Tag: tax policy

Trends in Mandatory Spending

Mary Pat Campbell

Link:https://crsreports.congress.gov/product/pdf/R/R44641

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Excerpt:

In FY2023, mandatory spending accounts for an estimated 63% of total federal spending. Social Security alone accounts for about 21% of federal spending. Medicare and the federal share of Medicaid together account for another 25% of federal spending. Therefore, spending on Social Security, Medicare, and Medicaid now makes up almost half of total federal spending.

These figures do not reflect the implicit cost of tax expenditures, which are revenue losses attributable to provisions of the federal tax laws that allow a special exclusion, exemption, or deduction from gross income or provide a special credit, a preferential tax rate, or a deferral of tax liability.8 As with mandatory spending, tax policy is not controlled by annual appropriations acts, but by other types of legislation.

Author(s): Congressional Research Service

Publication Date: last updated 7 Nov 2023

Publication Site: U.S. Congress

The Tax Prep Industry Doesn’t Want You to File Your Taxes for Free

Mary Pat Campbell

Link: https://jacobin.com/2023/11/irs-direct-file-free-tax-filing-intuit

Excerpt:

The tax preparation industry claims that current efforts to create a government-run system that would allow eligible Americans to file their taxes for free could be prohibitively expensive. But a new report reveals that the potential cost of such a free-file program could be less than the total tax subsidies scored last year by the biggest player in an industry that reaps billions from people using services that could be free.

In effect, government tax credits are subsidizing Intuit’s fight against a direct-file system that would let Americans avoid paying for the company’s tax filing services. In October, the Internal Revenue Service (IRS) announced it would pilot its free Direct File platform for select taxpayers in thirteen states during the 2024 tax season — potentially delivering a final blow to a twenty-year agreement with the tax preparation industry that prohibited the IRS from effectively becoming a competitor. That’s assuming Congress doesn’t eliminate funding for the free tax filing program as part of its new military aid bill for Israel, as Republicans have proposed.

In return for the IRS not launching its own e-filing product, private tax prep companies like Intuit and H&R Block were required to provide access to free filing services for qualified taxpayers. But only 3 percent of eligible taxpayers utilized these free services, largely due to roadblocks set up by companies that forced people into paying for their products instead. Both companies ended up pulling out of the free IRS program in recent years.

These deceptive strategies and hurdles have proven to be lucrative for the industry. In 2019, at least fourteen million Americans paid for tax prep services that should have been free, according to a Treasury Department audit spurred by a ProPublica investigation. This earned the industry around $1 billion in revenue.

Author(s): LAUREN LIEBHABER

Publication Date: 10 Nov 2023

Publication Site: Jacobin Magazine

Understanding the State and Local Tax Deduction (SALT)

Mary Pat Campbell

Link: https://www.cato.org/blog/understanding-salt

Excerpt:


The SALT deduction is still distorting tax policy even in its limited form. For example, the poorly conceived temporary $4,000 bonus deduction proposed in the Tax Cuts for Working Families Act, part of the Republican economic tax package, is the result of SALT politics. The proposal attempts to give additional tax relief to taxpayers concerned by the SALT cap.

As initially proposed by House Republicans in the lead‐​up to 2017, the correct policy is to repeal the SALT deduction entirely. The $10,000 cap was a political compromise necessary to get enough votes for the bill. Raising or lifting the cap significantly reduces revenue, making it harder to extend or expand the tax cuts when they expire at the end of 2025.

Author(s): Adam N. Michel

Publication Date: 22 Jun 2023

Publication Site: Cato

I Gave Myself Severe Diarrhea for Science. Don’t Tax Me for It.

Mary Pat Campbell

Link: https://reason.com/2023/04/05/i-gave-myself-severe-diarrhea-for-science-dont-tax-me-for-it/

Excerpt:

I drank the bespoke pathogenic cocktail as part of what’s known as a “human challenge study” run by the Center for Vaccine Development at the University of Maryland, Baltimore. In a human challenge study, adult volunteers are exposed to a pathogen. The study I was involved in was intended to test an experimental vaccine. The process may sound somewhat medieval, but these studies are critical scientific tools that prioritize participant safety. From 1980 to 2021, over 15,000 volunteers have been exposed to one of dozens of diseases in such studies, and not one has died. 

Dysentery can be fatal. While Shigella is treatable with antibiotics, resistance is evolving at a worrying pace, and tens of thousands of children still succumb to it every year in the developing world. Those it does not kill are often left with stunted growth.

….

For my assistance in the development of a potentially lifesaving vaccine, I was paid $7,350. My motivations were altruistic to a degree: I wanted to pay my privilege forward. As I told Business Insider, however, I am not a complete saint and would not have done it for free.

As far as the Internal Revenue Service (IRS) is concerned, the compensation for my bout of dysentery has zero charitable component; it’s just regular old income, indistinguishable from, say, freelance writing or mowing lawns. If, God forbid, I am ever audited, I hope the IRS agent believes me when I say that’s just my diarrhea money.

I maintain, though, that I should not be taxed on that $7,350 at all: Treating clinical trial compensation as taxable income is just bad policy. 

Author(s): JAke Eberts

Publication Date: 5 April 2023

Publication Site: Reason

Cigarette Taxes and Cigarette Smuggling by State, 2020

Mary Pat Campbell

Link: https://taxfoundation.org/cigarette-taxes-cigarette-smuggling-2022/

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Key Findings:

  • Excessive tax rates on cigarettes induce substantial black and gray market movement of tobacco products into high-tax states from low-tax states or foreign sources.
  • New York has the highest inbound smuggling activity, with an estimated 53.5 percent of cigarettes consumed in the state deriving from smuggled sources in 2020. New York is followed by California (44.8 percent), New Mexico (45.5 percent), Washington (41.5 percent), and Minnesota (34.8 percent).
  • New Hampshire has the highest level of net outbound smuggling at 52.4 percent of consumption, likely due to its relatively low tax rates and proximity to high-tax states in the northeastern United States. Following New Hampshire is Indiana (35.6 percent), Virginia (27.6 percent), Idaho (25.8 percent), Wyoming (24.4 percent), and North Dakota (18.6 percent).
  • Illinois and New Mexico significantly increased their cigarette tax rate from 2019 to 2020. Both states saw major increases in cigarette smuggling.
  • Policymakers interested in increasing tax rates should recognize the unintended consequences of high taxation rates. Criminal distribution networks are well-established and illicit trade will grow as tax rates rise.

Author(s): Adam Hoffer

Publication Date: 6 Dec 2022

Publication Site: Tax Foundation

How AI and federal funding can revolutionize city budgets

Mary Pat Campbell

Link: https://lizfarmer.substack.com/p/ai-federal-funding-city-budgets

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The big takeaway from the GFOA’s Rethinking Revenue project is that the modern economy is shifting the tax burden toward those who can least afford it. Now, the association and its partners are launching pilot programs to test some of the ideas the project has explored.

One will target the inequities built into relying on fees and fines and the GFOA is inviting governments to apply for a pilot project testing segmented pricing as a potential solution. Instead of a one-size-fits-all fine, segmented pricing is designed around a user’s ability or willingness to pay. For example, a $100 speeding ticket for someone who earns just $500 a week is a much larger financial burden than it is for someone who earns $2,000 a week. So for the lower-income transgressor, the fine is lowered to $50. It still stings, but it’s much more likely to get paid.

Shane Kavanagh, GFOA’s senior manager of research, said they’re looking for around five places to test this idea and that the tested revenue source would have to be large enough (such as traffic fines) and also be one that the government has had difficulty collecting.

Author(s): Liz Farmer

Publication Date: 24 Feb 2022

Publication Site: Long Story Short

Elizabeth Warren’s War on Accounting

Mary Pat Campbell

Link:https://www.wsj.com/articles/elizabeth-warren-accounting-standards-corporate-minimum-tax-fasb-reconciliation-taxation-11636921275

Excerpt:

The Democrats’ proposed 15% levy on the world-wide financial-accounting earnings of large, highly profitable companies may sound familiar. It was originally proposed by Sen. Elizabeth Warren during her bid for president. Democrats are pushing this tax again now, hoping it will encourage passage of a $1.85 billion reconciliation bill to fund President Biden’s Build Back Better plan.

Any plan to tax financial-accounting earnings is ill-conceived, as I argued on these pages in May 2019. Blurring the lines between taxable income and financial-accounting profit would inevitably lead to political meddling in financial-accounting rules and damage the usefulness of financial accounting for investors.

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Politicians and the FASB have vastly different objectives. Financial-accounting rules are created by the apolitical FASB to provide information useful to investors. In contrast, tax-accounting rules are largely determined by Congress to achieve such objectives as raising revenue, encouraging or discouraging certain behavior, and redistributing wealth. Two accounting systems are necessary, one for pursuing social objectives through the tax system, the other for giving investors comparable, reliable and timely information. The U.S. is not unique in this regard. Every developed country has a tax-accounting system that is separate from its financial-accounting system.

Because the objectives of the two systems are different, the income they compute is different. 

…..

If Congress wants to raise more revenue and prevent companies from reporting low tax rates, it should change the tax code. 

Author(s): Scott Dyreng

Publication Date: 14 Nov 2021

Publication Site: Wall Street Journal

Yellen, IRS Push Democrats to Require Banks to Report Taxpayers’ Annual Account Flows

Mary Pat Campbell

Link: https://www.wsj.com/articles/yellen-irs-push-democrats-to-require-banks-to-report-annual-account-flows-11631727020

Excerpt:

Treasury Secretary Janet Yellen and IRS Commissioner Charles Rettig pressed lawmakers Wednesday to give the Internal Revenue Service more information about taxpayers’ bank accounts, as the Biden administration tries to salvage its tax-compliance proposal.

In letters to lawmakers, the administration officials again asked Congress to require banks to report annual inflows and outflows from bank accounts with at least $600 or at least $600 worth of transactions, a proposal aimed at letting the IRS target its audits more effectively. It would generate about $460 billion over a decade to cover the costs of Democrats’ planned expansion of the social safety net and climate-change policies, according to the administration.

But after a flurry of opposition from banks and credit unions, House Democrats omitted the proposal from their list of tax-policy changes this week. That was a sign that it lacked the support in the party to advance, though a scaled-back version raising about half as much money could still emerge from ongoing talks between administration officials and Congress.

Author(s): Richard Rubin and Orla McCaffrey

Publication Date: 15 Sept 2021

Publication Site: Wall Street Journal

Wage Stagnation and Its Discontents: Rethinking the Safety Net to Encourage a More Dynamic Economy

Mary Pat Campbell

Link: https://www.manhattan-institute.org/schrager-wage-stagnation-rethinking-safety-net

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Guaranteed jobs or UBI are poorly targeted and do not match the needs of new workers and may even hold them back by offering the sort of guarantees that perpetuate wage stagnation. Instead, the new safety net should offer various programs to smooth out dips in income and offer benefits that are not tied to a single employer, including:

Wage insurance—benefits that account for a drop in income, not just a loss of employment

Income averaging—tax rates based on income over three or five years, not just a single year, which will make income more stable for workers in variable work arrangements

Providing contingent workers the opportunity to receive benefits, such as health care and sick leave, that are not tied to traditional employment

To protect themselves against income risk, Americans have resorted to stagnation. We can provide downside protection in alternate ways—so that Americans can feel more free to switch jobs, try alternative forms of work, or start new companies. The above-mentioned programs are a more cost-effective and efficient way to address the needs of the new labor force than the guarantee-oriented policies that receive more attention. These programs provide options that would provide more robust insurance that can help spur a more dynamic economy. The options are merely a starting point to think more creatively about how to support a changing economy and break the cycle of stagnation.

Author(s): Allison Schrager

Publication Date: 9 September 2021

Publication Site: Manhattan Institute

How States Are Letting Small Businesses Avoid The SALT Cap On Their Tax Returns

Mary Pat Campbell

Link: https://www.forbes.com/sites/lizfarmer/2021/07/01/how-states-are-letting-small-businesses-avoid-the-salt-cap-on-their-tax-returns/?sh=7ef5a29127c5

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Colorado recently became the 14th state to enact the new workaround, which allows (or in Connecticut’s case, requires) pass-through businesses to pay state income taxes at the entity level rather than on their personal income tax returns. For small businesses like partnerships, declaring that income as a business instead of passing it through to their individual tax returns means the state taxes paid on that business income don’t count toward their SALT cap.

The new mechanism is called a pass-through entity (PTE) tax, which is exempt from the $10,000 cap on the state and local tax (SALT) deduction that was part of President Trump’s 2017 tax reform. For business owners in high property tax states like New Jersey and Connecticut, it’s a critical change because it allows those taxpayers to deduct more of their local taxes from their other personal income.

Author(s): Liz Farmer

Publication Date: 1 July 2021

Publication Site: Forbes

Not With a Bang, But a Whimper: Demographic Decline Undermines Public Finance

Mary Pat Campbell

Link: https://marypatcampbell.substack.com/p/not-with-a-bang-but-a-whimper-demographic

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The last time the Census Bureau did a population projection, the estimated population for even 2020 came in a little high. From March 2018: Demographic Turning Points for the United States: Population Projections for 2020 to 2060 — they estimated a total population of about 332.6 million, and the apportionment Census results were 331.1 million. To be sure, this is a less than 0.5% difference, so no big deal.

This is the growth rate they projected, even in 2018:
2020-2030: 7%
2030-2040: 5%
2040-2050: 4%
2050-2060: 4%

Those are full-decade growth rates. That’s before the pandemic has shaved our numbers down a little.

Would you like to know the growth rates from prior decades?
2010-2020: 7%
2000-2010: 10%
1990-2000: 13%
1980-1990: 10%

Author(s): Mary Pat Campbell

Publication Date: 28 May 2021

Publication Site: STUMP at substack

So, Can States Cut Taxes or Not?

Mary Pat Campbell

Link: https://www.governing.com/finance/So-Can-States-Cut-Taxes-or-Not.html

Excerpt:

Most observers believe that the Treasury will interpret the law narrowly. Rather than seeking to claw back funds from any states passing tax cuts or credits, the feds are considered likely to challenge only those states that clearly use federal dollars to pay for them. “Nothing in the act prevents states from enacting a broad variety of tax cuts,” Treasury Secretary Janet Yellen wrote in a response to the AGs. “It simply provides that funding received under the act may not be used to offset a reduction in net tax revenue resulting from certain changes in state law.”

But the fact that the law blocks federal money from being used even indirectly to pay for tax cuts has state officials not just worried but angry. “Democrats in Washington and in the White House are not going to tell me, or the Georgia General Assembly, that we can’t cut taxes for hard-working Georgians,” Gov. Brian Kemp complained at a news conference last month.

….

That prohibition lasts as long as the stimulus dollars are spent, which will be into 2024. And there are limits, Walczak notes, on where and how states can spend federal aid. They can use the money to address pandemic and health needs, for example. While those are clearly ongoing, much of the cost of vaccine supply and distribution has been underwritten by the feds. Other costs in these areas have already been addressed by last year’s federal CARES Act, which some states struggled to spend.

Author(s): Alan Greenblatt

Publication Date: 7 April 2021

Publication Site: Governing