Reforming a Tax Expenditure, Disproportionate Harm

More budget blues for the IRS. TPC’s Bob Weinberger crunches the numbers and finds that while Congress gave the IRS a modest 1.8 percent funding increase in last month’s budget agreement, the money does little more than continue a decade-long reduction in agency resources, after accounting for inflation. Nearly all the new funds will go to a mandated pay raise, leaving almost nothing for new initiatives.   

How could policymakers reform the tax exclusion for employer-sponsored health insurance (ESI)? In a new brief, TPC researchers examine the five largest health care tax expenditures and analyze three potential reforms that could better control health care costs. The ESI exclusion is the most costly of the health-related tax benefits, does not benefit low-wage workers very much, and may increase health care costs. Repealing or limiting the exclusion could raise revenue and  restructuring it could make it more progressive. These reforms might modestly increase the number of uninsured, so should be combined with proposals to expand health insurance coverage.

American Action Forum: Wealth tax would disproportionately harm workers. Research from the American Action Forum finds that a wealth tax proposed by Democratic presidential hopefuls Elizabeth Warren and Bernie Sanders would impose an effective tax rate of 63 cents on workers for every dollar of revenue the tax generates. 

Will Idaho raise its sales tax to phase out some local school taxes? The Senate Local Government and Taxation Committee Chair Jim Rice is developing legislation to raise the state sales tax from 6 percent to 7 percent. The increase would raise $280 million in its first year–, $250 million would go to public schools while  $30 million would fund grocery tax relief. Rice hopes to have a draft bill by the end of January.

In Nebraska: A tax break to encourage businesses to hire felons. A measure introduced in the state legislature last week would allow companies to deduct 65 percent of the wages paid to workers with a felony conviction, up to $20,000 per employee, during their first year of employment. Said bill sponsor State Senator Justin Wayne: “We’re trying to make sure people have jobs once they’re released from prison. We need to make sure we have businesses that are willing to hire them.” The US Department of Justice has found that inmates who find a steady job after their release are less likely to reoffend.

Hong Kong government considers “competitive” tax arrangement to lure private equity funds. The Administrative Region of China faces a recession and  finance secretary Paul Chan wants to attract private equity investment and increase economic relief measures. Chan offered no further details on his plan, but noted that Hong Kong’s banking system was running smoothly, despite “unprecedented” turbulence amid pro-democracy protests over the past six months.  

For the latest tax news, subscribe to the Tax Policy Center’s Daily Deduction. Sign up here to have it delivered to your inbox weekdays at 8:00 am (Mondays only when Congress is in recess). We welcome tips on new research or other news. Email Renu Zaretsky at [email protected].

https://www.taxpolicycenter.org/daily-deduction/reforming-tax-expenditure-disproportionate-harm