The Treasury Department and IRS last summer proposed regulations that would make it more difficult for taxpayers to avoid the $10,000 cap on deductions for state and local taxes (SALT). Now, likely days away from the unveiling of the final version of IRS regulations on SALT cap workarounds, Carl Davis recaps the finer points ITEP will be watching for when the regulations become public.
Carl Davis
Carl Davis is the research director at ITEP, where he has worked since 2008. Carl works on a wide range of issues related to both state and federal tax policy. He has advised policymakers, researchers, and advocates on tax policy issues in nearly every state. Much of his work relates to the link between taxes and economic growth, and the shortcomings of dynamic scoring and supply-side economic theories.
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blog April 1, 2019 What to Watch for When the IRS Releases Its SALT Workaround Regulations
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blog March 6, 2019 How State Tax Systems Worsen the Economic Divide – in Charts
The nation is currently engaging in serious discourse about how to expand economic opportunity and remedy income inequality via the federal tax code. State tax systems are also important and have a dismal effect on the growing economic divide. In a new report, Fairness Matters: A Chart Book on Who Pays State and Local Taxes, we further parse our Who Pays? data.
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news release February 28, 2019 Education Department Tax Credit Proposal Would Undermine Public Schools
The Education Department today announced a proposed new federal tax credit for so-called school choice. The $5 billion proposal would give those who donate to private school voucher programs a tax credit. Following is a statement by Carl Davis, research director at the Institute on Taxation and Economic Policy.
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blog February 26, 2019 Overdue Gas Tax Hikes are Back on the Agenda in Statehouses
State tax policy can be a contentious topic, but one issue on which lawmakers largely agree is that higher gas tax rates are necessary to keep our nation’s infrastructure operating safely and efficiently. Lawmakers in 27 states have approved gas tax increases since 2013.
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report February 14, 2019 The Illusion of Race-Neutral Tax Policy
It is well known that the bulk of the federal tax cuts flowed to the highest-earning households, who received the largest tax cut both in terms of real dollars and also as a share of income. But as our analysis with Prosperity Now reveals, solely examining the tax law in the context of class misses a bigger-picture story about how the nation’s public policies not only perpetuate widening income and wealth inequality, they also preserve historic and current injustices that continue to allow white communities to build wealth while denying the same level of opportunity (and often suppressing it) to communities of color.
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blog February 13, 2019 Fact-Checking on Trump Tax Law Needs a Fact Check
The Tax Cuts and Jobs Act (TCJA), enacted by President Trump and Congressional Republicans at the end of 2017, has caused quite a bit of confusion, and a recent “Fact Checker” column by the Washington Post’s Glenn Kessler does not help. TCJA created real problems that can’t be resolved without real tax reform. To begin that process fact checkers, lawmakers, and everyone else need to be clear about what TCJA did, and did not, do to our tax system.
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blog February 7, 2019 Trends We’re Watching in 2019: Cannabis Tax Implementation and Reform
Few areas of state tax policy have evolved as rapidly as cannabis taxation over the last few years. The first legal, taxable sale of recreational cannabis in modern U.S. history did not occur until 2014. Now, just five years later, a new ITEP report estimates that recreational cannabis is generating more than $1 billion annually in excise tax revenues and $300 million more in general sales tax dollars.
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report January 23, 2019 Taxing Cannabis
State policy toward cannabis is evolving rapidly. While much of the debate around legalization has rightly focused on potential health and criminal justice impacts, legalization also has revenue implications for state and local governments that choose to regulate and tax cannabis sales. This report describes the various options for structuring state and local taxes on cannabis and identifies approaches currently in use. It also undertakes an in-depth exploration of state cannabis tax revenue performance and offers a glimpse into what may lie ahead for these taxes.
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blog January 23, 2019 Cannabis Tax Debates are Ramping Up; Here’s What We’ve Learned from Five Years of Cannabis Taxation Thus Far
This year lawmakers in Connecticut, Delaware, Hawaii, Illinois, New Jersey, New York, Rhode Island, and Vermont will all be debating the taxation of recreational cannabis. A new ITEP report reviews the track record of recreational cannabis taxes thus far and offers recommendations for structuring cannabis taxes to achieve stable revenue growth over the long haul.
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report November 14, 2018 A Fair Way to Limit Tax Deductions
The cap on federal tax deductions for state and local taxes (SALT) that is in effect now under the Tax Cuts and Jobs Act (TCJA) is a flawed provision but repealing it outright would be costly and provide a windfall to the rich. Congress should consider replacing the SALT cap with a different type of limit on deductions that would avoid both of these outcomes. Using the ITEP microsimulation tax model, this report provides revenue estimates and distributional estimates for several such options, assuming they would be in effect in 2019.
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blog November 13, 2018 Three Tax Takeaways on Amazon’s Expansion Announcement
Today Amazon announced major expansions in New York and Virginia, where it intends to hire up to 50,000 full-time employees. The announcement marks the culmination of a highly publicized search that lasted more than a year and involved aggressive courting of the company by cities across the nation. The following are three tax-related observations on the announcement.
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November 5, 2018 Comments to be delivered during IRS hearing on “Contributions in Exchange for State or Local Tax Credits” (REG-112176-18)
ITEP views this proposal as a sensible improvement, and one that is actually overdue, to the way the charitable deduction is administered. At the end of my remarks I will discuss a few ways that the regulation could be improved. But the core point I want to emphasize is that the general approach taken here, where quid pro quo rules are applied in a broad-based fashion to all significant state and local tax credits, is the correct one.
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ITEP Work in Action October 23, 2018 Washington Examiner: Think tank: Texas Isn’t a Low-tax State if You’re Poor
Carl Davis for the Institute on Taxation and Economic Policy: [ M]any states traditionally considered to be “low-tax states” are actually high-tax for their poorest residents. The “low tax” label is typically assigned to states that either lack a personal income tax or that collect a comparatively low amount of tax revenue overall. But a focus on these measures can cause lawmakers to overlook the fact that state tax systems impact different taxpayers in very different ways, and that low-income taxpayers in particular often do not experience these states as being even remotely “low tax.”
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blog October 17, 2018 Low-Tax States Are Often High-Tax for the Poor
ITEP analysis reveals that many states traditionally considered to be “low-tax states” are actually high-tax for their poorest residents. The “low tax” label is typically assigned to states that either lack a personal income tax or that collect a comparatively low amount of tax revenue overall. But a focus on these measures can cause lawmakers to overlook the fact that state tax systems impact different taxpayers in very different ways, and that low-income taxpayers often do not experience these states as being even remotely “low tax.”
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report October 11, 2018 ITEP Comments and Recommendations on Proposed Section 170 Regulation (REG-112176-18)
The IRS recently proposed a commonsense improvement to the federal charitable deduction. If finalized, the regulation would prevent not just the newest workarounds to the $10,000 deduction for state and local taxes (SALT), but also a longer-running tax shelter abused by wealthy donors to private K-12 school voucher programs. ITEP has submitted official comments outlining four key recommendations related to the proposed regulation.
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blog October 2, 2018 Twelve States Offer Profitable Tax Shelter to Private School Voucher Donors; IRS Proposal Could Fix This
A proposed IRS regulation would eliminate a tax shelter for private school donors in twelve states by making a commonsense improvement to the federal tax deduction for charitable gifts. For years, some affluent taxpayers who donate to private K-12 school voucher programs have managed to turn a profit by claiming state tax credits and federal tax deductions that, taken together, are worth more than the amount donated. This practice could soon come to an end under the IRS’s broader goal of ending misuse of the charitable deduction by people seeking to dodge the federal SALT deduction cap.
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blog September 25, 2018 An Unhappy Anniversary: Federal Gas Tax Reaches 25 Years of Stagnation
The federal gas tax was last raised on Oct. 1, 1993, the same year that the classic movie Groundhog Day was unveiled to the American public. In the film, Phil Connors (played by Bill Murray) gets caught in a time loop and spends decades reliving the same cold, February day in Punxsutawney, Penn. Those of us lamenting the 25-year stagnation of the federal gas tax can’t help but feel some of that same sense of repetition.
Federal lawmakers occasionally discuss updating the gas tax, but top lawmakers have yet to put in the effort needed to shepherd such a change into law. In fact, after passage of a top-heavy income and estate tax cut last year, the chances of boosting the federal gas tax anytime soon are probably slimmer than ever.
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blog September 20, 2018 IRS Reopens Tax Loophole Sought by Sen. Toomey, but it Won’t Work in Pennsylvania
A recent IRS clarification, which appears to have been a pet project of Sen. Pat Toomey (R-PA), has been widely interpreted as reopening a loophole the agency had proposed closing just weeks earlier. But while the announcement creates an opening for aggressive tax avoidance in many states, Pennsylvania, ironically enough, isn’t one of them.
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news release August 23, 2018 Proposed IRS Regulations Would End SALT Workarounds and Rightly Tamp Down on School Voucher Tax Shelters
The main difference between states that recently passed SALT workaround legislation and states that provide overly generous credits for donations to private schools are their political leanings. Private school supporters were hoping for a special carve out that would allow their tax shelter to remain intact, but the IRS was correct not to pick winners and losers.
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report July 24, 2018 Rep. Shuster’s Mixed Bag: Doubling the Gas Tax before Repealing It Entirely
This article examines the good aspects of Rep. Shuster’s infrastructure funding plan (a higher gas tax that is indexed to inflation), the bad (a flawed indexing formula and eventual gas tax repeal), and the downright ugly (tying the hands of a funding commission before their work even begins and refusing to ask more of high-income households).
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report June 27, 2018 The Other SALT Cap Workaround: Accountants Steer Clients Toward Private K-12 Voucher Tax Credits
On May 23, 2018, the IRS and Treasury Department announced that they “intend to propose regulations addressing the federal income tax treatment of certain payments made by taxpayers for which… -
blog June 26, 2018 Gas Taxes Rise in Seven States, Including an Historic Increase in Oklahoma
A rare sight is coming to Oklahoma. The last time the Sooner State raised its gas tax rate, the Berlin Wall was still standing, and Congress was debating whether to ban smoking on flights shorter than two hours. Fast forward 31 years, and Oklahoma is finally at it again. On Sunday, the state’s gas tax rate will rise by 3 cents and its diesel tax rate by 6 cents. Both taxes will now stand at 19 cents per gallon—still among the lowest in the country. But Oklahoma isn’t the only state where gas taxes will soon rise.
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blog June 21, 2018 Supreme Court Decision in Wayfair Is a Leap Forward for Sales Tax Modernization
For years, state and local governments have been dealing with a tax enforcement nightmare as out-of-state Internet retailers have refused to collect sales tax. That non-collection was facilitated by a… -
news release June 21, 2018 South Dakota v. Wayfair Decision Brings Overdue Fairness to Retail Sales Tax
Following is a statement by Carl Davis, research director at the Institute on Taxation and Economic Policy, regarding the Supreme Court’s decision in South Dakota v. Wayfair. Mr. Davis has authored numerous policy briefs regarding how online retailers that fail to collect sales taxes deprive states of necessary sales tax revenue and maintain an unfair advantage over bricks and mortar retailers.
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blog May 24, 2018 As IRS Prepares to Act, Red-State Taxpayers Profit from Use of SALT “Workaround Credits”
A new ITEP report explains the close parallels between the new workaround credits and existing state tax credits, including those benefiting private schools. The report comes the same day that the IRS and Treasury Department announced they would seek new regulations related to these tax credits. It notes that the SALT workarounds are emblematic of a broader weakness with the federal charitable deduction. And it cautions regulators to avoid a “narrow fix” that will only address the newest SALT workarounds (which, so far, have only been enacted in blue states) without also addressing other abuses of the deduction, which have long been employed by red states.