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Tax VOX

President Barack Obama hugs Edna Pemberton, who introduced him, before speaking with volunteers who helped people enroll through the HealthCare.gov site at Temple Emanu-El in Dallas. Penalties for not signing up for health insurance vary but are likely higher than the assumed $95. (Pablo Martinez Monsivais/AP Photo/ File )

How big is the penalty for not getting health insurance?

By Roberton WilliamsGuest blogger / 11.08.13

Stories about the Affordable Care Act often tell readers that they’ll have to pay a $95 penalty if they don’t get adequate health insurance coverage. But, like a lot of other things I read about the health law, that’s not quite correct. The penalty (which the Supreme Court said is actually a tax) could be less or, more likely, a lot more. It’s a complicated story.

The basic penalty is $95 in 2014—if you’re unmarried with no dependents and your income is less than $19,500. If your income is higher, you’ll owe more: 1 percent of the amount by which your income exceeds the sum of a single person’s personal exemption and standard deduction in the federal income tax. That’s $10,000 in 2013. But be warned: Income equals adjusted gross income (AGI—that number on the last line on page 1 of your tax return) plus any tax-exempt interest and excluded income earned abroad. If you make $30,000, your penalty will be $200.

Still with me? Good, because it is about to get more confusing.  ( Continue… )

People walk out of the Federal Building, where the Internal Revenue Service (IRS) offices are located, in Los Angeles, California. Newly-disclosed information shows that tax-exempt political groups are taking advantage of their status. (Kevork Djamsezian/Reuters/File)

Do campaign finance middle-men deserve tax-exempt status?

By Guest blogger / 11.06.13

Thanks to the campaign watchdog organization Center for Responsive Politics and National Public Radio, we’ve learned more about the tactics of some political organizations that enjoy tax-exempt status. The Center has unpacked the dealings of tax-exempt groups that exist merely to funnel political money from anonymous donors to 3rd  party non-profits that in turn buy millions of dollars in political advertising.

According to the Center, political non-profits spent more than $300 million on federal elections in the 2012 campaign cycle, three times what they spent in 2008. Increasingly, according to the report, money is being funneled through tax-exempt campaign money laundries.

Many of these groups are 501(c)(4)’s (named after the tax code section under which they are organized). To receive that status, they must serve the social welfare—a purpose subject to a very fuzzy IRS definition. But once they do, they can take advantage of a critical provision of the law: They are not required to disclose the names of their donors when they report to the IRS. This anonymity is key to their business model.  ( Continue… )

A view of the US Capitol building on Tuesday, Oct. 15, 2013 in Washington. (Evan Vucci/AP/File)

In budget talks, new revenue remains a sticking point

By Guest blogger / 10.31.13

As House and Senate budget negotiators sit down (eight months late), the inevitable issue of new revenues has already raised its head. Predictably, Democrats insist that any fiscal deal include new taxes. Equally predictably, Republicans demand that it must not.

But behind the scenes, Washington’s wink-and-nod crowd thinks it has a solution: Raise new tax revenue—at least on paper—without actually increasing taxes. In fact, some of the gimmicks on the table create even darker Halloween magic. They purport to raise revenues by cutting taxes. Here are just a few examples:

Timing Changes: Timing gimmicks are possible because the Congressional Budget Office and the Joint Committee on Taxation—Congress’ official legislative scorekeepers—normally track revenues only within a 5- or 10-year budget window. As a result, Congress writes laws that boost revenues within those periods, regardless of the long-term consequences.

Chye-Ching Huang and Nathaniel Frentz at the Center on Budget and Policy Priorities have taken a nice look at this scam in a recent paper( Continue… )

A clerk poses for a photo showing cash in the register at Vidler's 5 & 10 store in East Aurora, N.Y. Gleckman explains that the benefits of municipal bond subsidies may be less obvious than you'd think. (David Duprey/AP Photo/File)

Who benefits from muni bonds? It's more complicated than you think

By Guest blogger / 10.30.13

Who benefits the most from the tax subsidy for municipal bonds? The easy answer is: Rich people who buy most of the tax-free paper.

That’s true, according to a new analysis by my colleagues at the Tax Policy Center, but the story isn’t quite that simple. If you look more closely, it turns out that others may benefit as well, including investors in taxable debt. And if you dig even deeper, the answer may depend on what state and local governments do with the subsidy from those tax-free bonds.

The paper’s authors, Harvey Galper, Joe Rosenberg, Kim Rueben, and Eric Toder, started with the usual question—who benefits most when you look at after-tax rates of return from tax-exempts?

At first blush, high-income investors benefit more from that exemption than those in lower brackets (top-bracket taxpayers can save 39.6 cents on the dollar while those in the 25 percent bracket may only be able to save 25 cents).  ( Continue… )

The U.S. flag flies next to the Capitol in Washington during the 2011 debt ceiling crisis. Gleckman argues the 'McConnell' rule illogical and instead proposes Congress be mandated to finance all spending decisions they approve. (Alex Brandon/AP Photo/File)

The illogic of the McConnell debt limit rule

By Guest blogger / 10.23.13

In the aftermath of the recent government shutdown and the painful negotiations that brought the country perilously close to defaulting on government debt, policy experts are searching for a way to avoid a replay of this crisis.

After all, the recent congressional agreement only delays the next potential shutdown till January 15 and lifts the debt ceiling only until February 7.

While many Republican officials were willing to breach the debt limit, most economists and policymakers agreed that deliberately defaulting on the government debt would be an historic mistake, with long-lasting negative consequences. Even cutting other spending while paying bondholders would have carried significant downside risks.  ( Continue… )

People arrive at the Federal Building, where the Internal Revenue Service (IRS) offices are located, in Los Angeles, California during the government shutdown. Gleckman urges congress to consider restructuring tax subsidies when discussing the federal deficit. (Kevork Djamsezian/Reuters/File)

Congress shouldn't forget tax entitlements in its search for deficit reduction

By Guest blogger / 10.23.13

Yesterday, Washington Post columnist Bob Samuelson urged lawmakers to “just eliminate…the whole notion of entitlements.”  His provocative argument: The very word “entitlement” makes people believe these programs are somehow untouchable. They are, for instance, effectively exempt from the sequester’s cuts even though they represent two-thirds of all government spending.

Bob is on to something but he misses a key piece of the story—tax subsidies, or what we might call tax entitlements.

He focuses only on the familiar spending entitlements—Medicare, Social Security, college loans, farm subsidies, and the like that account for about $2 trillion of the federal budget in fiscal 2014.  ( Continue… )

National Park Service employees remove barricades from the grounds of the Lincoln Memorial in Washington, Thursday. (Susan Walsh/AP)

How to forge a no-drama budget deal in Washington

By Guest blogger / 10.18.13

The conventional wisdom is that next January, Congress and President Obama will be in exactly the same place they’ve been for most of the past three weeks—deep in government shutdown mode. The argument: The recent fiscal battles that ended with Wednesday night’s short-term deal to reopen the government and reauthorize Treasury borrowing buys time but does nothing to change Washington’s toxic culture.

It is hard to disagree, but there is another possible outcome. No, it isn’t the grand bargain. That’s off the table at least until 2015 and perhaps longer. But Congress and Obama could reach a mini-bargain that would at least take the edge off the current ugliness.

It would be simple and the first steps could be taken in a week or two (although they won’t be).  The deal would look come in three parts.

To start, remember that yesterday’s agreement called for House and Senate negotiators to sit down and finish the 2014 budget process that came to a grinding halt last March. So lawmakers have a ready-made venue for a deal. But what could a realistic agreement look like?  Here is one possibility:  ( Continue… )

Senate Majority Leader Harry Reid, D-Nev., speaks with reporters after voting on a measure to avert a threatened Treasury default and reopen the government after a partial, 16-day shutdown, at the Capitol in Washington, Wednesday, Oct. 16, 2013, as Sen. Patty Murray, D-Wash., chair of the Senate Budget Committee, Sen. Chuck Schumer, D-N.Y., listen. (J. Scott Applewhite/AP/File)

The government shutdown was about...a meeting

By Guest blogger / 10.17.13

Like Seinfeld, the classic 1990s TV comedy, Congress is increasingly about…nothing.

If the agreement reached by Senate leaders yesterday sticks (and given recent history, even that is uncertain) Congress has just shuttered much of the federal government for more than two weeks and risked a market-shattering federal default in order to convene a meeting of budget negotiators.

According to published reports, that is pretty much the sum total of what lawmakers agreed to today. They will reopen the government until Jan. 15 and give the Treasury renewed authority to borrow money until Feb. 7. This will give Congress and President Obama another three months of artificial fiscal crisis, generate more breathless headlines, and almost certainly drive Washington’s standing with the public even closer to rock bottom.

As a result of this frantic last-minute deal, it is a virtual certainty that we will be in exactly the same place in mid-January as we are today, only colder.

Between now and then, we will return to the status quo ante. The GOP’s Quixotic and self-destructive efforts to demolish the Affordable Care Act have come to naught. The law is not defunded. The individual mandate is not delayed. Even the tax on medical device makers remains.

The GOP did win one concession: The government must do its utmost to prevent low-income people from lying about their income in order to get health insurance.  Otherwise, the 2010 health law goes on unchanged.

Meanwhile, Democrats will have three months to relitigate the across-the-board spending cuts known as the sequester.  They conceded at the very beginning of the most recent contretemps that they’d accept ongoing government funding at current sequester levels for the duration of any new spending bill.

Given how matters turned out, they probably regret that quick capitulation. But fear not, they’ll have the opportunity to fight another day. It is in fact why Democrats, not Republicans, ended up insisting on a short-term spending bill as part of today’s agreement.

The next turn of the budget screw is scheduled for Jan. 15 when lower 2014 spending levels are due to bite under the next round of the sequester. Today’s deal opens the door for a new fight over  those numbers.

Democrats will demand the next round of cuts be trimmed for domestic spending programs. Some Republicans will ask the same for military spending. Others will fight to maintain the cuts.

The hard-earned fiscal deal hammered out today calls for all this to get worked out—or not—in a budget conference.

Keep in mind the budget conferences used to be a routine part of Congress’ fiscal process. This conference should have begun last March—seven months ago– after the House and Senate passed their own versions of the 2014 fiscal blueprint.

But the panel never met. For months, Senate Democrats insisted on talks but House Republicans refused to even appoint negotiators. Then, just before the Oct 1 government shutdown, Republicans demanded a budget conference but Senate Democrats refused.

Now, the budget deal says…They should meet.

Lawmakers would instruct the negotiators to produce a  10-year tax and spending blueprint by Dec. 13. But they won’t require such a deal, and certainly won’t set any enforceable parameters for any agreement. Yesterday’s plan simply says they should meet and report something.

All this uncertainty and bitterness. All this lost credibility. All to schedule a meeting.

The California Assembly works into the night in an effort to pass a number of bills before the end of the legislative session at the State Capitol in Sacramento, Calif. California's unemployment rate is falling, but remains substantially higher than the average. (Max Whittaker/Reuters/File)

Economic recovery is mixed bag among states

By Norton FrancisGuest blogger / 10.15.13

The latest edition of the Tax Policy Center’s State and Local Finance Initiative’s State Economic Monitorfinds that revenue growth is accelerating in most states but many jurisdictions faced strong economic headwinds going into the recent partial government shutdown and potential default. In several states, a decline in public sector jobs was boosting unemployment even before the partial shutdown.

The State Economic Monitor shows state-by-state economic and finance trends and our new page on the website includes interactive maps and charts.

Between August 2012 and August 2013, the public sector shed 94,000 jobs, mostly federal positions. Forty-six states lost federal government jobs. Total government jobs (including state and local positions) increased in 18 states but every state except West Virginia remains below its peak level of government employment, seasonally adjusted.

The trends in unemployment rates vary widely. Thirty-six states have lower unemployment rates than a year ago while twelve states have higher rates.  ( Continue… )

US Treasury Secretary Jack Lew testifies before the Senate Finance Committee on the US government debt limit in Washington Thursday. (Gary Cameron/Reuters)

Debt limit: Should we eliminate Treasury's 'extraordinary measures'?

By Guest blogger / 10.11.13

You’ve probably heard that Treasury will hit the debt limit on October 17 and soon thereafter it won’t be able to pay all of America’s bills. That second part is true: Congress needs to act soon—preferably before the 17th —so Treasury doesn’t miss any payments. But the first part isn’t: Treasury actually hit the debt limit way back on May 19.

So how did Treasury keep paying our bills? Extraordinary measures.

When money gets tight, Treasury uses several accounting gimmicks and cash flow sleights of hand—the extraordinary measures—for extra financing. The easiest to explain involves the G-Fund, which is offered to federal employees through their equivalent of a 401(k) plan. As its name implies, that fund invests in government bonds. But the Treasury Secretary has a special power: he can replace those bonds with IOUs. I kid you not. One day the G-Fund has Treasury bonds, and the next it has IOUs. Those IOUs don’t count against the debt limit, but they will eventually be repaid with interest once the debt limit gets increased. Employees don’t lose anything, and Treasury gets some extra financing room.

Such budget gimmickry used to inspire outrage. In 1995, pundits accused Treasury Secretary Robert Rubin of violating his fiduciary duty and robbing federal employees when he did this. Today, the same action generates nary a peep; stuffing the G-fund with IOUs is standard operating protocol.  ( Continue… )

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