The centerpiece of the President’s economic stimulus proposal reportedly is a tax rebate that would be provided by temporarily reducing the 10 percent income tax ... Read more
Key Findings Reductions in personal and corporate marginal income tax rates would do little to stimulate the economy — far less than other options like extending unemployment benefits, providing aid to states, temporarily increasing food stamp benefits, or providing tax rebates to low- and moderate-income households. Marginal rate cuts have low “bang-for-the-buck” as stimulus because they target dollars to groups unlikely to spend them quickly. Across-the-board cuts in personal income tax rates overwhelmingly benefit upper-income households, while corporate rate cuts direct funds to profitable corporations but offer no incentive for these businesses to boost investment or production in the near term. Extending the 2001 and 2003 tax cuts would have virtually no stimulus effect, since it would not put a dollar in anyone’s pocket until 2011. Meanwhile, it would substantially worsen the nation’s budget outlook, likely damaging the economy in the long run and possibly even depressing investment in the short run if it caused long-term interest rates to rise. If policymakers want to use the tax system to provide economic stimulus, rebate checks targeted to low- and moderate-income households are among the best available options. Contrary to a common misconception, the available evidence indicates that the rebates delivered to households during the 2001 recession were reasonably effective at boosting demand and stimulating the economy. Read more
Several weeks ago, the House of Representatives passed legislation that would provide Alternative Minimum Tax relief for 2007, extend other expiring tax provisions, and offset ... Read more
Various Administration officials, senators, and House members are urging Congress to waive its Pay-As-You-Go rules and deficit-finance the Alternative Minimum Tax (AMT) “patch.” The AMT’s ... Read more
Economists across the political system generally concur that eliminating the tax break for “carried interest” income, a form of compensation received by private equity fund ... Read more
Key Findings The tax package the Ways and Means Committee adopted last week — and which the full House is expected to vote on later this week — complies with Congress’s Pay-As-You-Go budget rules: its costs are fully offset. The package demonstrates that Congress can, if it chooses, provide AMT relief, extend expiring provisions, and live by PAYGO. The most controversial offset in the package — the “carried interest” provision — would improve the equity and efficiency of the tax system by eliminating an unwarranted tax break for highly-compensated private equity fund managers. Rather than targeting relief just to the upper-middle- and upper-income households helped most by the AMT patch, the Ways and Means Committee package also provides relief to struggling working families. The package would temporarily address key flaws in the Child Tax Credit, allowing 2.9 million more children in low-income working families to benefit from the credit next year and providing an increased tax benefit to an additional 10 million children. While the Committee’s adherence to PAYGO is commendable, the package also shows that patching the AMT year after year is not a sustainable approach. It underscores the need for fiscally responsible, permanent AMT reform, such as the reform that Committee Chairman Charles Rangel recently proposed. Read more
Key Findings This analysis examines — and finds wanting — the major rationales that have been offered to justify waiving "Pay-As-You-Go" (PAYGO) rules and deficit-financing the AMT “patch.” Comparing the AMT patch with other policies whose costs have been offset shows that waiving PAYGO for the patch would: Send the message that Congress applies fiscal discipline to policies that help low- and moderate-income children and families, but not to policies benefiting upper-middle-income and high-income households. Reward the budget gimmicks through which the AMT was used to ease enactment of the 2001 and 2003 tax cuts, and suggest that Congress prioritizes keeping those tax cuts whole above investments in health care, education, or the environment. Signal that Congress takes higher tax bills for relatively affluent people more seriously than lost health insurance coverage, reduced student aid, or other kinds of harm imposed on children and families of more modest means. Show disregard for the principles that motivated Congress to reinstate the PAYGO rules in the first place. Read more
Key Findings The Earned Income Tax Credit for workers without children is currently extremely small, too small even to fully offset federal income taxes for workers at the poverty line. Ways and Means Committee Chairman Charles Rangel’s proposal to increase the EITC for childless workers would: Prevent workers whose wages leave them in poverty from owing federal income taxes. Improve work incentives for childless adults and, in particular, for less-educated men — a group whose declining employment rates are a major cause for concern. Ensure that full-time minimum wage workers will not become ineligible for the EITC when the minimum wage increases to $7.25 an hour in 2009. Reduce poverty and hardship among low-wage workers without children, a group with access to almost no other forms of government support. Likely have a positive impact on children, because many “childless” workers eligible for the EITC are noncustodial parents. Benefit more than 7 million workers nationwide and thousands in each state (see state-by-state estimates in the appendix). Read more
Economists Thomas Piketty and Emmanuel Saez recently made available an updated version of their groundbreaking data series on U.S. income inequality. ... Read more
Key Findings An unlimited estate tax exemption for farmland: Would likely prove extremely costly because it would create strong incentives for wealthy individuals to convert large amounts of their estates into qualifying farmland. Could undermine its own goals. If wealthy individuals seeking to shield assets from the estate tax bid up the price of farmland, that would make it more difficult for genuine family farmers to keep their farms in their families and could discourage others of ordinary means from entering farming. In contrast, a broad-based reform like making the current ($4 million per-couple) estate tax exemption, or the 2009 ($7 million per-couple) estate tax exemption permanent: Would protect virtually all farm estates from tax, according to Congressional Budget Office estimates. Would be far simpler, more administrable, and less open to abuse, and would not have unintended negative consequences for family farmers. Read more
