Taxes and Social Programs

Using tax filing data, this fact sheet demonstrates dramatic behavioral differences among the banked and unbanked in their use of two at-times costly tax-time financial products, refund anticipation checks (RACs) and refund anticipation loans (RALs). Banked tax filers are much more likely to avoid such products. Even for those who are otherwise similar in income and background, the banked are 57 percent less likely to use a RAC and 83 percent less likely to use a RAL. Such evidence may suggest the need for broader strategies that encourage savings and target the asset side of the household balance sheet.

This paper takes a broad look at tax expenditures in the context of revenue raising tax reform. It first reviews how tax expenditures have changed over the past 25 years and provides estimates of the distribution of tax savings resulting from tax expenditures today. The paper then examines three approaches for applying across-the-board limits to a selected group of the largest and most widely utilized tax preferences. The three options—a fixed percentage credit, a cap based on income, and a constant percentage reduction—can all be designed to raise significant revenue for deficit reduction in a progressive manner.

To help pay for expanded health insurance coverage, the health reform legislation enacted in 2010 included a new 3.8 percent tax on the net investment income of high-income taxpayers. When it goes into effect in 2013, it will increase the top tax rate on capital gains, dividends, and other investment income, regardless of whether the 2001 and 2003 tax cuts are allowed to expire. Almost all the burden will be borne by taxpayers with extremely high incomes. More than half the burden, for example, falls on taxpayers in the top 0.1 percent of the income distribution.

The debate over the relationship between government and the rich has been part of every presidential contest for more than a century. But myths and misunderstandings pervade attempts to compare 2012 and 1910 with policy prescriptions in mind. Chief among the myths propagated by both political parties is that, for better or worse, larger and more engaged government has come about through taxing the rich.

Realized income is a widely accepted measure of well-being. This paper examines the relationship between realized income and wealth and economic income, using a national sample of income tax returns matched with estate tax returns to compare the realized property income of individuals with the with the associated amount of wealth that generates that income. The study demonstrates that with respect to those who hold a significant amount of wealth, realized income is an extremely poor measure of well-being. This leads to inequity in tax and welfare programs. Finally, this study illustrates the usefulness of estate-income collation in studying wealth-income relationships.

This issue brief examines the unprecedented funding problem of state unemployment insurance (UI) programs. The majority of UI programs (36 of 53) have borrowed, securing record loan amounts to maintain unemployment insurance benefit payments during 2009-2011. It identifies the causes of the funding problem, discusses borrowing options for states and describes policy responses at both the state and federal levels. State actions have included both tax increases and benefit reductions. Federal policy proposals have addressed the low UI taxable wage base in most states and have offered partial debt forgiveness in return for state actions to improve solvency. To date, policy actions have been slow at both the state and federal levels of government.

This brief attempts to access the trends in charitable giving and how the current economic turmoil has affected the nonprofit sector - the main topic of an August 2011 roundtable hosted by the Tax Policy and Charities project at the Urban Institute. Twenty-five experts on tax policy and the nonprofit sector convened to discuss past trends in giving, the charitable sector's current situation, and the possible effects of proposals to modify the charitable deduction.

This article was published as part of the Tax Note series "The Legacy of the TRA '86." As current budget pressure forces us to consider tax reform as a means of raising revenue, past reforms provide us some valuable lessons. Reforms typically begin with a consensus that something is broken and that while we disagree on the perfect solution, no one favors the unequal justice, inefficiency, or complexity in our tax code. It was that type of bipartisan agreement that led to past successful tax reforms, such as in 1986, 1969, and 1954. Similar ideas are relevant today.

Reprinted with permission from Tax Analysts