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Tax VOX

A man looks over the Affordable Care Act (commonly known as Obamacare) signup page on the HealthCare.gov website in New York in this photo illustration. A new tool from the Tax Policy Center helps calculate pax penalties for people who opt out of health care. (Mike Segar/Reuters/File)

Opting out of Obamacare? How to calculate your tax penalty.

By Roberton WIlliamsGuest blogger / 03.12.14

The deadline is looming: If you don’t have approved insurance coverage by March 31 (and are not exempt from the requirement), the Affordable Care Act will hit you with a penalty on your 2014 income tax return. It is often said the tax is $95, but for many people it will be much more. A new calculator from the Tax Policy Center shows just how big it could be.

For a single person who makes enough in 2014 to file a 1040, the penalty can be as little as $95 or as much as $3,600, depending on income. For families, the penalty is much larger: A couple with two children could owe between $285 and $11,000.

My TaxVox post last November explained what determines the penalty. For low-income households, it’s a fixed dollar amount: $95 per adult plus $47.50 per child, up to a total of $285. Higher-income families will owe 1 percent of their income (net of specified deductions), up to the average national cost of getting basic (bronze level) insurance coverage for all family members. According to the Urban Institute’s Health Policy Center, that coverage will cost about $3,600 per adult plus $1,900 per child in 2014. ( Continue… )

House Ways and Means Committee chair Rep. Dave Camp (R-MI) (L) shakes hands with ranking member Rep. Sander Levin (D-MI) (R) before their hearing on President Barack Obama's FY2015 Budget Proposal in Washington last week. Camp's budget proposal would include increased tax burdens for states, but also some potential revenue increases. (Gary Cameron/Reuters/File)

Camp's tax plan would create new challenges for states

By Norton FrancisGuest blogger / 03.10.14

House Ways and Means Chair Dave Camp’s recent tax reform plan would raise the cost of doing business for many state and local governments.

Camp would repeal the deductibility of state and local taxes, including both property taxes and income taxes. He’d abolish tax-exempt private activity bonds. And he’d impose a 10 percent surtax on municipal bond interest for high-income households, a step likely to raise the cost of issuing state and local debt.

But Camp’s plan also includes some less obvious changes that could increase state income tax revenues, especially for states that piggyback on the federal income tax. By limiting deductions—and thus boosting taxable income—Camp’s plan could also increase state income tax revenue, just as the Tax Reform Act of 1986 did.

Here is a brief summary of the state and local provisions in Camp’s plan:

Repeal of the state and local tax deductions. In 2011, itemizers deducted $470 billion of state and local taxes they paid. Camp would repeal the deduction for state and local income taxes, and for real property taxes. Only the personal property tax, usually related to business equipment, would remain deductible in most cases. ( Continue… )

A 2013 1040-ES IRS Estimated Tax form at H & R Block tax preparation office in the Echo Park district of Los Angeles. IRS.gov has unveiled changes for the 2014 tax season, including adjustments for inflation and higher rates for high-income taxpayers. (Damian Dovarganes/AP/File)

Tax deductions vary by county

By Ben HarrisGuest blogger / 03.09.14

Taxpayer use of itemized deductions varies widely by location, according to a new analysis of 2007 IRS data. In about one in ten counties, 11 percent or fewer taxpayers itemize while in another 10 percent at least 38 percent of taxpayers claim deductions. In a handful of counties, more than half of taxpayers itemize. In general, taxpayers in high-cost, high-tax counties located along the coasts are far more likely to itemize than those in living in in the middle of the country (see map).

About one in three tax filers itemizes. The largest itemized deductions are for mortgage interest, state and local taxes, and gifts to charity. Others include certain medical expenses, job-related expenses, and casualty and theft losses. The Pease provision limits itemized deductions for upper-income taxpayers.

The variation in itemized deductions depends on many factors, but is driven by differences in income. For example, taxpayers with higher incomes own more expensive homes and carry larger mortgages and thus pay more in mortgage interest. Some live in states and counties with higher taxes. Taxpayers with higher incomes tend to give larger gifts to charity, and they tend to cluster along the east and west coasts. ( Continue… )

Chairman Paul Ryan (R-WI), wearing ashes on his forehead from Ash Wednesday, reviews a copy of the fiscal 2015 budget on Capitol Hill, in Washington. Obama is sending a $3.9 trillion budget to Congress, seeking new spending for economic growth, higher taxes on the wealthy and looking to resolve immigration issues. (Mike Theiler/Reuters/File)

Forgotten but not gone: The long-term fiscal Imbalance

By William G. Gale and Alan AuerbachGuest bloggers / 03.08.14

Over the past few years, the long-term fiscal situation has improved. With the passage of the American Taxpayer Relief Act of 2012 (in early January, 2013), the Budget Control Act of 2011, the subsequent imposition of sequestration, and slowdowns in projections of health care expenditures, there have been a variety of sources of improvement. In addition, the slow but steady economic recovery has helped reduce the short-term deficit. Policy makers are clearly fatigued from dealing with the issue.

Yet, the fiscal problem is not gone. First, ignoring projections for the future, the current debt-GDP ratio is far higher than at any time in U.S. history except for a brief period around World War II. While there is little mystery why the debt-GDP ratio grew substantially over the last six years – largely the recession and, to a smaller extent, countercyclical measures – today’s higher debt-GDP ratio leaves less “fiscal space” for future policy.

Second, while we clearly face no imminent budget crisis, our new projections suggest the 10-year budget outlook remains tenuous and is worse than it was last year, primarily due to changes in economic projections.

There is no “smoking gun” in the 10-year projections, “just” a continuing imbalance between spending and taxes. All federal spending other than net interest is projected to fall as a share of GDP over the next decade. Net interest is projected to rise by 2.0 percent of GDP to its highest share of GDP in history. ( Continue… )

The website for HealthCare.gov appears on a computer screen as photographed in Washington. The Obama Administration says that those with an existing plan can keep it for two more years, although taxpayers without healthcare face a tax penalty. (Jon Elswick/AP/File)

Calculating healthcare penalties, more love for the EITC

By Renu ZaretskyGuest blogger / 03.07.14

On health care and tax returns… You can keep your current low-benefit health insurance plan for two more years, according to the latest from the Obama Administration. But the Affordable Care Act still requires many without insurance to pay a penalty tax.  Bob Williams explains and shares a new TPC calculator that figures those ACA penalties. Chances are, they’re a bit steeper than that $95 we all hear about. ( Continue… )

Copies of President Barack Obama’s proposed budget for fiscal 2015 are set out for distribution by Senate Budget Committee Clerk Adam Kamp, on Capitol Hill in Washington. Obama's fiscal blueprint, which he is sending Congress today, was expected to include proposals to upgrade aging highways and railroads, finance more pre-kindergarten programs and enhance job training. (J. Scott Applewhite/AP/File)

Obama’s 2015 budget hits Capitol Hill

By Renu ZaretskyGuest blogger / 03.05.14

Need some light reading? The President’s Budget for Fiscal Year 2015 came out yesterday. Obama’s $3.9 trillion fiscal blueprint includes about $1 trillion in new taxes, mostly on the wealthy and large businesses, to fund a combination of new programs and deficit reduction. Learn more (a lot more) about the  revenue proposals in the Treasury’s green book. Treasury Secretary Jack Lew will testify this morning before the Senate Finance Committee, while OMB Director Sylvia Mathews Burwell will do her part before the Senate Budget Committee. ( Continue… )

Copies of President Obama's proposed budget for fiscal year 2015 are set out for distribution by the Senate Budget Committee, on Capitol Hill in Washington, Tuesday, March 4, 2014. (J. Scott Applewhite/AP)

Barack Obama, Paul Ryan, and Dave Camp: unpacking budget and tax reform proposals

By Guest blogger / 03.05.14

Over the past week, three senior Washington lawmakers released foundational documents that describe both their agendas and their perspectives on government. On one level, they paint vastly different pictures. Yet, a close reading also pinpoints some surprising and important areas of agreement—more perhaps than the players would publicly admit.

President Obama’s fiscal year 2015 budget is hot off the presses. His tax and spending blueprint released today would boost revenues by about $1 trillion over the next decade, with the new money divided between funding new programs and reducing the deficit. As the president predicted in his State of the Union address, his budget focuses on improving the economic well-being of the middle-class. And he’d fund many of those initiatives by raising taxes on high-income households.

Obama’s plan also includes what he describes as a revenue-neutral business tax reform aimed at both small firms and big multinationals. The details of the proposal are not too different from what he laid out last year.

But Obama’s budget was not released in isolation. Yesterday, House budget Committee Chair Paul Ryan (R-WI) released a 205-page report on the federal government’s anti-poverty programs. It was, for the most part, a scathing criticism, though even it found a bit of common ground with Obama, especially when it comes to the Earned Income Tax Credit—which both like.

The document serves as something of a roadmap for Ryan’s future agenda. The Wisconsin lawmaker wants to be the next chair of the House Ways & Means Committee, which has jurisdiction over many of the programs he so dislikes. He’s also mentioned as a possible 2016 presidential candidate. ( Continue… )

House Ways and Means Committee Chairman Rep. Dave Camp, R-Mich., the House tax writer, speaks with reporters on Capitol Hill in Washington, Wednesday, Feb. 26, 2014, to outline a major plan to rewrite the nation’s tax code. The plan has almost no chance of becoming law this year says Senate Republican leader Mitch McConnell, and even House Speaker John Boehner, R-Ohio, distanced himself from the details earlier in the day. (J. Scott Applewhite/AP/File)

Hidden taxes in Camp proposal

By Len BurmanGuest blogger / 02.28.14

House Ways and Means Committee Chair Dave Camp (R-MI) has produced an impressive tax reform plan that eliminates most loopholes, deductions, and credits. But the plan also introduces a number of hidden taxes that push marginal rates—mostly for higher-income taxpayers—well above the advertised levels.

For some taxpayers, the effective tax rate under Camp’s plan could be as high as 67 percent, based on my analysis of the section-by-section description of the proposal.

On its face, the new tax schedule appears straightforward: three tax rates—10 percent, 25 percent, and 35 percent. The 25 percent rate starts at taxable income of $71,200 for couples ($35,600 for singles) and the 35 percent rate starts at “modified adjusted gross income” (MAGI) of $450,000 ($400,000 for singles). (MAGI is a broader definition of income than the more common AGI.)

The proposal would end both the individual and corporate AMTs and the phaseouts of itemized deductions and personal exemptions (by abolishing the latter entirely). Most tax policy experts would cheer their demise. ( Continue… )

Senate Finance Committee Chairman Sen. Max Baucus, D-Mont., left, and the House Ways and Means Committee Chairman, Rep. Dave Camp, R-Mich., talk about tax reform to 3M employees at the 3M Innovation Center in Maplewood, Minn. last year. Camp will present a tax plan Wednesday, Feb. 26, 2014 that would cut the top individual tax rate to 25 percent. (Hannah Foslien/AP/File)

GOP House tax plan will be released this week

By Renu ZaretskyGuest blogger / 02.25.14

Here’s The Daily Deduction, the Tax Policy Center summary of the day’s tax news. We’ll let you know about upcoming action in Congress, the Administration, and in the states and keep you up-to-date on the latest tax policy research. You can find The Daily Deduction on TPC’s blog TaxVox or in the What’s New section of the TPC homepage. We’ll also be distributing The Daily Deduction every morning by email to those who prefer to receive it that way. For the next few weeks, everyone on our email list will get The Daily Deduction. But to continue to receive it after March 15, please sign-up here. If you’d like to tell us about a new research paper or have any comments about our new feature, just drop us an email at dailydeduction@taxpolicycenter.org. We’d love to hear from you.

The House GOP offers its opening gambit in tax reform. The plan, due to be released on Wednesday by House Ways & Means Committee Chair Dave Camp, would cut the top individual tax rate to 25 percent. However, it would also impose a 10 percent surtax on high-income households, The Washington Post reports.

The IRS is taking its lumps. the House Oversight Committee has scheduled a hearing Thursday on proposed new IRS guidelines on political activity by 501(c)(4) non-profits. At the same time, Camp has warned the IRS that his panel might subpoena agency documents on its past handling of nonprofits’ tax-exempt status applications. Meanwhile, the IRS soldiers on, reporting that it has issued more income tax refunds so far this year than last. And yesterday it released a report on Criminal Investigation that highlights increased enforcement against tax criminals and more convictions for identify theft. ( Continue… )

This March 22, 2013, file photo shows the exterior of the Internal Revenue Service building in Washington. Married American taxpayers have a little extra homework at tax time, as they have to determine if they'll owe more to the government as a couple or as individuals. (Susan Walsh/AP/File)

An updated marriage bonus and penalty calculator

By Roberton WilliamsGuest blogger / 02.21.14

Just in time for this year’s tax filing season (but a bit late for St. Valentine’s Day), the Tax Policy Center has updated its marriage bonus and penalty calculator. The new version lets you compare a couple’s income tax liability when they file as singles or as married for either the 2013 or 2014 tax year.

Some couples may pay a marriage penalty—a higher federal income tax bill than they would if they were single. But for most couples, marriage means a lower tax bill—a marriage bonus in tax-speak. ( Continue… )

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