Searching for Supply-Side Effects of The Tax Cuts and Jobs Act

Link: https://www.taxpolicycenter.org/taxvox/searching-supply-side-effects-tax-cuts-and-jobs-act

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Did it work? In a new paper with my Tax Policy Center colleague Claire Haldeman, we conclude that, consistent with these goals, TCJA reduced marginal effective tax rates (METRs) on new investment and reduced the differences in METRs across asset types, financing methods, and organizational forms.

But it had little impact on business investment through 2019 (where we stopped the analysis, to avoid confounding TCJA effects with those of the COVID-related shutdowns that ensued). Investment growth increased after 2017, but several factors suggest that this was not a reaction to the TCJA’s changes in effective tax rates.

Author(s): William G. Gale

Publication Date: 6 July 2021

Publication Site: TaxVox at Tax Policy Center

State Pass-Through Entity Taxes Let Some Residents Avoid the SALT Cap at No Cost to The States

Link: https://www.taxpolicycenter.org/taxvox/state-pass-through-entity-taxes-let-some-residents-avoid-salt-cap-no-cost-states

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But PTE taxes create inequities based on type of income. For example, because these states now favor pass-through income over wages, a partner in a law firm can be effectively exempt from the SALT cap while an executive assistant or associate in the same firm remains subject to the deduction limitation. A doctor who is an employee of a corporation is barred from fully deducting state and local income taxes while a partner in a medical practice making the same income is exempt from the federal cap for these taxes.  

Because the rules differ across states, businesses need to consider where partners live and where business income is generated. For example, non-resident partners might not benefit from the credits in their home state. Like New York, some states of residence allow credits against the taxes these partners owe from other states. But that isn’t always the case.

Keep in mind that these PTE taxes may be just a temporary fix. Congress may consider changes to the SALT cap in coming legislation. And the cap, along with all other individual tax changes in the TCJA, is scheduled to expire at the end of 2025.

Author(s): Kim S. Rueben

Publication Date: 24 June 2021

Publication Site: TaxVox at Tax Policy Center

How States Are Letting Small Businesses Avoid The SALT Cap On Their Tax Returns

Link: https://www.forbes.com/sites/lizfarmer/2021/07/01/how-states-are-letting-small-businesses-avoid-the-salt-cap-on-their-tax-returns/?sh=7ef5a29127c5

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Colorado recently became the 14th state to enact the new workaround, which allows (or in Connecticut’s case, requires) pass-through businesses to pay state income taxes at the entity level rather than on their personal income tax returns. For small businesses like partnerships, declaring that income as a business instead of passing it through to their individual tax returns means the state taxes paid on that business income don’t count toward their SALT cap.

The new mechanism is called a pass-through entity (PTE) tax, which is exempt from the $10,000 cap on the state and local tax (SALT) deduction that was part of President Trump’s 2017 tax reform. For business owners in high property tax states like New Jersey and Connecticut, it’s a critical change because it allows those taxpayers to deduct more of their local taxes from their other personal income.

Author(s): Liz Farmer

Publication Date: 1 July 2021

Publication Site: Forbes

Life expectancy in U.S. dropped by almost two years between 2018 and 2020

Link: https://www.benefitspro.com/2021/06/28/life-expectancy-in-u-s-dropped-by-almost-two-years-between-2018-and-2020/

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Life expectancy in the United States between 2018 and 2020 decreased by 1.87 years (to 76.87 years), which is 8.5 times the average decrease in other high-income nations. What’s more, decreases in life expectancy among Hispanic and non-Hispanic Black people were about two to three times greater than in the non-Hispanic White population, reversing years of progress in reducing racial and ethnic disparities. The life expectancy of Black men (67.73 years) is the lowest since 1998.

Those are key findings of a study conducted by researchers at the Virginia Commonwealth University School of Medicine, the University of Colorado Population Center and the Urban Institute in Washington, D.C., and published in The BMJ — a peer-reviewed medical trade journal of the British Medical Association.

Author(s): Michael Popke

Publication Date: 28 June 2021

Publication Site: Benefits Pro

To Advance Racial Equity, Releasing Disaggregated Data while Protecting Privacy Will Be Key

Link: https://www.urban.org/urban-wire/advance-racial-equity-releasing-disaggregated-data-while-protecting-privacy-will-be-key

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Although the Centers for Disease Control and Prevention declared COVID-19 hits communities of color the hardest—and extensive evidence backs this up—communities of color are not receiving the aid they need. Health officials say the lack of disaggregated data by race and ethnicity has affected timely vaccine distribution and proper messaging for correcting misinformation to help those communities.

This situation highlights one of many challenges President Biden’s day-one executive order on racial equity aims to resolve. If federal policymakers want to address racial disparities, they should collect and release detailed, disaggregated data. But they must also carefully consider the unintended harms they could cause to the people they are trying to help.

There has been a longstanding debate over protecting personal data versus supporting the common good. In particular, people of color with low incomes are more susceptible to privacy attacks because of their higher reliance on smartphones for internet access and how much personal information they give up for free cell phone app services. This information collection makes them more easily identifiable, especially if they are outliers in small geographies.

Author(s): Claire Bowen, Aaron R. Williams, Ajjit Narayanan

Publication Date: 2 March 2021

Publication Site: Urban Institute

How Biden’s ‘Donut Hole’ Plan Could Undermine Social Security

Link: https://www.thinkadvisor.com/2021/02/17/how-bidens-donut-hole-plan-could-undermine-social-security/

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But Richard Johnson, director of the Urban Institute’s Program on Retirement Policy, argues that he has a better idea — one that would generate more tax revenue for Social Security benefits without creating a donut hole, he tells ThinkAdvisor in an interview.

“Increase the $142,800 tax max to something like $250,000 today and continue to raise it [based on] average earnings growth,” he recommends.

Part of Johnson’s reasoning is rooted in the presumption that if Social Security were to be perceived as only for low-income earners, political support for the crucial program would be diminished.

Author(s): Jane Wollman Rusoff

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Publication Site: Think Advisor

Virus Did Not Bring Financial Rout That Many States Feared

Link: https://www.nytimes.com/2021/03/01/business/covid-state-tax-revenue.html

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Throughout the debate over stimulus measures, one question has repeatedly brought gridlock in Washington: Should the states get no-strings federal aid?

Republicans have mostly said no, casting it as a bailout for spendthrift blue states. Democrats have argued the opposite, saying that states face dire fiscal consequences without aid, and included $350 billion in relief for state and local governments in President Biden’s $1.9 trillion federal stimulus bill, which narrowly passed the House this past weekend. It faces a much tougher fight in the Senate.

As it turns out, new data shows that a year after the pandemic wrought economic devastation around the country, forcing states to revise their revenue forecasts and prepare for the worst, for many the worst didn’t come. One big reason: $600-a-week federal supplements that allowed people to keep spending — and states to keep collecting sales tax revenue — even when they were jobless, along with the usual state unemployment benefits.

Author(s): Mary Williams Walsh, Karl Russell

Publication Date: 1 March 2021

Publication Site: New York Times

Red State Budgets Are Suffering The Most In This Recession

Link: https://www.forbes.com/sites/lizfarmer/2021/02/18/red-state-budgets-are-suffering-the-most-in-this-recession/?utm_source=newsletter&utm_medium=email&utm_campaign=follow&cdlcid=5f3d53896be319c3c36cff29&sh=7f2620337b69

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Of those states suffering at least a 3% drop in revenue since the start of the pandemic in March 2020, two-thirds (eight in 12) are red states. Alaska, Florida, North Dakota and Texas are seeing some of the worst revenue losses of 9% or higher over the comparable period in 2019, according to the latest data from the Urban Institute.

Across the 47 states from which the institute has full data, total state tax revenues were down by $14 billion in the first ten months of the pandemic (between March and December 2020) compared to the same period a year earlier. That’s an average drop of 1.8% and is largely driven by declines in sales tax revenue.

Author(s): Liz Farmer

Publication Date: 18 February 2021

Publication Site: Forbes