Who Pays, Who Claims, Who Plans?

Taxes

Who pays no federal income tax? Not who you think. TPC’s Howard Gleckman reviews the research by Don Fullerton of the University of Illinois at Urbana-Champaign and Nirupama Rao of the University of Michigan. They’ve taken a close look at the share of people who pay no federal income tax — the “47 percent” that then-presidential candidate Mitt Romney lamented, now estimated at 44 percent by TPC.  Their findings, published in the National Tax Journal and summarized in TaxNotes (paywall): Nearly all working-age people pay, while the very old and very young are less likely to pay in a given year.  Relatively few people—just one in eight—are persistent non-payers.

How many taxpayers claimed the TCJA’s qualified business income (QBI) deduction in 2018? CNBC reports that about 14 million filers– one in ten —claimed the Tax Cuts and Jobs Act’s  20 percent tax deduction for small business owners as of May 23, according to the IRS. They claimed $74 billion in QBI deductions. The largest group of claimants had total Adjusted Gross Income of  $100,000-$200,000. 

On Nina Olson’s legacy at the IRS. TPC’s Howard Gleckman reflects on the recently retired National Taxpayer Advocate, an outsized figure in the world of tax policy and administration. “For her, there were two US tax systems—one for those who could afford qualified professional assistance and one for those who could not.” Olsen has created her own non-profit, the Center for Taxpayer Rights. “ I don’t think we’ve heard the last of her,” Gleckman says.

Estate tax repeal… How might one love thee? Let us count 1.3 billion ways. Forbes reports on  President Trump’s curious tax planning: “If Trump were to die today, his heirs would likely find themselves stuck with more than $1.3 billion in state and federal estate taxes.” That’s because the president’s assets all are owned by the Donald J. Trump Revocable Trust held for the benefit of Donald J. Trump. Said one New York estate lawyer, “It’s puzzling. At death if he’s given away nothing, half of it disappears.” Unless Trump can convince Congress to repeal the estate tax.

Will Sen. Warren’s wealth tax generate the revenue she expects? Presidential hopeful Elizabeth Warren wants an annual 2 percent tax on every dollar of net worth above $50 million, and a 3 percent tax on assets in excess of $1 billion. TPC’s  Janet Holtzblatt explains why it may be difficult for  her to collect the $2.75 trillion in revenue over ten years she predicts. “Wealth is not always visible or easy to value—hence taxing it probably is more challenging than taxing income or consumption.” 

In North Carolina, some solar farm investments may not get  tax credits. Solar farm investors received about $1 billion in tax breaks from North Carolina over the last nine years from  a 35 percent tax credit for renewable energy projects. But last September, the state’s department of revenue said some partnership investors don’t qualify for the tax breaks. Why? In 2011, the US Fourth Circuit Court of Appeals ruled that transactions between a partnership and its partners were sales, not investments. A tax credit brokerage asked the revenue secretary to renounce the department position, arguing that the state’s constitution and statutes govern the tax treatment of  partnerships, not the federal courts.

“Save (for) yourself.” The Tax Hound returns with a look at the retirement saving behavior of married women compared to single women. While it might be inefficient, tax-advantaged savings vehicles such as solo 401(k)s might help women build a more secure future. 

Congress is in recess. The Daily Deduction will post Mondays only until Congress returns. 

For the latest tax news, subscribe to the Tax Policy Center’s Daily Deduction. Sign up here to have it delivered to your inbox weekdays at 8:00 am (Mondays only when Congress is in recess). We welcome tips on new research or other news. Email Renu Zaretsky at dailydeduction@taxpolicycenter.org.

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