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Changes in Income Reported on Federal Tax Returns

January 29, 2015 Comments off

Changes in Income Reported on Federal Tax Returns
Source: Tax Policy Center (Brookings Institution and Urban Institute)

The composition of reported income has changed markedly since 1952. Investment income has continued to grow, along with business income, interrupted only by periodic economic downturns. Meanwhile, salaries and wages have declined as a share of income.

Smoothing State Tax Revenues over the Business Cycle: Gauging Fiscal Needs and Opportunities

January 22, 2015 Comments off

Smoothing State Tax Revenues over the Business Cycle: Gauging Fiscal Needs and Opportunities
Source: Federal Reserve Bank of Boston

During the two most recent U.S. recessions in 2001 and in 2007–2009, state governments experienced an unusually high degree of fiscal stress due to increased revenue cyclicality. Expanding upon the aggregate evidence, this paper explores the degree to which individual states have experienced fluctuating tax receipts over the business cycle. The findings provide state policymakers with information to better understand the extent and causes of this tax revenue cyclicality and, in the context of balanced budget requirements, the efficacy of alternative measures that might be employed to smooth the sensitivity of state resources to economic conditions.

Assessing Alternative Modifications to the Affordable Care Act

January 20, 2015 Comments off

Assessing Alternative Modifications to the Affordable Care Act (PDF)
Source: RAND Corporation

In this report, we use the COMPARE microsimulation model to estimate how several potential changes to the ACA, including eliminating the individual mandate, eliminating the tax credits, and combined scenarios that change these and other provisions of the act, might affect 2015 individual market premiums and overall insurance coverage. Underlying these estimates is our COMPARE-based analysis of how premiums and insurance coverage outcomes depend on young adults’ propensity to enroll in insurance coverage. We find that eliminating the ACA’s tax credits and eliminating the individual mandate both increase premiums and reduce enrollment on the individual market, as do the combined policies we examine.

Medicaid as an Investment in Children: What is the Long-Term Impact on Tax Receipts?

January 19, 2015 Comments off

Medicaid as an Investment in Children: What is the Long-Term Impact on Tax Receipts?
Source: National Bureau of Economic Research

We examine the long-term impact of expansions to Medicaid and the State Children’s Health Insurance Program that occurred in the 1980’s and 1990’s. With administrative data from the IRS, we calculate longitudinal health insurance eligibility from birth to age 18 for children in cohorts affected by these expansions, and we observe their longitudinal outcomes as adults. Using a simulated instrument that relies on variation in eligibility by cohort and state, we find that children whose eligibility increased paid more in cumulative taxes by age 28. These children collected less in EITC payments, and the women had higher cumulative wages by age 28. Incorporating additional data from the Medicaid Statistical Information System (MSIS), we find that the government spent $872 in 2011 dollars for each additional year of Medicaid eligibility induced by the expansions. Putting this together with the estimated increase in tax payments discounted at a 3% rate, assuming that tax impacts are persistent in percentage terms, the government will recoup 56 cents of each dollar spent on childhood Medicaid by the time these children reach age 60. This return on investment does not take into account other benefits that accrue directly to the children, including estimated decreases in mortality and increases in college attendance. Moreover, using the MSIS data, we find that each additional year of Medicaid eligibility from birth to age 18 results in approximately 0.58 additional years of Medicaid receipt. Therefore, if we scale our results by the ratio of beneficiaries to eligibles, then all of our results are almost twice as large.

Who Pays? A Distributional Analysis of the Tax Systems in All 50 States (5th Edition)

January 19, 2015 Comments off

Who Pays? A Distributional Analysis of the Tax Systems in All 50 States (5th Edition)
Source: Institute on Taxation and Economic Policy

Who Pays?, A Distributional Analysis of the Tax Systems in All Fifty States (the fifth edition of the report), assesses the fairness of state and local tax systems by measuring the state and local taxes that will be paid in 2015 by different income groups as a share of their incomes. The report examines every state and the District of Columbia. It discusses important features of each state’s tax system and includes detailed state-by-state profiles that provide essential baseline data to help lawmakers understand the effect tax reform proposals will have on constituents at all income levels.

See also: State Tax Codes As Poverty Fighting Tools

National Taxpayer Advocate Delivers Annual Report to Congress; Focuses on Taxpayer Service and Taxpayer Bill of Rights

January 16, 2015 Comments off

National Taxpayer Advocate Delivers Annual Report to Congress; Focuses on Taxpayer Service and Taxpayer Bill of Rights
Source: Internal Revenue Service

National Taxpayer Advocate Nina E. Olson today released her 2014 annual report to Congress, which expresses concern that taxpayers this year are likely to receive the worst levels of taxpayer service since at least 2001 when the IRS implemented its current performance measures. The report recommends that Congress enact a principles-based Taxpayer Bill of Rights, adopt additional safeguards to make those rights meaningful, and provide sufficient funding to make the “Right to Quality Service” a reality.

In the preface to the report, Olson emphasizes four points:

  • “First, the budget environment of the last five years has brought about a devastating erosion of taxpayer service, harming taxpayers individually and collectively;
  • “Second, the lack of effective administrative and congressional oversight, in conjunction with the failure to pass taxpayer rights legislation, has eroded taxpayer protections enacted 16 or more years ago;
  • “Third, the combined effect of these trends is reshaping U.S. tax administration in ways that are not positive for future tax compliance or for public trust in the fairness of the tax system; and
  • “Fourth, this downward slide can be addressed if Congress makes an investment in the IRS and holds it accountable for how it applies that investment.”

The report says the combination of the IRS’s increasing workload, the erosion of public trust occasioned by the IRS’s use of “tea party” and similar terms in screening applicants for tax-exempt status, and the sharp reduction in funding have created a “perfect storm” of trouble for tax administration and therefore for taxpayers. “Taxpayers who need help are not getting it, and tax compliance is likely to suffer over the longer term if these problems are not quickly and decisively addressed,” Olson wrote.

The report also urges Congress to enact comprehensive tax reform, pointing out that simplification would ease burdens on taxpayers and the IRS alike.

CRS — Premium Tax Credits and Federal Health Insurance Exchanges: Questions and Answers (December 19, 2014)

January 14, 2015 Comments off

Premium Tax Credits and Federal Health Insurance Exchanges: Questions and Answers (PDF)
Source: Congressional Research Service (via Federation of American Scientists)

Legal challenges that may have a substantial impact on the implementation and operation of the Patient Protection and Affordable Care Act (ACA) concern whether premium tax credits are available for millions of individuals participating in federally administered health insurance exchanges. These credits, which became available in 2014, are intended to help individuals pay the premiums for private health plans offered through the insurance exchanges established under the act. In addressing who may receive this credit, ACA refers to individuals who are “enrolled in [a plan] through an exchange established by the State” under ACA. Following the issuance of IRS regulations that allow for these credits to be available in both state and federally run exchanges, lawsuits were filed claiming that the language of ACA prohibits the credits from being available to individuals who obtain coverage in federally run exchanges. The Supreme Court has decided to weigh in on this issue in King v. Burwell. While the Supreme Court has not yet set a date for oral arguments in the King case as of the date of this report, it is expected that the case will be argued sometime in March, and a decision would be rendered by the end of the Court’s term in June 2015 at the latest.

This report provides background on provisions of ACA relevant to this issue. It then answers questions concerning the legal challenges and potential implications of the Court’s decision in King.

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