Given the budget problems states face due to the recession, policymakers will confront important choices about how to pay for important government services and programs. To inform this crucial decision making, it is useful to examine where state tax dollars go as well as changing trends over time.

Duration: 5:35

Key Findings

• “Climate rebates” can shield low- and middleincome consumers from the higher energyrelated prices they will face as a result of restrictions on greenhouse-gas emissions.
• Three existing tax and benefit mechanisms would be used to deliver the rebate. (1) Lowand middle-income working families would be issued a rebate through a tax credit. (2) People receiving Social Security, SSI, or veterans’ benefits would receive their rebates directly from the agency administering those benefits. (3) Very low-income consumers could be issued climate rebates through states’ Electronic Benefit Transfer systems.
• Together, these approaches could deliver climate rebates automatically to 95 percent of households in the bottom fifth of the income spectrum and 98 percent of households in the next two income quintiles, without new bureaucratic structures and with low administrative costs.

Key Findings

• Businesses organized as subchapter S Corporations or Limited Liability Companies generate roughly one-fourth of all business receipts. Yet 19 states impose only nominal taxes on these entities even though they benefit from state services just as businesses that are subject to state corporate income taxes do.

• These 19 states should consider imposing meaningful levies on S-Corps and LLCs as a source of additional revenue to help close the major budget gaps many of them are facing.

• The 31 states that impose significant taxes and fees on S-Corps and LLCs should determine whether reforms are warranted. In particular, state tax laws should not treat LLCs more favorably than S-Corps.

This audio presentation, which includes remarks from the Center's Executive Director Robert Greenstein, introduces the Climate Equity Alliance and presents the principles drawing these groups together, with particular attention to how policymakers should move forward following the draft legislation just put forward by Representatives Henry Waxman (D-CA) and Edward Markey (D-MA).

Duration: 17:17

Key Findings

• A majority of states levying corporate income taxes have now adopted a key reform known as “combined reporting.”
• Combined reporting nullifies a variety of abusive corporate income tax avoidance strategies. These include Wal-Mart’s “captive REIT” tax shelter (featured in a front-page Wall Street Journal story in February 2007) and the “Delaware Trademark Holding Company” shelter adopted by Toys R Us and many other retailers.
• Seven states — Massachusetts, Michigan, New York, Texas, Vermont, West Virginia, and Wisconsin — have adopted combined reporting since 2004, bringing to 23 the number of states implementing this policy.

Key Findings

• The Tax Foundation bases its “Tax Freedom Day” calculation on the share of total national income paid in taxes.
• While this figure can be useful for assessing overall revenue levels, it does not represent the share of income that the typical American pays in taxes.
• Because the federal tax system is progressive, the share of income that most Americans pay in federal taxes is considerably lower than the overall level of revenues as a share of total national income.
• Estimates from the Congressional Budget Office (CBO) show that middle- and even upper-middle-income Americans pay less of their income in federal taxes than the “average” tax burden reported in the Tax Foundation’s “Tax Freedom Day” report.
• In fact, the CBO estimates indicate that some 80 percent of U.S. households pay federal tax at rates lower than the Tax Foundation’s reported average.
• Journalists and others who report on “Tax Freedom Day” as if it represented the day until which the typical or average American must work to pay his or her taxes are misusing these figures and fostering serious misimpressions about the level of taxes most Americans pay.

Key Findings

• Many health reform proposals would establish an insurance “exchange” to provide coverage options that are affordable, comprehensive, and easy to compare. But unless an exchange has certain features, it will not function properly.
• Legislation establishing an exchange will need features which assure that: 1) insurance plans compete on the basis of price and quality, not on the basis of which insurers are best at attracting healthier enrollees and deterring sicker ones; 2) less-healthy individuals are not charged higher premiums for the same coverage simply because they end up in plans that disproportionately enroll less-healthy people; 3) all enrollees get at least a basic level of comprehensive benefits; and 4) consumers are able to compare plans and make informed decisions.
• To accomplish this, the legislation will need to require insurers to offer at least a minimum level of benefits. It also must limit the number of different benefit designs available in order to rule out benefit packages crafted to attract the healthy and deter the sick. And a reasonable limit will be needed on the number of plans an exchange offers in order to help consumers make intelligent choices.
• To prevent less-healthy people from being charged more for the same coverage because they are enrolled in a plan that disproportionately enrolls sicker individuals, the exchange should require each insurer to offer the full range of different benefit designs the exchange provides and to treat enrollees in all of its plans as one risk pool, as Massachusetts does.
• Simply requiring that all plans meet an “actuarial value” standard will not be sufficient to address these matters.

Key Findings

• Critics have raised a number of dubious claims about the Administration’s proposal to limit itemized deductions for upper-income taxpayers and use the savings to help pay for health care reform.
• The proposal would affect fewer than the top 1.2 percent of all tax households — those with incomes over $250,000 that face tax rates of either 35 or 33 percent (and are not subject to the Alternative Minimum Tax) and itemize their deductions.
• The proposal would affect fewer than 2 percent of taxpayers with income from a small business. A far larger number of small business owners and their employees would benefit from the health care reform that this proposal would help finance and from other measures in the President’s budget.
• The proposal would reduce total charitable contributions by only 1.3 percent.
• The proposal would have very little impact on home buying. The affected families account for a very small share of home sales, and given their high incomes, they would be unlikely to defer a house purchase simply because of a new limit on itemized deductions.
• This proposal would not likely take effect while the economy is still in recession. It would not take effect until January 2011, and if the economy is not recovering by then, Administration officials have indicated (and Congress would almost certainly agree) that the proposal’s implementation could be deferred.

Key Findings

Federal law requires school districts to automatically enroll children for free school meals if their families receive SNAP benefits. This automatic enrollment, known as direct certification, is highly accurate and reduces paperwork for school districts and poor families.

• A new USDA study finds that states vary widely in the performance of their direct certification systems. Sixteen states miss more than two in five children who could be automatically enrolled for free school meals.
• Many children overlooked by direct certification fail to receive free school meals because their parents do not complete a paper application.
• States can take steps to improve direct certification, such as automatically connecting children who begin receiving SNAP benefits in the middle of the school year to free school meals.

Key Findings

• Some critics of the President's budget charge that his proposals to roll back tax breaks for taxpayers with incomes over $250,000 would harm small businesses. But fewer than one in ten people with any small business income have incomes over $250,000 and, thus, would even potentially be affected by these provisions.
• For instance, only 1.9 percent of taxpayers with any income from a small business would be affected by the proposal to restore the pre-2001 tax rates for high-income taxpayers.
• In contrast, the vast majority of small business owners and their employees would benefit from various proposals in the budget to cut taxes for middle-class taxpayers, to reform the health care system by expanding health insurance coverage and making health care more affordable, and to eliminate capital gains taxes on small businesses, among other proposals.

This podcast discusses the President’s budget outline for fiscal year 2010.

Robert Greenstein discusses the priorities in the budget, as well as specific initiatives in major areas such as health care, taxes, and climate change. They also examine the budget’s implications for the federal deficit and debt and fiscal responsibility, and evaluate whether the budget’s numbers are honest or rely on gimmicks.

Duration: 20:54