Category Archives: Taxation

Fixing the Tax System: Support Fairer, Simpler, and More Adequate Taxation

Source: William G. Gale, Opportunity 08: A Project of the Brookings Institution, 2007

A good tax system raises the revenues needed to finance government spending in a manner that is as simple, equitable, stable, and conducive to economic growth as possible. But the challenge for the next President will be to make reform work not just in the abstract, but in the real world, where special interests often rule the roost. The next President should support reforms that would tax all income once (only) at the full tax rate, simplify and streamline the tax code, and, of course, raise sufficient revenues. To achieve these goals, the package of specific reforms proposed in this paper would:

tax all new corporate investment income only once
remove all corporate subsidies in the Code and strengthen corporate anti- sheltering provisions
integrate payroll and income taxes for individuals
introduce return-free filing for many taxpayers
consolidate and streamline tax subsidies for education, retirement and families
eliminate or revise various tax deductions
create a value-added tax that would, eventually, raise 5 percent of the gross domestic product (GDP) in revenues
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The Importance of the EITC to Urban Economies

Source: Alan Berube, The Metropolitan Policy Program, The Brookings Institution, July 13, 2007

Though most do not recognize it as an “urban” program, the Earned Income Tax Credit provides significant benefits to families in cities and suburbs, and stimulates local economic activity. In this presentation to Congressional staff organized by Living Cities, Alan Berube examines what Members can do to maximize the benefits of the EITC for lower-income families and communities in their districts.

Joint Committee on Taxation Description Of Present Law Relating To Section 501(C)(3) Organizations

Source: Joint Committee on Taxation, JCX-53-07, July 19, 2007

The House Committee on Ways and Means, Subcommittee on Oversight, has scheduled a public hearing for July 24, 2007, regarding an overview of tax-exempt charitable organizations.
This document, prepared by the staff of the Joint Committee on Taxation, provides a brief description of present law provisions relating to organizations described in section 501(c)(3) of the Internal Revenue Code of 1986 (the “Code”), and provides a summary description of the section 501(c)(3) organization-related provisions of the Pension Protection Act of 2006 and related proposed legislative proposals.

Making the “Internet Tax Freedom Act” Permanent Could Lead to a Substantial Revenue Loss for States and Localities

Source: Michael Mazerov, Center on Budget and Policy Priorities, July 11, 2007

Key Findings
+ Making the 1998 “Internet Tax Freedom Act” permanent — as proposed by S. 156/H.R. 743 — could adversely affect state and local government revenues, and therefore the availability of funds for important services like education, health care, and law enforcement, in three ways:
+ Potentially block states and localities from extending their normal sales taxes to music, movies, and television programming delivered over the Internet, which is rapidly becoming a major marketplace for such services.
+ Allow Internet access providers to try to escape a host of general taxes that other businesses must pay, such as sales taxes on equipment purchases;
+ Deprive nine states of $80m-$120m in annual revenues from non-discriminatory and heretofore grandfathered taxes on Internet access services;
+ The enactment of this legislation is unwarranted:
+ Studies by GAO and U. of Tennessee economists show that existing taxes on Internet access have not adversely affected household subscriptions to access or the availability of broadband access in particular locations.
+ All of the 14 developed nations that outrank the U.S. in broadband adoption do tax Internet access services. Taxation is not the issue.

Private Pensions, the Tax Code, and the Erosion of Retirement Income Security

Source: John C. Scott, A Paper Submitted to the Conference on Empirical Legal Studies – November 9-10, 2007, posted to the web: July, 5 2007

abstract
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American workers are experiencing a long-term decline in the quality and quantity of retirement income security despite the enactment of dozens of tax laws supporting private pensions, hundreds of tax rules, and billions in lost tax revenue for over 40 years. Why is pension security eroding, and why is retirement income policy ineffective? I argue that the system of tax laws and institutions governing private pensions both directs political change as well as responses to such change in a way that is shifting risk onto workers. This paper grounds its review in the structure of pension law as found in the tax code. I first review general trends regarding retirement and retirement plans as well as the general pattern of tax legislation affecting pensions. In particular, I note the rise of the 401(k) plan, which has become the major type of private pension program in the United States. The combination of a diffuse set of tax laws governing pensions and the fragmented nature of key stakeholders creates an game-like environment in which each group and subgroup compete for changes in tax legislation at the expense of others. The paper concludes with an attempt to bridge fiscal sociology with the sociology of risk in the context of retirement policy.

Does It Pay to Save?

Source: Laurence J. Kotlikoff and David S. Rapson, National Center for Policy Analysis, NCPA Study No. 298, June, 2007

Summary

Does it pay to save? The answer is often no. In fact, penalties for saving are astronomical for some households, particularly young, single-parent and lower-income families. But these are the very people who need the strongest incentives to save for retirement.

Determining the effective marginal tax on additional saving is difficult because of the complexity of the tax code and the interaction of different government tax and transfer programs (such as food stamps) that are limited to households below certain income and asset ceilings. Saving and wealth accumulation can put a family over an asset limit and cost thousands of dollars in lost benefits.

To calculate the effective marginal tax on saving, this study uses financial planning software that carefully determines tax and transfer payments at each stage of a person’s life, based in part on economic choices they make in prior periods. The model assumes people try to even out consumption over their lifetimes.
The results: For single parents with two children, effective marginal taxes on savings are regressive – lower-income households pay higher rates than high-income households.

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IRS Issues Spring 2007 Statistics of Income Bulletin

Source: Internal Revenue Service, IR-2007-119, June 18, 2007

The Internal Revenue Service today announced the release of the spring 2007 issue of the Statistics of Income Bulletin. Highlights include articles on high-income individual income tax returns, taxpayers reporting noncash contributions, farm proprietorship returns, qualified zone academy bonds, international boycott reports and S corporations.

The article on farm proprietorship returns is the first published by IRS in more than 20 years. In addition, this issue of the Bulletin presents selected tax year 1990-2004 individual income tax return data that have been indexed for inflation and tax year 2005 individual income tax return statistics classified by state and size of adjusted gross income.

For tax year 2004, there were 3,021,435 individual income tax returns filed with adjusted gross income (AGI) of $200,000 or more and 3,067,602 returns with expanded income of $200,000 or more.
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Capping the Burden: Property Taxes Under Scrutiny

Source: Jennifer Burnett, State News, Vol. 50 no. 4, April 2007

In 1927, Oliver Wendell Holmes said “taxes are what we pay for a civilized society.” Eighty years later, one form of tax—the property tax—is being scrutinized by state and local governments, due in part to the meteoric rise of property values in recent years. A flood of legislation is being considered across the country to address concerns about property tax increases, how tax revenues are calculated and distributed, and local governments’ reliance on those revenues.

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.