Income Inequality and Time for State Action

Income inequality may shrink state tax revenues. A new report from Standard & Poor’s tells the tale. Incomes have grown rapidly among the wealthy, but have barely kept pace with inflation for many others. But high income earners both shelter their income from taxes and save more, reducing  state income and sales tax revenues. As a result, state revenues have been cut roughly in half over the past three decades. The report suggests that more progressive income tax rates “may help states generate faster tax revenue growth than would flatter tax regimes.”

In Michigan, quick action to save state revenue. TPC’s Norton Francis explains how the state’s legislature and governor closed a $1 billion tax loophole that would have benefited multi-state firms operating in Michigan.“With astounding speed and overwhelming bipartisan support the legislature swooped in and fixed the problem in less than two months. And [Republican] Governor Rick Snyder signed the new law as soon as it landed on his desk.” It’s amazing how efficient a legislature can be when an amount equal to 10 percent of its annual general fund revenue is on the line.

Will the City of Brotherly Love tax cigarettes for schools? Pennsylvania’s legislature may soon authorize Philadelphia to enact a $2-a-pack cigarette tax to eliminate the Philadelphia school district’s $81 million deficit. The stakes are high: Without additional revenue, the school district will need to lay off more than 1,000 staff, including teachers, and increase some class sizes to 40. Republican Governor Tom Corbett says he will sign the legislation if it reaches his desk.

There’s still time to document income for ACA tax subsidies. At least 279,000 households with income discrepancies still need to submit documentation to the IRS by September 30. Of course, everybody who received health insurance tax credits for this year—6.7 million people—will account for them upon filing their 2014 tax returns. Those  who underestimated income, and thus got bigger subsidies than they deserved, will owe tax to the IRS. Those who overstated their income will get a refund.

Will Congress serve no Oregon wine before—or at—its time? Senate Finance Committee Chair Ron Wyden is urging action on a temporary tax extenders’ package. One reason why? “Because Congress has not renewed increased expensing limits under Section 179…Oregon wine makers will be forced to pay more for a new wine press needed today to expand their business, or they may be forced to choose between new equipment and hiring new employees.” It’s not clear that enough of his colleagues in Congress will drink to that. The House still wants to restore many of the now-expired provisions (including Section 179) permanently. They’ll continue the argument after the November election.

Today on the Hill: The Senate Finance Committee holds a hearing on retirement savings. The panel will include Jack Bogle, founder of Vanguard, Brian Reid of the Investment Company Institute, Wall Street Journal alumnus and reporter Ellen Schultz, Scott Betts of National Benefit Services, Brigitte Madrian of Harvard’s Kennedy School of Government, and Andrew Biggs of the American Enterprise Institute.

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How Michigan Blocked a $1 Billion Tax Windfall for Corporations

For all the talk of political gridlock, it is amazing how quickly a state legislature can act when $1 billion in unexpected corporate tax refunds are at stake. The lawmakers are in Michigan. And their pistons were fired up following an unfavorable state Supreme Court decision in a lawsuit brought by IBM. The case involved the […]

Taxes Take Center Stage This Week—At Least on the House Floor

Shutting down talk of a shutdown… The House is expected to vote on a continuing resolution to fund the government—including the IRS—through December 11. The resolution would include an extension of the Internet Tax Freedom Act, which bars states from taxing Internet access. Unless Congress acts, the law expires November 1. Tax extenders are scheduled […]

Tax Policy in September: Racing to a Grinding Halt?

Have it your way… unless you’re Burger King. Five Senate Democrats—Illinois’ Dick Durbin, Michigan’s Carl Levin, Rhode Island’s Jack Reed, Vermont’s Bernie Sanders and Ohio’s Sherrod Brown—asked Burger King to not move its legal headquarters to lower-tax Canada. They accused it of trying to avoid paying its fair share for roads and other public services […]

Does the Export-Import Bank Make or Lose Money?

Suppose your aunt decides to start a business making pizza ovens. She will design and build the ovens, and her daughter will manage operations. A bank is ready to lend her $100,000 to get started, but it wants someone to co-sign and be on the hook if she misses any payments. She offers to pay […]

Rules, Reform, Taxes and Wealth: No Harm in Trying?

Maybe the duck will walk again? Lawmakers are putting down their markers on anti-inversion legislation. Top Senate Democrats Dick Durbin and Chuck Schumer have introduced a bill to curb “earnings-stripping” by multinational corporations—a practice where firms maximize U.S. tax deductions for interest payments and other business costs while shifting income to low-tax countries. Senate Finance […]

Don’t Count on Much Economic Growth From Individual Tax Reform…Or From Tax Rate Cuts

Can individual income tax reform that cuts rates and eliminates subsidies increase economic growth? How about tax cuts by themselves? The answer is: Maybe, but not by much, according to a new paper by the Tax Policy Center’s Bill Gale and Andrew Samwick, director of The Nelson A. Rockefeller Center for Public Policy and Social […]

The Amazing [Anti-Inversion] Race

There’s tougher talk from Treasury. Secretary Jack Lew affirmed administrative authority to curb inversions, telling Bloomberg that “If Congress doesn’t act, we have to take the steps we can, which will reduce the economic value of inversions.” There’s more talk on the Hill, too. Senate Finance Committee Chair Ron Wyden wants to “continue to work […]

Nearly All States Play the Lottery, But None Are Big Winners

Wyoming residents no longer have to cross the border to purchase Powerball tickets. On Aug. 24, Wyoming became the 44th state to legalize a lottery. Proponents laud these games as an easy source of funds for schools and other public services. However, lotteries are often a bad bet: Revenues are relatively modest but their problems […]

Inversions, Loopholes, Taxes and TIFs: What’s a Revenue Service to Do?

Inversions: The waiting is the hardest part. At yesterday’s TPC event Treasury Secretary Jack Lew promised an anti-inversion decision “soon,” but committed to no other details. While everybody agrees corporate inversions are done largely to avoid taxes, does Treasury have the authority to prevent them? If so, should it? New York University’s Sally Katzen, Harvard’s […]