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The $300 Billion Question: How Should We Budget for Federal Lending Programs? (Research Report)
Donald Marron

Student loans, mortgage guarantees, and other lending programs create special challenges for federal budgeting. Under official budget rules, these programs are projected to bring in $200 billion over the next decade. Under an alternative, favored by many analysts, they appear to lose $100 billion. That $300 billion disparity confuses policy deliberations. In this report, Donald Marron proposes a new budgeting approach, known as expected returns, that would eliminate this confusion. The report critically reviews today’s budgeting approaches, identifies their flaws, and demonstrates how expected returns would improve budgeting for federal lending.

Published: 09/29/14
Availability:   PDF


A Better Way to Budget for Federal Lending Programs (Policy Briefs)
Donald Marron

Policy analysts have long debated how best to budget for student loans, mortgage guarantees, and other federal lending programs. Under official budget rules, these programs appear highly profitable; under an alternative, favored by many analysts, they appear to lose money. That discrepancy confuses policy deliberations. In this brief, Donald Marron proposes a new budgeting approach, known as expected returns, that would eliminate this confusion. Unlike existing approaches, expected returns accurately reports the fiscal effects of lending over time and provides a natural way to distinguish the fiscal gains from bearing financial risk from the subsidies given to borrowers.

Published: 09/29/14
Availability:   PDF


Flow-Through Business Income as a Share of AGI (Article/Tax Facts)
Joseph Rosenberg

This Tax Fact documents the increasing share of flow-through business income as a percentage of adjusted gross income (AGI) reported on individual income tax returns. In 2012, net income from sole proprietorships, partnerships, and S corporations totaled nearly $840 billion and accounted for more than 9 percent of total AGI.

Published: 09/29/14
Availability:   PDF


Who Benefits from Asset-Building Tax Subsidies? (Fact Sheet / Data at a Glance)
C. Eugene SteuerleBenjamin H. HarrisSigne-Mary McKernanCaleb QuakenbushCaroline Ratcliffe

Tax subsidies for asset building totaled $384 billion in 2013, with the vast majority going toward subsidizing homeownership and retirement saving. This factsheet summarizes distributional estimates of major tax subsidies for homeownership, retirement saving, and higher education. Low- and moderate-income households benefit very little from these subsidies. For example, about 70 percent of the mortgage interest deduction and employer-sponsored retirement plan subsidies go to the top 20 percent of tax payers while the bottom 20 percent receive less than one percent. Upper-income households, which likely require less incentive to save, may merely shift assets from unsubsidized to subsidized accounts.

Published: 09/24/14
Availability:   PDF


Summary of and Comments on Exempt Organization Provisions of the Tax Reform Act of 2014 (Presentation)
Roger Colinvaux

The slides summarize the content of and provide detailed commentary on the exempt organization provisions of the Tax Reform Act of 2014, a discussion draft released February 26, 2014 by Dave Camp, Chairman of the Ways and Means Committee, including changes to the charitable deduction, unrelated business income tax, penalty and excise tax regimes, and administrative provisions. The slides find that several themes emerge: the charitable deduction is supported by a base-defining theory, unrelated businesses should be discouraged, compliance by exempt organizations is problematic, the law is too complex, and the tax exemption for investment income is too broad.

Published: 09/24/14
Availability:   PDF


Preliminary Estimates of the Impact of the Camp Tax Reform Plan on Charitable Giving (Research Report)
Joseph RosenbergC. Eugene SteuerleEllen SteeleAmanda Eng

This note estimates the effects of four groups of provisions from the Tax Reform Act of 2014 on individual charitable giving. The provisions of the tax reform plan, released earlier this year by House Ways and Means Committee Chairman Dave Camp (R-MI), are estimated to decrease individual giving by 7 to 14 percent.

Published: 09/10/14
Availability:   PDF


Effects of Income Tax Changes on Economic Growth (Article)
William G. GaleAndrew Samwick

This paper examines how changes to the individual income tax affect long-term economic growth. The structure and financing of a tax change are critical to achieving economic growth. Tax rate cuts may encourage individuals to work, save, and invest, but if the tax cuts are not financed by immediate spending cuts they will likely also result in an increased federal budget deficit, which in the long-term will reduce national saving and raise interest rates. The net impact on growth is uncertain, but many estimates suggest it is either small or negative. Base-broadening measures can eliminate the effect of tax rate cuts on budget deficits, but at the same time they also reduce the impact on labor supply, saving, and investment and thus reduce the direct impact on growth. However, they also reallocate resources across sectors toward their highest-value economic use, resulting in increased efficiency and potentially raising the overall size of the economy. The results suggest that not all tax changes will have the same impact on growth. Reforms that improve incentives, reduce existing subsidies, avoid windfall gains, and avoid deficit financing will have more auspicious effects on the long-term size of the economy, but may also create trade-offs between equity and efficiency.

Published: 09/09/14
Availability:   PDF


Political Activity Limits and Tax Exemption: A Gordian's Knot (Research Report)
Roger Colinvaux

The article considers the correct tax treatment of political activity, examines administrative and legislative options to problems raised, and concludes that after the Citizens United decision, definitional political activity limits on noncharitable exempts should be eliminated, but only if the 527(f) tax on investment income remains vital and there are uniform donor disclosure rules. In addition, Congress should: extend the income tax to transfers of appreciated property to noncharitable exempts, take steps to prevent the laundering of independent expenditures through the charitable form, and develop a new tax baseline for political activity conducted "for profit" or outside of section 527.

Published: 08/25/14
Availability:   PDF


Tax Expenditures for Asset Building in 2014 (Article/Tax Facts)
C. Eugene SteuerleCaleb Quakenbush

Government directs a large amount of resources toward helping families build assets in the form of home equity, retirement savings, human capital, and business ownership. This Tax Fact summarizes the cost of different asset-building tax subsidies. These tax expenditures total to more than $370 billion in 2014 and are projected to grow to more than $500 billion over the next 5 years. Deductions and exclusions for homeownership and retirement savings form the majority of subsidies, with education coming in a distant third. Smaller subsidies for small business and other personal savings round out the total.

Published: 08/20/14
Availability:   PDF


Corporate Inversions (Article)
Kimberly A. Clausing

Recently, there has been a spate of corporate inversions, where U.S. multinational corporations have combined with foreign companies, arranging their corporate structure to locate the residence of the resulting corporation in a foreign country with an attractive corporate tax climate. This paper will discuss both the longstanding features of the U.S. tax system that provide incentives for corporate inversions and the reasons for the present surge in inversions. If unfettered, corporate inversions are likely to undermine the U.S. tax base, so swift policy action is likely warranted. Inversions can be effectively addressed in a targeted fashion.

Published: 08/20/14
Availability: HTML | PDF

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