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Abstract:
While the U.S. tax system is progressive, the distribution of government spending makes the overall fiscal system more progressive than is apparent from tax distributions alone. Using a microdata model we estimate the distribution of federal, state and local taxes and spending between 1991 and 2004. We find households in the lowest quintile of income received roughly $8.21 in federal, state and local government spending for every dollar of taxes paid in 2004, while households in the middle quintile received $1.30, and households in the top quintile received $0.41. Overall, tax payments exceeded government spending received for the top two quintiles of income, resulting in a net fiscal transfer of between $1.031 trillion and $1.527 trillion between quintiles. Both taxes and spending appear to have large distributional effects on households, and these effects have grown since 1991. The results suggest tax distributions alone are an inadequate measure of progressivity, and policymakers should examine both tax and spending distributions when judging the overall fairness of policy toward income groups.

fiscal incidence, public finance, distributional analysis, tax policy, tax incidence, government expenditure incidence

Abstract:
Many U.S. lawmakers view cap and trade as a politically superior non-tax approach to climate policy. However, cap and trade imposes identical economic burdens on households to a similarly designed carbon tax. Using the newly-released 2002 input-output accounts we present new estimates of the distributional impact of a typical cap-and-trade system by income, age, U.S. region and family type. In total, households would face an annual burden of roughly $144.8 billion per year with costs disproportionately borne by low-income households, those under age 25 and over 75 years, those in Southern states, and single parents with dependent children. Using RIMS II multipliers we estimate the broader economic impact of cap and trade. Depending on how the system is structured, cap and trade could reduce U.S. employment by 965,000 jobs, household earnings by $37.8 billion, and economic output by $136 billion per year or roughly $1,145 per household. Lawmakers weighing the costs and benefits of climate policy should be aware that cap and trade would impose a significant and regressive annual burden on U.S. households, and would not represent a "tax free" way to reduce greenhouse gas emissions.

Cap and trade, input output modeling, climate policy, distributional analysis, carbon tax

Abstract:
Recent Congressional Budget Office (CBO) estimates of H.R. 2454, the “American Clean Energy and Security Act of 2009,” suggest the bill’s costs would be progressive across income groups. However, the analysis relies on assumptions about the incidence of free emission “allowances” that are not supported by microeconomic theory. We provide alternative estimates of the costs faced by U.S. households from the legislation. We find the bill - both on a gross and net basis - to be regressive, imposing the largest burdens on low- and middle-income households. On a gross basis, the bill would cost $106 billion per year or $892 per household, ranging from $451 to $1,531 depending on income. On a net basis, households in the four lowest-earning quintiles would pay between $31 and $512 per year, while households in the highest-earning quintile would actually profit by $604 per year - effectively redistributing roughly $14 billion per year to the highest-earning households in the U.S. We also examine the bill’s distribution of free allowances to various industries, finding that the legislation is likely to generate large windfall profits for various politically favored industries at the expense of U.S. consumers. As debate over climate policy moves to the U.S. Senate, lawmakers should be wary of these flaws in the structure of the Waxman-Markey cap-and-trade bill.

Distributional analysis, cap-and-trade, environmental policy, policy analysis

Abstract:
The recently released Gang of Ten energy proposal includes revenue offsets that would exclude domestic oil and gas companies from the Section 199 deduction for domestic production activity. Using a simple input-output model we estimate the state-by-state impact of this proposal on tax burdens, employment, household earnings and economic output. We estimate the proposal will increase corporate tax burdens by approximately $13.57 billion over ten years, 44 percent of which will fall on households in the petroleum manufacturing states of Texas, California and Louisiana. Using RIMS II multipliers we estimate the proposal will reduce U.S. employment by roughly 637,000 jobs over ten years, reduce household earnings by $34.97 billion, and reduce total U.S. economic output by $185.95 billion.

Public Finance, Taxation, Section 199, Economic Impact, Input-Output

Abstract:
The burden of federal taxes does not fall equally on the cities, counties and congressional districts that comprise the geographic landscape of the United States. Because tax collections figures provide little information about the true economic burden of taxes, researchers must employ various statistical methods to estimate the economic incidence of federal taxes across geographic areas. We outline a detailed methodology for modeling the burden of each federal tax - individual income, corporate income, payroll, estate and gift, and all excises - by narrow geographic areas. Using this model, we provide estimates of federal tax burdens by three geographic areas for Calendar Year 2004: major city area, county and U.S. congressional district.

public finance, federal taxation, tax incidence, tax policy

Abstract:
State governments have traditionally raised revenue from business by taxing corporate income. But in recent years the growing difficulty of administering state corporate income taxes has prompted a search for alternative ways of taxing companies. This search for new business taxes has ironically sparked a resurgence in one of the world's oldest broad-based tax structures: the gross receipts tax, also known as the turnover tax.

Gross receipts taxes have a simple structure, taxing all business sales with few or no deductions. Because they tax transactions, they are often compared to retail sales taxes. However, they differ in a critical way. While well designed sales taxes apply only to final sales to consumers, gross receipts taxes tax all transactions, including intermediate business-to-business purchases of supplies, raw materials and equipment. As a result, gross receipts taxes create an extra layer of taxation at each stage of production that sales and other taxes do not - something economists call tax pyramiding.

While gross receipts taxes appear to be a simple alternative to complex corporate income taxes, this simplicity comes at a great cost. Gross receipts taxes suffer from severe flaws that are well documented in the economic literature, and rank among the most economically harmful tax structures available to lawmakers. The economic problems with gross receipts taxes are not the result of poor implementation by lawmakers. The flaws are inherent in their design. State lawmakers searching for alternatives to complex state corporate income taxes should be wary of gross receipts taxes, and should instead seek more economically neutral ways of taxing business.

public finance, sales taxes, gross receipts taxes, tax policy, consumption taxes, state tax policy