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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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A Better Measure of Mortgage Application Denial Rates (Research Report)
Wei Li, Laurie Goodman

The Housing Finance Policy Center’s new measure of the rate at which mortgage applications are denied – the real denial rate (RDR)– improves upon existing denial rate measures by considering only low-credit-profile applicants. The RDR better tracks trends in credit accessibility over time and reveals that the conventional channel has had a consistently tighter credit box over time than the government channel. The RDR also shows much smaller racial and ethnic distinctions in mortgage denial rates over time than are shown by the traditional measure.

Posted to Web: December 02, 2014Publication Date: December 02, 2014

Angel Investor Tax Credits (Article/Tax Facts)
Norton Francis

High net worth investors can reduce the cost of an investment in 29 states by claiming an "angel investor" tax credit. In most states, the credit is worth more than 25 percent of the investments and can be transferred to another taxpayer if it exceeds the investor's liability. States hope the credit will develop high tech clusters and generate economic activity.

Posted to Web: November 25, 2014Publication Date: November 25, 2014

Do Homeownership and Rent Subsidies Protect Individuals from Material Hardship? (Research Brief)
Robert I. Lerman, Sisi Zhang

Homeowners and subsidized renters experience significantly lower material hardship than unsubsidized renters, even after taking account of income, income variability, race, education, and family structure. Homeownership conveys more protection against hardship than do rent subsidies. Using the Survey of Income and Program Participation, we estimate the likelihood of experiencing any material hardship is about 9.2 percent lower for subsidized renters and 24.5 percent lower for homeowners. Even homeowners who bought just before the recent crash in home prices experienced less hardship than unsubsidized renters. White, black, and Hispanic homeowners all suffer less material hardship than their renting counterparts (whether subsidized or unsubsidized). This reduction is most pronounced among Hispanic families.

Posted to Web: November 18, 2014Publication Date: November 18, 2014

Housing Finance At A Glance: A Monthly Chartbook : November 2014 (Fact Sheet / Data at a Glance)
Laurie Goodman, Ellen Seidman, Jim Parrott, Sheryl Pardo, Jun Zhu, Wei Li, Bing Bai, Taz George, Alison Rincon, Maia Woluchem

This month’s edition of At A Glance, the Housing Finance Policy Center’s reference guide for mortgage and housing market data, includes updated indicators related to credit availability and a special quarterly look at Fannie Mae’s and Freddie Mac’s loan composition, default rates, and repurchase activity.

Posted to Web: November 18, 2014Publication Date: November 18, 2014

Tax Policy and Volunteer Labor (Research Brief)
Katherine Toran

Volunteers are extremely valuable to the charitable sector: Urban Institute researchers estimated the value of their labor at $163 billion in 2013. Though charitable contributions can be deducted from income taxes, volunteers cannot deduct the value of their labor. By economic consensus, donations of time and money are complements, meaning when people increase monetary donations they also tend to volunteer more hours. This Tax Policy and Charities brief explores how potential ways to create a tax deduction for volunteer labor would affect charitable donations, as well as the supply of volunteer labor.

Posted to Web: November 11, 2014Publication Date: November 11, 2014

Reforming State Gas Taxes: How States Are (and Are Not) Addressing an Eroding Tax Base (Research Brief)
Richard C. Auxier

The federal government and most states have per-unit gas taxes. Because they tax gallons purchased, and not a percentage of purchase price, revenues are falling across the country as Americans buy less gas. If states do not want to cut transportation projects they now have to increase tax rates or find new revenue sources. This brief examines the national trends affecting gas tax revenues and describes what different states are doing (or not doing) in response to an eroding tax base.

Posted to Web: November 06, 2014Publication Date: November 06, 2014

Temporary Taxes: States' Response to the Great Recession (Research Brief)
Norton Francis, Brian David Moore

When the Great Recession created unexpected budget deficits, many states used temporary tax increases to maintain revenues for vital government services. Because they are generally less disruptive than immediate spending cuts, temporary tax increases can be a useful tool for overcoming short-term deficits. There is a perception that temporary taxes become permanent taxes but the evidence on this point is mixed. States do allow temporary taxes to expire after the taxes have met their short-term revenue needs but some of the taxes are made permanent or extended. In this brief, we look at 14 states and the District of Columbia (DC) that together enacted 25 temporary tax increase measures between 2008 and 2011.

Posted to Web: November 05, 2014Publication Date: November 05, 2014

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

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