Category Archives: Taxation

The Dynamics of State Fiscal Behavior Over the Business Cycle – Are State Fiscal Policies Procyclical?

Source: Sunjoo Kwak, American Review of Public Administration, Vol. 44 no. 5, September 2014
(subscription required)

From the abstract:
The purpose of this study is to examine how cyclical fluctuations in tax revenue affect state fiscal policies, using a state panel data set. In particular, the study develops a measure of revenue gap—the cyclical component of tax revenue—by calculating the orthogonal deviations of tax bases from the trend, and then analyzes its effects on the level of spending and taxation—as measured by expenditure gap and overall tax rate—using a dynamic panel-data model. The analyses reveal that revenue gap is positively related to expenditure gap and negatively to overall tax rate. These results clearly show the procyclical patterns of state fiscal policies and further suggest the association between revenue volatility and fiscal instability. Based on the results, the study discusses the spending stabilization rules as a policy solution to the recurring state fiscal crises.

Tax Inversions Allow Corporations to Avoid State Taxes

Source: Elaine S. Povich, Stateline, July 21, 2014

American companies that merge with foreign competitors to lower their federal taxes also cut their state taxes, leaving states to mostly watch helplessly as their tax revenue drains away. There has been a rash of companies buying up foreign competitors and then moving their “parent” company to the foreign site, a tactic known as “tax inversion.” The maneuver, which has become particularly popular among health care companies, puts pressure on other corporations to follow suit or be left at a competitive disadvantage. …

Congress Wants to Give Businesses a $276 Billion Tax Break That CEOs say Doesn’t Spur Investment

Source: Matt Gardner, Citizens for Tax Justice and Institute on Taxation and Economic Policy (ITEP), Tax Justice blog, August 14, 2014

All is quiet in the streets of the nation’s capital as members of Congress have fled to their home districts for their annual August recess. But as is the case every August in recent years, our elected officials left a lot of unfinished business. Among this incomplete work is the future of “bonus depreciation,” which is as contradictory as it sounds. This huge tax break allows companies to accelerate tax write offs for equipment and other infrastructure investment. First enacted to address the recession during the George W. Bush administration, it has been repeatedly re-enacted, expanded during the most recent economic collapse and finally expired at the end of 2013.
Bonus Depreciation: Economic and Budgetary Issues
Jane G. Gravelle, Congressional Research Service, CRS Report, R43432, July 7, 2014

U.S. Corporate Capital Expenditures: Consciously Uncoupled from Federal Tax Incentives

Source: Bloomberg BNA, August 2014

After Four Years of Uninterrupted Growth, Tax Revenues Decline in the First Quarter – Preliminary Figures for the Second Quarter of 2014 Signal Further Declines in Personal Income Tax

Source: Lucy Dadayan and Donald J. Boyd, Nelson A. Rockefeller Institute of Government, State Revenue Report, no. 96, August 2014

From the press release:
After four years of uninterrupted growth, states’ tax collections saw a decline in the first quarter of 2014. Preliminary figures for the second quarter of 2014 indicate further declines in personal income tax collections and possibly in overall state taxes, according to the latest State Revenue Report from the Rockefeller Institute of Government of the State University of New York.

State tax revenues softened significantly in the second half of 2013 and declined by 0.3 percent in the first quarter of 2014. The declines in overall state taxes were mostly driven by the decline in personal income tax collections. In the first quarter of 2014, personal income tax collections showed a decline of 1.2 percent. The declines in tax collections are not an indication of a slowdown in the economy, but are mostly due to the mirror-image effect of the initial fiscal cliff (when many taxpayers shifted income from tax year 2013 to tax year 2012 to minimize federal tax liability) on taxpayer behavior, which had driven tax collections upward a year ago. Moreover, most of the decline is attributable to a single state —- California —- where personal income tax collections declined by $2 billion, or 11.1 percent. If we exclude California, personal income tax collections show a growth of 2.0 percent in personal income tax collections and a growth of 0.6 percent in overall state tax collections. The large declines in personal income tax collections in California are due to the impact of the fiscal cliff, as well as at least partially driven by legislated tax changes. On November 6, 2012, California voters adopted Proposition 30, which increased the personal income tax rate on taxpayers making over $250,000 for single taxpayers and $500,000 for married taxpayers for a seven-year period that is retroactive from January 1, 2012, through December 31, 2018. As a result, many taxpayers chose to pay in January 2013, which resulted in a large spike in the first quarter of 2013….

Quarterly Summary of State and Local Government Tax Revenue for 2014: Q1

Source: U.S. Census Bureau, G14-QTAX1, June 24, 2014

The Quarterly Summary of State and Local Government Tax Revenue provides quarterly estimates of state and local government tax revenue at a national level, as well as detailed tax revenue data for individual states. This quarterly survey has been conducted continuously since 1962. The information contained in this survey is the most current information available on a nationwide basis for government tax collections. First quarter 2014 tax revenues for four selected state and local government tax categories increased 2.4 percent to $295.7 billion from $288.7 billion in the same quarter of 2013.

Competitive Alternatives – Special Report: Focus on Tax

Source: KPMG, 2014

From the summary:
Competitive Alternatives is KPMG’s guide to comparing international business locations in North America, Europe and Asia Pacific.

Competitive Alternatives is a biennial KPMG study that focuses on business locations in the NAFTA marketplace, as well as leading mature market countries in Europe and Asia Pacific. This study contains valuable information for any company considering international business location options.

Competitive Alternatives 2014 compares business costs and other competitiveness factors in more than 100 cities, in 10 countries: Australia, Canada, France, Germany, Italy, Japan, Mexico, the Netherlands, the United Kingdom, and the United States. For 2014, Competitive Alternatives further expands its coverage in the US, and for the first time includes every US metro area with a population of two million or more.

The primary focus of Competitive Alternatives is international business costs. The study measures the combined impact of 26 key cost components that vary by location, over a 10-year analysis horizon starting in 2014. The study compares 7 different business-to-business (B2B) service sector operations and 12 different manufacturing sector operations. The overall cost comparisons for each country and city are based on the average results for these two sectors.

The Competitive Alternatives report also provides important information on non-cost factors that influence the business attractiveness of different locations. Aspects addressed by the study include labor availability and skills, economic conditions, innovation, infrastructure, regulatory environment, cost of living, and personal quality of life factors.

Who Benefits from State Corporate Tax Cuts? A Local Labor Markets Approach with Heterogeneous Firms

Source: Juan Carlos Suárez Serrato, National Bureau of Economic Research (NBER), Owen M. Zidar, NBER Working Paper No. w20289, July 2014
(subscription required)

From the abstract:
This paper estimates the incidence of state corporate taxes on workers, landowners, and firm owners in a spatial equilibrium model in which corporate taxes affect the location choices of both firms and workers. Heterogeneous, location-specific productivities and preferences determine the mobility of firms and workers, respectively. Owners of monopolistically competitive firms receive economic profits and may bear the incidence of corporate taxes as heterogeneous productivity can make them inframarginal in their location choices. We derive a simple expression for equilibrium incidence as a function of a few estimable parameters. Using variation in state corporate tax rates and apportionment rules, we estimate the reduced-form effects of tax changes on firm and worker location decisions, wages, and rental costs. We then use minimum distance methods to recover the parameters that determine equilibrium incidence as a function of these reduced-form effects. In contrast to previous assumptions of infinitely mobile firms and perfectly immobile workers, we find that firms are only approximately twice as mobile as workers over a ten-year period. This fact, along with equilibrium impacts on the housing market, implies that firm owners bear roughly 40% of the incidence, while workers and land owners bear 35% and 25%, respectively. Finally, we derive revenue-maximizing state corporate tax rates and discuss interactions with other local taxes and apportionment formulae.

Supreme Court Issues Decisions on Employee Compensation: Defining Changing Clothes and Taxable Wages

Source: Harold M. Brody and Courtney M. Bowman, Employment Relations Today, Volume 41 Issue 2, Summer 2014
(subscription required)

This term, the Supreme Court decided two cases addressing different aspects of employee compensation. In Sandifer v. United States Steel Corp., the Court held that the time employees spend putting on and taking off protective gear for work is not necessarily compensable under the Fair Labor Standards Act. In United States v. Quality Stores, Inc., the court ruled that certain severance payments are taxable under the Federal Insurance Contributions Act. This article provides an overview of these two cases, both of which have important implications for employers.

Policies to Address Poverty in America

Source: Brookings Institution, Hamilton Project, June 19, 2014

Millions of people live in poverty in this country. They suffer not only material deprivation, but also the hardships and diminished life prospects that come with being poor. Childhood poverty often means growing up without the advantages of a stable home, high-quality schools, or consistent nutrition. Adults in poverty are often hampered by inadequate skills and education, leading to limited wages and job opportunities. And the high costs of housing, healthcare, and other necessities often mean that people must choose between basic needs, sometimes forgoing essentials like meals or medicine. In recognition of these challenges, The Hamilton Project has commissioned fourteen innovative, evidence-based antipoverty proposals. These proposals are authored by a diverse set of leading scholars, each tackling a specific aspect of the poverty crisis.
Proposals include:
Section 1. Promoting Early Childhood Development
Expanding Preschool Access for Disadvantaged Children
Elizabeth U. Cascio and Diane Whitmore Schanzenbach

Addressing the Parenting Divide to Promote Early Childhood Development for Disadvantaged Children
Ariel Kalil

Reducing Unintended Pregnancies for Low-Income Women

Isabel Sawhill and Joanna Venator

Section 2. Supporting Disadvantaged Youth
Designing Effective Mentoring Programs for Disadvantaged Youth
Phillip B. Levine

Expanding Summer Employment Opportunities for Low-Income Youth
Amy Ellen Schwartz and Jacob Leos-Urbel

Addressing the Academic Barriers to Higher Education

Bridget Terry Long

Section 3. Building Skills
Expanding Apprenticeship Opportunities in the United States
Robert I. Lerman

Improving Employment Outcomes for Disadvantaged Students
Harry J. Holzer

Providing Disadvantaged Workers with Skills to Succeed in the Labor Market
Sheena McConnell, Irma Perez-Johnson, and Jillian Berk

Section 4. Improving Safety Net and Work Support
Supporting Low-Income Workers through Refundable Child-Care Credits
James P. Ziliak

Building on the Success of the Earned Income Tax Credit

Hilary Hoynes

Encouraging Work Sharing to Reduce Unemployment
Katharine G. Abraham and Susan N. Houseman

Designing Thoughtful Minimum Wage Policy at the State and Local Levels
Arindrajit Dube

Smarter, Better, Faster: The Potential for Predictive Analytics and Rapid-Cycle Evaluation to Improve Program Development and Outcomes
Scott Cody and Andrew Asher