South Hampton Roads Earned Income Tax Credit Coalition

full study online at http://www.taxfoundation.org/publications/show/26555.html

Washington, D.C., July 27, 2010 - With Members of Congress calling for punitive new tax laws against U.S. oil and gas companies in response to the BP oil spill, the Tax Foundation has released a new analysis showing federal, state and local taxes remitted by the oil companies have exceeded their corporate profits by 40 percent.

"Governments at all levels in the U.S. and abroad are dependent on the substantial taxes paid by oil and gas firms," said Tax Foundation President Scott A. Hodge, author of the new Tax Foundation Special Report, "Oil Industry Taxes: A Cash Cow for Government."

The new study, available at www.taxfoundation.org/publications/show/26555.html, shows that in recent decades, state and federal governments have "profited" far more from the oil industry than companies have.

"Governments have collected $1.95 trillion in taxes from the oil industry since 1981," said Hodge. "That's far more than the profits of major U.S. oil companies during the same period."

"As lawmakers respond to the Gulf oil spill and BP's poor safety record, they should refrain from undoing sound, principled tax policies such as the foreign tax credit that benefit every individual or corporate taxpayer that earns taxable income outside the U.S.," said Hodge.

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

 Tax Foundation Special Report, No. 183, "Oil Industry Taxes: A Cash Cow for Government," is available at www.taxfoundation.org/publications/show/26555.html.

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 Natasha Altamirano, the Tax Foundation's Manager of Media Relations, at (202) 464-5102 or naltamirano@taxfoundation.org.

State-Local Governments and Individuals Receive Biggest Tax Benefits; Among Energy Firms, Tax Benefits for Renewable Industry Dwarf Those for Oil and Gas

Washington, DC, July 27, 2010 - The U.S. oil and gas industry is the beneficiary of some tax incentives whose benefit is comparatively small, according to a new Tax Foundation Fiscal Fact.     

"With deficits as high as they are, it's no wonder Congress is re-examining special tax provisions," said the new study's author, Tax Foundation president Scott Hodge. "That's a good idea, but Congress is drawing the bull's eye on the wrong target. Oil and gas tax subsidies are small compared to what other energy firms receive, not to mention the huge tax incentives that flow to state and local governments and to individuals."     

Some special depreciation provisions will indeed save the oil industry $2.8 billion next year, but at the same time renewable energy firms will receive $11.3 billion in corporate tax subsidies, and state-local governments $12.9 billion just through their bond exemption.     

"The $11.3 billion tax subsidy to renewable energy firms in 2011 is already, in effect, a tax penalty on oil and gas firms," Hodge adds. "And as for tax provisions that benefit all taxpayers, such as the foreign tax credit, Congress should not start mucking around with those laws to engineer a penalty for U.S. oil and gas firms, especially since the U.S. has one of the highest corporate tax rates in the world."     

Tax Foundation Fiscal Fact, No. 236, "Who Benefits Most from Targeted Corporate Tax Incentives," is available online at http://www.taxfoundation.org/publications/show/26554.html.     

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 Natasha Altamirano, the Tax Foundation's Manager of Media Relations, at (202) 464-5102 or naltamirano@taxfoundation.org. 

Tax Foundation Report: 18 States Offering Sales Tax Holidays in 2010, Up from 16 in 2009

Washington, DC, July 20, 2010 - As a number of states prepare for back-to-school sales tax holidays beginning early next month, an updated Tax Foundation study shows that the temporary, targeted periods of sales tax exemption are nothing more than political gimmicks that do little to help consumers. Instead, the holidays distort consumer choices while favoring certain industries over others, increase tax code complexity, and distract from real, permanent tax relief.

Eighteen states are offering sales tax holidays in 2010 - up from 16 in 2009 and 17 in 2008 - including 15 that exempt clothing, 10 for school supplies, six targeting computers, and five applied to Energy Star products. Tax Foundation Special Report, No. 182, "Sales Tax Holidays: Politically Expedient but Poor Tax Policy," is available online at http://www.taxfoundation.org/publications/show/26533.html.

"Sales tax holidays are gimmicks designed to win political points for lawmakers," said Tax Foundation Staff Economist Mark Robyn, who authored the paper with Tax Counsel and Director of State Projects Joseph Henchman and Adjunct Scholar Micah Cohen. "If lawmakers want to cut taxes, they should do so in a way that benefits everyone, no matter what they purchase or when they purchase it. Unfortunately, sales tax holidays only distract from genuine, permanent tax relief."

Compared to 2009, Florida, Illinois and Maryland added a sales tax holiday, while Georgia dropped its holiday, citing a $2 billion budget deficit. As of press time, the Massachusetts House had approved a bill to reenact a sales tax holiday on all items up to $2,500 from Aug. 14-15. If the Senate and governor approve the holiday, the total number of states with sales tax holidays in 2010 would be 19, an all-time high.

Among the report's key findings:

• Sales tax holidays do not promote economic growth or significantly increase consumer purchases; the evidence shows that they simply shift the timing of purchases. Some retailers raise prices during the holiday, effectively absorbing the benefit of the holiday and reducing consumer savings.

• Sales tax holidays create complexities for tax code compliance, efficient labor allocation, and inventory management.
• Most sales tax holidays involve politicians picking products and industries to favor with exemptions, arbitrarily discriminating between products and across time, and distorting consumer decisions. For example, Virginia's hurricane-preparedness sales tax holiday applies to cell phone chargers but not laptop chargers, and duct tape but not masking or electrical tape. South Carolina's gun sales tax holiday applies to firearms but not associated safety products.
• While sales taxes are somewhat regressive, sales tax holidays are a bad way of providing relief to the poor. Sales tax holidays amount to a 4 percent to 7 percent price reduction for all consumers, but only for a brief period of time.

"Taxes should raise revenue, not micromanage a complex economy by picking winners and losers in the market," Henchman said. "If a state must offer a 'holiday' from its tax system, it's a sign that the state's tax system is uncompetitive - something that must be addressed with permanent reform."

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

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To schedule an interview, please contact Natasha Altamirano, the Tax Foundation's Manager of Media Relations, at (202) 464-5102 or naltamirano@taxfoundation.org.

Calculator on www.MyTaxBurden.org Allows Taxpayers to Compare 2011 Income Tax Liability if Bush Tax Cuts Expire or Are Extended

Washington, DC, July 23, 2010 - The Tax Foundation has launched a "Bush tax cuts" calculator at www.MyTaxBurden.org, which allows taxpayers to compare their 2011 federal income tax liabilities under three scenarios: if all the Bush tax cuts expire completely at the end of this year, if they're all extended into 2011 or made permanent, and if President Obama's budget is adopted, which includes a combination of expirations and extensions.

Taxpayers can type in basic information—such as filing status, wage income and number of dependents—along with optional more detailed information—such as capital gains and dividend income, state and local taxes paid and other itemized deductions—and determine what their federal income tax burden would be in 2011.

"The fate of the 2001 and 2003 tax cuts remains uncertain, and congressional leaders seem poised to leave things that way through the August recess—and perhaps through the November elections," said Tax Foundation President Scott Hodge. "Regardless of what happens, our tax calculator at MyTaxBurden.org can help give taxpayers a better sense of how these policies will affect them—whether all the Bush tax cuts are extended or just those affecting families earning less than $250,000 a year, or if all the tax cuts expire."

For example, if Congress fails to act to extend the Bush tax cuts, the federal income tax burden for a married couple filing jointly making $80,000 with two children would be $2,137 higher in 2011 than if all the tax cuts were extended.

The calculator also allows for more detailed tax information. For example, consider a married couple making $500,000 with two children; long-term capital gains of $50,000; dividend income of $5,000; other income of $10,000; a state and local income tax deduction of $30,000; $10,000 in real estate taxes paid; and $40,000 in other itemized deductions. Their federal income tax bill would be $22,782 higher in 2011 if all the Bush tax cuts expire.

On the calculator page, fields left blank will automatically be counted as zero. Users may hover the mouse cursor over an item to get a more detailed description of each field. For more information, see a short video explanation of how the calculator works.

The calculator at www.MyTaxBurden.org is part of a series answering frequently asked questions about the expiration of the Bush tax cuts, available online at http://www.taxfoundation.org/publications/show/26135.html.

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

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To schedule an interview, please contact Natasha Altamirano, the Tax Foundation's Manager of Media Relations, at (202) 464-5102 or naltamirano@taxfoundation.org.

With the recently passed health care bill and billions of dollars in tax cuts set to expire in January if nothing is done, tax policy in Washington has been and will continue to be busy in 2010. 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 (2010)?

9. What tax provisions expired at the end of 2009 along with the AMT patch, and what are the chances these will once again be extended retroactively?

10. 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 deduction, etc.?

11. What exactly is going on with the federal estate tax right now?

12. How does the recently passed health care bill interact with all this?

13. Can you give me some examples of how families' income tax bills would change as a result of the tax cuts expiring?

14. How can I figure out how much my own tax bill would change as a result of the Bush tax cuts expiring?

Tax Foundation Analysis Shows Harmful Nature of Corporate Income, Gross Receipts Taxes

Washington, DC, July 13, 2010 - Enacting a corporate income tax or a gross receipts tax in Nevada would make the state's tax climate less attractive for capital investment and job creation, harming the state's competitive advantage over others in the region, according to a new Tax Foundation report.

Broadening the sales tax base to include all end-user goods and services and lowering the sales tax rate is consistent with sound tax reform, according to the report.

"As policymakers consider these and other tax reform proposals, they would do well to keep in mind the impact that certain taxes have on revenue stability and economic distortions," said Tax Foundation Tax Counsel and Director of State Projects Joseph Henchman, who authored the report. "Corporate income taxes are the most volatile of the major tax revenue sources and are the most harmful tax for economic growth."

Tax Foundation Fiscal Fact, No. 235, "Nevada Panel Considering Tax Reform Options, Including New Business Taxes," is available online at http://www.taxfoundation.org/publications/show/26507.html.

The report examines year-to-year changes in state tax revenue among property, general sales, excuse, individual income and corporate income taxes and found that the annual percentage changes varied the most among corporate income taxes. The standard deviation, a volatility measure analyzing whether the year-to-year percentage changes are about the same or whether there's considerable variability, for corporate income taxes is 15.43 - nearly twice the amount for individual income taxes (8.10) and almost five times the amount for general sales taxes (3.16).

The standard deviation is 6.17 for property taxes, 2.81 for excise taxes and 5.02 for all taxes.

"Such volatility can be problematic for state budgets, where predictability and year-over-year revenue smoothness is preferred to maintain annual spending commitments," Henchman said. "This is especially troubling for a state that has a bi-annual budgeting procedure."

Another reform being considered is a harmful type of tax known as a gross receipts tax, which is imposed on all transactions and results in what economists call "tax pyramiding" as products move through the production process. Gross receipts taxes interfere with business investment decisions, leading to lower economic growth and job growth, according to the report.

One suggestion for sound tax reform is to broaden the sales tax base and apply it to all consumer purchases of goods and services, but exclude business purchases to avoid double-taxation of some products. Without special-interest carve-outs for certain industries or products, substantial revenue can be raised with low tax rates.

"With Washington, Oregon, California, and Arizona recently raising taxes, Nevada's already enviable tax climate looks better and better," Henchman concluded. "As the economy improves, the state is well-positioned for capital investment and job creation. This is an advantage that Nevada should be careful not to jeopardize."

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

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To schedule an interview, please contact Natasha Altamirano, the Tax Foundation's Manager of Media Relations, at (202) 464-5102 or naltamirano@taxfoundation.org.

Tax Foundation Amicus Curiae Brief Argues That Local Government Revenue Needs Don't Preclude Taxpayers from Challenging Improperly Collected Taxes

Washington, DC, July 1, 2010 - The California Supreme Court should reverse a lower court decision denying taxpayers the right to seek relief against illegal taxes through collectively filed refund claims, according to a Tax Foundation friend-of-the-court brief.

The case, Ardon v. City of Los Angeles, involves a telephone excise tax refund claim filed by Estuardo Ardon in the City of Los Angeles "on behalf of himself and all others similarly situated." Both the city and the California Court of Appeal rejected Ardon's "class action" lawsuit, arguing instead that each taxpayer must file a separate refund claim.

"The Court of Appeal's decision contradicts a previous state Supreme Court ruling in City of San Jose v. Superior Court allowing class filings under Section 910 of the state Government Code," said Tax Foundation Law Clerk Arushi Sharma, who co-authored a report summarizing the amicus curiae brief. "Despite the fact that Californians have repeatedly voted to limit local government taxing power in favor of taxpayer control, the Court of Appeal has incorrectly prioritized revenue maintenance over taxpayers' right to meaningful relief from illegal taxes."

Tax Foundation Fiscal Fact, No. 234, "Permitting Class Refund Actions Protects California Taxpayers Against Illegal Taxes: Ardon v. City of Los Angeles," summarizes the brief filed in the case and is available online at http://www.taxfoundation.org/publications/show/26473.html. A PDF of the full amicus curiae brief is available online at http://www.taxfoundation.org/publications/show/26476.html.

The Court of Appeal looked to a different case, Woosley v. State of California, to incorrectly determine that a policy "underlying" Section 32 of the California constitution precludes Ardon's claim because a potentially large collective refund would hamper local government revenue. The Tax Foundation's brief argues that while Section 32 prohibits injunctions against tax collection and requires taxpayers to pay contested taxes before taking legal action to stop tax collection (which Ardon did), it doesn't justify immunization of a tax from any taxpayer challenge whatsoever.

The brief also argues that the California constitution protects taxpayers against improper taxation by local government, especially since state law has denied taxpayers the ability to pursue refunds through other means, such as directly appealing to telephone service providers.

Class claims facilitate efficiency in claim processing and uniformity in claim resolution, especially when there are many claimants seeking small amounts, as is the case in Ardon. This process helps taxpayers if the court does require the government to pay back illegally collected taxes, and it helps the government if no refund is owed through singular resolution of multiple claims.

"The Supreme Court's decision in Ardon will have special significance for California taxpayers' ongoing efforts to deter illegal tax collection and over-taxation by local government," said Tax Foundation Tax Counsel and Director of State Projects Joseph Henchman, who co-authored the report. "The Court of Appeal decision should be overturned."

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 Natasha Altamirano, the Tax Foundation's Manager of Media Relations, at (202) 464-5102 or naltamirano@taxfoundation.org.

More than Half of Top 1% of Taxpayers in 1999 Moved Into Lower Income Percentile in 2007

Washington, DC, June 21, 2010 - A new Tax Foundation report shows significant movement of American households up and down the income spectrum over time, challenging claims of income inequality based on snapshot analyses of income distribution. Nearly 60 percent of taxpayers who were in the bottom-earning 20 percent in 1999 (earning less than $13,000) were in a higher income group in 2007, while nearly 40 percent of taxpayers who were in the top 20 percent in 1999 (earning more than $68,000) moved down in 2007.

Income mobility is even greater among high-income earners, who recently have been popular targets of federal and state tax policy proposals. Roughly half of millionaires from 1999 to 2007 were millionaires in just one year in the nine-year time period. By contrast, only 6 percent were millionaires in all nine years, according to the report, authored by Tax Foundation Senior Fellow Robert Carroll, Ph.D.

"Concern over the rising gap between the rich and poor has been the primary rationale for President Obama's redistributive policies, but one important factor to take into consideration is the mobility of people up and down the economic ladder," Carroll said. "If people move quickly up and down through the income spectrum, the position they occupy at any point in time may be less of a concern."

Tax Foundation Special Report, No. 180, "Income Mobility and the Persistence of Millionaires, 1999 to 2007," is available online at http://www.taxfoundation.org/research/show/26399.html.

While the share of income received by top earners has grown over the past several decades, the data reflect year-by-year movements of income but fail to capture the idea that people often occupy different places in the income distribution over time. Income mobility is partially due to the various stages in people's life cycles of earnings, whether they're just entering the wok force, newly retired or midlife during their peak earnings years.

About 58 percent of taxpayers in the bottom 20 percent of the income spectrum in 1999 (earning less than $13,000) moved into a higher income group in 2007. For the top 20 percent of taxpayers in 1999 (earning more than $68,000), about 38 percent of them moved into a lower quintile in 2007.

About 43 percent of the top 10 percent of taxpayers in 1999 (earning more than $96,500) moved into a lower income group in 2007. Among the highest-income taxpayers, more than 55 percent of the top 1 percent of taxpayers in 1999 (earning more than $339,600) moved into a lower percentile in 2007.

From 1999 to 2007, about 675,000 taxpayers earned over $1 million for at least one year. Of these, about half were a millionaire in only one year, while just 6 percent remained a millionaire in all nine years.

"Based on these results, it is clear that taxpayers move in and out of millionaire status with great frequency," Carroll said. "The volatile nature of capital gains realizations appears to be a major explanation for the transiency of millionaires."

Excluding capital gains reduces the number of millionaires from 1999 to 2007 by more than a third, from 675,000 millionaires to 431,000. While the total number of millionaires fell by about 36 percent, the number of one-year millionaires fell by much more, by nearly 50 percent to 175,000. Excluding capital gains also shows that the remaining millionaires are more persistent. The fraction of one-year millionaires represents only 40 percent of all taxpayers who are millionaires when capital gains realizations are removed. By contrast, one-year millionaires make up 50 percent of all millionaire taxpayers when capital gains realizations are included.

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 Bill Ahern, the Tax Foundation's Director of Policy and Communications, at (202) 464-5101 or ahern@taxfoundation.org.

Tax Foundation Report Shows Harmful Effects of Higher Dividend Tax Rates

Higher U.S. Dividend Tax Rate Resulting from Expiration of Bush Tax Cuts, Health Care Reform Would Put U.S. Rate at 68 Percent, Highest Among Industrialized Countries

Washington, DC, June 7, 2010 - The expiration of the Bush tax cuts and new Medicare taxes on investment income that were part of recent health care reform will push the top effective tax rate on dividends in the U.S. to 68 percent in 2011 - highest among all industrialized nations, according to a new Tax Foundation report.

The paper, authored by Tax Foundation Senior Fellow Robert Carroll, Ph.D., found that the double tax on corporate profits—first under the corporate income tax and again under the individual income tax as dividends or capital gains—discourages productive capital formation, ultimately reducing wages and living standards for U.S. citizens.

"The U.S. integrated dividend tax rate of 68 percent is substantially higher than in other nations," Carroll said. "The average rate among OECD member nations is about 44 percent and the average among the larger G-7 economies is about 47 percent. The higher dividend rate is in addition to the high U.S. corporate tax rate of 39.1 percent, second only to Japan among industrialized countries."

Tax Foundation Special Report, No. 181, "The Economic Effects of the Lower Tax Rate on Dividends," is available online at http://www.taxfoundation.org/publications/show/26384.html.

Corporate profits first are taxed at the firm level and are subject to a combined federal and average state corporate tax rate of 39.1 percent. For income distributed as a dividend, the second layer of tax is then paid by individual shareholders, which prior to the enactment of health care reform legislation had a top rate of 17.3 percent. With the sunset of the 2003 Bush tax cut at the end of 2010, which will increase the federal dividend tax rate from 15 percent to 39.6 percent, and the new Medicare tax on investment income of 3.8 percent, the integrated effective dividend tax rate will rise dramatically to 68 percent.

The sunset of the 2003 tax cut will also raise the capital gains tax rate from 15 percent to 20 percent. Higher tax rates on dividends and capital gains will increase the overall effective marginal tax rate on investment for the entire economy by 10 percent, from 17.3 percent to 19.1 percent. In the business sector, the effective marginal tax rate on investment would also increase by about 10 percent, from 25.5 percent to 28.1 percent.

Even if the higher dividend tax rate resulting from the expiring Bush tax cut is limited to families earning over $250,000 as President Obama has proposed, all households that hold dividend-paying stocks, regardless of their income, would be affected—or roughly one-fifth of all federal income tax returns filed in 2007 that reported qualifying dividends.

"The combination of the high dividend tax rate and high corporate tax rate raise serious concerns over the competitiveness for the U.S. as a place to locate investment," Carroll said. "By injecting tax considerations into investment decisions, the double tax reduces the productive capacity of the U.S. economy and serves, ultimately, to reduce the living standards of U.S. citizens."

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

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To schedule an interview, please contact Natasha Altamirano, the Tax Foundation's Manager of Media Relations, at (202) 464-5102 or naltamirano@taxfoundation.org.

Discriminatory Taxes on Commercial Property in Fairfax County Violate Virginia Uniformity Clause, Contradict Previous State Supreme Court Decision

Washington, DC, June 3, 2010 -- The Virginia Supreme Court should strike down two tax laws that impose discriminatory property taxes in Fairfax County to fund Metrorail expansion, according to a friend-of-the-court-brief filed by the Tax Foundation this week.

The case involves the constitutionality of special property taxes in Fairfax County that exempt all residential property, which violate Virginia's Uniformity Clause and disproportionately place the full tax burden on some properties while the entire tax district receives benefits.

"Special district taxes for benefits from the Metrorail should be imposed uniformly over the taxing district, not arbitrarily on some types of property," said Tax Foundation Tax Counsel and Director of State Projects Joseph Henchman, who co-authored a report summarizing the amicus curiae brief. "Such a conclusion is consistent with the Virginia Supreme Court's previous cases interpreting the Uniformity Clause, the U.S. Supreme Court's jurisprudence on distributing the tax burden for public benefits and other state courts' treatment of uniformity clauses as a strict limitation on legislatures' power to classify property for tax purposes."

Tax Foundation Fiscal Fact, No. 233, "Virginia Constitution Requires Uniform Distribution of the Metrorail Tax Burden in Fairfax County," summarizes the brief filed in FFW Enterprises v. Fairfax County and the Board of Supervisors of Fairfax County and is available online at http://www.taxfoundation.org/publications/show/26381.html.

FFW Enterprises is a commercial property owner in the Tysons Corner Region of Northern Virginia paying two taxes imposed to fund the Washington, D.C. region's Metrorail extension to Tysons Corner and Dulles International Airport. Virginia's Uniformity Clause requires that all property in the taxable area be uniformly treated as the taxable class, but residential property is exempted from the taxes, placing an undue burden on commercial property. Forty-eight states have uniformity requirements in their constitutions or state law.

The case marks the first time since 1947 the Virginia Supreme Court will consider how the General Assembly may pick and choose among taxpayers to finance local improvements that provide general public benefits. In a previous decision, City of Hampton v. Ins. Co. of North America, the Court held that the tax law at issue violated the Uniformity Clause because the law shifted the burden away from those who would benefit from the purpose of the tax.

The Tax Foundation's brief argues that the clause requires uniform treatment of taxpayers who stand to benefit from the Metrorail improvements - meaning that since the purpose behind the Transportation and District Taxes is to benefit the area surrounding the new construction, a disproportionate tax burden can't be placed on some types of properties (i.e. only on commercial property) within those benefited districts.

"The General Assembly's chosen route to raise revenues for the Metrorail construction may be administratively and politically convenient, but it creates exactly the type of discriminatory tax classification that the Virginia Constitution prevents," said Tax Foundation law clerk Arushi Sharma, who co-authored the report. "The General Assembly should not have the power to burden specific types of private property for public benefit under the guise of district-wide taxes."

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

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To schedule an interview, please contact Natasha Altamirano, the Tax Foundation's Manager of Media Relations, at (202) 464-5102 or naltamirano@taxfoundation.org.

Tax Foundation Report Shows Distribution of Federal Income Tax Burden by State; Connecticut, New York Are Most Progressive, West Virginia, Maine Have Flattest Distribution

Washington, DC, June 2, 2010 High-income taxpayers in Connecticut and New York bear the highest federal income tax burden among the states, according to a new Tax Foundation report based on recently released IRS data for tax year 2008.

"Connecticut by far has the most progressive distribution of federal income taxes," said Tax Foundation President Scott Hodge, who authored the report. "Taxpayers making under $50,000 a year earned 13 percent of adjusted gross income in the state, but paid only 5 percent of the state's federal income taxes. On the other end of the spectrum, taxpayers making over $200,000 earned 44 percent of the state's AGI, but paid 66 percent of the state' federal income taxes."

Connecticut taxpayers earning under $50,000 paid an effective tax rate—or share of income paid in taxes—of 6 percent, while those earning more than $200,000 paid an effective rate of 25 percent.

Tax Foundation Fiscal Fact, No. 231, "States Vary in Distribution of Who Bears the Burden of Federal Income Taxes," is available online at http://www.taxfoundation.org/publications/show/26371.html.

Nationally, taxpayers earning under $50,000 collectively earned 22 percent of the nation's total AGI, but paid just 8 percent of all federal income taxes at an effective rate of 5 percent. Those making over $200,000 collectively earned 29 percent of total AGI but paid more than half of all federal income taxes at an effective rate of 22 percent.

New York has the second most progressive distribution of federal income taxes, with taxpayers making less than $50,000 earning 17 percent of the state's AGI and paying just 6 percent of the state's federal income taxes. Meanwhile, those earning over $200,000 earn 40 percent of AGI and pay 63 percent of federal income taxes.

The other states in which taxpayers earning over $200,000 paid a greater share of the state's federal income tax burden than the national average include New Jersey (58 percent), Texas (57 percent), Florida (56 percent), Massachusetts (56 percent), Wyoming (56 percent), California (55 percent), Illinois (54 percent) and Louisiana (53 percent).

West Virginia has the flattest distribution of the federal income tax burden. Those earning less than $50,000 earn 31 percent of the state's AGI and pay 13 percent of the state's federal income taxes, while taxpayers making more than $200,000 earn 15 percent of AGI and pay 33 percent of federal income taxes.

Maine has the second flattest distribution, with those earning less than $50,000 earning 29 percent of the state's AGI and paying 14 percent of the state's federal income taxes. This is compared to those making over $200,000, who earn 17 percent of AGI and pay 34 percent of federal income taxes.

Other states with relatively flat federal income tax burden distributions include Hawaii, Indiana, Iowa and Kentucky.

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

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To schedule an interview, please contact Natasha Altamirano, the Tax Foundation's Manager of Media Relations, at (202) 464-5102 or naltamirano@taxfoundation.org.

Washington, DC, June 2, 2010 - An individual income tax reform being considered by Rhode Island officials would improve the state's business tax climate from seventh-worst to 10th-worst, according to a new Tax Foundation analysis of the plan.

"Rhode Island ranked 44th in our 2010 State Business Tax Climate Index," said Tax Foundation Staff Economist Kail Padgitt, Ph.D., who wrote the 2010 Index. "While the complete phase-in of the state's optional flat tax would slightly increase the state's ranking one spot to 43rd, the new reform proposal would further improve its tax system."

By comparison, Connecticut's ranking is 38 and Massachusetts's is 36.

Tax Foundation Fiscal Fact, No. 232, "Rhode Island Officials Consider Income Tax Reform," is available online at http://www.taxfoundation.org/publications/show/26374.html.

The plan would replace the state's current individual income tax structure with three brackets and a top rate of 6%; raise the amounts of the lump-sum standard deduction that most taxpayer claim while eliminating itemized deductions; allow only a handful of tax credits (a credit for taxes paid to other states, earned-income tax credit, statewide property-tax relief credit and a credit for residential lead-paint abatement); and eliminate the optional flat tax.

The optional flat tax allows taxpayers to pay one flat rate on all their income instead of the graduated rate structure coupled with myriad credits and deductions. In 2006, when the stated started phasing in the flat tax, the rate was 7% and has been reduced each year. In 2010, it is 6% and in 2011 it is scheduled to reach 5.5%, where it will remain.

The optional flat tax has improved Rhode Island's State Business Tax Climate Index ranking from dead last (50th) in 2006 to 44th in 2010. Last year, Gov. Don Carcieri (R) proposed a plan to phase out the state's corporate income tax over four years, eliminate many deductions and credits and reduce the top individual income tax rate to 5.5%. Carcieri also proposed to increase the state cigarette tax from $1 to $3.46 per pack, the only part of the plan that was enacted. Still, the plan would have improved the state's 2009 State Business Tax Climate Index ranking from 46th to 16th.

"Rhode Island shouldn't get rid of the option flat tax lightly, but the proposal under discussion is at least a modest improvement from the state's current tax system," said Tax Foundation Tax Counsel and Director of State Projects Joseph Henchman, who co-authored the report. "As the economy improves, capital and investment will flow to those states best positioned for it. Rhode Island has a chance to welcome that opportunity, and frankly, the state has nowhere to go but up."

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 Natasha Altamirano, the Tax Foundation's Manager of Media Relations, at (202) 464-5102 or naltamirano@taxfoundation.org.

Tax Foundation Outlines Tax Liabilities for 10 Families in 2011 Under Various Tax Plans; Report Part of Series on Expiring Bush Tax Cuts

Washington, DC, May 26, 2010 -- The Tax Foundation has calculated what 10 typical tax returns will look like in 2011 under three scenarios: if all the Bush and Obama tax cuts expire completely at the end of this year, if all the Bush tax cuts are extended to 2011 or made permanent and if President Obama's budget is adopted, which includes a combination of expirations and extensions.

"President Obama has proposed extending most of the Bush tax cuts benefiting families making less than $250,000 a year in addition to some new tax policies targeted at low- and middle-income households, such as the Making Work Pay Credit," said Tax Foundation Staff Economist Mark Robyn, who authored the report. "It's important to note that the report only looks at tax liabilities in 2011, and doesn't include tax increases enacted as part of health care reform, which don't go into effect until later in the decade."

"It remains to be seen how rising federal deficits will affect taxpayers after 2011," Robyn added.

Tax Foundation Fiscal Fact, No. 227, "Taxpayers Face Uncertainty in 2011 As Bush and Obama Tax Cuts Expire," is available online at http://www.taxfoundation.org/publications/show/26320.html. The Fiscal Fact is part of a series answering frequently asked questions about the expiration of the Bush tax cuts, available online at http://www.taxfoundation.org/publications/show/26135.html.

The 13-part series outlines how the three tax scenarios would affect key tax parameters such as tax rates and brackets, the standard deduction, the estate tax and other provisions. It also addresses questions such as "How much did the Bush tax cuts cost the Treasury in foregone revenue?" and "Who received the biggest tax savings from the tax cuts?" among others.

If all the Bush tax cuts are allowed to expire at the end of 2010, a single parent who earns $25,000 a year with one child would receive $928 from the federal government in 2011 in refundable tax credits. If all the Bush tax cuts are extended, the parent would receive $1,881 in refundable credits. Finally, under Obama's policies, the parent would receive $2,281 in refundable credits.

A married couple (two earners) making $85,000 a year with two children would have a tax liability of $7,235 in 2011 if all the Bush tax cuts expire, $5,383 if all the cuts are extended and $4,583 if Obama's policies are adopted.

A single taxpayer earning $60,000 with no children would see a tax bill of $8,236 in 2011 without any of the Bush tax cuts, $7,484 with all of the Bush tax cuts and $7,084 with the combination of expirations and extensions proposed by President Obama.

A double-earner married couple making $150,000 with two children would have a tax liability of $22,776 in 2011 if all the Bush tax cuts expire, $19,268 if all the cuts are extended and $18,468 under Obama's proposed combination.

A double-earner married couple making $1 million with no children would see a tax bill of $298,510 in 2011 if all the Bush tax cuts expire, $254,167 if all the cuts are extended and $307,342 if Obama's policies are adopted.

For additional examples of how the tax bills of typical families would look under the three tax scenarios, see the full report, Tax Foundation Fiscal Fact, No. 227, "Taxpayers Face Uncertainty in 2011 As Bush and Obama Tax Cuts Expire," available online at http://www.taxfoundation.org/publications/show/26320.html. The Fiscal Fact also presents the effective tax rates (taxes as a percentage of income) for the families and includes detailed breakdowns of the typical deductions, exemptions and credits for each of the tax returns.

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

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To schedule an interview, please contact Natasha Altamirano, the Tax Foundation's Manager of Media Relations, at (202) 464-5102 or naltamirano@taxfoundation.org.

Tax Foundation Report Based on New IRS Data Outlines Average Mortgage Interest Deduction By State

Washington, DC, May 25, 2010 -- Tax filers in California saw the highest average mortgage interest deduction in 2008 -- $5,520 among all tax returns filed and $18,876 among tax returns claiming the deduction, according to a Tax Foundation report based on newly released IRS data.

Maryland tax filers had the second-highest average deduction among all tax returns, $5,372, and fifth-highest average amount among returns claiming the deduction, $14,162. Nationally, the average tax return deducted $3,279 in mortgage interest, while the average amount among tax returns that deducted mortgage interest was $12,221.

"The savings from state to state vary for two reasons: First and most importantly, some states have higher average incomes," said Tax Foundation Chief Economist Patrick Fleenor, who wrote the report. "Secondly, in some locations, such as New York City, renting is more prevalent so fewer people claim the deduction."

The report, "Tax Savings from Mortgage Interest Deduction Vary Significantly from State to State," is No. 230 in the Tax Foundation Fiscal Fact series and is available online at http://www.taxfoundation.org/publications/show/26341.html.

For tax year 2008, more than a quarter of the nation's 143 million tax returns claimed the mortgage interest deduction, 26.8 percent. Maryland saw the highest percentage of tax filers claiming the deduction, 37.94 percent, followed by Connecticut (35.15 percent), Colorado (34.54 percent), Minnesota (33.71 percent), Virginia (33.61 percent), New Jersey (33.34 percent), Utah (33.17 percent), Oregon (32.46 percent), Delaware (31.80 percent) and Massachusetts (31.74 percent).

Following California and Maryland, the states that saw the highest average mortgage interest deduction among all tax returns were Virginia ($4,737), Colorado ($4,594), Nevada ($4,580), Washington ($4,426), New Jersey ($4,406), Connecticut ($4,396), Arizona ($4,293) and Massachusetts ($4,064).

The states that saw the highest average deduction among tax returns claiming the mortgage interest deduction after California were Hawaii ($16,730), Nevada ($15,502), Washington ($14,262), Maryland ($14,162), Virginia ($14,094), Arizona ($13,616), Florida ($13,375), Colorado ($13,300) and New Jersey ($13,215).

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

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To schedule an interview, please contact Natasha Altamirano, the Tax Foundation's Manager of Media Relations, at (202) 464-5102 or naltamirano@taxfoundation.org.

Tax Foundation Analysis of New IRS Data Provides State-By-State Look at Number of Tax Filers With No Income Tax Liability 

Washington, DC, May 24, 2010 -- Forty-five percent of tax filers in Mississippi had no federal income tax liability in 2008 -- the highest percentage among all states, according to a new Tax Foundation report based on recently released IRS data. Alaska had the lowest percentage of "nonpayers," 21 percent.

Nationally, the number of nonpayers reached a record high in 2008: roughly 52 million of the 143 million tax returns filed in 2008, or 36 percent.

"There's a growing population of Americans who have no skin in the game because their credits and deductions reduce their federal income tax bills to zero," said Tax Foundation President Scott Hodge, who wrote the new Fiscal Fact. "Tax credits such as the child tax credit and earned income tax credit have become so generous that a family of four earning up to about $52,000 can expect to pay no federal income taxes at all."

The report, "States Vary Widely in Number of Tax Filers With No Income Tax Liability," is No. 230 in the Tax Foundation Fiscal Fact series and may be found online at http://www.taxfoundation.org/publications/show/26336.html.

Following Mississippi, the 10 states with the highest percentage of tax returns filed resulting in zero or negative income tax liability are Georgia (41 percent), Arkansas (41 percent), New Mexico (40 percent), Alabama (40 percent), South Carolina (40 percent), Louisiana (39 percent), Texas (39 percent), Florida (39 percent) and Idaho (39 percent).

These states have among the lowest median family incomes in the country (ranging from $60,268 in Georgia to $46,668 in Mississippi) and nine out of the 10 are located in the South and Southwest.

The 10 states with the lowest percentage of nonpayers after Alaska include Massachusetts (27 percent), Connecticut (27 percent), New Hampshire (28 percent), Wyoming (28 percent), North Dakota (29 percent), Maryland (29 percent), Washington (29 percent), Minnesota (30 percent) and Virginia (30 percent). These states are not geographically concentrated, but they all tend to have higher incomes.

In terms of absolute numbers, the most populated states have the most nonpayers: More than 6 million tax-filing Californians (37 percent of the 16.4 million tax returns filed) paid no federal income taxes in 2008.

Hodge noted that these numbers don't include the millions of other Americans who have some income but not enough to be required to file a tax return.

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

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To schedule an interview, please contact Natasha Altamirano, the Tax Foundation's Manager of Media Relations, at (202) 464-5102 or naltamirano@taxfoundation.org.

Tax Foundation Analysis of IRS Data Shows Average Savings Ranged from $342 in Utah to $104 in D.C.; Factors Such as Marriage Rates, Income Explain Differences in Average Credit

Washington, DC, May 20, 2010 -- Tax filers in Utah saw the biggest average tax savings in 2008 by claiming the child tax credit, followed by those in Idaho, Wyoming, Alaska and Nebraska, according to a Tax Foundation report based on new IRS data.

By contrast, tax filers in D.C., Florida, New York, Massachusetts and New Jersey had the lowest average tax savings from the child tax credit, which allows taxpayers to claim a $1,000 credit for each dependent child under 17.

"The savings vary so much for two main reasons: Families in some states just tend to have more children, such as in Utah," said Tax Foundation Senior Economist Gerald Prante, Ph.D., who authored the report. "States with high rates of single households and fewer children, such as D.C. and New York, saw lower savings. Secondly, the child tax credit begins to phase out for families making over $110,000, so high-income states, such as those in the Northeast, have fewer eligible families claiming the credit."

Tax Foundation Fiscal Fact, No. 228, "Tax Savings from Child Tax Credit Vary Significantly from State to State," is available online at http://www.taxfoundation.org/publications/show/26327.html.

The average tax return in Utah saved $342 in 2008 by claiming the child tax credit, followed by Idaho ($265), Wyoming ($262), Alaska ($261), Nebraska ($258), Iowa ($254), Kansas ($253), Indiana ($245), Texas ($244) and South Dakota ($239). The average tax return saved the least in D.C. ($104) followed by Florida ($167), New York ($173), Massachusetts ($189), New Jersey ($192), Rhode Island ($193), Vermont ($194), Connecticut ($197), Maine ($198), Oregon ($199) and Maryland ($199).

Utah also saw the highest percentage of tax returns, 23.7 percent, claiming the child tax credit, followed by Mississippi (20.8%), Texas (20.7%), Idaho (20.2%), Alaska (20.1%), Louisiana (19.7%), Nevada (19.7%), Arizona (19.7%), Oklahoma (19.4%) and Alabama (19.3%). States with the lowest percentage of tax filers claiming the credit (in addition to D.C., 10.7%) include New York (14.7%), Massachusetts (14.9%), Vermont (15.1%), Florida (15.2%), Montana (15.4%), Maine (15.7%), Connecticut (15.8%), Rhode Island (15.9%), New Jersey (16.1%) and Oregon (16.1%).

Among tax filers who claimed the credit, those in Utah also had the highest average savings of $1,445, followed by Wyoming ($1,407), North Dakota ($1,395), Nebraska ($1,370), Iowa ($1,370), South Dakota ($1,370), Minnesota ($1,354), Wisconsin ($1,335), Kansas ($1,318) and New Hampshire ($1,316). States with the lowest average savings among tax filers who claimed the credit (in addition to D.C., $973) include Mississippi ($1,074), Florida ($1,097), South Carolina ($1,105), Georgia ($1,111), North Carolina ($1,133), Alabama ($1,134), California ($1,147), Louisiana ($1,147), Arkansas ($1,149) and Tennessee ($1,159).

Prante noted that the numbers don't include the additional, or refundable, child tax credit, which explains why the average savings for tax filers claiming the child tax credit is lowest among low-income states such as Mississippi, where many tax filers claim the additional child tax credit.

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

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To schedule an interview, please contact Natasha Altamirano, the Tax Foundation's Manager of Media Relations, at (202) 464-5102 or naltamirano@taxfoundation.org.

Federal Spending in 2009-10 Highest Since World War II; Deficit Reaches $13,158 Per Household

Washington, DC, May 13, 2010 - Recent news reports in USA Today and elsewhere have highlighted the historically low tax collections in 2009 and 2010, confirmed by the Tax Foundation's annual Tax Freedom Day® calculations of April 8, 2009, and April 9, 2010.

"The importance of the current federal deficit can hardly be overstated," commented Foundation economist Kail Padgitt, Ph.D., author of the Tax Freedom Day report. "Tax Freedom Day doesn't include deficits because it's a snapshot of the current year's tax burden. If current taxes had to cover the deficit this year, however, Americans would be working until Monday, May 17, 2010, before earning enough money to pay for government."

"That would cover all federal, state and local taxes, plus a $1.3 trillion federal budget deficit predicted by the Foundation in February, which the Congressional Budget Office has since revised to 1.5 trillion," said Padgitt.

In 2010, the Foundation projects that federal, state and local taxes will amount to 26.89 percent of the nation's income, considerably less than in 2007. The shift toward a lower tax burden has been driven by three factors:

• The recession has reduced tax collections even faster than it has reduced income;
• President Obama and the Congress have enacted temporary income tax cuts for 2009 and 2010, just as President Bush did in 2008; and
• Two significant taxes were repealed for just one year, 2010, as part of previous legislation, the estate tax and the so-called PEP and Pease provisions of the income tax.

Despite all these tax reductions, Americans will pay more taxes in 2010 than they will spend on food, clothing and shelter combined.

In the study, Tax Foundation Special Report No. 177, "America Celebrates Tax Freedom Day," Padgitt explains that current deficits are so large that they deliver an early Tax Freedom Day now but promise a much later one in years to come.

"These huge deficits must translate into higher taxes or inflation soon," explained Padgitt, "and that will drive Tax Freedom Day much later into the year, likely somewhere near where the deficit-inclusive measure is now, in mid-May."

Using current deficit projections from the Congressional Budget Office, the average household's share of total spending is $31,737, and the average household's share of total taxes is $18,579, leaving a per-household deficit of $13,158.

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.

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To schedule an interview, please contact Natasha Altamirano, the Tax Foundation's Manager of Media Relations, at (202) 464-5102 or naltamirano@taxfoundation.org.

Many States Saw Double-Digit Drops Despite Enactment of Tax Increases

Washington, DC, May 13, 2010 -- State tax revenues fell 8.9 percent nationwide from fiscal year 2008 to 2009, with 45 states seeing a decline in state-level tax collections, according to a Tax Foundation analysis of new Census data. Sixteen states experienced double-digit drops.

Tax Foundation Fiscal Fact, No. 225, "State Revenue Changes from 2008 to 2009," compares tax revenues by state as well as tax revenue by type to identify sources of tax volatility. The Fiscal Fact is available online at http://www.taxfoundation.org/publications/show/26297.html.

"Stable revenue is an important goal for state tax policy, and the year-to-year percentage change by tax revenue source can give us a rough idea of the volatility of certain taxes," said Tax Foundation Economist Kail Padgitt, Ph.D., who authored the report. "Corporate and individual income taxes have the greatest amount of volatility, while sales taxes tend to be more stable. Many states, however, have made their sales taxes more volatile by excluding groceries and other large areas of consumer goods and services."

From fiscal year 2008 to 2009, revenue increased in fives states: Iowa (1.3 percent), North Dakota (4.3 percent), Oregon (1.9 percent), South Dakota (0.9 percent) and Wyoming (13.9 percent). Sixteen states saw decreases of 10 percent or more: Alaska (51.9 percent), Arizona (19.7 percent), California (15.0 percent), Colorado (10.3 percent), Connecticut (12.1 percent), Florida (11.5 percent), Georgia (11.7 percent), Idaho (14.1 percent), Massachusetts (11.7 percent), New Jersey (11.9 percent), New Mexico (15.1 percent), North Carolina (10.6 percent), South Carolina (16.8 percent), Tennessee (10.0 percent), Utah (11.9 percent) and Virginia (12.8 percent).

The report also compares the percentage change in tax revenue by type of tax, including state-level property taxes (which in most states refers to personal property such as cars and boats), individual income taxes, corporate income taxes, general sales taxes and selective sales taxes. Nationally, corporate income tax revenue declined the most -- by 23.1 percent from 2008 to 2009.

Finally, the report examines year-to-year changes in tax revenue over the past decade, underscoring the volatility of corporate taxes, which have declined by as much as 24.7 percent from 2001 to 2002 and increased by as much as 21.3 percent from 2004 to 2005.

"Although state tax revenue decreased significantly during fiscal year 2009, the decrease is almost exactly matched by earlier years of major increases," Padgitt said. "Over the last decade, adjusting for inflation, state tax revenues have increased by 6.1 percent. When controlling for population, tax revenues are down about 1 percent."

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

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To schedule an interview, please contact Natasha Altamirano, the Tax Foundation's Manager of Media Relations, at (202) 464-5102 or naltamirano@taxfoundation.org.

Bag Tax Legislation Pending in 15 States, According to Tax Foundation Report

Washington, DC, May 12, 2010 -- At least 15 states and one major city are considering enacting taxes on plastic and paper bags used at grocery stores and carryout restaurants, but a new Tax Foundation report shows that the environmental benefits of the tax are often exaggerated and the tax becomes another general revenue grab by public officials.

The bag tax in Washington, DC - which went into effect January 1 - has resulted in less bag usage by customers, low revenue and a statement from Mayor Adrian Fenty that bag tax revenue might be transferred from the Anacostia River Cleanup Fund to the city's general fund.

"Politicians are loath to call anything a 'tax,' so these bag taxes are often incorrectly called 'fees,'" said Tax Foundation State Policy Analyst Justin Higginbottom, who authored the report. "A fee is paid by a user for a specific service, while a tax raises revenue for general services. Even when pitched more honestly as bag 'taxes,' they are likely to fall short of ambitious environmental clean-up goals."

Tax Foundation Fiscal Fact, No. 224, "Bag Taxes Disappointing in Debut," is available online at http://www.taxfoundation.org/publications/show/26285.html.

The bag tax in Washington, DC has raised about $150,000, and Fenty has proposed an inter-governmental transfer in order to pay for general city services not necessarily related to any environmental programs.

Bag tax legislation is pending in Alaska, California, Colorado, Connecticut, Hawaii, Maine, Maryland, Massachusetts, Nevada, New Jersey, New York, Rhode Island, Texas, Vermont and Virginia, and a separate city-level tax is pending in Baltimore, MD. A 20-cent bag tax proposal failed in Seattle, WA in 2009.

If designed as a pigouvian tax - meant to eliminate a bad side effect (in this case litter and other environmental problems) - a bag tax may be considered successful if it achieves some environmental goals while still leaving bags affordable for the people who need them most. But the environmental goals set forth by public officials are often too ambitious to be achieved by a bag tax alone, according to the report.

Moreover, while customers might give up disposable plastic or paper bags from grocery stores and other retailers, they might instead purchase bags for household needs previously served by grocery bags - such as trash liners or lunch bags - which have the same chance of adverse environmental effects as grocery bags.

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

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To schedule an interview, please contact Natasha Altamirano, the Tax Foundation's Manager of Media Relations, at (202) 464-5102 or naltamirano@taxfoundation.org.

PEP and Pease Provisions Restricting Personal Exemption, Itemized Deductions for High-Income Earners Slated for Return in 2011 After Gradual Phase-out, Repeal for 2010

Washington, DC, April 29, 2010 -- If high-income taxpayers are contemplating a major charitable gift in the near future, 2010 is the year to do it - before restrictions on itemized deductions return in 2011 from a one-year hiatus. The so-called PEP and Pease provisions of the federal individual income tax, which limit the benefits of the personal exemption and itemized deductions for taxpayers over a certain income level, have been repealed for 2010 but are scheduled to return in 2011.

A new Tax Foundation special report explains the history of the PEP and Pease provisions and outlines how the reinstatement of the tax laws will affect taxpayers at various income levels under President Obama's budget.

"The federal individual income tax has, since its inception, allowed for personal exemptions to provide tax relief to low-income filers," said Tax Foundation Chief Economist Patrick Fleenor, who authored the report. "Over time, politicians have also created itemized deductions to favor certain products and services. To raise revenue, the federal government has over the past 20 years scaled back the benefits of personal exemptions and itemized deductions by phasing them out for high-income people through the PEP and Pease provisions, which have created significant problems, raising marginal tax rates and adding to tax complexity."

Tax Foundation Special Report, No. 178, "PEP and Pease: Repealed for 2010 But Preparing a Comeback," is available online at http://www.taxfoundation.org/publications/show/26260.html.

In some cases, PEP and Pease push the marginal tax rate up substantially. Next year, under President Obama's budget, a married couple filing jointly with combined AGI of $254,550 would pay a 28 percent rate without PEP and Pease, but a 30.5 percent rate with PEP and Pease. Couples earning a little more, over $262,950 in AGI, would face a marginal effective tax rate of 39.2 percent instead of 36 percent, according to the report.

The Pease provision, named after former U.S. Representative Donald Pease (D-OH), phases out the benefits of itemized deductions -- such as deductions for mortgage interest, state and local tax paid and charitable contributions -- for high-income earners. In 1991, the first year it was in effect, the income threshold below which a taxpayer would keep the entire value of his itemized deductions was $100,000 in AGI for joint filers and $50,000 for all other filers. A taxpayer declaring income above the threshold and claiming itemized deductions that are subject to Pease would have to subtract 3 percent of the income above the threshold from the deduction amount.

In 2009, the phase-out threshold for Pease, which is indexed for inflation, was $166,800 for joint filers and $83,400 for other filers. Under President Obama's policies, the threshold for Pease would be $254,550 for married couples and $203,650 for singles.

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

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To schedule an interview, please contact Natasha Altamirano, the Tax Foundation's Manager of Media Relations, at (202) 464-5102 or naltamirano@taxfoundation.org.