The real costs of tuition tax credits

Calculations of the costs of tuition tax credits should include estimates of the induced migration from public to private schools. The estimate by the President's advisors that his 1983 tax credit proposal would cost up to $800 million by 1986 neglected the migration factor. It is demonstrated that a migration from public to private schools of about from 1 to 1.4% of the present public school enrollment is all that is necessary to secure savings from migrants that just offset the loss in federal tax revenue from tax credits granted to incumbent private school families. Greater migration will generate net revenue gains to governments as a whole.     

Who Gains from Charitable Tax Credit Programs? The Arizona Model

The Bush administration and some states have promoted charitable tax credits as a way to increase private charitable giving, to support antipoverty programs, and to allow taxpayers to directly determine the utility and effectiveness of nonprofit services. Looking at Arizona's charitable tax credit program, this study assesses the strengths and limitations of this policy approach. Although charitable giving increased during the first two years of the program (1998 and 1999), tax returns from 2000 suggest it may be difficult to sustain these gains in a weak economy. Larger and better-known nonprofits and taxpayers who itemize their returns are the primary beneficiaries of the program. The program may put small but well-run organizations at a competitive disadvantage, weaken accountability in the sector, and pose administrative challenges to state departments of revenue. This analysis suggests that tax credits are not a panacea for the funding needs of nonprofits.     

State Tax Credits and "Making Work Pay" in Post-Welfare Reform Era

This article outlines the work incentives and income support provided by the federal Earned Income Tax Credit (EITC) and illustrates how state earned income and dependent care credits assist working poor families. State earned income and dependent care tax credits serve as critical complements to the EITC, the federal government's largest antipoverty program. By attending to specific components of each tax credit, state policymakers can maximize state funds that qualify for federal maintenance of effort requirements under the Personal Responsibility and Work Opportunity Reconciliation Act (PROWRA), and they can reinforce positive effects and offset work disincentives stemming from current federal tax parameters.     

The Blizzard of 1987: A Year of Tax Reform Activity in the States

The year 1987 was the most active one in terms of state taxreform activity within recent memory. Most states respondedto federal tax reform not only by conforming their income taxesto the new federal provisions but also by such actions as increasingtheir personal exemptions or credits, raising their standarddeductions, and/or reducing marginal tax rates. The net resultof these changes was to increase the progressivity of stateincome taxes. The most important development affecting othertaxes was Florida's ultimately failed attempt to expand thesales tax to a broad range of services. Most states did notreform their corporation income tax, but that tax may receivemore attention in the next few years. Despite the high levelof activity 1987 and the formidable obstacles to accomplishingsignificant tax reform, 1987 will probably be seen in retrospectas the beginning of a major period of state tax reform extendinginto the early 1990s.     

How Quickly Do Corporations Respond to Changes in Tax Law? Evidence fromthe California Manufacturer's Investment Credit

An understanding of the timing of firm response to changes in corporate tax law is vital for accurately estimating the revenue impact of pending corporate tax legislation. Unfortunately, the literature does not contain any standard references describing the actual responses of firms to tax law changes. The recent adoption of California's Manufacturer's Investment Credit provides a unique opportunity to study how corporations adjust their tax payments in response to changes in tax law. For background, it is shown that even in the absence of law changes many corporations overpay on their estimated taxes, perhaps because of transactions costs or agency problems. Analysis of corporate tax payments indicates that taxpayers did adjust their estimated tax payments in response to the introduction of California's MIC, but that their response fell short of the response predicted by the zero transactions cost, perfect information model of the firm. Furthermore, firms whose MIC credit was large relative to their pre-MIC tax liability were less adept at adjusting to the law change than were firms for whom the MIC was relatively less important. As a result, the revenue loss to the State of California for 1995 tax year MIC credits is estimated to be spread out over four fiscal years.     

The Fiscal Impact of Federal and State Aid to Large U.S. Cities: An Empirical Analysis of Budgetary Response

This article examines four types of aid programs to thirty-nine large U.S. cities federal revenue sharing, federal categorical aid, state general aid, and state categorical aid. The central finding is that there is significant variation in the magnitude of property tax reduction resulting from different types of state general aid. Property tax credits and exemptions are less effective approaches in reducing local property taxes than are state lump-sum aid or city use of piggybacked taxes Categorical state and federal aid mostly fund additional city spending and have small but important stimulative effects on the revenue side These results suggest that differences in the design of aid programs have important implications for their fiscal impact and their effectiveness in reducing property taxes.     

Parental schooling choice: A case study of minnesota

Public support of nonpublic elementary and secondary education has become one of the most controversial issues in American educational policy, with tuition tax credits and deductions subjects of ongoing debate at both the state and federal level. This article presents the results of one of the first empirical investigations of how a tax subsidy for tuition costs actually influences parents' school choices using data from Minnesota, the first state to have a tuition subsidy pass judicial review at all levels. It should be uyseful to policy makers, researchers, adn practitioners who are concerned with how parents make schooling decisions on behalf of their children, and how tax subsidies for educational expenses might affect those choices.     

Tax Code Knowledge and Behavioral Responses Among EITC Recipients: Policy Insights from Qualitative Data

We build on the robust quantitative literature on behavioral responses to the Earned Income Tax Credit (EITC) by using in‐depth qualitative interviews with 115 EITC recipients to examine how they understand and respond to its incentive structures regarding earnings, marriage, and childbearing. We find that respondents consider their tax refund as a whole, without differentiating the portion from the EITC; as a result, they cannot predict how their EITC refund would change if they altered their labor supply or marital status. Incentives for childbearing are better understood, but are not specific to the EITC; rather, parents respond to a combination of tax deductions and credits as a whole. Respondents would like to maximize their refunds, but most cannot or would not alter their behavior due to structural constraints they face in the labor and marriage markets. Rather than adjust work hours, defer marriage, or have additional children, respondents exhibit a different type of behavioral response to the incentive structure of the EITC: They alter their tax filing status in order to maximize their refunds. They routinely claim zero exemptions and deductions on their W‐4s, file their tax returns as head of household rather than as married, and divide children among the tax returns of multiple caregivers. Although some of these behaviors qualify as tax noncompliance, they emerge because the intricacies of the tax code conflict with the complexity and fluidity of finances and family life in low‐income households.     

The low‐income housing tax credit program goes mainstream and moves to the suburbs

Abstract

The Low‐Income Housing Tax Credit (LIHTC) program is now 20 years old. With the maturing of the program, the use of tax credits has become commonplace in the development of rental housing across the nation. This article examines how the program has changed both financially and spatially. Specifically, the article asks whether it provides a mechanism that can help deconcentrate impoverished renters by providing access to low‐poverty neighborhoods.

This research finds that as the price for tax credits rises, the program becomes increasingly popular with developers who are helping it make inroads in low‐poverty suburbs. By entering the suburbs, the LIHTC program is meeting and even exceeding the performance of the Housing Choice Voucher Program in terms of offering opportunities to live in low‐poverty settings.     

Points for Place: Can State Governments Shape Siting Patterns of Low-Income Housing Tax Credit Developments?

There is considerable controversy about the allocation of Low-Income Housing Tax Credits (LIHTC). Some charge that credits are disproportionately allocated to developments in poor, minority neighborhoods without additional investments and thereby reinforcing patterns of poverty concentration and racial segregation. We examine whether Qualified Allocation Plans, which outline the selection criteria states use when awarding credits, can serve as an effective tool for directing credits to higher opportunity neighborhoods (or neighborhoods that offer a rich set of resources, such as high-performing schools and access to jobs) for states wishing to do so. To answer this question, we study changes in the location criteria outlined in allocation plans for 20 different states across the country between 2002 and 2010, and observe the degree to which those modifications are associated with changes in the poverty rates and racial composition of the neighborhoods where developments awarded tax credits are located. We find evidence that changes to allocation plans that prioritize higher opportunity neighborhoods are associated with increases in the share of credits allocated to housing units in lower poverty neighborhoods and reductions in the share allocated to those in predominantly minority neighborhoods. This analysis provides the first source of empirical evidence that state allocation plans can shape LIHTC siting patterns.     

The low income housing tax credit and racial segregation

This paper addresses a critical but almost unexamined aspect of the Low Income Housing Tax Credit (LIHTC) program – whether its use (and in particular, the siting of developments in high-poverty/high-minority neighborhoods), is associated with increased racial segregation in the metropolitan area. Using data from the Department of Housing and Urban Development (HUD) and the Census, supplemented with data on the racial composition of LIHTC tenants in three states, we examine three potential channels through which the LIHTC could affect segregation: where LIHTC units are built relative to where other low income households live, who lives in these tax credit developments, and changes in neighborhood racial composition in neighborhoods that receive tax credit projects. The evidence on each of these channels suggests that LIHTC projects do not contribute to increased segregation, even those in high poverty neighborhoods. We find that increases in the use of tax credits are associated with declines in racial segregation at the metropolitan level.     

The power not to tax: A search for effective controls

Although the primary purpose of the Congressional Budget and Impoundment Control Act of 1974 was to gain greater congressional control over federal spending, the act also represented a small but significant step toward controlling the substantial financial commitments made through the numerous exclusions, deductions, and credits in the federal income tax. In the Budget Act Congress, for the first time, recognized and defined these “tax expenditures” and adopted procedures for reviewing them. But tax expenditure budgeting has not had the beneficial effect that some had hoped, mainly because the 1974 effort failed to take adequate account of the organizational structure of Congress and of the political character of its decision-making. But these weaknesses can be overcome.     

Insurance Subsidies,the Affordable Care Act,and Financial Stability

This paper measures the effects of subsidies in the Affordable Care Act on adverse financial outcomes using administrative tax data and credit data on financial outcomes. Using a difference-in-differences design with propensity score reweighting, I find that at $100 per capita, ACA premium tax credits and cost-sharing reduction subsidies reduced consumer bankruptcies and severe auto delinquency by 8 percent and 7 percent, respectively, and substantially reduced right-tail delinquent debt and third-party collections. The value of recipients’ risk protection against medical debt payments amounts to approximately 16 to 21 percent of the cash costs of the subsidies, while the subsidies provided substantial indirect transfers to external parties.     

Policy attribute framing: A comparison between three policy instruments for personal emissions reduction

A comparative experiment in the UK examined people's willingness to change energy consumption behavior under three different policy framings: energy tax, carbon tax, and personal carbon allowances (PCA). PCA is a downstream cap‐and‐trade policy proposed in the UK, in which emission rights are allocated to individuals. We hypothesized that due to economic, pro‐environmental and mental accounting drivers PCA would have greater potential to deliver emissions reduction than taxation. Participants (n = 1,096) received one version of a survey with the same energy‐behavior–related questions and identical incurred costs under one of the following framings: energy tax (where carbon was not mentioned), carbon tax, and PCA. Results suggest that policies that draw people's attention to carbon (PCA and carbon taxation) could have greater impact on their stated willingness to reduce energy consumption, and on the reduction amounts prompted, than would a non‐overt price signal (energy tax). There is mixed evidence, however, as to whether PCA or carbon taxation would produce the largest energy demand reductions. Some indication was found for a spillover toward wider carbon conservation under the PCA framing. © 2011 by the Association for Public Policy Analysis and Management.     

No Accounting for Tax Avoidance

In the 2010–15 Parliaments, the UK House of Commons Committee of Public Accounts held hearings and investigated some of the operations of the tax avoidance industry. Its reports have been highly critical of the role of big accountancy firms in designing, marketing and implementing tax avoidance schemes which have enabled their clients to avoid taxes. The Committee's recommendations set a reform agenda but drew a lukewarm response from the government. An examination of the Committee's reports provides an indication of the trajectories of future debates and policies.     

Is the Death of Inheritance Tax Inevitable? Lessons from America

In 2001, George Bush repealed estate tax in America. This was a shock to many in the US as inherited privilege had never been popular in a country where individuals were supposed to secure the American Dream through their own efforts. The tax had existed for over a century and only 2 per cent of the richest Americans paid it. But the repeal lobby managed to build an unlikely and broad alliance against the 'Death Tax' (as they managed to rename it). The key to their campaign was a moral case against the tax, illustrated with a few well-chosen narratives. The opposition fought back, ineffectively, with pragmatic arguments and statistics. This paper will apply lessons from America to the UK politics of taxation. It will focus on the role of lobby groups and the power of moral arguments and narrative evidence over more pragmatic arguments and 'scientific' forms of evidence.     

Do some enterprise zones create jobs?

We study how the employment effects of enterprise zones vary with their location, implementation, and administration, based on evidence from California. We use new establishment‐level data and geographic mapping methods, coupled with a survey of enterprise zone administrators. Overall, the evidence indicates that enterprise zones do not increase employment. However, the evidence also suggests that the enterprise zone program has a more favorable effect on employment in zones that have a lower share of manufacturing and in zones where managers report doing more marketing and outreach activities. On the other hand, devoting more effort to helping firms get hiring tax credits reduces or eliminates any positive employment effects, which may be attributable to idiosyncrasies of California's enterprise zone program during the period we study. © 2010 by the Association for Public Policy Analysis and Management.     

The Impact of Sure Start

The first report from the national Sure Start evaluation team concludes that to date not only has the Sure Start programme not been a success, but for certain groups of disadvantaged families it has led to a worse outcome. The cost to date has been £3 billion.
This is simply the latest in a series of spectacular policy failures: for example, the Child Support Agency, family tax credits, truancy reduction, lack of literacy amongst many children, reductions in access to top universities from state schools.
Each has its own reasons for failure, but there are now so many examples in so many diverse areas that something more fundamental is going on. The problem is the increasingly complicated nature of the interventions of the social democratic state. These increase rather than reduce the probability of failure. Government still has an important role. But it should be as simple as possible.     

Controlling Nonconventional Expenditure: Tax Expenditures and Loans

Tax expenditures, credits and guarantees, and other nonconventional expenditures are prominent features of the public finances of the United States and other industrialized democracies. While reliable data on these practices have generally been available only for a decade or less, there is reason to believe that these types of transactions now constitute a larger share of total public expenditure than they did in the past. This article discusses the concepts arid implications of two types of nonconventional expenditures—tax expendituures and loans—as well as recent efforts to bring them within the scope of the budget process. The article deals mostly with American practices, but it also draws on the experiences of other democratic countries.     

Spreading the Wealth

The new American president promoted the value of “spreading the wealth around” as an election theme, providing low-income families with tax breaks, rebates, and credits. The practice of using federal income taxes to re-distribute wealth, which sometimes reflects the noblest of goals, frequently generates significant unintended harm. Prominent among those unplanned casualties is a reduction in charitable giving: American voluntary wealth transfers (e.g., charitable contributions) are in danger of being crowded out by mandatory transfers (e.g., federal taxes) used to redistribute wealth. This paper considers the social and economic costs of raising taxes that crowd out charity.