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Topic:   Distribution of Taxes and Income

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Municipal Debt: What Does It Buy and Who Benefits? (Research Report)
Harvey GalperKim RuebenRichard C. AuxierAmanda Eng

This paper examines the incidence of the federal income tax exemption of interest on state and local bonds, applying a fixed-savings, simplified general equilibrium approach to estimate incidence effects on both the sources and uses of income. In contrast to traditional empirical work that allocates the benefit of tax exemption only to current holders of tax-exempt bonds based on current interest rates, we incorporate the fact that the existence of tax exemption causes the taxable interest rate to rise and the tax-exempt rate to fall. As a consequence, on the sources side, tax exemption can increase after-tax income for holders of both taxable and taxexempt bonds. On the uses side, consumers of both private and public goods are affected by the higher cost of funds to private and federal government borrowers, the lower cost of funds to state and local borrowers, and the lower cost of funds to private-sector entities with access to the proceeds of tax-exempt borrowing. Overall, higher income individuals remain the primary beneficiaries of tax exemption on the sources side with this new approach, but less so than under the traditional approach. On the uses side, households who consume a relatively large share of state and local public services, such as those with several school-age children, receive significant net benefits.

Published: 10/29/14
Availability: HTML | PDF


State Economic Monitor: October 2014 (Series/State Economic Monitor)
Richard C. Auxier

Most states ended the summer of 2014 on a positive economic note. Up from 14 states a year earlier, 25 states reported August unemployment rates below 6 percent. Every state but Alaska added jobs within the last year. But some troubling signs remain. Inflation-adjusted average weekly wages declined or did not change in 26 states. The latest issue of the State Economic Monitor describes economic and fiscal trends at the state level, highlighting particular differences across the states in employment, state government finances, and housing conditions. This issue also includes a special section on state minimum wages.

Published: 10/16/14
Availability:   PDF


Preliminary Analysis of The Family Fairness and Opportunity Tax Reform Act (Research Report)
Leonard E. BurmanElaine MaagGeorgia IvsinJeff Rohaly

Senator Mike Lee's Family Fairness and Opportunity Tax Reform Act (S.1616) would significantly expand tax benefits for children, repeal the alternative minimum tax, and repeal the Affordable Care Act surtaxes on earnings and net investment income. To partially offset the cost of these provisions, the plan would consolidate filing statuses and tax brackets and repeal itemized deductions other than those for charitable contributions and home mortgage interest. TPC estimates that the plan would reduce tax revenues by $2.4 trillion over the ten-year budget period, 2014-2023, and remove roughly 12 million tax units from the federal income tax rolls in 2014.

Published: 03/04/14
Availability:   PDF


Evaluating Broad-Based Approaches for Limiting Tax Expenditures (Research Report)
Eric ToderJoseph RosenbergAmanda Eng

This paper evaluates six options to achieve across-the-board reductions to a group of major exclusions and deductions in the income tax: (1) limiting their tax benefit to a maximum percentage of income; (2) imposing a fixed dollar cap; (3) reducing them by a fixed-percentage amount; (4) limiting their tax saving to a maximum percentage of their dollar value; (5) replacing preferences with fixed rate refundable credits; and (6) including them in the base of the existing Alternative Minimum Tax (AMT). We discuss issues of design, implementation, and administration, and simulate the revenue, distributional, and incentive effects of the various options.

Published: 02/06/14
Availability:   PDF


The War on Poverty Moves to the Tax Code (Article/Tax Facts)
Leonard E. BurmanElaine Maag

In 1975, the federal income tax code joined the "War on Poverty" with the enactment of the earned income tax credit (EITC). Today, tax credits form some of the largest and most effective anti-poverty programs in the US. In 2012, the Census Bureau estimated that tax credits cut poverty (under a broad measure that includes the effect of programs like Supplemental Nutrition Assistance Program benefits and the EITC) by 3 percentage points – more than SNAP (1.6 points) and TANF (0.2 points). The tax credits cut child poverty by a whopping 6.7 percentage points.

Published: 01/07/14
Availability:   PDF


SOI Releases New Data From Form W-2 (Article/Tax Facts)
Jim Nunns

Newly released W-2 data from the Statistics of Income (SOI) Division of IRS describe in detail the wages and retirement contributions of workers from 2008 through 2010. SOI economists Kevin Pierce and Jon Gober provide an overview of the data and compare them with (much less detailed) data for prior years in an SOI Bulletin article. Three charts illustrate the depth and usefulness of the data.

Published: 10/07/13
Availability:   PDF


Who Pays No Income Tax? A 2013 Update (Article/Tax Facts)
Roberton Williams

TPC estimates that 43 percent of Americans will pay no federal income tax this year, down from the peak of 50 percent in 2008 and 2009.

Published: 09/30/13
Availability:   PDF


Who Benefits from Tax-Exempt Bonds?: An Application of the Theory of Tax Incidence (Research Report)
Harvey GalperJoseph RosenbergKim RuebenEric Toder

This paper applies tax incidence theory to estimate the distributional effects of the exemption from federal income tax of interest on state and local bonds and the President's proposal to limit the benefit of the exemption to the 28 percent rate. When one accounts for the effects of changes in rates of return, the exemption still primarily benefits higher-income individuals, though less so than under the traditional approach that assigns all the benefit to holders of tax-exempt bonds. How states and localities respond to lower borrowing costs can either shift benefits to low-income households or increase the net benefit to high income households.

Published: 09/27/13
Availability:   PDF


Taxes on Foreign Earned Income  (Article/Tax Facts)
Eric Toder

While taxation of overseas profits of U.S. multinational corporations has made the headlines lately, U.S. citizens who work overseas also face special rules. Unlike most countries, the United States requires that its citizens pay tax on their worldwide income (with a credit for foreign taxes paid), even when they are residing elsewhere. But the United States also allows its citizens who reside abroad exclusion for the first $97,600 of their foreign earned income and a special housing allowance.

Published: 07/24/13
Availability:   PDF


Tax Reform, Transaction Costs, and Metropolitan Housing in the United States (Research Report)
Benjamin H. Harris

This study analyzes the effect of tax reforms on housing prices in selected cities. Using a model that incorporates transaction costs, the study finds (1) the president’s proposed limit on itemized deductions would have a minimal impact on housing prices; (2) eliminating itemized deductions altogether would cause housing prices to fall markedly; (3) limiting the mortgage interest deduction while providing a flat closing credit can boost housing prices; and (4) the higher 2013 tax rates are unlikely to substantially boost housing prices. Together, these findings suggest that plausible tax reforms will have only a modest impact on housing prices.

Published: 06/05/13
Availability:   PDF

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