Category Archives: Taxation

The Tax Grab Game

Source: Josh Goodman, Governing, Vol. 20 no. 7, April 2007

Cities are finding ways to raise revenue from suburbanites, without actually calling the levy a commuter tax.

Talk about a politically charged phrase. “Commuter tax” is such a loaded term that people who support one often try to find some other way of saying it. Alice Rivlin, who’s spent much of her professional life managing or overseeing federal budgets and helping to rescue local finances, steers clear of the phrase–even though she’s a firm believer in the idea of her hometown, the District of Columbia, taxing the income earned in the city by people who live in the Maryland and Virginia suburbs. “I never use the term ‘commuter tax,'” she says. “That’s anathema.” It’s also the fastest way to doom a city’s attempts to raise money from suburbanites. At the heart of the commuter-tax debate is this question: Do the millions of people who enter cities to work each weekday cost more than they contribute to the urban center? Suburbanites almost always answer “no” and they’ve made sure their representatives in elected office agree. For years, central cities have been learning that this is a fight they can’t win as, time and again, their efforts to tax the wages of suburbanites have failed in the face of political tension and economic reality. Often, cities also face the opposition of their own business communities, which believe that such a tax could drive employers away. No city, after all, can be a center of economic activity without its commuters. But there may be an end run around the commuter-tax dilemma. Quietly, a number of cities are figuring out ways to raise revenue–without also raising the spectre of a commuter tax–from workers who commute to the city. Cities in Ohio and Texas have found success by casting inter-jurisdictional taxation as an alternative to something suburbs and their residents fear even more: annexation.

Federal Tax Revenues From 2003 to 2006

Source: Congressional Budget Office, May 18, 2007

In response to your letter of May 11, 2007, the Congressional Budget Office (CBO) has reviewed the available data and analyzed the sources and underlying causes of the growth in revenues since 2003. This analysis shows that the overall increase in revenues as a share of gross domestic product (GDP) since 2003 is disproportionately accounted for by increases in corporate income tax revenues.

The Corporate Welfare State: How the Federal Government Subsidizes U.S. Businesses

Source: Stephen Slivinski, Cato Institute, Policy Analysis no. 592, May 14, 2007

During fiscal year 2006, the federal government spent $92 billion on corporate welfare. In the policy analysis “The Corporate Welfare State: How the Federal Government Subsidizes U.S. Businesses,” the Cato Institute’s director of budget studies, Stephen Slivinski, finds that billions of dollars are annually spent to cushion America’s largest companies at the taxpayers’ expense.

Slivinski defines corporate welfare as “any federal spending program that provides payments or unique benefits and advantages to specific companies or industries,” justified as remedies to market failure. Special interests argue that without subsidies, competition or an industry’s viability would be jeopardized. However, Slivinski demonstrates that the “market failures on which the programs are predicated are either overblown or don’t exist.” Large corporations including Boeing, Xerox, Motorola, Dow Chemical and General Electric have received millions in taxpayer dollars while playing paupers to the federal government.

Federal Tax Burdens in Historical Perspective

Source: Aviva Aron-Dine, Center on Budget and Policy Priorities, April 10, 2007

With the income-tax filing deadline approaching and many people focusing on how much they owe in taxes, it may come as a surprise that federal tax burdens for most income groups— and, in particular, for middle-income households — are at their lowest levels in decades, and were low by historical standards even before the 2001 and 2003 tax cuts.

New Study Finds “Dramatic” Reduction Since 1960 In The Progressivity Of The Federal Tax System: Largest Reductions in Progressivity Occurred in 1980s and Since 2000

Source: Aviva Aron-Dine, Center on Budget and Policy Priorities, March 29, 2007

In a new study, Thomas Piketty and Emmanuel Saez, economists who have done groundbreaking work on the historical evolution of income inequality in the United States, examine how the progressivity of the federal tax system has changed over time. Unlike previous analyses, theirs examines effective federal tax rates going back to 1960, including income, payroll, corporate, and estate taxes, and provides data for income groups reaching up to the top one-hundredth of one percent (.01 percent) of the population. Several crucial findings emerge from their study.

The Impact of State Income Taxes on Low Income Families in 2006

Source: Jason A. Levitis, Center on Budget and Policy Priorities, March 27, 2007

Poor families in many states face substantial state income tax liability for the 2006 tax year. In 19 of the 42 states that levy income taxes, two-parent families of four with incomes below the federal poverty line are liable for income tax. In 15 of the 42 states, poor single-parent families of three pay income tax. And 29 of these states collect taxes from families of four with incomes just above the poverty line.

Woe for the Working Classes

Source: Joe Connor, Challenge: The Magazine of Economic Affairs, Vol. 50 no. 2, March-April, 2007
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It is hard to find any evidence that tax increases reduce the work-effort of high-income earners, according to this economist. Meantime, traditional families in the lower-income half of our population have been faring badly for most of the past quarter century even without comparing them to the top fifth and especially to the top 5 percent who have done so well. The only good years the traditional family has had in the past twenty-five followed a tax increase in 1993. All those gains have been lost since the tax decrease in 2001.