More Recent Tax Foundation News: Page 2
Most people have heard of Tax Freedom Day by now. For those who haven't, Tax Freedom Day is the day on which Americans have earned enough money to pay all their federal, state and local taxes for the year. On Tax Freedom Day, we have earned enough to pay the government and we can finally start keeping our paychecks for ourselves and our families. It's a great way to illustrate how much the nation as a whole pays in taxes. We also calculate a Tax Freedom Day for each state.
In 2008, Tax Freedom Day falls on April 23, which means Americans must work from January 1 until April 23—nearly a third of the year—just to pay taxes. That's more than we spend on food, clothing and housing combined.
Every year we publish a report explaining what Tax Freedom Day is all about and how we calculate it. The report is available here (if you'd like a hard copy, just send us an e-mail with your name and address) and a paper explaining the methodology is available here. This year, in addition to the Tax Freedom Day report, we thought it would be fun to illustrate the concept in a different way. So if you're done reading the report and you want to experience Tax Freedom Day in a whole new way, click here and take a look at our new YouTube video.
The Tax Foundation, in a friend-of-the-court brief filed with the South Dakota Supreme Court, urges that state to stop its discriminatory insurance tax system that taxes out-of-state companies at twice the rate of in-state companies. The case, Metropolitan Life Ins. Co. v. Kinsman, is currently before the court on a petition for rehearing.
Since explicit discrimination in rates was struck down as violating the Equal Protection Clause of the Fourteenth Amendment by the U.S. Supreme Court in 1985, South Dakota is one of eight remaining states that seek to protect their domestic insurance companies by imposing heavier taxes on out-of-state companies doing business in the state. While on paper all companies pay the same 2.5% rate, in-state companies automatically receive rate reductions, lowering their tax bill to 0.75% to 1.25%. The result is effective discrimination against out-of-state companies which violates the Equal Protection Clause, as the trial judge concluded.
While the trial judge invalidated the statute in this case, late last month the state Supreme Court reversed. Our brief argues that the court's decision is problematic because (1) it does not consider the Findings of Fact by the trial judge, (2) the standard adopted by the Court will be problematic, and (3) the statute does not survive rational basis review. A decision on the petition for rehearing is expected in April or May.
Click here to read the brief. Click here for more amicus briefs filed by the Tax Foundation. Click here for more on the Tax Foundation's Center for Legal Reform.
Fundamental reform of the U.S. tax system poses significant political challenges, but it offers the opportunity to rationalize many aspects of the tax system, according to Tax Foundation testimony before the Senate Finance Committee on April 15. Vice President for Economic Policy Robert J. Carroll told the tax-writers that fundamental tax reform has the potential to reduce the compliance burdens imposed on both households and businesses, and at the same time create an environment for greater economic growth in the long-term in a manner that is appropriately fair.
A fundamental issue highlighted by Carroll was the choice between income-based and consumption-based taxes. Consumption taxes generally reduce the tax on saving and investment, and Carroll stressed the importance of this way to boost economic performance and living standards in the longer term, in a way that retained the current progressivity of the tax system.
Among the federal government's most important challenges, Carroll said that reforming the corporate income tax is becoming more urgent as our major trading partners around the world take the initiative. This was the theme of a recent Tax Foundation Fiscal Fact by Carroll.
"By standing still, the United States can expect to see reduced inflows of foreign capital and investment because the United States will be a less attractive place in which to invest, innovate and grow," commented Carroll. "In the near-term, this would translate into slower economic growth, a slower advance in labor productivity, and less employment."
Read the testimony. Read the Fiscal Fact, The Economic Consequences of Being Left Behind: A U.S. Business Tax System that Is Out of Line Internationally.
A new Tax Foundation Fiscal Fact, "States Should Avoid Sales Taxes on Nonprofit Hospital Purchases," provides a quick look at how each state taxes purchases made by nonprofit hospitals. While income tax exemptions for nonprofit hospitals may not be justified under the principles of sound tax policy, sales tax exemptions for the purchase of inputs are. Only seven states exempt inputs purchased by all hospitals, and six states do not exempt inputs purchased by nonprofit hospitals.
States seeking a neutral, transparent sales tax system should exempt all business-to-business transactions and impose sales tax only on final retail sales of goods and services. Because many states continue to impose sales tax on business-to-business inputs, examining the tax treatment of a variety of such transactions can provide insight into the neutrality and transparency of a state's overall tax system. For many states, exempting inputs from the sales tax should be a part of any tax reform effort.
Click here to read the Fiscal Fact. Click here for more on sales taxes.
Tax Freedom Day, the day on which Americans have earned enough money to pay all their federal, state and local taxes for the year, will fall on April 23 this year, according to the Tax Foundation's annual calculation using the latest government data on income and taxes. That's three days earlier than in 2007. Stimulus rebates and a projection of slow growth in 2008 are the principal reasons for the earlier celebration.
The new study, Tax Foundation Special Report No. 160, "America Celebrates Tax Freedom Day," by Tax Foundation senior economist Gerald Prante and Tax Foundation president Scott Hodge, also compares tax payments to other major consumer expenditures, traces the course of America's tax burden since 1900, examines the composition of today's tax burden by type of tax, and calculates a Tax Freedom Day for each state.
Read the full report. Read the news release. View the data.
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