One of the most used resources on our website is historical tax rate information. For federal taxes, we go all the way back to the beginning: the federal income tax (1861-1872, 1913-present), the corporate income tax (...
The Tax Policy Blog
Today's Monday Map shows state and local general sales tax collections per capita for each state during fiscal year 2010 (the latest for which data is available.) Washington State collected the most at $1,770; Delaware, Montana, New Hampshire, and Oregon are at the other end, having no sales tax.
Click on the map to enlarge it.
View previous Monday Maps here.
Louisiana Gov. Bobby Jindal (R) today announced in an address to the Legislature that he is shelving his tax reform proposal that would eliminate the income tax, paying for it by broadening and raising the sales tax. The plan faced significant opposition, especially from the business community. As Jindal puts it in his speech today:
And here is what I've heard from you, and from the people of Louisiana -- yes, we do want to get rid of the income tax, but Governor you're moving too fast, and we aren't sure that your plan is the best way to do it.
So I've thought about that. It certainly wasn't the reaction I was hoping to hear.
And I'm now going to give you my response, and it's not going to be the kind of response people are accustomed to hearing from politicians.
Here is my response OK, I hear you.
So I am now going to park my tax plan.
Now, to be clear, I still like my plan, but I recognize that success requires give and take.
Jindal, however, challenges the Legislature to develop a proposal this session that eliminates the state income tax.
The news, while not unexpected, is disappointing (especially to us, as we helped advise Jindal's administration on the proposal). However, I cannot describe the amount of anxiety and concern about the economy as I experienced talking to people on my most recent trip to Louisiana. It's hard for me to fathom NOT being supportive of some dramatic change to improve the state's situation. I'm hopeful the Legislature will be able to come up with something. As always, we are happy to be of any help.
Last month, USA Today published a list of the companies that paid the most income taxes in 2012. Mark J. Perry over at the AEI blog created a table containing the amount these companies paid and their effective tax rate.
The most astounding fact from this chart is the amount of taxes paid by the three oil companies on the list and their effective tax rates. ExxonMobil, Chevron, and ConocoPhillips collectively paid $59 billion dollars last year for an average effective tax rate of 44.7 percent for their taxes throughout the world.
The numbers are large in and of themselves, but how large?
The effect tax rates of ExxonMobil, Chevron and ConocoPhillips- 39.4, 43.2, and 51.5 percent respectively- are all higher than the 27 percent average effective corporate tax rate for all U.S. corporations.
As Mark Perry pointed out in his blog, ExxonMobil paid $31.05 billion dollars in taxes, more than the entire bottom 50% of income tax filers paid in 2010.
Even more, their effective tax rate is higher than the 24.5 percent average effective tax rate paid by the top quintile of income earners in 2011.
Lastly, the combined tax bill of these three oil companies could nearly fund spending on Temporary Assistance to Needy Families (Welfare) three times in 2012.
And these numbers are just the income taxes paid. Like we have pointed out before, the oil and gas industry also has to pay other taxes such as excise taxes on gasoline, meaning this understates what the true burden is. By any measure, oil and gas companies are heavily taxed.
It is especially confounding, then, when ideas like this keep popping up in Congress: Representative Chris Van Hollen’s “‘Stop the Sequester Job Loss Now Act’ would raise taxes on individuals—what he calls the "Fair Share on High-Income Taxpayers"—and effectively hike taxes on the oil and gas industry by changing the way their taxes are calculated.”
This bill would bring back three proposals that have been kicking around Congress for a few years now. All three of them target the oil industry for higher taxes.
First, this bill will prevent the use of “last-in, first-out” (LIFO) accounting specifically for oil companies, while leaving these provisions for other companies. This accounting method allows companies to assume that the last inventory purchased is the first sold for tax purposes. What it does is allows companies to reduce their tax burden in the face of increasing commodity prices. Oil companies, as a result, will see higher tax bills if prevented from using this accounting method.
The second provision in this bill will end dual capacity. Specifically, this law will split the corporate income tax oil companies pay in foreign countries into a royalty piece and an income tax piece, reducing the amount of the corporate income tax that is creditable. This exposes oil companies to double taxation on their foreign earnings. One of the inviolate principles of sound tax policy is that a dollar of income should be taxed only once as close to the source as possible. In keeping with this principle, the U.S. tax code affords multinational firms a credit for income taxes paid to other governments on their foreign earnings. Oil companies are frequently subject to extra layers of taxation in countries such as Norway (the total income tax for oil companies is 78 percent) and Saudi Arabia (the total tax for oil firms is 85 percent) so the tax code allows these "dual capacity" taxpayers to deduct more than the base rate of tax. Eliminating this well-established (and well-litigated) provision will subject these companies to U.S. tax on income that was already highly taxed abroad.
The third provision is to limit the use of IRS code Section 199 for oil companies. This is the same provision that Obama has continually called a subsidy for oil, gas and coal companies. However, this provision allows any company to deduct domestic manufacturing activity from their taxable income. It may be the case that this is bad tax policy; the United States should probably be lowering the corporate income tax for everyone rather than creating loopholes for manufacturing activities. However, it is still not correct to call it a subsidy for the oil industry. Limiting this deduction for oil companies will target them with higher taxes, while letting other manufacturers continue to lower their burden.
These near-annual proposals are all focused around the assertion that the oil and gas industry pays little in tax. Of course, just looking at what their tax burden looks like from the above charts, this is simply not the case. Oil companies pay billions in taxes every year. This is a fact that politicians simply gloss over. Politicians should focus on how to make the tax system better and stop targeting oil companies to score political points.
In his 2014 budget, President Obama proposes spending $100 million to map the human brain. He anticipates major medical benefits. Whether this amount would be sufficient to make a dent in the project is open to question, as is the wisdom of doing this at a time of budget stress. So why now?
I am a fan of basic research, especially in the health area. However, potential health benefits aside, I wonder if there may not be some political benefits behind this initiative.
Why is the President requesting additional federal research spending for the study? If this is as good a project as it sounds, why not divert spending from other, less important federally-funded research projects (e.g. why male fruit files prefer younger female fruit flies to older female fruit flies, building a robot squirrel to test if rattlesnakes are less inclined to attack squirrels that wag their tails, a DOE-developed app to test a home’s energy usage when apps for that already exist, etc.) or other programs that are not delivering a useful product?
Is the President suggesting that all other federal spending is even more worthwhile than this very worthwhile-sounding brain science? If all federal spending is at least this good, then, obviously, no federal spending should be cut, and we must raise taxes.
This smacks of the bread and circuses provided by the emperors of Rome to distract the populace and the Senate from the shortcomings of the leadership regarding the economy and the military situation of the empire.
President Obama will propose a number of new tax increases in his budget to be released next Wednesday, according to the Washington Post. These include:
- Raising the cigarette tax to fund a new federal universal pre-school program,
- Capping tax-free retirement accounts at $3 million,
- Limiting the value of itemized deductions to 28 percent of income for high-income individuals,
- Replacing the consumer price index (CPI) with chained-CPI, as a measure of inflation.
Here’s how the Post describes that last one:
The proposal to change the formula to calculate Social Security payments, also originally part of the offer to Boehner, would generate $130 billion in savings and $100 billion in revenue, a result of the impact of the formula change on other government programs.
Steve Entin helped design the original inflation indexing of tax brackets in 1981. Here’s what he says about changing the inflation index:
The rationale for this proposal is that, over the last dozen years, the chained CPI has risen about a half percent less each year than the regular CPI. Thus, the switch would, among other things, slow the adjustment of the income tax brackets for inflation and reduce the annual cost of living increases (COLAs) for Social Security retirees. Both would be bad policy.
The proposed switch would tamper with the indexing feature of the income tax, the last remaining unaltered piece of Economic Recovery Tax Act signed by Ronald Reagan in 1981. Reducing the adjustment of the income tax brackets for inflation would push people more quickly over time from one tax bracket to the next higher one as incomes grow. Pushing more people from the 15 percent bracket to the 25 percent bracket, or from the 28 percent bracket to the 33 percent bracket, is as much a marginal tax rate increase as any other type of tax rate hike. It would raise marginal tax rates faster over time than under current law and is simply an attempt to disguise a tax rate hike as something else.
COLAs that are slightly overstated by the much maligned CPI are not the source of Social Security's looming deficits, and fixing the CPI and COLAs will not save Social Security from impending insolvency.
Read the rest of Steve’s report here.
Follow William McBride on Twitter @EconoWill
We just raised the federal tax rate on capital gains and dividends from 15 percent to 23.8 percent, but most economists say these tax rates should be zero. Same goes for the corporate income tax.
First, let me sum up a key implication of Chamley-Judd:
Under standard, pretty flexible assumptions, it's impossible to tax capitalists, give the money to workers, and raise the total long-run income of workers.
Not, hard, not inefficient, not socially wasteful, not immoral: Impossible.
If you tax capital income and hand all of the tax revenue to workers, then in the long run (or the "steady state") you'll wind up with a smaller capital stock. And since workers use the capital stock to earn their wages, the capital tax pushes down their wages.
So far so obvious, standard supply-side stuff. At this point, you're probably guessing that sometimes the taxes you hand to workers are more than the fall in wages, sometimes it's less...it all depends on the assumptions, depends on the tax rate, depends on this or that. But the magic of Chamley-Judd is that they proved that "fall in wages > rise in transfer" is a pretty stable result...hence the need for "exotic" counterarguments.
Rational workers would rather have the extra machines to work with rather than a transfer from a tax on capital, thank you very much.
Follow William McBride on Twitter @EconoWill
There has been a fair amount of press recently on tax reform in Puerto Rico that has the potential to make the U.S. territory a new favorite place to retire and move assets. Puerto Rico is a U.S. territory, but its residents do not pay the federal income tax, except on income from sources outside of Puerto Rico. The New York Times reports that taxpayers need only live in Puerto Rico for 183 days out of the year on the island to be a resident.
The island has its own tax system outside of the federal code, but the territory has recently eliminated its taxes on interest and dividend income that used to stand at 33 percent, and has also cut its capital gains tax rate to zero.
Still, some are wary. CNN Money recently reported that millionaires should think twice before parking their assets in Puerto Rico:
The U.S. territory has a bevy of social and economic problems that appear to be getting worse by the day, making it an inhospitable place for a wealthy individual seeking safety and stability. Crime broke through record highs in the last few years and has started to spill into the wealthy neighborhoods of San Juan, the capital. The violence and economic malaise show little sign of abating. It's a long way from the financial paradise the Puerto Rican government is trying so hard to portray it as.
We study taxes for a living, but we’re the first to point out that taxes aren’t the only thing that businesses and individuals consider when considering relocating. Still, Puerto Rico still has great weather, one of things that California is constantly trumpeting as a reason people are willing to pay higher taxes to live there.
Puerto Rico’s recent shifts aimed at luring high income residents seem to have some effect though, with the New York Times reporting that billionaire John Paulson was considering moving to the island, and one local real estate agent says that multiple individuals have scheduled visits to consider homes selling for $5 million in downtown San Juan.
Check out our coverage of the Gerard Depardieu’s tax-induced exit from France.
Follow Scott Drenkard on Twitter @ScottDrenkard.
The California State Auditor has released the state government's audit for the 2011-12 year (PDF). The state collected $218 billion (including $60 billion in federal aid, $104 billion in state taxes, and $51 billion in various fees and charges), but spent over $225 billion, a deficit twice the size of the year before. On the books, the state has $199.9 billion in assets but $215.4 billion in liabilities; eliminating assets unpledgable against obligations results in an unrestricted net asset deficit of a staggering -$127 billion. Put succinctly, the state has booked $127 billion more in promises and liabilities than it has assets to pay for them. (Part of this is because the state borrows to build things for local governments but turns title over to them, which is running up debts.) It's been getting deeper every year.
The report did not include the full cost of state retiree health and pension costs, so the real amount is probably much higher.
In November, California raised its top income tax rate to 13.3 percent, now the highest in the country. The change was retroactive to the beginning of 2012 (as was a recent clawback of a business deduction), so a burst of revenue will likely happen in the short-term. In the long-term, it depends on your worldview: does a high level of state spending promote economic growth, or will high taxes drag economic growth?
We're busily working the phones here at TF, doing media interviews on our Tax Freedom Day 2013 report released earlier today. A big, big thank you to all of you who are helping get the word out! A quick note that from that report page, you can download graphics and data tables if you need them.
The Center on Budget and Policy Priorities (CBPP) has just released their annual "refutation" of Tax Freedom Day, and their associated state groups will be forwarding it along shortly. We respond to their criticisms here.
Anyway, while that's important, the real reason I write because of an interesting concession they make in order to refute Tax Freedom Day. Most days, CBPP and its allies complain about how regressive the tax code is, how rich people don't pay enough, and how low-income people are hurt by taxes more than high-income people.
But not today. In order to complain that Tax Freedom Day is not a distributional analysis, they point out that those top quintiles pay a ton of federal taxes and those bottom quintiles pay almost nothing. They even include a nifty chart for understanding ease:
Turns out those bottom quintiles pay next to nothing after all, and that the federal tax system is pretty progressive. I'm glad CBPP can be accurate on this, at least if only once a year.
I wish you all the best for our 16 remaining days before Tax Freedom!
Today we're pleased to announce that Tax Freedom Day 2013 will occur on April 18, 2013 (full report here)!
What is Tax Freedom Day? Tax Freedom Day is the day when the nation as a whole has earned enough money to pay its total tax bill for the year. A vivid, calendar-based illustration of the cost of government, Tax Freedom Day divides all federal, state, and local taxes by the nation’s income.
In 2013, Americans will pay $2.76 trillion in federal taxes and $1.45 trillion in state taxes, for a total tax bill of $4.22 trillion, or 29.4 percent of income. April 18 is 108 days, or 29.4 percent, into the year. Americans will spend more in taxes in 2013 than they will on food, housing, and clothing combined.
Why is Tax Freedom Day later this year? Tax Freedom Day is five days later than last year, due mainly to the fiscal cliff deal that raised federal taxes on individual income and payroll. Additionally, the Affordable Care Act’s investment tax and excise tax went into effect.
Finally, despite these tax increases, the economy is expected to continue its slow recovery, boosting profits, incomes, and tax revenues.
When is Tax Freedom Day if you include federal borrowing? Since 2002, federal expenses have exceeded federal revenues, with the budget deficit exceeding $1 trillion annually from 2009 to 2012. In 2013, the deficit will come down slightly to $833 billion.
If we include this annual federal borrowing, which represents future taxes owed, Tax Freedom Day would occur on May 9, 21 days later. The latest ever deficit-inclusive Tax Freedom Day occurred during World War II, on May 21, 1945.
When is my state’s Tax Freedom Day? The total tax burden borne by residents of different states varies considerably, due to differing state tax policies and because of the steep progressivity of the federal tax system. This means higher-income states celebrate Tax Freedom Day later: Connecticut (May 13), New York (May 6), and New Jersey (May 4).
Residents of Mississippi will bear the lowest average tax burden in 2013, with Tax Freedom Day arriving for them on March 29. Also early are Louisiana (March 29) and Tennessee (April 2).
How has Tax Freedom Day changed over time? The latest ever Tax Freedom Day was May 1, 2000—meaning Americans paid 33.0 percent of their total income in taxes. A century earlier, in 1900, Americans paid only 5.9 percent of their income in taxes, meaning Tax Freedom Day came on January 22.
Who calculates Tax Freedom Day? Tax Foundation economists calculate Tax Freedom Day using federal budget projections, data from the U.S. Census and the Bureau of Economic Analysis, and projections of state and local taxes.
Tax Freedom Day was conceived in 1948 by Florida businessman Dallas Hostetler, who deeded the concept to the Tax Foundation when he retired in 1971. Tax Freedom Day by state has been calculated since 1990, when sufficient data became available. Learn more about Tax Freedom Day at www.TaxFoundation.org/taxfreedomday.
Today's Monday map looks at state cigarette excise tax rates. New York has the highest rate at $4.35 per 20-pack; at the other end is Missouri with a rate of 17 cents per 20-pack.
Click on the map to enlarge it.
View previous maps here.
A clash of New York titans is in the works: New York City Mayor Michael Bloomberg, with his reputation for fighting against obesity with large-soda bans and snack taxes, and New York Governor Andrew Cuomo, whose girlfriend is Food Network host Sandra Lee. Bloomberg started with this salvo today:
"Charming though she may be, she is ruining our state with her 'semi-homemade' recipes that are full of sinful sugar and excess fats," Bloomberg said. "Instead of penalizing her for producing such garbage, Cuomo is actually subsidizing the Food Network’s interests and damaging the progress I've tried to make in combating obesity."
"I have worked for years to fight obesity in my city, but Andrew and Sandra barge in with unhealthy policies (and recipes) and blindside all of my hard work, but I am not giving up,” said Bloomberg. The mayor of the Big Apple has proposed several options to combat the increased consumption of unhealthy Sandra Lee food, ranging from taxing boxes of cake mix and food coloring, to taxing viewers of the show for “their increased burden on healthy taxpayers’ medical bills.”
Cuomo declined comment, citing an upset stomach from “eating too many fountain dogs.” (A "Fountain Dog" is a Sandra Lee recipe which calls for wrapping bacon around a hotdog)
Critics of taxing sugary foods urge Bloomberg to reconsider his use of taxes as a means of combating obesity. Scott Drenkard of the Tax Foundation notes, “Reducing obesity is an important goal, but policy actions have costs. My largest concern is that placing a tax on cake mix or food coloring is a blanket policy that would affect all New Yorkers. There are many people that enjoy colorfully decorated cakes regularly and make adjustments in their diet elsewhere to maintain a healthy lifestyle.”
Update--Bloomberg announced he will set aside time to confront Cuomo and Lee tonight in a press-conference on his proposed "Wash em if you've got em" bill which would subsidize the use of hand soaps and sanitizers.
In an effort to reduce the deficit and eliminate rampant consumerism, Michigan Congressman Michael Moore (15th District) has introduced legislation to eliminate the business tax deduction for advertising.
“The American Consumer Protection Act (HR 4113) is a true pro-family bill,” he said in a press conference on April 1. “Today’s families are being crushed by mountains of credit card debt thanks to an endless barrage of commercials and popup ads seducing them into buying products they didn’t know they needed.”
“Just last week, my wife bought three pairs of Pajama Jeans, a Belly Burner, and a year’s supply of Sham Wows. And what on Earth is a Booty Belt? Thanks to those geniuses on Madison Avenue, my son almost drowned because he thought he really could sail our screen door across to Mackinac Island if he sprayed that black stuff on it.”
According to the CBO, the bill will bring in billions of new revenues to help balance the budget without raising marginal tax rates. “American businesses wrote off $186 billion in advertising costs in 2009 – more than they wrote off in pension and charitable contributions combined – which cost the Treasury $65 billion,” said a new CBO report.
The response from industry was swift. A spokesman for the Association of Major Newspapers said the bill will have a chilling effect on their ability to publish all the news that’s fit to print. “The bill unfairly puts the burden of deficit reduction on our small industry,” she said. “What happened to the idea of simply taxing the Top 1%?”
“This bill will ruin Sundays as we know it,” said NFL Chief Roger Goodwill. “Without all of those beer and car commercials, people will be left just watching football,” he said in a phone interview. “And since games would only take an hour, what would people do with the rest of their Sunday afternoons?”
President Obama and the First Lady today expressed high praise for a congressional proposal that would legalize marijuana while at the same time imposing a 60 percent excise tax on junk food, candy, and soda.
“It’s time that we recognize personal freedom to put what we want into our bodies,” said Mr. Obama, referring to the marijuana proposal. “At the same time, we should take action to address Americans’ poor nutrition choices, which the citizens of this country are inflicting on themselves.”
The bill, the Making the US Newly Capable by Halting Imprisonment of Errant Smokers (or MUNCHIES) Act, is projected to raise nearly $1 trillion in new federal revenue over the next decade. The funds would be earmarked for the creation and upkeep of a new White House “herb” garden, with language suggesting that Vice President Joe Biden has “dibs” on the first harvest.
Some Republicans have voiced their disapproval of the bill. Former presidential contender Rick Santorum was especially vocal on condemning the marijuana legalization: “The bill is completely wrong: marijuana is dangerous and should stay illegal. But also, big government Democrats should not control Americans’ grocery store choices.”
In related tax news, the Congressional Research Service released two new studies: one finding that even a modest carbon tax would reduce carbon emissions significantly, while the other found that even a large income tax increase would have no impact on hours Americans work.
Cyprus’s outrage about a proposed tax on all bank accounts helped turn the proposal into a tax primarily on foreign deposit holders’ accounts—a lesson not lost on U.S. policymakers.
“This would be a win-win for America,” said U.S. Senator Peter Papershill. “Tax bank accounts held by foreigners and use the revenue to reduce Americans’ taxes.”
A recent poll asked Americans who should bear the burden of taxes. 11 percent replied “you,” 4 percent replied “me,” and 85 percent replied “neither you nor me but that guy behind the tree.”