The voices of Tax Policy Center's researchers and staff
The IRS and the ACA: Working hard and working well. The IRS, thanks to years of preparation since the Affordable Care Act became law in 2010, has managed the current tax filing season smoothly, according to IRS Commissioner John Koskinen, even with new ACA burdens and IRS budget cutbacks. “It's amazing what the IRS can do when it's given that time,” said National Taxpayer Advocate Nina Olson.
Harder work with shrinking resources, however: Not sustainable. IRS budget cuts put tax compliance at risk, and IRS Commissioner Koskinen shared one idea at last week’s TPC forum: A taxpayer should have a secure online IRS account through which she can get information, update personal information, file returns, pay taxes, and connect with IRS staff. That sounds great, but TPC’s Howard Gleckman explains the uphill political and cultural battle for that transition. Until IRS management improves and Congress stops treating the agency like its favorite punching bag, taxpayer compliance will continue to suffer.
What if it were easier to understand and follow tax filing laws? The Urban Institute’s Gene Steuerle thinks simplification should be a primary objective of tax reform. Simpler laws could improve compliance, and removing requirements that can’t be enforced could free up IRS resources. But as Gene acknowledges, there’s a catch: “To achieve this goal, leaders of both parties have to cooperate to make changes that benefit the public, even when it gives them no partisan advantage.” Nobody ever said making things easy would be… easy.
Do higher education tax credits pay for themselves by boosting college attendance and consequent earnings? No, they don’t. George Bulman and Caroline Hoxby, in their new National Bureau of Economic Research working paper, find that the Hope Tax Credit, the Tax Credit for Lifetime Learning and the American Opportunity Tax Credit have little to no effect on college enrollment or attendance. They don’t tend to help lower-income households, either: Families pay tuition for an average of 9 to 10 months before ever receiving the credits. If a family struggles to pay for college in the first place, the credits can’t help them.
The Earned Income Tax Credit, on the other hand, does what it’s supposed to do, but could do even more. TPC’s Elaine Maag explains in her new paper. The EITC provides substantial assistance to low-income working families with children. It lifted 6.5 million people out of poverty in 2012. But: The credit doesn’t give a lot of help to workers without children; it is complicated, with a high erroneous payment rate; and it imposes a marriage penalty on some low- and moderate-income couples. Elaine concludes that “extending the credit to workers without children or replacing it with an individual worker credit could solve some or all of these criticisms.”
Another look at Ferguson, Missouri. Using newly released Census data, TPC’s Tracy Gordon builds on the recent US Department of Justice finding that the city has focused on “revenue rather than … public safety needs.” She compares Ferguson’s revenue sources to other Missouri and comparable US cities, and finds that Ferguson is indeed an outlier. In fiscal 2012, the city collected 12.9 percent of its general revenues from fines and forfeitures, compared with 2.5 percent in other Missouri cities. The comparable share for all mid-sized US cities was 1.8 percent.
“Stay thirsty,” California. Or not. The Golden State’s new regulatory restrictions on water given its drought crisis are already under fire. And farmers, who use 80 percent of the state’s water, are limited by the curbs. What’s a too-dry state to do? TPC’s Howard Gleckman has an idea: Tax water. It’s a bit of a political nightmare, to be sure, but it’s at least a familiar one. “Maybe after the state struggles with a regulatory solution, it will realize that taxing water is easier, more equitable, and more effective.”
On the Hill this week: Tomorrow, the House Ways & Means Subcommittee on Health holds a hearing on the individual and employer mandates under the Affordable Care Act and the Senate Finance Committee will hold a hearing on Medicare audit and appeals issues.
Interested in subscribing to the Daily Deduction, the Urban-Brookings Tax Policy Center summary of the day’s tax news? Sign-up here to get the Daily Deduction delivered to your inbox every morning. If you’d like to tell us about a new research paper or have any comments about our feature, write us at [email protected].
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.