Category Archives: Taxation

‘Skin in the Tax Game:’ Invisible Taxpayers? Invisible Citizens?

Source: Mildred Wigfall Robinson, Virginia Public Law and Legal Theory Research Paper 2014-29, April 1, 2014

From the abstract:
Skin in the game” – some thing that the interested party has at risk – has become a part of everyday American political discourse. Personal financial risk – some personal stake — is demanded of all “players.” The implications are clear: no skin, no play. The requirement for “skin in the game” in the context of ongoing fiscal debate along with the “concern” that in 2011 almost fifty percent of Americans paid no federal income tax is the latest version of the ongoing “cut-taxes/reduce governmental size” wrangling. It is also another play on the high political salience of the federal income tax as an institution.

Focus solely on the federal income tax, however, inappropriately skews the debate. As an editorial in the New York Times indicated, for many of these non-(federal) taxpayers, the absence of liability resulted from deliberate tax policy implemented during the Reagan administration. Of equal importance and as also noted in that editorial, the federal income tax is not the only source of governmental tax liability. Exemption of liability for federal income tax purposes does not carry with it similar exemption from other levies either on the federal level or on the state and local levels. As noted in the editorial, “[e]ven if [Americans] earn too little to qualify for the income tax, they pay payroll taxes, gasoline excise taxes and state and local taxes.”

Because the American system of governance is federalist, government on each level must identify sources of revenue adequate to defray services provided and – with the exception of the federal government — must do so within the confines of a balanced budget. In this essay, I examine the federal levies to which these taxpayers remain subject in combination with state and local taxes thus establishing that less affluent Americans have “skin in the tax game.” I also comment on the inherently regressive nature of these taxes as well as the effect of income and wealth disparity on likely comparative tax burdens. I conclude by identifying several ways in which sole focus on federal tax burden inappropriately skews debate, potentially distorts policy, and limits opportunity for citizen input across all levels of government.

Taxation and Inequality: A Case for the VAT

Source: Reuven S. Avi-Yonah, Challenge, Vol. 57 no. 3, May-June 2014
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From the abstract:
The author shows that a progressive income tax has had little effect on after-tax income inequality. Social programs, however, do create a more equal society. He proposes a national sales tax—a value-added tax—to finance more such social programs as America’s best route to a more equal society.

2014 State Film Production Incentive Programs

Source: National Conference of State Legislatures, March 28, 2014

From the summary:
The use of tax incentives and credits for film and television production is a relatively recent phenomenon as the number of states offering film production incentives grew from just a handful in the early 2000s to a majority of states by 2010. Currently thirty-nine states and Puerto Rico have film production incentive on their books for 2014. As the number of states offering film incentives has grown, so to have the debates surrounding the benefits and economic impacts of these programs.

Reflecting this debate, recent state actions around film incentives are as varied as the states themselves. Over the past few years, several states including Arizona, Idaho, Indiana, Iowa, Kansas, Missouri and Wisconsin have ended their incentive programs, or have not included funding for the programs in upcoming budgets. Connecticut suspended its incentives for film production, but maintains tax credits for other types of media. Other states have pared back their incentives packages, reducing the overall rebate or credit a production can claim. At the same time, some states, such as Hawaii, have increased their allocations for film incentive programs, increasing the credit or rebate amount production companies can receive.

Other states that have not previously had production incentives are throwing their hat into the ring. Beginning January 1, 2014, Nevada’s new transferrable tax credit became available for productions that shoot at least 60 percent in-state and spend a minimum of $500,000. Over half of states with incentive programs require a production to spend a minimum amount on goods and services in the state.

Another trend in production incentives over the past few years is an audit requirement before a production can receive a rebate or credit. At least 15 states now require an audit or other verification from production companies. The following outlines state film incentive programs.

Restaurant Industry Pay: Taxpayers’ Double Burden

Source: Sarah Anderson and Betsy Wood, Institute for Policy Studies, April 22, 2014

From the summary:
New report shows that while restaurant executives are fighting living wages for their workers, they’re also benefiting from tax subsidies for their own pay.

Major restaurant chains have come under increasing criticism for paying workers so little that they need to rely on public assistance. What’s less well known is that taxpayers are also subsidizing these corporations’ executive compensation.

This report calculates the cost of CEO pay subsidies at the 20 largest corporate members of the National Restaurant Association, a lobby group that is leading the charge to block minimum wage increases. Specifically, we calculate the cost of a loophole that allows corporations to deduct unlimited amounts from their income taxes for the cost of executive compensation — as long as the pay is in the form of stock options and other so-called “performance pay.” This loophole serves as a massive subsidy for excessive executive compensation.

Key report findings:
• During the past two years, the CEOs of the 20 largest NRA members pocketed more than $662 million in fully deductible “performance pay,” lowering their companies’ IRS bills by an estimated $232 million. That would be enough to cover the cost of food stamps for more than 145,000 households for a year.
• One NRA member —Starbucks— was off the charts. CEO Howard Schultz pocketed $236 million in exercised stock options and other “performance pay” over the 2012-2013 period. That translates into an $82 million taxpayer subsidy—enough to raise the pay for more than 30,000 baristas to $10.10 per hour for a year of full-time work.
• The next four largest beneficiaries of the CEO pay subsidy are fast food corporations. Chipotle, Yum! Brands (owner of Taco Bell, KFC, and Pizza Hut), McDonald’s, and Dunkin’ Brands each raked in CEO pay subsidies ranging from $12 million to $68 million over the period.
• Among full-service restaurants, the company that has enjoyed the largest CEO pay subsidy is Darden, the owner of Olive Garden, Red Lobster, and several other chains. CEO Clarence Otis took in nearly $9 million in fully deductible “performance pay” over the years 2012 and 2013. That works out to a more than $3 million taxpayer subsidy….

Top 5 Reasons Why Immigration Reform Means More Tax Revenues

Source: Patrick Oakford, Center for American Progress, April 15, 2014

Last year, the Senate passed the bipartisan Border Security, Economic Opportunity, and Immigration Modernization Act, or S. 744, which the Congressional Budget Office, or CBO, found would have significant fiscal and economic benefits for the nation. Yet since its passage, the House of Representatives has dragged its feet and failed to act on meaningful reform. This inaction means that the United States has already missed out on billions of dollars in potential tax revenues.

As millions of Americans file their taxes today, it’s important to remember that our broken immigration system diminishes our potential tax revenue. The following are the top five reasons why immigration reform would increase tax revenues:
1) 5 million more workers and their employers would pay payroll taxes….
2) Unauthorized immigrants would pay an additional $109 billion in federal, state, and local taxes….
3) Reform would add a net $606 billion to the Social Security trust fund….
4) Reform would extend the solvency of the Medicare trust fund by four years….
5) Reform would reduce the deficit by $820 billion over the next two decades….
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Capitalism, Crisis and Class: The U.S. Economy after the 2007-2008 Financial Crisis

Source: Mathieu Dufour, Özgür Orhangazi, University of Massachusetts, Amherst, Political Economy Research Institute (PERI), Working Paper Series no. 341, January 2014

From the abstract:
The post-1980 era witnessed an increase in the frequency and severity of financial crises around the globe, a majority of which took place in low- and middle-income countries. Studies of the impacts of these crises have identified three broad sets of consequences. First, the burden of crises falls disproportionately on labor in general and low-income segments of society in particular. In the years following financial crises, wages and labor share of income fall, the rate of unemployment increases, the power of labor and labor unions is eroded, and income inequality and rates of poverty increase. Capital as a whole, on the other hand, usually recovers quickly and most of the time gains more ground. Second, the consequences of crises are visible not only through asset and income distribution, but also in government policies. Government policies in most cases favor capital, especially financial capital, at the expense of large masses. In addition, many crises have presented opportunities for further deregulation and liberalization, not only in financial markets but in the rest of the economy as well. Third, in the aftermath of financial crises in low- and middle-income economies, capital inflows may increase as international capital seeks to take advantage of the crisis and acquire domestic financial and nonfinancial assets. The 2007-08 financial crisis in the US provides an opportunity to extend this analysis to a leading high-income country and see if the patterns visible in other crises are also visible in this case. Using the questions and issues typically raised in examinations of low- and middle- income countries, we study the consequences of the 2007-08 US financial crisis and complement the budding literature on the “Great Recession”. In particular, we examine the impacts of the crisis on labor and capital, with a focus on distributional effects of the crisis such as changes in income shares of labor and capital and the evolution of inequality and poverty. We also analyze the role of government policies through a study of government taxation and spending policies and examine capital flows patterns.

Dreaming the Impossible Dream: Is a Wealth Tax Now Possible in America?

Source: Richard Lavoie, University of Akron Legal Studies Research Paper No. 14-01, March 2, 2014

From the abstract:
It is often thought that a direct tax on individual wealth is a political non-starter in the United States. Not only is such a tax arguably unconstitutional, but as a psychological matter it goes against the American psyche. That is, each of us hold out hope that someday we might become rich too, so we will not support any tax perceived as a “soak the rich” ploy. But has wealth inequality in the United States now reached the breaking point? Might recent public attention to the issue of economic inequality indicate that it might be possible to make a wealth tax a reality? This article will examine the utility and political viability of adopting a wealth tax in the United States.

The Tax War on Poverty

Source: Susannah Camic Tahk, Arizona Law Review, Forthcoming, March 23, 2014

From the abstract:
In recent years, the war on poverty has moved in large part into the tax code. Scholarship has started to note that the tax laws, which once exacerbated the problem of poverty, have become increasingly powerful tools that the federal government uses to fight against it. Yet questions remain about how this new tax war on poverty works, how it is different from the decades of non-tax anti-poverty policy and how it could improve. To answer these questions, this Article looks comprehensively at the provisions that make up the new tax war on poverty. First, this Article examines each major piece of the tax war on poverty. The Article looks at its mechanics of each, its political history and its effectiveness at addressing poverty. Second, this Article analyzes the tax war on poverty as a whole, identifying commonalities across its different provisions and highlighting its distinctive features. Third, this Article proposes ways that the tax war on poverty could be more effective. In particular, this Article examines how tax lawmakers and tax lawyers could approach this task. In so doing, this Article conceptualizes tax law as the new poverty law and proposes a growing role for public-interest tax lawyers.

Picking Up the Tab 2014: Average Citizens and Small Businesses Pay the Price for Offshore Tax Shelters

Source: Tom Van Heeke, Benjamin Davis, Phineas Baxandall, and Dan Smith, U.S. PIRG, April 15, 2014

From the summary:
Every year, corporations and wealthy individuals use complicated gimmicks to shift U.S. earnings to subsidiaries in offshore tax havens – countries with minimal or no taxes – in order to reduce their state and federal income tax liability by billions of dollars. Tax haven abusers benefit from America’s markets, public infrastructure, educated workforce, security and rule of law – all supported in one way or another by tax dollars – but they avoid paying for these benefits. Instead, ordinary taxpayers end up picking up the tab, either in the form of higher taxes, cuts to public spending priorities, or increases to the federal debt.

The United States loses approximately $184 billion in federal and state revenue each year due to corporations and individuals using tax havens to dodge taxes. On average, every filer who fills out a 1040 individual income tax form would need to pay an additional $1,259 in taxes to make up for the revenue lost…

The taxes avoided by multinational corporations make up the majority – $110 billion – of the government revenue lost to offshore tax havens. Every small business would need to pay an average of $3,923 in additional taxes if they were to pick up the full tab for income lost to corporations exploiting tax havens…

Some of America’s biggest companies use tax havens to avoid tax obligations in the United States, including many that have taken advantage of government bailouts or rely on government contracts. In 2012, 82 of the 100 largest publicly traded U.S. corporations booked revenues to offshore tax haven countries…

To restore fairness to the tax system, decision makers should prevent corporations and wealthy individuals from booking their income to offshore tax havens by eliminating the incentives and mechanisms used to shift money overseas…

picking up the tab

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Walmart on Tax Day: How Taxpayers Subsidize America’s Biggest Employer and Richest Family

Source: Americans for Tax Fairness, April 2014

From the summary:
Millions of American people and small businesses pay their fair share of taxes — but every Tax Day, they’re getting stuck with a multi-billion dollar tax bill to cover the massive subsidies and tax breaks that benefit the country’s largest employer and richest family: Walmart. This report delves into the subsidies and tax breaks that further boost Walmart’s corporate profits and the family’s already massive wealth — at everyone else’s expense.