…Eventually, inspired by an article by her late mentor Jerome Culp, a Duke law professor who advocated “black legal scholarship,” Brown set out to determine how the tax code works against people like her parents, who paid higher taxes than comparably earning white couples with sole breadwinners. She found that when white people get to write the rules based on their cultural and financial interests, things tend not to work out so great for the groups excluded from that rule-making process. In her new book, The Whiteness of Wealth, Brown digs deep into how tax policies related to most aspects of American life—housing, marriage, work, education, etc—elevate white prosperity at the expense, wittingly or otherwise, of Black wealth and opportunity. …
Source: Harold Meyerson, The American Prospect, TAP blog, February 16, 2021
….The states with the most progressive income taxes, it turns out, have been able to ride out the pandemic with little if any fiscal disruption. California, perpetually derided by right-wingers for having the most progressive income tax, actually saw no reduction in revenues between 2019 and 2020, as the wealthy have been doing just fine financially during the plague and paying their regular share of taxes. Likewise New York, Massachusetts, and Pennsylvania, which saw revenues dip by just 3 percent. Florida and Texas, by contrast, are by far the largest states that have no income taxes, and they saw their revenues decline by 10 percent. As for reduction in public-sector jobs, good old “Live Free or Die” New Hampshire—another state with no income tax—saw its state workforce shrink by a mind-boggling 26 percent, a full nine percentage points more than the second-ranked state…..
Source: David Hope, Julian Limberg, London School of Economics and Political Science (LSE), Working Paper 55, December 2020
This paper uses data from 18 OECD countries over the last five decades to estimate the causal effect of major tax cuts for the rich on income inequality, economic growth, and unemployment. First, we use a new encompassing measure of taxes on the rich to identify instances of major reductions in tax progressivity. Then, we look at the causal effect of these
episodes on economic outcomes by applying a nonparametric generalization of the difference-in-differences indicator that implements Mahalanobis matching in panel data analysis. We find that major reforms reducing taxes on the rich lead to higher income inequality as measured by the top 1% share of pre-tax national income. The effect remains stable in the medium term. In contrast, such reforms do not have any significant effect on economic growth and unemployment.
Fifty Years of Tax Cuts for Rich Didn’t Trickle Down, Study Says
Source: Craig Stirling, Bloomberg, December 15, 2020
Source: Rockefeller Institute of Government and New York State Division of the Budget, May 14, 2020
From the summary:
Key findings are as follows:
- The enactment of the cap on the SALT deduction reduces income available to New Yorkers. Each $1 reduction in personal income reduced total economic output in the state by $1.17.
- If the 2017 SALT cap were eliminated, New York State’s economy would support 107,000 additional full-time jobs annually, on average, in the first seven years (2018–24). Most of the additional jobs would have been created in New York City (55,000) and the greater New York City metro area (45,000) compared with the rest of the state (8,000).
- The employment losses are largest in the services, construction, and trade (wholesale and retail) sectors.
- New York’s population would be 104,000 higher, on average, if the SALT cap were eliminated.
- Total economic activity lost as a result of the SALT cap ranges from $14.4 billion to $24.5 billion annually depending on the methodological approach used for analysis.
- Because housing prices and incomes are higher in New York City and the greater New York City metro area, these areas pay more in property and state income taxes, and take higher itemized deductions on their Federal taxes. As a result of the SALT cap, housing prices decline by 0.9 percent in New York City, 1.5 percent in the greater New York City metro area, and 0.2 percent in the rest of state on average in the first seven years.
- The states that are most affected by the limit of the SALT deduction are those that annually contribute more to the Federal budget than they receive in program expenditures.
- In 2018, New York ranked worst in the nation for its balance of payments, and bears the second largest increased burden as a result of the SALT deduction.
Taxes make up about half of state government revenue, with two-thirds of states’ total tax dollars coming from levies on personal income (37.9%) and general sales of goods and services (30.9%).
Broad-based personal income taxes are the greatest source of tax dollars in 30 of the 41 states that impose them, with the highest share—70.5%—in Oregon. General sales taxes are the largest source in 15 of the 45 states that collect them. Florida is the most reliant on these taxes, at 62.5%. Other sources bring in the most tax revenue in a handful of states: severance taxes in Alaska and North Dakota, property taxes in Vermont, license taxes and fees—such as franchise taxes that companies pay to incorporate in a state—in Delaware, and selective sales taxes on particular goods and services—such as tobacco and hotel rooms—in New Hampshire.
This infographic illustrates the sources of each state’s tax revenue.
From the abstract:
Presidential candidates Elizabeth Warren and Bernie Sanders have both proposed ambitious new annual wealth taxes based on academic work by Emmanuel Saez and Gabriel Zucman. They project these proposals to raise trillions of dollars over the next ten years. Some critics challenge the Saez-Zucman approach to measuring the aggregate wealth of those subject to a wealth tax. Other critics including Larry Summers and Natasha Sarin have used data from estate tax returns and the relatively small amount of revenue the estate tax currently raises to question the revenue projections of these proposals. This comparison can be useful only if one thinks carefully about specific estate tax strategies and how these strategies translate to an annual wealth tax. This article engages in that exercise. When one takes a closer look at estate tax avoidance and how it maps onto an annual wealth tax, a much more complex narrative emerges.
That narrative has four major themes. First, there are some estate tax planning techniques (like valuation games and charitable contributions) which pose similar challenges to an annual wealth tax. These structures provide some support for critics like Summers and Sarin who argue that the annual wealth tax will struggle to raise the projected revenue. Second, other structures (such as grantor-retained annuity trusts ) work well to minimize estate taxes but are of limited use for structuring around an annual wealth tax. Projecting wealth tax revenue using estate tax revenue without considering the revenue consequences of these strategies will understate wealth tax revenue. Third, other techniques (including the use of lifetime estate/gift exemptions) highlight possible synergies between an estate and wealth tax. In many ways, a robust estate tax will make the wealth tax harder to avoid and vice-versa. The converse is also true: a poorly designed estate/gift tax will undermine an annual wealth tax. Adopting a wealth tax without strengthening the gift and estate makes little sense. Fourth, one of the major lessons of estate tax planning is that it is much easier to minimize estate taxes on future wealth than existing wealth. A myriad of techniques allow taxpayers to “freeze” the value of assets for estate tax purposes. Freezing techniques will also prove helpful in minimizing wealth taxes. It is possible that even a well-designed wealth tax will have a base that shrinks rather than grows over time.
Source: Jeffrey Clemens, Stan Veuger, NBER Working Paper No. 27426, June 2020
From the abstract:
We assess the Covid-19 pandemic’s implications for state government sales and income tax revenues. We estimate that the economic declines implied by recent forecasts from the Congressional Budget Office will lead to a shortfall of roughly $106 billion in states’ sales and income tax revenues for the 2021 fiscal year. This is equivalent to 0.5 percent of GDP and 11.5 percent of our pre-Covid sales and income tax projection. Additional tax shortfalls from the second quarter of 2020 may amount to roughly $42 billion. We discuss how these revenue declines fit into several pieces of the broader economic context. These include other revenues (e.g., university tuition and fees) that are also at risk, as well as assets (e.g., pension plan holdings) that are at risk. Further dimensions of context include support enacted through several pieces of federal legislation, as well as spending needs necessitated by the public health crisis itself.
Source: Moody’s, March 27, 2020
The Internal Revenue Service (IRS) extended the deadline for filing federal income taxes and tax payments by three months, and many if not all states that levy personal income taxes will follow suit. States will therefore receive a large portion of their income tax revenue in July rather than April, which will force them to make adjustments to bridge budget gaps, but most have considerable financial flexibility to blunt the credit-negative effects of the delays.
Source: Moody’s, March 30, 2020
Tax revenue used to repay state and local special tax debt — debt secured by specific tax revenue streams such as hotel or car rental taxes — will rapidly decline amid the coronavirus-related economic downturn. A state or local government with a dedicated reserve fund or the ability and willingness to cover a gap in pledged revenue bolsters the credit quality of certain special tax debt.
The vast majority of tax incentives aimed at attracting and retaining businesses ultimately leave states worse off than if they had done nothing, researchers report.
For the study, researchers examined data from 32 states from 1990-2015. The researchers evaluated all of the state and local tax incentives available in the 32 states, as well as an array of economic, political, governmental, and demographic data.
A computational model assessed the extent to which the effects of attracting or retaining businesses in a state offset the state’s related tax incentives.
“We found that, in almost all instances, these corporate tax incentives cost states millions of dollars—if not more—and the returns were minimal,” says corresponding author Bruce McDonald, an associate professor of public administration at North Carolina State University.
“In fact, the combination of costly tax incentives and limited returns ultimately left states in worse financial condition than they were to begin with.”
The two exceptions to the finding were job creation tax credits and job training grants.
You Don’t Always Get What You Want: The Effect of Financial Incentives on State Fiscal Health
Source: Bruce D. McDonald III, J. W. Decker, Brad A. M. Johnson, Public Administration Review, Early View, First published: February 27, 2020
From the abstract:
Governments frequently use financial incentives to encourage the creation, expansion, or relocation of businesses within their borders. Research on financial incentives gives little clarity as to what impact these incentives may have on governments. While incentives may draw in more economic growth, they also pull resources from government coffers, and they may commit governments to future funding for public services that benefit the incentivized businesses. The authors use a panel of 32 states and data from 1990 to 2015 to understand how incentives affect states’ fiscal health. They find that after controlling for the governmental, political, economic, and demographic characteristics of states, incentives draw resources away from states. Ultimately, the results show that financial incentives negatively affect the overall fiscal health of states.