In Case You Missed It…

November 4, 2011 at 3:12 pm

This week on Off the Charts, we discussed the federal budget, federal taxes, the economy, state budgets, Social Security, and housing policy.

  • On the federal budget, we excerpted our analysis of the budget proposal from Republicans on Congress’ deficit-reduction “supercommittee,” and Robert Greenstein examined a recent proposal to the committee from Erskine Bowles, co-chair of the President’s fiscal commission.
  • On federal taxes, Chuck Marr noted a new Joint Tax Committee study that raises red flags about House Republicans’ effort to craft a corporate tax reform plan.  Chye-Ching Huang outlined several reasons why the federal tax system has become less effective in offsetting income inequality in recent decades.  Kathy Ruffing showed that government in the United States collects less revenue than most other developed countries.

    Read more…

Why the Tax System Is Doing Less About Growing Inequality

November 4, 2011 at 1:30 pm

As we have explained, the joint congressional “supercommittee” — and any future efforts at deficit reduction — should raise significant revenues, and do so progressively.  A recent Congressional Budget Office (CBO) report highlights why.

It shows not only that income inequality has dramatically increased in recent decades (a point that we have previously discussed), but also that “the increase in inequality of after-tax income was greater than the increase in inequality of before-tax income.”  That is, the federal tax system as a whole did less to equalize the distribution of income in 2007 than it did in 1979.

There are three reasons why:

  1. The share of federal revenues coming from regressive payroll taxes has gone up. The federal tax system is progressive — meaning that higher-income taxpayers pay more of their income, on average, than low- and moderate-income taxpayers.  But the report explains that “[v]irtually all of the progressivity of the federal tax system derives from the individual income tax.  And the share of federal revenues coming from income taxes fell between 1979 and 2007, while the share coming from payroll taxes — which low- and middle-income families generally pay at a higher rate than high-income households — rose.  This shift from income taxes to payroll taxes made the tax system as a whole less progressive.

    Read more…

State and Local Job Losses Continue

November 4, 2011 at 12:47 pm

October’s employment report finds that states and localities continue to lay people off.

State and local governments cut 22,000 jobs last month, the 31st month out of the last 38 in which total state and local employment shrank.  States and localities have cut 644,000 jobs since August 2008.

State and Local Government Payrolls Are Shrinking

The job cuts, which states and localities are imposing to help close their budget gaps, have been widespread.  For example, since August 2008:

  • Local school districts have cut 242,000 positions.
  • Cities, counties, and other local governments have cut 252,000 jobs.
  • State governments have cut 151,000 jobs.

Read more…

Today’s Jobs Report in Pictures

November 4, 2011 at 9:21 am

Today’s jobs report shows that job growth was modest in October, and the labor market remains in a deep slump.

Below are some charts to show how the new figures look in historical context. Here is our statement with further analysis.

See our chart book for more charts.

Read more…

Reality Check on Corporate Tax Reform

November 3, 2011 at 4:04 pm

Republicans on the House Ways and Means Committee say they are trying to produce a corporate tax reform proposal that cuts the rate from 35 percent to 25 percent but raises as much revenue as the current system by eliminating or reducing tax expenditures.

New estimates from Congress’ Joint Committee on Taxation (JCT), however, provide a harsh reality check to that effort.

JCT calculated how low the corporate rate could be set under a revenue-neutral reform that eliminated nearly all of the major corporate tax expenditures.  JCT’s answer: 28 percent — well above the proposed 25 percent.  And that relies on the politically dubious assumption that Congress would eliminate nearly all of those tax expenditures, many of which have strong support among lawmakers.

Another JCT finding should really raise a red flag.  JCT lowered the rate to 28 percent only by relying on offsets that raise large amounts of revenue over the next decade but much less in later decades, as JCT itself highlights.

The prime example is accelerated depreciation, which allows firms to deduct the cost of new investments at an accelerated rate.  By itself, eliminating accelerated depreciation pays for 53 percent of the ten-year cost of dropping the rate to 28 percent.  As JCT notes, however, the revenue gained by this critical offset peaks in 2017 and then falls sharply.

By 2021, the last year of the ten-year budget window, cutting the rate to 28 percent and eliminating the tax expenditures would cost $11 billion — and the net revenue loss would continue to grow after that, adding to long-term budget deficits.  This is not what the country needs.

Read more…