Category Archives: Taxation

Lights, Camera, but No Action? Tax and Economic Development Lessons From State Motion Picture Incentive Programs

Source: Michael Thom, The American Review of Public Administration, Published online before print June 5, 2016
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From the abstract:
Despite mixed results, state government use of targeted economic development programs has escalated. This study evaluates the impact of motion picture incentive programs, an array of tax incentives employed by over 40 states to entice film and television productions out of California and New York, on labor and economic conditions from 1998 through 2013. Results suggest that sales and lodging tax waivers had no effect on any of four different economic indicators. Transferable tax credits had a small, sustained effect on motion picture employment levels but no effect on wages. Refundable tax credits had no employment effect and only a temporary wage effect. Neither credit affected gross state product or motion picture industry concentration. Incentive spending also had no influence. These findings demonstrate the heterogeneous impacts of different incentives offered under a single program and should inform future economic development policy design.

How Income Taxes Should Change during Recessions

Source: Zachary D. Liscow, William A Woolston, Yale Law & Economics Research Paper No. 538, March 21, 2016

From the abstract:
This paper offers recommendations for how the design of labor income taxes should change during recessions, based on a simple model of a recessionary economy in which jobs are rationed and some employees value working more than others do. The paper draws two counter-intuitive conclusions for maximizing social welfare. First, subsidize non-employment. This draws marginal workers out of the labor force, creating “space” for those who really need jobs. Second, subsidize employers for hiring, not the employees themselves. The problem during recessions is having too few jobs; subsidizing employers creates more jobs, while subsidizing employees confers benefits on those who already won the job lottery. Tax policy in the recent recession has done a poor job of following these recommendations.

Rhetoric and Reality in the Tax Law of Charity

Source: Linda Sugin, Fordham Law Review, Vol. 84, No. 101, 2016

From the abstract:
The rhetoric of public purposes in charity law has created the mistaken impression that charity is public and fulfills public goals, when the reality is that charity is private and cannot be expected to solve the problems that governments can solve. The rhetoric arises from a combination of charity-law history and tax expenditure analysis. The reality follows the money and control of charitable organizations. On account of the mismatch of rhetoric and reality, the tax law of charity endorses an entitlement to pre-tax income and (ironically) creates a bias against taxation. This article reorients the project of defining public and private in the tax law by starting from a normative theory of government responsibility. It challenges the conventional economic justifications for the charitable deduction and exemption, arguing for a more philosophical approach that makes affirmative demands on government to distribute the returns to social cooperation. Under this approach, the appropriate role of private organizations is residual; they must achieve what governments cannot. The article concludes by arguing that current law’s tax benefits for charity are easily justified in this new understanding.

Is the Philadelphia Wage Tax Unconstitutional? And If It Is, What Can and Should the City Do?

Source: Michael S. Knoll, Ruth Mason, University of Pennsylvania Law Review Online, Vol. 164, 2016

From the abstract:
Philadelphia has a complex and antiquated tax system that has long been criticized for driving employers and jobs away from Philadelphia by making it expensive to conduct business in the City. The centerpiece of the Philadelphia tax system is the Philadelphia wage tax, which raised more than $1.6 billion in 2014. That tax has been challenged as unconstitutional in light of the Supreme Court’s 2015 decision in Wynne v. Comptroller of Maryland, which struck down a structurally similar Maryland tax. This Essay explains the constitutional challenge to the City wage tax, argues that the tax is unconstitutional, describes steps the City could take to save that tax, and raises the question of whether Philadelphia should save or eliminate its wage tax.

U.S. Capital Gains and Estate Taxation: A Status Report and Directions for a Reform

Source: Wojciech Kopczuk, Centre for Economic Policy Research (CEPR), CEPR Discussion Paper No. DP11208, March 2016
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From the abstract:
Recent changes in the U.S. estate taxation significantly reduced its reach and revenue, although the tax continues to contribute to progressivity of the overall tax system and is likely to play a role in influencing the long term concentration of wealth. I discuss recent changes, empirical evidence and theory applying to this form of taxation. I then discuss directions for a reform of the tax. The interaction between estate taxation and other components of the tax system is most important in the context of capital gains, with step up in basis partially compensating for high marginal rates while at the same time creating very strong deferral incentives. Modifying this interaction is long overdue and experience from the temporary repeal of the tax in 2010 is helpful in understanding challenges. I discuss options for modifying this interaction, including implications both for estate tax design and for the great majority of taxpayers who are not subject to the estate tax. Eliminating the step-up in basis would allow for increasing the efficiency of the tax system, while the additional revenue could be used to either mitigate the consequences for the affected taxpayers by reducing the estate tax burden or increasing the overall progressivity. I note that any exemption for capital gains at death does retain deferral incentives for individuals with unrealized capital gains smaller than the exemption and suggest that a lifetime exemption would have better incentive properties. I also note that the treatment of spousal transfers under any capital gains at death approach is critical for the revenue implications.
Number of Pages in PDF File: 44

How Big Pharma Uses Charity Programs to Cover for Drug Price Hikes

Source: Benjamin Elgin, Robert Langreth, Bloomberg Businessweek, no. 4476, May 23-29, 2016

A billion-dollar system in which charitable giving is profitable. …. But this is not a feel-good story. It’s a story about why expensive drugs keep getting more expensive, and how U.S. taxpayers support a billion-dollar system in which charitable giving is, in effect, a very profitable form of investing for drug companies—one that may also be tax-deductible. ….

Millionaire Migration and Taxation of the Elite: Evidence from Administrative Data

Source: Cristobal Young, Charles Varner, Ithai Z. Lurie, and Richard Prisinzano, American Sociological Review, Vol. 81, No. 3, June 2016
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From the abstract:
A growing number of U.S. states have adopted “millionaire taxes” on top income-earners. This increases the progressivity of state tax systems, but it raises concerns about tax flight: elites migrating from high-tax to low-tax states, draining state revenues, and undermining redistributive social policies. Are top income-earners “transitory millionaires” searching for lower-tax places to live? Or are they “embedded elites” who are reluctant to migrate away from places where they have been highly successful? This question is central to understanding the social consequences of progressive taxation. We draw on administrative tax returns for all million-dollar income-earners in the United States over 13 years, tracking the states from which millionaires file their taxes. Our dataset contains 45 million tax records and provides census-scale panel data on top income-earners. We advance two core analyses: (1) state-to-state migration of millionaires over the long-term, and (2) a sharply-focused discontinuity analysis of millionaire population along state borders. We find that millionaire tax flight is occurring, but only at the margins of statistical and socioeconomic significance.
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Premium Subsidies, the Mandate, and Medicaid Expansion: Coverage Effects of the Affordable Care Act

Source: Molly Frean, Jonathan Gruber, Benjamin Sommers, National Bureau of Economic Research (NBER), NBER Working Paper No. w22213, April 2016
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From the abstract:
Using a combination of subsidized premiums for Marketplace coverage, an individual mandate, and expanded Medicaid eligibility, the Affordable Care Act (ACA) has significantly increased insurance coverage rates. We assessed the relative contributions to insurance changes of these different ACA provisions in the law’s first full year, using rating-area level premium data for all 50 states and microdata from the 2012-2014 American Community Survey. We employ a difference-in-difference-in-difference estimation strategy that relies on variation across income groups, areas, and years to causally identify the role of the ACA policy levers. We have four key findings. First, insurance coverage was only moderately responsive to price subsidies, but the subsidies were still large enough to raise coverage by almost one percent of the population; the coverage gains were larger in states that operated their own health insurance exchanges (as opposed to using the federal exchange). Second, the exemptions and tax penalty structure of the individual mandate had little impact on coverage decisions. Third, the law increased Medicaid coverage both among newly eligible populations and those who were previously eligible for Medicaid (the “woodwork” effect), with the latter driven predominantly by states that expanded their programs prior to 2014. Finally, there was no “crowdout” effect of expanded Medicaid on private insurance. Overall, we conclude that exchange premium subsidies produced roughly 40% of the ACA’s 2014 coverage gains, and Medicaid the other 60%, of which 2/3 occurred among previously-eligible individuals.