Category Archives: Taxation

The Road Less Taken: Creating Fairer Taxes, As Well As Better Highways

Source: Michael J. Cassidy and Sara Okos, Commonwealth Institute, May 2008

Governor Kaine and the General Assembly have a major crisis on their hands: they have a comprehensive plan to fix the Commonwealth’s transportation woes, but no money to pay for it. Funding schemes under consideration offer a variety of options including a range of tax increases. But another problem looms if the proposals currently being circulated are adopted: Virginia will have unintentionally hurt its low- to moderate-income wage earners more than higher income workers.
See also:
Press release

Virginia: Taxes Won’t Get Larger, But the Potholes Will
Source: Citizens for Tax Justice, July 18, 2008

State Transportation Woes Have Common Thread

Source: Tax Justice Digest, Citizens for Tax Justice, June 20, 2008

North Carolina is suffering from an increase in the cost of asphalt. Asphalt is made of petroleum derivatives, and its cost has increased 25% since the end of 2006. This is causing the state to cut back on road repaving projects which are likely to cost more money to accomplish the longer they go unrepaired.

In Missouri, the state has a projected $1 billion transportation fund deficit. It is only expected to be able to meet 40% of obligations starting July 2009. In spite of this, all three major candidates for Missouri Governor pledge not to raise the state motor fuels tax. The two Republican gubernatorial contenders, Sarah Steelman and Kenny Hulshof suggest dedicating general funds revenue to transportation and privatizing some state roadways respectively.

Virginia is currently confronting a “growing bridge and road maintenance shortfall” which is depriving money from road construction. Governor Tim Kaine has recently released a proposal to raise vehicle registration fees and sales taxes on vehicles, while keeping the state fuel tax unchanged.

These states have in common a tendency to tinker around the edges of transportation funding policy while failing to address the taboo topic of gas taxes. The root cause of these transportation troubles is that the gas tax has been kept too low to finance the transportation needs in all these states.

$228 Million Paid to County Governments as Compensation for Lost Taxes on Federal Lands

Source: U.S. Department of the Interior, Press release, June 12, 2008

Secretary of the Interior Dirk Kempthorne announced today that local governments with tax-exempt federal land in their jurisdictions will receive $228.5 million this year in compensation for forgone tax revenue.

Under the federal Payments in Lieu of Taxes (PILT) Program, the money is distributed to about 1,850 county and other local governments around the nation to help pay for essential services, such as firefighting and emergency response and to help improve school, road and water systems.

The Department of the Interior annually collects about $4 billion in revenue from commercial activities on federal lands, such as livestock grazing, timber harvesting, and oil and natural gas leasing. Some of these revenues are shared with states and counties in the form of revenue-sharing payments. The balance is deposited in the U.S. Treasury, which in turn pays for a broad array of federal activities, including annually appropriated PILT funding to counties.

Eligibility for PILT payments is reserved for local governments (usually counties) that contain nontaxable federal lands and provide government services related to public safety, housing, social services, transportation and the environment.

By law, the payments are calculated using a mandated formula, based on the number of acres of federal entitlement land and the population within each county or jurisdiction. These lands include the National Forest and National Park Systems, National Wildlife Refuge System as well as lands managed by the Bureau of Land Management and those affected by U.S. Army Corps of Engineers and Bureau of Reclamation water resource development projects, and others.

Tax Policy Center Establishes “Opportunity Fund” to Support Tax System Research and Analysis

Source: Urban Institute, June 18, 2008

From the press release:
The Urban-Brookings Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution, has launched a new intellectual venture capital fund to help policymakers, the public, and the media better understand the U.S. tax system and the policy challenges facing the nation over the next decade. The Opportunity Fund has been awarded a $2.5 million challenge grant from the Gates Foundation, which will match one dollar for every three dollars the fund receives before April 1, 2011…
…The Tax Policy Center envisions using the Opportunity Fund to develop prototype tax reform options and clear assessments of their pros, cons, tradeoffs, and burdens; strengthen its capacity to analyze state, local, corporate, and international taxes; model the macroeconomic effects of current budget policies and escalating government debt; and allow users of to customize tables based on the center’s data and analysis, letting the public see how proposed and enacted legislation affect them and others.

Budgeting for Capital Investment : Testimony Before the U.S. House of Representatives Committee on Transportation and Infrastructure

Source: Rudolph G. Penner, Urban Institute, June 13, 2008

From the abstract:
The unified budget of the U. S. government is, in most respects, a cash budget. It is somewhat biased against public investment, because the benefits of such investments accrue over a period of time whereas the cash outlay is immediate. This testimony looks at options for directing more funds to highways, mass transit, and other public investments. It examines higher fuel taxes, tolls and congestion fees; capital budgeting; infrastructure banks; a capital revolving fund; public-private partnerships; and approaches to improving the efficiency of current grants and subsidies. It concludes that tolls and congestion fees are very promising as are public-private partnerships. A capital revolving fund would be useful for agencies that only invest occasionally. A capital budget and infrastructure banks are less desirable.

A Preliminary Analysis of the 2008 Presidential Candidates’ Tax Plans

Source: Tax Policy Center, June 11, 2008

From the abstract:
Tax and fiscal policy will loom large in the next president’s domestic policy agenda. Nearly all of the tax cuts enacted since 2001 expire at the end of 2010 and the individual alternative minimum tax (AMT) threatens to ensnare tens of millions of Americans. While a permanent fix palatable to both political parties has proven elusive, both candidates have proposed major tax changes. This report describes how we performed our modeling and analysis, outlines the major tax proposals, and discusses the implications of their policies for the revenue raised, taxpayer economic activity, and the distribution of the tax burden.
See also:
2008 Presidential Candidate Tax Plans
Revenue and distribution tables for the tax plans put forth by Senator John McCain and Senator Barack Obama in the 2008 presidential election

GAO Study Again Confirms Health Savings Accounts Primarily Benefit High-Income Individuals

Source: Edwin Park, Center on Budget and Policy Priorities, May 19, 2008

From the summary:
A new Government Accountability Office (GAO) report indicates that Health Savings Accounts are used disproportionately by affluent households. Its findings also suggest that HSAs are being used extensively as tax shelters.

Hidden Consequences: Lessons From Massachusetts For States Considering A Property Tax Cap

Source: Phil Oliff and Iris Lav, Center on Budget and Policy Priorities, May 21, 2008

From the summary:
In 1980 Massachusetts voters approved Proposition 2 ½, which mandates that property tax revenues not exceed 2.5 percent of a community’s assessed value and that a community’s property tax revenue not grow by more than 2.5 percent a year.

A Reconsideration of Tax Expenditure Analysis

Source: Joint Committee on Taxation

This document, prepared by the staff of the Joint Committee on Taxation, reconsiders the utility of the JCT Staff’s current implementation of tax expenditure analysis. Tax expenditure analysis can and should serve as an effective and neutral analytical tool for policymakers in their consideration of individual tax proposals or larger tax reforms. Its efficacy has been undercut substantially, however, by the depth and breadth of the criticisms leveled against it. Tax expenditure analysis no longer provides policymakers with credible insights into the equity, efficiency, and ease of administration issues raised by a new proposal or by present law, because the premise of the analysis (the validity of the “normal” tax base) is not universally accepted. Driven off track by seemingly endless debates about what should and should not be included in the “normal” tax base, tax expenditure analysis today does not advance either of the two goals that inspired its original proponents: clarifying the aggregate size and application of government expenditures, and improving the Internal Revenue Code. The JCT Staff therefore has begun a project to rethink how best to articulate the principles of tax expenditure analysis, in order to improve the doctrine’s utility to policymakers, reemphasize its neutrality, and address the concerns raised by many commentators.

This pamphlet introduces a new paradigm for classifying tax provisions as tax expenditures. Our revised classification divides the universe of such provisions into two main categories: tax expenditures that can be identified by reference to the general rules of the existing Internal Revenue Code (not, as is the current practice, by reference to a hypothetical “normal” tax), which we label “Tax Subsidies,” and a new category that we have termed “Tax-Induced Structural Distortions.” The two categories together cover much the same ground as does the current definition of tax expenditures, and in some cases extend the application of the concept further. The revised approach does so, however, without relying on a hypothetical “normal” tax to determine what constitutes a tax expenditure, and without holding up that “normal” tax as an implicit criticism of present law. The result should be a more principled and neutral approach to the issues.

Full report (PDF; 367 KB)

Hidden Consequences: Lessons From Massachusetts For States Considering A Property Tax Cap

Source: Phil Oliff and Iris Lav, Center on Budget and Policy Priorities, May 21, 2008

From the summary:
In 1980 Massachusetts voters approved Proposition 2 ½, which mandates that property tax revenues not exceed 2.5 percent of a community’s assessed value and that a community’s property tax revenue not grow by more than 2.5 percent a year.

Over the two and a half decades Proposition 2 ½ has been in effect, Massachusetts’ level of property taxation has declined. Between 1980 and 1985, property taxes as a percentage of income fell from 76 percent above the national average to 13 percent above the national average, where it stands today. (Massachusetts localities rely more on the property tax than localities in much of the rest of the country because they are not permitted to levy sales or income taxes or various other forms of taxes.

Because Proposition 2 ½ lowered property taxation in Massachusetts, advocates of limited taxation often cite it as a model for reform. But the story is far more complicated than that. State aid has helped fill in some of the gaps in local funding the law created, but not all of them and not reliably over time. Furthermore, the local “overspending” that proponents claimed Proposition 2 ½ could curb did not exist in the imagined quantities, and necessary public services have been jeopardized.