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.
At year end 2013 the Mortgage Forgiveness Debt Relief Act expired. Unless Congress extends it, debt on principal residences that has been forgiven or written down after 2013—through short sales, deeds-in-lieu, foreclosures or loan modifications will generally be treated as taxable income. We argue that the act is an important facilitator of principal-reduction modifications. Failure to renew is likely to generate little net revenue.
Claims that the ACA involves "the largest income transfer in American history" are exaggerated. Low- and moderate-income people receive benefits equaling 0.9 percent of GDP, a fraction of spending on Medicare, Social Security, and tax preferences for employer-sponsored insurance. The affluent contribute just 0.2 percent of GPD, with taxes limited to 2.4 percent of tax-filers, who pay an average of 0.5 percent of income. Nearly three-quarters of ACA's funding comes, not from the wealthy, but from the health care industry, through reimbursement cuts or taxes and fees. However, these contributions are offset by new revenue from people gaining health insurance.
This paper evaluates six options to achieve across-the-board reductions to a group of major exclusions and deductions in the income tax: (1) limiting their tax benefit to a maximum percentage of income; (2) imposing a fixed dollar cap; (3) reducing them by a fixed-percentage amount; (4) limiting their tax saving to a maximum percentage of their dollar value; (5) replacing preferences with fixed rate refundable credits; and (6) including them in the base of the existing Alternative Minimum Tax (AMT). We discuss issues of design, implementation, and administration, and simulate the revenue, distributional, and incentive effects of the various options.
This paper documents the increased role of pass-through entities and the associated decline in use of the taxable corporate form since the Tax Reform Act of 1986 (TRA86) and discusses implications for the design of tax policy. We show how significant reductions in the corporate tax rate, absent changes in the personal tax rate, would reverse the organizational form incentives that have existed since TRA86. If the loss in revenue from a rate reduction is offset by a broadening of the tax base, most business entities, comprising most business income, will face an overall increase in their tax burden.
Although many developing and transition countries are pursuing fiscal decentralization reforms, the debate surrounding the relationship between revenue decentralization and economic growth has not yet been fully resolved. While proponents of decentralization suggest that local own source revenue collections are generally evidence of an effective local public sector, a contrasting view holds that revenues collected by weak and non-responsive local governments tend to negatively affect economic growth. Our analysis suggests that the relationship between revenue decentralization and economic growth differs considerably for different groups of countries, but does not find any evidence for the hypothesis that revenue decentralization suppresses economic growth.
Both political parties are calling for corporate tax reform without agreement on specifics. Proposals to broaden the corporate tax base to pay for lower rates or to eliminate taxes on corporate repatriations while trying to prevent income shifting do not address the main problems of taxing multinational corporations in a global economy. This article discusses the need for more fundamental structural reforms and offers up two ideas – securing international agreement on better rules to allocate profits of multinationals among taxing jurisdictions or, alternatively, replacing the U.S. corporate tax with full taxation of dividends and accrued capital gains of U.S. shareholders.
The federal income tax system provides substantial benefits to families with children. In 2013, the Tax Policy Center estimates that five major child-related tax benefits – the earned income tax credit (EITC), the child tax credit, the child and dependent care tax credit, the dependent exemption, and head of household filing status – will reduce taxes and provide credits totaling $171 billion (roughly $3,400 per family) for families with children. Nearly all families benefit, but low- and middle-income families tend to benefit most. This paper highlights who benefits from each major provision and how much benefit is received.