Tax Foundation - Press Room

Maryland Assembly Debates Income Tax Increases

Tue, 15 May 2012 00:00:00 EDT

Higher Rates Would Hit Large Number of Households

Washington, D.C., May 15, 2012—Legislators in Maryland, currently meeting in a special session of the General Assembly, are poised to approve a slate of tax increases, including increased income tax rates on those earning more than $100,000 a year. Lawmakers are also considering an increase in the sales tax, according to a new study by the Tax Foundation.

"When the regular session ended without a new revenue deal, many onlookers feverishly decried the austerity of the ‘doomsday’ budget that took effect instead, which would cut $500 million in expenses over the next year," said Tax Foundation economist Scott Drenkard. "However, these doomsday cuts are actually applied to planned spending increases, so that even under this scenario the budget will still increase by $700 million."

An income tax proposal was put forward yesterday which would increase rates for singles earning above $100,000 and for joint filers earning above $150,000. This plan also phases out the exemption more aggressively than the current tax system, meaning that more income from high-income filers will be taxed, resulting in higher effective rates. A dual-earner, two child family with $250,000 in federal adjusted income living in Maryland would pay $989 more in state income taxes.

Another proposal that was floated in the regular session that may find its way into the special session is a one percent sales tax increase from 6 percent to 7 percent. If passed, the sales tax increase would tie Maryland for the second highest statewide sales tax rate in the country. It would also move Maryland out of step with its neighbors, particularly Delaware, which has no sales tax.

Maryland’s income tax increase proposal fails to meet the criteria of sound tax policy. By opting to raise taxes on high-income earners, the proposal seeks to raise taxes in a politically expedient way, but one which will have distortive long-term effects. If a sales tax increase re-emerges as proposal, this too will make Maryland less competitive among its neighbors and in the nation.

Tax Foundation Fiscal Fact No. 301, “Maryland Considers Proposal to Extend ‘Millionaires Tax’ to $100,000 Income Level” by Scott Drenkard is available online.

The Tax Foundation is a nonpartisan research organization that has monitored fiscal policy at the federal, state and local levels since 1937. To schedule an interview, please contact Richard Morrison, the Tax Foundation’s Manager of Communications, at 202-464-5102 or morrison@taxfoundation.org.

Tax Officials Going After Scholastic Books

Tue, 15 May 2012 00:00:00 EDT

Classroom Teachers Considered to Be an Unpaid Sales Force

Washington, D.C., May 15, 2012—Prominent educational publisher Scholastic Book Club, Inc., is facing large back tax bills from Connecticut and Tennessee despite the company not having property or employees in those states. Courts have ruled that the classroom teachers who collect book orders establish enough of a link in the state to subject the company to tax assessments, according to a new analysis from the Tax Foundation.

"States are becoming increasingly aggressive about expanding nexus standards beyond their borders as budgets get tighter and the desire to find new revenue increases," said Tax Foundation Vice President of Legal and State Projects Joseph Henchman. "The precedent thus far in these Scholastic cases suggests a bleak future for remote sellers seeking to do business across state lines."

Some 14,000 teachers in Connecticut use Scholastic Book Club programs, all of which the state now considers to be “representatives” of the company. Based on that definition, the company has been assessed more than $3 million in back sales taxes and penalties. This interpretation erodes the bright line distinction between who is and is not considered an employee of a business, and could easily be applied to not just to providers of educational services but to any out-of-state company.

Scholastic has also fun afoul of tax authorities in Tennessee, which have found that the company owes the state $5 million in back taxes. A court ruling on the dispute noted that Scholastic was benefitting from taxpayer services (public schools) to solicit and deliver its products, though such a standard could potentially be applied to any products ordered from or delivered to public buildings.

As Internet and other non-local sales continue to expand, the costs of state tax uncertainty will constitute an increasing burden on both consumers and businesses. While some court verdicts have ruled against Scholastic, other state courts have handed down opposing rulings in essentially identical circumstances. These cases illustrate the inconsistency of courts in deciding state tax authority and the necessity for Congress or the federal courts to definitively resolve the problem.

Tax Foundation Fiscal Fact No. 300, “Scholastic Books Faces State Tax Overreaching” by Joseph Henchman and Jordan King is available online.

Online Travel Services Fight Local Tax Authorities

Wed, 09 May 2012 00:00:00 EDT

Cities and Counties Demand Tax Money when Travelers Book Online

Washington, D.C., May 9, 2012—Dozens of local governments have attempted to expand their taxing authority by levying hotel taxes on travel booking websites in recent years. These attempts to shift more of the tax burden to tourists and business travelers have proven unpopular with state courts, which have struck down the vast majority of attempts, according to a new study released today by the Tax Foundation.

In traditional hotel transactions, travelers book a room and pay a hotel tax based on the amount they pay to the hotel. Online travel companies facilitate such transactions between consumers and hotels, and keep part of what the consumer pays as a service fee. Since these companies neither operate hotels nor resell rooms as wholesalers, their business falls outside the proper scope of hotel occupancy taxes.

In addition, a properly structured sales tax should apply to all goods and services and apply only once. Goods and services primarily used by nonresidents should not be subject to higher, discriminatory taxes nor should a tax system attempt to micromanage consumer decisions. Unfortunately in practice, nonresidents are often made to bear a disproportionate share of the tax burden through high taxes on items like restaurant meals, car rentals, and hotel rooms.

"It is important that our state and local governments collect revenue needed to provide the services demanded by their constituents," said Tax Foundation Vice President of Legal and State Projects Joseph Henchman. "But that need does not justify impositions on interstate commerce, burdens on the national economy, or the corruption of sound tax principles."

Since cities and counties first attempted to levy hotel occupancy fees on online travel companies, such efforts have failed in 18 states and been allowed to stand in three states and the District of Columbia. Legal challenges are pending in five additional states.

Tax Foundation Special Report No. 198, “Taxation of Online Travel Services” by Joseph Henchman is available online.

Americans Pay More in Taxes than Housing, Food and Clothing Combined

Thu, 03 May 2012 00:00:00 EDT

Inceasingly, Taxes Paid by Some Cover Basic Living Expenses for Others

Washington, DC, May 3, 2012—In 2012, Americans will pay approximately $4.041 trillion in taxes, which is $152 billion, or 3.9%, more than they will spend on housing, food, and clothing combined, according to a new study from the Tax Foundation. In addition, an increasing proportion of government benefits now go to pay for those same basic expenses of low-income Americans.

Examining the trends of tax collections and expenditures on housing, food, and clothing for the past several decades, the study shows that an ever-increasing amount of taxpayer money has gone into government programs that subsidize or pay for essential household goods. Cash and voucher benefits now pay for over a third of basic household expenses, up from less than 1% in 1929 and less than 20% in the early 1970s.

"Transfer payments, or government social benefits, have grown to represent a substantial portion of money spent on living expenses, encompassing housing, food, clothing, healthcare, and transportation," said Tax Foundation Adjunct Scholar Kevin Duncan. "This means that the government is picking up an increasing portion of the tab for these essential goods."

From the creation of Medicare in 1965 through 2010, transfer payments rose from 11.39% to 34.79% of living expenditures. While some money spent on transfer programs is spent on other items besides healthcare, food, clothing, transportation, and housing, the strong prevalence of in-kind benefits, or government transfer payments for a specific item or service, keeps this as a small fraction of overall expenditures.

Between 1929 and the early 1980s, aggregate tax collections were less than total expenditures on housing, food, and clothing. From 1929 to 1980, tax liabilities grew from $10 billion to $751 billion, while expenditures on housing, food, and clothing grew from $41.6 billion to $775.7 billion. The gap between tax collections and expenditures on essential goods reached a maximum in 2000, when Americans gave 19% more to the government than they spent on these items.

Tax Foundation Fiscal Fact No. 299, “Americans Paying More in Taxes than for Food, Clothing, and Shelter” by Kevin Duncan is available online. The Tax Foundation is a nonpartisan research organization that has monitored fiscal policy at the federal, state and local levels since 1937. To schedule an interview, please contact Richard Morrison, the Tax Foundation’s Manager of Communications, at 202-464-5102 or morrison@taxfoundation.org.

Tax Freedom Day� Arrives in New Jersey Today

Tue, 01 May 2012 00:00:00 EDT

Residents of the Garden State Celebrate Later Than National Average

Washington, DC, May 1, 2012—Tax Freedom Day, the date on which Americans will have earned enough money to pay this year’s tax obligations at the federal, state, and local levels, will fall on May 1^st for residents of New Jersey. This date is the third-latest Tax Freedom Day in the nation. The average date for all Americans, as announced recently by the Tax Foundation, was Tuesday, April 17^th.

In the new study "Tax Freedom Day 2012" economist Will McBride, Ph.D., also calculates how long Americans would have to work in order to close the budget deficit. In order to pay for all spending in the current year, the government would need to raise an additional $1.014 trillion in taxes, pushing Tax Freedom Day to May 14^th.

"This year, Americans will pay $2.62 trillion in federal taxes and $1.42 trillion in state-local taxes out of $13.86 trillion in income, for a 29.2% tax bill," said McBride. "That means taxpayers will pay more in taxes in 2012 than they will spend on food, clothing, and housing combined."

Historically, the date for Tax Freedom Day has fluctuated significantly. The latest-ever Tax Freedom Day was May 1, 2000—meaning Americans paid 33.0% of their total income in taxes. A century earlier, in 1900, Americans paid only 5.9% of their income in taxes, meaning Tax Freedom Day came on January 22.

Five major categories of taxes dominate the tax burden. Individual income taxes – including federal, state and local – require 40 days of work. Payroll taxes take another 23 days of work. Sales and excise taxes, mostly state and local, take 15 days to pay off. Property taxes take 12 days, and corporate income taxes take another 10.

The total tax burden borne by residents of different states varies considerably, not only due to differing state tax policies, but also because of the steep progressivity of the federal tax system. This means higher-income states celebrate Tax Freedom Day later; Connecticut (May 5), New Jersey (May 1), and New York (May 1) residents face a significantly higher total federal tax burden than lower-income states. Residents of Tennessee will bear the lowest average tax burden in 2012, with Tax Freedom Day arriving for them on March 31. Also early are Louisiana (April 1), Mississippi (April 1), South Carolina (April 3), and South Dakota (April 4).

For more information, go to http://www.taxfoundation.org/taxfreedomday.

The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937. To schedule an interview, please contact Richard Morrison, the Tax Foundation’s Manager of Communications, at 202-464-5102 or morrison@taxfoundation.org.

Alaska Film Incentives a Case Study in Poor Tax Policy

Thu, 26 Apr 2012 00:00:00 EDT

Tax Credits Have Become Welfare for Movie Producers

Washington, DC, April 26, 2012—Reflecting many of the problems with film incentive programs nationwide, the state of Alaska’s Film Industry Tax Credit program subsidizes already profitable production companies while delivering little tangible benefit to taxpayers, according to a new study by the Tax Foundation.

The study argues that much of the money spent by film productions ultimately flows to out-of-state beneficiaries, including industry specialists that must be brought in to handle technical aspects of production. In addition, the ostensible goal of the subsidy program – to establish Alaska as the center of a self-sustaining film industry – seems unlikely in an era when even Hollywood itself is being confronted with the reality of an increasingly dispersed marketplace for film production.

Perhaps the biggest fallacy of film incentive programs, both is Alaska and other states, is the argument that by stimulating greater in-state economic activity, they “pay for themselves” when the state taxes the sales and income thus generated. Not only do many recent economic studies question that general premise, but it is particularly inapplicable to Alaska, which has no statewide sales tax or individual income tax.

"As in many states, film subsidies in Alaska have been credited with bringing to the state the economic activity spurred by several productions," said Tax Foundation economist Mark Robyn. "However, the commonly cited benefits of film subsidies are often overstated and fail to take into account offsetting economic effects."

The best evidence shows that film incentives cost state treasuries more than they recoup from taxes on induced economic activity. A study in South Carolina found that film incentives returned 19 cents for each dollar paid out in tax rebates. Aside from studies paid for by economic development authorities and the Motion Picture Association of America, an industry trade association, almost every other study has found film tax credits generate less than 30 cents for every $1 of spending.

Tax Foundation Expert to Testify on State Tax Policy

Tue, 24 Apr 2012 00:00:00 EDT

Senate Finance Committee Hearing Wednesday Morning

Washington, D.C., April 24, 2012—Tax Foundation Vice President of State and Legal Projects Joseph Henchman will testify this Wednesday before the Senate Finance Committee on how tax reform at the federal level could affect fiscal policy at the state and local level.

Senate Finance Committee Chairman Max Baucus (D-MT) will preside over the hearing “Tax Reform: What It Means for State and Local Tax and Fiscal Policy.” The hearing will take place on Wednesday, April 25^th at 10:00am in room 215 of the Dirksen Senate Office Building.

Henchman’s testimony will cover sales taxes, interstates commerce, and the limits of state taxing authority, among other topics. These issues are part of the work of the Tax Foundation’s Center for State Fiscal Policy, which produces data, research, and analysis on taxation and public finance at the state and local level.

Other witnesses at Wednesday’s hearing will include Frank Sammartino of the Congressional Budget Office, Kim Rueben of the Tax Policy Center, Walter Hellerstein of the University of Georgia School of Law, and Sanford Zinman of Zinman Accounting.

Read the full text of Mr. Henchman's testimony here.

State Tax Collections Increase as Economic Recovery Advances

Tue, 24 Apr 2012 00:00:00 EDT

Revenues up Nine Percent in 2011

Washington, DC, April 24, 2012—After two years of falling revenue, total state government tax collections increased by nearly 9% during 2011, according to a new analysis by the Tax Foundation. Using data recently released by the United States Census Bureau, economist Mark Robyn found that state collections totaled $757 billion last year, though that figure is still slightly less than the pre-recession levels of 2007.

The recent increase in state tax collections is consistent with the gradual recovery from the so-called Great Recession,” said Tax Foundation economist Mark Robyn. “As economic activity picks up we expect to continue seeing increases in tax payments, in particular from sources like the corporate income tax, which is highly dependent on the health of the economy.”

While the recession caused a drop in state tax revenues across the board, some tax sources were more volatile than others. Examining changes in tax collections since 2000, it is clear that revenue from state corporate income taxes has by far been the most volatile over the last decade.

The individual income tax exhibited significant volatility over the last decade as well. Sales and excise taxes were more stable, though they were still subject to year over year declines during the recession. It ultimately remains to be seen where tax collection growth rates will stabilize as the economy continues to recover.

Tax Foundation Fiscal Fact No. 298, “State Tax Collections Rising in Post-Recession Recovery” by Alex Raut and Mark Robyn is available online.The Tax Foundation is a nonpartisan research organization that has monitored fiscal policy at the federal, state and local levels since 1937. To schedule an interview, please contact Richard Morrison, the Tax Foundation’s Manager of Communications, at 202-464-5102 or morrison@taxfoundation.org.

Taxmageddon Could Push Tax Freedom Day Later than Ever

Mon, 16 Apr 2012 00:00:00 EDT

Expiring Provisions Would Raise Taxes across the Board

Washington, DC, April 16, 2012—Significant elements of the current federal income tax code are set to expire at the end of the year, which if not addressed by Congress and the President will result in a dramatic tax increase that has come to be known by pundits as “Taxmageddon.” That huge tax hike would mean that Tax Freedom Day – the date by which Americans have worked long enough to pay their entire tax burden – would fall on one of the latest dates in American history according to a new analysis by the Tax Foundation.

"Taxmageddon is the result of a litany of expiring tax provisions, all occurring at the end of this year," said Tax Foundation economist Will McBride, Ph.D. "The biggest expiring provisions are the Bush tax cuts of 2001 and 2003, the payroll tax holiday, and the Alternative Minimum Tax (AMT) patch."

This year it will take Americans 107 days to pay their total tax burden and these federal tax increases will add more than 11 days, pushing Tax Freedom Day to the end of April. In addition, state and local tax collections are surging, meaning that Tax Freedom Day 2013 next year could easily be a record breaker. The all-time latest Tax Freedom Day occurred on May 1, 2000, after huge stock market gains produced exceptionally high capital gains tax collections.

The biggest effect is on the federal individual income tax, the burden of which would increase more than 5 days unless these tax increases are halted. This is mainly the result of expiration of the Bush tax cuts and the AMT patch, which would each add more than 2 days to the burden. The corporate income tax burden would increase more than 3 days, partly as a result of expiring tax-extenders mainly used by businesses. More than 2 days would be added by expiration of the payroll tax holiday. Finally, expiration of the Bush tax cuts would increase the estate tax burden considerably, but because the estate tax is such a small part of the total burden, it would add only a partial day.

Tax Foundation Fiscal Fact No. 297, “Taxmageddon Looms, Potentially Pushing Tax Freedom Day Later than Ever” by Will McBride, Ph.D. is available online.

Tax Foundation Releases MyTaxBurden.com Calculator

Mon, 16 Apr 2012 00:00:00 EDT

Revised Online Tool Allows Taxpayers to Estimate Individual Costs of Tax Policies

Washington, DC, April 16, 2012—The Tax Foundation has launched a newly revised and updated online tool for taxpayers, to help them estimate what their tax burden would be under several possible legislative proposals being considered by Congress and the President. The MyTaxBurden Tax Policy Calculator allows users to input household data and get a personalized estimate of what they would have to pay to the federal government under an array of different scenarios.

The three default scenarios presented by the MyTaxBurden calculator are full expiration of all Bush-era and Obama tax cuts, full extension of these cuts, and President Obama’s plan to partially extend these cuts for families making under $250,000 per year ($200,000 for single filers.) Amounts are automatically shown for tax year 2013, but the calculator allows the user to enter custom policy scenarios with different combinations of legislative proposals for different tax years.

The MyTaxBurden calculator also allows users to share their calculations with others, via a permanent link to their results. Individuals can use their own income data to estimate their potential tax burden, or use example data to learn about how the various proposals would affect different types of households.

Example scenarios

Low Income Single Parent: $20,000 income, 2 kids

Typical Family: $55,000 income, 2 kids

Wealthy Family, $300,000 income, 2 kids

Wealthier Family, $500,000 income, 2 kids

Very Wealthy Individual, $1,500,000 income, single filer

President Obama’s Tax Return

“We allow users many options in both the amount of data they want to provide and the level of detail they can go into in customizing their results,” said analyst and programmer Nick Kasprak. “The calculator can provide general results with only a few data points, while advanced users can get extremely detailed results under dozens of different custom scenarios.”

Many taxpayers are particularly interested in what their tax burden is going to be over the next year, as large parts of the federal tax code are current set to change or expire. Current marginal rates, signed into law by President George W. Bush in 2001 and 2003 and extended by President Obama, are set to expire at the end of the year, in addition to elements of the Alternative Minimum Tax, the current payroll tax holiday, and other significant provisions.

The Tax Foundation provides several online tools for taxpayers, researchers, and the media. These include the Healthcare Tax Calculator, an interactive database of property tax information, and a state spending limits data tool.

The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937. To schedule an interview, please contact Richard Morrison, the Tax Foundation’s Manager of Media Relations, at 202-464-5102 or morrison@taxfoundation.org.

Tax Facts for Journalists (and Taxpayers)

Wed, 11 Apr 2012 00:00:00 EDT

Washington, D.C., April 11, 2012—The deadline for filing federal tax returns this year is April 17^th, and with that date fast approaching, the Tax Foundation has compiled a few statistics to help journalists put the nation’s income tax system in perspective.

This edition of Tax Facts was compiled by Tax Foundation economist Will McBride. The following are based on the most recent Internal Revenue Service data for tax year 2010 and the IRS National Taxpayer Advocate’s 2011 Report to Congress.

· 143 million tax returns were filed with the IRS in 2010, some of which represent households and married couples.

· Americans paid federal incomes taxes of $945 billion.

· Only 85 million actually paid taxes out of the 143 million filers. In other words, 58 million, or 41%, were non-payers. 96% of these non-payers made less than $50,000.

· The IRS paid out $105 billion in refundable credits to filers who paid no income tax.

· The effective tax rate for those making less than $50,000 was 3.5%, and their share of taxes paid was 6.7%.

· The effective tax rate for those making more than $50,000 was 14.1%, and their share of taxes paid was 93.3%.

· The effective tax rate for those making more than $250,000 was 23.4%, and their share of taxes paid was 45.7%.

· 33% of tax filers itemized.

· 25% of tax filers took the mortgage interest deduction, which reduced taxable income by $381 billion.

· 27% of tax filers took the charitable donations deduction, which reduced taxable income by $158 billion.

· 26 million filers took the refundable earned income tax credit, and they received $56 billion from the IRS despite having paid no income taxes.

· 21 million filers took the refundable child credit, and they received $27 billion from the IRS despite having paid no income taxes.

· 4 million paid the Alternative Minimum Tax.

· The IRS estimates that it takes more than 7 billion hours to comply with the tax code each year.

· The tax code is now 3.8 million words long.

· Over the last ten years there have been about 4,428 changes to the tax code, or more than one a day, including about 579 changes in 2010 alone.

New Study on Sales Taxes in Major Urban Areas

Wed, 11 Apr 2012 00:00:00 EDT

Washington, DC, April 11, 2012—Sales taxes in the United States are levied not only by state governments but also by city, county, special district, and Native American governments. A new study from the Tax Foundation updates the rates from across the country and ranks the largest U.S. cities on their combined sales tax rates.

Birmingham and Montgomery, both in Alabama, have the highest combined state and local sales tax rate among major U.S. cities, at 10 percent. They are followed by Chicago, Illinois; Glendale, Arizona; and Seattle, Washington, each with rates of 9.5 percent.

Portland, Oregon and Anchorage, Alaska have neither a state nor local sales tax, giving them a rate of zero. Honolulu, Hawaii has the third lowest sales tax among major cities with a rate of 4.5 percent; however, Hawaii’s overly broad sales tax makes this not strictly comparable with other states. Five local jurisdictions in Virginia (Arlington, Chesapeake, Norfolk, Richmond, and Virginia Beach) are also relatively low on the list, levying just a 5 percent statewide sales tax.

"Of course, sales taxes are just one part of an overall tax structure and should be considered in context," said Tax Foundation economist Scott Drenkard. "For example, Washington State has high sales taxes but no income tax while Oregon has no sales tax but high income taxes. Many factors influence business location and investment decisions, but sales taxes are something within policymakers’ control that can have immediate impacts."

Just as the sales tax rates in jurisdictions vary widely, the sales tax base varies as well. Most states exempt groceries from the sales tax, others tax groceries at a limited rate, and still others tax groceries at the same rate as all other products. Some states exempt clothing or tax it at a reduced rate.

The taxation of services and business-to-business transactions also vary widely by state. Experts generally agree that Hawaii has the broadest sales tax in the United States, taxing many products multiple times and, by one estimate, ultimately taxing over 99 percent of the state’s personal income. This base is far wider than the national median, where the sales tax base applies to about 34 percent of personal income.

Tax Foundation Fiscal Fact No. 296, “Sales Tax Rates in Major U.S. Cities” by Scott Drenkard, Alex Raut, and Kevin Duncan is available online.

Frequently Asked Questions on the Expiring Bush Tax Cuts

Wed, 11 Apr 2012 00:00:00 EDT

Billions of dollars in tax cuts are set to expire in January if nothing is done, and tax policy in Washington has been and will continue to be busy in 2012. With all of this action comes many questions about what is actually going on. This page is designed to "set the scene" for the general public, policymakers, and media with unbiased information relating to the current state of the federal tax system and what is set to happen. If you have any questions that are not answered, e-mail us and we will consider adding them to the list. (Note: We do not answer specific personal tax questions.)

1. What are the "Bush tax cuts," why are they expiring this year, and what is likely to happen?

2. How much did the Bush tax cuts cost the Treasury in foregone revenue?

3. Who received the biggest tax savings from the tax cuts?

4. Why were the tax cuts temporary (i.e. not made permanent) when they were passed in 2001 and 2003?

5. What is going on with President Obama's tax cuts, specifically those in the so-called stimulus bill?

6. How does this all interact with the Alternative Minimum Tax (AMT)?

7. What are PEP and Pease, and how were they affected by the tax cuts?

8. Can you provide a complete list of the tax provisions expiring at the end of this year (2013)?

9. Do you have a chart showing how the various scenarios (tax cuts expiring, tax Cuts extended, and Obama's proposal) would affect key tax parameters like tax rates and brackets, the standard deduc tion, etc.?

10. How does Obama's 2010 health care bill interact with all this?

Scott Hodge Addresses Bush Center Tax Conference

Mon, 09 Apr 2012 00:00:00 EDT

Tax Foundation President Will Join CEOs, Media Executives, Five Governors

Washington, DC, April 9, 2012—Tax Foundation President Scott Hodge will address the conference "Tax Policies for 4% Growth: Evidence from the States, American History, Markets, and Nations" tomorrow in New York City. The conference, hosted by the George W. Bush Presidential Center at the New-York Historical Society, will feature speakers from government, business, the news media, and non-profit sector, including former President George W. Bush, House Budget Committee Chairman Paul Ryan, and the sitting governors of five states.

Those not attending the conference in person can watch the proceedings live via webcast here.

Conference Speakers Will Include:

The Honorable George W. Bush

Maria Bartiromo, Anchor, CNBC's Closing Bell

The Honorable Sam Brownback, Governor of Kansas The Honorable

Chris Christie, Governor of New Jersey

The Honorable Mary Fallin, Governor of Oklahoma

Steve Forbes, Chairman and Editor-in-Chief, Forbes Media

The Honorable Governor Bill Haslam, Governor of Tennessee

Scott A. Hodge, President, Tax Foundation

The Honorable Paul R. LePage, Governor of Maine

Pamela H. Patsley, Chairman and CEO, MoneyGram International, Inc.

The Honorable Paul Ryan, Chairman, House Budget Committee

For more information on the George W. Bush Presidential Center, please contact the Center’s media relations desk at media@bushcenter.com or 214-890-9943.

Tax Freedom Day� to Arrive April 17 in 2012

Mon, 02 Apr 2012 00:00:00 EDT

Deficit Adds 27 Additional Days of Government Spending

Washington, DC, April 2, 2012—Tax Freedom Day will arrive on April 17 this year, the 107th day of 2012, according to the Tax Foundation’s annual calculation using the latest government data on income and taxes. Americans will work well over three months of the year – from January 1 to April 17 – before they have earned enough money to pay this year’s tax obligations at the federal, state, and local levels.

In the new study Tax Foundation Special Report No. 198, "Tax Freedom Day 2012," economist Will McBride, Ph.D., also calculates how long Americans would have to work in order to close the budget deficit. In order to pay for all spending in the current year, the government would need to raise an additional $1.014 trillion in taxes, pushing Tax Freedom Day to May 14.

“This year, Americans will pay $2.62 trillion in federal taxes and $1.42 trillion in state-local taxes out of $13.86 trillion in income, for a 29.2% tax bill,” said McBride. “That means taxpayers will pay more in taxes in 2012 than they will spend on food, clothing, and housing combined.”

The total tax burden borne by residents of different states varies considerably, not only due to differing state tax policies, but also because of the steep progressivity of the federal tax system. This means higher-income states celebrate Tax Freedom Day later: Connecticut (May 5), New Jersey (May 1), and New York (May 1) residents face a significantly higher total federal tax burden than lower-income states. Residents of Tennessee will bear the lowest average tax burden in 2012, with Tax Freedom Day arriving for them on March 31. Also early are Louisiana (April 1), Mississippi (April 1), South Carolina (April 3), and South Dakota (April 4).

For more information, go to http://www.taxfreedomday.org.

Tax Foundation Expert to Testify on Health Care Individual Mandate

Mon, 26 Mar 2012 00:00:00 EDT

Ways and Means Subcommittee Hearing Thursday Morning

Washington, DC, March 26, 2012—Tax Foundation Vice President of Legal Projects Joseph Henchman will testify this Thursday before the House Ways and Means Health Subcommittee on the constitutional status of the Patient Protection and Affordable Care Act.

House Ways and Means Health Subcommittee Chairman Wally Herger (R-CA) will preside over the hearing on both the constitutional concerns raised by the individual mandate and the potential economic problems caused by the employer mandate. The hearing will take place on Thursday, March 29, 2012, in 1100 Longworth House Office Building, beginning at 9:00am.

In addition to Thursday’s testimony, the Tax Foundation has also weighed in on the legal challenge to the Patient Protection and Affordable Care Act currently being heard before the U.S. Supreme Court. The amicus brief, co-authored by Joseph Henchman and Law Clerk Laura Lieberman, examines whether the cost levied on individuals who do not purchase health insurance qualifies as a penalty or a tax. This distinction is central to whether the provision can be considered within the constitutional limits of Congress' authority.

The Tax Foundation has also created the Health Care Tax Calculator, which individuals can use to get an overall view of how the tax provisions of the law will affect their household budget. Main components include the “Cadillac tax” on employer-provided health plans above a certain cost, new payroll taxes on high-income earners, an annual fee on prescription drug manufacturers, and a new excise tax on medical devices.

When It Comes to Business Taxes, Location Matters

Fri, 23 Mar 2012 00:00:00 EDT

New Study Has the Bottom Line on Tax Costs in All 50 States

Washington, DC, February 29, 2012---Taxes are a big cost for many businesses, and vary widely based both on state and market sector. Now, for the first time, the Tax Foundation has created a measurement of the bottom-line tax liability a firm would face doing business in each of the fifty states. In addition, the study measures the tax differences between companies in different industries and between new and existing companies within each state.

Location Matters: A Comparative Analysis of State Tax Costs on Business is a guide for anyone making decisions about new manufacturing facilities, corporate headquarter relocations, or state government affairs. It highlights the sometimes surprising differences in how different kinds of businesses are taxed within the same state.

"Corporate taxes on the state level rarely treat all comers equally, leading to sometimes dramatic disparities in the cost of doing business," said Tax Foundation president Scott Hodge. "Tax preferences and incentive deals can distort the playing field based on how long a business has been operating, whether it's a manufacturing or retail operation or whether it's moved from another state to set up shop."

The states which ranked best overall (for mature firms) were led by Wyoming at #1, followed, in descending order, by South Dakota, Georgia, Nevada, and Ohio. Lowest ranked states included Pennsylvania, which came in last at #50, followed by Hawaii, West Virginia, Kansas, and Rhode Island.

Widespread interest in corporate tax burdens has led to a number of studies from a variety of think tanks, media organizations, and research groups. None of these studies, however, provide comparisons of actual state business tax burdens. Location Matters takes a detailed look at the state's tax system, comparing how different the tax burden is for a retail store compared to a corporate headquarters, manufacturing plant, or research and development facility.

In order to produce the Location Matters guide, the Tax Foundation collaborated with KPMG LLP, the U.S. audit, tax and advisory firm. Tax Foundation economists modeled seven hypothetical firms, and KPMG calculated each entity's tax bill in each state. The study accounts for basically all business taxes and applies major tax incentives applicable by firm type.

"The Location Matters report should provide companies with an easy-to-use reference that will help shape their overall location decisions," said KPMG Principal W. Hartley Powell of the firm's Global Location and Expansion Services practice. "The report offers a comprehensive calculation of real-world tax obligations by firm types for all 50 states, making it a useful tool as companies work through the complexities of maintaining existing operations and establishing new operations."

Location Matters: A Comparative Analysis of State Tax Costs on Business is available online.

The Cost of Dining Out: Meals Taxes in Major U.S. Cities

Thu, 01 Mar 2012 00:00:00 EST

Highest in Minneapolis, Chicago, Virginia Beach, Seattle, and Washington, D.C.

Washington, DC, March 1, 2012-As many tourists and business travelers have learned, taxes on meals are sometimes higher than taxes on other goods. Of the 50 largest U.S. cities, 15 charge an additional meals tax on top of the regular sales tax, according to a new analysis by the Tax Foundation. The combined rates are highest in Minneapolis, Chicago, Virginia Beach, Seattle, and Washington, D.C.

Meals taxes generally apply to purchases of prepared food that are consumed either in a restaurant or taken to go for later consumption. In contrast, sales of groceries (or "non-prepared food") are completely exempt from state sales tax in 30 states and the District of Columbia and partly exempt in a further eight states. Meals taxes are usually locally imposed but are sometimes imposed at the state level.

"High taxes on prepared food are sometimes justified as a luxury tax intended to target higher-income individuals, although the diversity of takeout dining options suggests that such a tax is poorly targeted to achieve that goal," said Tax Foundation Vice President for State Projects Joseph Henchman. "One could say that it is a tax on individuals with less flexible schedules or who do not like to cook - rich or poor."

The additional meals tax rate in the top 50 cities can vary dramatically. Milwaukee, Wisconsin boasts the most modest add-on rate of 0.05%, while Denver and Washington, D.C. have the second-highest rate at 4%. Visitors to Virginia Beach, Virginia see the largest increase from the regular sales tax rate to the combined total: a 110% jump from 5% to 10.5%.

Such taxes are sometimes justified as "tourism" taxes, designed to shift tax burdens to business and vacation travelers, similar to high taxes on hotel rooms and car rentals. Because the benefit derived from added economic activity from visitors and travelers probably exceeds the government services they use during their stay, tourism taxes are generally bad policy because they shift tax burdens away from those residents who actually demand and benefit from government services.

Meals taxes can also add significant costs and lead to administrative complexity. According to the Massachusetts Department of Revenue, ordering lasagna for dinner in a restaurant is taxable, but if the same restaurant were to also sell a frozen lasagna dinner to be reheated at home, it would be exempt. Also, buying a pizza and two cans of soda is subject to the meals tax, but if the pizza is ordered to go with a two-liter bottle, the soda is exempt from the tax because it is "an unopened original container of at least 26 fluid ounces."

Tax Foundation Fiscal Fact No. 293, "Meals Taxes in Major U.S. Cities" by Joseph Henchman, Alex Raut, and Kevin Duncan is available online.

The Tax Foundation is a nonpartisan research organization that has monitored fiscal policy at the federal, state and local levels since 1937. To schedule an interview, please contact Richard Morrison, the Tax Foundation's Manager of Communications, at 202-464-5102 or morrison@taxfoundation.org.

Video: How U.S. Corporations Can Win at Home and Abroad

Tue, 21 Feb 2012 00:00:00 EST

U.S. Corporations Need to Be Competitive at Home and Abroad

Washington, DC, February 21, 2012—Raising taxes on U.S. corporations with operations abroad will not help create jobs, but will only succeed in making American companies less competitive overall which means fewer jobs at home, according to a new video from the Tax Foundation.

"Prominent politicians, including President Obama, have suggested that companies that 'ship jobs overseas' should be subjected to higher corporate tax rates, but that characterization fundamentally misstates how the modern business world functions," said Tax Foundation president Scott Hodge.

Over the next five years, the global economy is expected to expand by over $21 trillion, with 85% of that demand for new goods and services occurring in countries outside the U.S. When American corporations compete for that new business, some companies will make products here and ship them to customers overseas, but for others, the best way to win new business will to make their products as close to their overseas customers as possible.

"Serving international customers means understanding market conditions all over the world – because even in a global economy, all business is local," said Hodge.

When U.S. companies expand overseas, some in Washington worry that American jobs are left behind here at home. In reality, however, when American companies are successful abroad, it means more opportunities for American workers.

The more people a U.S. company employs abroad, the more skilled workers they need here in America. A growing international firm is going to need more employees providing manufacturing inputs, management expertise, research and development, and cultivating other abilities.

Unfortunately American companies looking to compete overseas are at a disadvantage because of the U.S. corporate tax rate, the second highest in the world at 35%. That burden makes American products less competitive, no matter where they are made.

"Punishing successful companies for serving their international customers will not bring jobs homes to the U.S," said Hodge. "Trying to force businesses to abandon their operations overseas will simply result in fewer successful American companies. As the video says, we can’t win here if we don’t win there."

Watch the full 4-video series on YouTube.

Script: "Corporate Taxes: Winning"

There are more than 7 billion people on earth.

That’s over 7 billion people who need stuff.

Stuff, like cell phones, computers, shampoo and bottled water.

Some estimate that all this new stuff will mean more than $21 trillion in new business over the next five years.

85% of that new demand will occur outside the US in fast-growing countries. [Source: The International Monetary Fund, 2011]

And, of course, there are a lot of companies around the world competing for that new business.

Now, to try and get some of that business, some American companies will make stuff here and ship it to customers overseas.

But for other American companies, the best way to win new business is to make stuff as close to their customers as possible, because even in a global economy all business is local.

Some in Washington worry that when American companies make stuff abroad, it costs jobs here at home.

But the truth is, when American companies succeed overseas, it means MORE work here at home.

You see, for every worker that a US company has abroad, they need plenty of skilled people back here in America.

Like scientists, factory workers, engineers, and programmers.

But, unfortunately American companies looking to compete overseas are at a disadvantage because of our tax rate.

U.S. companies are burdened with one of the highest corporate tax rates in the world at 35 percent.

This means American products are less competitive – no matter where they are made.

And since our competitors make their own products near those same customers, AND pay a lower tax rate, we struggle to compete.

Now some suggest that raising taxes on American companies that make products overseas will bring jobs back home, especially if we also lower taxes here.

But raising taxes on foreign sales will only make American products even less competitive.
And that means FEWER jobs here at home.

That’s bad news for the American scientists, factory workers, and engineers whose jobs depend on selling to customers all around the world.

So if we want to sell American products, supported by American workers, to those 7 billion people, we have to have a competitive tax system.

Because we can't win here if we don't win there.

For more information go to Tax Foundation dot org.

How to Improve a State�s Business Tax Climate

Thu, 16 Feb 2012 00:00:00 EST

Case Study: Recommendations for North Dakota

Washington, D.C., February 16, 2011--At the request of the North Dakota Taxpayers Association, the Tax Foundation has offered a list of recommendations to improve North Dakota's business tax climate. The recommended reforms are an example of the kind of changes many states could adopt to improve their own ranking on the Foundation's frequently-cited State Business Tax Climate Index.

The Index which the Tax Foundation produces annually enable business leaders, government policymakers, and taxpayers to gauge how their states' tax systems compare according to the economic principles of simplicity, neutrality, and broad tax bases with low tax rates. The states with tax systems that embrace those values most consistently end up ranked the highest.

The recommendations for North Dakota's tax system include changes to the state corporate income tax, individual income taxes, sales tax, and unemployment insurance tax. Tax Foundation economist Mark Robyn proposes eliminating tax credits for corporations, moving to a flat state income tax, and eliminating the sales tax on business-to-business transactions while broadening the base to include services.

Reforms along these lines can affect revenue totals. While the Tax Foundation recommends specific base-broadening changes, the analysis does not include any specific corresponding rate reductions in the analysis, for two reasons. First, state revenue officials are best positioned to estimate revenue effects. Second, North Dakotans must decide for themselves whether they want tax reform to raise the same amount of revenue or reduce revenue.

"If all of the changes listed in the new analysis had been in effect on July 1, 2011, North Dakota would have ranked fifth overall in the 2012 edition of the Index, instead of 29^th," said Robyn. "Given that the largest change from 2011 to 2012 was only twelve places, this would represent a dramatic improvement."

Tax Foundation Fiscal Fact No. 292, "Recommendations for North Dakota's Tax System" by Mark Robyn is available online. More information on North Dakota is available here.

Tax Foundation Releases New Data on State and Local Sales Taxes

Tue, 14 Feb 2012 00:00:00 EST

Tennessee, Arizona Have Highest Combined Sales Tax Rates

Washington, D.C., February 14, 2012—Tennessee, Arizona, Louisiana, Washington, and Oklahoma have the highest combined state and average local sales tax rates, according to a new report released today by the Tax Foundation. On the other end of the scale, Delaware, New Hampshire, and Oregon all have no state or local sales taxes, thus scoring combined rates of zero.

"While state sales taxes are generally easier to understand than the federal income tax system, the existence of thousands of local jurisdictions that set their own rates can lead to confusion" said Tax Foundation economist Scott Drenkard. "States with a moderate statewide rate can end up with an extremely high burden when local rates are added to the total."

Thirty-six states allow localities to charge a local sales tax. These local rates range from very low - such as 0.25 percent in Tupelo, Mississippi - to quite high, as in the case of the 7 percent rate in Wrangell, Alaska. Because local rates vary so dramatically and sometimes apply to very small jurisdictions, the Tax Foundation calculates a population-weighted average for each state.

The states with the highest combined state and local rates are Tennessee (9.45 percent), Arizona (9.12 percent), Louisiana (8.85 percent), Washington (8.80 percent), and Oklahoma (8.66 percent). Among the states with a statewide sales tax, the lowest average combined rates are found in Hawaii (4.35 percent), Maine (5.00 percent), Virginia (5.00 percent), Wyoming, (5.34.percent), and South Dakota (5.39 percent).

California, despite a 1 percent reduction in its sales tax rate that took effect July 1, 2011, still has the highest state-level rate at 7.25 percent. Five states tie for the second-highest statewide rate with 7 percent each: Indiana, Mississippi, New Jersey, Rhode Island, and Tennessee.

The states with the highest average local sales tax rates are Louisiana (4.85 percent), Colorado (4.54 percent), New York (4.48 percent), Alabama (4.33 percent), and Oklahoma (4.16 percent). The states with the lowest non-zero average local rates are Minnesota (0.30 percent), Vermont (0.14 percent), Idaho (0.02 percent), Mississippi (0.004 percent), and New Jersey (-0.03 percent). New Jersey has a unique system in which certain jurisdictions are exempt from collecting the 7 percent state tax and instead collect a 3.5 percent local tax. This results in a slightly negative statewide average local rate.

The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.

Tax Foundation Fiscal Fact No. 291, "State and Local Sales Taxes in 2012," by Scott Drenkard is available online. To schedule an interview, please contact Richard Morrison, the Tax Foundation's Manager of Media Relations, at (202) 464-5102 or morrison@taxfoundation.org.

Payroll Tax Cuts Wrong Strategy for Growth

Wed, 08 Feb 2012 00:00:00 EST

Greater Impact from Reductions in Corporate, Personal Income Taxes

Washington, DC, February 8, 2012—While Congress considers extending a payroll tax cut in order to stimulate the economy, a new study from the Tax Foundation finds that payroll tax cuts have little to no impact on long-term economic growth. If policymakers are looking to stimulate the economy, they should be considering reductions to the corporate income tax and the individual income tax.

Recent research on similar countries shows that cutting the corporate income tax provides the most bang for the buck when it comes to economic growth,” said Tax Foundation economist Will McBride. "Given that the U.S. will soon have the highest corporate rate in the developed world, we have plenty of room to make reductions that will both make U.S. companies more competitive and stimulate domestic growth."

The political debate over the payroll tax holiday has revolved around possible short term growth effects, when in fact the bigger issue is a long run growth slowdown. Since 2000 the U.S. has grown at a rate that is well below the average for similar economies. Over this period, social security payroll taxes do not appear to have any significant effect on long term economic growth.

In contrast, corporate income taxes have a highly significant and negative effect on long term growth. Using data from the Organization for Economic Cooperation and Development (OECD), McBride's research suggests that cutting the corporate rate by 10 percentage points is associated with an increase in cumulative real GDP growth of 11.1 percentage points. Personal income taxes on high incomes also have a significant negative effect on growth, such that cutting the rate by 10 percentage points is associated with an increase in cumulative real GDP growth of 7.5 percentage points over this period.

"The fastest growing economies in the OECD all have below average tax rates on both corporate and high income earners," said McBride. "The only one of the three major taxes where the U.S. boasts a lower rate is payroll – the one that matters the least for long term growth."

Tax Foundation Fiscal Fact No. 290, “Global Evidence on Taxes and Economic Growth: Payroll Taxes Have No Effect” by Will McBride is available online.

Video: How Much Do U.S. Corporations Really Pay in Taxes?

Mon, 06 Feb 2012 00:00:00 EST

New Video Documents High Effective Rates

Washington, DC, February 6, 2012—U.S. companies pay among the highest corporate tax rates in the world, even after accounting for all deductions and loopholes, according to a new video produced by the Tax Foundation. This explanation of "effective" tax rates for corporations, based on recent academic studies of tax systems around the globe, is the third in a 5-part series on corporate taxes.

"The impression that a large number of U.S. companies are using loopholes and creative accounting to get out of paying taxes could not be more wrong," said Tax Foundation president Scott Hodge. "American corporations are consistently paying at the highest levels in the world, and that burden impacts their ability to compete both at home and abroad."

The U.S. currently has the second highest tax rate on corporations, and will soon become number one when Japan implements a planned rate cut later this year. When the average corporate tax rate on the state level is added in, the total is almost 40%. After deductions, the effective rate naturally falls several points, but remains well above the average for developed countries and our closest trading partners.

"Pointing to a handful of prominent companies with unusually low tax payments makes for catchy headlines, but in no way tells the real story," said Hodge. "The data on American businesses in general is clear: they’re paying much higher rates than their foreign competitors. That’s a problem, and comprehensive tax reform is the answer."

The Tax Foundation video "Effective Corporate Tax Rates" is available online.

Previous installments focused on the advantages of a territorial tax system and how the U.S. has fallen behind by standing still on tax policy.

Script: "Effective Corporate Tax Rates"

The U.S. has one of the highest corporate tax rates in the world at 35% -- almost 40% when you add in state taxes.

But, just like you and I get to deduct things like our mortgages and charitable contributions, corporations get to deduct things too – like the cost of research and development and building a factory.

These deductions – what some call “loopholes” – save businesses about $100 billion a year according to the U.S. Treasury.

And from what you hear in the press, you’d think that all those “loopholes” would help American companies compete against businesses from lower-tax countries.

It turns out that is not the case when you compare what is called the 'effective tax rate.' The "effective tax rate" is the tax rate that companies ACTUALLY pay after their deductions.

You see, other countries give tax breaks too and more than a dozen international studies have compared the effective tax rates US companies pay to the effective tax rates paid by companies in other countries.

And, no matter how you measure it, American companies almost always pay the highest effective tax rates.

Take this new World Bank study, for example. They looked at the effective tax rates paid by a typical company in 183 countries around the globe. They found that 164 countries have lower effective corporate tax rates than the U.S.

The global average rate, 16%. Our average rate, nearly 28% [27.6%].

Only New Zealand, Chad and a handful of much smaller countries had higher rates than the US.
[citation: World Bank/PWC “Paying Taxes 2012”]

Another study by British economists at Oxford University compared the average tax rates for a range of industries in 19 of the biggest economies in the world.

The US didn’t stack up so well.

The average rate for industries in the US, 34.9%.

But industries in countries such as Korea (19.8%), China (22.4%), Canada (25.7%), United Kingdom (26.3%), Germany (27%), and India (29.5%), all paid lower rates. Only Japan had a higher rate.

[citation: Devereux, et.al. (2011)]

And a study by American economists comparing the effective tax rates of large businesses in 15 countries found that US companies tended to pay among the highest tax rates.

Companies in places like Sweden (18%), Taiwan (18%), France (23%), and South Africa (25%), all paid lower effective tax rates than US firms (28%).

Only Japanese companies (36%) paid a consistently higher tax rate than those in the US.
[citation: Markle/Shackelford (2011)]

But, Japan is cutting their corporate tax rate this year, which will leave us standing with the highest rate among large economies.

So not only do other nations offer lower rates, but their territorial tax systems can lower the tax burden for their companies even further. It’s no wonder that they can out-compete US firms who pay high tax rates AND a second-layer of tax because of our worldwide tax system.

Headlines about a few companies that pay little in taxes may make for juicy political sound bites, but they don’t tell the whole story.

No matter how you look at the data, U.S. companies are paying one of the heaviest tax burdens in the world, and until our system is more competitive, we will struggle to keep jobs and industries in our country.

For more information visit tax foundation dot org.

The Tax Foundation video "Effective Corporate Tax Rates" is available online.

Bush Tax Cuts Did Not Increase Income Inequality

Mon, 30 Jan 2012 00:00:00 EST

Gap between Rich and Poor Driven by Business Cycle

Washington, DC, January 30, 2012- Contrary to recent reports suggesting that Bush-era tax cuts have increased income inequality in the U.S., the gap between rich and poor in recent decades has been driven mostly by the business cycle, i.e. multi-year fluctuations in economic activity, according to a new report by the Tax Foundation.

"Inequality generally increases during eras of growth and economic expansion and decreases during recessionary times," said Tax Foundation economist Will McBride. "Changes in tax rates on high-income earners over the last two decades have been incidental to this trend."

Historically, income inequality in the U.S. reached a peak in the 1920s, falling in the decades afterward and eventually rising again in the 1980s and 1990s. This rebound has been attributed to everything from globalization and immigration to the growth of super-star salaries and the computer revolution. All of these factors, however, might better be described as simply the reasonable outcomes of a growing market economy.

The resurgence of inequality in recent decades has also been attributed to tax policy. Based on the most recent IRS data, income inequality has fluctuated considerably since 2000 but is now at about the level it was in 1997. Thus, the Bush-era tax cuts, which had provisions benefitting both high- and low-income taxpayers, did not lead to increased income inequality. By contrast, inequality rose 12% between 1993 and 2000, following two tax rate increases on high-income earners. Thus, changes in inequality over the last two decades appear to be driven more by the business cycle than tax policy.

Levels of inequality can also be made to appear higher than they actually are based on how researchers present the data. The most recently published studies on income inequality use either 2006 or 2007 as their end point, without fully correcting for the business cycle. Since the peak in 2007, personal incomes have collapsed to a degree not seen since the Great Depression. The most dramatic collapse has been in high incomes. Since 2007, for example, the number of millionaires has dropped 40 percent, while income reported by millionaires has dropped in half.

"It is not evident that the Bush tax cuts in either the top marginal rate or capital gains rate had any long term effect on inequality. If anything, they appear to have reduced inequality," said Tax Foundation economist Will McBride. "Therefore, a return to Clinton-era tax rates would not necessarily reduce inequality."

Tax Foundation Fiscal Fact No. 289, "Reversal of the Trend: Income Inequality now Lower than it was Under Clinton" by Will McBride is available online.

The Tax Foundation has monitored fiscal policy at the federal, state and local levels since 1937. To schedule an interview, please contact Richard Morrison, the Tax Foundation's Manager of Communications, at 202-464-5102 or morrison@taxfoundation.org

Which States Are Best for Business?

Wed, 25 Jan 2012 00:00:00 EST

Tax Foundation Releases Rankings on "Business-Friendliness" of State Tax Systems

Washington, DC, January 25, 2012 -- Wyoming, Florida, and Texas rank among the ten best states for taxes on business, while companies in states like New York, New Jersey, and California have a far less pleasant tax climate to deal with, according to a new report by the Tax Foundation.

The State Business Tax Climate Index, now in its 8th edition, accounts for dozens of state tax provisions, creating a single easy-to-use score that measures each state against the tax climates of every other state. Each state's ranking is therefore relative to the actual tax policies in place around the country, not a measurement against a theoretical "perfect" system.

The Index enables business leaders, government policymakers, and taxpayers to gauge how their states' tax systems compare. While some similar studies focus on the total amount residents pay in taxes each year, the Index focuses on how the elements of a state tax system enhance or harm the competitiveness of a state's business environment.

"Even in our global economy, a state's stiffest and most direct competition often comes from other states," said Tax Foundation economist Mark Robyn. "State lawmakers need to be aware of how their states' business climates match up to their immediate neighbors and to other states in their region."

The 10 best states in this year's 2012 Index are Wyoming (#1), South Dakota (#2), Nevada (#3), Alaska (#4), Florida (#5), New Hampshire (#6), Washington (#7), Montana (#8), Texas (#9), and Utah (#10). Many of these states do not have one or more of the major taxes, and thus do not have the associated complexity and distortions.

The 10 lowest ranked, or worst, states in the 2012 Index are Iowa (#41), Maryland (#42), Wisconsin (#43), North Carolina (#44), Minnesota (#45), Rhode Island (#46), Vermont (#47), California (#48), New York (#49), and New Jersey (#50). While New Jersey remained steady compared with 2011, Rhode Island improved by implementing a modest income tax reform. The states in the bottom ten generally have complex, non-neutral taxes with comparatively high rates.

Illinois moved most dramatically in its Index rank over the past year, falling twelve places after a significant income and corporate tax increase. Other states seeing a decline in their ranking include Vermont, which fell four places, while Massachusetts and North Dakota both advanced four places up the chart.

In 2011, the State Business Tax Climate Index was downloaded 487,000 times and cited in hundreds of newspaper articles, editorials, and broadcast media reports. Four governors also cited the Index's findings in their State of the State addresses.

Tax Foundation Background Paper No. 62, "2012 State Business Tax Climate Index" by Mark Robyn is available online.