New Labor Department data released today show that employment growth slowed markedly in September, providing further evidence that the labor market has weakened in 2006. ... Read more
Proponents of the 2001 and 2003 tax cuts often argue that the economic and employment growth of the past several years establishes that these tax ... Read more
Key Findings The House-passed housing tax package improves on the Senate’s version in several important respects. It omits the Senate’s net operating loss provision, an expensive business tax break that would neither help homeowners nor boost the economy. It temporarily expands the Low-Income Housing Tax Credit and includes a package of other changes that would enhance the credit’s effectiveness. It does not include a provision of the Senate bill that would effectively prevent local governments from increasing property tax rates, seriously aggravating their fiscal problems. It complies with the Pay-As-You-Go (PAYGO) rule: the cost of the package is fully offset over 10 years. However, the House-passed package does include two provisions — a credit for first-time homebuyers and a non-itemizer property tax deduction — that are not the best use of scarce resources. While some provisions of the tax package have merit, by itself the package would do little to address the foreclosure crisis. Measures passed by the House and approved by the Senate Banking Committee to help families struggling to keep their homes are far more important in this respect. So are measures passed by the House and Senate to assist communities especially hard hit by foreclosures. Read more
Key Findings: Some advocates of cutting the corporate income tax rate have greatly exaggerated both the level of tax that U.S. corporations pay and the economic effects of the corporate income tax. While the statutory U.S. corporate tax rate is relatively high, effective corporate tax rates — the share of their profits that corporations actually pay in taxes — are much lower, due to the plethora of corporate tax breaks in the tax code. Effective tax rates also differ substantially among different types of investment. For example, some categories of corporate investment are taxed at rates close to the statutory rate, while debt-financed investment is subject to a negative effective marginal rate. These large discrepancies create opportunities for revenue-neutral or revenue-raising tax reforms that could benefit the economy by leveling the playing field for different types of investment and thereby removing economic distortions that the current tax code creates. The evidence does not support claims that unpaid-for (i.e. deficit-financed) corporate tax cuts would significantly benefit the economy. In fact, a Joint Committee on Taxation analysis found that such tax cuts would actually slightly reduce economic growth over the long run. Because deficit-financed tax cuts eventually would have to be paid for (through reductions in programs or increases in other taxes), they would probably leave most Americans worse off even if they generated small economic gains. Read more
Key Findings: Only 1.2 percent of all households with business income would pay the tax surcharge that the House passed last week as part of the supplemental appropriations bill. That figure likely overstates the effect of the surcharge on small business owner-operators, since many of those who would be affected are wealthy individuals who are not business proprietors, but rather are passive investors who play no role in the day-to-day operations of the businesses they invest in. The few actual small business proprietors who would pay the surcharge are not likely to scale back their hiring or investment because of it. Nor is the surcharge likely to have any perceptible impact on the economy. The experience of the 1990s alone should refute opponents’ dire predictions. The overall economy, employment, wages and salaries, and investment all grew more rapidly in the 1990s, when the top individual income tax rate was 39.6 percent, than in more recent years, when the top rate was 35 percent. The surcharge will take back only a very small fraction of the massive tax benefits that very high-income households are receiving as a result of the 2001 and 2003 tax cuts. Read more
Key Findings Some 6 million children in working-poor families are currently barred from receiving the Child Tax Credit, a $1,000 per-child tax benefit. An additional 10 million children in low-income working families receive only a partial Child Tax Credit. Families need earnings well above the poverty line — and even farther above what full-time minimum-wage work pays — to qualify for the full credit. A single parent with two children would need earnings of at least $22,630 in 2008 to receive the full benefit. Because of its current structure, the Child Tax Credit leaves out the very children whose families face the greatest financial hardship. The current structure of the Child Tax Credit also punishes workers whose earnings fail to keep pace with inflation. Such workers see a smaller child tax benefit each year. For example, a worker making $14,500 (full-time earnings at the new minimum wage) would qualify for a $368 credit in 2008 but only a $278 credit by 2010. Legislation introduced by Senators Olympia Snowe (R-ME) and Blanche Lincoln (D-AR) would make the Child Tax Credit available to about 2 million children who currently are ineligible. A temporary measure included in the Ways and Means Committee tax “extenders” bill would extend the credit to 2.9 million otherwise- ineligible children in 2008. (For state-by-state estimates of these proposals’ impact, see the appendix tables below.) Read more
On April 10, the Senate passed legislation that its supporters say will help struggling families hold on to their homes and assist the communities hit ... Read more
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. Read more
Key Findings Making the 2001 and 2003 tax cuts permanent, as proposed by the President, and extending Alternative Minimum Tax relief would add an additional $4.4 trillion to deficits over the next ten years. Making the tax cuts permanent would also dramatically worsen the nation’s long-term fiscal problems. Even if the tax cuts expire or their costs are offset, the debt in 2050 would stand at 105 percent of the economy, already an alarming figure. But extending the tax cuts without paying for them would essentially double the size of the debt in 2050; debt would then stand at more than 200 percent of the economy. Measured in today’s terms, the annual cost of the tax cuts when fully in effect exceeds the combined annual budgets of the Departments of Education, Homeland Security, Housing and Urban Development, Veterans’ Affairs, State, Energy, and EPA. The cost of the tax cuts going to the top 1 percent of households alone is larger than the entire budget of the Department of Education. The cost is so high because by 2010 — the first year in which all provisions of the 2001 and 2003 tax cuts are fully in effect — households in the top 1 percent of the income scale will receive average tax cuts of more than $60,000 apiece. Read more
The top 1 percent of households (currently those with incomes over $450,000) will receive almost $1.2 trillion in tax cuts over the next ten years, if the 2001 and 2003 tax cuts are extended and relief from the Alternative Minimum Tax is continued. By 2010, the tax cuts will average more than $60,000 a year for households in the top 1 percent — and more than $150,000 a year for households with incomes above $1 million. The cost of the tax cuts (when fully in effect) for people with incomes over $1 million will exceed the total amount the federal government devotes to K-12 and vocational education, and it will exceed what the federal government spends on hospital and other medical care for veterans. The annual cost of the tax cuts for those with incomes over $1 million also will exceed the total savings in each of the next five years from the cuts the President’s budget proposes in an array of domestic non-entitlement programs, including education, health research, environmental programs, and others. Read more
