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Myths and Realities About Changing the Tax Treatment of Private Equity Fund Managers
November 8, 2007
Economists across the political system generally concur that eliminating the tax break for “carried interest” income, a form of compensation received by private equity fund managers, would improve the equity and efficiency of the tax system.[1] The tax code is more efficient when it creates a level playing field. The fact that carried interest income is taxed at the … -
House AMT "Patch" Bill is Fiscally Responsible
November 7, 2007
Later this week, the House of Representatives is expected to vote on legislation that would “patch” the Alternative Minimum Tax for 2007 (H.R. 3996). This analysis highlights three praiseworthy features of the tax package, which was adopted by the Ways and Means Committee November 1. The cost of the package is fully offset. Its adoption by the … -
Ways and Means Committee Chairman Charles Rangel's Proposed Expansion of the EITC for Childless Workers
October 25, 2007
The tax reform plan released today by Ways and Means Committee Chairman Charles Rangel includes a sizable increase in the component of the Earned Income Tax Credit available to low-income working adults who are not raising minor children. Senators Barack Obama, Evan Bayh, and John Kerry and Representatives Bill Pascrell, John Yarmuth, and Keith … -
Ensign Amendment Would Undercut Immigration Bill Goals by Imposing Unaffordable Tax Burdens on Many Immigrants
Revised September 28, 2007
An amendment to the Senate immigration bill filed by Senator John Ensign (R-NV) would prevent undocumented workers who are paying back taxes as part of legalizing their status from claiming the tax credits available to all other tax filers. It would also deny these workers any tax refunds the IRS might owe them because of overwithholding. As a result, undocumented workers seeking to … -
Higher Taxes on Carried Interest Would Be Borne By Investment Fund Managers
September 19, 2007
In the past few weeks, the Senate Finance and the House Ways and Means Committee have both held hearings investigating the tax treatment of carried interest, a form of compensation prevalent in the private equity industry. As part of their contractual arrangement with investors, the managers of a private equity fund typically … -
The Internet Tax Freedom Act and the "Digital Divide"
September 10, 2007
Congress is again considering whether to make the “Internet Tax Freedom Act” (ITFA) permanent. Enacted in 1998 and temporarily renewed in 2001 and 2004, ITFA banned new state and local taxes on “Internet access” services. States and localities were barred from imposing their sales taxes on the typical $10 to $50 monthly fee … -
Making the “Internet Tax Freedom Act” Permanent Could Lead to a Substantial Revenue Loss for States and Localities
Revised August 30, 2007
On May 23 and July 26, 2007, the Senate Commerce Committee and the Subcommittee on Commercial and Administrative Law of the House Judiciary Committee, respectively, held hearings on the “Internet Tax Freedom Act” (ITFA). ITFA was enacted in 1998 and renewed in 2001 and 2004. The law generally bars state and local taxation … -
Historical Averages Not a Meaningful Benchmark for Future Revenues
August 22, 2007
The “Mid-Session Review” that the Office of Management and Budget issued last month projects that revenues will be slightly above their 30-year average in 2007, measured as a share of the economy. The Administration and many of its supporters have cited this fact as evidence that current tax policies are generating an … -
Administration’s Proposed Tax Deduction for Health Insurance Seriously Flawed
July 31, 2007
In an attempt to revive its proposal to establish a new standard tax deduction for the purchase of health insurance, the Administration has injected the proposal into the congressional debate over renewing and strengthening the State Children’s Health Insurance Program (SCHIP). The Administration has threatened to veto the … -
An Analysis of the "Carried Interest" Controversy
July 31, 2007
This week, the Senate Finance Committee is scheduled to hold a second hearing on the tax treatment of “carried interest.” A carried interest is a right to receive a specified share (often 20 percent) of the profits ultimately earned by an investment fund without contributing a corresponding share of the fund’s financial capital. It is part of the standard … -
Would Tax Incentives Be an Effective Way to Expand Health Coverage for Low-Income Children and Families?
July 31, 2007
In recent weeks, the Administration has threatened to veto legislation in Congress that would reauthorize the SCHIP program and extend health coverage to several million uninsured children. As an alternative, the Administration has touted the virtues of the private insurance market and attempted to revive consideration of its proposal to … -
The Effects of the Capital Gains and Dividend Tax Cuts On the Economy and Revenues
Revised July 12, 2007
With the fourth anniversary of the 2003 capital gains and dividend tax cuts just past and the Office of Management and Budget’s Mid-Session Review released today, supporters of making these tax cuts permanent are reiterating their claim that the tax cuts boosted the economy and increased federal revenues. For example, a release from the Senate Republican Policy Committee contends … -
Analysis of Sessions Amendment to Deny the EITC to People Working Here Legally as a Result of the Senate Immigration Bill (Amendment # 1234)
Revised June 7, 2007
The Senate yesterday adopted an amendment to the Senate immigration bill offered by Senator Jeff Sessions (R-AL). Undocumented immigrants already are ineligible for the EITC. The Sessions amendment would deny this important tax credit to low-income workers who have legal status.[1] This approach is inequitable and unwise. It … -
Analysis of Sessions Amendment to Deny the Eitc to Many Legal Permanent Residents (Amendment # 1235)
June 6, 2007
Senator Sessions has filed an amendment to the Senate immigration bill that would deny the Earned Income Tax Credit to hundreds of thousands of taxpayers already working in the country legally. Under the amendment, legal permanent residents — often called “green card” holders — would be ineligible for the EITC for the … -
A Significant Number of Students in Every State Are Shut Out of Federal Higher Education Tax Credits
June 1, 2007
As early as next week, the Senate Finance Committee is expected to vote on legislation restructuring the higher education tax credits. The federal tax code includes two tax credits that offset tuition costs for students enrolled in higher education: the Hope Credit, worth up to $1,650, and the Lifetime Learning Credit, worth up … -
Making Higher Education Tax Credits More Available To Low- And Moderate-Income Students: How and Why
May 10, 2007
Senate Finance Committee Chairman Max Baucus has indicated that his committee will soon mark up education tax incentives. In addressing this issue, the Finance Committee should start by considering how to improve the existing tax credits for higher education. In particular, it should consider reforms that … -
Alternative Approaches to AMT Reform
Revised April 30, 2007
The Subcommittee on Select Revenue Measures of the House Ways and Means Committee recently held hearings on the Alternative Minimum Tax, and Subcommittee Chairman Richard Neal has said he is developing a proposal for permanent, revenue-neutral AMT reform. According to news accounts, the proposal will take the form of an AMT … -
What the 2007 Trustees' Report Shows about Social Security
April 24, 2007
Executive Summary On April 23, the Social Security Board of Trustees released the 67th annual report on the program’s financial and actuarial status. The report projects that Social Security’s trust fund reserves will be exhausted in 2041, one year later than in last year’s projection. In 2041, Social Security will be … -
Op-Ed: Are Americans Overtaxed?
April 17, 2007
No one likes paying taxes – least of all Americans. But, despite well-worn assertions to the contrary, Americans are not paying too much – at least not by historical standards, not compared to other developed countries, and most importantly, not in light of the revenues needed to maintain the size of government that … -
CBO Provides New Evidence That the 2001 And 2003 Tax Cuts Have Only Modest Economic Effects and Do Not Pay For Themselves
April 13, 2007
A new analysis by the Congressional Budget Office finds that extending the 2001 and 2003 tax cuts could result in a modest increase in the number of hours that people work. However, any “dynamic” revenue gains associated with the resulting increase in wages and salaries would pale in comparison with the cost of extending the tax cuts. Those … -
New Study Finds "Dramatic" Reduction Since 1960 In The Progressivity of the Federal Tax System
March 29, 2007
In a new study, Thomas Piketty and Emmanuel Saez, economists who have done groundbreaking work on the historical evolution of income inequality in the United States, examine how the progressivity of the federal tax system has changed over time.[1] Unlike previous analyses, theirs examines effective federal tax rates going back to 1960, including income, payroll, corporate, … -
Have the 2001 and 2003 Tax Cuts Made The Tax Code More Progressive?
March 19, 2007
With debate beginning on the Senate budget resolution, congressional supporters of the 2001 and 2003 tax cuts have begun recycling old arguments for extending all of these tax cuts. Among these is the claim that the tax cuts have made the tax code more progressive. The reality is that the tax cuts have made the tax code more regressive. A progressive tax code is one that makes the … -
Why The Cost of AMT Relief Should Be Included in Estimates of the Cost of Extending the President's Tax Cuts
Revised February 20, 2007
The President’s budget estimates that extending the 2001 and 2003 tax cuts would cost $1.7 trillion over the next decade (2008-2017). (A figure of $1.6 trillion has been cited by a number of media outlets, but this number leaves out the increased outlays that will result from extending the refundable tax credit expansions enacted in 2001; the Administration’s estimate of the … -
Myths and Realities About the Alternative Minimum Tax
February 14, 2007
The Alternative Minimum Tax was created in 1969 to ensure that the highest-income households could not exploit loopholes, exclusions, and deductions to avoid paying any federal income tax. The AMT acts as a stop-gap tax system, with taxpayers owing their regular income tax or AMT liability, whichever is higher. Because … -
Revenue Losses from Repeal of the Alternative Minimum Tax Are Staggering
Revised February 1, 2007
As is increasingly well known, a growing number of taxpayers will become subject to the Alternative Minimum Tax over the next ten years if relief from the tax (which has been provided by Congress on a year-to-year basis) is not extended. A growing fraction of those affected by the AMT will be middle- or upper-middle class families. The Urban … -
Two High Income Tax Cuts Not Yet Fully in Effect Will Cost Billions Over the Next Five Years Freezing the Tax Cuts at 2007 Levels Would Yield Significant Savings
February 1, 2007
On January 5, the House of Representatives voted to reinstate the “Pay-As-You-Go” (PAYGO) budgeting rule, and Democratic leaders have promised that the Senate will follow suit. Because PAYGO requires that legislation that increases entitlement spending or reduces revenues be paid for, the rule increases the need to find offsets to pay for high priority legislation and to … -
Testimony of Robert Greenstein on Economic Security and Long-term Budget Projections
January 30, 2007
I appreciate the invitation to appear before you today. I direct the Center on Budget and Policy Priorities, a nonprofit policy institute that conducts research and analysis on fiscal policy matters, as well as on programs and policies for low-income families and individuals. Last winter, the Center was asked by the Carnegie Roundtable on Economic … -
The Long-Term Fiscal Outlook Is Bleak
January 29, 2007
In 2006, the federal government ran a deficit of $248 billion, or about 2 percent of the economy. Deficits are projected to average about 2 percent of GDP over the next ten years, assuming the 2001 and 2003 tax cuts are extended. After that, the fiscal situation is expected to deteriorate markedly. In this analysis, we present new projections for the … -
If You're Going to Do Social Policy Through the Tax Code, Do it Right
January 24, 2007
The most contentious issues in tax policy are not going to be settled in the next two years. President Bush and the Democratic Congress are unlikely to come to a sustainable, long-term agreement on the level of revenue — debates on extending the tax cuts or letting some of them expire are likely a matter for the next president and the next Congress. … -
New CBO Report Shows Only Modest Fiscal Improvement
January 24, 2007
Several key findings and conclusions emerge from the new Congressional Budget Office report on the budget and the economy issued today.[1] The CBO report shows significant improvement in the ten-year budget outlook, but the improvement is not nearly as large as a casual reader of the report might think. Part of what appears to be an …
