Category Archives: Taxation

State Legislated Actions on Tobacco Issues: 2007

Source: American Lung Association/Robert Wood Johnson Foundation

The annual update of State Legislated Actions on Tobacco Issues–SLATI, for short–is now in its 20th year of publication.

Published by the American Lung Association with support from RWJF, the report tracked the passage of legislation and other state policies related to tobacco control and prevention, including tobacco taxes, youth access and funding for tobacco control programs during 2007.

SLATI 2007 showed an increasing number of states taking strong action against tobacco during the year–including five states which took steps to counter the harmful effects of secondhand smoke.

Indeed, eight states passed increases in their tobacco taxes in 2007, bringing the average state cigarette tax up to $1.11 a pack–a dramatic increase from the beginning of 2002. Back then, the average tax was only 44.6 cents per pack.

Full Report (PDF; 3.7 MB)

Where Do Our Federal Tax Dollars Go?

Source: Matt Fiedler, Center on Budget and Policy Priorities, April 14, 2008

Over the next several years, policymakers will face important choices about the level of government revenues. Since the government collects taxes in order to finance public services, it is useful to examine where tax dollars go when thinking about these crucial tax-policy decisions.

Taxing the Poor

Source: PBS NOW, April 11, 2008

This month, millions of Americans are filing their taxes and hoping for the best, but are rich people actually paying a smaller percentage of taxes than the poor? NOW looks at plans in many states to raise sales taxes and lower property taxes in an effort to generate revenue. But those changes may come at an even bigger price. Anti-poverty advocates say this shift would place the heaviest tax burden on the poorest households–and benefit higher-income Americans. Despite the charge, it’s a model many states have long embraced. NOW travels to one of these states, Alabama, to document the personal impact of regressive tax policies on three very different families. They include a working Mom who shows us how a ten percent sales tax on groceries makes a significant difference in what her family eats; a couple living in a ramshackle house in the backwoods who’ve always held jobs but still face hunger; and a well-to-do suburban couple who benefit from huge tax breaks.

The Robust Relationship between Taxes and U.S. State Income Growth

Source: Robert Reed, National Tax journal, Vol. LXI, No. 1, March 2008

I estimate the relationship between taxes and income growth using data from 1970–1999 and the forty–eight continental U.S. states. I find that taxes used to fund general expenditures are associated with significant, negative effects on income growth. This finding is generally robust across alternative variable specifications, alternative estimation procedures, alternative ways of dividing the data into “five–year” periods, and across different time periods and Bureau of Economic Analysis (BEA) regions, though state–specific estimates vary widely. I also provide an explanation for why previous research has had difficulty identifying this “robust” relationship….

Overview of the Federal Tax System and Its Effect in 2008

Source: U.S. Congress, Joint Committee on Taxation

The Senate Committee on Finance has scheduled a public hearing for April 15, 2008, entitled “Tax: Fundamentals in Advance of Reform.” This document,1 prepared by the staff of the Joint Committee on Taxation, provides a summary of the present-law Federal tax system as in effect for 2008.

The current Federal tax system has four main elements: (1) an income tax on individuals and corporations (which consists of both a “regular” income tax and an alternative minimum tax); (2) payroll taxes on wages (and corresponding taxes on self-employment income); (3) estate, gift, and generation-skipping transfer taxes, and (4) excise taxes on selected goods and services. This document provides a broad overview of each of these elements.2 A number of aspects of the Federal tax laws are subject to change over time. For example, some dollar amounts and income thresholds are indexed for inflation. The standard deduction, tax rate brackets, and the annual gift tax exclusion are examples of amounts that are indexed for inflation. In general, the Internal Revenue Service adjusts these numbers annually and publishes the inflation adjusted amounts in effect for a tax year prior to the beginning of that year. Where applicable, this document generally includes dollar amounts in effect for 2008 and notes whether dollar amounts are indexed for inflation.

In addition, a number of the provisions in the Federal tax laws have been enacted on a temporary basis or have parameters that vary by statute from year to year. For example, the Tax Relief and Health Care Act of 2006 extended a number of expired or soon to expire provisions on a temporary basis. In addition, many of the provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 initially were to expire at the end of 2010; some provisions of that Act have been modified subsequently or made permanent. For simplicity, this document describes the Federal tax laws in effect in 2008 and generally does not include references to provisions as they may be in effect for future years or to termination dates for expiring provisions. A list of expiring tax provisions may be found in Joint Committee on Taxation, List of Expiring Federal Tax Provisions 2007-2020, (JCX-1-08), January 11, 2008.

Full report (PDF; 101 KB)

Special Series: Dealing with Deficits: How States Can Respond

Source: Center on Budget and Policy Priorities, March 2008

The Center analyzes state budget issues including multi-state trends, the adequacy and equity of tax policies, structural budget issues, and budget transparency.

Series includes:

Policy Points: Four Helpful Hints for States Dealing With Deficits
Fiscal Stimulus at the State Level?
Income Tax Surcharges Can Help States Close Budget Gaps
It’s Time for Many States To Use Their Rainy Day Funds
▪ and more.

Recent CRS Reports

Source: Congressional Research Service
• February 26, 2008 – Child Welfare Issues in the 110th Congress
• February 20, 2008 – Trade Adjustment Assistance (TAA) for Workers: Current Issues and Legislation
• February 19, 2008 – The Alternative Minimum Tax For Individuals: Legislative Activity in the 110th Congress
• February 14, 2008 – Largest Mergers and Acquisitions by Corporations in 2007

The Deductibility of State and Local Taxes

Source: Congressional Budget Office, Pub. No. 2906, February 2008

Since the inception of the federal income tax in 1913, federal taxpayers have been allowed to deduct certain state and local taxes in calculating their taxable income. In its final report, in 2005, the President’s Advisory Panel on Federal Tax Reform recommended elimination of the state and local tax deduction, which provides a federal subsidy for some of the taxes levied by state and local governments. That subsidy is of substantial personal benefit to residents of the states and localities that receive it, but it is not shared equally among all federal taxpayers. In addition, the individual alternative minimum tax (AMT) increasingly eliminates the benefit of the state and local tax deduction for many middle-class taxpayers.

This Congressional Budget Office (CBO) paper, which was prepared at the request of the Ranking Member of the Senate Budget Committee, examines the arguments for and against the state and local tax deduction; how the benefits from the deduction are distributed among different groups of taxpayers and different governments; how the deduction and the AMT interact; and how modifying or eliminating the deduction would affect the federal budget, the finances of state and local governments, and federal taxpayers. In accordance with CBO’s mandate to provide objective, impartial analysis, the paper makes no recommendations.

Using Income Taxes To Address State Budget Shortfalls

Source: Elizabeth McNichol and Andrew Nicholas, Center on Budget and Policy Priorities, February 21, 2008

States are on the brink of their worst fiscal problems since the 2001 recession. At least half the states are anticipating budget shortfalls for next year (fiscal year 2009). For those states that have estimated the size of the gap, estimated deficits range from $34 billion to $38 billion in total. Among affected states, these deficits represent between 8 percent and 9 percent of total state expenditures.

New Federal Law Could Worsen State Budget Problems: States Can Protect Revenues by “Decoupling”

Source: Nicholas Johnson, Center on Budget and Policy Priorities, February 13, 2008

The federal “economic stimulus” package enacted today not only cuts federal taxes, but also threatens to reduce many states’ corporate and personal income tax revenue this year and next year.

The potential revenue loss comes at a particularly problematic time for states, because about half the states are already facing budget shortfalls for the current year, the upcoming year, or both; more states will be in trouble if the economic downturn worsens. Some states are already enacting cuts in K-12 education, higher education, health care and human services, among other areas in order to balance their budgets.