TaxVox: Individual Taxes

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The voices of Tax Policy Center's researchers and staff

Federal Budget and Economy

Is Obama's Deduction Cap A Revenue Plug?

March 5, 2009 –
There are already signs that a key tax element of President Obama’s budget--his proposal to limit to 28 percent the value of all tax deductions—may not survive on Capitol Hill. And if it is allowed to die, Congress may find itself staring squarely at another hard-to swallow tax hike—trimming the tax exclusion for employer-sponsored insurance. Key Republicans have strongly objected to the curb on deductions. Powerful Democrats, including Finance Committee chairman Max Baucus (D-Mt), are less than enthusiastic. Charities that fear they will lose contributions are gearing up for a big fight, even though TPC estimates that gifts would decline by only about 2 percent. And in the face of this criticism the Administration has signaled that it may not fight very hard to save the proposal. "We recognize there are other ways to do this," Treasury Secretary Tim Geithner told the Finance panel yesterday.
Federal Budget and Economy

Giving Up on the Advanced Earned Income Tax Credit

March 4, 2009 –
President Obama’s budget would eliminate a small but meaningful program for low-income families – the Advanced Earned Income Tax Credit (AEITC). A far better idea would be to expand the program. This credit allows eligible families to receive a portion of their Earned Income Tax Credit (EITC) throughout the year through a reduction in tax withholding, so they don’t have to wait until they file their tax returns to get the extra cash. In 2009, the program could boost a family’s take-home pay by up to $35 a week.
Individual Taxes

Would Obama’s Plan to Curb Deductions Hurt Charities?

March 3, 2009 –
Critics charge that President Obama’s plan to limit the value of itemized deductions to 28 percent would hurt charities at the time they most need financial support. Their argument: Since the maximum value of the deduction for donations to charity would fall from 39.6 percent to just 28 percent , the affluent will give less. Republican Whip, Eric Cantor, asked, “Is there any better time to have charities in full throttle than when you have tough economic times?” How much would the proposal affect donations? A back-of-the envelope estimate suggests that the Obama plan would reduce annual giving by about two percent, or roughly $9 billion. Here’s how we got there.
Individual Taxes

That Was Quick

March 2, 2009 –
In our report card grading the tax provisions of the stimulus bill, our highest mark went to the Making Work Pay credit because employers could deliver it to workers quickly by reducing withholding. The IRS, we were told, could implement new withholding tables by July so households would have more money to spend throughout the second half of the year. President Obama wanted the credit to start even sooner and ordered the IRS to have new tables ready in time for employers to reduce workers’ withholding by April 1. The IRS must have anticipated the change—just four days after the president signed the stimulus bill into law, the IRS announced new withholding tables and posted them on their website a week later.
Individual Taxes

Stimulating State and Local Debt by Direct Grants

March 2, 2009 –
Tax-exempt bonds have always been something of a two-edged sword. On one hand, they reduce borrowing costs for state and local governments. On the other, they suffer from both built-in inefficiencies and the potential for serious abuse. The newly enacted stimulus bill didn’t do much to prevent the abuses—indeed it includes eight separate provisions that would expand the use of bonds for a wide-range of purposes from housing to alternative energy. But it did add one provision that promises to make municipal bonds a far more efficient way for states and localities to raise money.
Federal Budget and Economy

The Obama Tax Plan: Winners and Losers

February 27, 2009 –
This won’t take long. If you are blue-collar wage earner, a low-income family with children, or a college student, you should love President Obama’s tax plan. On the other hand, if you are making more than $250,000, you may not be so happy: By 2011, you'd be paying a lot more tax than you've gotten used to over the past few years. To the surprise of absolutely nobody, Obama’s budget includes many of the tax changes he promised during the campaign. He’d make permanent many of the “temporary” tax cuts in the just-passed stimulus. Working families would continue to get an $800-a-year tax cut long after the recession ends, and they’d continue to enjoy the benefits of a more generous Earned Income Credit and a more refundable child credit. Obama is proposing tax reductions for low- and moderate-income families of almost $800 billion over the next decade.
Federal Budget and Economy

Obama’s Plan to Cap Tax Deductions

February 26, 2009 –
To help pay for health reform, President Obama’s wants to limit deductions for high income taxpayers. He’s on to something, but I’ve got some questions about what he’s doing. This tax increase, sure to be politically contentious, would kick in starting in 2011 and raise about $318 billion over 10 years. That sounds like a lot, but in fact it would only fund about 20 percent of the total cost of the health plan Obama outlined in his presidential campaign. TPC estimated the price of that plan at $1.6 trillion over 10 years.
Individual Taxes

The Stimulus Act and the Limits of Tax Credits

February 26, 2009 –
For years, Congress has preferred to use tax incentives rather than direct spending to encourage investment. Thus, while a home buyer may not care whether she gets a tax credit or a check from HUD, for example, Washington seems to have concluded that the tax subsidy is good while the check from HUD is bad. Never mind that both are, in reality, spending. This bit of political ledgerdemain has made it increasingly difficult for lawmakers to choose the most efficient way of delivering subsidies. But surprisingly, the current economic mess may be bringing some clarity to this issue.
Federal Budget and Economy

The Budget Summit: A Missed Opportunity

February 24, 2009 –
Whatever his intentions, President Obama’s missed an opportunity at his fiscal summit yesterday. It is critically important for Washington to finally confront the long-term deficit. And Obama sent an important symbolic message by throwing this shindig. But the timing was all wrong. Right now the public and financial markets are obsessed with only one economic issue: the recession. With those fears so dominant, whatever was said at the White House yesterday will be quickly forgotten.
Individual Taxes

The Complexity of Capital Gain Taxation

February 24, 2009 –
Most American think that the tax rate on capital gains for most taxpayers is 15 percent. But that is far from the whole story. For example, gains from the sale of collectibles, such as art or wine, are taxed at higher rates—though, for taxpayers subject to marginal rates of 28 percent or above, still less than wages or interest are taxed. Then there are the gains on the sale of stock in a qualifying “small” business (with assets under $50 million). These profits are taxed at 14 percent—only a bit lower than the normal 15 percent rate. And even that advantage all but disappears for those small business owners hit by the Alternative Minimum Tax. For them, the effective capital gains rate is 14.98 percent.