Category Archives: Taxation

Evaluating the Effects of Childcare Policies on Children’s Cognitive Development and Maternal Labor Supply

Source: Andrew S. Griffen, Journal of Human Resources, Vol. 54 no. 3, Summer 2019
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From the abstract:
To explore the role of childcare policies in the development of early cognitive skills, this paper jointly estimates a cognitive achievement production function and a dynamic, discrete choice model of maternal labor supply and childcare decisions. Using counterfactuals from the model, I investigate how the designs of two childcare programs, Head Start and childcare subsidies, affect the formation of cognitive skills through maternal work and childcare decisions. The results suggest large impacts on cognitive skills from expanding Head Start to current noneligibles and negligible impacts of subsidies on cognitive skills of current eligibles.

Financial Frictions and Stimulative Effects of Temporary Corporate Tax Cuts

Source: William Gbohoui, Rui Castro, IMF Working Paper No. 19/97, May 2019

From the abstract:
This paper uses an industry equilibrium model where some firms are financially constrained to quantify the effects of a transitory corporate tax cut funded by a future tax increase on the U.S. economy. It finds that by increasing current cash-flows tax cuts alleviate financing frictions, hereby stimulating current investment. Per dollar of tax stimulus, aggregate investment increases by 26 cents on impact, and aggregate output by 3.5 cents. The average effect masks heterogeneity: multipliers are close to 1 for constrained firms, especially new entrants, and negative for larger and unconstrained firms. The output effects extend well past the period the policy is reversed, leading to a cumulative multiplier of 7.2 cents. Multipliers are significantly larger when controlling for the investment crowding-out effect among unconstrained firms.

In divided Alaska, the choice is between paying for government or giving residents bigger oil wealth check

Source: Paola Banchero, The Conversation, July 15, 2019

The Alaska legislature was unable to get enough support to block the cuts through a veto override late last week.

The budget cuts will be immediate, affecting most Alaskans. ….

….. How did Alaska, one of the country’s richest states with a $65 billion savings account fueled by oil royalties and leasing revenues, get into this position?

The troubles have been a long time coming.

As the state prepared to reap the benefits of its oil reserves in the 1970s as the trans-Alaska oil pipeline neared completion, voters approved in 1976 an amendment to the Alaska Constitution establishing the Alaska Permanent Fund.

The idea was to save a slice of the current oil windfall in a special fund for future generations when the oil ran out. Meanwhile, the rest of the massive oil royalties – $391.5 million in 1976, more than four times the amount collected the previous year – flowed into state coffers. That meant less need to rely on the traditional way government raises money: taxes. So the legislature repealed a state income tax and the Alaska school tax in 1980.

Now, most Alaska communities have no sales tax and property taxes are low. The total state and local tax burden on Alaskans is the lowest in the country.

In addition to repealing state taxes, Alaska legislators in 1980 approved a payout from mineral royalties to state residents called the Alaska Permanent Fund Dividend, or “PFD.” ….

Calculation and Corporate Tax Incentives

Source: Rosolino Candela, Peter Jacobsen, GMU Working Paper in Economics No. 19-21, July 1, 2019

From the abstract:
Amazon’s HQ2 campaign drew both large support at the possibility of job creation and backlash for perceived cronyism. In this paper we evaluate corporate tax incentive policies in light of the Austrian contribution to the problem of economic calculation. In doing so we highlight the contextual nature of the knowledge problem associated with policy packages and the potential cronyism arising from such a problem. We argue that because political decision-makers lack the knowledge generated via competition in the market process, they are unable to allocate resources in a way that achieves economic growth. In the place of this knowledge, they tend to gain knowledge from the political process which helps them respond to political incentives and rent-seeking behavior by special-interest groups.

The Nonprofit Hospital That Makes Millions, Owns a Collection Agency and Relentlessly Sues the Poor

Source: Wendi C. Thomas, MLK50 & ProPublica, June 27, 2019

Nonprofit hospitals pay virtually no local, state or federal income tax. In return, they provide community benefits, including charity care to low-income patients. In Memphis, Methodist Le Bonheur Healthcare has brought 8,300 lawsuits for unpaid medical bills in just five years. ….. Its own employees are no exception. Since 2014, Methodist has sued dozens of its workers for unpaid medical bills, including a hospital housekeeper sued in 2017 for more than $23,000. That year, she told the court, she made $16,000. She’s in a court-ordered payment plan, but in the case of more than 70 other employees, Methodist has garnished the wages it pays them to recoup its medical charges….

Related:
This Memphis Hospital System Flouts IRS Rules by Not Publicly Posting Financial Assistance Policies
Source: Wendi C. Thomas, MLK50 & ProPublica, June 27, 2019

Nonprofit hospitals must post financial assistance policies for the public to see, including in emergency rooms. But Methodist Le Bonheur Healthcare’s five Shelby County emergency rooms had no signs or displays when a reporter checked.

Prevalence and Characteristics of Virginia Hospitals Suing Patients and Garnishing Wages for Unpaid Medical Bills
Source: William E. Bruhn, Lainie Rutkow, Peiqi Wang, Stephen E. Tinker, BS3; Christine Fahim, Heidi N. Overton, Martin A. Makary, JAMA, Research Letter, June 25, 2019

An estimated 20% of US consumers had medical debt in collections in 2014. Medical debt has been increasing with direct patient billing, rising insurance deductibles, and more out-of-network care being delivered, even at in-network facilities. Bills sent directly to patients may use the undiscounted price of a hospital’s services and can result in financial hardship and avoidance of future medical care. Hospitals need to be paid for care delivered, but some bills are unpaid. Hospitals may negotiate, reduce, or write off payments. Some have begun adopting a range of aggressive strategies for collecting unpaid bills, including suing patients and garnishing their wages or bank savings. We examined garnishment legal actions among Virginia hospitals.

A Huge Tax Break Went to a Politically Connected Company in New Jersey Despite Red Flags

Source: Jeff Pillets and Nancy Solomon, WNYC, and Alex Mierjeski, ProPublica June 26, 2019

….Generous tax breaks from New Jersey’s new economic development program, he argued, could place Camden “on a level playing field” with Holtec’s other suitors. In return, the firm pledged the retention of 160 jobs and the creation of an additional 235 positions. Six months later, the EDA awarded the company $260 million in taxpayer assistance — the second-largest tax break in state history.

What Holtec didn’t reveal, though, was that just weeks before filing its application in New Jersey, Ohio had stripped the company of tax credits there for failing to create the jobs it had promised as part of a similar program. According to records obtained by WNYC and ProPublica, none of the 200 positions it had pledged in 2009 to bring to Orrville, a small town about 20 miles outside Akron, ever materialized….

An Estimate of the Local Economic Impact of State-Level Earned Income Tax Credits

Source: Eric James Stokan, Economic Development Quarterly, OnlineFirst, Published June 22, 2019
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From the abstract:
This study investigates the impact of state-level earned income tax credits on local economic outcomes (employment, wages, and establishments). The study employs difference-in-differences and triple-difference models to estimate the impact of these credits at the border of metropolitan areas where one side of the border adopts the credit between 1986 and 2012, and the other side of the border does not. Separate analyses are conducted for specific industries and subindustries. Synthetic control methods are used as a robustness check. The analyses suggest that state-level earned income tax credits do not have a significant impact on the local economic outcomes of metropolitan areas. At least one potential reason offered is that while these impacts are not a direct goal of the program, the credits may not be large enough to realize positive economic gains.

Kansas (State of) – Retained pension funding, vetoed tax relief are credit positive

Source: Matthew Butler, Moody’s, Issuer Comment, June 6, 2019
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On May 29, the Kansas legislature voted to override several spending vetoes that Governor Laura Kelly made when she authorized the state’s fiscal 2020 budget. One of the vetoes was of a supplemental payment to the Kansas Public Employees Retirement System (KPERS). The lawmakers’ action preserves a $51 million supplemental contribution to KPERS, a credit positive for the state. At the same time, the legislature failed to override a veto of an income tax relief bill that would have cost the state an estimated $240 million over three years. This is also credit positive, because it reduces the amount of budget reserves Kansas will use to make the supplemental pension payment, increase school funding and more quickly retire an internal loan.

Evading the Catastrophic Costs of Nursing Home Care: A Theoretical Inquiry

Source: Gideon Yaniv, Public Finance Review, Volume: 47 issue: 4, July 2019
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From the abstract:
While many countries operate publicly funded programs to help care-needing elderly people finance the catastrophic costs of nursing home care, eligibility to public assistance may be means tested. To qualify for a means-tested program, applicants must first exhaust (spend down) their financial assets on privately paying for nursing home care, thereby wiping out their lifetime savings and children’s inheritance. They may naturally consider the possibility of hiding assets from the health agency, consequently shifting the financial burden to taxpayers. The present article adjusts two classical tax evasion models to capture the decision to evade the costs of nursing home care, focusing on the implications on the evaded costs and the program’s deficit of attempting to cope with the escalating costs of nursing home care by imposing a cost-sharing premium on the applicants’ adult children. Some insights on the socially optimal level of the cost-sharing premium are finally discussed.