Tax Distribution and Economic Trends

This fact sheet examines the effects of the American Taxpayer Relief Act of 2012 (ATRA) on charitable giving. The major individual income tax provisions are estimated to increase giving by $3.3 billion or 1.5 percent, relative to 2012 law, mainly because of the increase in the top marginal tax rate. Numerous other smaller provisions will also affect charitable giving.

On January 3, 2013, the 113th session of the U.S. Congress opened with a fiscal cliff averted, but a country still stuck in a less-recognized fiscal bind. In the first video of a three-part series, Urban Institute Fellow Eugene Steuerle, a former deputy assistant secretary of the Treasury for tax analysis and cofounder of the Urban-Brookings Tax Policy Center, explores one of the major reasons recent Congresses have been so dysfunctional: all, or almost all, the revenue to be collected by the Treasury Department was spent before lawmakers walked in the door. Steuerle further discusses how spending and tax subsidy programs on autopilot, along with a tax system inadequate to pay our bills and rife with gaping holes, handicap lawmakers' and the public's ability to set new goals for solving today’s and tomorrow's problems.

Two Tax Court decisions, including two from May 2012, demonstrate the concerns that arise both when the charitable contributions substantiation rules are strictly applied and when they are not. In order to address problems of valuation, the U.S. Congress has addressed the charitable substantiation rules five times in the past 30 years. Each time, Congress has strengthened the rules to try to prevent overvaluation, but the rules have not proved satisfactory. This brief suggests reasonable and fair reforms to substantiation rules.

With less than four weeks left, reaching an agreement to avoid the negative short-term economic impact of the so-called fiscal cliff might be beyond the ability of the strained U.S. political system.

The paper describes the current U. S. fiscal problems showing that without significant changes in revenue and spending policies, the country is headed for a sovereign debt crisis similar to that afflicting countries in Southern Europe. Various options for stabilizing the debt-GDP ratio are analyzed including the proposals of the President's National Commission on Fiscal Responsibility and Reform and the Bipartisan Policy Center's Deficit Reduction Task Force. The budgets passed by the House of Representatives and the president's response are also considered. The paper goes on to describe the Budget Control Act passed after the debt limit debate of 2011.

These tables update previous estimates of the lifetime value of Social Security and Medicare benefits and taxes for typical workers in different generations at various earning levels based on new estimates of the Social Security Actuary. The "lifetime value of taxes" is based upon the value of accumulated taxes, as if those taxes were put into an account that earned a 2 percent real rate of return (that is, 2 percent plus inflation). The "lifetime value of benefits" represents the amount needed in an account (also earning a 2 percent real interest rate) to pay for those benefits. All amounts are presented in constant 2012 dollars.

The looming fiscal cliff threatens to boost taxes by more than $500 billion in 2013 when many temporary tax provisions are scheduled to expire. Nearly 90 percent of Americans would pay more tax, primarily because the temporary cut in Social Security taxes and many of the 2001/2003 tax cuts would expire. Low-income households would pay more due to expiration of tax credits in the 2009 stimulus. High-income households would be hit hard by higher tax rates on ordinary income, capital gains, and dividends and by the new health reform taxes. And marginal tax rates would rise, potentially affecting economic decisions.

The fiscal cliff would increase Americans' taxes by more than $500 billion in 2013, or almost $3,500 per household. A typical middle-income household would see its taxes go up roughly $2,000. Using the Tax Policy Center's microsimulation model of the U.S. tax system, the authors examine in detail how the tax changes in the fiscal cliff would affect taxpayers at different income levels.

As Mitt Romney recently noted, about 47 percent of U.S. households do not pay federal income taxes. Some see this as evidence of a welfare state run amok. Others think that gimmicks and loopholes let both rich and poor Americans duck their taxes. This commentary corrects some misconceptions about this group, now colloquially called the 47 percent.

This article presents IRS data on corporate dividends paid and received. Following the 2003 legislation that lowered the individual tax rate on dividends, roughly $350 billion of net corporate dividends have been paid annually. Less than half that amount has shown up as qualified dividend income on individual tax returns.