Federal Revenue Research Articles

A Model for a Fiscal Union? What Europe Can Learn from the German Experience

AbstractThe euro has strengthened the economic differences between a more affluent north and a struggling south, which is the core problem of the current crisis in the euro zone. A potential solution to this problem could be to transform the monetary union into a fiscal union. This article sketches two different models for fiscal unions: a federal structure like that of Germany, where federal revenues and expenditures are controlled in significant part by federals laws, which has an extensive bailout system built in; and a confederal system like that of Switzerland, where Cantons are autonomous in their fiscal policies but clear bankruptcy rules are implemented. The article describes the reasons for which the German arrangement, one that strongly relies on income equalisation, have not proven successful in harmonising the financial position of the Länder and municipalities and why bailouts have become rather the rule than the exception. In consequence Germany has introduced a debt brake that does not allow expenditures to be structurally higher than revenues. Although it is too early to evaluate the sustainability of such a mechanism yet, the debt brake seems to be a promising means for preventing an unsustainable built‐up of debt under normal economic conditions. This article concludes that as long as debt brakes are not fully implemented and further fiscal harmonisation cannot be expected, the European Union will still have to rely on market‐based regulatory instruments and the disciplinary function of interest rates, possibly culminating in a bankruptcy procedure.

Federal Revenue Sharing, Marginalisation and Sub-National Inter-Regional Inequality in Human Capital Development in South-Eastern and Southern Nigeria

Abstract Regional development planning/management responds to needs for preventing inequality among regions within nations characterised by multi-culturality and variation among regions, through the planning/management of appropriate programmes and policies. This paper examines inequality in the development of two of Nigeria’s states in the geographical South-East and the political South-South. Among other issues, historical conflicts among various ethno-cultural groups constituting Nigeria and culminating in violence (e.g. the 1967-1970 civil war fought against the programme of Ibo (a socio-cultural group) seceding from Nigeria’s federation to found Biafra) are reviewed. Despite Nigeria’s tragic civil war, inequality persists. We examine inequality resulting from systematic implementation of policies/programmes of Nigeria’s federal government institutions that marginalise Cross River State. Using the methods of comparative analysis and a descriptive case study, we show the consequences of marginalisation policies implemented by the federal government alone or in collaboration with (i.e. in support of) Akwa Ibom State for the development of human capital in Cross River State. The specific acts of marginalisation referred to here include: the ceding of the Bakassi Peninsula - a part of Cross River State - to the Republic of Cameroon in 2005, and more recently (2009) another ceding of 76 oil wells, hitherto the property of Cross River State, to Akwa Ibom State. We argue that, strengthened by marginalising/polarising policies (higher revenue allocation based on derivation principle of oil production), Akwa Ibom’s ongoing implementation of free education policy promises to facilitate its achievement of millennium development goals in basic education by 2015, beyond which it might reach disproportionately higher levels of tertiary educational attainment by 2024 and after. By contrast, the contrived dwindling of oil revenue accruing to Cross River State deprives it of funding for competitive human capital development programme(s). We recommend that Cross River State employs serious monitoring of marginalising schemes against its people considering recent traumatising experience, and plan/implement human capital development programmes aimed to improve its competitiveness under the context of intra-regional inequality.

The State Budget in Q1 2013

According to the Federal Treasury, within January-March 2013, the federal budget revenues decreased by 2.1 p.p. of GDP as compared with the same period of the last year due to a reduction of oil and gas revenues by 1.8 p.p. of GDP and non-oil revenues by 0.3 p.p. of GDP. Despite the reduction in federal spending for Q1 of this year by 2.0 p.p. of GDP against the corresponding period of 2012, the federal budget deficit has reached the limit preset by the budgetary rules in the amount of 1.0% of GDP. Significant impact on the stability of the budget system of the Russian Federation continues to provide the external market factors, while at the same time the importance of domestic macroeconomic factors is increasing.

IFRS And US GAAP Convergence Progressing: As Taxpayers Voluntarily Stop Using LIFO

This paper presents the potential benefits of the last in, first out (LIFO) inventory valuation method being eliminated as a requirement in financial statements prepared under United States Generally Accepted Accounting Principles when also used for United Stated federal income tax reporting. Research results show that corporations have been voluntarily switching from LIFO to another method since inflation declined well below double digits. Of the corporations still using LIFO, the potential billions of federal tax revenue is presented that might help keep the United States federal budget from going over the fiscal cliff.

The Effect of National Revenues on Sub-National Revenues: Evidence from the U.S.

I present for the first time an empirical examination of the impact of total federal revenues on total sub-national proceeds. Prior theory recognizes that the effects of national revenues on sub-national revenue-raising are ambiguous. Earlier studies have focused on vertical relationships between particular tax bases, such as the impact of federal commodity taxes on state or provincial commodity tax rates. Using a panel of data from U.S. states over the recent decade, I find an economically and statistically significant degree of federal crowding in of state revenues. I note the potential implications of these results for fiscal federalism theory and legal controversies over federal conditional spending.For copyright reasons, only the abstract of the full article is freely available online. This brief web appendix provides results for 2SLS robustness checks omitted from the published edition. Interested readers may contact the author for the full article.

Retail Fuel Price Stabilization and Revenue Generation of Dynamic Taxation Policy

The Carnegie Endowment for International Peace (CEIP), through its Leadership Initiative for Transportation Solvency, in 2011 released Road to Recovery: Transforming America's Transportation, a report that proposed a new revenue mechanism to fund a reformed transportation program fully. The report recommends that Congress couple a per barrel oil fee with a variable, countercyclical gas tax. This paper discusses the dynamic impacts of CEIP's revenue policy on household travel behavior, revenue generation for the federal trust fund, energy consumption, equity, and greenhouse gas (GHG) emissions and air pollution at the national level from 2008 to 2010. The analysis developed econometric models: a multiple vehicle miles traveled (VMT) regression model and a discrete vehicle ownership model. Model results showed that the CEIP revenue proposal could fill the revenue shortfall regardless of the world oil price. During the historic study period of 2008 to 2010, the CEIP policy would have collected up to more than double the federal revenue. At the same time, households would have increased their VMT by as much as 1.8% when oil prices peaked, and reduced their VMT by up to 8.6% when the crude oil price dropped to the lowest point. It is estimated that, without any investments or revenue recycling, lower-income households would have experienced a 0.45% to 0.5% reduction in consumer surplus changes measured as a percentage of income and higher-income households would have experienced a 0.06% to 0.1% reduction. Finally, it is estimated that the CEIP policy would have reduced air pollution and GHG emissions by an average 4% to 4.35% for different pollutant types.

Revisiting the Government Revenue-Expenditure Nexus: Evidence from Nigeria Based on the VAR Granger Causality Approach

The relationship between government revenue and government expenditure is important, given its relevance for policy especially with respect to the budget deficit. The purpose of this study is to examine the structure of federal government revenue and expenditure in Nigeria, from 1961-2010. It investigates the causal relationship between government revenue and government expenditure, using Granger causality test through cointegrated vector autoregression (VAR) methods; so as to determine whether the tax-spend hypothesis, spend-tax hypothesis, fiscal synchronization hypothesis, or the fiscal neutrality hypothesis hold in the relationship between government revenue and expenditure for Nigeria. The result shows that there is a bi-directional causality between government revenue and government expenditure. The outcome of the bi-directional causality between government revenue and expenditure supports the fiscal synchronization hypothesis. This therefore, suggest that the federal government should not make spending-tax decisions in isolation of tax-spend decisions. This is because the joint determination of revenues and expenditures is appealing as long as it effectively restrains the budget deficit. Therefore, efforts at enhancing sources of revenue should be accompanied by reductions in government spending for Nigeria.

The Class Character of Macroeconomic Policies in Brazil of the Real

In this paper, I discuss ways in which several important fiscal and monetary policies implemented in Brazil after the Real Plan interfered with class relations and how they reveal the financial class character of the state. The fiscal policies analyzed are the release of federal tax revenue entitlements, the so-called fiscal responsibility, and the goals for the primary and nominal fiscal results. In the realm of monetary policy, the analysis focuses on the priority given to inflation control and inflation targeting. The results suggest that these policies facilitated favoritism towards the financial fraction of capital; the policies constitute an institutional apparatus for the reproduction of the income that finance extorts from labor through the state.

THE LABOR SUPPLY AND TAX REVENUE CONSEQUENCES OF FEDERAL SAME-SEX MARRIAGE LEGALIZATION

This paper estimates the effects of same-sex marriage legalization on federal income tax revenue using changes in taxation generated from the 2003 Jobs and Growth Tax Relief Reconciliation Act. These estimates rely critically on the responsiveness of labor supply and marital choice to changes in the tax code. In addition, this paper proposes a novel measure of the marriage penalty that incorporates the fact that individuals will respond optimally to changes in marginal tax rates within the household. The estimates suggest that legalization will result in a small gain, around $34 million per year, in federal income tax revenue.

Compression of Morbidity: A Personal, Research, and National Fiscal Solvency Perspective

Soon to be published research shows that people with positive health practices reduced the period of disability at the end of life by an estimated six to nine years. If improved health habits could reduce the period of disability for the entire population of the United States by this amount, spending on Medicare, Medicaid, and Social Security would drop substantially, and state and federal income tax revenues would increase substantially. This is critically important given that the Congressional Budget Office has projected that 100% of federal tax revenues will be consumed by Medicare, Medicaid, and Social Security by the year 2050 if current health and spending trends continue.

Real-Time Predictions of the U.S. Federal Government Budget: Expenditures, Revenues and Deficits

This paper proposes a forecasting procedure involving a combination of MIDAS-type regression models, allowing one to use high frequency predictors with different sampling frequencies to predict the U.S. Federal Government Expenditures (Net Outlays), Revenues and Deficits all of which are low frequency (quarterly/annual) variables. Evidence shows that forecast combinations of MIDAS regression models provide forecast gains over the traditional models. It is also shown that one-step ahead real-time predictions from MIDAS regressions of annual expenditures and revenues have smaller forecast errors than one-step ahead projections provided by the Congressional Budget Office (CBO) for the fiscal years of 1998-2010. Moreover, MIDAS regressions with leads employed to have real-time forecast updates of the current quarter (nowcasting) federal expenditures and revenues are found to have improved forecast performance compared to MIDAS regressions without leads.

Donating the Voucher: An Alternative Tax Treatment of Private School Enrollment

Executive SummaryApproximately 10% of school-age children in the United States are enrolled in private schools, relieving the financial burden on public school systems, and the taxpayers who support them, of the cost of their education. At present, the tax code does not allow families who provide this financial relief an income tax deduction, even though such relief is a gift to governments for exclusively public purposes and thus is analogous to a charitable donation. Using the Public Use Microdata Sample of the American Community Survey and the NBER Internet Taxsim calculator, this paper estimates that granting families who enroll their children in private schools an income tax deduction equal to the per-pupil expenditures in their public school district would cost the federal government an average of $7.75 billion per year over the 2006–10 period. This amount is less than 1% of federal income tax revenues. Because private school enrollment, public school expenditures, the likelihood of itemization, and...

The Financial Significance of the Oil and Gas Sector for the Russian Economy

The article describes the complex of economic and financial indicators reflecting the results of Russia’s oil and gas industry in 2011. Price environment of the major energy resources with regard to their realization at the domestic and international markets is analyzed. Main indicators of economic performance of the oil and gas industry (revenue, profit, profitability) are reviewed with differentiation by companies. The authors consider the tax burden for the oil and gas companies; show their role in forming federal budget revenues. The paper presents the analysis of specialized funds and reserves that are formed at the expense of oil and gas industry sources; examines Russia’s balance of payments as well as revenues generated by oil and gas exports. The stock market structure of Russia and the world is described with consideration of particular oil and gas companies.

State Taxes, Tax Exemptions and What They Reveal About Elderly Migration

We use the U.S. elderly migration data for 1995-2000 to test how taxes and specific tax exemptions affect migration decisions of the elderly population. We show that the elderly prefer to migrate to states with low inheritance and estate tax, high property tax, low price level, low amount of Federal revenue transfers, high level of local amenities, and high temperatures. In addition, exemption of prescription drugs from sales tax and the existence of pension exemptions affect elderly in-migration positively and significantly.

Does Federal Spending 'Coerce' States? Evidence from State Budgets

According to a recent plurality of the U.S. Supreme Court, the danger that federal taxes will “crowd out” state revenues justifies aggressive judicial limits on the conditions attached to federal spending. Economic theory offers a number of reasons to believe the opposite: federal revenue increases may also float state boats. To test these competing claims, I examine for the first time the relationship between total federal revenues and state revenues. I find that, contra the NFIB plurality, increases in federal revenue -- controlling, of course, for economic performance and other factors -- are associated with a large and statistically significant increase in state revenues. This version of the study additionally provides extensive background explanations of underlying economic concepts for readers unfamiliar with the prior public finance literature.

Inventory of Shelf Projects by Subject Matter (May 2012)

The Shelf Project is a collaboration of Tax Professionals to propose ways to raise U.S. federal revenue without a rate increase or a VAT. Shelf Projects improve the efficiency and fairness of the tax while raising revenue. The inventory breaks down the 66 Shelf Projects completed as of May 2012 by subject matter, including Tax Accounting, Basic Tax Issues, Business Entities, Employee Benefits, Environmental, Estate and Gift Taxes, Exempt Entities, Foreign issues, Financial Instruments and Institutions, Industry-specific Reforms, and Tax Procedures. The inventory has links to the proposals themselves.

Fiscal and policy implications of selling pipe tobacco for roll-your-own cigarettes in the United States.

BackgroundThe Federal excise tax was increased for tobacco products on April 1, 2009. While excise tax rates prior to the increase were the same for roll-your-own (RYO) and pipe tobacco, the tax on pipe tobacco was $21.95 per pound less than the tax on RYO tobacco after the increase. Subsequently, tobacco manufacturers began labeling loose tobacco as pipe tobacco and marketing these products to RYO consumers at a lower price. Retailers refer to these products as “dual purpose" or “dual use" pipe tobacco.MethodsData on tobacco tax collections comes from the Alcohol and Tobacco Tax and Trade Bureau. Joinpoint software was used to identify changes in sales trends. Estimates were generated for the amount of pipe tobacco sold for RYO use and for Federal and state tax revenue lost through August 2011.ResultsApproximately 45 million pounds of pipe tobacco has been sold for RYO use from April 2009 to August 2011, lowering state and Federal revenue by over $1.3 billion.ConclusionsMarketing pipe tobacco as “dual purpose" and selling it for RYO use provides an opportunity to avoid paying higher cigarette prices. This blunts the public health impact excise tax increases would otherwise have on reducing tobacco use through higher prices. Selling pipe tobacco for RYO use decreases state and Federal revenue and also avoids regulations on flavored tobacco, banned descriptors, prohibitions on shipping, and reporting requirements.

White Paper in Support of the Nation Building Here at Home Act of 2012

This white paper provides argumentation and data in support of the Nation Building Here at Home Act of 2012, an infrastructure investment statute introduced in the 112th Congress, 2d Session by Congressman Brian Higgins, 27th District of New York. It shows that the investment program instituted by the Act will significantly boost domestic employment, economic growth, and federal revenue, and in so doing will be partly self-financing. Moreover, in view of presently idle capacity, low borrowing costs, and the cost acceleration attributes of much of the crumbling infrastructure that the bill addresses, the program offers significant opportunity cost savings in respect of projects about which all agree that the question is not whether, but when they are to be undertaken. Add to this the sizable life, limb, and efficiency gains brought to the private sector by the planned public infrastructure-modernization, and the case for the statute is plain. Appendices include the statute itself and the macroeconomic numbers on which the case for it is partly based.

An integrated assessment of the effects of Title I on school behavior, resources, and student achievement

We examine the effects of Title I on school behavior, resources, and academic performance using a rich set of school finance and student-level achievement data from one large urban school district using a regression discontinuity design. We find that Title I eligibility raises Federal revenues of schools by about $460 per student. This is partially offset by decreases in revenues from state categorical aid grants, so that the net increase to schools is about $360 per student. We find no impact on overall school-level test scores, but also no impact among the subgroups of students most likely to be affected by Title I. A novel finding is that schools appear to respond to the incentives embedded in the Title I allocation process by manipulating the fraction of their students signed up for free lunch to secure more Federal funds.

Fiscal Solutions: A Balanced Plan for Fiscal Stability and Economic Growth

Our country faces a serious fiscal crisis. According to President Obama’s National Commission on Fiscal Responsibility and Reform, the nation is on an unsustainable fiscal path, with spending well above tax revenue. The Congressional Budget Office projects that, under current policies, federal debt will soar from 62 percent of annual GDP in 2010 to 87 percent in 2020 and 185 percent in 2035. The plan presented here represents the collaboration of its four authors and does not reflect the position of the American Enterprise Institute or any other organization. The individual authors do not fully agree with every provision of the plan, but we join in presenting it as a way to address the fiscal imbalance while promoting economic growth.Our plan re-establishes a balance between federal spending and revenue that achieves long-term fiscal stability and promotes economic growth. We cannot simply tax our way to a balanced budget without suffering the consequences of a sluggish economy and reduced prosperity. We also cannot simply cut spending without risking the loss of essential services for an aging population, undercutting our infrastructure on which economic growth builds, and reducing our ability to defend the country against its enemies.Our plan limits the national debt to 60 percent of annual GDP in 2035. Ambitious cuts in federal spending are required to achieve that goal while minimizing tax burdens on the American people and the drag that high marginal tax rates impose on long-run economic growth.