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.
Interested in subscribing to The Daily Deduction, the Tax Policy Center summary of the day’s tax news? Sign-up here for free access. If you’d like to tell us about a new research paper or have any comments about our new feature, write us at email@example.com.