The Urban–Brookings Tax Policy Center works on the belief that better information and analysis delivered early in debates can forestall bad policies and reinforce good ones.
About the Tax Policy Center
The Tax Policy Center (TPC), a joint venture of the Urban Institute and the Brookings Institution since 2002, works to demystify the complicated tax machine. If people don't understand what politicians are saying, they won't engage in the process that determines how taxes get paid, who pays, and how much. Well-voiced and clear research—such as that posited by TPC—can call taxpayers to the table.
The backbone of TPC research is a detailed model of the U.S. tax system that estimates the revenue and distributional outcomes of tax policy options. For instance, the model showed that, barring a change in law, the complicated individual alternative minimum tax will hit 31percent of taxpayers (and half of those with incomes between $75,000 and $100,000) by 2010. Other TPC research showed that a broad-based national sales tax to replace all of the other federal taxes—as discussed and rejected by the tax panel—would have to be at least 44 percent. That would raise the price on a $2 carton of milk to nearly $3.
Urban Institute senior fellows Len Burman and Gene Steuerle and Brookings scholars Bill Gale and Peter Orszag direct TPC's work. TPC research affiliates include some of the nation's most respected tax and budget policy experts—Henry Aaron, Robert Ebel, Ron Haskins, Mark Iwry, Isabel Sawhill, Eric Toder, and former CBO directors Rudy Penner, Robert Reischauer, and Alice Rivlin.
What's New
The President's Advisory Panel on Federal Tax Reform is proposing to eliminate a host of special tax breaks and streamline tax filing. TPC experts had testified before the panel on such key reforms as eliminating the individual alternative minimum tax and issues resulting from switching to a consumption tax base.
TPC has written background papers and convened conferences on many issues related to reforming the tax code, including forums on the estate tax, tax shelters, capital income taxes, and tax reform and the environment.
What are the chances that this Congress will make tax reform happen? In Contemporary U.S. Tax Policy, Gene Steuerle offers an insider's look at tax policy based on a quarter-century of working with officials and staffers of all political stripes. This book shows how tax policy history is messy, repetitive, and often rancorous. Yet, amid this clamor, occasional triumphs—such as the 1986 tax reform—can occur.
In a Five Questions web feature, Len Burman discusses challenges facing the current tax system and ways to make it simpler, fairer, and more efficient. He says how tax reform could strengthen the system and present an opportunity for improved spending on social programs.
From adjusted gross income to zoning and property taxes, the second edition of The Encyclopedia of Taxation and Tax Policy offers the best and most complete guide in print to taxes and tax-related issues. More than 150 top tax practitioners and administrators, policymakers, and academics have contributed. The new edition has been completely revised, with 40 new topics and 200 articles reflecting six years of legislative changes.
Recent Findings
Below are some highlights from testimony presented to the tax panel and background reports on issues under debate:
The Alternative Minimum Tax could nab 31 million taxpayers in 2010.
When 155 individual taxpayers with incomes exceeding $200,000 paid no federal income tax in 1966, the news sparked a political firestorm. Congress created the minimum tax in 1969 to stem this tax avoidance. Both the original minimum tax and its successor, the individual alternative minimum tax (AMT), were aimed at a small minority of high-income households. But barring a change in law, this "class tax" will soon be a "mass tax."
Current projections show the number of AMT taxpayers skyrocketing from one million in 1999 to almost 31 million in 2010. Without reform, almost all upper-middle class families with two or more children will be paying the AMT by decade's end. The AMT is notoriously complex, and its record on fairness and efficiency is mixed at best. The tax reform panel proposes to repeal the AMT, but because of its widening reach, repeal will be expensive. By 2010, repealing the AMT will cost more than repealing the regular income tax.
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Deductibility of state and local taxes could cost $65.8 billion in 2005.
About 82 percent of the 46 million households who itemize deductions on their tax returns subtract state and local taxes (income, general sales, and property) from gross income. Critics of state and local tax deductions argue that they mostly benefit the affluent: more than half of the deductions were claimed by the 8 percent of taxpayers with incomes over $100,000 in 2002. Proponents argue that the deduction is needed to encourage higher-income taxpayers to support programs for lower-income households.
Eliminating the state and local tax deduction, as the tax panel has recommended, would increase tax receipts by about $65.8 billion in 2005, but meet with stiff opposition. New York and California, for example, would resist any moves to wipe out this deduction since residents in these two states claim 29 percent of the deductions.
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Current distribution of housing benefits is inequitable.
The federal government will disburse about $150 billion to homeowners in 2005 through tax deductions for mortgage interest and real estate taxes. The president's tax panel recommends reallocating homeowners' tax breaks, giving more to moderate-income homeowners and less to wealthier homeowners. For example, deductions of the interest payments on home-equity loans and on mortgages for second homes would be disallowed.
TPC models show that converting home-related tax deductions into refundable tax credits makes the system more progressive and encourages homeownership among low- and middle-income taxpayers.
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Subsidies for employer-paid health insurance are poorly targeted.
Subsidizing employer-sponsored insurance (ESI), as the federal tax code does, has worked in one sense: ESI now covers almost two thirds of workers and their families. However, the tax exclusion's value grows with income and is worth little to those with low incomes, even though they are most likely to find insurance too expensive. The tax panel recommends that annual premiums above $5,000 for an individual and $11,500 for a family policy be treated as income to workers and taxed accordingly.
President Bush has proposed a refundable tax credit for the purchase of health insurance by lower-income individuals not covered by ESI or a public insurance program. TPC research shows that in the short run, the president's proposal could modestly increase the number of people with health insurance but it threatens to undermine ESI over time.
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Families who most need the child tax credit don't always qualify.
Every year, the child tax credit provides over $46 billion in subsidies to families with children, making it the largest cash assistance program for children. Although the tax code is neutral with respect to race and ethnicity, Black and Hispanic children receive much less benefit from the child tax credit than do White children. This disparity reflects differences in income, family composition, and job status.
Fewer than half of black children and about half of Hispanic children are eligible for the full $1,000 credit in 2005, compared with 62 percent of white children. Most telling, black and Hispanic children are more than 10 times as likely to see their credit reduced because their incomes are too low than because they are too high. White children are most likely to lose credits because their families' incomes are too high. The average tax credit applicable to white children is $157 more than for blacks and $83 more than for Hispanics. The tax reform panel has proposed to modify the credit.
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Publications
Additional related information of possible interest:
