Tax News

Though the recent debt ceiling deal reins in discretionary spending, it does not include significant fixes to the tax code. One still-outstanding tax issue is research and development (R&D) amortization, which has a dampening impact on investment across the economy and a disproportionate effect on tech, manufacturing, and small businesses. To reduce the revenue impact... View Article

Last week, Rep. Jason Smith (R-MO) introduced legislation that would instruct the Treasury to create a list of countries that subject U.S. taxpayers (including businesses) to extraterritorial or discriminatory taxes, and impose increased taxes on companies and individuals from those countries. If you examined the proposal without background context, you might assume it was a... View Article

President Biden and House Speaker McCarthy reached a deal over the weekend to suspend the debt ceiling until January 2025 in exchange for limits on discretionary spending over the next two years, expedited permitting for pipelines and other energy infrastructure, and expanded work requirements for food and income assistance programs. The bill, known as the... View Article

Investment spending has dropped for two consecutive quarters as the Federal Reserve has tightened credit and raised interest rates. Meanwhile, 100 percent expensing, temporarily extended by the Tax Cuts and Jobs Act (TCJA) of 2017 to allow businesses to immediately deduct the full cost of machinery and equipment instead of depreciating it over time, has... View Article

Today’s map shows states’ rankings on the property tax component of our 2023 State Business Tax Climate Index. The Index’s property tax component evaluates state and local taxes on real and personal property, net worth, and asset transfers. The property tax component accounts for 15 percent of each state’s overall Index score. Property taxes matter to businesses for several reasons. First, businesses own a significant... View Article

This week, the Chairman of the Ways & Means Committee, Rep. Jason Smith (R-MO), introduced legislation in response to the global minimum tax that would escalate taxes on companies and individuals from countries that impose extraterritorial and discriminatory taxes on U.S. taxpayers. This follows from the bipartisan concern regarding tax policies adopted by other countries... View Article

Legislation currently advancing in Louisiana—related to the franchise tax, inventory tax, and corporate rebate and exemption programs—would make the state’s tax code simpler and more competitive. These measures would be an important step forward and build on the good work of previous reforms. Corporate Franchise Tax Phaseout (SB 1) and Quality Job Program Rebate Reduction... View Article

Tobacco is the most highly taxed consumer product in the United States. The tools on this page allow you to explore state tax rates and the effects tax policy and tobacco regulations can have on state revenues, smuggling, and effective tax rates for different income groups. Cigarettes are taxed at the federal, state, and sometimes... View Article

The Pennsylvania Senate Finance Committee recently advanced two bills, SB 345 and SB 346, that would build on last year’s historic corporate net income tax (CNIT) reform. Under provisions of HB 1342, Pennsylvania’s CNIT rate was reduced one percentage point to 8.99 percent on January 1, 2023. Subsequent 0.5 percentage point cuts are scheduled to... View Article

While current debt ceiling negotiations largely concern ways to restrain the discretionary parts of the budget, any serious proposal to tackle the emerging debt and deficit crisis must also address our largest mandatory spending programs: Social Security and Medicare. Together, these two programs will be responsible for nearly 80 percent of the deficit’s rise between... View Article

Note: The following is the testimony of Sean Bray, Director of European Policy at the Tax Foundation, prepared for a European Parliament Subcommittee on Tax Matters meeting of experts on May 23, 2023, titled, “Further Reform of Corporate Taxation Rules.” Rapporteur Benjumea and distinguished members of the FISC Committee, thank you for the opportunity to provide testimony on... View Article

  Cigarette excise taxes have been a source of state revenue for decades, and states have long relied on this revenue. Using data from Orzechowski and Walker’s annual compendium The Tax Burden on Tobacco, this web tool shows how cigarette tax revenues have changed between 1955 and 2022. For illustration, the tool defaults by looking at New York. The blue... View Article

The Biden administration has put forward significant plans for changing tax policy, including changes that would impact workers. While the administration is mainly concerned with increasing the top individual income tax rate to 39.6 percent on income above $400,000 for single filers and $450,000 for joint filers as well as providing tax relief for families,... View Article

Note: The following is the testimony of Scott Hodge, President Emeritus and Senior Policy Advisor at the Tax Foundation, prepared for a Senate Budget Committee hearing on May 17,  2023, titled, “The Rich Get Richer, Deficits Get Bigger: How Tax Cuts for the Wealthy and Corporations Drive the National Debt.” Mr. Chairman, Ranking Member Grassley, and... View Article

More voices are entering the fray to call out the problem of growing U.S. deficits, which are on track to reach nearly 7 percent of gross domestic product (GDP) by the decade’s end. Rather than continue down the path of growing debt, lawmakers should craft a comprehensive solution. International experience cautions against tax-based fiscal consolidations,... View Article

Today we continue our map series on the 2023 State Business Tax Climate Index with a map showing states’ rankings on the Index’s sales and excise tax component. The sales tax rate and structure can make a state more or less attractive to businesses for two key reasons: (1) some states apply the sales tax to business inputs, which drives up the costs... View Article

Minnesota continues its search for new revenue despite running large surpluses. The good news is that one particularly deleterious proposal, with highly uncertain revenue prospects, has been dropped. The bad news is that lawmakers are still exploring several uncompetitive options that would make the state a national outlier. The Senate no longer seems willing to... View Article

Note: The following is the testimony of Daniel Bunn, President and CEO at the Tax Foundation, prepared for a Senate Finance Committee hearing on May 11,  2023, titled, “Cross-border Rx: Pharmaceutical Manufacturers and U.S. International Tax Policy.” Table of Contents Evaluating the TCJA International Rules Moving into the Fog The Pillar Two Rules and the U.S.... View Article

The debt ceiling debate and looming threat of default is rightly bringing attention to the underlying problem of the federal government’s $31 trillion debt load. Last week, as part of our national debt blog series, we reviewed several studies on what has worked internationally and historically in terms of sustainably reducing debt with minimal harm... View Article

Is an optimal tax system that maximizes a society’s welfare possible? While research on optimal taxation often focuses on the pure economic implications, it rarely considers cultural and societal differences that can lead to very different outcomes when trying to implement an optimal tax system. Economic and Cultural Optimality There are two kinds of optimality:... View Article

Note: An oral version of the following prepared testimony was presented, by invitation, in person to the Wisconsin Assembly Committee on Ways and Means during an informational hearing on April 26, 2023. Chairman Macco and Members of the Committee: Thank you for the opportunity to join you today to talk about fiscally sound tax policy... View Article

Congress has until early June to raise the debt limit and avoid a default on the nation’s debt, according to new estimates from the Congressional Budget Office (CBO) and the Treasury Department. But Washington currently remains at an impasse, with major disagreements on whether a debt limit fix should be “clean” (i.e., no strings attached)... View Article

Tax competition has been a major state policy focus in the past few years, and, although New Jersey did not initially hop on this trend, both the governor and those in the legislature (through Assembly Bill 5323) now have tax policy on the mind. Of the ideas on the table, allowing the corporate surtax to... View Article

As Minnesota lawmakers consider making theirs the first state to mandate worldwide combined reporting, they are relying on a revenue estimate that is—this may not be the technical term—completely bogus. Because Minnesota was not able to generate its own revenue estimate, state revenue estimators turned to a 2019 study by the liberal Institute for Taxation... View Article

Key Findings The cost of physical assets to achieve a net-zero global economy by 2050 could be around €8.1 trillion ($9.2 trillion) per year—an increase of €3.1 trillion ($3.5 trillion) compared to current spending on capital investment. One estimate suggests that the EU will need around €22 trillion of investment from the private sector between... View Article

On April 18th, Rep. Buddy Carter (R-GA) offered remarks on the House floor in support of the FairTax Act of 2023, of which he is a sponsor. One of his arguments was that the FairTax would do a better job of taxing the underground economy than the income tax it is intended to replace. His argument went... View Article

This week’s map examines states’ rankings on the individual income tax component of our 2023 State Business Tax Climate Index. The individual income tax is important to businesses because states tax sole proprietorships, partnerships, and, in most cases, limited liability companies (LLCs) and S corporations under the individual income tax code. However, even traditional C corporations are... View Article

Key Findings In theory, the carbon tax is the most efficient approach to address climate change. In practice, however, the policymaking process can interfere and weaken the policy. We consider several theoretical arguments for carbon taxes and the evidence from carbon taxes implemented around the world related to emissions, economic growth, distribution and revenue recycling... View Article

After the 2023 general election in March, Estonia’s incoming coalition (comprised of the Social Democrats and Reform Party) introduced plans to increase taxes over the next two years. Estonia’s tax system has consistently ranked as the most competitive amongst OECD countries according to Tax Foundation’s International Tax Competitiveness Index, but will this change lead to a... View Article

Key Findings If Minnesota’s omnibus tax bill, HF 1938, becomes law, then the state will have the 5th highest individual income tax rate in the country, behind only California, Hawaii, New York, and New Jersey. The literature on income taxation reveals that higher income tax rates are correlated with increased outmigration and a decrease in... View Article

Fostering European competitiveness is frequently on the minds of EU leaders. This has only accelerated since the COVID-19 shutdowns, the energy crisis caused by Russia’s war in Ukraine, and the economic subsidy race to the bottom sparked by allies (like the U.S. Inflation Reduction Act’s electric vehicle tax credits).   For example, French President Emmanuel... View Article

The price tag of the Inflation Reduction Act’s green energy tax credits is much higher than originally thought. This week, the Congressional Budget Office (CBO) gave a new score as part of its analysis of House Speaker McCarthy’s debt ceiling bill—which would eliminate the credits—and pegged the cost of the credits at $570 billion from... View Article

Over the past 15 years, Europe has experienced three major economic downturns. What began with the global financial crisis in 2008-09 ultimately evolved into the European public debt crisis (2010-12) and after some years of relative stability, the coronavirus outbreak hit Europe as well (2020-21). Policymakers reacted to these downturns with various measures to soften their... View Article

President Biden’s budget would raise the excise tax on stock buybacks introduced last year from 1 percent to 4 percent. The policy has two primary justifications: penalizing companies that are distributing profits instead of reinvesting them in their company’s operations and remedying a tax bias in favor of stock buybacks over dividends. Both problems could... View Article

Note: Below is a recap of our recent policy conference held on April 13th, 2023. With global GDP growth projected to dip below historic averages, interest rates and inflation on the rise, and debt continuing to mount, pro-growth strategies are more important than ever. Lawmakers need solutions that unlock development while rebalancing budgets. They need policies that encourage... View Article

Scandinavian countries are well known for their broad social safety net and their public funding of services such as universal health care, higher education, parental leave, and child and elderly care. High levels of government spending naturally require high levels of taxation. In 2021, Denmark’s tax-to-GDP ratio was at 46.9 percent, Norway’s at 42.2 percent, and Sweden’s at 42.6 percent.... View Article

French philosopher Voltaire once famously described the Holy Roman Empire as neither holy, nor Roman, nor an empire. The latest presidential budget includes a section calling for the elimination of a handful of supposed subsidies, such as expensing for intangible drilling costs (IDCs), which the budget characterizes as “wasteful spending on Big Oil.” Much like... View Article

Michiganders will pay a lower individual income tax rate next year thanks to high general fund revenues, but these savings may be short-lived following an opinion released by the state’s attorney general. In 2015, Michigan enacted legislation that amended the state’s Income Tax Act and instituted automatic triggers that would reduce the individual income tax... View Article

Note: The following is the testimony of Dr. William McBride, Vice President of Federal Tax Policy & Stephen J. Entin Fellow in Economics at the Tax Foundation, prepared for Senate Budget Committee hearing on April 18, 2023, titled, “A Rigged System: The Cost of Tax Dodging by the Wealthy and Big Corporations.” Table of Contents The Size... View Article

Recreational marijuana taxation is one of the hottest policy issues in the U.S. Currently, 21 states have implemented legislation to legalize and tax recreational marijuana sales: Alaska, Arizona, California, Colorado, Connecticut, Illinois, Maine, Maryland, Massachusetts, Michigan, Missouri, Montana, Nevada, New Jersey, New Mexico, New York, Oregon, Rhode Island, Vermont, Virginia, and Washington. Last year, Missouri... View Article

The Internal Revenue Service (IRS) released its operations plan on April 6th, setting out a series of objectives and initiatives to improve the tax collection agency. The document shows how the IRS plans to use its substantial funding increase enacted in the Inflation Reduction Act (IRA) last year. While the IRS hopes to increase revenue collection... View Article

At a moment when countries are trying to make production more environmentally friendly and shore up supply chain weaknesses, capital investment is critical. Unfortunately, some countries’ important investment incentives are scheduled to decrease in the coming years—including in four countries that account for nearly a quarter of global private investment. Policymakers now have an opportunity... View Article

The Portuguese government has introduced plans to exempt “essential” food items from its value-added tax (VAT) in response to the recent inflation spike. While the basket of “essential” goods is to be determined, Finance Minister Medina hopes the temporary policy—effective from April to October—will provide relief to consumers. While this may sound like a reasonable... View Article

Another year, another new tax proposal in Spain. Over the last several years, Spain has adopted a financial transactions tax (FTT), a digital services tax (DST), and a special value-added tax (VAT) on sugary drinks. On average, revenues collected from these taxes only amount to about 25 percent of what the government predicted they would... View Article

Missouri has worked to improve its tax competitiveness significantly in recent years, but state lawmakers have always regarded tax reforms as ongoing, particularly in light of the growing tax competition across the country. House Bill 816, which recently passed the House and crossed over to the Senate, would build on past tax reforms and give... View Article

Key Findings The tax base is shrinking for traditional excise taxes, including tobacco, alcohol, and motor fuels. These sources of revenue are unstable and work poorly as a source to fund growing expenditure programs. Newer excise taxes—including those on carbon, cannabis, alternative tobacco products, ride-sharing, and plastics—have the potential to significantly affect global trade and... View Article

Download Data Key Findings A capital allowance is the amount of capital investment costs a business can deduct from its revenue through the tax code via depreciation. Ideally, countries should provide higher capital allowances, as they can boost business investment which, in turn, spurs economic growth. The average of OECD countries’ capital allowances gradually decreased... View Article

Younger and healthier Brits have created a $17.1 billion budget hole by smoking and drinking less. That’s great news.   Excise taxes are generally levied on consumer products with negative public effects. Policymakers use these taxes to incentivize market participants to produce and purchase less of these ‘sinful’ products. Common excise taxes include those on... View Article

An administrative decision that likely escaped the notice of most lawmakers has quietly transformed Alabama’s taxation of nonresidents, raising constitutional questions and putting Alabama employers at a distinct disadvantage. Lawmakers did not make this change, but they can and should fix it. Early in March, the Alabama Tax Tribunal ruled that a former Alabama resident... View Article

Key Findings The U.S. system of taxes and transfers is highly progressive. Measuring comprehensive income, inclusive of market-based income and government taxes and transfers, illustrates the total fiscal burden created by a fiscal system. Income transfer programs amplify the U.S. federal tax system’s progressivity, move the state and local system from moderate regressivity to moderate... View Article