By reducing taxpayers' taxable income, the charitable deduction shifts part of the cost of private charitable giving onto the rest of society, encouraging charitable gifts. While the charitable deduction clearly benefits charities, it also shrinks the federal tax base. This is the basic justification for a tax subsidy to charities: if charities produce public goods, they will be subject to market failure and will not be supplied, justifying a government subsidy for them. The vast majority of charities do not produce exclusively public goods. As a result, the scope of the current charitable deduction is far broader than can be justified by any appeal to the theory of market failure. From the perspective of economic efficiency, it is hard to justify the current size and scope of the feder...
For 18 consecutive years the Tax Foundation has published an estimate of the combined state-local tax burden shouldered by the residents of each of the 50 states. For each state, we calculate the total amount paid by the residents in taxes, and we divide those taxes by the total income in each state to compute a "tax burden" measure. In 2008, the residents of three states stand above the rest, paying the highest state-local tax burdens in the nation: New Jersey, New York and Connecticut. They are the only three states where taxpayers give up more than 11% of their income in state-local taxes. Alaskans pay the least, 6.4% in 2008, but Nevada is close at 6.6%. In four states - Wyoming, Florida, New Hampshire and South Dakota - the residents pay between 7% and 8% of their income in state-l...
The federal income tax system treats married couples as if each spouse earned approximately one-half of the couple's combined income through a mechanism called "income splitting." For many one-earner and unequal-earner couples, income splitting produces a significant advantage, a "marriage bonus," by shifting income from higher to lower rate brackets. Marriage-based income splitting relies on a presumption that marriage is a good indicator of economic unity between two taxpayers. It is not. Marriage does not require spousal sharing, and many unmarried couples share everything they earn. As a result, the current system extends the benefit of income splitting to some taxpayers who do not deserve it while withholding it from others who do. Because marriage is a poor proxy for economic unit...
The belief that the impact of deflation on the tax system would be equal but opposite to the impact of inflation is mistaken. If deflation is persistent and substantial, riskless nominal interest rates will fall to zero. In that state, any tax based on nominal payments and receipts is equivalent to a cash flow income tax regardless of the IRC's timing rules. No timing issues arise from fluctuations in the deflation rate if the entire term structure of riskless nominal rates is flat at zero. Central banks are likely to react to the prospect or actual presence of deflation with an aggressive, inflation-biased monetary policy. For depreciable assets, US tax law specifies cost recovery that would approximate economic depreciation when inflation is 4%. Shifting from an inflationary environme...
From Troy to Vandalia to Kettering to Springboro, cities all across the Miami Valley saw income tax collections surge higher early in 2011, in what economists are calling an acceleration of recovery from the Great Recession. The numbers mirror data from the Ohio Department of Taxation showing that income tax withholding statewide rose 2.3 percent in 2010, then rose 7.1 percent in January-April 2011.
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