Publications on Tax Distribution & Economic Trends

War and Taxes, to be released May 6 by the Urban Institute Press, chronicles the political arguments, economic conditions, and public opinions that made it possible for previous presidents and Congresses to raise taxes, sell bonds, and cut domestic spending to pay for wars. The authors contrast the tax hikes enacted to support previous military operations with the extraordinary tax cuts Americans have enjoyed during the current wars in Afghanistan and Iraq—all without overstating previous generations' enthusiasm for wartime sacrifice.

The history of America’s tax system can be written largely as a history of America’s wars. During World War II, Americans were urged to ration food, raise money, and accept higher taxes. After September 11, we were given tax cuts and asked to shop. Has the United States broken a noble tradition of fiscal sacrifice with the current, unprecedented wartime tax cuts, or are they the mark of new economic, and social forces at work? War and Taxes weighs the question by considering six conflicts that span the American Revolution to the present war in Iraq.

The tax code limits the extent to which individuals may take advantage of the tax benefits associated with traditional and Roth IRAs. The only eligibility criteria for contributing to a Roth IRA are income and filing status. In contrast, eligibility for deducting contributions to a traditional IRA depends on those factors as well as on whether the taxpayer and the taxpayer’s spouse participate in an employer-provided pension. Taxpayers are subject to an assortment of phaseout ranges based on those criteria.

Recent tax acts sharply lowered tax rates on long-term capital gains and dividend income. For millions of taxpayers, however, the alternative minimum tax limits the benefits from these cuts by increasing the effective marginal tax rates on capital gains and dividend income. The culprit is the phaseout of the AMT exemption.

As part of the recent stimulus bill, Congress and President Bush decided to try to grant businesses bonus depreciation allowances for new purchases of equipment. For each $100 spent in 2008 on equipment expected to last at least five years, businesses would be able to deduct the vast majority of costs in the first year — $600, versus $240 under the old law. At a 35 percent corporate tax rate, for instance, corporations can get checks from the IRS for $210 instead of $84 in the first year for each $1,000 invested. There is one catch: They must have $210 of taxes already due to get $210 back, or $600 of profit against which to take a $600 deduction. Otherwise they will have to delay taking the deduction — which is the world they were already in.