State Tax Policy as an Inflation Response January 26, 2023 At the end of 2022, prices were 14.6 percent higher than they were two years prior. That’s the fastest inflation rate over any two calendar years since the stagflation era of the late 1970s. State policymakers are understandably interested in bringing any tools at their disposal to bear on the problem. And many of them are reaching for tax policy solutions.
Frustration and Delays as the 2023 Tax Filing Season Begins January 18, 2023 A combination of long-standing IRS operational deficiencies, the agency's temporary closure due to the pandemic, and the now-expired pandemic relief produced a perfect recipe for a paper backlog.
Shaky Economic and Fiscal Outlook Requires Stable and Pro-Growth Tax Extenders Policy November 15, 2022 Policymakers face a difficult balancing act this year in what is likely to be an unusual tax extenders season.
Difficult Trade-Offs Make Policy Consensus on Child Tax Credit Elusive November 10, 2022 As we near this year’s “lame duck” session of Congress, there has been renewed interest in reforming the child tax credit as part of a tax deal. Our new analysis highlights the trade-offs that policymakers will face
Do Unto Others: The Case for State Income Tax Reciprocity November 16, 2022 Remote and flexible work opportunities are here to stay, whether states like it or not. With enhanced opportunities to take their job with them wherever they please, more workers can factor tax burdens into their decision of where to live.
The “Inflation Tax” Is Regressive September 29, 2022 A new CBO report reveals that lower- and middle-income households are disproportionately shouldering the burden of this current inflation wave. And historical analysis suggests there is much more to come.
Tax Filing Season: Options for Improvement April 27, 2022 Efforts to improve the taxpayer experience should focus on the IRS's operations and include structural improvements to the tax code.
Chaotic IRS Filing Season Shows the Perils of Running Social Policy Through the Tax Code April 18, 2022 As the deadline for tax filing nears, the IRS faces scrutiny for its backlog of returns, inaccessible taxpayer service, and delays in issuing certain refunds.
Business Tax Refunds Must Be Provided Quickly During Future Downturns February 1, 2022 A new report finds many businesses have yet to receive tax refunds that they are due from pandemic-related emergency relief. Future business tax relief must be provided in a timely manner during the next downturn, because delayed tax relief is not much better than no relief at all.
States Should Act Fast on UC Trust Fund Deposits, and Other Takeaways from the New Treasury Guidance on ARPA Funding January 28, 2022 States will continue to cut taxes because revenues are skyrocketing. But some will also be keeping a close eye on litigation targeting this dubious restriction on states’ fiscal autonomy.
U.S. Fiscal Response to COVID-19 Among Largest of Industrialized Countries January 4, 2022 As the U.S. grapples with rising price inflation, a large and growing national debt, as well as a possible economic slowdown due to Omicron, the decision to provide additional fiscal support will prove to be a difficult one. Policymakers can debate how much stimulus is appropriate, but what is clear is that the U.S. fiscal support so far during the pandemic outranks nearly every industrialized country.
COVID-19 Tax Relief Added to Increasing Share of Households Paying No Income Tax August 20, 2021 According to the Tax Policy Center, an estimated 60 percent of U.S. households paid no income tax in 2020, up from around 43 percent of households in 2019.
Asian and Pacific Countries Faced Revenue Loss Prior to COVID-19 Outbreak July 27, 2021 As economies are starting to recover and growth is expected to rebound in the region during 2021, Asian and Pacific countries should start exploring changes to their fiscal tax policies while carefully evaluating the optimal time for eliminating fiscal stimulus and temporary tax relief.
IRS Sends Nearly $15 Billion of Advance Child Tax Credit Payments July 19, 2021 New Treasury Department data released on the advance Child Tax Credit payments shows the distribution by state, including how much, on average, households in each state received. The expansion will only be in effect for the 2021 tax year—if policymakers wish to continue providing the increased benefits, they must address the administrative and revenue costs of the policy.
States Respond to Strong Fiscal Health with Income Tax Reforms July 15, 2021 As states close their books for fiscal year 2021, many have much more revenue on hand than they anticipated last year. Eleven states have responded by reducing income tax rates and making related structural reforms as they strive to solidify a competitive advantage in an increasingly competitive national landscape.
Unanswered Questions about Upcoming Advance Child Tax Credit Payments July 7, 2021 Amidst the outstanding questions, potential confusion over how advanced child tax credit payments will affect tax refunds, and an incomplete portal to update taxpayer information, the IRS will begin sending payments to millions of households this month.
Exploring How Remote Work Could Impact the Way Countries Tax Individuals July 6, 2021 A question for policymakers to consider is how this new era of worker mobility will impact the fiscal landscape, and what changes must be made to address resulting revenue and compliance concerns.
Census Data Shows Households Saved Economic Impact Payments July 13, 2021 In 2020 and 2021, Congress enacted three rounds of economic impact payments (EIPs) for direct relief to households amidst the pandemic-induced downturn. Survey data from the U.S. Census Bureau indicates that households increasingly saved their EIPs or used them to pay down debt rather than spend them.
Tax Foundation Webinar Recaps the Complexities of the 2021 Tax Filing Season May 25, 2021 During the pandemic, economic relief administered through the tax code exploded as Congress passed nearly $6 trillion of legislation into law. That left the 2021 tax filing season, which ended May 17, with complications that still linger.
Tax Policy Lessons from Down Under May 13, 2021 This week the Australian government released its latest budget proposal and two policies that stand out in its fiscal response to the pandemic should be helpful as the economic engine of the country turns back on. The first is full expensing for some investments and the second is the introduction of a loss carryback provision. The new budget takes both these temporary policies and extends them into 2023.
Many Small Businesses Could Be Impacted by Biden Corporate Tax Proposals May 11, 2021 Policymakers should recognize that corporate tax hikes will not only impact large firms, but many smaller and younger firms as well. Considering that many of these smaller firms are significant contributors to net job growth, raising corporate taxes at this time would not be conducive for a speedy economic recovery.
Treasury Rule on State Tax Cuts Limitation Raises New Questions May 10, 2021 Today, the U.S. Treasury issued an interim final rule on the $350 billion in State and Local Fiscal Recovery Funds provided under the American Rescue Plan Act (ARPA). The proposed rule resolves several important questions but continues to involve the federal government in state finances at an extraordinary level.
These States Will Pay You to Move. Does That Strategy Make Sense? April 30, 2021 State and local tax policy have always mattered, but the rise of remote work is bringing tax burdens and economic competitiveness to the forefront. It is a development that states cannot afford to ignore.
Tax Policy in the First 100 Days of the Biden Administration April 30, 2021 In his first 100 days as president, Joe Biden has proposed more than a dozen significant changes to the U.S. tax code that would raise upwards of $3 trillion in revenue and reduce incentives to invest, save, and work in the United States.
Kansas Lawmakers to Consider Veto Override on Tax Reform Bill April 30, 2021 Kansas has the revenue cushion it needs to provide tax relief to individuals and businesses and improve the structure of its tax code in the process. These pro-growth reforms would not only help taxpayers amid the pandemic but would also promote economic recovery and growth in a state that is lagging behind its competitors.
Providing Full Cost Recovery for Investment and Lowering Taxes on Firms Are Best Options for Boosting Growth April 27, 2021 As policymakers consider tax options to boost the U.S. economy’s long-run economic growth, they should consider reforms that would increase growth the most while minimizing forgone tax revenue.
Modernizing Rental Car and Peer-to-Peer Car Sharing Taxes for a Post-Pandemic Future April 22, 2021 The economic evidence shows that travelers and tourists are sensitive to price changes for rental cars and adjust their behavior to avoid the tax, harming state economies and the travel sector right as the industry is trying to recover from the effects of the coronavirus pandemic.
More Tax Hikes Than Investment Projects? April 20, 2021 Tax hikes implemented in the near term might undermine Spain's economic recovery. Spain should focus on implementing tax reforms that have the potential to stimulate economic recovery by supporting private investment and employment while increasing its internal and international tax competitiveness.
Imposing New Taxes on Peer-to-Peer Car Sharing Will Not Help Texas Economic Recovery April 19, 2021 Imposing the rental car excise tax on peer-to-peer car sharing would be a move in the wrong direction by expanding a costly and distortive tax for visitors whose business will help Texans recover post-pandemic.
IMF Tax Proposals: Shrink Inequality or Sink Post-Pandemic Recovery? April 12, 2021 To help countries face the pandemic-related financing needs while reducing inequality, the International Monetary Fund (IMF) has released a series of policy recommendations based on a temporary COVID-19 tax, levied on high incomes or wealth.
ARPA’s Tax Cuts Limitation Is a Problem for More States Than You Think April 5, 2021 Tax cut legislation is not just a red state phenomenon, and tax reductions come in many forms other than rate reductions. The American Rescue Plan Act's state tax cuts limitation is a problem for more states than you think.
President Biden’s Infrastructure Plan Raises Taxes on U.S. Production March 31, 2021 An increase in the federal corporate tax rate to 28 percent would raise the U.S. federal-state combined tax rate to 32.34 percent, higher than every country in the OECD, the G7, and all our major trade partners and competitors including China.
ARPA Allocates $2 Billion to Nonexistent County Governments March 31, 2021 The government of Hartford County, Connecticut is in line to receive $173 million in local aid under the American Rescue Plan Act (ARPA). There’s only one problem: the government of Hartford County doesn’t exist, nor do any of Connecticut’s other counties have county-level government despite being allocated a collective $691 million under the bill.
State Conformity to Federal Pandemic-Related Tax Provisions in CARES and ARPA April 1, 2021 With so many federal changes occurring in such a short amount of time—including some federal provisions changing more than once and a major change to the treatment of UC income occurring in the middle of tax filing season—state legislators have faced the challenge of responding to these changes quickly in order to provide certainty to taxpayers.
Evaluating West Virginia Income Tax Repeal Plans March 30, 2021 States which forgo income taxes have seen population and economic growth vastly outstripping their peers, and a post-pandemic culture that is friendlier to remote work will greatly enhance tax competition.
Capital Cost Recovery across the OECD March 31, 2021 The ongoing pandemic has once again highlighted the importance of investment. To address the economic fallout of the pandemic, several OECD countries have temporarily accelerated depreciation schedules for various assets.
Congressional Budget Office and Tax Foundation Modeling Show That Some Tax Hikes Are More Damaging Than Others March 26, 2021 Some tax hikes are more damaging than others, according to Congressional Budget Office (CBO) and new Tax Foundation economic modeling.
Does Your State Levy a Capital Stock Tax? March 24, 2021 Capital stock taxes are imposed on a business’s net worth (or accumulated wealth). As such, the tax tends to penalize investment and requires businesses to pay regardless of whether they make a profit in a given year, or ever.
Testimony: Senate Budget Committee Hearing on the Progressivity of the U.S. Tax Code March 25, 2021 We ought to be worried about the impact of corporate taxes on women, low-skilled workers, and younger workers, since they are the very workers who have been most impacted by the COVID-19 crisis. Raising the corporate tax rate would simply hurt them even more.
How the CARES Act Shifted the Composition of Tax Expenditures Towards Individuals March 24, 2021 The increase in expenditures associated with COVID-19 relief is another illustration of using the tax code to administer social spending.
A Neutral Tax Code Counts Unemployment Compensation as Taxable Income March 23, 2021 Since 1987, unemployment compensation benefits have been subject to federal income tax and, in most states, to state income tax. According to the Congressional Research Service, such treatment—including unemployment compensation benefits in taxable income—is common across industrial nations.
The EU Determined to Reform the Business Tax March 19, 2021 The EU recently launched a consultation to reform the business tax system, which will outline the priorities for corporate taxation over the coming years to meet the needs of a globalized economy that struggles to recover from the consequences of the COVID-19 crisis. It will also set EU actions regarding the ongoing international discussion on the taxation of the digital economy and a global minimum tax.
Making the Expanded Child Tax Credit Permanent Would Cost Nearly $1.6 Trillion March 19, 2021 As the Biden administration and Congress consider making the expanded child tax credit permanent, a nearly $1.6 trillion expansion of tax code-administered benefits, they should consider financing it in a way that doesn’t create significant headwinds to economic recovery.
Four Questions Treasury Must Answer About the State Tax Cut Prohibition in the American Rescue Plan Act March 18, 2021 The American Rescue Plan Act’s restriction on states’ Fiscal Recovery Funds being used to directly or indirectly offset a net tax cut is vague and raises difficult questions of interpretation and application. A broad interpretation of this prohibition may be unconstitutional.
Does Your State Tax Business Inventory? March 17, 2021 Inventory taxes are levied regardless of whether a business makes a profit, adding to the burden of businesses already struggling to stay afloat.
U.S. COVID-19 Relief Provided More Than $60,000 in Benefits to Many Unemployed Families March 17, 2021 During the pandemic, an unemployment family of four previously earning $60,000 will have received $50,840 in federal and state unemployment benefits from April 1, 2020 to September 6, 2021, plus $11,400 in stimulus payments, plus $7,200 in Child Tax Credit, totaling $69,440 in combined COVID-19 relief benefits.
Tax Policy Improvements Needed to Help Industries through the Semiconductor Shortage March 16, 2021 As lawmakers evaluate how to respond to the global semiconductor shortage, they should consider allowing full cost recovery across all types of capital investment—inventories, machinery and equipment, structures, and R&D.
The American Rescue Plan Act Greatly Expands Benefits through the Tax Code in 2021 March 12, 2021 The major tax-related benefits in the $1.9 trillion economic relief plan are a third round of direct payments, extended unemployment insurance (UI) benefits and a $10,200 unemployment insurance income exemption for 2020, and an expansion of the Child Tax Credit.
Does the American Rescue Plan Ban State Tax Cuts? March 10, 2021 Senate amendments to the American Rescue Plan Act prohibit using any of the $350 billion in State and Local Fiscal Recovery Funds to cut taxes, but many are concerned that states which accept the funds could be prohibited from implementing tax cuts between now and 2024—an astonishing level of federal interference in states’ fiscal affairs.
Does Your State Have a Gross Receipts Tax? March 10, 2021 Moving away from state gross receipts taxes would represent a pro-growth change to make the tax code friendlier to businesses and consumers alike, which is especially necessary in the wake of the coronavirus pandemic.
Senate Direct Payment Design Would Create High Implicit Marginal Tax Rates March 5, 2021 As the Senate debates the relief package and makes progress in the budget reconciliation process, policymakers should keep in mind the trade-off between targeted economic relief and increasing marginal tax rates in the tax code, which can distort incentives to earn income and induce taxpayers to creatively adjust their AGI to receive a payment in the next tax season.
Tax Incentives for Digital Nomads and Remote Workers March 3, 2021 Policy changes to attract foreigners are not without benefits, but governments should carefully weigh the costs of the tax incentives against opportunities to implement broader tax reforms. A more efficient income tax system is a better objective than just focusing on incentives for foreigners to change their tax residence.
State Aid in American Rescue Plan Act Is 116 Times States’ Revenue Losses March 3, 2021 Here's each state’s estimated revenue gains or losses in 2020, alongside the state and local aid that would be allocated to each under the American Rescue Plan Act.
An Investment Boost in the UK’s 2021 Budget March 3, 2021 The UK’s Chancellor of the Exchequer Rishi Sunak released the 2021 budget, and most important for near-term growth is the significant boost to capital allowances.
The UK Should Not Ignore Problems with its Corporate Tax Base March 1, 2021 While the UK is looking at ways to raise tax revenue to cover the revenue shortfalls and additional spending resulting from the COVID-19 pandemic, short- as well as long-term, investment will be crucial in getting the economy back on track and ensuring economic growth.
Evaluating Proposals to Increase the Corporate Tax Rate and Levy a Minimum Tax on Corporate Book Income February 24, 2021 President Biden and congressional policymakers have proposed several changes to the corporate income tax, including raising the rate from 21 percent to 28 percent and imposing a 15 percent minimum tax on the book income of large corporations, to raise revenue for new spending programs. Our new modeling analyzes the economic, revenue, and distributional impact of these proposals.
Brits to Prepare for Tax Reforms February 22, 2021 Tax hikes or spending cuts implemented early in the year might undermine the desirable rapid recovery of the economy. The UK should focus on implementing tax reforms that have the potential to stimulate economic recovery by supporting business investment and employment while increasing its international tax competitiveness.
Which States Are Taxing Forgiven PPP Loans? February 22, 2021 Congress chose to exempt forgiven Paycheck Protection Program (PPP) loans from federal income taxation. Many states, however, remain on track to tax them by either treating forgiven loans as taxable income, denying the deduction for expenses paid for using forgiven loans, or both.
Alabama Passes Tax Reform Aimed at Throwback, GILTI, and More February 19, 2021 Learn more about the recent Alabama tax reform measures (House Bill 170), which combines pandemic-era tax policy responses with broader tax policy reforms.
An “Interest”ing Tax Hike in the COVID-19 Relief Proposal February 10, 2021 As the House Ways and Means Committee continues working on the latest round of fiscal relief amid the pandemic, one curious provision in the legislation is a tax hike on multinational companies. One section of the legislation would repeal a provision in current law that allows U.S. multinationals to choose to allocate their interest costs on a worldwide basis (more on that in a moment).
To What Extent Does Your State Rely on Individual Income Taxes? February 10, 2021 Sources of state revenue have come under closer scrutiny in light of the impact of the coronavirus pandemic, as different tax types have differing volatility and economic impact—although even beyond these unique circumstances, it is important for policymakers to understand the trade-offs associated with different sources of tax revenue.
House Ways and Means Committee Takes First Steps Toward Additional Coronavirus Relief Legislation February 10, 2021 The House Ways and Means Committee measures would further extend the relief measures created by the CARES Act and the Consolidated Appropriations Act of 2021, and would go further by significantly expanding existing tax credits and making changes to the international tax system.
Congressional Democrats Propose Expanding Child Tax Credit as Monthly Payment for Pandemic Relief February 9, 2021 House Ways and Means Democrats recently released a proposal to expand the child tax credit for one year as part of President Biden’s larger $1.9 trillion economic relief package.
U.S. Cross-border Tax Reform and the Cautionary Tale of GILTI February 17, 2021 The Biden campaign and Senate Democrats identified changes to GILTI that would increase the taxes U.S. companies pay on their foreign earnings. Rather than tacking on changes to a system that is currently neither fully territorial nor worldwide, policymakers should evaluate the structure of the current system with a goal of it becoming more, not less, coherent.
For Meaningful Federal Aid to States, Why Not Reimburse Unemployment Compensation Payments? February 5, 2021 Improving trust fund solvency and staving off costly business tax increases is a win-win proposition for federal and state governments alike.
Modeling Different Proposals for Round Three Direct Payments February 2, 2021 President Biden is calling for a third round of economic impact payments to households as part of his $1.9 trillion American Rescue Plan. Under the plan, the payments would be $1,400 per person, topping off the recent round of $600 payments for a combined $2,000 per person. Senate Republicans have proposed payment amounts of $1,000 per individual and $500 per dependent, lower income thresholds, and faster phaseout rates.
Wisconsin’s PPP Loan Recipients Face Hundreds of Millions in Surprise Taxes January 29, 2021 Unless the legislature acts, businesses that have received PPP loans and related federal assistance will face $457 million in state taxes through 2024—with more than half of those taxes coming due this spring—despite Wisconsin being on track to see continued general fund revenue growth even amid the pandemic.
To What Extent Does Your State Rely on Sales Taxes? January 27, 2021 Consumption taxes (like sales taxes) are more economically neutral than taxes on capital and income because they target only current consumption. Consumption taxes are generally more stable than income taxes in economic downturns as well.
Latest CBO Report on Incomes and Taxes Shows that the Federal Fiscal System is Very Progressive January 26, 2021 Joe Biden has proposed an ambitious agenda that would make the federal fiscal system more progressive, and the huge budget deficits caused by the numerous COVID-19 relief packages could heighten the call for more tax revenues. What is needed are benchmark facts to guide these debates.
Using Carbon Tax Revenue to Grow the Economy January 22, 2021 The economy and climate change are two challenges the Biden administration has identified as priorities. One way to address both issues at the same time is to enact a carbon tax to discourage carbon emissions, and to use the resulting carbon tax revenue to lower—or in the case of the TCJA’s individual provisions, avoid increases of—other, more distortive, types of taxes. This would not only address the challenges of climate change but also support the economy.
5 Observations on Janet Yellen’s Recent Confirmation Testimony January 22, 2021 In her recent confirmation hearing, economist Janet Yellen, President Biden’s choice for Treasury Secretary, sought to reassure markets that the new administration would not raise corporate taxes until the economy improves. At the same time, however, she sent a troubling signal that when they do push for higher corporate tax rates, they would do so in coordination with other countries so that the U.S. doesn’t lose its competitive edge.
What to Expect During the 2021 Tax Season March 19, 2021 The IRS recently announced the extension of tax filing and payment deadlines from April 15th to May 17th to help taxpayers navigating the many tax changes amid the pandemic and give the IRS opportunity to clear its backlog of tax returns and correspondence.
President Biden Outlines Plan for Additional Coronavirus-Related Relief and Stimulus January 15, 2021 President Biden's plan builds on previous relief packages and would include larger payments to individuals, expanded relief for households and small businesses, funding for vaccine distribution, and aid to state and local governments.
The COVID-19 Relief Bill Contains Over $100 Billion in State Aid After All December 23, 2020 The $900 billion coronavirus relief package provides nearly $82 billion for the Education Stabilization Fund, $14 billion for mass transit, and $10 billion for state highways,
COVID-19 Relief Package FAQ December 22, 2020 The latest $900 billion coronavirus relief bill extends and modifies several provisions first enacted in the CARES Act, Congress’s $2.2 trillion pandemic relief law that was passed in March. With this package, lawmakers will have responded to the coronavirus and related economic hardship with a record-setting $3 trillion of fiscal support.
Tax Extenders Hitch a Ride on Omnibus and COVID-19 Relief Deal December 21, 2020 Tax extenders are no stranger to hitching a last-minute ride on year-end legislation. This year they made another last-minute appearance, finding a hold in their own division of the 5,593-page bill to fund the government through the fiscal year and provide additional coronavirus relief through March.
Congress Passes $900 Billion Coronavirus Relief Package December 21, 2020 The coronavirus relief package represents the second-largest recovery legislation, behind only the CARES Act, for a combined total of more than $3 trillion in support.
Pandemic Highlights the Need for Better Tax Policy for Entrepreneurs and Small Businesses December 21, 2020 As Congress works to provide another round of emergency economic relief, it is a good time to step back and consider how tax policy affects entrepreneurs and small businesses.
Where State Unemployment Compensation Trust Funds Stand in December December 18, 2020 With 2020 nearing its close, state unemployment compensation trust funds continue to struggle under the weight of so many pandemic-created beneficiaries, though some funds are beginning to stabilize as people increasingly return to work.
State Tax Collections Down 4.4 Percent Through September, While Local Tax Collections Rise December 17, 2020 Combined state and local tax collections were down only $7.6 billion across the period, representing a total state and local tax revenue decline of 0.7 percent compared to the first nine months of 2019.
Senate Policymakers Release $908 Billion Bipartisan COVID-19 Relief Proposals December 15, 2020 A bipartisan group of lawmakers released two compromise relief bills to address the COVID-19 pandemic, totaling about $908 billion: The Emergency Coronavirus Relief Act and the Bipartisan State and Local Support and Small Business Protection Act.
Details and Analysis of State and Local Aid Under the Bipartisan State and Local Support and Small Business Protection Act of 2020 December 14, 2020 On Monday, members of the bipartisan Gang of Eight negotiating an end-of-year pandemic relief package announced that they had settled on language and had divided the package into two bills: a pandemic aid package and a $160 billion state and local support package.
Individual and Business CARES Act Tax Provisions Due to Expire on December 31 December 9, 2020 Any additional relief to address a temporary economic crisis should be temporary, targeted toward those most in need, and consistent with good long-term tax policy.
What Federal Policymakers Can Learn from Business Tax Refunds in 2020 December 4, 2020 Policymakers should consider finding ways to simplify the administration of relief during future crises. This will help ensure the relief is timely and targeted, key components of any successful relief package for this crisis or crises in the future.
Additional Pandemic Relief Might Be Taking Shape December 3, 2020 With days left until government funding runs out, congressional lawmakers are down to the wire to fund the government and provide additional pandemic-related relief to the households and businesses trying to make it through the winter.
How Would the Proposed $160 Billion in State and Local Aid Be Allocated? December 1, 2020 A bipartisan coalition of Senators unveiled a $908 billion COVID-19 relief bill on Tuesday, which includes, among other provisions, $160 billion in additional aid to state and local governments. It is worth briefly exploring what this would mean, and the amounts of aid your state might expect.
Outlining a Path for Tax Policy Compromises December 1, 2020 While a sweeping tax policy bill is unlikely in the near future, lawmakers may be able to come together on a smaller scale. Pairing better cost recovery on a permanent basis with support for vulnerable households as well as additional pandemic-related relief would help promote a more rapid return to growth and help businesses and households weather the ongoing crisis.
Navigating the 2020 Tax Extenders in the Pandemic Economy December 1, 2020 At the end of 2020, 33 temporary tax provisions are scheduled to expire at the federal level. These provisions generally fall under four categories: cost recovery, energy, individual, and other business provisions.
Prospects for Federal Tax Policy After the 2020 Election November 10, 2020 President Biden and Congress should concentrate on areas of common ground, finding incremental places to improve the tax code. A bipartisan bill recently introduced to help retirement savings is a good model for what incremental reform may look like.
Spain’s Recovery Budget Comes with Tax Hikes October 30, 2020 While other countries in Europe are working towards introducing tax cuts and stimulating economic recovery by supporting business investment and employment, Spain is putting more fiscal pressure on households and businesses.
Zoom Calls Not a Taxing Matter October 27, 2020 Zoom Video Communications announced that, come November, the company will start collecting and remitting local utility and communications taxes in California, New York, Maryland, and Virginia.
How Would Biden’s Tax Plan Change the Competitiveness of the U.S. Tax Code? October 19, 2020 While the Biden campaign is certainly focused on increasing taxes on U.S. businesses and high-income earners, it is important that policymakers also understand what that reversal might do to U.S. competitiveness, and the competitive global environment in which U.S. companies and U.S. workers operate.
Role of the 2017 Tax Reform in the Nascent U.S. Economic Recovery October 15, 2020 While there is still plenty of work to be done to get unemployed Americans back to work, the U.S. economy as a whole is now recovering strongly from the pandemic-induced economic downturn, outperforming forecasts from earlier in the year and outperforming most other developed countries.
Arizona Proposition 208 Threatens Arizona’s Status as a Destination for Interstate Migration October 14, 2020 Significantly raising the income tax through Proposition 208 will only serve to make Arizona less competitive, especially at a time when individuals and small businesses are already struggling. If Arizona is looking for a long-term way to increase education funding, it would do well to avoid overburdening struggling taxpayers and look toward more broad-based, stable sources of revenue.
Colorado Proposition 116: Will Voters Reduce the State Income Tax Rate? October 5, 2020 This Election Day, Colorado voters will weigh in on Proposition 116, which would permanently reduce the state’s flat income tax rate from 4.63 to 4.55 percent.
State and Local Tax Ballot Measures to Watch on Election Day 2020 October 5, 2020 Here are the state tax ballot measures to watch on Election Day 2020. Explore the most notable 2020 state tax ballot measures in 15 states.
Seventh Time’s the Charm: New Jersey Passes Millionaires Tax September 30, 2020 After six unsuccessful tries at passage, it appears the coronavirus crisis has tipped the scales in favor of Gov. Phil Murphy’s (D) millionaires tax. New Jersey may be feeling the financial squeeze right now, but this large income tax change will not solve budget problems and may exacerbate funding issues by making the state even unfriendlier to businesses.
Voters in Four States to Vote on Recreational Marijuana September 29, 2020 Legalizing recreational marijuana is a hot topic in many states where the state budgets are in disarray because of the coronavirus pandemic and new revenue sources are being sought.
Countries Eye Environmental Taxation September 29, 2020 A recent OECD report on 2020 tax reforms reveals an increase in the number of environmentally-related tax policies, including gas taxes, carbon taxes, and taxes on electricity consumption.
Sweden’s 2021 Budget: Permanent Income Tax Cuts September 23, 2020 Sweden's 2021 budget outlines an aggressive plan to both cut income taxes in a permanent manner alongside multiple other tax cuts and spending increases
CBO Releases New Long-term Budget Outlook September 22, 2020 The pandemic precipitated the steepest decline in economic output and employment in recent history, which is leading to a drop in tax revenue. At the same time, the federal response to the crisis is producing a large increase in spending. This combination will cause the federal budget deficit to spike.
Maryland Lawmakers Look to Alcohol for New Revenue September 22, 2020 While there are legitimate reasons for increasing and levying excise taxes, legislatures should proceed with caution in the aftermath of the pandemic. Importantly, revenue from increased excise taxes should generally be allocated to spending related to the negative externalities as that revenue is too volatile and unreliable to rely on for long-term budget priorities.
Republican Study Committee Workforce Plan Rethinks Education, Labor, and Welfare Tax Policy September 22, 2020 The House Republican Study Committee released a proposal, "Reclaiming the American Dream," which includes 118 policy recommendations to address education, labor, and welfare policy with the aim of expanding opportunity, liberty, and free enterprise for all Americans.
New Census Data Shows States Beat Revenue Expectations in FY 2020 September 18, 2020 State tax revenue collections were down 5.5 percent in FY 2020, driven by a dismal final quarter (April through June) as states began to feel the impact of the COVID-19 pandemic. While these early losses are certainly not desirable, they are manageable and far better than many feared.
An Excise State of Mind September 17, 2020 Even during a crisis when budgets are squeezed, policymakers should put their efforts into serious reforms of existing income and consumption taxes rather than leaving good tax policy behind for an excise state of mind.
New European Commission Report: VAT Gap September 17, 2020 Just as COVID-19 is putting pressure on other sources of revenue, the loss of VAT revenues resulting from the crisis will force governments to evaluate their VAT systems.
Senate Republican Coronavirus Package Is Undermined by Complexity & Impermanence September 10, 2020 What does the Senate Republican coronavirus package do? Are there better ways of providing short-run relief without making the tax code more complicated?
Who Will Pay for the Roads? August 25, 2020 The highway trust fund is on track to run out of money by 2021, states are struggling to cover their transportation spending, and increased fuel economy, plus inflation, is chipping away at gas tax revenue year. How can Congress and state governments ensure they have the revenue necessary to fund our highways? One solution is the vehicle miles traveled (VMT) tax.
How the CARES Act Fixed a Tax Bias Against Green Investment August 20, 2020 One under-discussed part of the CARES Act, passed in March to provide economic relief during the COVID-19 epidemic, is a correction to a drafting error in the Tax Cuts and Jobs Act of 2017, often known as the “retail glitch.”
New Accelerated Depreciation Policies to Spur Investment in Australia, Austria, Germany, and New Zealand August 17, 2020 In recent months, several countries have introduced accelerated depreciation as a measure to incentivize private investment, including Australia, Austria, Germany, and New Zealand. There are various ways of how this policy has been implemented in the respective countries, largely depending on the existing standard depreciation schedules.
Economic Recovery and Deductions for Worker Training August 13, 2020 Tax treatment can affect investment decisions. Extending expensing treatment (full and immediate deductions) to all forms of capital investment, human and physical, would help facilitate sustainable long-run economic growth.
Nevada Hoping to Extract Revenue with Mining Tax Increase Amendment August 12, 2020 Nevada is not alone in its need to find revenue, but it should take care not to embrace bad tax policy in the process. Significant rate increases, a shift in the tax base, and provisions which make it easier to hike taxes than to cut them would heavily burden the mining industry in the state.
Teleworking Employees Face Double Taxation Due to Aggressive “Convenience Rule” Policies in Seven States August 13, 2020 States can tax your income where you live and where you work—but a growing number of states may also seek to tax your income even if you neither live nor work there, an aggressive posture that becomes increasingly consequential as more Americans work remotely both during and potentially after the COVID-19 pandemic.
Where Should the Money Come From? August 12, 2020 The fiscal response to the COVID-19 pandemic will require policymakers to consider what revenue resources should be used to fill budget gaps. Tax policy experts have proposed wealth taxes, (global) corporate minimum taxes, excess profits taxes, and digital taxes as opportunities for governments to raise new revenues.
Estimating Neutral Cost Recovery’s Impact on Affordable Housing August 7, 2020 Housing affordability was a major issue even before the COVID-19 crisis, but the current economic situation has made it more salient. Immediate support for people struggling makes sense now, but lawmakers should also consider long-term solutions to the problem of high rents, namely by expanding the supply of housing.
Higher Taxes Might Not Be the Solution for Canada and its Provinces August 7, 2020 First, the introduction of the wealth tax would significantly impact international capital flows and cause large economic dislocations in the short term. Second, provinces that are looking at raising their corporate tax rates might hinder capital attraction, growth, and economic recovery.
Coronavirus Assistance for American Families Act Would Provide More Generous Rebates for Dependents July 30, 2020 On Thursday, U.S. Senators Marco Rubio (R-FL), Bill Cassidy (R-LA), Steve Daines (R-MT), and Mitt Romney (R-UT) released the Coronavirus Assistance for American Families Act (CAAF), which would provide payments of $1,000 to adults and children with Social Security numbers, subject to income limits used in the original round of rebates. Among other modifications, it would be more generous to households and families with children when compared to the original rebates distributed under the CARES Act.
Brazil has the Opportunity to Implement a Simple Consumption Tax and Foster Tax Progressivity at the Same Time July 30, 2020 Brazil has one of the world’s most complex tax systems. Brazil has the opportunity to implement a simple consumption tax and foster tax progressivity at the same time.
State Income and Sales Tax Revenues Slide in Second Quarter July 30, 2020 Today marked the release of second-quarter GDP data and provides a new glimpse into early changes in state and local revenues and spending. All told, second-quarter state and local tax receipts came in about 3.8 percent lower than they did in the same quarter a year ago. Income and sales taxes fell considerably while property and excise tax collections remained stable.
Details and Analysis of The CREATE JOBS Act July 30, 2020 Senators Ted Cruz and Martha McSally introduced the CREATE JOBS Act that would make two significant changes to incentivize investment in the United States.
Senate Republicans Introduce the HEALS Act for Coronavirus Pandemic Relief July 27, 2020 A resurgence in coronavirus cases and receding economic activity in many states threaten the nascent economic recovery. To address the ongoing crisis, the Senate Republican Phase 4 proposal builds on the CARES Act provisions while modifying others, including a scaled down federal UI benefit.
Revenue Gains in Asian and Pacific Countries Likely Offset by COVID-19 July 24, 2020 Because of the COVID-19 pandemic and the associated economic crisis, countries in the Asia-Pacific region will see a differentiated impact on their capacity of mobilizing domestic revenue depending on the structure of their economy. According to the OECD report, those economies that rely mostly on natural resources, tourism, and trade taxes are especially vulnerable.
New York and New Jersey Consider Financial Transaction Taxes July 23, 2020 Seeking new sources of funding, New York and New Jersey—two states at the heart of global financial markets—are considering financial transaction taxes.
The History of Excess Profits Taxes Not as Effective or Harmless as Today’s Advocates Portray July 22, 2020 Today’s advocates would do well to study the history of excess profits taxes before overselling these taxes as a solution to the COVID-19 crisis.
The New EU Budget is Light on Details of Tax Proposals July 22, 2020 The European Council recently agreed on a new multiannual budget and a recovery program, which sets EU budget levels for 2021-2027 totals €1 trillion (US $1.2 trillion). The lack of details on the various tax proposals and the eventual need for revenue sources to finance new EU debt mean there is a lot of work left for policymakers in Brussels to do.
(Webinar) Figuring Out Phase Four: Next Steps on Federal and State Coronavirus Response July 21, 2020 As U.S. businesses struggle to recover from the economic downturn, Congress and the White House continue to debate a phase four relief package, which could include anything from incentives for domestic travel and a payroll tax cut to more fundamental reforms like enacting permanent full cost recovery.
Sales Tax Holidays: Politically Expedient but Poor Tax Policy, 2020 July 22, 2020 In the midst of the coronavirus crisis, some states are hoping that a sales tax holiday might help restart struggling industries by stimulating the economy. However, sales tax holidays can mislead consumers about savings and distract from genuine, permanent tax relief.
Tax Options to Promote Short-Term Recovery and Long-Term Economic Growth in Wisconsin July 16, 2020 From a revenue standpoint, Wisconsin was better off than many states going into this crisis, but the policy decisions—including tax policy decisions—state policymakers make in the months ahead will have far-reaching implications for how quickly jobs and wages are restored in Wisconsin.
Hungarian COVID-19 Response: Surtax for Banks and Retail July 15, 2020 Hungary is the only EU state to have actually implemented COVID-19 tax hikes.
State Forecasts Indicate $121 Billion 2-Year Tax Revenue Losses Compared to FY 2019 July 15, 2020 Revised state revenue forecasts show a significant decline in projected revenues for both the recently concluded FY 2020 and current FY 2021, though the picture they paint is considerably less dire than many feared a few months ago.
Improved Cost Recovery Is A Wide-Ranging Policy Solution July 10, 2020 Rather than limit improvements to certain sectors, lawmakers could pursue a broader policy of full expensing for all capital investment and neutral cost recovery for structures and clear the tax policy hurdles that currently stand in the way of private investment.
Peruvian “Solidarity Tax” Unlikely to Offset Deficit Spending July 10, 2020 While it is important that Peru find ways to offset its deficit spending, a temporary wealth tax may introduce more problems than it solves.
FAQ on Neutral Cost Recovery and Expensing July 10, 2020 Cost recovery is the way the tax code permits firms to recover (or deduct) the cost of making investments. Cost recovery plays an important role in defining a business’ taxable income and can impact investment decisions.
Phase 4 Is not the Time to Experiment with Temporary Credits July 9, 2020 As lawmakers consider returning to the tax code as a tool to revive a struggling economy with high unemployment and an unpredictable virus, they should avoid temporary changes that can be distortive in the short term and inefficient in the long term.
National Taxpayer Advocate’s Report Is a Road Map to Simpler Pandemic Relief Provisions July 9, 2020 The size and scope of the tax changes within the CARES Act created significant administrative challenges for the IRS. Lawmakers should prioritize simplicity in the next round of relief.
Tax Policy Proposals for the German EU Presidency July 1, 2020 While much of Germany’s EU presidency agenda is focused on policies to ensure economic stability and recovery from the COVID-19 pandemic, there's a pair of tax proposals that the country is planning to develop and move forward at the EU level: a financial transaction tax and a minimum effective tax.
Digital Tax Deadlock: Where Do We Go from Here? July 1, 2020 We recently hosted an exclusive webinar discussion to get up to speed on recent digital tax developments and gain insight from leading international tax experts on the OECD's BEPS project.
Iowa Decouples from 163(j) and GILTI, Clarifies Non-Taxation of PPP Loans June 30, 2020 Iowa’s HF 2614, which passed both chambers of the legislature and now waits for the governor’s signature, makes several changes to the state’s tax code, which, although they will affect revenue, will encourage economic growth and make the state’s tax code more competitive.
Estimated Impact of Improved Cost Recovery Treatment by State June 30, 2020 We estimate that moving to permanent full expensing and neutral cost recovery for structures would add more than 1 million full-time equivalent jobs to the long-run economy and boost the long-run capital stock by $4.8 trillion.
Montana Voters Will Decide on Recreational Marijuana June 26, 2020 Montana could vote to legalize and tax recreational marijuana in November, bringing in an estimated $39 million by 2025, but would the move help with short-term budget issues?
GAO Report Reveals Need to Simplify Next Round of Rebates June 25, 2020 A new Government Accountability Office (GAO) report revealed that almost a half-million taxpayers missed their total rebate payment due to complications over disbursing funds to non-filers with eligible dependents. Administrability is just as important as rebate design and simplicity is just as important as speed.
Improving the Tax Treatment of Residential Buildings Will Stretch Affordable Housing Assistance Dollars Further June 25, 2020 By updating the tax code to allow developers to more fully cover their investments, construction costs will fall, which, in turn, means that federal affordable housing assistance dollars will go that much further in helping low-income tenants.
European Countries Might Consider Scrapping the Bank Tax for Greater Financial Support June 24, 2020 In the wake of the coronavirus crisis, some governments are seeking to cut bank taxes to enhance financial support to businesses and public investment projects.
Three Reasons Expanding Credits Aren’t the Best Pandemic Response for the Vulnerable June 24, 2020 While reforming certain tax credits may make sense, there are far better ways to provide individuals and families with more liquidity during this crisis.
Economic Analysis of Financing Options for Infrastructure Spending Proposals June 23, 2020 Our analysis shows that the economic benefits of federal investment in productivity-enhancing infrastructure may be undercut by the negative effects of the financing of those investments, such as when the corporate income tax is increased.
Why Neutral Cost Recovery Is Good for Workers June 23, 2020 Studies have shown that accelerated depreciation helps increase wage growth. A recent report found that states that implemented accelerated depreciation in their tax codes led to a 2.5 percent increase in compensation per employee in manufacturing, relative to states that did not.
Global Tax Relief Efforts Vary in Scope and Time Frame in Response to COVID-19 June 22, 2020 Countries around the world have implemented and continue to implement emergency tax measures to support their economies during the coronavirus (COVID-19) crisis.
Full Expensing is Good for the Short Run and the Long Run June 18, 2020 In the first year of enactment alone, we estimate the combination of full expensing and neutral cost recovery would increase full-time equivalent employment by more than 44,000 jobs. The cumulative impact by year five of the policy would be nearly 200,000 new jobs.
CARES Act Conformity Would Promote Economic Recovery in Nebraska June 18, 2020 Nebraska lawmakers may ultimately opt for a package that includes both property tax relief and the renewal of business incentives, but they should avoid doing so at the expense of decoupling from the CARES Act’s liquidity-enhancing provisions.
Cautionary Notes from CBO on the Effects of Federal Investment June 17, 2020 Based on the CBO’s assessment of the economic and budgetary effects of federal investment, lawmakers should look to spur private sector investment rather than try to enact a massive federal infrastructure bill.
States Should Conform to These Four CARES Act Provisions to Enhance Business Liquidity June 17, 2020 As policymakers continue evaluating their evolving revenue and spending options, the importance of enacting policies that enhance business liquidity must remain at the forefront.
Weighing the Benefits of Permitting Business Credit Cashouts in Phase 4 Economic Relief June 16, 2020 As lawmakers explore options for “Phase 4” coronavirus relief legislation, one idea that has received renewed attention is allowing businesses to cash out business tax credits. This proposal would be strengthened by also permitting acceleration of firms’ accrued net operating loss (NOL) deductions and designing the proposal so that firms can quickly convert these tax assets into cash.
Challenges for Transfer Pricing in an Economic Downturn June 17, 2020 Transfer pricing rules are under stress given the current economic crisis. The OECD should provide transfer pricing guidance during the coronavirus crisis.
Germany Adopts a Temporary VAT Cut June 16, 2020 Tax policy responses to the pandemic should be designed to provide immediate support while paving the way to recovery. A temporary VAT rate cut in the context of an inefficient VAT system is likely to deliver mixed results at best.
Seattle Officials Return with New Proposal for Taxing Employment June 16, 2020 Seattle’s city council are again gearing up for an effort to increase taxes on the city’s largest employers, intended to generate revenue for cash assistance to low-income households impacted by the COVID-19 crisis, among other reasons.
D.C. Council to Consider Tax Hike Despite Balanced Budget June 15, 2020 Despite a balanced budget and and revenue shortfalls arising from the coronavirus crisis, the D.C. Council will consider proposals to raise income taxes to fund newly proposed spending projects.
Inefficiencies Created by the Tax System’s Dependence on Economic Depreciation June 12, 2020 One idea that would help the nation’s economic recovery during the coronavirus crisis would be moving to full expensing of capital investment. The depreciation debate might seem confusing, so the question at hand is: how, when, and by what amount can businesses recognize (or recover) the cost of a capital investment, like a piece of equipment or a new warehouse, on their income tax return?
New Jersey Considers Bonds Paid for by Statewide Property Tax June 11, 2020 As New Jersey lawmakers grapple with reduced revenues due to the coronavirus pandemic, they have turned to an unusual solution: the issuance of bonds that would be repaid, if necessary, through temporarily higher sales and property taxes.
Sports Betting Will Not Solve State Budget Crises June 10, 2020 The pandemic has left states in dire straits financially and lawmakers are getting creative in their pursuit of new revenue sources. However, it's unlikely that revenue from sports betting will have any meaningful impact on budget shortfalls
How High Are Vapor Taxes in Your State? June 3, 2020 Many states may be looking toward vapor and other excise taxes to fill budget holes caused by the coronavirus crisis. While those areas may represent untapped revenue sources for many states, taxing those activities is unlikely to raise much revenue in the short term.
New York Lawmakers Float New Data Tax Proposal June 2, 2020 Taxes on digital services, digital advertising, and the sale or utilization of consumer data, which were already emerging before the #coronavirus crisis, look increasingly attractive to cash-strapped states and localities.
Watch: Economic Recovery After Coronavirus May 29, 2020 What are the best tax policies to encourage a smooth transition and strong economic recovery? How should goals of economic recovery and growth be balanced with revenue needs?
California Considers Business Head Tax Plan that Seattle Repealed May 28, 2020 With California’s unemployment rate approaching 25 percent, it is somewhat surprising to find policymakers contemplating a literal tax on jobs.
EU: The Next Generation May 27, 2020 The European Commission announced new budget plans including loans, grants, and some revenue offsets. The proposals follow other support mechanisms for workers and businesses that were designed in response to the Covid-19 pandemic and economic shutdown.
Net Operating Loss Carrybacks Are a Vital Source of Tax Relief for Struggling Firms in the Coronavirus Crisis May 26, 2020 Rather than find ways to restrict net operating loss (NOL) carrybacks, lawmakers should focus on ways to improve liquidity by cashing out accrued NOLs, which would benefit startups and new small businesses without taxable income to offset in prior years.
In Some States, 2020 Estimated Tax Payments Are Due Before 2019 Tax Returns May 22, 2020 To prevent confusion and to ensure taxpayers receive the full benefit of the extended federal deadline, states should consider extending first- and second-quarter estimated tax payment due dates to July 15 or later.
Tax Changes in California Governor’s Budget Could Stand in the Way of Economic Recovery May 20, 2020 While other states are starting to think about the recovery, California is contemplating tax policies that would stand in the way of economic expansion once the health crisis abates. California’s shortfall is all too real, but tax policies which impede recovery are a hindrance, not a help.
To What Extent Does Your State Rely on Sales Taxes? May 20, 2020 Consumption taxes, like sales taxes, are more economically neutral than taxes on capital and income because they target only current consumption.
HEROES Act Dependent Expansions Come with Major Drawbacks May 19, 2020 The HEROES Act adds to the confusion and instability already inherent in the tax code with multiple expiring provisions and reduced filing guidelines.
More Than Half the States Will Protect Businesses from Certain COVID-19-Related Unemployment Insurance Tax Hikes May 19, 2020 Lawmakers can help expedite their state’s economic recovery by protecting employers from facing higher unemployment insurance tax rates at a time when they can least afford to pay them.
HEROES Act Temporarily Increases Dependent Credit Generosity May 19, 2020 The HEROES Act would make notable expansions to all three dependent-related credits, increasing maximum credit amounts, refundability, and income eligibility phaseouts. Practically, this means that certain filers could expect to receive a larger refund for each additional hour of work, eligible dependent, and dependent care expenses if the bill became law.
Breaking Down State and Local Aid under the SMART Act May 19, 2020 The SMART Act, sponsored by Senators Bob Menendez and Bill Cassidy and Rep. Mikie Sherrill, would provide $500 billion in flexible funding to state and local governments.
Neutral Cost Recovery Is Not a New Idea May 19, 2020 As stated by Rep. Jack Kemp in 1985, “Neutral cost recovery is designed to provide the present value of investment expensing without some of its practical problems.”
Empirical Evidence Shows Expensing Leads to More Investment and Higher Employment May 19, 2020 The Tax Foundation’s General Equilibrium Model suggests that allowing businesses to immediately deduct or “expense” their capital investments in the year in which they are purchased delivers the biggest bang for the buck in spurring economic growth and jobs compared to other tax policies.
Louisiana Considers Temporary Suspension of Part of Corporation Franchise Tax May 19, 2020 State recovery plans should lessen the burden on businesses by shifting from capital stock taxes and other taxes that are charged regardless of profitability. Louisiana does well to target its Corporation Franchise Tax, a burdensome tax that would target businesses that may already be struggling.
Options for Improving the Tax Treatment of Structures May 19, 2020 Improving the tax treatment of structures is one of the most cost-effective tax policy changes available to lawmakers as they consider how to remove investment barriers in the tax code to hasten the economic recovery. Policymakers must weigh the trade-offs among long-run economic output goals, revenue constraints, and the existing stock of structures.
HEROES Act First Bid to Provide Phase 4 Relief for Businesses and Individuals May 14, 2020 The HEROES Act, the $3 trillion relief package proposed by House Democrats, is the first bid to provide additional phase 4 aid for businesses and individuals amid the coronavirus pandemic.
Accounting for Deficits: When Should They Matter and How Should We Solve It? May 14, 2020 Revenue shortfalls and deficits can be addressed best by considering when to consider the deficit as the primary priority and reevaluating how revenue can be raised most efficiently through sound tax policy principles.
Under the HEROES Act, State Budgets Could Soar as the Economy Suffers May 13, 2020 The HEROES Act, proposed by House Democrats as a next round of fiscal relief during the coronavirus outbreak, contains about $1.08 trillion in aid to states and localities. That would bring the pandemic total to $1.63 trillion—an amount so large that it might overwhelm their ability to spend it and could reward fiscal irresponsibility.
To What Extent Does Your State Rely on Individual Income Taxes? May 13, 2020 While the current crisis has caused consumption to drop dramatically, it is generally true that income taxes are more volatile than consumption taxes in an economic downturn and income taxes tend to be more harmful to economic growth than consumption taxes and property taxes.
How the HEROES Act Would Allocate State and Local Aid for Coronavirus Relief May 12, 2020 The HEROES Act would provide more than $1 trillion to state and local governments. Here's how funding would be distributed and provisional estimates of how much aid each state would receive.
Alabama, Missouri Bills Would Exempt CARES Relief from Income Tax Calculation May 8, 2020 Alabama and Missouri are considering excluding the CARES Act Economic Impact Payments from being taxed and exclude them from state income tax calculations.
Gov. Hogan Vetoes Maryland Digital Advertising Tax Legislation May 7, 2020 Gov. Hogan vetoed a proposed first-in-the-nation digital advertising tax that would have imposed rates of up to 10 percent on digital advertising served to Marylanders.
Designing a State and Local Government Relief Package May 11, 2020 The COVID-19 pandemic and accompanying economic downturn will wreak havoc on state and local tax revenues, with projections of a 15-20 percent decline in state revenues. Our new report provides a framework for how to design an effective state and local relief package.
Watch: Coronavirus: A Path to Economic Recovery May 7, 2020 What challenges should we expect to face as the U.S. economy begins to re-open? When is the right time for legislators to start focusing on long-term recovery vs. short-term needs? What policies should federal legislators pursue to clear a path to recovery?
Advancing Net Operating Loss Deductions in Phase 4 Business Relief May 7, 2020 Policymakers will have to consider design options for accelerating NOL deductions to ensure the refunds are simple, provide targeted relief to struggling firms, and are consistent with long-run revenue needs.
White House Considers Neutral Cost Recovery for Structures May 6, 2020 When considering long-term policies for increasing long-run levels of investment and economic growth, full expensing and neutral cost recovery are better targeted than policies like a capital gains cut.
Does Your State Tax Business Inventory? May 6, 2020 Inventory taxes are levied regardless of whether a business makes a profit, adding to the burden of businesses already struggling to stay afloat.
Chaos to the Left of Me. Chaos to the Right of me. May 5, 2020 The OECD recently announced that the negotiation timeline for new digital tax proposals has now been pushed back to October due to the COVID-19 pandemic, although the end-of-year deadline for the overall project is still in place.
Reviewing the Economic and Revenue Implications of Cost Recovery Options April 28, 2020 Permanent full expensing for all types of investment is an effective policy change lawmakers can use to encourage additional investment and economic growth.
Reviewing the Benefits of Full Expensing for the Post-Pandemic Economic Recovery April 27, 2020 One of the most cost-effective policy changes would be to make full expensing of machinery and equipment permanent and extend this important tax treatment to structures as well as for firms in a net operating loss position.
Details and Analysis of President Joe Biden’s Campaign Tax Plan October 22, 2020 What has President Joe Biden proposed in terms of tax policy changes? Our experts provide the details and analyze the potential economic, revenue, and distributional impacts.
Historic Oil Price Burns Hole in State Budgets April 24, 2020 Alaska and North Dakota collect revenue primarily from oil-related taxes. These states must start thinking about how to plan for an era of reduced oil revenue.
Louisiana Can Look to Tax Reform for Aid in a Post-Coronavirus Recovery April 24, 2020 As states look for a path out of these fiscally troubling times, Louisiana has several options for aspects of its tax code to promote economic recovery and growth. The Pelican State’s federal deductibility, Corporation Franchise Tax, and sales tax structure present opportunities for beneficial tax reform in the wake of the coronavirus crisis.
New Guidance on State Aid Under the CARES Act April 23, 2020 The U.S. Department of the Treasury recently issued new guidance on allowable expenses using the $150 billion in state aid provided under the CARES Act, a point on which there has been considerable confusion.
Senate Passes Additional Funding for Small Business Relief, But Questions Remain on the Deductibility of PPP Expenses April 22, 2020 The sooner federal policymakers or regulators clarify tax questions about the Paycheck Protection Program (PPP), the more certainty firms will have when they accept the economic relief to keep their businesses afloat.
Keeping it Simple: Approaching the Next Stage of Coronavirus Tax Policy April 22, 2020 When businesses and taxpayers look to the government for relief, it is paramount that lawmakers do their best to craft transparent and coherent legislation that is the least confusing for all.
Does Your State Have a Gross Receipts Tax? April 22, 2020 While it’s unclear how soon state economies may be able to fully open again, it’s not too early for states to consider how they can remove barriers to businesses & consumers resuming activity.
Watch: State Tax Policy and COVID-19 April 23, 2020 What could the next phase of relief look like and what role does tax policy play in ensuring the U.S. and countries around the world make a strong economic recovery?
Tax Policy After Coronavirus: Clearing a Path to Economic Recovery April 22, 2020 Governments at all levels must work to remove the tax policy barriers that stand in the way of economic recovery and long-term prosperity following the COVID-19 crisis. Our new guide outlines several comprehensive options that policymakers can take at the federal and state levels.
How Well-Funded Are Pension Plans in Your State? April 15, 2020 The current crisis highlights the cost of underfunding pensions in years of economic growth. Twenty states have pension plans that were less than two-thirds funded, and five states had pension plans that were less than 50 percent funded.
Can States Close Budget Deficits with Excise Tax Hikes? April 15, 2020 We examine whether excise taxes are a solution to budget deficits, and while the short answer to that question is no, there are of course nuances. Excise taxes can play a role in state revenues even as policymakers appreciate that excise taxes are not viable long-term revenue tools for general spending priorities.
A Review of Net Operating Loss Tax Provisions in the CARES Act and Next Steps for Phase 4 Relief April 14, 2020 In addition to providing economic relief to individuals and loans to businesses struggling during the coronavirus crisis, the CARES Act changed several tax provisions to increase liquidity to ensure firms survive a large decline in cash flow.
New OECD Study: Consumption Tax Revenues during Economic Downturns April 14, 2020 Compared to other tax revenue sources, consumption tax revenue as a share of GDP tends to be relatively stable over time, even during economic downturns.
Will States Tax the Federal Government’s COVID-19 Lifeline to Small Businesses? April 13, 2020 If states fail to update their income tax conformity, they will wind up taxing the federal lifeline to small businesses in the CARES Act: the Paycheck Protection Program (PPP) loans.
Is Now the Time for a $100 billion Tax Increase? April 13, 2020 Seemingly unconcerned about how the digital project could impact the economy at this crisis moment, officials at the OECD recently released a statement boasting that they are continuing to work “full steam” on their global digital tax project.
Trade-offs of Delaying Tax Filing and Instituting a Payroll Tax Holiday on Businesses and Individuals April 9, 2020 Some policymakers are proposing a payroll tax holiday for businesses and individuals for 2020 and a complete delay in filing deadlines for tax year 2019 and 2020 to April 2021. What are the pros and cons of doing so?
Evaluating the Trade-offs of Small Business Relief Provisions of the CARES Act April 9, 2020 The small business provisions in the CARES Act support small businesses and nonprofits seeking economic relief during this downturn. However, creating multiple programs with overlapping purposes and differing qualification requirements makes relief more complicated, vague, and not neutral.
States’ Unemployment Compensation Trust Funds Could Run Out in Mere Weeks April 9, 2020 Six states, which collectively account for over one-third of the U.S. population, are currently in a position to pay out fewer than 10 weeks of the unemployment compensation claims that have already come in since the start of the COVID-19 pandemic.
These States Could Tax Your Recovery Rebates April 8, 2020 Due to a quirk of some state tax codes, the recovery rebates in the CARES Act could increase your income tax liability in six states: Alabama, Iowa, Louisiana, Missouri, Montana, and Oregon.
Watch: Tax Foundation Experts Discuss Short-term Coronavirus Relief Packages April 8, 2020 What could the next phase of relief look like and what role does tax policy play in ensuring the U.S. and countries around the world make a strong economic recovery?
Does Your State Tax Social Security Benefits? August 9, 2020 The question, “Does my state tax Social Security benefits?” may be simple enough, but the answer includes a lot of nuance. Many states have unique and specific provisions regarding the taxation of Social Security benefits, which can be broken into a few broad categories.
Temporary Work Locations in a Permanent Establishment World April 7, 2020 While much of the fiscal conversation surrounding the current pandemic has focused on tax relief and tax deferrals, another significant angle needs to be explored: the question of economic nexus.
State Rainy Day Funds and the COVID-19 Crisis April 7, 2020 State revenue stabilization funds, often called rainy day funds, are better funded now than they were at the start of the Great Recession and can be a valuable tool as states face a sharp pandemic-linked economic contraction.
April 2nd Evening State Tax Update April 2, 2020 California extends tax filing and payment deadline to July 31 for a broad spectrum of business taxes as Virginia keeps May 1st tax filing deadline.
Understanding the Paycheck Protection Program in the CARES Act April 2, 2020 Many small business owners are seeking guidance as they apply for loans backed by the Small Business Administration (SBA) to help maintain cash flow and retain workers even as more states announce new quarantine and shelter-in-place orders.
State Strategies for Closing FY 2020 with a Balanced Budget April 2, 2020 State options for closing FY 2020 shortfalls are limited and may ultimately include drawing on reserve funds and even accounting tricks
Idaho, Mississippi, and Virginia are the Holdouts on July 15th Tax Deadlines April 1, 2020 Every state with an individual income tax has made some adjustment to its filing or payment deadlines, but three—Idaho, Mississippi, and Virginia—have not followed the federal government’s date of July 15th or later.
How Healthy is Your State’s Rainy Day Fund? April 1, 2020 Rainy day funds have increasingly emerged as a standard component of states’ budgeting toolkits. Economic cycles can have significant impacts on state revenue, but states can prepare for the inevitable downturns during good times by putting away money in a revenue stabilization fund.
State and Local Funding Totals Under the CARES Act April 1, 2020 State and local governments across the country split $150 billion in federal aid under a provision of the Coronavirus Aid, Relief and Economic Security (CARES) Act, passed on March 30th.
Federal Coronavirus Relief: CARES Act FAQ April 2, 2020 Congress recently passed the largest economic relief bill in American history (CARES Act). We've created a FAQ portal to better inform policymakers, journalists, and taxpayers across the country on the new law.
Retroactive SALT Repeal Combines Weak Stimulus with Bad Tax Policy March 31, 2020 House Speaker Nancy Pelosi (D-CA) has suggested that a retroactive repeal of the cap on State and Local Tax (SALT) deductions should be included in any future stimulus plans.
New Jersey Waives Telework Nexus During COVID-19 Crisis March 31, 2020 New Jersey is temporarily waiving corporate nexus arising from employees teleworking due to the COVID-19 pandemic—a response to the crisis that other states should follow.
Gas Tax Revenue to Decline as Traffic Drops 38 Percent March 31, 2020 Fewer people driving means fewer people buying gasoline, which may have positive effects on air pollution but could be detrimental to motor fuel excise tax revenue for federal and state governments.
A Visual Guide to Unemployment Benefit Claims April 2, 2020 Another 1.4 million Americans filed initial regular unemployment benefit claims, the eleventh week of a decline in the rate of new claims, but still among the highest levels in U.S. history. The total number of new and continued claims now stands at 19.3 million, a marked decline from the peak of 24.9 million a month ago.
March 27th Afternoon State Tax Update March 27, 2020 Massachusetts, Ohio, and West Virginia have newly extended their income tax filing and payment deadlines to match the July 15 federal deadline.
Spain’s COVID-19 Economic Response March 27, 2020 Spain's policy response needs to be broad and in keeping with long-term objectives. It is paramount that the short-term harm caused by this outbreak does not turn into a long-term economic downturn.
Evaluating the Trade-offs of Unemployment Compensation Changes in the CARES Act March 27, 2020 Policymakers must weigh the trade-offs of subsidizing unemployment with mitigating community spread of coronavirus.
March 27th Morning State Tax Update March 27, 2020 Arkansas, with a month-long 2020 fiscal session that is not set to begin until April 8, convened for a special session to create a new rainy day fund, with $173 million specifically dedicated to COVID-19 response efforts. Maine and Illinois extended their income tax filing deadlines.
India Pushes Digital Taxes in a Difficult Time March 26, 2020 Even during the coronavirus outbreak, efforts to change the way digital business models are taxed continue. India announced this week that its tax aimed at foreign digital companies, the “equalization levy,” will be expanded.
Denmark Unplugs the Economy March 26, 2020 Denmark, a high-tax country with 5.5 million citizens, has implemented policies designed to avoid layoffs and bankruptcies and basically unplug the economy during the pandemic.
March 26th Morning State Tax Update March 26, 2020 Connecticut and Michigan have postponed their next legislative meeting day. California and Illinois weigh new budget priorities and forecasts in amid the economic fallout from COVID-19.
A German Export for Times of Crises: The Short-Time Work Scheme March 25, 2020 One of the most talked about government economic responses to the COVID-19 crisis is Germany’s Kurzarbeit: the German short-work subsidy scheme.
Weighing the Value of Tax Credits During an Economic Crisis March 25, 2020 One idea under consideration is adjusting existing tax credits, such as the Child Tax Credit (CTC) or Earned Income Tax Credit (EITC), to provide financial relief during the crisis.
State Aid Provisions of the Federal Coronavirus Response Bill March 25, 2020 To be eligible for federal funding, state expenditures must meet certain conditions. We break down the state aid coronavirus provisions in the latest federal bill.
Working from Home Brings Greater Exposure to State Tax Codes March 25, 2020 During the present crisis, remote work has become a necessity for many people. The tax implications, however, are very real and potentially quite complex.
VAT Exemption Thresholds in Europe March 26, 2020 Due to certain VAT exemption thresholds, many small businesses will not be able to benefit from the VAT changes being introduced throughout Europe to provide relief during the COVID-19 crisis.
March 25th Morning State Tax Update March 25, 2020 Several states have made progress on their budgets for FY 2021, which begins July 1 in most states. Numerous tax filing and payment deadlines have also been delayed.
What Happens with State Excise Tax Revenues During a Pandemic? March 25, 2020 States will have to consider the effects of the COVID-19 pandemic on their excise tax revenues, including from gas taxes, tobacco taxes, and alcohol taxes.
Australia’s COVID-19 Support Focuses on Grants to Individuals and Small Businesses March 24, 2020 In contrast to the sweeping economic relief plan being considered by the U.S. Congress, the approach taken by the Australian government is much more targeted to supporting individuals and small to medium-sized businesses.
Norway Opens the Fiscal Toolbox March 24, 2020 Norway passed a large coronavirus tax relief package to address layoffs and bankruptcies, which includes a reduced VAT rate, the introduction of a loss carryback provision, and targeted postponements for wealth tax payments, among other provisions.
Tracking Economic Relief Plans Around the World during the Coronavirus Outbreak March 25, 2020 Countries around the world are implementing emergency tax measures to support their economies under the coronavirus (COVID-19) threat.
Review and Analysis of House Democrats Coronavirus Response Bill March 24, 2020 The proposed Take Responsibility for Workers and Families Act can be contrasted with the Senate Republican CARES Act, although they share some similarities by providing individual taxpayers with a rebate and modifying business tax provisions to provide liquidity for struggling firms.
What Should Coronavirus Response Legislation Look Like? March 24, 2020 As lawmakers debate how to respond to the coronavirus crisis, they should focus the legislative response to the emergency at hand, using principled policy solutions to provide relief to those affected. Attempts to use the crisis to make other, unrelated policy changes should be avoided.
March 24th Morning State Tax Update March 24, 2020 We are updating our state legislative tracker frequently to summarize new developments and provide analysis of relevant state tax trends as they emerge.
Tracking State Legislative Responses to COVID-19 April 2, 2020 Many states are racing to pass budgets, emergency COVID-19 supplemental appropriations, and other must-pass legislation as quickly as possible. We're tracking the latest state legislative responses to the coronavirus crisis.
Overview of Previous Tax Rebates During Economic Downturns March 23, 2020 The timing from enactment to distribution has varied from about one and a half months to more than two months, indicating that it has historically taken a significant amount of time for individual taxpayers to receive their rebates after the policies have been put in place.
Are States Prepared for Skyrocketing Unemployment Insurance Claims? March 20, 2020 Unemployment claims are going to tax state unemployment compensation trust funds beyond their limits. We need to start thinking about what to do about it.
Congress Approves Economic Relief Plan for Individuals and Businesses March 30, 2020 The CARES Act, now signed into law, is intended to be a third round of federal government support in the wake of the coronavirus public health crisis and associated economic fallout, following the $8.3 billion in public health support passed two weeks ago and the Families First Coronavirus Response Act.
States Should Follow Federal Lead in Postponing Tax Day March 20, 2020 The federal government moved tax day from April 15 to July 15 in response to the coronavirus pandemic, granting more time for both filing and payment. But for many taxpayers, it might not matter much if states don’t follow suit.
Lawmakers Concerned that Delay in Tax Filing Deadline Not Fully Understood March 19, 2020 The U.S. Treasury Department has pushed the April 15 tax payment deadline to July 15. However, taxpayers still have to file their tax returns by the usual April 15 deadline.
For Italian Banks: Converting Future Deductions to Present Tax Credits March 19, 2020 During the coronavirus outbreak, Italy has been hit especially hard. Policymakers have introduced numerous measures to stem the spread of the virus and provide relief to businesses that are facing a severe downturn.
Tax Policy to Bridge the Coronavirus-Induced Economic Slowdown March 18, 2020 Tax policy can help by giving businesses current access to future tax “assets”—deductions and credits the businesses will be allowed or owed over time any way under current law—instead of making them wait.
Tax Policy and Economic Downturns March 18, 2020 The Great Recession provides some insight into how tax revenues declined during a deep recession. Across OECD countries, revenues fell by 11 percent from 2008 to 2009 with corporate income taxes seeing the steepest decline at 28 percent. Revenues from individual income taxes fell by 16 percent.
How the Federal Government and the States Could Help Save Small Businesses Through Temporary UI Tax Adjustments March 17, 2020 Governmental responses to the coronavirus outbreak will require creativity and flexibility—and one aspect of that may involve temporarily rethinking how we structure not only unemployment insurance (UI) benefits but also the taxes that pay for them.
Senate Receives Final Version of House Coronavirus Bill Offering Paid Leave March 17, 2020 The House bill would provide two weeks of paid sick leave to workers who must quarantine, take care of a family member who is sick with coronavirus, or care for their children whose school or daycare has closed due to the public health emergency.
Tax Options for Economic Relief During the Coronavirus Crisis March 17, 2020 Instead of simply reaching for fiscal stimulus with the goal of increasing economic activity, tax policy changes can give vulnerable individuals and businesses additional liquidity and space to survive the reduction in economic activity needed in light of the coronavirus outbreak.
Taxes and Liquidity During an Economic Crisis March 17, 2020 Taxes present one policy tool available to ease the impending liquidity crunch brought on by the coronavirus crisis, which policymakers are already pursuing by postponing the tax payment deadline and waiving interest and penalties.
Income Taxes Are More Volatile Than Sales Taxes During an Economic Contraction March 17, 2020 In the short term, states must anticipate reduced tax collections as the economy slows. And here, not all taxes are created equal. As a general rule, income taxes are more volatile than consumption taxes.
House of Representatives Bill Would Expand Paid Sick, Family, and Medical Leave to Address the Coronavirus Crisis March 16, 2020 The bill, the Families First Coronavirus Response Act, would expand federal medical leave, create an emergency paid sick leave requirement, and provide tax credits against employer-side payroll taxes to help offset the cost of these two programs, among other provisions.
A History and Analysis of Payroll Tax Holidays March 31, 2020 As Congress and the White House consider ways to shore up the economy in the face of a public health crisis, President Trump has suggested suspending the entire payroll tax for the duration of the year. That would cost about $950 billion, according to our analysis.
Frustration and Delays as the 2023 Tax Filing Season Begins January 18, 2023 A combination of long-standing IRS operational deficiencies, the agency's temporary closure due to the pandemic, and the now-expired pandemic relief produced a perfect recipe for a paper backlog.
Shaky Economic and Fiscal Outlook Requires Stable and Pro-Growth Tax Extenders Policy November 15, 2022 Policymakers face a difficult balancing act this year in what is likely to be an unusual tax extenders season.
Difficult Trade-Offs Make Policy Consensus on Child Tax Credit Elusive November 10, 2022 As we near this year’s “lame duck” session of Congress, there has been renewed interest in reforming the child tax credit as part of a tax deal. Our new analysis highlights the trade-offs that policymakers will face
The “Inflation Tax” Is Regressive September 29, 2022 A new CBO report reveals that lower- and middle-income households are disproportionately shouldering the burden of this current inflation wave. And historical analysis suggests there is much more to come.
Tax Filing Season: Options for Improvement April 27, 2022 Efforts to improve the taxpayer experience should focus on the IRS's operations and include structural improvements to the tax code.
Chaotic IRS Filing Season Shows the Perils of Running Social Policy Through the Tax Code April 18, 2022 As the deadline for tax filing nears, the IRS faces scrutiny for its backlog of returns, inaccessible taxpayer service, and delays in issuing certain refunds.
Business Tax Refunds Must Be Provided Quickly During Future Downturns February 1, 2022 A new report finds many businesses have yet to receive tax refunds that they are due from pandemic-related emergency relief. Future business tax relief must be provided in a timely manner during the next downturn, because delayed tax relief is not much better than no relief at all.
States Should Act Fast on UC Trust Fund Deposits, and Other Takeaways from the New Treasury Guidance on ARPA Funding January 28, 2022 States will continue to cut taxes because revenues are skyrocketing. But some will also be keeping a close eye on litigation targeting this dubious restriction on states’ fiscal autonomy.
U.S. Fiscal Response to COVID-19 Among Largest of Industrialized Countries January 4, 2022 As the U.S. grapples with rising price inflation, a large and growing national debt, as well as a possible economic slowdown due to Omicron, the decision to provide additional fiscal support will prove to be a difficult one. Policymakers can debate how much stimulus is appropriate, but what is clear is that the U.S. fiscal support so far during the pandemic outranks nearly every industrialized country.
COVID-19 Tax Relief Added to Increasing Share of Households Paying No Income Tax August 20, 2021 According to the Tax Policy Center, an estimated 60 percent of U.S. households paid no income tax in 2020, up from around 43 percent of households in 2019.
IRS Sends Nearly $15 Billion of Advance Child Tax Credit Payments July 19, 2021 New Treasury Department data released on the advance Child Tax Credit payments shows the distribution by state, including how much, on average, households in each state received. The expansion will only be in effect for the 2021 tax year—if policymakers wish to continue providing the increased benefits, they must address the administrative and revenue costs of the policy.
Unanswered Questions about Upcoming Advance Child Tax Credit Payments July 7, 2021 Amidst the outstanding questions, potential confusion over how advanced child tax credit payments will affect tax refunds, and an incomplete portal to update taxpayer information, the IRS will begin sending payments to millions of households this month.
Census Data Shows Households Saved Economic Impact Payments July 13, 2021 In 2020 and 2021, Congress enacted three rounds of economic impact payments (EIPs) for direct relief to households amidst the pandemic-induced downturn. Survey data from the U.S. Census Bureau indicates that households increasingly saved their EIPs or used them to pay down debt rather than spend them.
Tax Foundation Webinar Recaps the Complexities of the 2021 Tax Filing Season May 25, 2021 During the pandemic, economic relief administered through the tax code exploded as Congress passed nearly $6 trillion of legislation into law. That left the 2021 tax filing season, which ended May 17, with complications that still linger.
Many Small Businesses Could Be Impacted by Biden Corporate Tax Proposals May 11, 2021 Policymakers should recognize that corporate tax hikes will not only impact large firms, but many smaller and younger firms as well. Considering that many of these smaller firms are significant contributors to net job growth, raising corporate taxes at this time would not be conducive for a speedy economic recovery.
Treasury Rule on State Tax Cuts Limitation Raises New Questions May 10, 2021 Today, the U.S. Treasury issued an interim final rule on the $350 billion in State and Local Fiscal Recovery Funds provided under the American Rescue Plan Act (ARPA). The proposed rule resolves several important questions but continues to involve the federal government in state finances at an extraordinary level.
Tax Policy in the First 100 Days of the Biden Administration April 30, 2021 In his first 100 days as president, Joe Biden has proposed more than a dozen significant changes to the U.S. tax code that would raise upwards of $3 trillion in revenue and reduce incentives to invest, save, and work in the United States.
Providing Full Cost Recovery for Investment and Lowering Taxes on Firms Are Best Options for Boosting Growth April 27, 2021 As policymakers consider tax options to boost the U.S. economy’s long-run economic growth, they should consider reforms that would increase growth the most while minimizing forgone tax revenue.
President Biden’s Infrastructure Plan Raises Taxes on U.S. Production March 31, 2021 An increase in the federal corporate tax rate to 28 percent would raise the U.S. federal-state combined tax rate to 32.34 percent, higher than every country in the OECD, the G7, and all our major trade partners and competitors including China.
ARPA Allocates $2 Billion to Nonexistent County Governments March 31, 2021 The government of Hartford County, Connecticut is in line to receive $173 million in local aid under the American Rescue Plan Act (ARPA). There’s only one problem: the government of Hartford County doesn’t exist, nor do any of Connecticut’s other counties have county-level government despite being allocated a collective $691 million under the bill.
State Conformity to Federal Pandemic-Related Tax Provisions in CARES and ARPA April 1, 2021 With so many federal changes occurring in such a short amount of time—including some federal provisions changing more than once and a major change to the treatment of UC income occurring in the middle of tax filing season—state legislators have faced the challenge of responding to these changes quickly in order to provide certainty to taxpayers.
Congressional Budget Office and Tax Foundation Modeling Show That Some Tax Hikes Are More Damaging Than Others March 26, 2021 Some tax hikes are more damaging than others, according to Congressional Budget Office (CBO) and new Tax Foundation economic modeling.
Testimony: Senate Budget Committee Hearing on the Progressivity of the U.S. Tax Code March 25, 2021 We ought to be worried about the impact of corporate taxes on women, low-skilled workers, and younger workers, since they are the very workers who have been most impacted by the COVID-19 crisis. Raising the corporate tax rate would simply hurt them even more.
How the CARES Act Shifted the Composition of Tax Expenditures Towards Individuals March 24, 2021 The increase in expenditures associated with COVID-19 relief is another illustration of using the tax code to administer social spending.
A Neutral Tax Code Counts Unemployment Compensation as Taxable Income March 23, 2021 Since 1987, unemployment compensation benefits have been subject to federal income tax and, in most states, to state income tax. According to the Congressional Research Service, such treatment—including unemployment compensation benefits in taxable income—is common across industrial nations.
Making the Expanded Child Tax Credit Permanent Would Cost Nearly $1.6 Trillion March 19, 2021 As the Biden administration and Congress consider making the expanded child tax credit permanent, a nearly $1.6 trillion expansion of tax code-administered benefits, they should consider financing it in a way that doesn’t create significant headwinds to economic recovery.
Four Questions Treasury Must Answer About the State Tax Cut Prohibition in the American Rescue Plan Act March 18, 2021 The American Rescue Plan Act’s restriction on states’ Fiscal Recovery Funds being used to directly or indirectly offset a net tax cut is vague and raises difficult questions of interpretation and application. A broad interpretation of this prohibition may be unconstitutional.
U.S. COVID-19 Relief Provided More Than $60,000 in Benefits to Many Unemployed Families March 17, 2021 During the pandemic, an unemployment family of four previously earning $60,000 will have received $50,840 in federal and state unemployment benefits from April 1, 2020 to September 6, 2021, plus $11,400 in stimulus payments, plus $7,200 in Child Tax Credit, totaling $69,440 in combined COVID-19 relief benefits.
Tax Policy Improvements Needed to Help Industries through the Semiconductor Shortage March 16, 2021 As lawmakers evaluate how to respond to the global semiconductor shortage, they should consider allowing full cost recovery across all types of capital investment—inventories, machinery and equipment, structures, and R&D.
The American Rescue Plan Act Greatly Expands Benefits through the Tax Code in 2021 March 12, 2021 The major tax-related benefits in the $1.9 trillion economic relief plan are a third round of direct payments, extended unemployment insurance (UI) benefits and a $10,200 unemployment insurance income exemption for 2020, and an expansion of the Child Tax Credit.
Does the American Rescue Plan Ban State Tax Cuts? March 10, 2021 Senate amendments to the American Rescue Plan Act prohibit using any of the $350 billion in State and Local Fiscal Recovery Funds to cut taxes, but many are concerned that states which accept the funds could be prohibited from implementing tax cuts between now and 2024—an astonishing level of federal interference in states’ fiscal affairs.
Senate Direct Payment Design Would Create High Implicit Marginal Tax Rates March 5, 2021 As the Senate debates the relief package and makes progress in the budget reconciliation process, policymakers should keep in mind the trade-off between targeted economic relief and increasing marginal tax rates in the tax code, which can distort incentives to earn income and induce taxpayers to creatively adjust their AGI to receive a payment in the next tax season.
State Aid in American Rescue Plan Act Is 116 Times States’ Revenue Losses March 3, 2021 Here's each state’s estimated revenue gains or losses in 2020, alongside the state and local aid that would be allocated to each under the American Rescue Plan Act.
Evaluating Proposals to Increase the Corporate Tax Rate and Levy a Minimum Tax on Corporate Book Income February 24, 2021 President Biden and congressional policymakers have proposed several changes to the corporate income tax, including raising the rate from 21 percent to 28 percent and imposing a 15 percent minimum tax on the book income of large corporations, to raise revenue for new spending programs. Our new modeling analyzes the economic, revenue, and distributional impact of these proposals.
An “Interest”ing Tax Hike in the COVID-19 Relief Proposal February 10, 2021 As the House Ways and Means Committee continues working on the latest round of fiscal relief amid the pandemic, one curious provision in the legislation is a tax hike on multinational companies. One section of the legislation would repeal a provision in current law that allows U.S. multinationals to choose to allocate their interest costs on a worldwide basis (more on that in a moment).
House Ways and Means Committee Takes First Steps Toward Additional Coronavirus Relief Legislation February 10, 2021 The House Ways and Means Committee measures would further extend the relief measures created by the CARES Act and the Consolidated Appropriations Act of 2021, and would go further by significantly expanding existing tax credits and making changes to the international tax system.
Congressional Democrats Propose Expanding Child Tax Credit as Monthly Payment for Pandemic Relief February 9, 2021 House Ways and Means Democrats recently released a proposal to expand the child tax credit for one year as part of President Biden’s larger $1.9 trillion economic relief package.
U.S. Cross-border Tax Reform and the Cautionary Tale of GILTI February 17, 2021 The Biden campaign and Senate Democrats identified changes to GILTI that would increase the taxes U.S. companies pay on their foreign earnings. Rather than tacking on changes to a system that is currently neither fully territorial nor worldwide, policymakers should evaluate the structure of the current system with a goal of it becoming more, not less, coherent.
For Meaningful Federal Aid to States, Why Not Reimburse Unemployment Compensation Payments? February 5, 2021 Improving trust fund solvency and staving off costly business tax increases is a win-win proposition for federal and state governments alike.
Modeling Different Proposals for Round Three Direct Payments February 2, 2021 President Biden is calling for a third round of economic impact payments to households as part of his $1.9 trillion American Rescue Plan. Under the plan, the payments would be $1,400 per person, topping off the recent round of $600 payments for a combined $2,000 per person. Senate Republicans have proposed payment amounts of $1,000 per individual and $500 per dependent, lower income thresholds, and faster phaseout rates.
Latest CBO Report on Incomes and Taxes Shows that the Federal Fiscal System is Very Progressive January 26, 2021 Joe Biden has proposed an ambitious agenda that would make the federal fiscal system more progressive, and the huge budget deficits caused by the numerous COVID-19 relief packages could heighten the call for more tax revenues. What is needed are benchmark facts to guide these debates.
Using Carbon Tax Revenue to Grow the Economy January 22, 2021 The economy and climate change are two challenges the Biden administration has identified as priorities. One way to address both issues at the same time is to enact a carbon tax to discourage carbon emissions, and to use the resulting carbon tax revenue to lower—or in the case of the TCJA’s individual provisions, avoid increases of—other, more distortive, types of taxes. This would not only address the challenges of climate change but also support the economy.
5 Observations on Janet Yellen’s Recent Confirmation Testimony January 22, 2021 In her recent confirmation hearing, economist Janet Yellen, President Biden’s choice for Treasury Secretary, sought to reassure markets that the new administration would not raise corporate taxes until the economy improves. At the same time, however, she sent a troubling signal that when they do push for higher corporate tax rates, they would do so in coordination with other countries so that the U.S. doesn’t lose its competitive edge.
What to Expect During the 2021 Tax Season March 19, 2021 The IRS recently announced the extension of tax filing and payment deadlines from April 15th to May 17th to help taxpayers navigating the many tax changes amid the pandemic and give the IRS opportunity to clear its backlog of tax returns and correspondence.
President Biden Outlines Plan for Additional Coronavirus-Related Relief and Stimulus January 15, 2021 President Biden's plan builds on previous relief packages and would include larger payments to individuals, expanded relief for households and small businesses, funding for vaccine distribution, and aid to state and local governments.
COVID-19 Relief Package FAQ December 22, 2020 The latest $900 billion coronavirus relief bill extends and modifies several provisions first enacted in the CARES Act, Congress’s $2.2 trillion pandemic relief law that was passed in March. With this package, lawmakers will have responded to the coronavirus and related economic hardship with a record-setting $3 trillion of fiscal support.
Tax Extenders Hitch a Ride on Omnibus and COVID-19 Relief Deal December 21, 2020 Tax extenders are no stranger to hitching a last-minute ride on year-end legislation. This year they made another last-minute appearance, finding a hold in their own division of the 5,593-page bill to fund the government through the fiscal year and provide additional coronavirus relief through March.
Congress Passes $900 Billion Coronavirus Relief Package December 21, 2020 The coronavirus relief package represents the second-largest recovery legislation, behind only the CARES Act, for a combined total of more than $3 trillion in support.
Pandemic Highlights the Need for Better Tax Policy for Entrepreneurs and Small Businesses December 21, 2020 As Congress works to provide another round of emergency economic relief, it is a good time to step back and consider how tax policy affects entrepreneurs and small businesses.
Senate Policymakers Release $908 Billion Bipartisan COVID-19 Relief Proposals December 15, 2020 A bipartisan group of lawmakers released two compromise relief bills to address the COVID-19 pandemic, totaling about $908 billion: The Emergency Coronavirus Relief Act and the Bipartisan State and Local Support and Small Business Protection Act.
Details and Analysis of State and Local Aid Under the Bipartisan State and Local Support and Small Business Protection Act of 2020 December 14, 2020 On Monday, members of the bipartisan Gang of Eight negotiating an end-of-year pandemic relief package announced that they had settled on language and had divided the package into two bills: a pandemic aid package and a $160 billion state and local support package.
Individual and Business CARES Act Tax Provisions Due to Expire on December 31 December 9, 2020 Any additional relief to address a temporary economic crisis should be temporary, targeted toward those most in need, and consistent with good long-term tax policy.
What Federal Policymakers Can Learn from Business Tax Refunds in 2020 December 4, 2020 Policymakers should consider finding ways to simplify the administration of relief during future crises. This will help ensure the relief is timely and targeted, key components of any successful relief package for this crisis or crises in the future.
Additional Pandemic Relief Might Be Taking Shape December 3, 2020 With days left until government funding runs out, congressional lawmakers are down to the wire to fund the government and provide additional pandemic-related relief to the households and businesses trying to make it through the winter.
How Would the Proposed $160 Billion in State and Local Aid Be Allocated? December 1, 2020 A bipartisan coalition of Senators unveiled a $908 billion COVID-19 relief bill on Tuesday, which includes, among other provisions, $160 billion in additional aid to state and local governments. It is worth briefly exploring what this would mean, and the amounts of aid your state might expect.
Outlining a Path for Tax Policy Compromises December 1, 2020 While a sweeping tax policy bill is unlikely in the near future, lawmakers may be able to come together on a smaller scale. Pairing better cost recovery on a permanent basis with support for vulnerable households as well as additional pandemic-related relief would help promote a more rapid return to growth and help businesses and households weather the ongoing crisis.
Navigating the 2020 Tax Extenders in the Pandemic Economy December 1, 2020 At the end of 2020, 33 temporary tax provisions are scheduled to expire at the federal level. These provisions generally fall under four categories: cost recovery, energy, individual, and other business provisions.
Prospects for Federal Tax Policy After the 2020 Election November 10, 2020 President Biden and Congress should concentrate on areas of common ground, finding incremental places to improve the tax code. A bipartisan bill recently introduced to help retirement savings is a good model for what incremental reform may look like.
How Would Biden’s Tax Plan Change the Competitiveness of the U.S. Tax Code? October 19, 2020 While the Biden campaign is certainly focused on increasing taxes on U.S. businesses and high-income earners, it is important that policymakers also understand what that reversal might do to U.S. competitiveness, and the competitive global environment in which U.S. companies and U.S. workers operate.
Role of the 2017 Tax Reform in the Nascent U.S. Economic Recovery October 15, 2020 While there is still plenty of work to be done to get unemployed Americans back to work, the U.S. economy as a whole is now recovering strongly from the pandemic-induced economic downturn, outperforming forecasts from earlier in the year and outperforming most other developed countries.
CBO Releases New Long-term Budget Outlook September 22, 2020 The pandemic precipitated the steepest decline in economic output and employment in recent history, which is leading to a drop in tax revenue. At the same time, the federal response to the crisis is producing a large increase in spending. This combination will cause the federal budget deficit to spike.
Republican Study Committee Workforce Plan Rethinks Education, Labor, and Welfare Tax Policy September 22, 2020 The House Republican Study Committee released a proposal, "Reclaiming the American Dream," which includes 118 policy recommendations to address education, labor, and welfare policy with the aim of expanding opportunity, liberty, and free enterprise for all Americans.
Senate Republican Coronavirus Package Is Undermined by Complexity & Impermanence September 10, 2020 What does the Senate Republican coronavirus package do? Are there better ways of providing short-run relief without making the tax code more complicated?
How the CARES Act Fixed a Tax Bias Against Green Investment August 20, 2020 One under-discussed part of the CARES Act, passed in March to provide economic relief during the COVID-19 epidemic, is a correction to a drafting error in the Tax Cuts and Jobs Act of 2017, often known as the “retail glitch.”
Economic Recovery and Deductions for Worker Training August 13, 2020 Tax treatment can affect investment decisions. Extending expensing treatment (full and immediate deductions) to all forms of capital investment, human and physical, would help facilitate sustainable long-run economic growth.
Estimating Neutral Cost Recovery’s Impact on Affordable Housing August 7, 2020 Housing affordability was a major issue even before the COVID-19 crisis, but the current economic situation has made it more salient. Immediate support for people struggling makes sense now, but lawmakers should also consider long-term solutions to the problem of high rents, namely by expanding the supply of housing.
Coronavirus Assistance for American Families Act Would Provide More Generous Rebates for Dependents July 30, 2020 On Thursday, U.S. Senators Marco Rubio (R-FL), Bill Cassidy (R-LA), Steve Daines (R-MT), and Mitt Romney (R-UT) released the Coronavirus Assistance for American Families Act (CAAF), which would provide payments of $1,000 to adults and children with Social Security numbers, subject to income limits used in the original round of rebates. Among other modifications, it would be more generous to households and families with children when compared to the original rebates distributed under the CARES Act.
Details and Analysis of The CREATE JOBS Act July 30, 2020 Senators Ted Cruz and Martha McSally introduced the CREATE JOBS Act that would make two significant changes to incentivize investment in the United States.
Senate Republicans Introduce the HEALS Act for Coronavirus Pandemic Relief July 27, 2020 A resurgence in coronavirus cases and receding economic activity in many states threaten the nascent economic recovery. To address the ongoing crisis, the Senate Republican Phase 4 proposal builds on the CARES Act provisions while modifying others, including a scaled down federal UI benefit.
The History of Excess Profits Taxes Not as Effective or Harmless as Today’s Advocates Portray July 22, 2020 Today’s advocates would do well to study the history of excess profits taxes before overselling these taxes as a solution to the COVID-19 crisis.
(Webinar) Figuring Out Phase Four: Next Steps on Federal and State Coronavirus Response July 21, 2020 As U.S. businesses struggle to recover from the economic downturn, Congress and the White House continue to debate a phase four relief package, which could include anything from incentives for domestic travel and a payroll tax cut to more fundamental reforms like enacting permanent full cost recovery.
Improved Cost Recovery Is A Wide-Ranging Policy Solution July 10, 2020 Rather than limit improvements to certain sectors, lawmakers could pursue a broader policy of full expensing for all capital investment and neutral cost recovery for structures and clear the tax policy hurdles that currently stand in the way of private investment.
FAQ on Neutral Cost Recovery and Expensing July 10, 2020 Cost recovery is the way the tax code permits firms to recover (or deduct) the cost of making investments. Cost recovery plays an important role in defining a business’ taxable income and can impact investment decisions.
Phase 4 Is not the Time to Experiment with Temporary Credits July 9, 2020 As lawmakers consider returning to the tax code as a tool to revive a struggling economy with high unemployment and an unpredictable virus, they should avoid temporary changes that can be distortive in the short term and inefficient in the long term.
National Taxpayer Advocate’s Report Is a Road Map to Simpler Pandemic Relief Provisions July 9, 2020 The size and scope of the tax changes within the CARES Act created significant administrative challenges for the IRS. Lawmakers should prioritize simplicity in the next round of relief.
Estimated Impact of Improved Cost Recovery Treatment by State June 30, 2020 We estimate that moving to permanent full expensing and neutral cost recovery for structures would add more than 1 million full-time equivalent jobs to the long-run economy and boost the long-run capital stock by $4.8 trillion.
GAO Report Reveals Need to Simplify Next Round of Rebates June 25, 2020 A new Government Accountability Office (GAO) report revealed that almost a half-million taxpayers missed their total rebate payment due to complications over disbursing funds to non-filers with eligible dependents. Administrability is just as important as rebate design and simplicity is just as important as speed.
Improving the Tax Treatment of Residential Buildings Will Stretch Affordable Housing Assistance Dollars Further June 25, 2020 By updating the tax code to allow developers to more fully cover their investments, construction costs will fall, which, in turn, means that federal affordable housing assistance dollars will go that much further in helping low-income tenants.
Three Reasons Expanding Credits Aren’t the Best Pandemic Response for the Vulnerable June 24, 2020 While reforming certain tax credits may make sense, there are far better ways to provide individuals and families with more liquidity during this crisis.
Economic Analysis of Financing Options for Infrastructure Spending Proposals June 23, 2020 Our analysis shows that the economic benefits of federal investment in productivity-enhancing infrastructure may be undercut by the negative effects of the financing of those investments, such as when the corporate income tax is increased.
Why Neutral Cost Recovery Is Good for Workers June 23, 2020 Studies have shown that accelerated depreciation helps increase wage growth. A recent report found that states that implemented accelerated depreciation in their tax codes led to a 2.5 percent increase in compensation per employee in manufacturing, relative to states that did not.
Full Expensing is Good for the Short Run and the Long Run June 18, 2020 In the first year of enactment alone, we estimate the combination of full expensing and neutral cost recovery would increase full-time equivalent employment by more than 44,000 jobs. The cumulative impact by year five of the policy would be nearly 200,000 new jobs.
Cautionary Notes from CBO on the Effects of Federal Investment June 17, 2020 Based on the CBO’s assessment of the economic and budgetary effects of federal investment, lawmakers should look to spur private sector investment rather than try to enact a massive federal infrastructure bill.
Weighing the Benefits of Permitting Business Credit Cashouts in Phase 4 Economic Relief June 16, 2020 As lawmakers explore options for “Phase 4” coronavirus relief legislation, one idea that has received renewed attention is allowing businesses to cash out business tax credits. This proposal would be strengthened by also permitting acceleration of firms’ accrued net operating loss (NOL) deductions and designing the proposal so that firms can quickly convert these tax assets into cash.
Inefficiencies Created by the Tax System’s Dependence on Economic Depreciation June 12, 2020 One idea that would help the nation’s economic recovery during the coronavirus crisis would be moving to full expensing of capital investment. The depreciation debate might seem confusing, so the question at hand is: how, when, and by what amount can businesses recognize (or recover) the cost of a capital investment, like a piece of equipment or a new warehouse, on their income tax return?
Watch: Economic Recovery After Coronavirus May 29, 2020 What are the best tax policies to encourage a smooth transition and strong economic recovery? How should goals of economic recovery and growth be balanced with revenue needs?
Net Operating Loss Carrybacks Are a Vital Source of Tax Relief for Struggling Firms in the Coronavirus Crisis May 26, 2020 Rather than find ways to restrict net operating loss (NOL) carrybacks, lawmakers should focus on ways to improve liquidity by cashing out accrued NOLs, which would benefit startups and new small businesses without taxable income to offset in prior years.
HEROES Act Dependent Expansions Come with Major Drawbacks May 19, 2020 The HEROES Act adds to the confusion and instability already inherent in the tax code with multiple expiring provisions and reduced filing guidelines.
HEROES Act Temporarily Increases Dependent Credit Generosity May 19, 2020 The HEROES Act would make notable expansions to all three dependent-related credits, increasing maximum credit amounts, refundability, and income eligibility phaseouts. Practically, this means that certain filers could expect to receive a larger refund for each additional hour of work, eligible dependent, and dependent care expenses if the bill became law.
Breaking Down State and Local Aid under the SMART Act May 19, 2020 The SMART Act, sponsored by Senators Bob Menendez and Bill Cassidy and Rep. Mikie Sherrill, would provide $500 billion in flexible funding to state and local governments.
Neutral Cost Recovery Is Not a New Idea May 19, 2020 As stated by Rep. Jack Kemp in 1985, “Neutral cost recovery is designed to provide the present value of investment expensing without some of its practical problems.”
Empirical Evidence Shows Expensing Leads to More Investment and Higher Employment May 19, 2020 The Tax Foundation’s General Equilibrium Model suggests that allowing businesses to immediately deduct or “expense” their capital investments in the year in which they are purchased delivers the biggest bang for the buck in spurring economic growth and jobs compared to other tax policies.
Options for Improving the Tax Treatment of Structures May 19, 2020 Improving the tax treatment of structures is one of the most cost-effective tax policy changes available to lawmakers as they consider how to remove investment barriers in the tax code to hasten the economic recovery. Policymakers must weigh the trade-offs among long-run economic output goals, revenue constraints, and the existing stock of structures.
HEROES Act First Bid to Provide Phase 4 Relief for Businesses and Individuals May 14, 2020 The HEROES Act, the $3 trillion relief package proposed by House Democrats, is the first bid to provide additional phase 4 aid for businesses and individuals amid the coronavirus pandemic.
Accounting for Deficits: When Should They Matter and How Should We Solve It? May 14, 2020 Revenue shortfalls and deficits can be addressed best by considering when to consider the deficit as the primary priority and reevaluating how revenue can be raised most efficiently through sound tax policy principles.
Under the HEROES Act, State Budgets Could Soar as the Economy Suffers May 13, 2020 The HEROES Act, proposed by House Democrats as a next round of fiscal relief during the coronavirus outbreak, contains about $1.08 trillion in aid to states and localities. That would bring the pandemic total to $1.63 trillion—an amount so large that it might overwhelm their ability to spend it and could reward fiscal irresponsibility.
How the HEROES Act Would Allocate State and Local Aid for Coronavirus Relief May 12, 2020 The HEROES Act would provide more than $1 trillion to state and local governments. Here's how funding would be distributed and provisional estimates of how much aid each state would receive.
Alabama, Missouri Bills Would Exempt CARES Relief from Income Tax Calculation May 8, 2020 Alabama and Missouri are considering excluding the CARES Act Economic Impact Payments from being taxed and exclude them from state income tax calculations.
Gov. Hogan Vetoes Maryland Digital Advertising Tax Legislation May 7, 2020 Gov. Hogan vetoed a proposed first-in-the-nation digital advertising tax that would have imposed rates of up to 10 percent on digital advertising served to Marylanders.
Watch: Coronavirus: A Path to Economic Recovery May 7, 2020 What challenges should we expect to face as the U.S. economy begins to re-open? When is the right time for legislators to start focusing on long-term recovery vs. short-term needs? What policies should federal legislators pursue to clear a path to recovery?
Advancing Net Operating Loss Deductions in Phase 4 Business Relief May 7, 2020 Policymakers will have to consider design options for accelerating NOL deductions to ensure the refunds are simple, provide targeted relief to struggling firms, and are consistent with long-run revenue needs.
White House Considers Neutral Cost Recovery for Structures May 6, 2020 When considering long-term policies for increasing long-run levels of investment and economic growth, full expensing and neutral cost recovery are better targeted than policies like a capital gains cut.
Reviewing the Economic and Revenue Implications of Cost Recovery Options April 28, 2020 Permanent full expensing for all types of investment is an effective policy change lawmakers can use to encourage additional investment and economic growth.
Reviewing the Benefits of Full Expensing for the Post-Pandemic Economic Recovery April 27, 2020 One of the most cost-effective policy changes would be to make full expensing of machinery and equipment permanent and extend this important tax treatment to structures as well as for firms in a net operating loss position.
Details and Analysis of President Joe Biden’s Campaign Tax Plan October 22, 2020 What has President Joe Biden proposed in terms of tax policy changes? Our experts provide the details and analyze the potential economic, revenue, and distributional impacts.
Senate Passes Additional Funding for Small Business Relief, But Questions Remain on the Deductibility of PPP Expenses April 22, 2020 The sooner federal policymakers or regulators clarify tax questions about the Paycheck Protection Program (PPP), the more certainty firms will have when they accept the economic relief to keep their businesses afloat.
Keeping it Simple: Approaching the Next Stage of Coronavirus Tax Policy April 22, 2020 When businesses and taxpayers look to the government for relief, it is paramount that lawmakers do their best to craft transparent and coherent legislation that is the least confusing for all.
Tax Policy After Coronavirus: Clearing a Path to Economic Recovery April 22, 2020 Governments at all levels must work to remove the tax policy barriers that stand in the way of economic recovery and long-term prosperity following the COVID-19 crisis. Our new guide outlines several comprehensive options that policymakers can take at the federal and state levels.
A Review of Net Operating Loss Tax Provisions in the CARES Act and Next Steps for Phase 4 Relief April 14, 2020 In addition to providing economic relief to individuals and loans to businesses struggling during the coronavirus crisis, the CARES Act changed several tax provisions to increase liquidity to ensure firms survive a large decline in cash flow.
Trade-offs of Delaying Tax Filing and Instituting a Payroll Tax Holiday on Businesses and Individuals April 9, 2020 Some policymakers are proposing a payroll tax holiday for businesses and individuals for 2020 and a complete delay in filing deadlines for tax year 2019 and 2020 to April 2021. What are the pros and cons of doing so?
Evaluating the Trade-offs of Small Business Relief Provisions of the CARES Act April 9, 2020 The small business provisions in the CARES Act support small businesses and nonprofits seeking economic relief during this downturn. However, creating multiple programs with overlapping purposes and differing qualification requirements makes relief more complicated, vague, and not neutral.
Watch: Tax Foundation Experts Discuss Short-term Coronavirus Relief Packages April 8, 2020 What could the next phase of relief look like and what role does tax policy play in ensuring the U.S. and countries around the world make a strong economic recovery?
Understanding the Paycheck Protection Program in the CARES Act April 2, 2020 Many small business owners are seeking guidance as they apply for loans backed by the Small Business Administration (SBA) to help maintain cash flow and retain workers even as more states announce new quarantine and shelter-in-place orders.
Federal Coronavirus Relief: CARES Act FAQ April 2, 2020 Congress recently passed the largest economic relief bill in American history (CARES Act). We've created a FAQ portal to better inform policymakers, journalists, and taxpayers across the country on the new law.
Retroactive SALT Repeal Combines Weak Stimulus with Bad Tax Policy March 31, 2020 House Speaker Nancy Pelosi (D-CA) has suggested that a retroactive repeal of the cap on State and Local Tax (SALT) deductions should be included in any future stimulus plans.
Evaluating the Trade-offs of Unemployment Compensation Changes in the CARES Act March 27, 2020 Policymakers must weigh the trade-offs of subsidizing unemployment with mitigating community spread of coronavirus.
Weighing the Value of Tax Credits During an Economic Crisis March 25, 2020 One idea under consideration is adjusting existing tax credits, such as the Child Tax Credit (CTC) or Earned Income Tax Credit (EITC), to provide financial relief during the crisis.
Review and Analysis of House Democrats Coronavirus Response Bill March 24, 2020 The proposed Take Responsibility for Workers and Families Act can be contrasted with the Senate Republican CARES Act, although they share some similarities by providing individual taxpayers with a rebate and modifying business tax provisions to provide liquidity for struggling firms.
What Should Coronavirus Response Legislation Look Like? March 24, 2020 As lawmakers debate how to respond to the coronavirus crisis, they should focus the legislative response to the emergency at hand, using principled policy solutions to provide relief to those affected. Attempts to use the crisis to make other, unrelated policy changes should be avoided.
Overview of Previous Tax Rebates During Economic Downturns March 23, 2020 The timing from enactment to distribution has varied from about one and a half months to more than two months, indicating that it has historically taken a significant amount of time for individual taxpayers to receive their rebates after the policies have been put in place.
Congress Approves Economic Relief Plan for Individuals and Businesses March 30, 2020 The CARES Act, now signed into law, is intended to be a third round of federal government support in the wake of the coronavirus public health crisis and associated economic fallout, following the $8.3 billion in public health support passed two weeks ago and the Families First Coronavirus Response Act.
Lawmakers Concerned that Delay in Tax Filing Deadline Not Fully Understood March 19, 2020 The U.S. Treasury Department has pushed the April 15 tax payment deadline to July 15. However, taxpayers still have to file their tax returns by the usual April 15 deadline.
Tax Policy to Bridge the Coronavirus-Induced Economic Slowdown March 18, 2020 Tax policy can help by giving businesses current access to future tax “assets”—deductions and credits the businesses will be allowed or owed over time any way under current law—instead of making them wait.
How the Federal Government and the States Could Help Save Small Businesses Through Temporary UI Tax Adjustments March 17, 2020 Governmental responses to the coronavirus outbreak will require creativity and flexibility—and one aspect of that may involve temporarily rethinking how we structure not only unemployment insurance (UI) benefits but also the taxes that pay for them.
Senate Receives Final Version of House Coronavirus Bill Offering Paid Leave March 17, 2020 The House bill would provide two weeks of paid sick leave to workers who must quarantine, take care of a family member who is sick with coronavirus, or care for their children whose school or daycare has closed due to the public health emergency.
Tax Options for Economic Relief During the Coronavirus Crisis March 17, 2020 Instead of simply reaching for fiscal stimulus with the goal of increasing economic activity, tax policy changes can give vulnerable individuals and businesses additional liquidity and space to survive the reduction in economic activity needed in light of the coronavirus outbreak.
Taxes and Liquidity During an Economic Crisis March 17, 2020 Taxes present one policy tool available to ease the impending liquidity crunch brought on by the coronavirus crisis, which policymakers are already pursuing by postponing the tax payment deadline and waiving interest and penalties.
House of Representatives Bill Would Expand Paid Sick, Family, and Medical Leave to Address the Coronavirus Crisis March 16, 2020 The bill, the Families First Coronavirus Response Act, would expand federal medical leave, create an emergency paid sick leave requirement, and provide tax credits against employer-side payroll taxes to help offset the cost of these two programs, among other provisions.
A History and Analysis of Payroll Tax Holidays March 31, 2020 As Congress and the White House consider ways to shore up the economy in the face of a public health crisis, President Trump has suggested suspending the entire payroll tax for the duration of the year. That would cost about $950 billion, according to our analysis.
State Tax Policy as an Inflation Response January 26, 2023 At the end of 2022, prices were 14.6 percent higher than they were two years prior. That’s the fastest inflation rate over any two calendar years since the stagflation era of the late 1970s. State policymakers are understandably interested in bringing any tools at their disposal to bear on the problem. And many of them are reaching for tax policy solutions.
Do Unto Others: The Case for State Income Tax Reciprocity November 16, 2022 Remote and flexible work opportunities are here to stay, whether states like it or not. With enhanced opportunities to take their job with them wherever they please, more workers can factor tax burdens into their decision of where to live.
States Should Act Fast on UC Trust Fund Deposits, and Other Takeaways from the New Treasury Guidance on ARPA Funding January 28, 2022 States will continue to cut taxes because revenues are skyrocketing. But some will also be keeping a close eye on litigation targeting this dubious restriction on states’ fiscal autonomy.
States Respond to Strong Fiscal Health with Income Tax Reforms July 15, 2021 As states close their books for fiscal year 2021, many have much more revenue on hand than they anticipated last year. Eleven states have responded by reducing income tax rates and making related structural reforms as they strive to solidify a competitive advantage in an increasingly competitive national landscape.
Treasury Rule on State Tax Cuts Limitation Raises New Questions May 10, 2021 Today, the U.S. Treasury issued an interim final rule on the $350 billion in State and Local Fiscal Recovery Funds provided under the American Rescue Plan Act (ARPA). The proposed rule resolves several important questions but continues to involve the federal government in state finances at an extraordinary level.
These States Will Pay You to Move. Does That Strategy Make Sense? April 30, 2021 State and local tax policy have always mattered, but the rise of remote work is bringing tax burdens and economic competitiveness to the forefront. It is a development that states cannot afford to ignore.
Kansas Lawmakers to Consider Veto Override on Tax Reform Bill April 30, 2021 Kansas has the revenue cushion it needs to provide tax relief to individuals and businesses and improve the structure of its tax code in the process. These pro-growth reforms would not only help taxpayers amid the pandemic but would also promote economic recovery and growth in a state that is lagging behind its competitors.
Modernizing Rental Car and Peer-to-Peer Car Sharing Taxes for a Post-Pandemic Future April 22, 2021 The economic evidence shows that travelers and tourists are sensitive to price changes for rental cars and adjust their behavior to avoid the tax, harming state economies and the travel sector right as the industry is trying to recover from the effects of the coronavirus pandemic.
Imposing New Taxes on Peer-to-Peer Car Sharing Will Not Help Texas Economic Recovery April 19, 2021 Imposing the rental car excise tax on peer-to-peer car sharing would be a move in the wrong direction by expanding a costly and distortive tax for visitors whose business will help Texans recover post-pandemic.
ARPA’s Tax Cuts Limitation Is a Problem for More States Than You Think April 5, 2021 Tax cut legislation is not just a red state phenomenon, and tax reductions come in many forms other than rate reductions. The American Rescue Plan Act's state tax cuts limitation is a problem for more states than you think.
ARPA Allocates $2 Billion to Nonexistent County Governments March 31, 2021 The government of Hartford County, Connecticut is in line to receive $173 million in local aid under the American Rescue Plan Act (ARPA). There’s only one problem: the government of Hartford County doesn’t exist, nor do any of Connecticut’s other counties have county-level government despite being allocated a collective $691 million under the bill.
State Conformity to Federal Pandemic-Related Tax Provisions in CARES and ARPA April 1, 2021 With so many federal changes occurring in such a short amount of time—including some federal provisions changing more than once and a major change to the treatment of UC income occurring in the middle of tax filing season—state legislators have faced the challenge of responding to these changes quickly in order to provide certainty to taxpayers.
Evaluating West Virginia Income Tax Repeal Plans March 30, 2021 States which forgo income taxes have seen population and economic growth vastly outstripping their peers, and a post-pandemic culture that is friendlier to remote work will greatly enhance tax competition.
Does Your State Levy a Capital Stock Tax? March 24, 2021 Capital stock taxes are imposed on a business’s net worth (or accumulated wealth). As such, the tax tends to penalize investment and requires businesses to pay regardless of whether they make a profit in a given year, or ever.
Four Questions Treasury Must Answer About the State Tax Cut Prohibition in the American Rescue Plan Act March 18, 2021 The American Rescue Plan Act’s restriction on states’ Fiscal Recovery Funds being used to directly or indirectly offset a net tax cut is vague and raises difficult questions of interpretation and application. A broad interpretation of this prohibition may be unconstitutional.
Does Your State Tax Business Inventory? March 17, 2021 Inventory taxes are levied regardless of whether a business makes a profit, adding to the burden of businesses already struggling to stay afloat.
Does Your State Have a Gross Receipts Tax? March 10, 2021 Moving away from state gross receipts taxes would represent a pro-growth change to make the tax code friendlier to businesses and consumers alike, which is especially necessary in the wake of the coronavirus pandemic.
State Aid in American Rescue Plan Act Is 116 Times States’ Revenue Losses March 3, 2021 Here's each state’s estimated revenue gains or losses in 2020, alongside the state and local aid that would be allocated to each under the American Rescue Plan Act.
Which States Are Taxing Forgiven PPP Loans? February 22, 2021 Congress chose to exempt forgiven Paycheck Protection Program (PPP) loans from federal income taxation. Many states, however, remain on track to tax them by either treating forgiven loans as taxable income, denying the deduction for expenses paid for using forgiven loans, or both.
Alabama Passes Tax Reform Aimed at Throwback, GILTI, and More February 19, 2021 Learn more about the recent Alabama tax reform measures (House Bill 170), which combines pandemic-era tax policy responses with broader tax policy reforms.
To What Extent Does Your State Rely on Individual Income Taxes? February 10, 2021 Sources of state revenue have come under closer scrutiny in light of the impact of the coronavirus pandemic, as different tax types have differing volatility and economic impact—although even beyond these unique circumstances, it is important for policymakers to understand the trade-offs associated with different sources of tax revenue.
Wisconsin’s PPP Loan Recipients Face Hundreds of Millions in Surprise Taxes January 29, 2021 Unless the legislature acts, businesses that have received PPP loans and related federal assistance will face $457 million in state taxes through 2024—with more than half of those taxes coming due this spring—despite Wisconsin being on track to see continued general fund revenue growth even amid the pandemic.
To What Extent Does Your State Rely on Sales Taxes? January 27, 2021 Consumption taxes (like sales taxes) are more economically neutral than taxes on capital and income because they target only current consumption. Consumption taxes are generally more stable than income taxes in economic downturns as well.
The COVID-19 Relief Bill Contains Over $100 Billion in State Aid After All December 23, 2020 The $900 billion coronavirus relief package provides nearly $82 billion for the Education Stabilization Fund, $14 billion for mass transit, and $10 billion for state highways,
Where State Unemployment Compensation Trust Funds Stand in December December 18, 2020 With 2020 nearing its close, state unemployment compensation trust funds continue to struggle under the weight of so many pandemic-created beneficiaries, though some funds are beginning to stabilize as people increasingly return to work.
State Tax Collections Down 4.4 Percent Through September, While Local Tax Collections Rise December 17, 2020 Combined state and local tax collections were down only $7.6 billion across the period, representing a total state and local tax revenue decline of 0.7 percent compared to the first nine months of 2019.
How Would the Proposed $160 Billion in State and Local Aid Be Allocated? December 1, 2020 A bipartisan coalition of Senators unveiled a $908 billion COVID-19 relief bill on Tuesday, which includes, among other provisions, $160 billion in additional aid to state and local governments. It is worth briefly exploring what this would mean, and the amounts of aid your state might expect.
Zoom Calls Not a Taxing Matter October 27, 2020 Zoom Video Communications announced that, come November, the company will start collecting and remitting local utility and communications taxes in California, New York, Maryland, and Virginia.
Arizona Proposition 208 Threatens Arizona’s Status as a Destination for Interstate Migration October 14, 2020 Significantly raising the income tax through Proposition 208 will only serve to make Arizona less competitive, especially at a time when individuals and small businesses are already struggling. If Arizona is looking for a long-term way to increase education funding, it would do well to avoid overburdening struggling taxpayers and look toward more broad-based, stable sources of revenue.
Colorado Proposition 116: Will Voters Reduce the State Income Tax Rate? October 5, 2020 This Election Day, Colorado voters will weigh in on Proposition 116, which would permanently reduce the state’s flat income tax rate from 4.63 to 4.55 percent.
State and Local Tax Ballot Measures to Watch on Election Day 2020 October 5, 2020 Here are the state tax ballot measures to watch on Election Day 2020. Explore the most notable 2020 state tax ballot measures in 15 states.
Seventh Time’s the Charm: New Jersey Passes Millionaires Tax September 30, 2020 After six unsuccessful tries at passage, it appears the coronavirus crisis has tipped the scales in favor of Gov. Phil Murphy’s (D) millionaires tax. New Jersey may be feeling the financial squeeze right now, but this large income tax change will not solve budget problems and may exacerbate funding issues by making the state even unfriendlier to businesses.
Voters in Four States to Vote on Recreational Marijuana September 29, 2020 Legalizing recreational marijuana is a hot topic in many states where the state budgets are in disarray because of the coronavirus pandemic and new revenue sources are being sought.
Maryland Lawmakers Look to Alcohol for New Revenue September 22, 2020 While there are legitimate reasons for increasing and levying excise taxes, legislatures should proceed with caution in the aftermath of the pandemic. Importantly, revenue from increased excise taxes should generally be allocated to spending related to the negative externalities as that revenue is too volatile and unreliable to rely on for long-term budget priorities.
New Census Data Shows States Beat Revenue Expectations in FY 2020 September 18, 2020 State tax revenue collections were down 5.5 percent in FY 2020, driven by a dismal final quarter (April through June) as states began to feel the impact of the COVID-19 pandemic. While these early losses are certainly not desirable, they are manageable and far better than many feared.
Who Will Pay for the Roads? August 25, 2020 The highway trust fund is on track to run out of money by 2021, states are struggling to cover their transportation spending, and increased fuel economy, plus inflation, is chipping away at gas tax revenue year. How can Congress and state governments ensure they have the revenue necessary to fund our highways? One solution is the vehicle miles traveled (VMT) tax.
Nevada Hoping to Extract Revenue with Mining Tax Increase Amendment August 12, 2020 Nevada is not alone in its need to find revenue, but it should take care not to embrace bad tax policy in the process. Significant rate increases, a shift in the tax base, and provisions which make it easier to hike taxes than to cut them would heavily burden the mining industry in the state.
Teleworking Employees Face Double Taxation Due to Aggressive “Convenience Rule” Policies in Seven States August 13, 2020 States can tax your income where you live and where you work—but a growing number of states may also seek to tax your income even if you neither live nor work there, an aggressive posture that becomes increasingly consequential as more Americans work remotely both during and potentially after the COVID-19 pandemic.
State Income and Sales Tax Revenues Slide in Second Quarter July 30, 2020 Today marked the release of second-quarter GDP data and provides a new glimpse into early changes in state and local revenues and spending. All told, second-quarter state and local tax receipts came in about 3.8 percent lower than they did in the same quarter a year ago. Income and sales taxes fell considerably while property and excise tax collections remained stable.
New York and New Jersey Consider Financial Transaction Taxes July 23, 2020 Seeking new sources of funding, New York and New Jersey—two states at the heart of global financial markets—are considering financial transaction taxes.
(Webinar) Figuring Out Phase Four: Next Steps on Federal and State Coronavirus Response July 21, 2020 As U.S. businesses struggle to recover from the economic downturn, Congress and the White House continue to debate a phase four relief package, which could include anything from incentives for domestic travel and a payroll tax cut to more fundamental reforms like enacting permanent full cost recovery.
Sales Tax Holidays: Politically Expedient but Poor Tax Policy, 2020 July 22, 2020 In the midst of the coronavirus crisis, some states are hoping that a sales tax holiday might help restart struggling industries by stimulating the economy. However, sales tax holidays can mislead consumers about savings and distract from genuine, permanent tax relief.
Tax Options to Promote Short-Term Recovery and Long-Term Economic Growth in Wisconsin July 16, 2020 From a revenue standpoint, Wisconsin was better off than many states going into this crisis, but the policy decisions—including tax policy decisions—state policymakers make in the months ahead will have far-reaching implications for how quickly jobs and wages are restored in Wisconsin.
State Forecasts Indicate $121 Billion 2-Year Tax Revenue Losses Compared to FY 2019 July 15, 2020 Revised state revenue forecasts show a significant decline in projected revenues for both the recently concluded FY 2020 and current FY 2021, though the picture they paint is considerably less dire than many feared a few months ago.
Iowa Decouples from 163(j) and GILTI, Clarifies Non-Taxation of PPP Loans June 30, 2020 Iowa’s HF 2614, which passed both chambers of the legislature and now waits for the governor’s signature, makes several changes to the state’s tax code, which, although they will affect revenue, will encourage economic growth and make the state’s tax code more competitive.
Montana Voters Will Decide on Recreational Marijuana June 26, 2020 Montana could vote to legalize and tax recreational marijuana in November, bringing in an estimated $39 million by 2025, but would the move help with short-term budget issues?
CARES Act Conformity Would Promote Economic Recovery in Nebraska June 18, 2020 Nebraska lawmakers may ultimately opt for a package that includes both property tax relief and the renewal of business incentives, but they should avoid doing so at the expense of decoupling from the CARES Act’s liquidity-enhancing provisions.
States Should Conform to These Four CARES Act Provisions to Enhance Business Liquidity June 17, 2020 As policymakers continue evaluating their evolving revenue and spending options, the importance of enacting policies that enhance business liquidity must remain at the forefront.
Seattle Officials Return with New Proposal for Taxing Employment June 16, 2020 Seattle’s city council are again gearing up for an effort to increase taxes on the city’s largest employers, intended to generate revenue for cash assistance to low-income households impacted by the COVID-19 crisis, among other reasons.
D.C. Council to Consider Tax Hike Despite Balanced Budget June 15, 2020 Despite a balanced budget and and revenue shortfalls arising from the coronavirus crisis, the D.C. Council will consider proposals to raise income taxes to fund newly proposed spending projects.
New Jersey Considers Bonds Paid for by Statewide Property Tax June 11, 2020 As New Jersey lawmakers grapple with reduced revenues due to the coronavirus pandemic, they have turned to an unusual solution: the issuance of bonds that would be repaid, if necessary, through temporarily higher sales and property taxes.
Sports Betting Will Not Solve State Budget Crises June 10, 2020 The pandemic has left states in dire straits financially and lawmakers are getting creative in their pursuit of new revenue sources. However, it's unlikely that revenue from sports betting will have any meaningful impact on budget shortfalls
How High Are Vapor Taxes in Your State? June 3, 2020 Many states may be looking toward vapor and other excise taxes to fill budget holes caused by the coronavirus crisis. While those areas may represent untapped revenue sources for many states, taxing those activities is unlikely to raise much revenue in the short term.
New York Lawmakers Float New Data Tax Proposal June 2, 2020 Taxes on digital services, digital advertising, and the sale or utilization of consumer data, which were already emerging before the #coronavirus crisis, look increasingly attractive to cash-strapped states and localities.
California Considers Business Head Tax Plan that Seattle Repealed May 28, 2020 With California’s unemployment rate approaching 25 percent, it is somewhat surprising to find policymakers contemplating a literal tax on jobs.
In Some States, 2020 Estimated Tax Payments Are Due Before 2019 Tax Returns May 22, 2020 To prevent confusion and to ensure taxpayers receive the full benefit of the extended federal deadline, states should consider extending first- and second-quarter estimated tax payment due dates to July 15 or later.
Tax Changes in California Governor’s Budget Could Stand in the Way of Economic Recovery May 20, 2020 While other states are starting to think about the recovery, California is contemplating tax policies that would stand in the way of economic expansion once the health crisis abates. California’s shortfall is all too real, but tax policies which impede recovery are a hindrance, not a help.
To What Extent Does Your State Rely on Sales Taxes? May 20, 2020 Consumption taxes, like sales taxes, are more economically neutral than taxes on capital and income because they target only current consumption.
More Than Half the States Will Protect Businesses from Certain COVID-19-Related Unemployment Insurance Tax Hikes May 19, 2020 Lawmakers can help expedite their state’s economic recovery by protecting employers from facing higher unemployment insurance tax rates at a time when they can least afford to pay them.
Breaking Down State and Local Aid under the SMART Act May 19, 2020 The SMART Act, sponsored by Senators Bob Menendez and Bill Cassidy and Rep. Mikie Sherrill, would provide $500 billion in flexible funding to state and local governments.
Louisiana Considers Temporary Suspension of Part of Corporation Franchise Tax May 19, 2020 State recovery plans should lessen the burden on businesses by shifting from capital stock taxes and other taxes that are charged regardless of profitability. Louisiana does well to target its Corporation Franchise Tax, a burdensome tax that would target businesses that may already be struggling.
Under the HEROES Act, State Budgets Could Soar as the Economy Suffers May 13, 2020 The HEROES Act, proposed by House Democrats as a next round of fiscal relief during the coronavirus outbreak, contains about $1.08 trillion in aid to states and localities. That would bring the pandemic total to $1.63 trillion—an amount so large that it might overwhelm their ability to spend it and could reward fiscal irresponsibility.
To What Extent Does Your State Rely on Individual Income Taxes? May 13, 2020 While the current crisis has caused consumption to drop dramatically, it is generally true that income taxes are more volatile than consumption taxes in an economic downturn and income taxes tend to be more harmful to economic growth than consumption taxes and property taxes.
How the HEROES Act Would Allocate State and Local Aid for Coronavirus Relief May 12, 2020 The HEROES Act would provide more than $1 trillion to state and local governments. Here's how funding would be distributed and provisional estimates of how much aid each state would receive.
Designing a State and Local Government Relief Package May 11, 2020 The COVID-19 pandemic and accompanying economic downturn will wreak havoc on state and local tax revenues, with projections of a 15-20 percent decline in state revenues. Our new report provides a framework for how to design an effective state and local relief package.
Does Your State Tax Business Inventory? May 6, 2020 Inventory taxes are levied regardless of whether a business makes a profit, adding to the burden of businesses already struggling to stay afloat.
Historic Oil Price Burns Hole in State Budgets April 24, 2020 Alaska and North Dakota collect revenue primarily from oil-related taxes. These states must start thinking about how to plan for an era of reduced oil revenue.
Louisiana Can Look to Tax Reform for Aid in a Post-Coronavirus Recovery April 24, 2020 As states look for a path out of these fiscally troubling times, Louisiana has several options for aspects of its tax code to promote economic recovery and growth. The Pelican State’s federal deductibility, Corporation Franchise Tax, and sales tax structure present opportunities for beneficial tax reform in the wake of the coronavirus crisis.
New Guidance on State Aid Under the CARES Act April 23, 2020 The U.S. Department of the Treasury recently issued new guidance on allowable expenses using the $150 billion in state aid provided under the CARES Act, a point on which there has been considerable confusion.
Does Your State Have a Gross Receipts Tax? April 22, 2020 While it’s unclear how soon state economies may be able to fully open again, it’s not too early for states to consider how they can remove barriers to businesses & consumers resuming activity.
Watch: State Tax Policy and COVID-19 April 23, 2020 What could the next phase of relief look like and what role does tax policy play in ensuring the U.S. and countries around the world make a strong economic recovery?
Tax Policy After Coronavirus: Clearing a Path to Economic Recovery April 22, 2020 Governments at all levels must work to remove the tax policy barriers that stand in the way of economic recovery and long-term prosperity following the COVID-19 crisis. Our new guide outlines several comprehensive options that policymakers can take at the federal and state levels.
How Well-Funded Are Pension Plans in Your State? April 15, 2020 The current crisis highlights the cost of underfunding pensions in years of economic growth. Twenty states have pension plans that were less than two-thirds funded, and five states had pension plans that were less than 50 percent funded.
Can States Close Budget Deficits with Excise Tax Hikes? April 15, 2020 We examine whether excise taxes are a solution to budget deficits, and while the short answer to that question is no, there are of course nuances. Excise taxes can play a role in state revenues even as policymakers appreciate that excise taxes are not viable long-term revenue tools for general spending priorities.
Will States Tax the Federal Government’s COVID-19 Lifeline to Small Businesses? April 13, 2020 If states fail to update their income tax conformity, they will wind up taxing the federal lifeline to small businesses in the CARES Act: the Paycheck Protection Program (PPP) loans.
States’ Unemployment Compensation Trust Funds Could Run Out in Mere Weeks April 9, 2020 Six states, which collectively account for over one-third of the U.S. population, are currently in a position to pay out fewer than 10 weeks of the unemployment compensation claims that have already come in since the start of the COVID-19 pandemic.
These States Could Tax Your Recovery Rebates April 8, 2020 Due to a quirk of some state tax codes, the recovery rebates in the CARES Act could increase your income tax liability in six states: Alabama, Iowa, Louisiana, Missouri, Montana, and Oregon.
Watch: Tax Foundation Experts Discuss Short-term Coronavirus Relief Packages April 8, 2020 What could the next phase of relief look like and what role does tax policy play in ensuring the U.S. and countries around the world make a strong economic recovery?
Does Your State Tax Social Security Benefits? August 9, 2020 The question, “Does my state tax Social Security benefits?” may be simple enough, but the answer includes a lot of nuance. Many states have unique and specific provisions regarding the taxation of Social Security benefits, which can be broken into a few broad categories.
State Rainy Day Funds and the COVID-19 Crisis April 7, 2020 State revenue stabilization funds, often called rainy day funds, are better funded now than they were at the start of the Great Recession and can be a valuable tool as states face a sharp pandemic-linked economic contraction.
April 2nd Evening State Tax Update April 2, 2020 California extends tax filing and payment deadline to July 31 for a broad spectrum of business taxes as Virginia keeps May 1st tax filing deadline.
State Strategies for Closing FY 2020 with a Balanced Budget April 2, 2020 State options for closing FY 2020 shortfalls are limited and may ultimately include drawing on reserve funds and even accounting tricks
Idaho, Mississippi, and Virginia are the Holdouts on July 15th Tax Deadlines April 1, 2020 Every state with an individual income tax has made some adjustment to its filing or payment deadlines, but three—Idaho, Mississippi, and Virginia—have not followed the federal government’s date of July 15th or later.
How Healthy is Your State’s Rainy Day Fund? April 1, 2020 Rainy day funds have increasingly emerged as a standard component of states’ budgeting toolkits. Economic cycles can have significant impacts on state revenue, but states can prepare for the inevitable downturns during good times by putting away money in a revenue stabilization fund.
State and Local Funding Totals Under the CARES Act April 1, 2020 State and local governments across the country split $150 billion in federal aid under a provision of the Coronavirus Aid, Relief and Economic Security (CARES) Act, passed on March 30th.
New Jersey Waives Telework Nexus During COVID-19 Crisis March 31, 2020 New Jersey is temporarily waiving corporate nexus arising from employees teleworking due to the COVID-19 pandemic—a response to the crisis that other states should follow.
Gas Tax Revenue to Decline as Traffic Drops 38 Percent March 31, 2020 Fewer people driving means fewer people buying gasoline, which may have positive effects on air pollution but could be detrimental to motor fuel excise tax revenue for federal and state governments.
A Visual Guide to Unemployment Benefit Claims April 2, 2020 Another 1.4 million Americans filed initial regular unemployment benefit claims, the eleventh week of a decline in the rate of new claims, but still among the highest levels in U.S. history. The total number of new and continued claims now stands at 19.3 million, a marked decline from the peak of 24.9 million a month ago.
March 27th Afternoon State Tax Update March 27, 2020 Massachusetts, Ohio, and West Virginia have newly extended their income tax filing and payment deadlines to match the July 15 federal deadline.
March 27th Morning State Tax Update March 27, 2020 Arkansas, with a month-long 2020 fiscal session that is not set to begin until April 8, convened for a special session to create a new rainy day fund, with $173 million specifically dedicated to COVID-19 response efforts. Maine and Illinois extended their income tax filing deadlines.
March 26th Morning State Tax Update March 26, 2020 Connecticut and Michigan have postponed their next legislative meeting day. California and Illinois weigh new budget priorities and forecasts in amid the economic fallout from COVID-19.
State Aid Provisions of the Federal Coronavirus Response Bill March 25, 2020 To be eligible for federal funding, state expenditures must meet certain conditions. We break down the state aid coronavirus provisions in the latest federal bill.
Working from Home Brings Greater Exposure to State Tax Codes March 25, 2020 During the present crisis, remote work has become a necessity for many people. The tax implications, however, are very real and potentially quite complex.
March 25th Morning State Tax Update March 25, 2020 Several states have made progress on their budgets for FY 2021, which begins July 1 in most states. Numerous tax filing and payment deadlines have also been delayed.
What Happens with State Excise Tax Revenues During a Pandemic? March 25, 2020 States will have to consider the effects of the COVID-19 pandemic on their excise tax revenues, including from gas taxes, tobacco taxes, and alcohol taxes.
March 24th Morning State Tax Update March 24, 2020 We are updating our state legislative tracker frequently to summarize new developments and provide analysis of relevant state tax trends as they emerge.
Tracking State Legislative Responses to COVID-19 April 2, 2020 Many states are racing to pass budgets, emergency COVID-19 supplemental appropriations, and other must-pass legislation as quickly as possible. We're tracking the latest state legislative responses to the coronavirus crisis.
Are States Prepared for Skyrocketing Unemployment Insurance Claims? March 20, 2020 Unemployment claims are going to tax state unemployment compensation trust funds beyond their limits. We need to start thinking about what to do about it.
States Should Follow Federal Lead in Postponing Tax Day March 20, 2020 The federal government moved tax day from April 15 to July 15 in response to the coronavirus pandemic, granting more time for both filing and payment. But for many taxpayers, it might not matter much if states don’t follow suit.
How the Federal Government and the States Could Help Save Small Businesses Through Temporary UI Tax Adjustments March 17, 2020 Governmental responses to the coronavirus outbreak will require creativity and flexibility—and one aspect of that may involve temporarily rethinking how we structure not only unemployment insurance (UI) benefits but also the taxes that pay for them.
Income Taxes Are More Volatile Than Sales Taxes During an Economic Contraction March 17, 2020 In the short term, states must anticipate reduced tax collections as the economy slows. And here, not all taxes are created equal. As a general rule, income taxes are more volatile than consumption taxes.
U.S. Fiscal Response to COVID-19 Among Largest of Industrialized Countries January 4, 2022 As the U.S. grapples with rising price inflation, a large and growing national debt, as well as a possible economic slowdown due to Omicron, the decision to provide additional fiscal support will prove to be a difficult one. Policymakers can debate how much stimulus is appropriate, but what is clear is that the U.S. fiscal support so far during the pandemic outranks nearly every industrialized country.
Asian and Pacific Countries Faced Revenue Loss Prior to COVID-19 Outbreak July 27, 2021 As economies are starting to recover and growth is expected to rebound in the region during 2021, Asian and Pacific countries should start exploring changes to their fiscal tax policies while carefully evaluating the optimal time for eliminating fiscal stimulus and temporary tax relief.
Exploring How Remote Work Could Impact the Way Countries Tax Individuals July 6, 2021 A question for policymakers to consider is how this new era of worker mobility will impact the fiscal landscape, and what changes must be made to address resulting revenue and compliance concerns.
Tax Policy Lessons from Down Under May 13, 2021 This week the Australian government released its latest budget proposal and two policies that stand out in its fiscal response to the pandemic should be helpful as the economic engine of the country turns back on. The first is full expensing for some investments and the second is the introduction of a loss carryback provision. The new budget takes both these temporary policies and extends them into 2023.
More Tax Hikes Than Investment Projects? April 20, 2021 Tax hikes implemented in the near term might undermine Spain's economic recovery. Spain should focus on implementing tax reforms that have the potential to stimulate economic recovery by supporting private investment and employment while increasing its internal and international tax competitiveness.
IMF Tax Proposals: Shrink Inequality or Sink Post-Pandemic Recovery? April 12, 2021 To help countries face the pandemic-related financing needs while reducing inequality, the International Monetary Fund (IMF) has released a series of policy recommendations based on a temporary COVID-19 tax, levied on high incomes or wealth.
Capital Cost Recovery across the OECD March 31, 2021 The ongoing pandemic has once again highlighted the importance of investment. To address the economic fallout of the pandemic, several OECD countries have temporarily accelerated depreciation schedules for various assets.
The EU Determined to Reform the Business Tax March 19, 2021 The EU recently launched a consultation to reform the business tax system, which will outline the priorities for corporate taxation over the coming years to meet the needs of a globalized economy that struggles to recover from the consequences of the COVID-19 crisis. It will also set EU actions regarding the ongoing international discussion on the taxation of the digital economy and a global minimum tax.
Tax Incentives for Digital Nomads and Remote Workers March 3, 2021 Policy changes to attract foreigners are not without benefits, but governments should carefully weigh the costs of the tax incentives against opportunities to implement broader tax reforms. A more efficient income tax system is a better objective than just focusing on incentives for foreigners to change their tax residence.
An Investment Boost in the UK’s 2021 Budget March 3, 2021 The UK’s Chancellor of the Exchequer Rishi Sunak released the 2021 budget, and most important for near-term growth is the significant boost to capital allowances.
The UK Should Not Ignore Problems with its Corporate Tax Base March 1, 2021 While the UK is looking at ways to raise tax revenue to cover the revenue shortfalls and additional spending resulting from the COVID-19 pandemic, short- as well as long-term, investment will be crucial in getting the economy back on track and ensuring economic growth.
Brits to Prepare for Tax Reforms February 22, 2021 Tax hikes or spending cuts implemented early in the year might undermine the desirable rapid recovery of the economy. The UK should focus on implementing tax reforms that have the potential to stimulate economic recovery by supporting business investment and employment while increasing its international tax competitiveness.
An “Interest”ing Tax Hike in the COVID-19 Relief Proposal February 10, 2021 As the House Ways and Means Committee continues working on the latest round of fiscal relief amid the pandemic, one curious provision in the legislation is a tax hike on multinational companies. One section of the legislation would repeal a provision in current law that allows U.S. multinationals to choose to allocate their interest costs on a worldwide basis (more on that in a moment).
U.S. Cross-border Tax Reform and the Cautionary Tale of GILTI February 17, 2021 The Biden campaign and Senate Democrats identified changes to GILTI that would increase the taxes U.S. companies pay on their foreign earnings. Rather than tacking on changes to a system that is currently neither fully territorial nor worldwide, policymakers should evaluate the structure of the current system with a goal of it becoming more, not less, coherent.
Spain’s Recovery Budget Comes with Tax Hikes October 30, 2020 While other countries in Europe are working towards introducing tax cuts and stimulating economic recovery by supporting business investment and employment, Spain is putting more fiscal pressure on households and businesses.
Countries Eye Environmental Taxation September 29, 2020 A recent OECD report on 2020 tax reforms reveals an increase in the number of environmentally-related tax policies, including gas taxes, carbon taxes, and taxes on electricity consumption.
Sweden’s 2021 Budget: Permanent Income Tax Cuts September 23, 2020 Sweden's 2021 budget outlines an aggressive plan to both cut income taxes in a permanent manner alongside multiple other tax cuts and spending increases
An Excise State of Mind September 17, 2020 Even during a crisis when budgets are squeezed, policymakers should put their efforts into serious reforms of existing income and consumption taxes rather than leaving good tax policy behind for an excise state of mind.
New European Commission Report: VAT Gap September 17, 2020 Just as COVID-19 is putting pressure on other sources of revenue, the loss of VAT revenues resulting from the crisis will force governments to evaluate their VAT systems.
New Accelerated Depreciation Policies to Spur Investment in Australia, Austria, Germany, and New Zealand August 17, 2020 In recent months, several countries have introduced accelerated depreciation as a measure to incentivize private investment, including Australia, Austria, Germany, and New Zealand. There are various ways of how this policy has been implemented in the respective countries, largely depending on the existing standard depreciation schedules.
Where Should the Money Come From? August 12, 2020 The fiscal response to the COVID-19 pandemic will require policymakers to consider what revenue resources should be used to fill budget gaps. Tax policy experts have proposed wealth taxes, (global) corporate minimum taxes, excess profits taxes, and digital taxes as opportunities for governments to raise new revenues.
Higher Taxes Might Not Be the Solution for Canada and its Provinces August 7, 2020 First, the introduction of the wealth tax would significantly impact international capital flows and cause large economic dislocations in the short term. Second, provinces that are looking at raising their corporate tax rates might hinder capital attraction, growth, and economic recovery.
Brazil has the Opportunity to Implement a Simple Consumption Tax and Foster Tax Progressivity at the Same Time July 30, 2020 Brazil has one of the world’s most complex tax systems. Brazil has the opportunity to implement a simple consumption tax and foster tax progressivity at the same time.
Revenue Gains in Asian and Pacific Countries Likely Offset by COVID-19 July 24, 2020 Because of the COVID-19 pandemic and the associated economic crisis, countries in the Asia-Pacific region will see a differentiated impact on their capacity of mobilizing domestic revenue depending on the structure of their economy. According to the OECD report, those economies that rely mostly on natural resources, tourism, and trade taxes are especially vulnerable.
The History of Excess Profits Taxes Not as Effective or Harmless as Today’s Advocates Portray July 22, 2020 Today’s advocates would do well to study the history of excess profits taxes before overselling these taxes as a solution to the COVID-19 crisis.
The New EU Budget is Light on Details of Tax Proposals July 22, 2020 The European Council recently agreed on a new multiannual budget and a recovery program, which sets EU budget levels for 2021-2027 totals €1 trillion (US $1.2 trillion). The lack of details on the various tax proposals and the eventual need for revenue sources to finance new EU debt mean there is a lot of work left for policymakers in Brussels to do.
Hungarian COVID-19 Response: Surtax for Banks and Retail July 15, 2020 Hungary is the only EU state to have actually implemented COVID-19 tax hikes.
Peruvian “Solidarity Tax” Unlikely to Offset Deficit Spending July 10, 2020 While it is important that Peru find ways to offset its deficit spending, a temporary wealth tax may introduce more problems than it solves.
Tax Policy Proposals for the German EU Presidency July 1, 2020 While much of Germany’s EU presidency agenda is focused on policies to ensure economic stability and recovery from the COVID-19 pandemic, there's a pair of tax proposals that the country is planning to develop and move forward at the EU level: a financial transaction tax and a minimum effective tax.
Digital Tax Deadlock: Where Do We Go from Here? July 1, 2020 We recently hosted an exclusive webinar discussion to get up to speed on recent digital tax developments and gain insight from leading international tax experts on the OECD's BEPS project.
European Countries Might Consider Scrapping the Bank Tax for Greater Financial Support June 24, 2020 In the wake of the coronavirus crisis, some governments are seeking to cut bank taxes to enhance financial support to businesses and public investment projects.
Global Tax Relief Efforts Vary in Scope and Time Frame in Response to COVID-19 June 22, 2020 Countries around the world have implemented and continue to implement emergency tax measures to support their economies during the coronavirus (COVID-19) crisis.
Challenges for Transfer Pricing in an Economic Downturn June 17, 2020 Transfer pricing rules are under stress given the current economic crisis. The OECD should provide transfer pricing guidance during the coronavirus crisis.
Germany Adopts a Temporary VAT Cut June 16, 2020 Tax policy responses to the pandemic should be designed to provide immediate support while paving the way to recovery. A temporary VAT rate cut in the context of an inefficient VAT system is likely to deliver mixed results at best.
EU: The Next Generation May 27, 2020 The European Commission announced new budget plans including loans, grants, and some revenue offsets. The proposals follow other support mechanisms for workers and businesses that were designed in response to the Covid-19 pandemic and economic shutdown.
Chaos to the Left of Me. Chaos to the Right of me. May 5, 2020 The OECD recently announced that the negotiation timeline for new digital tax proposals has now been pushed back to October due to the COVID-19 pandemic, although the end-of-year deadline for the overall project is still in place.
Tax Policy After Coronavirus: Clearing a Path to Economic Recovery April 22, 2020 Governments at all levels must work to remove the tax policy barriers that stand in the way of economic recovery and long-term prosperity following the COVID-19 crisis. Our new guide outlines several comprehensive options that policymakers can take at the federal and state levels.
New OECD Study: Consumption Tax Revenues during Economic Downturns April 14, 2020 Compared to other tax revenue sources, consumption tax revenue as a share of GDP tends to be relatively stable over time, even during economic downturns.
Is Now the Time for a $100 billion Tax Increase? April 13, 2020 Seemingly unconcerned about how the digital project could impact the economy at this crisis moment, officials at the OECD recently released a statement boasting that they are continuing to work “full steam” on their global digital tax project.
Watch: Tax Foundation Experts Discuss Short-term Coronavirus Relief Packages April 8, 2020 What could the next phase of relief look like and what role does tax policy play in ensuring the U.S. and countries around the world make a strong economic recovery?
Temporary Work Locations in a Permanent Establishment World April 7, 2020 While much of the fiscal conversation surrounding the current pandemic has focused on tax relief and tax deferrals, another significant angle needs to be explored: the question of economic nexus.
Spain’s COVID-19 Economic Response March 27, 2020 Spain's policy response needs to be broad and in keeping with long-term objectives. It is paramount that the short-term harm caused by this outbreak does not turn into a long-term economic downturn.
India Pushes Digital Taxes in a Difficult Time March 26, 2020 Even during the coronavirus outbreak, efforts to change the way digital business models are taxed continue. India announced this week that its tax aimed at foreign digital companies, the “equalization levy,” will be expanded.
Denmark Unplugs the Economy March 26, 2020 Denmark, a high-tax country with 5.5 million citizens, has implemented policies designed to avoid layoffs and bankruptcies and basically unplug the economy during the pandemic.
A German Export for Times of Crises: The Short-Time Work Scheme March 25, 2020 One of the most talked about government economic responses to the COVID-19 crisis is Germany’s Kurzarbeit: the German short-work subsidy scheme.
VAT Exemption Thresholds in Europe March 26, 2020 Due to certain VAT exemption thresholds, many small businesses will not be able to benefit from the VAT changes being introduced throughout Europe to provide relief during the COVID-19 crisis.
Australia’s COVID-19 Support Focuses on Grants to Individuals and Small Businesses March 24, 2020 In contrast to the sweeping economic relief plan being considered by the U.S. Congress, the approach taken by the Australian government is much more targeted to supporting individuals and small to medium-sized businesses.
Norway Opens the Fiscal Toolbox March 24, 2020 Norway passed a large coronavirus tax relief package to address layoffs and bankruptcies, which includes a reduced VAT rate, the introduction of a loss carryback provision, and targeted postponements for wealth tax payments, among other provisions.
Tracking Economic Relief Plans Around the World during the Coronavirus Outbreak March 25, 2020 Countries around the world are implementing emergency tax measures to support their economies under the coronavirus (COVID-19) threat.
For Italian Banks: Converting Future Deductions to Present Tax Credits March 19, 2020 During the coronavirus outbreak, Italy has been hit especially hard. Policymakers have introduced numerous measures to stem the spread of the virus and provide relief to businesses that are facing a severe downturn.
Tax Policy and Economic Downturns March 18, 2020 The Great Recession provides some insight into how tax revenues declined during a deep recession. Across OECD countries, revenues fell by 11 percent from 2008 to 2009 with corporate income taxes seeing the steepest decline at 28 percent. Revenues from individual income taxes fell by 16 percent.
Tax Foundation Webinar Recaps the Complexities of the 2021 Tax Filing Season May 25, 2021 During the pandemic, economic relief administered through the tax code exploded as Congress passed nearly $6 trillion of legislation into law. That left the 2021 tax filing season, which ended May 17, with complications that still linger.
(Webinar) Figuring Out Phase Four: Next Steps on Federal and State Coronavirus Response July 21, 2020 As U.S. businesses struggle to recover from the economic downturn, Congress and the White House continue to debate a phase four relief package, which could include anything from incentives for domestic travel and a payroll tax cut to more fundamental reforms like enacting permanent full cost recovery.
Watch: Economic Recovery After Coronavirus May 29, 2020 What are the best tax policies to encourage a smooth transition and strong economic recovery? How should goals of economic recovery and growth be balanced with revenue needs?
Watch: Coronavirus: A Path to Economic Recovery May 7, 2020 What challenges should we expect to face as the U.S. economy begins to re-open? When is the right time for legislators to start focusing on long-term recovery vs. short-term needs? What policies should federal legislators pursue to clear a path to recovery?
Watch: State Tax Policy and COVID-19 April 23, 2020 What could the next phase of relief look like and what role does tax policy play in ensuring the U.S. and countries around the world make a strong economic recovery?
Watch: Tax Foundation Experts Discuss Short-term Coronavirus Relief Packages April 8, 2020 What could the next phase of relief look like and what role does tax policy play in ensuring the U.S. and countries around the world make a strong economic recovery?
