Tax Foundation - Press Room

Tax Foundation's YouTube Contest Deadline Days Away, Winner Gets $5000

Fri, 10 Oct 2008 00:00:00 EDT

Contestants Have Until October 15^th to Highlight Impact of High Business Taxes on U.S. Jobs, Wages, and Economy

Washington, DC, October 10, 2008 - Contestants have until next Wednesday, October 15, to submit their videos to the Tax Foundation's CompeteUSA YouTube Contest, a campaign to raise awareness of America's high business tax rates and how those taxes have an impact on our competitiveness, wages and living standards. The winner will earn $5,000 while second and third prize winners will receive $1,000 and $500, respectively.

The rules are simple

First, the video must be no shorter than 1 minute and no longer than 3 minutes and must be submitted on the following YouTube Group site by 11:59 PM EST on October 15, 2008: http://www.youtube.com/group/competeusa. There is a limit of one video per individual.
Second, after submission of videos, contestants must submit basic information to Matt Moon, Manager of Media Relations at the Tax Foundation, at moon@taxfoundation.org. This would include a name, email, daytime/evening phone numbers, and address to Matt Moon at moon@taxfoundation.org.

The video must stick to the subject of the CompeteUSA project: raising public awareness of America's high business taxes and how those taxes are affecting our competitiveness, wages and living standards. The judges will be looking for that right mix of humor and street-smart savvy about what impacts the jobs, wages and productivity of our current and future workers, and what we can do to create better opportunities for all Americans. (No employee, former employee, or immediate family member of an employee of the Tax Foundation may enter the contest.) The winner, as determined by a panel of Tax Foundation experts, will award the prize. For more information about CompeteUSA, go to http://www.taxfoundation.org/competeusa.

The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.

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For additional information on the contest, including all rules and restrictions, please log on to http://www.taxfoundation.org/competeusa/ or call Matt Moon, Manager of Media Relations, at (202) 464-51

Fact Check: Obama, McCain Stretch the Truth Again in Second Debate

Wed, 08 Oct 2008 00:00:00 EDT

Tax Foundation: Presidential Candidates Exaggerate, Mislead on Tax Policy in Nashville

Washington, DC, October 8, 2008 - In the second of the three Presidential debates, held last night at Belmont University in Nashville, Senators Barack Obama and John McCain largely stuck to their campaign scripts, repeating many of the factually incorrect or highly misleading talking points on tax issues.

Sen. Obama tried to get viewers to believe in his version of history, claiming that since George W. Bush took office, "we have [had a] half-a-trillion-dollar deficit annually." He also said the McCain tax plan would "give the average Fortune 500 CEO an additional $700,000 in tax cuts."

"Obama's deficit figure is way off," says Gerald Prante, a senior economist at the Tax Foundation who has fact-checked the claims from the Presidential candidates. "The highest deficit over the last eight years was $438 billion, and the average over the last 4 years was $292 billion."

"As for the $700,000 figure for CEOs," continued Prante, "that is what the Bush tax cuts saved someone who makes $15 million. Those few CEOs in the Fortune 500 do make that much, but McCain's only ‘additional' personal tax cut for them is to make current tax policy permanent. McCain's corporate tax cut proposal would benefit all employees and investors, so CEOs would benefit from that as well."

Senator Obama's claim to give a tax cut to 95 percent of Americans is also an exaggeration. The Urban-Brookings Tax Policy Center gives him credit for 81 percent, according to Prante.

Sen. McCain chastised past lawmakers by complaining about the national debt, saying that Washington has "to stop this spending spree" because "we've laid a $10 trillion debt on these young Americans," while also touting his plan to double the personal exemption for dependents from $3,500 to $7,000.

"If Sen. McCain is concerned with the national debt, his tax proposals do not show it," says Prante. "Sen. McCain's tax proposals would grow the national debt rapidly, by over $4 trillion in a decade, according to some estimates. He can't cut that much spending by just going after earmarks."

"As for doubling the personal exemption," Prante continues, "Sen. McCain's plan would take 8 years to double the exemption from $3,500 to $7,000. Since even under current law, the exemption would increase to roughly $4,750 due to annual inflation adjustments, it would be more accurate for Sen. McCain to say that he is increasing it by 50 percent. That's still a big increase, but it's not double."

The final Presidential debate will be next Wednesday, October 15, when the Tax Foundation will provide another tax fat-checking analysis.

Read Prante's full debate fact-check at http://www.taxfoundation.org/blog/show/23733.html. Learn more about the Presidential candidates' tax plains at http://www.taxfoundation.org/candidates08.

Obama and McCain Tax Proposals Raise Marginal Tax Rates for Many Middle-Income Taxpayers

Tue, 07 Oct 2008 00:00:00 EDT

Marginal Rates Would Shoot over 50 Percent for Some Middle-Income Families Under Obama's Plan

Washington, D.C., October 7, 2008 - Marginal tax rates will rise to over 50 percent on some middle-income families if Sen. Obama's tax plan becomes law, and over 40 percent under Senator McCain's plan, according to a new report from the Tax Foundation.

The report is Tax Foundation Fiscal Fact No. 150, "How Do the Presidential Candidates' Tax Plans Affect Taxpayers' Marginal Tax Rates?" by Robert Carroll, Ph.D., vice president for economic policy at the foundation. Carroll illustrates his point with a family of four—two working adults with two children—and explains the economic importance of "marginal" tax rates and why they can differ dramatically from statutory tax rates.

"Senator Obama's new and expanded tax credits for low-income taxpayers will certainly cut taxes for low-income people," explains Carroll, "but the credits are mostly recaptured from middle-income taxpayers. During this phase-out range, marginal tax rates shoot up, causing economically damaging side effects. As a result, for example, a family of four in the $30,000-to-$43,000 range would discover that for every additional dollar they earn, they pay more than 50 cents in income tax."

The marginal tax rate is important because it determines how much of his income a taxpayer keeps when making financial decisions such as how much to work, save or donate. The higher the marginal tax rate, the more likely it is that these important decisions will be based on tax considerations rather than economic merit.

Sen. McCain's tax plan also changes marginal tax rates by proposing to replace the tax exclusion for employer-provided insurance with a new health tax credit. Although taxpayers would pay less in total, the marginal tax rate would rise in some income ranges.

"Between $15,000 and $20,000, and between $90,000 and $110,000, some families would be bumped up into a higher tax bracket," said Carroll.

The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.

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To schedule an interview, please contact Matt Moon, the Tax Foundation's Manager of Media Relations, at (202) 464-5102.

Which States Are Best for Business? 2009 State Business Tax Climate Index

Mon, 06 Oct 2008 00:00:00 EDT

Washington, DC, October 6, 2008 - Wyoming has the best, and New Jersey has the worst, tax systems when it comes to "business friendliness," according to the Tax Foundation's recently completed 2009 State Business Tax Climate Index, a ranking of the 50 state tax systems that provides a roadmap for state lawmakers concerned with keeping their states tax-competitive.

Keeping a state competitive in today's global marketplace can be difficult, but there is one factor lawmakers have direct control over: the quality of state tax systems. The Index measures how well a state's tax system encourages investment by maintaining a broad tax base and low rates.

"The modern market is characterized by mobile capital and labor. Therefore, companies will locate where they have the greatest competitive advantage," said Tax Foundation Staff Economist Josh Barro, the study's author. "States with the best tax systems will be the most competitive in attracting new businesses and most effective at generating economic and employment growth."

The Index, published yearly by the Tax Foundation since 2003, ranks states based on the taxes that matter most to businesses and business investment: corporate tax, individual income tax, sales tax, unemployment tax and property tax. The states are scored on these taxes, and the scores are weighted based on the relative importance or impact of the tax to a business.

The top ten states in the Index, from 1^st to 10^th, are Wyoming, South Dakota, Nevada, Alaska, Florida, Montana, Texas, New Hampshire, Oregon, and Delaware. The bottom ten states, from 41^st to 50^th, are Minnesota, Nebraska, Vermont, Iowa, Maryland, Rhode Island, Ohio, California, New York and New Jersey.

Barro urges states to constantly be on the lookout for ways to improve their business tax climates. If they stand still, they lose ground to states actively improving their climates.

"States do not enact tax changes (increases or cuts) in a vacuum," Barro explains. "Every tax law will in some way change a state's competitive position relative to its immediate neighbors, its geographic region, and even globally. Entrepreneurial states will seize opportunities to lure businesses out of high-tax states."

This year's Index will be formally unveiled at the New Jersey State House in Trenton, NJ on Monday, October 6 by Josh Barro. Scheduled is a briefing to interested Garden State lawmakers at 9:00 AM, and a press conference at 11:00 AM. Details will be provided through a media advisory from the Tax Foundation.

The Index can be found at http://www.taxfoundation.org/research/show/22658.html.

The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.

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To schedule an interview to discuss Tax Foundation's 2009 State Business Tax Climate Index, please contact Matt Moon, the Tax Foundation's Manager of Media Relations, at (202) 464-5102.

Proposed Bailout Brings Some Uncertainty to Property Tax Collections

Mon, 29 Sep 2008 00:00:00 EDT

While History Shows State, Local Governments Need Not Worry, Congressional Action Often Clarifies Tax Status of Federal Government-Owned Assets

Washington, DC, September 29, 2008 - The property tax collections of state and local governments will probably not be harmed by a federal bailout of lenders, according to a newly released historical review by Tax Foundation tax counsel Joseph Henchman.

In Tax Foundation Fiscal Fact No. 149, "Would a Federal Bailout Affect Local Property Tax Collections?" Henchman examines the tax treatment of federal property. The bailout proposal would transfer many mortgage-backed securities to the federal government in some form, and many foreclosures would give the federal government ownership pending disposition. Because entities of the federal government are usually immune from state taxation, state and local officials might be worried about their revenue stream.

"State and local governments in 2008 will rely on an estimated $397 billion in property tax collections. As of August 2008, 1.2 million homes were in foreclosure, out of 45 million mortgages outstanding," Henchman explains. "If even a fraction of the assets underlying the estimated $12 trillion in mortgage loans falls into government title, and are immunized from state and local taxes, a revenue problem could arise for local governments."

Henchman examines similar situations where the federal government:

Establishes a quasi-public corporation to take title of the assets (similar to Amtrak, the Federal Deposit Insurance Corporation, and the Resolution Trust Corporation);
Funds existing companies that retain title (similar to Conrail and pre-September Fannie Mae); or
Takes title (itself or through a government agency) to the mortgage-backed securities (similar to the Tennessee Valley Authority and the U.S. Postal Service).

An analysis of these past structures suggests that receiving a federal charter by itself does not immunize a corporation from state and local tax obligations. In each of the examples, any tax immunity resulted from either explicit congressional action or status as a federal instrumentality.

"It is unlikely that the bailout proposal, if enacted, would significantly harm state and local property tax revenues, and past experience suggests that state and local governments need not worry," Henchman argues. "If the federal government sets up a quasi-public corporation to take title to the assets, or if the existing owners retain title but receive federal funding, the property would be subject to state and local taxation absent congressional directive otherwise. If the federal government itself takes title, the property would be exempt from state and local taxes, but in that case Congress is likely to provide payments in lieu of taxes as it has authorized in the past."

Access the report here: http://www.taxfoundation.org/publications/show/23687.html

The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.

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To schedule an interview to discuss the proposed bailout of financial institutions and their impact on property taxes, please contact Matt Moon, the Tax Foundation's Manager of Media Relations, at (202) 464-5102.

Obama, McCain Play Loose with Truth on Tax Policy in First Debate

Sat, 27 Sep 2008 00:00:00 EDT

Tax Foundation Fact-Checks Claims from Democratic, GOP Presidential Candidates

Washington, DC, September 27, 2008 - In the first president debate between Senators Barack Obama and John McCain, both candidates made claims about taxes that played somewhat loose with the facts.

In Tax Foundation Fiscal Fact No. 148, "McCain and Obama Both Play Loose with Faces on Tax Issues in First Debate," Tax Foundation Senior Economist Gerald Prante analyzes the first presidential debate held at the University of Mississippi, a conversation that was originally supposed to be about foreign policy, but started off with the economy due to the financial situation in the United States.

Prante critiques Senator Obama's attack on McCain's tax plan as a proposal that would give "CEOs of Fortune 500 companies an average of $700,000 in reduced taxes, while leaving 100 million Americans out." The "$700,000 in reduced taxes for CEOs" comes from McCain's extending of the lower tax rates that those CEOs benefit from that were in place under the Bush tax cuts. When Obama uses that number, he is citing it relative to a baseline that assumed the Bush tax cuts were repealed. But when Obama talks about the "leaving 100 million Americans out" figure for McCain's tax plan, he is assuming that the Bush tax cuts are left in place with an Alternative Minimum Tax (AMT) patch.

"Obama is basically comparing apples and oranges, and thereby misleading the American people," Prante explains. "It's kind of like Obama telling you that the Georgia Bulldogs are 4-0 and the St. Louis Rams are 0-3 without telling you the fact that the Georgia Bulldogs play college football and the St. Louis Rams play professional football. He is implying that the two figures are comparable regarding the quality of the tax plans."

Prante also critiques Senator McCain's attack on Obama's tax record. McCain accused Obama of voting for tax hikes on those making as little as $42,000. Yet that was a non-binding Senate vote earlier this year, and it is significantly different from what Obama is proposing as a candidate. Very few households making $42,000 per year would pay more in taxes under Obama's tax plan.

"You may say that Obama is voting one way and proposing something else on the campaign trail," says Prante. "But if that's fair, then McCain's drastic change of heart on the Bush tax cuts is fair game as well. McCain voted against the 2001 and 2003 tax cuts, but now supports extending almost all of them with the exception of the full repeal of the estate tax."

The Tax Foundation will be doing the same fact checking on tax issues after each of the presidential debates, as well as next week's vice-presidential debate. Fiscal Fact No. 148 can be found at http://www.taxfoundation.org/research/show/23681.html.

The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.

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To schedule an interview to discuss the Presidential candidates' tax proposals, please contact Matt Moon, the Tax Foundation's Manager of Media Relations, at (202) 464-5102.

Eight Tax Policy Questions for Senators John McCain and Barack Obama

Fri, 26 Sep 2008 00:00:00 EDT

With 39 Days Left in Campaign, Tax Foundation Wants Answers from Presidential Contenders

Washington, DC, September 26, 2008 - In the midst of a financial crisis, and with the economy as the number one issue this election, the Tax Foundation is asking Senators John McCain and Barack Obama to answer eight questions about their tax proposals and their philosophical objectives when it comes to fiscal policy.

Tax Foundation President Scott Hodge urges the Republican and Democratic nominees for the Oval Office to clarify their positions on specific tax issues and the goals they want to achieve through the tax code.

"While our scholars have done comparative studies on the candidates' tax plans as well as analyses of specific items, including McCain's health credit and Obama's senior tax relief proposal," says Hodge, "the Tax Foundation is looking for answers to very important questions that will determine the fiscal future of this country."

The following are the questions to Senators McCain and Obama:

The Treasury Department and the Congressional Budget Office say that housing receives more tax subsidies than any other industry, thanks to the ever-growing government effort to boost home ownership. Most tax experts say we've got to pull back some of those subsidies so that people only buy a house when they can afford it.
- Senator McCain, your plan doesn't rescind any of housing's tax benefits. Isn't it time to take on the housing industry's claim to tax breaks that subsidize home ownership?
- Senator Obama, your plan actually piles on more tax benefits for housing. Why are the experts wrong?
A recent OECD study reports that the U.S. corporate tax rate is the second-highest among industrialized countries. Do you believe this affects America's ability to attract capital and to compete economically in the global marketplace? If so, what would you do about it? If not, why not?
Polls show that most Americans think our income tax system is too complicated and nearly 60% of taxpayers pay someone else to fill out their tax forms. Next year, there will even be a worksheet for the standard deduction. Despite the calls for a major overhaul and simplification of the system, both of you offer tax proposals that further complicate the tax code with more credits and deductions. Why can't you remove some?
Congress has always eliminated taxes for the poorest. But with new credits, even middle-class filers are joining the ranks of "non-payers." Currently, one-third of tax filers owe nothing in income taxes, and if either of your plans is enacted next year, about 43% of filers would get every dollar back that was withheld from their paychecks. Do you think it is desirable to have nearly half of Americans disconnected from the income tax system?
Since the early 1990s, lawmakers have increasingly used the tax code, instead of government spending programs, to funnel money to groups of people they want to reward, enacting credits to subsidize families with children, college students, and purchasers of hybrid cars. Do you think it is still a good idea to use the IRS as a vehicle for social policy?
Tax Foundation economists have described Barack Obama's tax plan as an advancement of redistribution, focusing on dividing the "economic pie", while John McCain's tax plan places more emphasis on "growing the pie."
- To John McCain: Is it the role of taxes to enforce fairness, and if so, how will your plan accomplish that?
- To Barack Obama: How will you make sure that the pie that you want to divide differently can grow overall?
There have been claims made by both campaigns on each other's tax proposals that have appeared in several advertisements.
- To John McCain: You have attacked Sen. Obama for wanting to tax electricity. Then why do you support doing essentially the same thing with your carbon cap and trade proposal?
- To Barack Obama: Why have you said the McCain tax plan gives no benefits to "100 million households" while the liberal Brookings-Urban Tax Policy Center scores the McCain health tax credit as a big tax cut for the vast majority of households?
There has been considerable debate during the campaign over what the federal government should do about the higher price of gasoline, but the proposals of both candidates have little economic backing.
- To Barack Obama: Why impose a windfall profits tax on U.S. oil companies when it failed so miserably during the 1980s? Don't private and public pension funds invest in them?
- To John McCain: Why did you support a gas tax holiday when experts have called it a gimmick that would not lower gas prices significantly?

To learn more about Presidential tax proposals, go to http://www.taxfoundation.org/candidates08/.

The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.

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To schedule an interview to discuss the Presidential candidates' tax plans, please contact Matt Moon, the Tax Foundation's Manager of Media Relations, at (202) 464-5102.

Tax Foundation Responds to Controversy Over North Carolina Political Ad

Tue, 23 Sep 2008 00:00:00 EDT

—Republican Governors Association Television Spot Cites State-Local Tax Burden Study

Washington, DC, September 23, 2008 - The following is a statement from Tax Foundation Senior Economist Gerald Prante, author of the 2008 edition of the foundation's annual estimate of state-local tax burdens, "State-Local Tax Burdens Dip As Income Growth Outpaces Tax Growth," Tax Foundation Special Report, No. 163.

"Each year since 1990, the Tax Foundation has published an estimate of combined state-local tax burdens in each state, counting all state and local taxes, dividing by income, and ranking the states. We use historical data to compute the burden in past years, and for the current year we estimate tax burdens based on the latest available data. When government agencies later revise their data, we then revise our series to reflect those final government tallies.

"Improvements in the study's methodology are another source of revisions. In 2008, new data on interstate home ownership and nonresident income tax returns were incorporated, and a different definition of income was adopted. These two sources of revisionsnewer data and improved economic analysis—are part of every recurring publication in public finance. However, these revisions can present problems for people who have relied on earlier reports.

"We have become aware of a television advertisement created by the Republican Governors Association that has become the subject of complaints and charges of inaccuracy. The ad accurately cites our 2007 estimates of state-local tax burdens. On August 8, 2008, we posted the 2008 report and removed the link to our 2007 report. However, we did not remove the 2007 report from our website, so a search engine could have found it, and we neglected to follow our usual custom of putting a warning on each page of that report, telling viewers that the data have been superseded. That has now been done.

"As more public finance data is published in electronic form, the Tax Foundation will continue to improve this annual report on state-local tax burdens. Ultimately, our goal is to be able to tell each state's residents as exactly as possible what percentage of their income they paid in state-local taxes.

"The latest available data should always be used, but in the internet era, data revision has become an almost non-stop activity. As a result, most publications or broadcasts that take any time to prepare are ‘incorrect' in some respect by the time they come out or soon thereafter. As a nonpartisan, nonprofit organization, we cannot take a position on whether this ad should run on North Carolina broadcast stations."

The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.

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If you have any questions, please contact Matt Moon, the Tax Foundation's Manager of Media Relations, at (202) 464-5102.

Census Survey: New York, New Jersey Counties Rank Highest in Property Taxes on Homeowners

Tue, 23 Sep 2008 00:00:00 EDT

Washington, DC, September 23, 2008 - New data released today by the Census Bureau on owner-occupied housing shows New York and New Jersey residents pay the most in property taxes.

In Tax Foundation Fiscal Fact No. 147, "New Census Data on Property Taxes on Homeowners," Tax Foundation Senior Economic Gerald Prante uses newly updated Census data from the 2007 American Community Survey to rank high-population counties across the country according to various property tax measures.

Below is a table that shows median property taxes paid on homes in a particular county*:

Rank	County	State	Taxes
1	Westchester County	NY	$8,422
2	Hunterdon County	NJ	$8,224
3	Nassau County	NY	$8,153
4	Bergen County	NJ	$7,797
5	Somerset County	NJ	$7,597
6	Rockland County	NY	$7,535
6	Essex County	NJ	$7,535
8	Morris County	NJ	$7,281
9	Union County	NJ	$7,007
10	Passaic County	NJ	$6,928

* Many states funnel property tax relief through their income tax system. Most of those funds are not shown in this survey.

Note: National median is $1,838.
Source: American Community Survey (Census Bureau)

This year's rankings show some shuffling from the 2006 data released last year. Then, Hunterdon County was ranked #1, followed by Nassau County and then Westchester County. In order to make the leap up to #1 this year, Westchester County's median property tax payment increased by $796.

The study also looks at median real estate taxes as a percentage of median home value. The top 10 counties in Median Real Estate Taxes as a Percentage of Median Home Value are shown in the table below:

County	State	Median Real Estate Taxes as a Percentage of Median Home Value
Niagara County	NY	2.9%
Mornoe County	NY	2.8%
Chautauqua County	NY	2.8%
Wayne County	NY	2.6%
Oswego County	NY	2.6%
Onondaga County	NY	2.5%
Erie County	NY	2.5%
Fort Bend County	TX	2.5%
Steuben County	NY	2.5%
Camden County	NJ	2.4%

Note: National median is 0.95%.
Source: American Community Survey (Census Bureau), Tax Foundation Calculations

Fiscal Fact No. 147 can be found at: http://www.taxfoundation.org/research/show/23648.html.

See the full county list, ranked by property taxes paid, online at http://www.taxfoundation.org/taxdata/show/23649.html.

See the full county list, ranked by taxes as a percentage of home value, online at http://www.taxfoundation.org/taxdata/show/1888.html

See the list by state online at http://www.taxfoundation.org/taxdata/show/1913.html.

The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.

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To schedule an interview to discuss property taxes, please contact Matt Moon, the Tax Foundation's Manager of Media Relations, at (202) 464-5102.

Tax Plan Comparison: 43 to 44 Percent of Tax Filers Would Owe Nothing Under McCain, Obama Plans

Fri, 19 Sep 2008 00:00:00 EDT

Serious Public Discussion Needed on How Many "Nonpayers" U.S. Can Afford

Washington, DC, September 19, 2008 - A newly released study from the Tax Foundation shows that while current law would give 33 percent of tax filers zero liability next year, that figure would increase to 43 and 44 percent if John McCain's and Barack Obama's tax plans, respectively, were enacted in 2009.

In Tax Foundation Fiscal Fact No. 146, "Both Candidates' Tax Plans Will Reduce Millions of Taxpayers' Liability to Zero (or Less)," Tax Foundation President Scott Hodge estimates that while 47 million tax filers would see zero liability under current law in 2009, if all of McCain's or Obama's tax provisions were instituted next year, the number of "non-payers" would rise to 62 or 63 million, respectively.

"Both the McCain and Obama plans would increase this number by expanding existing tax benefits or creating new ones," says Hodge. "The 15 million filer increase in non-payers under the McCain plan is almost all due to McCain's health care credit, which dramatically realigns health care incentives and gives people a powerful motive to buy health insurance. Obama uses a longer list of smaller tax credit ideas, including a new ‘Making Work Pay Credit' and a ‘Universal Mortgage Credit,' to take 16 million filers off the tax rolls."

The tax code has historically contained provisions that reduce the income tax burden for lower-income workers, giving around 21 percent of filers no tax liability from 1950 to 1990. Since the early 1990s, Hodge explains that lawmakers have increasingly used the tax code, instead of government spending programs, to funnel money to groups of people they want to reward, enacting credits to subsidize families with children, college students, and purchasers of hybrid cars. Furthermore, Hodge urges a public debate over the costs and benefits of narrowing the tax base and using the tax code to further social and political goals.

"For many folks, tax returns have become, in effect, a claim form for a subsidy delivered through the tax system rather than a direct payment from a traditional government program like welfare or farm supports," Hodge states. "It is time for a serious public discussion of whether it is desirable to have so many Americans disconnected from the cost of government and what the consequences are of using the tax system as a vehicle for social policy."

Hodge says that some of those consequences include added complexity for low-income Americans who pay tax preparers to benefit from the earned income tax credit (EITC), punitive effective marginal tax rates for taxpayers in the phase-out range of the EITC (higher rates than even the most affluent Americans, according to the President's Tax Reform Panel), and revenue volatility due to a narrowing base as higher-income taxpayers include wildly fluctuating business, dividend and capital gains income.

Fiscal Fact No. 146 can be found at http://www.taxfoundation.org/publications/show/23631.html.

The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.

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To schedule an interview to discuss the Tax Foundation's CompeteUSA project and corporate income taxes, please contact Matt Moon, the Tax Foundation's Manager of Media Relations, at (202) 464-5102.

Global Survey of Business Tax Rates Show U.S. Increasingly Uncompetitive

Thu, 18 Sep 2008 00:00:00 EDT

KPMG Study Shows American Corporate Tax Rate Trending Well Above International Average

Washington, DC, September 18, 2008 - KPMG, a well-known international accounting firm, released its annual survey of corporate and indirect tax rates for 2008, showing that the U.S. corporate income tax rate was higher than all other global regions, 14.1 percentage points higher than the global average and nearly 17 percentage points higher than the average among European Union nations.

In Tax Foundation Fiscal Fact No. 145, "KPMG Study Finds U.S. Corporate Tax Rate Higher Than Every Global Region," Tax Foundation President Scott Hodge explains that America's stagnant business tax system is potentially harmful to America's economic competitiveness in the global marketplace.

"Of the 106 countries surveyed, only the United Arab Emirates (55 percent), Kuwait (55 percent), and Japan (40.69 percent) impose a higher corporate tax rate than the combined rate of 40 percent in the U.S.," says Hodge. "What this says about America's tax competitiveness is not good."

According to the KPMG report, 23 countries have lowered their corporate tax rates this year, and no nation has raised its rate since last year. Last week, for instance, Sweden announced a series of proposals to improve its business climate, including a plan to cut its corporate tax rate from 28 percent to 26.3 percent. A September 17, 2008 Industry Week article, "Sweden Announces Income Tax Cuts to Boost Jobs," explains, "Since coming to power in the autumn of 2006, the Swedish government has launched a series of measures aimed at inciting Swedes to return to the job market instead of living off of state subsidies."

"The U.S. rate was higher than all other global regions in 1999 and the difference is even more dramatic today," Hodge states. "If the Swedes now recognize that taxes matter to a country's business climate and incentives to work, then when will America's political class?"

This KPMG survey comes on the heels of the Tax Foundation's CompeteUSA project, a campaign to raise public awareness of America's high business taxes and how our business tax system might be affecting our competitiveness, wages and living standards.

Recent OECD studies show U.S. corporate income taxes are 50 percent higher than the average among our counterparts in the industrialized world, and that corporate taxes are the single most harmful tax to GDP growth, more so than personal income taxes or consumption taxes. Last month, the Tax Foundation released a revised summary showing that the U.S. federal corporate income tax quietly taps family pocketbooks for nearly $370 billion per year in the form of higher prices, lower wages and poorer return on investment.

To learn more about the CompeteUSA project, go to http://www.taxfoundation.org/competeusa.

The KPMG survey can be found at http://www.kpmg.com/SiteCollectionDocuments/Corporate-Tax-Rates-Survey-2008b.pdf.

Fiscal Fact No. 145 can be found at http://www.taxfoundation.org/publications/show/23621.html.

The Industry Week article can be found at http://www.industryweek.com/ReadArticle.aspx?ArticleID=17335.

The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.

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To schedule an interview to discuss the Tax Foundation's CompeteUSA project and corporate income taxes, please contact Matt Moon, the Tax Foundation's Manager of Media Relations, at (202) 464-5102.

McCain Health Credit Could Give Coverage to a Third or More of Uninsured

Thu, 18 Sep 2008 00:00:00 EDT

Low-Income Workers Would Benefit Most from GOP Presidential Candidate's Proposal

Washington, DC, September 15, 2008 - A new Tax Foundation study shows John McCain's pitch to replace a tax subsidy that favors high-income people with a refundable credit that favors low- and middle-income people would cover a third or more of Americans that are uninsured, leading to a net tax cut for most taxpayers.

In Tax Foundation Fiscal Fact No. 144, "McCain's Health Credit: The Intersection of Health Policy and Tax Policy," Tax Foundation Vice President for Economic Policy Robert Carroll, Ph.D., explains that the Republican presidential nominee's proposal to replace the current income tax exclusion for employer-based insurance with a large health tax credit—$5,000 for family coverage and $2,500 for individual coverage—would sharply reduce tax-driven biases in America's health care system.

Because people would receive the full credit even if the insurance cost less, the proposal simultaneously provides a powerful incentive to purchase insurance and to purchase an amount of insurance without regard to income tax considerations," says Carroll. "Less generous proposals have already been estimated to decrease the number of uninsured by over 15 million, so the McCain health credit would probably decrease the number of uninsured from the current 45 million to 30 million and probably much lower."

Carroll points out that while a good deal of the current $300 billion to $400 billion tax subsidy is channeled to middle- and high-income taxpayers, the fixed amount in the McCain health credit is worth the same regardless of a person's income, and therefore channels much more of the benefit to low- and moderate-income taxpayers.

"The McCain credit is therefore a much more progressive policy than the current tax treatment," Carroll states. "The proposal is a net tax cut for most taxpayers because the new health credit exceeds the value of the existing income tax exclusion. The generous credit provides a powerful incentive to purchase health insurance."

Carroll does point to a few potential downsides to the plan. The health credit would exceed the revenue from the repeal of the tax exclusion for employer-based health insurance, and would increase marginal tax rates for some taxpayers because the employer-based insurance premiums becoming taxable would move some taxpayers into higher tax brackets. But Carroll argues that the downside of the policy needs to be contrasted with the improved incentives the policy provides for health care markets.

"The improved efficiency that should result from the McCain credit, combined with a powerful incentive to purchase health insurance and a beneficial effect for low-income people, would seem to make this policy particularly attractive to both sides of the political spectrum," Carroll argues. "Few government programs kill two birds with one stone, but the McCain health credit seems to be one that could."

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The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.

To schedule an interview to discuss Sen. McCain's health tax credit proposal, or any of the candidates' tax plans, please contact Matt Moon, the Tax Foundation's Manager of Media Relations, at (202) 464-5102.

Tax Foundation Bemoans Egregious Errors in Presidential Tax Policy Debate

Fri, 12 Sep 2008 00:00:00 EDT

Joe Klein of Time Magazine Latest to Botch "Tax Credit" Versus "Tax Deduction"

Washington, DC, September 12, 2008 - With 53 days left to go in this year's Presidential race, basic tax facts have been tossed out the window by some reporters and columnists, according to Gerald Prante, senior economist at the Tax Foundation, who has monitored the Presidential candidates' plans on taxation.

Sen. John McCain's proposal to provide health tax credits has been the subject of the latest misinformed commentary and attack, and Prante explains that the plan is not that complicated. This huge, new subsidy for health insurance would be partially offset by the removal of a different subsidy, the tax exemption for employer-provided health care. Exemptions are not nearly as valuable to taxpayers as credits because they're not subtracted from what a taxpayer owes. Instead, they're subtracted from a taxpayer's taxable income.

"Each single taxpayer with health insurance, whether provided by an employer or purchased on his or her own, would get a $2,500 refundable tax credit (couples would get $5,000)," says Prante. "While the current exclusion tends to favor those with valuable employer-provided health insurance plans and those in higher tax brackets, McCain's refundable credit would actually reduce the tax liability of most tax returns, especially those in the middle-income groups. That's why the Tax Policy Center's preliminary estimate has it actually costing $1.3 trillion over ten years."

But yesterday, Joe Klein of Time Magazine claimed in the "Swampland" blog that McCain "is actually proposing a tax increase on health care benefits for American workers" and that McCain wants to "tax your employer-provided health care benefits" and "replace those benefits with an insufficient tax credit" because "the average cost per family for health insurance is $12,000." Unfortunately, Klein appears not to understand how a tax credit works as he compares the $12,000 average family cost to the credit amount ($5,000).

"What Klein fails to comprehend is that the $5,000 value of the credit would be worth more than the current exclusion for almost any taxpayer," Prante points out. "For instance, a family in the 25% bracket would have its income tax before credits increase by 25% of $12,000, which is $3,000. However, the family would be getting a $5,000 credit that would trump the $3,000 extra in taxes from the elimination of the exclusion. Even for a family in the 35% bracket, the family having $12,000 in insurance would come out ahead."

Prante urges all journalists and columnists to learn the basics of the tax code, and the difference between a tax exclusion and a tax credit, before they report or comment any tax matters.

"Credits are dollar-for-dollar reductions in taxes," Prante explains. "The value of an exclusion to a taxpayer depends on the tax rate one is in."

Klein's blog post can be found at: http://www.time-blog.com/swampland/2008/09/mccains_health_care_tax_increa.html

Prante's response can be found at: http://www.taxfoundation.org/blog/show/23599.html

Win $5,000 in the Tax Foundation's CompeteUSA Video Contest

Wed, 10 Sep 2008 00:00:00 EDT

Tax Foundation Launches YouTube Video Contest: Best Entry Showing Impact of High Business Taxes on U.S. Jobs, Wages, and Productivity to Win $5,000

Washington, DC, September 10, 2008 - The Tax Foundation today announced a new YouTube video contest aimed primarily at students and young professionals as part of its CompeteUSA campaign to raise awareness of America's high business tax rates and how those taxes have an impact on our competitiveness, wages, and living standards. The winner will earn $5,000 while second and third prize winners will receive $1,000 and $500, respectively.

The rules are simple: the video must be no shorter than 1 minute and no longer than 3 minutes and must be submitted on the following YouTube Group site by 11:59 PM EST on October 15, 2008: http://www.youtube.com/group/competeusa. There is a limit of one video per individual.

After submission of videos, contestants must submit basic information to Matt Moon, Manager of Media Relations at the Tax Foundation, at moon@taxfoundation.org. This would include a name, email, daytime/evening phone numbers, and address.

The video must stick to the subject of the Tax Foundation's CompeteUSA project: raising public awareness of America's high business taxes and how those taxes are affecting our competitiveness, wages, and living standards. The judges will be looking for that right mix of humor and street-smart savvy about what impacts the jobs, wages, and productivity of our current and future workers, and what we can do to create better opportunities for all Americans. (No employee, former employee, or immediate family member of an employee of the Tax Foundation may enter the contest.) The winner, as determined by a panel of Tax Foundation experts, will award the prize.

The CompeteUSA campaign launch comes on the heels of new data showing that the United States has the second-highest corporate income tax rate in the industrialized world, and that the American worker shoulders a disproportionate amount of the corporate tax. In fact, the poorest 20 percent of households pay more in corporate income taxes each year than they pay in individual income taxes, and corporate taxes were 6.3 percent of low-income households' tax bills last year compared to just 4 percent for individual income taxes.

"Too often our political debates focus on the next election but ignore the next generation, so we're enlisting the help of America's youth to make their voice heard about our economy," noted Tax Foundation President Scott Hodge. "And to incentivize people to take this seriously, we're offering a $5,000 prize for the best short video to be displayed on our YouTube page. This is a fun way to make a point, but also to make some money for college."

The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.

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Scott Hodge is president of the Tax Foundation, a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937. For additional information on the contest, including all rules and restrictions, please log on to http://www.taxfoundation.org/competeusa/ or call Matt Moon, Manager of Media Relations, at (202) 464-5102.

Stagnant U.S. Business Tax System Potentially Harmful to Competitiveness

Fri, 29 Aug 2008 00:00:00 EDT

Various Measures Comparing International Rates Show U.S. Increasingly Out of Line

Washington, DC, August 29, 2008 - A recent study shows that while America has left the major features of its business tax system unchanged over the past fifteen years, virtually all developed nations have lowered their corporate tax rates, potentially hurting the competitiveness of the United States.

In Tax Foundation Fiscal Fact No. 143, "Comparing International Corporate Tax Rates: U.S. Corporate Tax Rate Increasingly Out of Line by Various Measures," Tax Foundation Vice President for Economic Policy Robert Carroll, Ph.D., uses various methods to compare U.S. corporate tax rates with member nations of the Organization of Economic Cooperation and Development (OECD) and the G-7 countries.

"The U.S.'s combined federal-state statutory corporate tax rate (39.3%) is now well above the weighted average for both the member nations of the OECD (31.9%) and the larger G-7 countries (33.8%)," says Carroll. "Moreover, both groups of countries continue to lower their tax rates. Since the early 1980s, the weighted average corporate tax rate has fallen by 38 percent for OECD nations and 37 percent for the G-7 countries, not counting the U.S."

Because economists often use the "effective marginal tax rate," a measure that accounts for the major features of a country's business tax system—corporate tax rate, depreciation, investor-level taxes, and other consideration—to gauge how well a country's business tax system stacks up, Carroll also compared nations by this measure.

"When we take a more comprehensive look at the business tax system and account for changes in the business tax based, we find that the effective marginal tax rates of other nations have fallen while the United States has stood still," Carroll explains. "The effective marginal tax rate abroad has fallen by about 30 percent since the early 1980s while remaining largely unchanged in the United States."

Carroll points out that the trend toward lower rates abroad is still strong.

"Nine of the thirty OECD member nations—including Canada, Germany, the United Kingdom, Italy, Switzerland, Spain, New Zealand and the Czech Republic—lowered their corporate tax rates between 2007 and 2008," Carroll states. "These measurements indicate quite clearly that the business tax environment abroad has changed considerably over the past two decades."

The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.

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To set up an interview to discuss corporate income taxes, please contact Matt Moon, the Tax Foundation's Manager of Media Relations, at (202) 464-5102.

Study of 2001 and 2003 Tax Relief Provides Lessons for McCain and Obama

Wed, 27 Aug 2008 00:00:00 EDT

Economic Benefits of Reducing Top Income Tax Rates Included Higher Taxable Income

Washington, DC, August 27, 2008 - Recent research on tax relief enacted in 2001 and 2003 shows that taxable income increased when top tax rates were cut. Though not sufficient to "pay for themselves," an exaggerated claim often made for tax cut proposals, the rate cuts in the top two brackets did induce taxpayers to report enough extra taxable income to offset between 25 and 40 percent of the static revenue loss.

In Tax Foundation Fiscal Fact No. 141, "The 2001 and 2003 Tax Relief: The Benefit of Lower Tax Rates," Tax Foundation Vice President for Economic Policy Robert Carroll, Ph.D., says this analysis is important when evaluating the tax proposals of the presidential candidates.

"Absent any action from Congress, the top tax rate will rise back to 39.6% when the 2001 and 2003 tax relief sunsets at the end of 2010," Carroll explains. "That would end an eight-year rate reduction that helped spur the economy in the longer term by improving the incentives to work, produce and save, and by reducing other economic distortions associated with high tax rates."

Carroll points out that if taxpayers had not responded at all to the lower tax rates, their tax cut would have been about $29.7 billion in 2005 (the static revenue loss to the federal government). But, because the lower tax rates induced taxpayers to increase their taxable incomes by roughly 3 percent, the tax cuts only cost the Treasury about $18.5 billion.

"That means an estimated 25-to-40 percent of the static revenue loss was offset by the tax-induced increase in the tax base," says Carroll.

Listing specific taxpayer responses that would account for the surge in taxable income, Carroll cites taxpayers working harder and longer hours, taking riskier and higher-paying jobs, choosing entrepreneurship over wage-earning, shifting compensation from nontaxable fringe benefits to taxable wages, or relying less heavily on tax deductible consumption such as debt-financed home ownership.

"Sound tax policy seeks to let household and business decisions be based more on economic merit, not tax considerations," says Carroll, and each of these behavioral responses would boost taxable income."

Carroll's analysis can be found at http://www.taxfoundation.org/publications/show/23534.html.

The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.

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To set up an interview to discuss analysis of the 2001 and 2003 tax relief packages or any of the presidential candidates' tax policies, please contact Matt Moon, the Tax Foundation's Manager of Media Relations, at (202) 464-5102.

American Families Bear Large Burden from Corporate Income Tax

Tue, 26 Aug 2008 00:00:00 EDT

Growing Consensus Says Corporate Taxes Are Most in Need of Reform

Washington, DC, August 26, 2008 - Following newly released OECD data that shows U.S. corporate income taxes are 50 percent higher than the OECD average, the Tax Foundation released a revised summary showing that the US federal corporate income tax quietly taps family pocketbooks for nearly $370 billion per year in the form of higher prices, lower wages and poorer return on investment.

The typical family focuses on the more visible taxes such as property taxes on homes, sales taxes on purchases, and personal income and payroll taxes. But in Tax Foundation Tax Watch, "What Do Corporate Income Taxes Cost American Families," Tax Foundation President Scott Hodge puts a price tag on the corporate income tax.

"Most people think corporate income taxes are paid by wealthy, anonymous companies," said Hodge. "But as economists have been teaching for years, ultimately people bear the burden of corporate taxes, not companies. And in 2006 that burden averaged $3,190 per household. That's more than the average household spends on restaurant food, gasoline or home electricity in a year."

Last week, the Tax Foundation launched the CompeteUSA campaign whose goal is to raise the public's awareness of the burden America's business taxes may place on workers through lower real wages and living standards than would have occurred otherwise.

"One of the problems is a lack of understanding that ultimately people pay all taxes," Prante explains. "Politicians like to make corporations appear unworthy of any tax relief, but it is individuals such as shareholders and workers that ultimately pay the corporate income tax."

An October 2007 Tax Foundation Fiscal Fact No. 106, "Personalizing the Corporate Income Tax," Hodge and Prante found that the lowest-income households bear a large corporate tax burden. In fact, for the poorest 20 percent of households, corporate income taxes are more of a burden than individual income taxes.

"What this means is that cutting corporate tax rates is not about handing money to U.S. companies," Hodge pointed out. "It is about providing tax relief to American families and helping boost real wages and living standards for American workers."

To learn more about CompeteUSA, go to http://www.taxfoundation.org/competeusa/.

The Tax Watch report can be found at http://www.taxfoundation.org/files/corporate_income_taxes_cost_families-20080818.pdf .

The October 2007 report from Hodge and Prante can be found at http://www.taxfoundation.org/research/show/22694.html.

The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.

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To set up an interview to discuss corporate income taxes, please contact Matt Moon, the Tax Foundation's Manager of Media Relations, at (202) 464-5102.

Tax Foundation Urges Texas Court to Avoid Sparking an Interstate Tax War

Mon, 25 Aug 2008 00:00:00 EDT

Brief Opposes Punitive Tax on Out-of-State Insurance Companies

Washington, DC, August 18, 2008 - In a friend-of-the-court brief filed today with the Texas Supreme Court, the Tax Foundation is urging the reversal of a Comptroller's ruling imposing additional taxes on insurance companies from other states.

Joseph Henchman, tax counsel for the Tax Foundation, argues that allowing the Comptroller's ruling to stand will force other states to raise their tax rates on Texas insurance companies, setting off an interstate tax war and ultimately harming consumers.

"Failing to overturn the Comptroller's ruling will ultimately set off a chain reaction of tax increases on out-of-state insurance companies until no insurance companies do interstate business at all," explained Henchman. "These tax increases would ultimately be imposed on consumers paying higher prices, shareholders receiving lower dividends, and employees receiving reduced wages."

The First American Title Insurance Company v. Combs suit seeks a judicial order to reverse the Comptroller's decision to count only 15 percent of Texas's tax in figuring the calculation on out-of-state companies, with the Comptroller arguing that insurance companies only keep 15 percent of premiums (the remainder going to agents). Because no other state does this, Texas therefore pretends that its insurance taxes are much lower than they actually are, enabling it to impose huge retaliatory taxes. For instance, if another state imposes a 2.0% premium tax on Texas insurers, Texas would impose a 3.148% premium tax on that state's insurers.

On May 16, 2008, the Texas Supreme Court issued a 5-4 opinion upholding the Comptroller's ruling. The petitioners are now seeking a rehearing.

The Tax Foundation brief also notes that while insurance retaliatory taxes legitimately deter discriminatory taxes, the Comptroller's decision does not achieve the constitutional goal of retaliatory taxes, which is to equalize tax burdens and discourage discriminatory taxes.

"Since 1981, 25 of the 34 states that had discriminatory insurance taxes eliminated those taxes, in most cases by lowering rates," says Henchman. "As a result, insurance companies in much of the country now compete on market factors, no artificial tax distortions. The Comptroller's decision is designed to impose discriminatory taxes, and therefore increases those distortions."

The Tax Foundation brief, filed on August 18, 2008, further argues that the Comptroller's ruling was a policy reversal unaccompanied by legislative action, and therefore should not be given deference by the Court.

"Reversing the decision will help ensure stability and knowledge of the law and the proper limited role of administrative agencies," Henchman argued.

The brief, filed on August 18, 2008, can be found at http://www.taxfoundation.org/publications/show/23539.html.

The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.

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To set up an interview to discuss First American Title Insurance Company v. Combs and the brief submitted by the Tax Foundation, please contact Matt Moon, the Tax Foundation's Manager of Media Relations, at (202) 464-5102.

After Tax Foundation Releases Analysis, Obama Campaign Clarifies Tax Relief Plan for Seniors

Fri, 22 Aug 2008 00:00:00 EDT

Including of a Phase-Out of the Tax Break Will Mean Increasing Marginal Tax Rates for Seniors Making Just Above $50,000

Washington, DC, August 22, 2008 - The presidential campaign of Sen. Barack Obama today clarified its proposal to eliminate all income taxes for seniors making under $50,000, after a new economic analysis from the Tax Foundation criticized the plan for being nearly impossible to implement.

In Tax Foundation Fiscal Fact No. 140, "Obama's Income Tax Cliff for Senior Citizens," Tax Foundation analyst Mark Robyn examined the presumptive Democratic presidential nominee's plan to provide some relief to low-income seniors, and found that Obama's plan throws taxpayers directly into the 15% bracket as soon as they cross the $50,000 threshold, making them fully liable for income tax on all of their taxable income, suddenly slamming the taxpayer with a substantial tax bill and reducing his after-tax income well below what it would have been if his income had never increased.

After Foon Rhee of the Boston Globe reported Robyn's analysis on his blog, "Political Intelligence," the Obama campaign responded by saying that his plan does actually include a phase-out of the tax break, so that the tax bill would rise gradually above $50,000 in income and there would be no "cliff."

"[Obama campaign] economic adviser Jason Furman said while there's no specific proposal, Obama's plan includes $5 billion for the tax break," Rhee reported, "plus another $2 billion for the phase-out, which would be designed later."

Robyn welcomed the clarification from the Obama campaign, yet made clear that any phase-out would raise the marginal tax rate for some senior taxpayers.

"While it is good to see that the Obama campaign shedding some light on how they would avoid an income tax 'cliff' on seniors," Robyn explains, "this means that those senior taxpayers making just over $50,000 will see an increase in their marginal tax rate."

Robyn's analysis can be found at http://www.taxfoundation.org/publications/show/23525.html.

The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.

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To set up an interview to discuss Sen. Barack Obama's tax relief plan for senior citizens or more parts of any candidates' tax policies, please contact Matt Moon, the Tax Foundation's Manager of Media Relations, at (202) 464-5102.

Obama Tax Relief Proposal for Seniors Impossible to Implement

Fri, 22 Aug 2008 00:00:00 EDT

Politics Aside, Tax Foundation Analysis Shows Plan Not Well Conceived

Washington, DC, August 22, 2008 - An economic analysis of Barack Obama's tax relief plan for senior citizens finds that it would create an "income tax cliff" that would be excessive and unfair to many over 65.

In Tax Foundation Fiscal Fact No. 140, "Obama's Income Tax Cliff for Senior Citizens," Tax Foundation analyst Mark Robyn examines the presumptive Democratic presidential nominee's pitch to eliminate all income taxation for senior citizens making less than $50,000 per year, and finds that Obama's plan does not address the question of what happens when income crosses above that threshold.

Robyn illustrates this problem by providing a scenario where a husband and wife who are both seniors that earn a combined income of $49,500, but receive an extra $500 by selling their coin collection. Since only those making less than $50,000 are exempt, the couple might think they only owe a few cents on the $1 of excess income; instead that couple is hit with a total tax liability of $3,585. Their after tax income would be $46,415, making their extra $500 in income turning into a net loss of over $3000.

"The reason this happens is that Obama's plan, as stated in his official campaign publications, throws taxpayers directly into the 15% bracket as soon as they cross the $50,000 threshold, making them fully liable for income tax on all of their taxable income," explains Robyn. "In this way, the policy acts as a ‘cliff,' suddenly slamming the taxpayer with a substantial tax bill and reducing his after-tax income well below what it would have been if his income had never increased."

Robyn further notes that while the fifty-thousandth dollar by itself is taxed at 15%, the effective marginal tax rate is 385,000%, which is a ratio of the change in taxes versus the change in income. However, this problem can be easily fixed.

"Usually any new tax benefit like the one Obama is proposing includes a phase-in," says Robyn. "Why Obama does not include a phase-in is not clear. It seems that the Obama campaign has not really thought through this issue since it is almost impossible that a plan like this would ever be implemented in its current form. The plan he has outlined sounds good politically but is ultimately imprecise and illogical."

Robyn points out other problems with Obama's senior exemption plan. There is no distinction between married and single filers, which means married filers, who are likely to claim more income on their return than single seniors, are more likely to be hit with the income tax "cliff." Furthermore, the $50,000 threshold is not indexed to inflation, which means that the value of the exemption will erode over time.

"There are other, simpler ways Obama could accomplish his goal of reducing the tax burden of low-income seniors," Robyn notes. "He could increase the standard deduction for seniors to around $43,000 for couples and $46,500 for singles to achieve the same effect. It would only change one line on the 1040 that handles the standard deduction, and there would be no need for a complicated phase-in."

The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.

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Mississippi Tax Study Commission on the Right Track Towards Reform

Wed, 20 Aug 2008 00:00:00 EDT

Tax Foundation Commends Some, Criticizes Other Recommendations

Washington, DC, August 19, 2008 - In response to the draft recommendations from the Mississippi Tax Study Commission, the Tax Foundation today applauds the Commission for taking a comprehensive look at Mississippi's tax system and hopes the final proposals will provide Magnolia State residents with a simple, neutral, transparent, and stable tax system.

In Tax Foundation Fiscal Fact No. 139, "The Right Prescription for Mississippi", Tax Foundation Tax Counsel Joseph Henchman reacted positively to some and negatively to other recommendations from the Commission.

On broadening the sales tax base but continuing to tax inputs: While the Commission creates a limited list of services to be taxed, leaving out politically powerful ones and not comprehensively taxing all services, it does not eliminate the taxation of inputs.

"Sales taxes on inputs are hidden taxes that distort decisions and increase consumer prices," explains Henchman. "Ideally the sales tax should cover all consumption and exempt all inputs to prevent double taxation."

On modifying but keeping the inventory tax: "Mississippi is one of only 15 states with an inventory tax," says Henchman. "Inventory taxes also create strong incentive for companies to locate inventory in states where they can avoid these harmful taxes. It should be eliminated."

On eliminating some unused tax credits and continually reviewing others: Responding to the Commission's recommendation to continue use of tax-based incentives, Henchman warned that state lawmakers are often tempted to lure businesses with lucrative tax incentives and subsidies instead of pursuing broad-based tax reform.

"A far more effective approach is to systematically improve the business tax climate for the long term so as to improve the state's competitiveness, by repealing all incentives and subsidies," Henchman says. "The tax code would thus be used just for raising revenue, not for picking winners and losers."

On increasing the cigarette taxes: "Mississippi should be careful not to rely on cigarette taxes as a long-term source of revenue because it puts the state in the position of relying on a tax on an activity imposed with the justification of reducing the activity," says Henchman. "Numerous studies have shown cigarette taxes to be highly regressive, with the poor bearing a disproportionate share of the tax burden."

On the elimination of the franchise tax over the next five years: Henchman praises recognition that this economically damaging tax, that hits even unprofitable firms, needs to go.

"Because many of Mississippi's neighbors still levy this tax, it would provide a regional comparative advantage," explains Henchman. "Its abolition would give Mississippi a boost, even if the revenue were made up elsewhere."

On rejecting a state lottery: "The Commission admirably avoids the siren call of a lottery," says Henchman, "which is one of the most regressive and hidden forms of taxation."

In testimony to the Commission, the Tax Foundation has emphasized that the best tax system treats all taxpayers equally while minimizing economic distortions. Henchman praises the Commission for its recommendation to improve transparency and the appeals processes in Mississippi's tax system.

"The Commission has excellent recommendations for expanding availability of budget and tax information and eliminating the conflicts of interest in the existing tax appeals process," Henchman notes. "It should be clear to taxpayers who and what is being taxed, and how tax burdens affect them and the economy."

The Tax Foundation's report on the Mississippi Tax Study Commission's draft recommendations can be found at http://www.taxfoundation.org/blog/show/23514.html.

The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.

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To set up an interview to discuss the Mississippi Tax Study Commission recommendations, please contact Matt Moon, the Tax Foundation's Manager of Media Relations, at (202) 464-5102.

Tax Foundation Launches CompeteUSA Campaign to Highlight "Real-Wallet" Impact of High Business Taxes on U.S. Jobs and Wages

Tue, 19 Aug 2008 00:00:00 EDT

Campaign Follows OECD Reports Showing U.S. Competitiveness in Decline and that High Business Taxes are Single Most Harmful to GDP Growth

Washington, DC, August 19, 2008 - With the United States facing a "quadruple threat" of negative economic indicators—a stock market in decline, a housing market in decline, seven months of increasing unemployment, and high gas and food prices—and with a public concerned that the country is trending toward a recession, the Washington, DC-based Tax Foundation today launched its CompeteUSA campaign to raise the public's awareness of America's high business tax rates and how those taxes have a "real-wallet" impact on our competitiveness, wages, and living standards.

As part of this look at the "real-wallet" impact of business taxes, the CompeteUSA campaign will also talk about how the American worker shoulders a disproportionate amount of the corporate tax, and the fact that the poorest 20 percent of households pay more in corporate income taxes each year than they pay in individual income taxes. In fact, corporate taxes were 6.3 percent of low-income households' tax bills last year compared to just 4 percent for individual income taxes.

CompeteUSA's first project is a brand new website located at http://www.taxfoundation.org/competeusa/ that went live today, and upcoming activities will include a national cable television ad buy, web advertising, new Tax Foundation studies on economic competitiveness, and op-eds from national economic leaders highlighting the impact of high business taxes on the American worker.

The CompeteUSA campaign launch comes on the heels of new data released by the Paris-based Organisation for Economic Co-Operation and Development (OECD) showing that the United States has the second-highest corporate income tax rate in the industrialized world, that for the 17th consecutive year the average rate of corporate taxes in countries other than the U.S. fell while our corporate tax rate stayed the same, and a new OECD study that finds that corporate taxes are the single most harmful tax to GDP growth—more so than even personal income taxes or consumption taxes.

The U.S.' high corporate tax rates were also the focus of an editorial in the Wall Street Journal last Friday entitled "America the Uncompetitive," which pointed out that "every month that goes by without tax reform, America is a relatively less attractive place to do business."

"20 years ago, the U.S. led the world in cutting the corporate tax rate to make our economy more conducive to job creation," noted Tax Foundation President Scott Hodge at the CompeteUSA kickoff. "Since then, almost every other industrialized country has cut its corporate tax while the United States has stood still, and as a result, the U.S. corporate tax rate is now 50% higher than the OECD average."

"The Chinese are not only beating us in the gold medal count, but also in the race to lower their corporate tax rate," Hodge concluded. "The wages and living standards of American workers are threatened as long as our business tax system remains out of lines with the rest of the world average, and that will only change if we start cheering on our country's economic competitiveness with the same passion that we cheer on our country's athletic competitiveness."

Seven statistics about the corporate tax that might surprise you:

The combined federal and state corporate tax rate in the U.S. currently stands at 39.3% (the second-highest among industrialized countries), while the OECD average tax rate has fallen to 26.6%.
Last year, 27 countries cut their business taxes to make their economies more competitive and attractive to investment. This year, more countries—including Canada, Germany, New Zealand, Spain, the United Kingdom, Italy, and Switzerland—all cut their corporate taxes as well.
China has recognized the significance of cutting corporate tax rates and has reduced their top standard corporate tax rate from 33% to 25% just this year.
According to a recent Tax Foundation study, the federal corporate income tax alone collected $370 billion in 2007. That's an average household burden of $3,190 per year—more than the average household spends on restaurant food, gasoline or home electricity in a year.
A 2006 working paper by a staff economist with the non-partisan Congressional Budget Office found that 70 percent of corporate tax burdens fall on domestic workers through lower real wages, while the remaining 30 percent fall on company shareholders.
As a group, the poorest 20 percent of households pay more in corporate income taxes each year than they pay in individual income taxes to the IRS each April. Households earning under $23,700 in 2004 paid on average $271 in corporate income taxes, compared to just $171 in individual income taxes.
As a share of their total tax burden, corporate taxes were 6.3 percent of low-income households' tax bills compared to just 4 percent for individual income taxes.

Scott Hodge is president of the Tax Foundation, a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937. He leads the foundation's new CompeteUSA campaign for business tax reform along with Robert Carroll, Ph.D., Vice President for Economic Policy at the foundation and recently Deputy Assistant Secretary for Tax Analysis at the Treasury Department.

To set up an interview to discuss the CompeteUSA campaign, American economic global competitiveness, or the tax plans of any of the presidential candidates, log on to http://www.taxfoundation.org/competeusa/ or call Matt Moon at (202) 464-5102.

Tax Foundation Urges Indiana Supreme Court to Avoid Education Finance Chaos

Mon, 18 Aug 2008 00:00:00 EDT

Brief Argues State Constitution Does Not Require Judicial Funding Mandate

Washington, DC, August 15, 2008 - In a friend-of-the-court brief filed with the Indiana Supreme Court, the Tax Foundation advocates the reversal of a Court of Appeals decision creating a judicially enforceable right to a "quality" education.

Joseph Henchman, tax counsel for the Tax Foundation, argues that the Court of Appeals' interpretation in Bonner v. Daniels goes beyond the text and historical meaning of the Education Clause of the Indiana Constitution, and that the Court of Appeals ignores the problems other states have had with judicial funding mandates.

"Nothing in the Education Clause establishes a specific, defined level of education that must be attained as long as the state maintains a generally supportive stance towards knowledge and learning," explained Henchman. "The Education Clause guarantees a free public education, not the right to a ‘quality' education."

The Bonner v. Daniels suit seeks a judicial order increasing funding, an area generally left to the political process. Although the original trial court dismissed the case, the Indiana Court of Appeals allowed the suit to go forward.

The Tax Foundation brief also notes that Indiana's the lower court focused improperly on funding as the only way to improve state education.

"It is problematic to say that more money necessarily means better performance in public schools. A focus on dollar amounts ignores potential efficiency increases, the diminishing returns of added spending, and alternative uses for each dollar," said Henchman. "Courts are ill-prepared to weigh these competing policy concerns, and those that have tried have quickly found themselves mired in endless lawsuits to quantify unquantifiable standards. The Supreme Court should avoid micromanagement of education and finance policy."

The Tax Foundation has prepared a report, "Appropriate by Litigation: Estimating the Cost of Judicial Mandates," Tax Foundation Background Paper No. 55, July 2007, available at http://tinyurl.com/tfedfin, that outlines the serious problems encountered by courts as they embark on micromanaging education policy and mandating funding levels.

The Tax Foundation brief was filed on August 5, 2008, and can be found at http://www.taxfoundation.org/research/show/23497.html. A decision is expected this fall.

The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.

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To set up an interview to discuss Bonner v. Daniels and the brief submitted by the Tax Foundation, please contact Matt Moon, the Tax Foundation's manager of media relations, at (202) 464-5102.

McCain, Obama Take Different Roads on Tax Policy

Fri, 15 Aug 2008 00:00:00 EDT

GOP Presidential Candidate Focuses on Economic Incentives, Democrat Advances Redistribution

Washington, DC, August 15, 2008 - New analysis of the major presidential candidates' tax policy show stark differences in approach and outcome.

In Tax Foundation Fiscal Fact No. 137, Robert Carroll, Vice President for Economic Policy at the Tax Foundation, examines tax relief proposals from Sen. John McCain (R-AZ) and Sen. Barack Obama (D-IL). With the economy as one of the top issues among the American electorate this presidential election cycle, both candidates have been using the issues of health care, gas prices, and housing devaluation, among others, to preface their economic proposals. But Carroll explains that the candidates have significantly different tax policies that address these issues.

"Senator Obama has included a set of carefully targeted tax proposals that narrowly aim benefits to specific types of taxpayers, while Senator McCain provides broad tax relief with benefits that are indirect," says Carroll. "In both cases, tax relief is provided to the vast majority of the electorate."

Looking at the tax provisions put forward by McCain and Obama, along with the cost of each as estimated by the Urban-Brookings Tax Policy Center, McCain only has two proposals that directly affect individuals: the expansion of the dependent exemption and a new health care tax credit. On the other hand, Obama provides seven proposals for individuals that target housing, education, child care, and low-income work.

Differences are also stark in business taxation. While Obama proposes a small business health tax credit as well as permanent extension and expansion of the research and experimentation credit, McCain's proposals are much more expansive, including a reduction in the corporate tax rate from 35% to 25% and a write-off of business investment in equipment. McCain's lower corporate tax rate recognizes that the United States' business tax system, with the second-highest corporate tax rate among industrialized nations, may be becoming uncompetitive in a global marketplace.

Carroll explains that, in simple terms, Obama focuses on redistribution and McCain focuses on improving economic incentives. Also, one still needs to take a more holistic approach and consider the full breadth of their tax plans.

"Senator Obama provides tax relief directly to individuals, without making major changes in how the tax system interacts with or affects individual and business decision making," explained Carroll. "Senator McCain provides broad tax relief and channels most of it to businesses, with the notion that the best way to help workers is to encourage investment and ensure that the U.S. remains competitive in the global marketplace."

The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.

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To set up an interview to discuss the tax policies of both major presidential candidates, please contact Matt Moon, the Tax Foundation's Manager of Media Relations, at (202) 464-5102.

U.S. Corporate Tax Rate 50% Higher than Economic Competitors

Wed, 13 Aug 2008 00:00:00 EDT

OECD Economists: American Competitiveness in Decline; Study Shows 17th Consecutive Year of Corporate Tax Declining in Non-U.S. Countries While America Remains Next-To-Worst

Washington, DC, August 13, 2008 - Tax Foundation President Scott Hodge this morning released the latest Tax Foundation "Fiscal Fact" in response to a new study from the Organisation for Economic Co-Operation and Development (OECD). The OECD study shows that for the 17^th consecutive year, the average rate of corporate taxes in non-U.S. countries fell while the U.S. corporate tax rate stayed the same.

As a result of the U.S. failure to lower its corporate tax rate for more than two decades while other major trading nations lowered theirs, the U.S. corporate tax rate is now 50% higher than the OECD average. Nine key trading partners cut their rates during 2007.

"Continued failure by U.S. tax policymakers to keep up with our top global economic competitors means that we're solidifying a trend that will result in our children and grandchildren not seeing the economic growth we've seen in our lifetimes," noted Hodge. "There's a real-wallet impact for Americans as we continue to sit idly by while other countries improve the way they do business, and we should be very concerned about jobs, capital, and investments moving from high-tax countries to low-tax countries."

This comes on the heels of another recent OECD study showing that corporate taxes are the single most harmful tax to GDP growth, more so than personal income taxes or consumption taxes.

The combined federal and state corporate tax rate in the U.S. currently stands at 39.3% (the second-highest among industrialized countries), while the OECD average rate has fallen to 26.6%. Even China has recognized the significance of cutting the corporate tax to become more competitive, reducing their top standard corporate tax rate from 33% to 25% just this year.