Daily Deduction

from the Tax Policy Center

Games, Spins, Ignorance and Patience

By :: July 11th, 2014

Congress keeps playing with the Highway Trust Fund—but why? The House Ways & Means Committee approved its effort to fund the Highway Trust Fund through May, 2015. To reach a bipartisan deal, the Senate Finance Committee ultimately took a slightly different approach in a $10.8 billion proposal to finance roads and transit. Both convoluted short-term patches punt a big fiscal problem to the next Congress. TPC’s Howard Gleckman concludes that if Congress won’t come up with a permanent, sustainable solution, the Highway Trust Fund game isn’t worth playing. It “makes budgets more opaque and less understandable. This makes people even more cynical about government.”

Corporate “spinversion?” No, it’s not a press release. It’s a way for a very large US conglomerate to make the most of reduced tax rates abroad. Rather than sell off 20 percent of itself through a traditional corporate inversion, some tax experts say a large US business could “spin off” a piece of itself to reincorporate with a foreign company. US shareholders would own between 50 percent and 80 percent of the final “spinversion" entity, taxed at the foreign nation’s lower corporate rate.

With one local tax, ignorance is neither bliss nor a defense. School districts in Philadelphia are benefitting from improved collections of its school income tax. The levy has been in effect since 1969 but some taxpayers didn’t know they were supposed to pay it, perhaps because the city never sent them a bill. Now, collection agencies are calling with a “friendly FYI.” The city picked up around $37 million the past fiscal year, including $7 million from delinquent accounts. The private agencies keep 13 to 15 percent of what they collect.

And with another, patience can be a costly virtue. Faced with a $1.7 billion budget shortfall, New Jersey’s Republican Governor Chris Christie needs another nine months before distributing $395 million in homestead property tax rebates to low-income elderly and disabled homeowners. The average rebate is $516 for elderly and disabled homeowners earning less than $150,000 a year, and $402 for those with incomes under $75,000. Both the Governor and homeowners struggle to manage cash flow.

Australia’s Prime Minister Tony Abbot is remaining patient. The Australian Senate blocked Abbot’s hoped-for repeal of the nation’s carbon tax in a surprise move, described by some in the Senate as “chaos.” Abbott will try to move the repeal through the Australian House next week.

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  1. Ralph H  ::  8:25 am on July 11th, 2014:

    Well living just outside Philadelphia I had absolutely no idea they had a tax on income other than wages. This has been a big secret and partly responsible for their horrific school funding deficit.

    Glad I know as just another reason not to live there.

  2. Michael Bindner  ::  4:27 am on July 12th, 2014:

    In the short term, I suspect the gimmick is what will pass. Sad. What should happen is a higher gas tax – by more than double – and enforcement of commondities regulations (and maybe some new ones) to make it a fair market with a lower price – so that consumers pay less in toto but more in taxes. In the very long term, use Social Security employer taxes to create personal insured accounts holding voting stock in the employer – and evenutally have local employer groups buy up the highway and electrify it (with computer control as well). in partnership with local governments and utlities. Yes, its socialism, but roads are socialism broadly defined.

    Spinversion sounds idiotic, because until corporate tax reform, at least some of the profits need to flow back here as dividends – of course dividend taxes just went up, as did capital gains. If there is a corporate tax reform or holiday, the price should be even higher dividend and capital gains rates. A VAT would be nice too, to recapture some of the taxes on jobs sent overseas.

    Good for Phili. That would never happen with a Republican Mayor and those who have been dodging the tax should be thankful for the statute of limiations. I promise you that ignorance will not longer be an excuse in the future.

    Thanks for letting us know of more small mindedness in the New Jersey Governor’s Mansion. I suspect this will be an issue for him next year. Punishing a Democratic city won’t matter to the GOP, but punishing people who are entitled to refunds? High hersesy.

    As for Australia, with the Senate blocking his carbon tax repeal bill, what value will the House considering it have, other than showing the world that a broad based carbon tax is acceptable to voters? (of course, so is a VAT, and the US will pass neither at the moment).