Daily Deduction

from the Tax Policy Center

Tax Preferences, Sliding Revenues, Fracking and Subversions

By :: May 9th, 2014

No PAYGO for R&D. The House plans to vote today to make permanent a research tax credit for businesses, despite Democratic opposition in the Senate and a promised White House veto, and despite the fact that the credit is not paid for. The credit would cost $156 billion over the next decade.

The two-edged sword of eliminating the tax preference for employer-sponsored insurance. A new paper by TPC's Eric Toder and the Urban Institute's Karen Smith finds that eliminating the huge tax subsidy for employer sponsored insurance would improve the government’s overall financial condition and the health of the Social Security trust fund by raising trillions in new revenue. But it would also increase Social Security benefits for most workers. Those higher benefits would affect different earnings groups in very complicated ways.

Tax revenues are sliding in states. Fears of higher tax rates given fiscal cliff negotiations in 2012 prompted money managers, corporations and other high-income taxpayers to report income or sell stock that year. As a result the first half of 2013 saw personal income tax revenue grow by 18 percent and corporate income taxes rise by 10 percent. But this year, corporate tax rates declined in 20 states in the first quarter of 2014, while personal income tax revenues fell in 10.

They’re sliding in Germany, too. Germany projects tax revenues of $639.9 billion euros for 2014, about 400 million euros lower than a November estimate. “The tax estimates do not create any new room for maneuver financially. From 2015 onwards we want to manage without any new debt,’’ said German Finance Minister Wolfgang Schaeuble. Remarkable, as Germany is enjoying strong economic growth and a robust labor market.

To frack and tax in Ohio. The state’s legislature and governor are wrangling over a tax increase on gas and oil produced by horizontal hydraulic fracturing. Republican Governor John Kasich thinks the latest Ohio House Republican plan doesn’t go far enough to raise the gas and oil tax and cut income taxes. It calls for a 2.5 percent tax on production and a $10 million exemption for the initial costs of horizontal wells incurred by drillers. With the new revenues, state income taxes could be cut, but only after the first $21 million are spent on industry regulation and capping of orphan wells, and after 15 percent of revenues are distributed to local governments.

Subverting inversions… Senator Carl Levin (D-MI) and Senate Finance Committee Chair Ron Wyden (D-OR) have had enough of corporate inversions—which, in a nutshell, is the practice of changing your mailing address to lower your corporate tax rate. Senator Levin is drafting a bill to curb the practice, now made famous by Pfizer’s attempt to merge with Astrazeneca and get a UK mailing address. Senator Wyden plans to release details of his strategy quickly, too.

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  1. Michael Bindner  ::  4:41 am on May 10th, 2014:

    The House rules do not require PAYGO for tax cuts – however when they do the cuts simply die in the Senate – unless they can be revived in Conference or in some deal between Biden and the Republican of your choice.

    I commented on the employee sponsored insurance paper elsewhere – needless to say it would greatly wound Obamacare. A better way to pay off the trust fund is to make the rich do it – there is only a fund because the Reagan tax cuts were retained.

    The fact that corporate taxes (and capital gains taxes) are sliding is no shock given the profit-taking of 2012 and the tax bubble of 2013. We are now back to reality. Pity the state that thought the 2013 revenue bubble was permanent.

    I am amazed Germany did not take a hit sooner. If it wants to preserve itself, it needs to agree to a more robust European debt and tax system not based on PIGS borrowing money from Germany.

    In Ohio, John Kasich seems to want to be Sarah Palin and replace taxes with energy revenues. As long as they stick to the plateau and compensate victims of mistakes generously, he may bet away with expanded fracking. If small town, flat land Ohio is hurt, however, this could be a disaster that will hurt him worse than a week of blocked traffic on the George Washington Bridge.

    The Levin Wyden proposal on inversions is a start – but while Carl’s brother Sander might agree, I don’t think Mr. Camp or Mr.Ryan will, which is a pity as they are putting ideology before country. The real pity is that no one will be surprised.

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