Federal Revenue Research Articles

Russia's State Budget in JanuaryyMay 2015

According to the recent data released by the Federal Treasury, within January–May 2015 the federal budget revenues contracted by 2.2 p.p. of GDP, and the expenses went up by 3.3 p.p. of GDP on the same period of the previous year. Revenues and expenses of the consolidated budget of the subjects of the Russian Federation over January–April 2015 went up 1.1 and 0.3 p.p. of GDP, respectively. The amount of the federal budget deficit for the first five months of 2015 constituted 3.7% of GDP, while the consolidated budget of RF subjects over January–April of 2015 has been executed with a surplus of 2.4% of GDP. On 25 June 2015, the RF Government approved in principle basic parameters of the 2016 Federal Budget and planned period of 2017-2018 taking account of latest trends in the GDP movement and oil prices, long-term risks and challenges including linked to structural and demographic imbalances in the economy.

Dis-Incorporation of the American Business Model

ABSTRACT The U.S. federal government raises most of its revenue from three sources: individual income tax, payroll tax, and corporate income tax. The corporate tax share of total federal revenue has declined dramatically over the last three decades, while tax from individual income has been consistent during the same period. There may be a number of reasons for the decrease in the contribution corporate income taxes make to federal revenues. One of those reasons may be that there has been a dramatic change in how businesses are being organized and operated in the United States. For many years, business entities could choose to operate as either a corporation or a partnership. However, currently, businesses can choose from a variety of entities in which to operate. This article will examine the changes in capital business formations and their impact on the federal revenue collected. In addition, the article will explore the tax policy implications of these new strategies.

No Child Left Behind and Administrative Costs: A Resource Dependence Study of Local School Districts

This study considers the impact of federal funding on the administrative expenditures of local school districts since the passage of the No-Child-Left-Behind (NCLB) Act of 2001. Under NCLB, federal education funds were made contingent upon a variety of accountability and reporting standards, creating new administrative costs and challenges for local school districts. According to the premises of resource dependence theory, these increases in administrative costs will likely be most pronounced among those local districts with the greatest reliance on federal revenue. Repeated measures models are constructed for a multi-state sample of public school districts to test the extent to which these policy changes may be influencing administrative expenditures at the local level. While effect sizes are small, the results do demonstrate a significant resource dependence effect, suggesting that districts with greater reliance on federal revenue are experiencing larger increases in administrative expenditures over time.

The Blossoming of Public Benevolent Institutions

Public benevolent institutions ('PBIs') form a class of not-for-profit ('NFP') entities that is entitled to various taxation concessions. The PBI concept was originally adopted in order to deliver selected tax benefits to a narrower group of NFPs than charities, given the wide legal meaning of 'charitable'. As well as being eligible for income tax exemption like charities, PBIs can be deductible gift recipients ('DGR'), which means that donors may be able to claim a tax deduction, and are entitled to fringe benefits tax ('FBT') exemptions, enabling more attractive employee remuneration packages. For decades, the Australian Taxation Office ('ATO') has insisted that PBIs must not only have purposes focused, narrowly, on the relief of poverty, sickness, destitution or helplessness, but that they must also directly provide relief to those suffering from such poverty, sickness, destitution or helplessness. The recent Full Federal Court decision of Commissioner of Taxation v Hunger Project Australia ('Hunger Project') clearly states that there is no such 'direct' requirement. The development is relevant for a range of state and federal taxes and is expected to have a large impact on federal revenue. This is due to the fact that the primary tax concessions relating to PBIs, the FBT exemption and DGR status, are currently in excess of $2 billion. The 'cost' of those concessions will likely increase with the broadening of the classes of entities that fall into the PBI category.

Russia's State Budget in January-November 2014

According to data released by the RF Federal Treasury, Russia’s federal budget revenue over the period of January–November 2014 increased by 0.5 p.p. of GDP on the same period of 2013 due to growth, by 0.5 p.p. of GDP, of the volume of oil and gas revenue.The main factor responsible for the upward movement of the oil and gas revenue index (and the corresponding upward movement of federal budget revenue) in face of plummeting world oil prices (to $60 per barrel) was the ruble’s dramatic weakening against the USD and euro. Thus, the federal budget surplus of 1.9 % of GDP achieved over the first eleven months of 2014, as well as the surplus of 0.4 % of GDP in the consolidated budget of RF subjects achieved over the ten months of 2014, can by no means be regarded as manifestations of the budget system’s sustainability as a whole. As early as late October 2014, Moody's Investors Service rating agency downgraded Russia’s credit rating index from Baa1 to Baa2, pointing out in this connection that any further weakening of this country’s national currency will have an extremely negative effect on the economy.

The Geography of Incentives to Run a Federal Budget Deficit in Belgium

Political parties in Belgium are split along Flemish-Francophone lines, and Flanders enjoys relatively less federal expenditures and pays relatively more federal taxes than Francophone Belgium. As the federal debt is serviced out of federal tax revenues, Flanders bears most of the cost of debt servicing, while on average having benefited the least from the deficit-funded expenditures. Those uneven net benefits from Belgian federal budget deficits – and the diverging incentives for federal budget deficits this disparity seems to create – may be an explanation of the large overall size of deficits and debt in Belgium since the 1970s. Hence, interregional fiscal transfers resulting from the federal debt may be important not just because of their distributional consequences, but even more because they may provide an explanation for the large Belgian federal deficits and debt burdens. We test for these differing deficit incentives by investigating the difference between the effect of an increase in net formula-based transfers on Flemish resp. Francophone Belgian federal government parties’ vote share. We find at first sight that an increase in net transfers causes Flemish governing parties to lose votes during the next federal election, while the effect is insignificant in Francophone Belgium as well as in Belgium taken as a whole. The negative Flemish effect may be suggestive of Flemish voters being aware that increases in formula-based net transfers to Flanders may go hand in hand with similar increases to Francophone Belgium, that these increases may increase the public debt, and that the latter is serviced mainly with federal taxes raised in Flanders. However, when taking into account legislature-specific shocks that differ between Flanders and Francophone Belgium, the Flemish negative effect of transfers on votes mostly turns insignificant. Neither is there a consistently significantly positive effect of transfers on votes in Francophone Belgium, and also when investigated for Belgium as a whole the effect is insignificant. In conclusion, Francophone Belgian (Flemish) voters do not seem to particularly reward (punish) extra net transfers with more (less) votes. Francophone Belgian voters seem to overestimate the future cost of extra transfers they will bear, while the opposite seems to hold for Flemish voters. Alternatively, Francophone Belgian parties may overestimate the rewards – in terms of voters’ gratitude – of steering extra transfers to Francophone Belgium, while Flemish parties may correctly estimate the – lack of- punishment – in terms of voters’ anger of steering extra transfers to Flanders.

Russia's State Budget in January-October 2014

According to the data of the Federal Treasury, in January–October 2014 federal budget revenues increased by 0.6 p.p. of GDP on the respective period of 2013 due to growth in oil and gas revenues. Within ten months of 2014, federal budget expenditures fell by 0.2 p.p. of GDP on the respective period of the previous year; in January–October 2014 the surplus of the federal budget amounted to 1.9% of GDP. Despite the impact of numerous external and internal negative factors, such as sanctions, a decrease in prices on hydrocarbons and slowdown of economic growth rates, the Government of the Russian Federation refused for the time being to revise the main parameters of the federal budget for the next three-year period and on November 21, 2014 the draft federal budget was approved by the Lower Chamber of the Federal Assembly without significant changes.

The institutional and economic foundations of regional proto-federations

In the present paper we analyse the ancient Greek regional proto-federations of free-democratic city-states. We examine their political institutions and policies like common defence, representative federal bodies such as popular assemblies, parliament, state and regional organization, federal finance ministers as well as their economic institutions: common currency, federal budget and federal revenues. We address in more detail the case of the Aetolian League, or Federation, comparing it with some of today’s federal states and the European Union and conclude that in some respects, the proto-federation was more advanced than the EU, and thus can serve as a benchmark in addressing current European integration issues.

Is the Corporate Tax System 'Broken'?

The slated expiration of the Bush Administration's tax cuts in 2010 highlights the instability of the current 15% rate on dividends and capital gains. Meanwhile, pressure has mounted to reduce U.S. corporate tax rates to improve competitiveness in an increasingly global economy. Much of the 1986 Act reform of the corporate tax-base-broadening combined with lower rates - has unraveled, leaving the U.S. with a high statutory corporate tax rate and narrow corporate tax base. Despite renewed interest in base-broadening and loophole-closing, the goal of corporate tax reform remains elusive. Thus far, proponents of corporate tax reform have largely sidestepped the controversial issue of whether the 2003 tax cuts on dividends and capital gains should be made permanent. This Article proceeds in three parts. The first part discusses the long-term decline in the role of the corporate tax in raising federal revenues and enhancing progressivity. Part two discusses how the Administration's 2003 proposal to eliminate double-level corporate taxation morphed into an unstable legislative compromise based on tax rate parity for dividends and capital gains. Part three considers two contrasting alternative goals reflected in current proposals for reform of business taxation: reduced corporate tax rates and enhanced expensing of new investment. The Article concludes that 1986-style base-broadening and reduced rates would improve competitiveness and limit tax sheltering opportunities, although a political consensus for such reform will be hard to forge and additional sources of revenue may be required to finance significant rate reductions.

The Impact of Tax Revenue on Nigerian Economy : Case of Federal Board of Inland Revenue

In recent time, the impact of paying tax is not felt by payees in Nigeria and indeed has put them in doubt and confusion as to the use of the fund by the relevant government in the development of the economy. This uncalled for practices have definitely made some Nigerians want to avoid and evade tax. The study focused on the impact of tax revenue on Nigeria economy. Descriptive survey design was adopted and simple random sampling technique was used in the selection of the sample size. 100 copies of questionnaires were administered to workers of the Federal Board of Inland Revenue (FBIR), Lagos, Nigeria. 75 questionnaires were retrieved and found usable for the study hence, giving a 75% response rate. A pilot study was conducted and this gave a reliability value of 0.78 which according to Nunnally (1978) is reliable enough to measure the research construct. Four Hypotheses were formulated and tested using Chi-square statistical tool of analysis. The findings show that tax revenue significantly impact on Federal Government Budget implementation in Nigeria, Tax administrative system significantly affected the revenue generated in Nigeria, Tax evasion significantly affected government revenue in Nigeria, and Lack of training on the part of tax officers significantly affected the generation of government revenue in Nigeria. It was recommended that Notice of tax returns at the beginning of every financial year should be supported with handbills and poster written in local languages such as Yoruba, Hausa, Igbo and other languages as this will enable illiterates perform their civil responsibilities; Tax payment should meet convenience of the tax-payers; an advance payment of tax should be encouraged and estimated by the tax-payer himself, based on the tax payable for the previous year or on 80% of tax payable for the preceding year. The balance of tax is payable when the final assessment has been paid within one month of issue of the notice of assessment. It further recommended that the state should set up its own revenue courts. The Federal Government has set that ball rolling by setting up a federal revenue court to look into cases of tax avoidance and evasion. The jurisdiction of these courts should be extended to states to ensure prompt prosecution of tax evaders.

The Impact of Tax Reform on Federal Revenue Generation in Nigeria

The main objective of this paper is to ascertain the impact of tax reforms on tax revenue generation in Nigeria. Specifically, an attempt will be made to verify the relationship between federally collected revenue and specific tax revenue generation sources. The study employed annual time series data spanning the years (1981-2011). The various income taxes were used as a proxy for tax reforms. By way of preliminary test, the Augmented Dickey fuller was employed to test for unit root. All the time series variables were non-stationary at levels but became stationary after first differencing. The Johansen’s co-integration test shows that long-run relationship exists between tax reform and federally collected revenue in Nigeria. The Granger causality shows that custom and excise Duties and value-added Tax granger causes federally collected revenue . The Partial Stock Adjustment Model shows that the various income taxes were statistically significant and have positive relationship with federally collected revenue. The coefficient of the Error correction model showed that 66.2940 percent of the deviation of federally collected revenue from its long-run equilibrium value can be reconciled yearly. On the whole, our study shows that tax reform by improving the tax system and reducing tax burden enhances the ability of the government to generate more revenue. The study proposed that VAT and CED provides good tax handle for the government to maximize its revenue. However, to maximize revenue from these taxes, their administration should be improved upon with effort directed towards reducing tax avoidance and evasion.

Housing Desegregation in the Era of Deregulation

This article examines federal housing–desegregation efforts during the four presidential administrations—the Richard Nixon, Gerald Ford, Jimmy Carter, and Ronald Reagan administrations—that followed the passage of the Fair Housing Act in 1968. The Nixon and Carter presidencies receive the closest attention, as hopes for a vigorous fair-housing enforcement effort were highest during these two periods (1969–1974 and 1977–1980). Although both presidents were unenthusiastic about spending political capital on such controversial efforts, the secretaries of Housing and Urban Development (HUD) who served them—George Romney and Patricia Roberts Harris—worked to implement policies to encourage racial and economic desegregation in housing. Ultimately, however, neither succeeded in gaining sufficient traction to do so. This study analyzes federal attempts to increase housing options for low- and moderate-income families. The Home Mortgage Disclosure Act (HMDA), enacted in 1975, and the Community Reinvestment Act (CRA), enacted in 1977, provided some potential leverage to achieve this goal. However, in the face of the congressional push toward federal deregulation, declining federal revenues, and the continued reluctance of localities to house the poor, the results were underwhelming.In analyzing the significance of these policy trajectories, the article examines racial undercurrents in the political shift to lax enforcement of Civil Rights laws, disinvestment in cities, deregulation, and punitive crime policies. It concludes by discussing the possibilities for a reinvigorated fair-housing effort.

The Effect of Federal Intergovernmental Grants on State Taxes: New Evidence of Budget Persistence

I examine whether federal intergovernmental grants have a persistent long-term effect on state fiscal policy. A simple theoretical framework is developed based on the median voter model and is structurally estimated based on a 30-year panel of U.S. federal grants and state tax revenues. In both OLS and IV estimates I find evidence that temporary federal aid has a persistent effect on state finances. Each $1 of federal grants predicts eventual state tax increases of between $0.04 and $0.17. These effects are most evident on state personal income and corporate income taxes. There is some evidence that state tax and expenditure limitations (TELs) and supermajority voting rules mitigate these effects. To address possible endogeneity of federal grants I employ an instrumental variables strategy which yields similar results. Consistent with previous literature I find state budgets respond asymmetrically with respect to increases and decreases in federal grants, with temporary grant-funded expenditures persisting over time in state budgets.

Russiaas State Budget in H1 2014

According to the data provided by the Federal Treasury of Russia, federal budget revenues gained 0.6 p.p. of GDP during the period of January to July 2014 relative to the corresponding period of the previous year; likewise, consolidated budget revenues of the constituent territories of the Russian Federatin increased 0.2 p.p. of GDP in H1 2014 compared to January-June 2013. The federal budget ran a surplus of 1.6% of GDP as of the end of the period between January and July 2014, while the consolidated budget of the constituent territories of the Russian Federation ran a surplus of 0.3% of GDP in the period of January to June 2014. However, although federal budget revenues reached 21.1% of GDP as of the end of six months in 2014, they stood at only 20.4% of GDP during the first seven months of the current year, i.e. down by 0.7 p.p. of GDP in July. Consolidated budget revenues of the constituent territories of the Russian Federation diminished by 0.6 p.p. of GDP as of the end of six months in 2014 compared to the volume of revenues observed in the period between January and May of the same year.

How the West Was Bought: How a 'Simple' Payment to Compensate Local Governments Became an Uncontrollable Federal Subsidy

The federal government owns and administers more than 1/4 of the land in the United States, most of which is located in the Western half of the country and most of which is not subject to local taxation. To counterbalance the negative fiscal impact of nontaxable federal land in the United States, Congress created a Payment in Lieu of Taxes program, known as PILT, to compensate local governments for the government services they provide. The U.S. Department of the Interior distributes PILT as lump-sum payments directly to local governments. In order to prevent overcompensation, PILT payments are limited by the amount that the local government units receive under other federal revenue sharing programs, many of which are based directly on the extraction of natural resources like oil, gas, and timber. PILT has one major problem though: the deduction provision doesn’t work. This is because only funds received by the unit of local government are deducted from PILT. Therefore, if the funds are passed through to a smaller governing agency, known as a service district, there is no deduction.The U.S. Department of the Interior should, through notice-and-comment rulemaking, clarify its PILT regulations to discourage states and local governments from subdividing themselves into smaller and smaller entities in order to maximize the amount of federal monies they receive. Many interested parties, including the National Association of Counties, argue that PILT should be expanded to cover all federal lands and to remove the deduction provision, while others hew to the other extreme, arguing that PILT should be eliminated entirely. The first argument completely overlooks the very real abuses perpetrated under PILT today while potentially increasing overcompensation; the second ignores the reality that local communities foot the bill to provide government services on federal land.Administering PILT in a manner that adheres to the spirit of deducting double payments would remove the incentive for inefficient governance and create an incentive to manage, rather than exploit, public lands. The Article offers a tentative proposal for the form such reform could take, as well as explaining why other reforms, such as statutory amendment or stricter enforcement, might be complicated by political expediency.

Up in the air over taxing frequent flyer benefits: the American, Canadian and Australian experiences

... Since frequent flyer programmes first appeared in the early 1980s, the agencies charged with the administration of their nations’ income tax laws have struggled with the question of whether—and if so how—to tax employees who earn frequent flyer points (or ‘miles’) on employer-paid business trips, and who eventually redeem those points for personal travel rewards (or other personal consumption services or goods). This article describes and evaluates the ways in which three agencies—the Internal Revenue Service (IRS) in the USA, the Canada Revenue Agency (CRA) and the Australian Taxation Office (ATO)—have responded to the tax administration challenge presented by frequent flyer programmes. The rather disheartening end of the story (in all three countries) is that no significant amount of tax is being collected on frequent flyer benefits, even though the benefits are clearly taxable in theory (at least in the USA and Canada; the legal analysis in Australia is more complicated). Back-of-the-envelope calculations suggest that the forgone tax revenue is significant. One industry expert has estimated that US travellers alone earn as many as three trillion frequent flyer points each year.1 If the points are valued at one cent per mile,2 three trillion points are worth $30 billion. Even in theory, not all points are taxable. Points generated by personal consumption expenditures—most significantly, by personal travel and by charging personal expenses (of any sort) on a credit card awarding points based on dollars charged to the card—are not includible in gross income.3 If roughly half of all points are earned by air travel,4 and if about 40 per cent of air travel is for business,5 then the taxable points generated by air travel of US travellers should be roughly 600 billion annually, with a value of about $6 billion. Assuming that value would be taxed, on average, at the rate of 25 per cent, the annual federal income tax revenue lost by the failure of the IRS to enforce the taxation of frequent flyer benefits is in the neighbourhood of $1.5 billion. The revenue significance of the de facto tax-exempt status of frequent flyer benefits is similar to that of a number of well-known legislatively authorized tax expenditures, including the deferral of gain on like-kind exchanges, the exclusion of damages received on account of personal physical injuries or sickness and the exclusion of meals and lodging furnished on an employer’s business premises for the convenience of the employer.6

Evaluating the recession’s impact on state school finance systems

The Great Recession’s effect on state school finance systems was unlike previous downturns in the early 1990s and early 2000s in that it a) involved a greater loss of taxable income in many states, thus greater loss to state general fund revenues, b) also involved a substantial collapse of housing markets and related reduction or at least leveling of growth of taxable property wealth, c) but also involved a substantive infusion of federal “fiscal stabilization” aid to be used to fill holes in state general aid formulas. The goal of this study is to evaluate the effects of the recession on equity of state school funding systems with respect to child poverty concentrations. Using school district level panel data from 1993 to 2011, we evaluate the interplay between local, state and federal source revenues through the course of the recent recession by comparison with the less severe economic downturn of the early 2000s. Then using state level estimates of elasticities between revenue and spending measures and district poverty rates, we estimate whether changes in the distribution of state, local or federal revenue contribute most to changes in overall equity of current spending and whether those contributions changed during the recent recession.

Supplement, Not Supplant? The Political Economy of Federal Education Grants

How does the transfer of federal revenue to subnational governments affect revenue-raising behavior at the subnational level? This paper uses education finance data to examine the relationship between fiscal federalism, ethnic diversity, and the behavior of local governments in public goods provision. I expand a model by Alesina, Baqir, and Easterly (1999) to allow for two different public goods, one provided by the federal government and one provided by the local government, taking into account that citizens in a federal system pay comparatively more directly for services provided by the local government than for services provided by the federal government. It finds that although there is an inverse relationship between a local school district's level of ethnic fractionalization and its locally-raised revenue, the federal government partially compensates for this phenomenon: a district's demographic change from 90 percent white, 5 percent black, and 5 percent Hispanic to 80 percent white, 15 percent black, and 5 percent Hispanic is associated with a $23,428 (6 percent) increase in federal revenue and a $81,187 (2.5 percent) decrease in local revenue, meaning the federal government compensates for about one-third of the loss in local revenue in the event of such a demographic change. Given my finding of federal compensation for lower spending, I consider whether local school districts behave strategically more broadly in order to qualify for additional federal grants, and find some evidence that they do.

State Budget in January-May 2014

According to the data provided by the Federal Treasury of Russia, federal budget revenues increased 1.2 p.p. of GDP in the period of January to May 2014 compared to the corresponding period of the previous year. Consolidated budget revenues of the constituent territories of the Russian Federation in January to April 2014 contracted by 0.2 p.p. of GDP relative to the four months in 2013. At the end of the period of January-May of the current year the federal budget ran a surplus of 1.4% of GDP; in addition, a positive balance was reached as a result of the execution of the consolidated budget of the constituent territories of the Russian Federation as 1.6% of GDP. Late in May 2014 the Government of Russia submitted to the State Duma a draft law providing for the adjustment of the key parameters of the 2014 federal budget. In particular, the forecast of GDP volume was downgraded from Rb 73,315bn to Rb 71.493bn (-Rb 1. 822bn) due to the weakening of the investment demand, reduction in inventories at enterprises, slowdown in the consumer spending and export.

The State Budget in January-March 2014

According to the data of the Federal Treasury, in January-March 2014 the federal budget revenues increased by 0.8 p.p. of GDP as compared to the same period of the previous year on account of growth of 1.1 p.p. of GDP in oil and gas revenues due to depreciation of the ruble exchange rate against the US dollar. In the 1st quarter of 2014, federal budget expenditures fell by 0.4 p.p. of GDP as compared to the 1st quarter of 2013 and on the basis of the results of January-March 2014 the federal budget was executed with a surplus of 0.7% of GDP. However, the effect of unfavorable foreign political and economic factors is getting stronger which situation creates additional risks for stability of the budget system of the Russian Federation and may require adjustment of the main parameters of the federal budget in the second half of 2014.