Federal Income Tax Research Articles

A novel approach to assessing food insecurity for small geographic areas using household living budgets

AbstractThe USDA Economic Research Service has monitored food insecurity at national and state levels since 1995 using the Current Population Survey Food Security Supplement. But if a food insecurity measure is to inform action and target interventions, it must be constructed for smaller geographic levels that consider geographic price differences. This article constructs a novel measure of food insecurity using an alternative approach based on financial needs of households, known as the household living budget (HLB). The HLB is defined as the income required to satisfy a household's essential needs, enabling it to maintain a modest yet sufficient standard of living while covering federal and state income taxes. The HLB is constructed at the census tract level and incorporates three key determinants of food insecurity: household size and composition, household income, and food costs. We demonstrate how the HLB along with publicly available data can be used to construct a food insecurity measure using a residual income approach to assess if households are able to afford paying for food expenditures and assess the qualification thresholds of the Supplemental Nutrition Assistance Program (SNAP). Food insecurity estimates are obtained for households in Washington, D.C. and benchmarked to regional results provided by a survey sponsored by the Capital Area Foodbank.

The Trump Tax Penalty and Its Impact on the Economy

The Tax Cuts and Jobs Act (TCJA) was signed into law by former President Donald J. Trump in 2017.The law took effect on January 1, 2018.The law permanently cut the corporate tax rate to 21% and temporarily lowered individual tax rates. Evidence in this paper will demonstrate how an older married couple on Social Security and a modest pension actually incurred higher federal income taxes during the years 2018- 2021 as a result of TCJA. Paying higher federal income taxes as a result of TCJA is the Trump Tax Penalty.

Estimation of Tax Benefit of US Nonprofit Hospitals

Nonprofit hospitals are under increasing scrutiny to justify the generous tax benefit they receive due to their tax-exempt status. Quantifying the value of the tax benefit they receive at the federal, state, and local levels is critical for designing informed public health policies and ensuring nonprofit hospitals' taxpayer accountability. To estimate the financial benefit that nonprofit hospitals derive from their tax-exempt status and assess how the benefit is distributed across state and local communities. Using methodologies and measures consistent with current tax law and practice and data from 2021 Medicare Cost Reports, this study calculated the total financial benefit from nonprofit hospitals' tax-exempt status for all US nonprofit hospitals with the required Cost Reports data. Nonprofit hospitals' total tax benefit, which equals the sum of federal and state income tax, sales tax, property tax, the fair market value of charitable contributions from donors, savings from tax exemptions on issued bonds, and federal unemployment tax. A total of 2927 US nonprofit hospitals received a $37.4 billion total tax benefit in 2021 from federal income tax ($11.5 billion; 31%), sales tax ($9.1 billion; 24%), property tax ($7.8 billion; 21%), state income tax ($3.7 billion; 10%), charitable contributions ($3.2 billion; 8%), bond financing ($2.1 billion; 6%), and federal unemployment tax ($200 million; <1%). Tax benefit varied substantially across states, from $25 098 (Delaware) to $159 464 (Massachusetts) per hospital bed and from $19 (Alabama) to $275 (Massachusetts) per capita. Tax benefit was highly concentrated, with 7% (n = 212) of hospitals accounting for half of the total amount. This study highlights the wide variation of nonprofit hospitals' tax benefit across states, its high concentration among a small number of hospitals, and the primary role played by state and local taxes. Policy efforts to strengthen nonprofit hospitals' taxpayer accountability are likely to be more effective when pursued at the local level. The detailed standardized estimation road map can be used by various stakeholders to estimate tax benefit for external valuation and reporting purposes, updated as laws change, and improved upon as better data sources become available.

Taxing Zero

“Zero-price” transactions—in which goods or services are provided at a cash price of zero—are an increasingly important feature of economic life. Consumers can search the web, use email, listen to music and even trade stocks, all without paying anything out of pocket. But zero-price transactions are not free: for-profit businesses provide products at zero price because they get something valuable from consumers in return. Consumers pay with their time, attention or private information. Zero-price transactions are not giveaways; they are a form of barter exchange. Under federal income tax principles, barter exchanges are taxable: both parties to the transaction are taxed on the value they receive. This Article considers the treatment of zero-price transactions from an income tax perspective. Should zero-price transactions be taxed like barter exchanges? If so, how should the amount received in a zero-price transaction be valued? And how can the federal government practically collect tax owed on zero-price transactions?

Designing a Billionaire's Tax

With ProPublica’s dramatic revelation in 2021 of the low “true tax rates” of America’s billionaires serving as a catalyst, the exclusion of unrealized gains from the base of the federal income tax has been challenged to an extent unprecedented in the century-plus history of the tax. In late 2021, a proposal by Senate Finance Committee Chair Ron Wyden (D, OR) to tax billionaires’ unrealized gains in tradable assets might have become law, but for the opposition of Senator Joe Manchin (D, WV). And in early 2022, the Treasury Department of President Joe Biden included a minimum tax on the unrealized gains of the ultrarich in its tax reform proposals. A narrower reform, taxing billionaires who borrow against unrealized appreciation to finance lavish consumption expenditures, has also been urged. All three of these proposed reforms—but especially the first two—would transform the fundamental character of the income tax as applied to the wealthiest Americans. This Article describes the three approaches, considers design challenges under each and evaluates their relative merits.

Household Health Care Payments Under Rate Setting, Spending Growth Target, and Single-Payer Policies

Households have high burden of health care payments. Alternative financing approaches could reduce this burden for some households. To estimate the distribution of household health care payments across income under health care reform policies. Cross-sectional study with microsimulation used nationally representative data of the US population in 2030. Civilian, noninstitutionalized population from the 2022 Current Population Survey linked to expenditures from the 2018 and 2019 Medical Expenditure Panel Survey and 2022 National Health Expenditure Accounts were included. Rate regulation of hospital, physician, and other health care professional payments equal to the all-payer mean in the status quo, spending growth target at 4% annual per capita growth, and single-payer health care financed through taxes. Household health care payments (out-of-pocket expenses, premiums, and taxes) as a share of compensation. The synthetic population contained 154 456 records representing 339.5 million individuals, with 51% female, 7% Asian, 14% Black, 18% Hispanic White, 56% non-Hispanic White, and 5% other races and ethnicities (American Indian or Alaskan Native only; Native Hawaiian or other Pacific Islander only; and 2 or more races). In the status quo, mean household health care payments as a share of compensation was 24% to 27% (standard error [SE], 0.2%-1.2%) across income groups (median [IQR] 22% [4%-52%] below 139% of the federal poverty level [FPL]; 21% [4%-34%] for households above 1000% FPL [11% of the population]). Under rate setting, mean (SE) payments by households above 1000% FPL increased to 29% (0.6%) (median [IQR], 22% [6%-35%]) and decreased to 23% to 25% for other income groups. Under the spending growth target, mean (SE) payments decreased from 23% to 26% (SE, 0.2%-1.2%) across income groups. Under the single-payer system, mean (SE) payments declined to 15% (0.7%) (median [IQR], 4% [0%-30%]) for those below 139% FPL and increased to 31% (0.6%) (median [IQR], 23% [3%-39%]) for those above 1000% FPL. Uninsurance fell from 9% to 6% under rate setting due to improved Medicaid access, and to zero under the single-payer system. Single-payer financing based on the current federal income tax schedule and a payroll tax could substantially increase progressivity of household payments by income. Rate setting led to slight increases in payments by higher-income households, who financed higher payment rates in Medicare and Medicaid. Spending growth targets reduced payments slightly for all households.

Investing in US Timberland Companies

Are common stocks issued by timberland companies a good investment? Portfolios of large US timberland corporations are compared to simultaneous investments in a diversified US common stock index. Over a 20-year sample period it turns out that the US timberland corporations, on average, perform about as well as the highly diversified US stock market index. It is surprising that the timberland companies do not outperform the stock market indexes because, in order to encourage tree planting, the US Congress has almost completely exempted timberland companies from paying federal income taxes. Furthermore, it is scientifically impossible to assess the value of the large amounts of photosynthesis that the timberland companies produce. As a result of these two ambiguities, it is difficult to state decisively that the timberland companies are better investments than a diversified portfolio of common stocks. However, valuing timberland companies is more practical than endeavoring to value the trees directly.

National disparities in residential energy tax credits in the United States

The Inflation Reduction Act (IRA) promises to deliver $270 billion in tax incentives starting in 2023, expanding on the existing $18 billion in federal income tax credits for clean energy investments. Despite the continued investment in clean energy tax credits, not all communities have historically benefited equally from these programs. This work investigates the presence of disparities in the residential energy tax credit (RETC) program, which was recently expanded under the IRA. We use quantile regression models to explore disparities in the participation in and average value received from the RETCs across demographics. Because tax credit programs result in second-tier benefits such as job creation, we compare the relationship between RETC participation and the presence of clean jobs across demographics. We find that rural communities, renter-occupied communities, and communities of color are disproportionately participating less in the RETC. However, we observe that when renter-occupied or communities of color do participate, they see higher average value comparatively as well as more clean jobs associated per tax return with the RETC. While disparities across demographic groups persist in participation in the RETC, these findings suggest that renter-occupied or communities of color see more benefits when they do participate.

U.S. Tax Credits to Promote Practical Proactive Preventative Care for Parkinson's Disease.

Persons with Parkinson's disease (PD) and society at large can profit from a strategic investment into a forward leaning, practical, preventative, and proactive multidisciplinary care policy. The American healthcare system is not easily bent to accommodate this type of care, and thus a tax benefit is an attractive option. An individual federal income tax benefit of $6200 each year for every person residing in the US with a diagnosis of PD, could among other offerings provide monthly access to a licensed clinical social worker and access to mental health services. The implementation of more coordinated care has the potential reduce the burden of depression, anxiety, and demoralization. Personal training would also be covered and directed by physical and occupational therapists. The combination of home-based and telemedicine services would have the added benefit of improving access. The tax benefit would also provide access to a dietician. This type of care strategy could be designed to proactively identify early signs of aspiration and urinary tract infections to 'head off' significant morbidity. A $6200/year individual tax benefit for those diagnosed with PD will thus translate into more fall prevention, more care in the home setting, less hospitalizations, less depression, less anxiety, less demoralization, better diets, and less persons placed in nursing facilities. Additionally, this tax benefit will provide the potential for billions of dollars in savings to the healthcare system. A tax benefit for PD is a practical preventative and proactive strategy which can serve to advantage both this generation and the next.

Important Developments in Federal Income Taxation

Important Developments in Federal Income Taxation

Taxation of Crypto Assets: The Example of U.S. Federal Income Tax

Taxation of Crypto Assets: The Example of U.S. Federal Income Tax

New Empirical Evidence on Factors Influencing the Yield on High-Grade Municipal Bonds

We investigate the impact of federal budget deficits and other factors on the ex-post and ex-ante real yields on high-grade municipal bonds. The estimation results reveal that both yields increase with the real yield on 30-year Moody’s Aaa-rated bonds and provisions in the Community Reinvestment Act but decrease with net capital inflows, the real GDP growth rate, and the average effective federal income tax rate. Most importantly, both yields are increasing functions of the federal budget deficit. These results support limiting the size of federal budget deficits to avoid the excessive crowding out of private investment spending.

The 2021 Child Tax Credit in U.S. Historical Context

When the Child Tax Credit (CTC) was created in 1997, its financial benefits were unavailable to families that did not earn enough to owe federal income tax. It has since evolved into a measure that provides partial benefits to millions of children in low-income working families but still leaves out children in families with extremely low or no earnings. In 2021, the credit was enlarged for one year, with full benefits provided to the poorest children. Ten states have also recently instituted state CTCs that provide full benefits to the poorest children. This history of CTC expansion contrasts with the erosion of cash assistance “spending programs”—including Temporary Assistance for Needy Families (TANF), unemployment insurance, and state general assistance—while being consistent with a larger pattern of tax-credit expansions. Both the CTC and Earned Income Tax Credit have repeatedly been expanded, and various other new benefits have been created as tax credits.

Policy Forum : Contraintes à l'autonomie fiscale des provinces découlant des Accords de perception fiscale

Since the end of the Second World War, successive agreements aimed at ensuring better coordination between Canada and the provinces in terms of income taxation have increased provincial fiscal autonomy. The current tax collection agreements (TCAs) give the provinces considerable leeway in designing their tax policies, although these agreements inevitably impose some constraints on provincial fiscal autonomy. This article examines those constraints, largely on the basis of government documents obtained through an access-to-information request. From a federal tax collection and administration standpoint, the constraints do not seem insurmountable, and in some respects, there is even a willingness on the part of the federal government to reduce them. As for the provinces' need to preserve the similarity between the provincial and federal income tax systems, there does not appear to be any room for manoeuvre with regard to the common tax base, but the framework for federal changes to the tax base deserves to be explored. In light of the constraints examined and potential solutions, as well as the colossal task of setting up a separate provincial tax administration, it would likely be difficult for a province that is party to a TCA to justify withdrawal from the agreement.

FBBVA Lecture 2023. The Importance of Modeling Income Taxes over Time: U.S. Reforms and Outcomes

Abstract The structure of taxes and their burden have undergone large and frequent changes over time. We provide a brief history of U.S. federal income tax reform since the 1960s, calculate effective federal income tax rates for each wave of the Panel Study of Income Dynamics, and discuss how effective taxation changed from 1969 to 2016. We show that most tax regimes are short-lived and that the variation in taxes over time and across groups is large. We also use an estimated dynamic model of couples and singles to show that the various tax regimes that we estimate imply very different labor market and saving behavior. These findings stress the importance of studying and modeling tax changes over time and across groups.

Who consumes the credit union subsidies?

Credit unions in the United States (US) are exempt (benefit from subsidies) from federal corporate income taxes, which are traditionally justified by their non-profit cooperative status and mission of meeting the financial needs of individuals of modest means. In recent years, the efficacy and fairness of these subsidies has been debated extensively as the traditional demarcation between banks and credit unions and their respective customer bases have blurred. To investigate how credit unions allocate subsidies to various stakeholders, we estimate a structural profit model for matched pairs of credit unions and commercial banks. We find that credit unions use most (approximately 90%) of their tax exemption for the benefit of their membership via above-market deposit interest rates.

What is the average federal individual income tax rate on the wealthiest Americans?

Abstract I estimate the average federal individual income tax rate paid by America’s 400 wealthiest families, using a relatively comprehensive estimate of their Haig–Simons income: their change in wealth, plus US individual taxes. I do so using publicly available statistics from the IRS Statistics of Income Division, the Survey of Consumer Finances, and Forbes magazine from 1992 to 2020. This paper’s baseline analysis uses all years of data and systematically varies start and end years. The baseline estimates of the average federal individual income tax rate on the wealthiest 400 families are 9.6 per cent in nominal terms and 12.0 per cent in real (inflation-adjusted) terms. Sensitivity analyses yield nominal estimates in the 6.7–14.6 per cent range and real estimates in the 8.4–17.9 per cent range. These estimates can be combined with effective corporate income tax rates to estimate all-in effective income tax rates on the wealthiest.

Would an unapportioned US federal wealth tax be constitutional, and what does that mean?

AbstractTo assess the constitutionality of an unapportioned federal wealth tax, and/or of a federal income tax provision reaching wealthy taxpayers’ unrealized gains, one needs an underlying framework for making judgements about legal claims. While no such framework can be entirely specified, at least to general agreement, this does not support nihilistically rejecting all comparative judgements about better versus worse, or more versus less convincing, instances of legal analysis.While it appears nearly certain that the Supreme Court’s current right-wing majority would strike down an unapportioned federal wealth tax, the ‘correct’ answer to this constitutional question cannot be proven to general agreement. I myself would disagree with such a holding by the Court. An important variable in resolving the issue for oneself is how much continuing precedential weight one should give to Pollock v. Farmers’ Loan &amp; Trust Co.—a case that itself blatantly disrespected precedent, but that did so more than a century ago, and that (on the other hand) some argue has already ceased to be good law. The principle of respecting precedent both has instrumental value and has been long (if fitfully) honoured within the American legal system, but all agree that its weight is not absolute.An unapportioned minimum income tax on the wealthiest Americans that included in income their unrealized capital gains would likely be constitutional under currently prevalent legal doctrine. It is true, however, that Eisner v. Macomber (1920), if it were held to remain good law beyond its immediate facts, would support holding it unconstitutional. The prospect that the current Supreme Court’s six right-wingers will decide to revive Macomber provides only one reason for suspecting that they might strike down such a provision, perhaps while also launching a broader constitutional war against central tenets of the current regime for taxing wealthy individuals and capital income. However, it lies beyond the power of conventional legal analysis to predict either what form such a war would take, or on what terms it might end up being resolved.

Do Taxes Affect Marriage? Lessons from History

Abstract I examine how income taxes affected individuals’ marriage decisions in the mid-twentieth century using variations across U.S. states arising from the Revenue Act of 1948. Prior to the Act, the federal income tax produced marriage “bonuses” in some states, but marriage was tax neutral in the rest of the states. The Act extended the same marriage bonuses to the remaining states, without changing the regime in those states already enjoying bonuses. I use a difference-in-difference design to analyze the effect of the Act. I enrich the framework with an additional control group: lower-income Americans. For this group, marriage was income tax neutral throughout the period in every state. Using this additional control group, I employ a triple-difference design. In both the difference-in-difference and triple-difference designs, I find that extending marriage bonuses increased marriage rates among eligible men substantially.

Vertical migration externalities

State income taxes affect federal income tax revenue by shifting the spatial distribution of households between high- and low-productivity states, thereby changing household incomes and tax payments. We derive an expression for these fiscal externalities of state taxes in terms of estimable statistics. An empirical quantification using American Community Survey data reveals that the externalities range from large and negative in some states, to large and positive in others. In California, an increase in the state income tax rate and the resulting change in the distribution of households across states lead to a decrease in federal income tax revenue of 39 cents for every dollar of California tax revenue raised. The externality amounts to a 0.27% decrease in total federal income tax revenue for a 1 pp increase in California’s state tax rate. Our results raise the possibility that state taxes may be set too high in high-productivity states, and set too low in low-productivity states.