Category Archives: Taxation

Repairing Bridges without Raising Gas Taxes

Source: Heidi Sommer and H. Sterling Burnett, National Center For Policy Analysis, Brief Analysis, No. 597, October 18, 2007

While there are legitimate concerns about the safety of the nation’s infrastructure, increasing the federal gas tax is unnecessary and will ultimately hurt America’s poor and low-income citizens. Fortunately, Congress can better ensure the soundness of the nation’s bridges and overpasses without raising taxes, simply by shifting existing funds within the transportation budget.

The Disappearing Child Care Credit

Source: Elaine Maag, Urban Institute, October 11, 2007

There are two primary tax benefits parents use to offset childcare costs. The Child and Dependent Care Tax Credit (CDCTC) provides a tax credit of up to 35 percent on up to $3,000 of expenses per child ($6,000 total), for a maximum credit of $1,050 per child ($2100 total). Or, employees can arrange with their employers to exclude up to $5,000 from their salary to pay for child care. While benefits from the CDCTC swamped those available from the exclusion in 2006; benefits from the child care credit are projected to decline dramatically, largely due to the increase in the number of taxpayers subject to the Alternative Minimum Tax (AMT) beginning in 2008.

Blurring the Line Between Charities and Businesses

Source: C. Eugene Steuerle, Urban Institute, October 09, 2007

The Washington Post, October 8, 2007–Do you ever wonder why more conflicts seem to flare between charities and businesses? Just last year, the Senate Finance Committee and the House Ways and Means Committee began investigating questions ranging from whether nonprofit hospitals were really charitable to whether corporate-size salaries for some foundation board members and charitable officers were excessive. In the District, fights continue over the pending sale of Greater Southeast Community Hospital–initially a nonprofit, now owned by a money-losing for-profit and seeking to sell itself to another for-profit. The deal depends on millions in local government subsidies.

Expanding The EITC For Childless Workers: An Important Step To Make Work Pay

Source: Aviva Aron-Dine and Arloc Sherman, Center on Budget and Policy Priorities, October 10, 2007

From the summary:
A number of bills currently before Congress would expand the component of the Earned Income Tax Credit available to low-income working adults who are not raising minor children. The most recent congressional proposal (H.R. 2951), introduced by Representatives John Yarmuth and Keith Ellison (and cosponsored by seven other representatives), is the most expansive of these proposals. Legislation to expand the childless workers’ EITC also has been introduced this year by Senators Barack Obama and Evan Bayh, and by Senator John Kerry and Representative Bill Pascrell.

See also:
A Majority Of States With Income Taxes Have Enacted State Earned Income Tax Credits

Health Insurance and Taxes: Can Changing the Tax Treatment of Health Insurance Fix Our Health Care System?

Source: Paul Fronstin and Dallas Salisbury, Employee Benefit Research Institute, Issue Brief no. 309, September 2007

From the press release:
Proposals to change the tax treatment of health insurance could mean the end of employment-based coverage as it now exists in the United States, according to a study released today by the nonpartisan Employee Benefit Research Institute (EBRI).

Currently, the vast majority of U.S. residents with health insurance receive coverage through an employer. The most recent data show that about 62 percent of workers and their dependents (161.7 million individuals under age 65) had some form of employment-based health benefits, while about 7 percent (17.7 million) bought insurance directly from an insurer, and 18 percent (46.5 million) were uninsured.

Of the various options to change the way health benefits are taxed, the EBRI report identifies the proposed “tax cap” on the health insurance exclusion that workers currently receive as most likely to cause the end of employment-based health benefits. This change would be likely to prompt younger and healthier workers to drop out of the employment-based system, causing adverse selection in the remaining pool of older and less healthy workers, thereby resulting in a so-called “death spiral” that makes employment-based group health insurance unsustainable.

CBO Analysis Shows Economic Benefits Of Fiscal Sustainability Are Large And Nearly The Same Whether Taxes Are Raised Or Spending Is Cut

Source: Chad Stone, Center on Budget and Policy Priorities, September 10, 2007

Key Findings

•Most assessments of the long-run fiscal outlook conclude that higher revenues will need to be a part of any serious effort to prevent budget deficits from growing to unsustainable levels.
•A recent CBO analysis shows that the economic benefits of achieving fiscal sustainability are substantial, and that the difference between the economic effects of reducing the deficit through tax increases and doing so through spending cuts would likely be very small by comparison.
•CBO also finds that any negative economic effects of tax increases can be mitigated by relying more on policies that broaden the tax base than on increases in marginal tax rates. CBO suggests that the economic effects of raising revenue by broadening the tax base can be similar to the effects of cuts in government benefit programs.
•CBO’s analysis also indicates that no policy to restore long-term fiscal sustainability is likely to be successful if the rate of growth in health care expenditures is not reduced.

Tax Fairness, the 2001-2006 Tax Cuts, and the AMT

Source: Leonard E. Burman, The Urban Institute, Testimony before the Committee on Ways and Means, September 6, 2007

From the summary:
In this testimony Burman discusses the issues of tax fairness, the 2001 to 2006 tax cuts, and the individual alternative minimum tax. Burman argues that while the federal tax system mitigates economic inequality, the recent tax cuts have disproportionately benefited those at the top, while also increasing the number of people potentially subject to the AMT. He concludes with a brief discussion of how to fix the AMT in a fiscally responsible manner.

Related articles:
The Effect of the 2001-06 Tax Cuts on After-Tax Incomes
Source: Jason Furman, The Brookings Institution, Testimony Before the U.S. House Committee on Ways and Means, September 6, 2007

Statistics of Income Bulletin — Summer 2007

Source: Internal Revenue Service, Vol. 27 no. 1, Summer 2007

From press release:
The Internal Revenue Service today announced the release of the summer 2007 issue of the Statistics of Income Bulletin, featuring data from 21.5 million individual income tax returns that reported non-farm sole proprietorship activity in tax year 2005.

Profits from all non-farm sole proprietorships totaled $269.9 billion in 2005, up 9 percent from tax year 2004. After adjusting for inflation, profits rose by 5.5 percent in 2005, which is the biggest year-to-year increase since a 7.2 percent gain in 1998.

All but one sole proprietor industrial sector saw an increase in profits in tax year 2005.

The real estate and rental leasing sector posted a 19.4 percent gain in profits, which was the biggest in percentage terms among the sector categories. Transportation and warehousing was second highest with a 15.5 percent profit gain. Retail trade was third with a 14.6 percent increase. (The sector-specific figures have not been adjusted for inflation.)

Wholesale trade (merchant wholesalers) was the only sole proprietor industrial sector to post a profit decline in tax year 2005 of 3.5 percent.

Recent/Updated CRS Reports: Health Insurance, Medicare and Social Security

Source: Congressional Research Service (via OpenCRS)

American taxpayers spend nearly $100 million a year to fund the Congressional Research Service, a “think tank” that provides reports to members of Congress on a variety of topics relevant to current political events. Yet, these reports are not made available to the public in a way that they can be easily obtained. A project of the Center for Democracy & Technology, Open CRS provides citizens access to CRS Reports that are already in the public domain and encourages Congress to provide public access to all CRS Reports.
Integrating Medicare and Medicaid Services Through Managed Care
Medicare Prescription Drug Benefit: Low-Income Provisions
Primer on Disability Benefits: Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI)
Social Security Administration: Administrative Budget Issues
Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI): Proposed Changes to the Disability Determination and Appeals Processes
Supplemental Security Income (SSI): Accounts Not Counted As Resources
Tax Benefits for Health Insurance and Expenses: Overview of Current Law and Legislation

The Problems with Property Tax Revenue Caps

Source: Karen Lyons and Iris J. Lav, Center on Budget and Policy Priorities, June 21, 2007

Several states (Connecticut, Florida, Minnesota, New Jersey, Rhode Island, and Texas) have recently considered imposing severe caps on property tax revenue. These caps restrict the amount that property tax revenue can increase from year to year to a low fixed percentage, a formula based on the inflation rate, or some combination of the two.

While such caps may hold down property taxes, they are likely to impair local governments’ ability to provide education, public safety, and other services residents demand and need. They also are likely to make the local revenue system more regressive.

Property tax caps do nothing to change the main drivers behind higher property taxes. They cannot slow the increase in the cost of health care or fuel, for example, which reflects forces outside of the control of local officials. Nor do they change the demand for local public services, such as quality K-12 education, public safety, and good roads.