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New and returning policymakers have a tremendous opportunity to improve their constituents’ lives and their states’ economies through tax policy. This report distills the findings of “Who Pays?” into policy recommendations that can serve as a guide to new lawmakers, advocates, and others seeking to improve their state’s tax codes. It explains the importance of favoring taxes on income and wealth over taxes on consumption, the value of certain targeted tax benefits for families living in poverty, the need to abandon ineffective, unnecessary tax subsidies for high-income households, and the promise of bold new options for improving the regressive distributional outcomes of state and local tax policies.

A joint letter to Congressional leadership and the heads of the taxwriting committees making the case that it is time to end the practice of enacting tax policy one year at a time.

For years, wealth and income inequality have been widening at a troubling pace. One study estimated that the wealthiest 1 percent of Americans held 42 percent of the nation’s wealth in 2012, up from 28 percent in 1989. Lawmakers have exacerbated this trend by dramatically cutting federal taxes on inherited wealth, most recently by doubling the estate tax exemption as part of the 2017 Tax Cuts and Jobs Act. Further, lawmakers have done little to stop aggressive accounting schemes designed to avoid the estate tax altogether. This report explains how the percentage of estates subject to the federal estate tax has dropped dramatically from 2.16 percent in 2000 to just 0.06 percent in 2018, a 34-fold decrease in 19 years.

Congress permitted full expensing only for five years, which will encourage businesses to speed up investments they would have made later. Republicans in Congress have discussed making the expensing provision permanent. This report argues that Congress should move in the other direction and repeal not just the full expensing provision but even some of the permanent accelerated depreciation breaks in the tax code, for several reasons.

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.

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.

Indiana’s tax system has vastly different impacts on taxpayers at different income levels. For instance, the lowest-income 20 percent of Hoosiers contribute 12.8 percent of their income in state and local taxes — considerably more than any other income group in the state. For low-income families, Indiana is far from being a low tax state; in fact, it is the eighth highest-tax state in the country for low-income families.

Oklahoma’s tax system has vastly different impacts on taxpayers at different income levels. For instance, the lowest-income 20 percent of Oklahomans contribute 13.2 percent of their income in state and local taxes — considerably more than any other income group in the state. For low-income families, Oklahoma is far from being a low tax state; in fact, it is the fifth highest-tax state in the country for low-income families.

Florida’s tax system has vastly different impacts on taxpayers at different income levels. For instance, the lowest-income 20 percent of Floridians contribute 12.7 percent of their income in state and local taxes — considerably more than any other income group in the state. For low-income families, Florida is far from being a low tax state; in fact, it is the ninth highest-tax state in the country for low-income families.

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.