Chapter 2: What's Fair About Taxes?
Total Page:16
File Type:pdf, Size:1020Kb
Load more
Recommended publications
-
Key Elements of the U.S. Tax System
TAX POLICY CENTER BRIEFING BOOK Key Elements of the U.S. Tax System TAXES AND THE FAMILY What are marriage penalties and bonuses? XXXX Q. What are marriage penalties and bonuses? A. A couple incurs a marriage penalty if the two pay more income tax filing as a married couple than they would pay if they were single and filed as individuals. Conversely, a couple receives a marriage bonus if they pay less tax filing as a couple than they would if they were single. CAUSES OF MARRIAGE BONUSES AND PENALTIES Marriage penalties and bonuses occur because income taxes apply to a couple, not to individual spouses. Under a progressive income tax, a couple’s income can be taxed more or less than that of two single individuals. A couple is not obliged to file a joint tax return, but their alternative—filing separate returns as a married couple—almost always results in higher tax liability. Married couples with children are more likely to incur marriage penalties than couples without children because one or both spouses could use the head of household filing status if they were able to file as singles. And tax provisions that phase in or out with income also produce marriage penalties or bonuses. Marriage penalties are more common when spouses have similar incomes. Marriage bonuses are more common when spouses have disparate incomes. Overall, couples receiving bonuses greatly outnumber those incurring penalties. MARRIAGE PENALTIES Couples in which spouses have similar incomes are more likely to incur marriage penalties than couples in which one spouse earns most of the income, because combining incomes in joint filing can push both spouses into higher tax brackets. -
MAGI 2.0 Part 2: Income Counting
MAGI 2.0: Building MAGI Knowledge Part 2: Income Counting Last Updated: December 11, 2020 Introduction Setting the Stage 3 . In 2020, the Centers for Medicare and Medicaid Services (CMS) updated a training manual originally developed in 2013 to help states and eligibility workers understand and apply Modified Adjust Gross Income (MAGI)-based rules for Medicaid and the Children’s Health Insurance Program (CHIP). The manual is available at https://www.medicaid.gov/state-resource-center/mac- learning-collaboratives/downloads/household-composition-and-income-training.zip. This MAGI 2.0: Building MAGI Knowledge slide deck serves as a companion to the Household and MAGI Income Training Manual, providing more details on how to apply the MAGI-based income counting rules. The issues and scenarios reviewed in this slide deck were developed in response to frequently asked technical assistance questions raised by states and revised based on updated guidance that was released. Two-Part Resource 4 Determining Household Composition Calculating Household Income Focus of This Resource Determining Household Income 5 Key Questions When Determining Household Income: Whose income is counted? What income is counted? Over what period is income counted? Whose Income Is Counted? 6 Generally, to determine MAGI-based household income: . Count the MAGI-based income of adults in the household. Do not count the MAGI-based income of children in the household. Let’s discuss this rule… Income Counting Rules 7 Regulatory Requirements . Household income includes the Relevant Regulatory Language: MAGI-based income of all 42 CFR 435.603(d)(1) individuals in the MAGI-based Household income is the sum of the MAGI-based income…of every household, with specific individual included in the individual’s household [unless an exception exceptions. -
Form W-4, Employee's Withholding Certificate
Employee’s Withholding Certificate OMB No. 1545-0074 Form W-4 ▶ (Rev. December 2020) Complete Form W-4 so that your employer can withhold the correct federal income tax from your pay. ▶ Department of the Treasury Give Form W-4 to your employer. 2021 Internal Revenue Service ▶ Your withholding is subject to review by the IRS. Step 1: (a) First name and middle initial Last name (b) Social security number Enter Address ▶ Does your name match the Personal name on your social security card? If not, to ensure you get Information City or town, state, and ZIP code credit for your earnings, contact SSA at 800-772-1213 or go to www.ssa.gov. (c) Single or Married filing separately Married filing jointly or Qualifying widow(er) Head of household (Check only if you’re unmarried and pay more than half the costs of keeping up a home for yourself and a qualifying individual.) Complete Steps 2–4 ONLY if they apply to you; otherwise, skip to Step 5. See page 2 for more information on each step, who can claim exemption from withholding, when to use the estimator at www.irs.gov/W4App, and privacy. Step 2: Complete this step if you (1) hold more than one job at a time, or (2) are married filing jointly and your spouse Multiple Jobs also works. The correct amount of withholding depends on income earned from all of these jobs. or Spouse Do only one of the following. Works (a) Use the estimator at www.irs.gov/W4App for most accurate withholding for this step (and Steps 3–4); or (b) Use the Multiple Jobs Worksheet on page 3 and enter the result in Step 4(c) below for roughly accurate withholding; or (c) If there are only two jobs total, you may check this box. -
ITEMIZING on STATE and FEDERAL TAX INCOME RETURNS: IT’S (NOW MORE) COMPLICATED David Weiner December 2, 2020
ITEMIZING ON STATE AND FEDERAL TAX INCOME RETURNS: IT’S (NOW MORE) COMPLICATED David Weiner December 2, 2020 A taxpayer’s decision to itemize deductions or to claim the standard deduction on their income tax return is often framed as a simple calculation: Claim the greater of the two so as to minimize tax liability. But in states that require taxpayers to use the same status on their state income tax return as on their federal return, this general rule can produce conflicting results if taxpayers examine liability separately on their federal and state returns. Itemized deductions might be greater than the standard deduction on a state income tax return, but the reverse could be true on a federal return. Recent federal law changes have further complicated the choice. When the federal standard deduction was nearly doubled beginning in 2018, many more taxpayers found a conflict between the best itemization scenario on federal and state income tax returns. Those taxpayers must now calculate their federal and state income taxes under both scenarios if they want to minimize their combined state and federal income tax liability. Many taxpayers in states that link federal and state itemization choices are affected. In Maryland, for example, more than 200,000 taxpayers could benefit by itemizing on their federal returns when that may not be the obvious choice. In this brief, I examine the links between federal and state itemization decisions and explore the implications of relaxing state rules requiring that state itemization choices match federal ones. elatively few federal taxpayers itemize deductions on their income tax returns under current law, and those who do tend to have very high incomes. -
The Plethora of Consumption Tax Proposals: Putting the Value Added Tax, Flat Tax, Retail Sales Tax, and USA Tax Into Perspective
The Plethora of Consumption Tax Proposals: Putting the Value Added Tax, Flat Tax, Retail Sales Tax, and USA Tax into Perspective ALAN SCHENK* TABLE OF CONTENTS I. INTRODUCTION . • . 1282 II. REASONS TO LOOK AT CONSUMPTION TAX ALTERNATIVES Now . 1286 III. A BRIEF HISTORY OF CONSUMPTION TAXES . • . 1290 A. From Ancient Egypt to World War II . 1290 B. Multistage VATs Replaced the Turnover Taxes . 1292 IV. PLACEMENT OF U.S. TAX SYSTEM IN WORLD TAX SYSTEMS . 1293 A. Widespread Use of Consumption Taxes . 1293 B. Comparison of U.S. Taxes With Those Elsewhere . 1294 V. UNITED STATES PROPOSALS FOR A CONSUMPTION TAX . • . 1295 A. Comparison of Income and Consumption Taxes . 1295 B. Outline of Major Proposals . 1297 VI. DEFINING THE CONSUMPTION TAX BASE, IDENTIFYING THE TAXPAYER AND CALCULATING TAX LIABILITY . 1300 A. Introduction . 1300 B. Definition of the Base . 1301 C. Identification of the Taxpayer . 1302 D. Calculation of Tax Liability . 1305 1. Addition and Subtraction Forms of VAT . 1305 a. Credit-Invoice VAT . 1306 b. Credit-Subtraction VAT Without Invoices . 1307 * Professor of Law, Wayne State University Law School. 1281 c. Sales-Subtraction VAT . 1308 d. Addition Method VAT . 1309 2. USA 's Income and Business Tax . 1311 3. Flat Tax. 1313 4. Retail Sales Tax . 1315 VII. SWITCHING FROM AN INCOME- TO A CONSUMPTION-BASED SYSTEM . 1317 A. Introduction . 1317 B. Administration and Compliance Costs . 1318 C. Effect on Corporate Dividend Policy . 1320 D. Financing Business Operations . 1321 E. Federal-State Fiscal Relations . 1321 F. International Trade Implications . 1322 VIII. CONCLUSION . 1326 What reason is there, that he which laboureth much, and sparing the fruits of his labor, consumeth little, should be charged more, than he that living idlely, getteth little, and spendeth all he gets: Seeing that one hath no more protection from the commonwealth than the other?1 I. -
The Effects of Different Types of Taxes on Soft-Drink Consumption
A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Adam, Abdulfatah Sheikhbihi; Smed, Sinne Working Paper The effects of different types of taxes on soft-drink consumption FOI Working Paper, No. 2012/9 Provided in Cooperation with: Department of Food and Resource Economics (IFRO), University of Copenhagen Suggested Citation: Adam, Abdulfatah Sheikhbihi; Smed, Sinne (2012) : The effects of different types of taxes on soft-drink consumption, FOI Working Paper, No. 2012/9, University of Copenhagen, Department of Food and Resource Economics (IFRO), Copenhagen This Version is available at: http://hdl.handle.net/10419/204342 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend -
Micro Estimates of Tax Evasion Response and Welfare Effects in Russia
IZA DP No. 3267 Myth and Reality of Flat Tax Reform: Micro Estimates of Tax Evasion Response and Welfare Effects in Russia Yuriy Gorodnichenko Jorge Martinez-Vazquez Klara Sabirianova Peter DISCUSSION PAPER SERIES DISCUSSION PAPER December 2007 Forschungsinstitut zur Zukunft der Arbeit Institute for the Study of Labor Myth and Reality of Flat Tax Reform: Micro Estimates of Tax Evasion Response and Welfare Effects in Russia Yuriy Gorodnichenko University of California, Berkeley, NBER and IZA Jorge Martinez-Vazquez Georgia State University Klara Sabirianova Peter Georgia State University and IZA Discussion Paper No. 3267 December 2007 IZA P.O. Box 7240 53072 Bonn Germany Phone: +49-228-3894-0 Fax: +49-228-3894-180 E-mail: [email protected] Any opinions expressed here are those of the author(s) and not those of the institute. Research disseminated by IZA may include views on policy, but the institute itself takes no institutional policy positions. The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit company supported by Deutsche Post World Net. The center is associated with the University of Bonn and offers a stimulating research environment through its research networks, research support, and visitors and doctoral programs. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. IZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. -
Your Federal Tax Burden Under Current Law and the Fairtax by Ross Korves
A FairTaxSM White Paper Your federal tax burden under current law and the FairTax by Ross Korves As farmers and ranchers prepare 2006 federal income tax returns or provide income and expense information to accountants and other tax professionals, a logical question is how would the tax burden change under the FairTax? The FairTax would eliminate all individual and corporate income taxes, all payroll taxes and self-employment taxes for Social Security and Medicare, and the estate tax and replace them with a national retail sales tax on final consumption of goods and services. Payroll and self-employment taxes The starting point in calculating the current tax burden is payroll taxes and self-employment taxes. Most people pay more money in payroll and self-employment taxes than they do in income taxes because there are no standard deductions or personal exemptions that apply to payroll and self-employment taxes. You pay tax on the first dollar earned. While employees see only 7.65 percent taken out of their paychecks, the reality is that the entire 15.3 percent payroll tax is part of the cost of having an employee and is a factor in determining how much an employer can afford to pay in wages. Self-employed taxpayers pay both the employer and employee portions of the payroll tax on their earnings, and the entire 15.3 percent on 92.35 percent of their self-employed income (they do not pay on the 7.65 percent of wages that employees do not receive as income); however, they are allowed to deduct the employer share of payroll taxes against the income tax. -
2021 Instructions for Form 6251
Note: The draft you are looking for begins on the next page. Caution: DRAFT—NOT FOR FILING This is an early release draft of an IRS tax form, instructions, or publication, which the IRS is providing for your information. Do not file draft forms and do not rely on draft forms, instructions, and publications for filing. We do not release draft forms until we believe we have incorporated all changes (except when explicitly stated on this coversheet). However, unexpected issues occasionally arise, or legislation is passed—in this case, we will post a new draft of the form to alert users that changes were made to the previously posted draft. Thus, there are never any changes to the last posted draft of a form and the final revision of the form. Forms and instructions generally are subject to OMB approval before they can be officially released, so we post only drafts of them until they are approved. Drafts of instructions and publications usually have some changes before their final release. Early release drafts are at IRS.gov/DraftForms and remain there after the final release is posted at IRS.gov/LatestForms. All information about all forms, instructions, and pubs is at IRS.gov/Forms. Almost every form and publication has a page on IRS.gov with a friendly shortcut. For example, the Form 1040 page is at IRS.gov/Form1040; the Pub. 501 page is at IRS.gov/Pub501; the Form W-4 page is at IRS.gov/W4; and the Schedule A (Form 1040/SR) page is at IRS.gov/ScheduleA. -
5. Questions and Answers About the Flat Tax
Hoover Classics : Flat Tax hcflat ch5 Mp_157 rev0 page 157 5. Questions and Answers about the Flat Tax we have presented the flat tax and answered ques- tions about it on radio talk shows, before professional and lay audiences, before congressional committees, and in interviews with newspaper and magazine report- ers. In this chapter we have assembled the most asked questions together with our answers, a format we hope will answer any questions you may have about the flat tax. deductions Q: What about charitable deductions? A: No charitable deductions would be allowed under the flat tax. We do not believe that current tax in- centives are a major part of why people, apart from the very rich, contribute to community, religious, and other organizations. Almost half of all contri- butions are made by people who take the standard deduction and thus do not benefit from an itemized deduction for charitable contributions. However, the tax code allows deductible gifts of appreciated property, such as stock or works of art, thus allowing wealthy taxpayers to pay little or no taxes. On net, you, the average taxpayer, will save more by block- ing the tax-avoiding tricks of the wealthy than you will lose from eliminating tax deductions from your Hoover Classics : Flat Tax hcflat ch5 Mp_158 rev0 page 158 158 The Flat Tax own contributions. Remember, the value of any de- duction depends on your tax bracket: if you are in the 15 percent bracket, you get less than one-third the benefit of someone who is in the 39.6 percent bracket. -
Estate Planning Inheritance Tax Is Only for the Very Wealthy
ADVANCED PLANNING Tax Erosion How Taxes Affect Your Assets at Death Investment and Insurance Products: Not Insured by FDIC, NCUSIF, or Any Federal Government Agency. May Lose Value. Not a Deposit of or Guaranteed by Any Bank, Credit Union, Bank Affiliate, or Credit Union Affiliate. 1033984-00002-00 Ed. 03/2021 Tax laws are about to change. Are you ready? Although you might not be concerned about being affected under current laws, if history has taught us anything, it’s that the tax rules will most likely change in the future. For example, the federal estate tax laws alone have averaged one change almost every decade for over 200 years. For this reason, it’s imperative to have a plan in place to protect the wealth you’ve built. This guide will help you understand the taxes that have the potential to erode the value of your estate. 1. FEDERAL INCOME TAXES HIGHLIGHTS EXAMPLE Assets such as traditional IRAs, 401(k)s, and deferred annuities IRA value of $1 million (part of overall have built-in income tax consequences called “income in respect $2 million estate) of a decedent” (or IRD) when the owner dies. This income tax is • Federal income tax due: $290,000 paid by the recipient and not the estate (unless the estate is the (assuming 29% effective tax rate*) beneficiary). IRA value: $5 million (part of overall Assets such as stocks or bonds that are sold when settling an estate $20 million estate) may be subject to capital gains if they have appreciated in value since the date of death. -
Flat Tax: an Overview of the Hall-Rabushka Proposal
. Flat Tax: An Overview of the Hall-Rabushka Proposal James M. Bickley Specialist in Public Finance November 29, 2011 Congressional Research Service 7-5700 www.crs.gov 98-529 CRS Report for Congress Prepared for Members and Committees of Congress c11173008 . Flat Tax: An Overview of the Hall-Rabushka Proposal Summary The President and leading Members of Congress have stated that fundamental tax reform is a major policy objective for the 112th Congress. The concept of replacing individual and corporate income taxes and estate and gift taxes with a flat rate consumption tax is one option to reform the U.S. tax system. The term “flat tax” is often associated with a proposal formulated by Robert E. Hall and Alvin Rabushka (H-R), two senior fellows at the Hoover Institution. In the 112th Congress, two bills have been introduced that included a flat tax based on the concepts of Hall- Rabushka: the Freedom Flat Tax Act (H.R. 1040) and the Simplified, Manageable, and Responsible Tax Act (S. 820). In addition, Republican presidential candidate Herman Cain has proposed a tax reform plan that includes a modified H-R flat tax. This report analyzes the Hall- Rabushka flat tax concept. Although the current tax structure is referred to as an income tax, it actually contains elements of both an income and a consumption-based tax. A consumption base is neither inherently superior nor inherently inferior to an income base. The combined individual and business taxes proposed by H-R can be viewed as a modified value- added tax (VAT). The individual wage tax would be imposed on wages (and salaries) and pension receipts.