Newsletter Archive

September 30, 2004

Here's the latest from the Urban-Brookings Tax Policy Center:

• Manufacturing Tax Loopholes
  Kim Clausing
  Reed College
  September 30, 2004
• Kerry Tax Plan and Small Businesses
  September 16, 2004
• Eric Toder Returning to Urban Institute and Tax Policy Center
  September 29, 2004

Manufacturing Tax Loopholes
Kim Clausing
Reed College
September 30, 2004

A House-Senate conference committee is currently meeting to try to reconcile their differences on the Jumpstart Our Business Strength (JOBS) Act, which would repeal an the FSC/ETI export tax incentive that the World Trade Organization has ruled illegal. Yet the legislation also risks undermining the integrity of the U.S. tax system in important ways. While the bills emphasize the importance of promoting job creation and U.S. international competitiveness, the legislation is not an effective way to achieve these aims. As it stands, the main impact of the legislation will be to make the corporate income tax system more complex, less efficient, and less fair.

Kerry Tax Plan and Small Businesses
September 16, 2004

President Bush and Senator Kerry have been sparring about the effect of Senator Kerry's tax plans on small businesses and jobs. Because of data limitations, it is impossible to tell with certainty how many employers would face tax increases. Table T04-0144 sheds some light, however. The table shows that 995,000 individuals who report flow-through income or loss on a schedule C or F, or active income from a partnership or S-corporation on a schedule E would pay higher taxes under Senator Kerry's plan in 1995. (The Treasury Department's estimate is 940,000.) Only about half of those returns report that that income is more than half of all compensation, and only 71,000 claim a deduction for wages and salaries on Schedule C. Based on any of these measures, less than 5 percent of small business returns would face a tax increase.

Some taxpayers report income through an S-corporation or partnership return, and there is no direct way to tell how many of them have employees. According to www.factcheck.org, "Census Bureau figures from 1997 show that 28% of all partnerships had employees, and 77% of all Sub-S corporations." TPC estimates that among the returns with tax increases that do not report a deduction for employee compensation, 296,000 report S-corporation income or loss, 220,000 report partnership income or loss, and 110,000 report both (not shown in the table). Assuming that 77 percent of the S-corps, 28 percent of the partnerships, and 100 percent of those with both have employees, that implies an additional 400,000 small employers would face tax increases. Based on those assumptions, a total of 471,000 small employers would face a tax increase under the Kerry plan.

Eric Toder Returning to Urban Institute and Tax Policy Center
September 29, 2004

Eric Toder, the Internal Revenue Service's director of research from 2001 until earlier this month, will become a senior fellow in the Urban Institute's Income and Benefits Policy Center and a senior scholar at the Tax Policy Center in January.

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