The voices of Tax Policy Center's researchers and staff
Congress is in recess through the mid-term elections. Read the Daily Deduction each Monday until then.
“California, here I come!” It’s official: Democratic Governor Jerry Brown signed into law a $330 million annual incentive program for film and television production. Feature films with budgets of $75 million or more and network pilots are also eligible for tax credits. The program relies on a merit assessment with renewed focus on job creation.
Has Governor Brown talked with Governor Patrick? Massachusetts has a film credit, that cost $78.9 million in 2012. More than $60 million went to just three firms. The state estimates that while the credit generated $304 million, only a third was spent in Massachusetts. While the credit did create 2,000 jobs, Massachusetts residents got only 700 of them. Three dozen states have similar tax credits. But as former Federal Reserve Bank of Boston vice president Robert Tannenwald noted, “If everybody jumps off a cliff, does that mean its good policy?”
Correlation is not causation, reminds TPC’s Kim Rueben. She considers the latest Standard & Poor’s conclusion that state revenues are falling because of income inequality. True, state revenues have been slumping, but for many reasons. For example, sales taxes are down because more of us are buying services which are often tax free. The wealthy pay less in income tax because states (and the feds) have cut their tax rates. “Income inequality may indeed have some effect on state tax revenue. But to know how much, careful researchers need to control for a changing economy and changing state laws. And S&P didn’t do that.”
Individual tax rate cuts: No silver bullet. TPC’s Bill Gale shares that bottom line in his latest post. Concluding from the paper he and Dartmouth's Andrew Samwick published, “It is by no means obvious on an ex ante basis that tax rate cuts will ultimately lead to a larger economy. While rate cuts would raise the after-tax return to additional work, saving, and investment, they would also raise the after-tax income people receive from their current level of activities, which lessens their need to work, save, and invest more.”
Horizon sees no anti-inversion action on the… horizon. The Illinois pharmaceutical company now has an Irish mailing address. It’s the first corporation to complete an inversion that could be overturned by retroactive measures taken by Congress. “The probability of legislation being enacted to affect inversions is pretty close to zero,” Robert Carey, Horizon’s chief business officer, told Bloomberg. “The legislation that’s being proposed right now is simply campaigning for the midterm elections.”
Australia makes a promise for 2017. At a meeting of G20 finance ministers, Australian Prime Minister Joe Hockey asserted that “We need to have global information and global action to go after tax cheats.” He vowed that Australia would implement the global standards proposed by the Organization for Economic Cooperation and Development. The OECD plan would create one set of rules for international taxation. “Implementation,” by all participating governments, “will be key,” noted OECD Secretary-General Angel Gurria.
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