Tax Distribution and Economic Trends

The exclusion of employer-sponsored health insurance premiums and medical benefits reduced federal tax revenues by $268 billion in 2011 alone-by far the largest federal tax expenditure. Moreover, the exclusion disproportionately subsidizes those with higher incomes. In this brief, we provide estimates of the revenue potential and distributional consequences of limiting the exclusion from income and payroll taxes at the 75th percentile of 2013 premiums, indexing by GDP. The policy would produce $264.0 billion in new tax revenues over the coming decade while preserving 93 percent of the tax subsidies available under the current policy.

Discussions of the effect of taxes on international competitiveness usually focus on corporate income tax rates, but individual income tax rates may also affect a country’s (or state’s) ability to compete for workers.

The revenues from a carbon tax could help finance lower corporate tax rates, extending business tax preferences, or other corporate tax reforms. Such a tax swap would reduce the environmental risks of carbon emissions and improve the efficiency of America’s corporate tax system. But it would also pose a significant distributional challenge. A carbon tax would fall disproportionately on low-income families, while corporate tax cuts would disproportionately benefit those with high incomes. Policymakers may want to use some revenue to offset those impacts. They may also want to use some carbon revenues for deficit reduction.

Although the recently passed American Taxpayer Relief Act instituted meaningful deficit reduction relative to previous policy, it still left the budget a far distance from any sustainable path. Under a plausible scenario, deficits never fall below 3.4 percent of GDP and rise to 5.4 percent of GDP by 2022. Given this baseline, an additional $150-$300 billion of annual deficit reduction, instituted after the economy has fully recovered, would put the budget on a stable path in the intermediate term while allowing for continued economic recovery. Yet even that path leaves longer-term budget problems unresolved. Without a more far-reaching agreement over such long-term issues, policymakers may have limited leeway to respond to new emergencies and meet the demographic pressures of the forthcoming decade.

In May 2012, the Tax Court issued two decisions denying income tax deductions for gifts to charitable organizations because they failed to meet the requirements for a qualified appraisal. These cases lit a firestorm of outrage in various circles, raising questions of how strictly substation rules should be applied. This paper reviews the rationales behind the charitable contribution substantiation rules, sets out the complicated regime regarding these rules and applicable case law, and presents a number of possible reforms. Balancing the need to control overvaluation with the need to encourage legitimate charitable contributions is a difficult but important challenge.

This fact sheet examines the effects of the American Taxpayer Relief Act of 2012 (ATRA) on charitable giving. The major individual income tax provisions are estimated to increase giving by $3.3 billion or 1.5 percent, relative to 2012 law, mainly because of the increase in the top marginal tax rate. Numerous other smaller provisions will also affect charitable giving.

On January 3, 2013, the 113th session of the U.S. Congress opened with a fiscal cliff averted, but a country still stuck in a less-recognized fiscal bind. In the first video of a three-part series, Urban Institute Fellow Eugene Steuerle, a former deputy assistant secretary of the Treasury for tax analysis and cofounder of the Urban-Brookings Tax Policy Center, explores one of the major reasons recent Congresses have been so dysfunctional: all, or almost all, the revenue to be collected by the Treasury Department was spent before lawmakers walked in the door. Steuerle further discusses how spending and tax subsidy programs on autopilot, along with a tax system inadequate to pay our bills and rife with gaping holes, handicap lawmakers' and the public's ability to set new goals for solving today’s and tomorrow's problems.

Two Tax Court decisions, including two from May 2012, demonstrate the concerns that arise both when the charitable contributions substantiation rules are strictly applied and when they are not. In order to address problems of valuation, the U.S. Congress has addressed the charitable substantiation rules five times in the past 30 years. Each time, Congress has strengthened the rules to try to prevent overvaluation, but the rules have not proved satisfactory. This brief suggests reasonable and fair reforms to substantiation rules.