“There’s no tax-driven move in baseball!” At least not for ace starting pitcher Max Scherzer. He recently signed to play for the Washington Nationals for $210 million and there’s been speculation that DC’s tax laws helped seal the deal. TPC’s Richard Auxier reminds us that taxes are a little like curveballs: They are not always what they seem. Auxier explains why it’s a mistake to simply multiply “the value of a contract by a state's top tax rate. Income taxes are complicated…. Is Max Scherzer saving money in DC? Yes. Are the District's tax laws a big reason why he signed with the Nationals? I doubt it.”
Is it a tax haven if it’s your own island? Puerto Rico, in an effort to rekindle the fire between its emigrants and its tax base, has extended tax breaks offered to foreign investors and businesses to its own residents who recently moved away. Anyone who left the island before 2006 can now apply for tax breaks, including dividend, interest, and capital gains exemptions. All they have to do is reside in Puerto Rico for at least 183 days a year. So even ex-locals can get the same deal as hedge fund operator John Paulson.
Is not reporting a “loophole?” Illinois Senate Democrat Dick Durbin and his GOP colleague in the House, Aaron Schock, are reapplying pressure on Congress to pass an online sales tax bill and close a “loophole.” Like consumers in many states, Illinois residents owe tax on out-of-state purchases—including those made online. But Durbin and Schock say only about 5 percent report the purchases, a requirement that’s nearly impossible to enforce. Two years ago, the Senate overwhelmingly passed the Marketplace Fairness Act that would have fixed the problem. But the measure died in the House. Meanwhile, Michigan, led by GOP Governor Rick Snyder, is the latest state to require online retailers to collect sales taxes, effective in November.
A new frontier: A high debt-GDP ratio may take the US where its rarely gone before. TPC’s Bill Gale considers the landscape of the nation’s fiscal status, and travels will be rocky. “We are entering new territory – permanently high and rising debt-GDP ratios…Cutting the debt-GDP ratio in half, which would get us back to historically typical ground, would require “substantial tax increases and/or spending cuts.” But “there are no such solutions on our horizon.”
No longer on the horizon: Taxable earnings from Sec. 529 savings plans. The White House, reportedly in response to push-back from both Republicans and Democrats, has withdrawn its plan to tax the earnings on college savings accounts.
Tune in Friday. The TPC and the UCLA School of Law host a conference on international tax reform, with its webcast starting at 9am PST, 12pm EST. Experts will discuss the political economy and international tax reform, corporate inversions, global versus territorial tax systems, and multilateral approaches to international tax reform.
Interested in subscribing to The Daily Deduction, the Urban-Brookings Tax Policy Center summary of the day’s tax news? Sign-up here for free access. If you’d like to tell us about a new research paper or have any comments about our new feature, write us at firstname.lastname@example.org.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.
- © Urban Institute, Brookings Institution, and individual authors, 2021.