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Economy and Taxes

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Clear nonpartisan analysis of fiscal and tax policy enables policymakers and the public to weigh competing theories on how to end the country’s economic crisis. Urban Institute researchers evaluated key components of the stimulus package and analyzed the tax proposals in the president’s budget. Warning decisionmakers about the unsustainable fiscal course ahead, our experts propose ways to control deficits and reform the entitlement programs that drive up spending. Read more.

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Municipal Debt: What Does It Buy and Who Benefits? (Research Report)
Harvey Galper, Kim Rueben, Richard C. Auxier, Amanda Eng

This paper examines the incidence of the federal income tax exemption of interest on state and local bonds, applying a fixed-savings, simplified general equilibrium approach to estimate incidence effects on both the sources and uses of income. In contrast to traditional empirical work that allocates the benefit of tax exemption only to current holders of tax-exempt bonds based on current interest rates, we incorporate the fact that the existence of tax exemption causes the taxable interest rate to rise and the tax-exempt rate to fall. As a consequence, on the sources side, tax exemption can increase after-tax income for holders of both taxable and taxexempt bonds. On the uses side, consumers of both private and public goods are affected by the higher cost of funds to private and federal government borrowers, the lower cost of funds to state and local borrowers, and the lower cost of funds to private-sector entities with access to the proceeds of tax-exempt borrowing. Overall, higher income individuals remain the primary beneficiaries of tax exemption on the sources side with this new approach, but less so than under the traditional approach. On the uses side, households who consume a relatively large share of state and local public services, such as those with several school-age children, receive significant net benefits.

Posted to Web: October 29, 2014Publication Date: October 29, 2014

Small-Dollar Credit: Consumer Needs and Industry Challenges (Summary)
Signe-Mary McKernan, Caroline Ratcliffe, Caleb Quakenbush

Managing finances can be a tightrope walk, especially for low- and moderate-income families. To deal with these challenges, many households turn to expensive small-dollar credit. This brief, based on a convening of 25 small-dollar credit researchers, credit union experts, and bank representatives, discusses the opportunities and challenges of providing small-dollar credit products. Ability to repay, flexibility, and transparency are important features for consumer success. Products that bundle credit with savings provide pathways to greater financial stability. Small loan amounts, the costs of underwriting and servicing loans, and regulatory and reputational risks pose challenges to providers.

Posted to Web: October 28, 2014Publication Date: October 28, 2014

The Nonprofit Sector in Brief 2014: Public Charities, Giving and Volunteering (Survey Brief)
Brice McKeever, Sarah L. Pettijohn

The Nonprofit Sector in Brief 2014 highlights trends in the number and finances of 501(c)(3) public charities and key findings on two important resources for the nonprofit sector: private charitable contributions and volunteering. Each year, The Nonprofit Sector in Brief 2014 presents the most recent data available on the nonprofit sector. This particular edition of the brief presents data from 2002 to 2012.

Posted to Web: October 27, 2014Publication Date: October 27, 2014

State Economic Monitor: October 2014 (Series/State Economic Monitor)
Richard C. Auxier

Most states ended the summer of 2014 on a positive economic note. Up from 14 states a year earlier, 25 states reported August unemployment rates below 6 percent. Every state but Alaska added jobs within the last year. But some troubling signs remain. Inflation-adjusted average weekly wages declined or did not change in 26 states. The latest issue of the State Economic Monitor describes economic and fiscal trends at the state level, highlighting particular differences across the states in employment, state government finances, and housing conditions. This issue also includes a special section on state minimum wages.

Posted to Web: October 16, 2014Publication Date: October 16, 2014

Professor Shay Got It Right: Treasury Can Slow Inversions (Article/Tax Notes Viewpoints)
Steven Rosenthal

In a recent Tax Notes article, Shay argued that Treasury could write regulations to reduce the tax incentives for U.S. corporations to expatriate. Rosenthal agrees with Shay and analyzes the legal support for regulations under section 385.

Posted to Web: September 30, 2014Publication Date: September 22, 2014

The $300 Billion Question: How Should We Budget for Federal Lending Programs? (Research Report)
Donald Marron

Student loans, mortgage guarantees, and other lending programs create special challenges for federal budgeting. Under official budget rules, these programs are projected to bring in $200 billion over the next decade. Under an alternative, favored by many analysts, they appear to lose $100 billion. That $300 billion disparity confuses policy deliberations. In this report, Donald Marron proposes a new budgeting approach, known as expected returns, that would eliminate this confusion. The report critically reviews today’s budgeting approaches, identifies their flaws, and demonstrates how expected returns would improve budgeting for federal lending.

Posted to Web: September 29, 2014Publication Date: September 29, 2014

A Better Way to Budget for Federal Lending Programs (Policy Briefs)
Donald Marron

Policy analysts have long debated how best to budget for student loans, mortgage guarantees, and other federal lending programs. Under official budget rules, these programs appear highly profitable; under an alternative, favored by many analysts, they appear to lose money. That discrepancy confuses policy deliberations. In this brief, Donald Marron proposes a new budgeting approach, known as expected returns, that would eliminate this confusion. Unlike existing approaches, expected returns accurately reports the fiscal effects of lending over time and provides a natural way to distinguish the fiscal gains from bearing financial risk from the subsidies given to borrowers.

Posted to Web: September 29, 2014Publication Date: September 29, 2014

Flow-Through Business Income as a Share of AGI (Article/Tax Facts)
Joseph Rosenberg

This Tax Fact documents the increasing share of flow-through business income as a percentage of adjusted gross income (AGI) reported on individual income tax returns. In 2012, net income from sole proprietorships, partnerships, and S corporations totaled nearly $840 billion and accounted for more than 9 percent of total AGI.

Posted to Web: September 29, 2014Publication Date: September 29, 2014

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