Category Archives: Taxation

Measuring the Public Benefits From Taxes

Source: David Cay Johnston,, October 20, 2010

Who benefits from the taxes we pay seldom gets examined, but two reports on the redistributive effects of taxes and transfers shed some revealing light on this issue. One report deals with the United States and the other with Canada.

In America, taxes and transfers have a significant impact on income inequality, which has been rising since 1980, according to a report by Thomas L. Hungerford of the Congressional Research Service. You can see the report here.
See also:
Canada’s Quiet Bargain: The Benefits of Public Spending
Source: Hugh Mackenzie, Richard Shillington, Canadian Centre for Policy Alternatives, April 2009

States’ Tax Revenues Show Gradual Recovery

Source: Lucy Dadayan and Donald J. Boyd, Nelson A. Rockefeller Institute of Government, State Revenue Report, no. 81, October 2010

From the press release:
The second quarter of 2010 represented the second period in a row that states reported overall gains in tax collections — following five straight quarters of decline — according to a new study by the Rockefeller Institute of Government.

Overall state tax revenues grew by 2.3 percent in the second quarter of 2010, according to the Institute’s latest State Revenue Report. Thirty-four states reported gains in revenue during the second quarter, with 12 showing double-digit growth.

Budget Deficits and Demand for Government: How Starve the Beast Policies Feed the Machine

Source: Joseph Daniel Ura, Erica Socker, September 28, 2010

From the abstract:
The notion of “starving the beast”‘ has been an important justification for fiscal programs emphasizing revenue reductions since the mid-1970s. While the idea of restraining government spending by limiting government revenues has an intuitive appeal, there is convincing evidence the reducing federal tax rates without coordinated reductions in federal spending actually produces long-term growth in spending. This perverse result is explained by a theory of “fiscal illusion.” By deferring the costs of government services and benefits through deficit financing, starve the beast policies have the effect of lowering the perceived price of government in the minds of many citizens. We assess the principal behavioral prediction of the fiscal illusion strategy. Incorporating estimates of the effects of federal deficits into a standard substantive model of Stimson’s mood index, we find strong support for a subjective price-driven theory of demand for government. In particular, we find that the size of the federal budget deficit is significantly associated with greater demand for government services and benefits.

Social Security Administration: Managment Oversight Needed to Ensure Accurate Treatment of State and Local Government Employees

Source: Government Accountability Office, GAO-10-938 September 29, 2010

From the abstract:
In 2007, 73 percent of state and local government employees were covered by Social Security. Unlike the private sector where most employees are covered by Social Security, federal law generally permits each public employer to decide which employees to cover. The Social Security Administration (SSA) is responsible for facilitating Social Security coverage for these employers through agreements with states. SSA is also responsible for maintaining accurate earnings records, while IRS is responsible for ensuring Social Security taxes are paid. Because of the need to ensure Social Security coverage is administered accurately, GAO was asked to review (1) how SSA works with states to approve Social Security coverage and ensure accurate coverage of public employees, and (2) how IRS identifies incorrect Social Security taxes for public employees. GAO reviewed procedures of federal agencies and selected states; surveyed all state administrators; and reviewed IRS case files.

Credit Where Credit is (Over) Due

Source: Institute on Taxation and Economic Policy (ITEP), September 2010

State tax systems have the potential to play an important role in curbing the impact of poverty and ensuring economic security for all residents. Unfortunately, state tax policy as it is currently structured usually works directly contrary to these goals, and creates an uneven playing field for low-income workers. In most states, truly remedying this unfairness would require fundamental tax reform. Short of this, however, lawmakers can utilize their states’ tax systems as a means of providing affordable and targeted assistance to the growing number of people and families living in poverty. Virtually every state could jump-start their anti-poverty efforts with relatively little effort by enacting one or more of these four proven and effective tax reforms: Refundable state Earned Income Tax Credits, property tax circuit breakers, targeted low-income credits, and child-related tax credits.

The Debate over Expiring Tax Cuts: What about the Deficit?

Source: Adam Looney, Brookings Institution, Hamilton Project, August 11, 2010

From the summary:
As the economy begins to recover from the Great Recession, policymakers must confront the next fiscal challenge: the long-run federal deficit. Over the next ten years, the cumulative deficit is projected to exceed $10 trillion if current budget policies are continued. Addressing the deficit will require extremely difficult and unpopular tradeoffs. Consider that in 2020 federal spending on Social Security, Medicare, Medicaid, defense, and interest on debt will exceed 106 percent of 2020 tax revenues, according to the Congressional Budget Office. Clearly, balancing the budget will require either cutting these valued programs (to say nothing of the rest of federal spending) or raising taxes.

Solutions for America

Source: Heritage Foundation, 2010

From the press release:
The Heritage Foundation today released “Solutions for America,” a comprehensive policy agenda addressing the nation’s most pressing and ingrained problems.

Compiled by experts at Heritage, the leading conservative think tank, the guidebook outlines critical challenges on 23 policy fronts and makes 128 specific recommendations for Congress to confront and overcome these obstacles. Among them:

* Trim excessive compensation for federal employees by bringing their salaries and benefits in line with those of private-sector pay.
* Exempt those who work beyond the retirement age from paying payroll taxes.
* Establish a unified budget governing all 71 federal welfare programs; cap their year-to-year growth at the rate of inflation; expand work requirements and treat a portion of benefits as loans to be repaid, not grants from taxpayers.
* Spur investment, job creation and global competition by reducing the top corporate tax rate and allowing firms to deduct immediately all investments in new facilities and equipment.

Lower Taxes, Lower Premiums: The New Health Insurance Tax Credit

Source: Families USA Foundation, September 2010

From the summary:
The Patient Protection and Affordable Care Act (Affordable Care Act), enacted in March 2010, will extend health coverage to millions of Americans by expanding Medicaid to those with the lowest incomes and by creating a tax cut to help low- and middle-income individuals and families afford private coverage. These tax cuts will be provided in the form of new, refundable tax credits that will offset a portion of the cost of health insurance premiums.

This report takes a closer look at these premium tax credits, which will go into effect in 2014 and will help Americans with incomes up to four times the federal poverty level ($88,200 for a family of four in 2010) afford coverage. The unique structure of the tax credits means that individuals and families will have to spend no more than a specified portion of their income on health insurance premiums.
See also:
Key Findings
State Reports

Colorado Springs’ Do-It-Yourself Government

Source: Zach Patton, Governing, September 2010

The citizens of Colorado Springs must decide how much they want from their government, and how much they’re willing to pay for it.

…Times are tough in the Springs, as veteran residents call it. Like cities throughout the country, this town has been hit hard by the recession. But its fiscal problems are especially severe. The city is famously right-wing, and property taxes here are some of the lowest in the nation — in 2008, the per capita property tax was about $55. City revenue instead comes mostly from local sales taxes. As a consequence, Colorado Springs is feeling the downturn’s effects faster and more sharply than other cities. At the close of 2009, the city found itself facing a nearly $40 million revenue gap for this year.