The Center's work on 'Federal Tax' Issues

The Center analyzes major tax proposals, examining their likely effects on the economy and on the government’s ability to address critical national needs, especially over the long term. We place particular emphasis on the effects of tax proposals on households at different income levels. In addition, we analyze trends in the level of federal revenues, income distribution, and tax burdens.


Americans Take Pride in Paying Taxes

April 17, 2015 at 3:27 pm

Forget the conventional wisdom.  Americans overwhelmingly take pride in paying their taxes, recent IRS Oversight Board survey data show.

Our country’s tax system functions largely on a voluntary basis, albeit with significant third party information and a backstop of enforcement.  Its proper functioning, therefore, depends on a high level of civic duty and responsibility, and that’s exactly what exists.  Some 94 percent of Americans believe it’s their civic duty to pay their fair share of taxes.

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In a piece in The Atlantic, Vanessa Williamson highlighted some interview anecdotes that hint at the reasons behind these strong survey results:

  • A 28-year-old from Utah: “It feels good to contribute.”
  • A former Marine: “[It’s] the cost of being an American.”
  • A woman from Kansas: “[T]he country has to be taken care of.”

Beyond the pride of fulfilling a fundamental civic obligation, Americans can take pride in where their tax dollars are going (see here for state tax dollars and here for federal), whether it’s to pay for health care for an elderly person, a soldier’s gear, diabetes research, or helping a working class kid go to college.  As one woman from Florida told Williamson, “maybe my little bit of money that I’m putting in is paying somebody else’s Social Security or Medicare.”

Exactly.

Happy Tax Day!

April 15, 2015 at 3:53 pm

Here’s a roundup of the tax pieces we’ve recently issued or updated.

Our Favorite Charts

4-15-15taxRecently Updated Tax Basics

Working-Family Tax Credits

Federal Estate Tax

IRS Funding

General Tax Issues

House Republicans Continue Ill-Advised Push to Make “Extenders” Permanent

April 15, 2015 at 3:00 pm

The House will begin to consider a bill today to make permanent the federal deduction for state and local sales taxes.  The bill is the latest in a series of bills that House leaders are expected to move to make permanent costly “tax extenders” — a set of tax provisions that policymakers routinely extend for a year or two at a time, most of which expired at the end of 2014.  This approach represents both ill-advised fiscal policy and misguided priorities, as we explain in our updated paper.

The House has already passed two bills this year to make permanent seven provisions at a ten-year cost of $85 billion (see chart).  Making permanent the state and local sales tax deduction would add another $42 billion to the deficit over the next decade.  Further, it would send the message that policymakers can make permanent such costly measures without offsetting their cost, thus opening the door for the same action on other (mostly corporate) provisions.

The House approach also places the tax extenders, which mostly benefit businesses, ahead of other, more critical tax provisions scheduled to expire in coming years — notably, key provisions of the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) for low-income working families.  If those measures expire, more than 16 million people in low-income working families, including 8 million children, would fall into — or deeper into — poverty in 2018.  And some 50 million Americans would lose part or all of their EITC or CTC.

Click here to read the full paper.

A Timely Tax-Season Thanks to Volunteers

April 15, 2015 at 12:15 pm

Tax Day is an ideal time to recognize the critical services that volunteers provide through free tax preparation programs such as the Internal Revenue Service’s (IRS) Volunteer Income Tax Assistance (VITA) and the AARP Foundation’s Tax-Aide. These programs provide professional tax filing assistance to low-income households.

At least 90,000 volunteers helped file more than 3 million tax returns at 11,117 VITA and Tax-Aide sites across the country this year.  As early as January each year, volunteers help clients complete their returns, review them for accuracy, and submit them electronically.  In addition to helping taxpayers properly file their returns, volunteers help clients claim all the tax credits they’ve earned, such as the Earned Income Tax Credit and the Child Tax Credit, which help workers meet day-to-day needs and care for their families.

Volunteers undergo hours of training and must pass an annual certification exam before they can assist tax filers.  This year, they received additional training to understand how to complete new questions and tax forms related to the health reform law.  (They used CBPP’s Health Reform Beyond the Basics’ materials for tax preparers to help them learn how to accurately assist clients who are claiming Premium Tax Credits.)

While April 15 signifies the end of tax season for many, volunteers will continue to help working families by assisting late filers, following up with clients to connect them to community and social services, identifying new locations for tax preparation, providing financial education classes, and contacting employers and organizations to spread the word about the services.  CBPP’s Tax Credit Outreach website will continue to serve as a reference for these volunteers and organizations hosting free tax filing sites.

To all the volunteers who made it possible for millions of low- and moderate-income people to file their tax returns by April 15 and claim $3.6 billion in federal refunds — thank you!

Estate Tax Repeal Would Be a Boon for Heirs of Wealthiest Estates

April 14, 2015 at 4:13 pm

Over at Real Clear Policy today, I’m pointing out how the repeal of the federal estate tax — which the House is expected to consider this week — would significantly increase budget deficits, widen wealth inequality, and benefit only the wealthiest estates.

As I explain, repealing the estate tax would benefit the heirs of the wealthiest estates greatly — and the vast majority of estates not at all:

Only the estates of the wealthiest 2 of every 1,000 people who die will owe the estate tax in 2015 under current law, largely because of its very generous tax-free exemption levels. The estate tax’s reach is limited to the biggest estates.

Under repeal, the roughly 5,400 estates that would otherwise owe any tax in 2016 would get a tax cut averaging more than $3 million apiece, Joint Committee on Taxation (JCT) data show. The estimated 320 estates worth at least $50 million would receive tax windfalls averaging more than $20 million each.

The repeal bill also would leave in place a loophole in the capital-gains tax. Consider estates that are worth more than $100 million. More than half of their assets are in the form of unrealized — and untaxed — capital gains (see chart). Normally, capital gains are taxed when they are realized, but those who inherit these assets are given a “stepped-up basis,” meaning that they are taxed only on gains that occur after the original owner died — and the gains that occurred earlier are never taxed at all. With estate tax repeal, wealthy individuals would be able to pass such assets along to succeeding generations without the gains ever having been subject to any tax.

Click here to read the full post.