July 4, 2009
What's New?
New analysis of President Obama's Budget finds that he is targeting the nation's highest earners for greater income redistributions. By 2012, the federal government is scheduled to be redistributing an extra $79 billion from the top-earning 5 percent of American families, and $71 billion of that will be paid by the top-earning 1 percent of families.
"That's an additional $64,000 per family redistributed from the top-earning 1 percent," said the Tax Foundation's president Scott Hodge, "on top of the already substantial $368,000 that would have been redistributed from each family even without President Obama's new policies."
"Part of that change is higher taxes, and part is lower spending on items that benefit high-income people," said the study's lead author, Tax Foundation Senior Economist Gerald Prante.
The new study is No. 168 in the Tax Foundation Special Report series, titled, "How Much Does President Obama's Budget Redistribute Income?" by Prante and his co-author, Chief Economist Patrick Fleenor. It is the first in a projected series of reports based on the Tax Foundation's "fiscal incidence" model, a computer simulation of the U.S. fiscal system with an innovation: it measures the redistributive effects of both spending and tax policies. Thanks to numerous studies of tax laws by the Congressional Budget Office, the Joint Tax Committee and others, policymakers are well aware of how much money the tax system by itself redistributes from high- to middle- and low-income Americans. Now the Tax Foundation is measuring the redistributive effects of spending as well.
Read the full news release. Read the new Tax Foundation Special Report (PDF).
This month Maine passed the most sweeping changes to the state's tax code since the establishment of its income tax in 1969. According to Tax Foundation Staff Economist Kail Padgittt, author of the new Tax Foundation Fiscal Fact "The Pine Tree State Chops Down Income Tax: Maine Enacts Major Tax Reform," the reform has both good and bad aspects, but overall is a positive change.
"The Maine legislature has attempted broad and far-reaching reform of their tax system," Padgitt said. "Ultimately the reform effort is a positive step forward. It would have been better if LD 1088 had been enacted into law instead of LD 1495. However, both represent an attempt to simplify and stabilize the Maine tax system. The Maine legislature should remain focused on creating a tax code that pushes for simplicity, neutrality and stability. Whether this marks the beginning of larger tide of beneficial tax reform or the high watermark is yet to be seen."
Read the news release. Read the new Tax Foundation Fiscal Fact.
More on Maine's tax system.
Tax Watch is the Tax Foundation's quarterly tax policy newsletter, presenting our economic research and analysis in a simple, non-technical format—ideal for the non-economist looking for a clear explanation of current tax issues.
Highlights from the Summer 2009 issue include:
- Video, Study Warn Against Obama Plan on Tax Deferral
- Poll: Americans Say Taxes Complex, Need Reform
- Cap and Trade: What Would Climate Policy Cost Americans?
- Hawaii Adopts "Millionaire's Tax"
Read the Summer 2009 issue of Tax Watch in PDF or sign up for a free subscription.
As Illinois legislators gather in Springfield for a special session called by Governor Pat Quinn (D), a Tax Foundation expert warned that Quinn's proposal to increase individual and corporate income taxes would sharply reduce Illinois's state business tax climate ranking, moving it from the top half to the bottom half in the nation when it comes to "business-friendliness."
"Illinois has high property taxes and high sales taxes," said Tax Foundation Director of State Projects Joseph Henchman. "Currently, those taxes are partly offset by a low personal income tax. With a 50% increase in the income tax rate, Illinois legislators would give up the state's one tax climate advantage."
Read the rest. More on Illinois's tax system.
Americans can now estimate how much a U.S. cap-and-trade system would cost their individual households annually with the Tax Foundation's new Household Cap-and-Trade Burden Calculator.
The calculator is based upon a study released in March, Tax Foundation Working Paper No. 6, "Who Pays for Climate Policy? New Estimates of the Household Burden and Economic Impact of a U.S. Cap-and-Trade System." The study shows that a cap-and-trade system designed to reduce greenhouse gas emissions by 15 percent would place an annual burden of $144.8 billion on American households. The average annual household burden would be $1,218, which would be approximately 2% of the average household income.
Although carbon emission permits under a cap-and-trade system would be purchased first by energy companies, the costs are ultimately paid by American consumers. The calculator asks how much a household's combined monthly income is (pre-tax) and how much a household spends monthly on various items like electricity, natural gas, food, clothing and transportation. It then calculates the total annual additional cost that cap-and-trade would impose on that household as well as the cap-and-trade burden as a percentage of income.
Read the full news release. Calculate your household's cap-and-trade burden.
Retiring U.S. Supreme Court Justice David Souter will be remembered for many things: being President George H.W. Bush's "stealth nominee," a propensity to dissent, and his controversial deciding vote to approve the use of eminent domain for private purposes in Kelo v. City of New London. In cases involving taxation Justice Souter will be remembered for his antipathy. When asked why he sang along with the late Chief Justice William Rehnquist at the Court's annual Christmas party, he responded, "I have to. Otherwise I get all the tax cases."
It is not surprising, then, that Justice Souter's contribution to tax jurisprudence is not as significant as those of his colleagues. However, as he leaves the bench it is worth reflecting on his votes and opinions in key tax cases.
Read the new Tax Foundation Fiscal Fact "Justice Souter's Tax Opinions Show Steady Erosion of Respect for Commerce Clause."
More on tax law.
