cuts on the government budget is to induce subsequent legislated tax increases. Examination of four episodes of major tax cuts reinforces these conclusions.

Federal and State Income Tax Incentives for Private Long-Term Care Insurance

Source: David Baer, Ellen O’Brien, AARP Public Policy Institute, Research Report, November 2009

From the summary:
To help make long-term care insurance more affordable, both federal and state governments provide tax subsidies for private long-term care insurance. This PPI research report describes federal and state tax subsidies for long-term care insurance, their value to taxpayers (by age and income), and where possible, their cost to federal and state governments.
See also:
In Brief

Recession or No Recession, State Tax Revenues Remain Negative

Source: Lucy Dadayan and Donald J. Boyd, Nelson A. Rockefeller Institute of Government, no. 78, January 2010

From the press release:
Tax collections nationwide declined by 10.9 percent during the third quarter of 2009, the third consecutive quarter during which tax revenues fell by double-digit percentages, according to the latest report from the Rockefeller Institute of Government.

Combining current data with comparable historical figures from the U.S. Census Bureau, the Institute reported that the first three quarters of 2009 marked the largest decline in state tax collections at least since 1963.

Western states saw especially sharp declines in tax collections during the third quarter, while revenues fell by more modest levels in the Southeast, New England, Mid-Atlantic, and Plains regions.

Latest State-by-State Estate Tax Data Show Why We Need a Strong Estate Tax

Source: Citizens for Tax Justice, December 2, 2009

From the summary:
The House of Representatives plans to take up a bill (H.R. 4154) this week that would make permanent the estate tax rules in effect in 2009. On the spectrum of “good policy” to “bad policy,” this proposal falls somewhere in the middle. On one hand, it would be a tax cut of hundreds of billions of dollars for families who pass millions of dollars on through consecutive generations. On the other hand, it would prevent the estate tax from disappearing in 2010 and could make lawmakers less tempted to make permanent a repeal of the estate tax or to cut it more than it has been cut as of 2009.