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Document Type: Policy Briefs/Tax Policy: Issues and Options

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Subsidizing Higher Education Through Tax and Spending Programs (Policy Briefs/Tax Policy: Issues and Options)
Elaine MaagDavid MundelLois RiceKim Rueben

In 1997 Congress enacted a number of tax benefits directed toward helping middle- and upper-middle income groups meet rising college costs. This shift in goals and strategies raises concerns about the fairness and effectiveness of the evolving federal approach to higher education. This policy brief analyzes who benefits from the major direct spending program, Pell grants, and the three tax subsidies that most closely resemble grants, the Hope and Lifetime Learning credits and the deduction for tuition and fees. In addition, the brief assesses the potential impacts of these direct spending and tax programs on the affordability of college and the college-going rates of potential students.

Published: 05/16/07
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Fiscal Disparities Across States, FY 2002 (Policy Briefs/Tax Policy: Issues and Options)
Yesim YilmazSonya HooMatthew NagowskiKim RuebenRobert Tannenwald

States and their local governments vary both in their needs to provide basic public services, and in their abilities to raise revenues to pay for those services. This study summarizes the Representative Revenue System (RRS) and the Representative Expenditure System (RES) frameworks and quantifies these disparities across states by comparing each state's revenue capacity, revenue effort, and necessary expenditures to the average capacity, effort, and need in states across the country.

Published: 01/02/07
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Tax Credits, the Minimum Wage, and Inflation (Policy Briefs/Tax Policy: Issues and Options)
Elaine Maag

Two primary wage-support policies help low-income families: the minimum wage and targeted tax credits. Since 1997, when Congress last raised the minimum wage, the real value of the minimum wage has fallen about 20 percent because of inflation, while the earned income tax credit (EITC) and child credit have been expanded. This brief illustrates how current tax rules interact with the minimum wage and considers whether increased tax credits could substitute for minimum-wage increases for those earning the federal minimum wage. Increasing tax credits enough to substitute for raising minimum wage is probably infeasible because of the cost and the high marginal tax rates required. A more direct route to helping low-wage workers is to raise the minimum wage and index it to inflation.

Published: 12/29/06
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The Work Opportunity and Welfare-to-Work Tax Credits (Policy Briefs/Tax Policy: Issues and Options)
Sarah Hamersma

The Work Opportunity Tax Credit (WOTC) offers subsidies to firms that hire disadvantaged workers, including certain welfare recipients, food stamp recipients, people with disabilities, and others. The similar Welfare-to-Work (WtW) tax credit offers firms potentially larger subsidies for hiring long-term welfare recipients. The tax credits from these programs totaled nearly $500 million in 2003, according to the Office of Management and Budget. This brief provides policy background on employer subsidies, discusses participation in the WOTC and WtW, surveys current evidence on the effects of the tax credits on labor market outcomes, and discusses the costs and benefits of the programs.

Published: 10/07/05
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Tax Credits to Help Low-Income Families Pay for Child Care (Policy Briefs/Tax Policy: Issues and Options)
Leonard E. BurmanJeff RohalyElaine Maag

Low-income working families face enormous challenges. Key among them is how to pay for decent child care. The federal income tax code subsidizes child care in several ways. The largest subsidy is the Child and Dependent Care Tax Credit (CDCTC), a nonrefundable tax credit that offsets up to 35 percent of working parents' child care costs, subject to limits. Though not earmarked specifically for child care, the refundable Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) provide more help to low-income working families. This paper considers options to reform the CDCTC to assist low-income families, and examines expansions to the refundable tax credits that help families with children.

Published: 07/19/05
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Making the Tax System Work for Low-Income Savers: The Saver's Credit (Policy Briefs/Tax Policy: Issues and Options)
William G. GaleJ. Mark IwryPeter Orszag

The federal tax system provides little incentive for participation in tax-preferred saving plans to households that most need to save more for retirement and whose contributions would most likely represent an actual increase in savings. By contrast, the tax code provides its strongest incentives to those who already are generally better prepared for retirement and who are more likely to use tax-preferred vehicles as a shelter than as an opportunity to increase overall saving. The saver's credit, helps correct this "upside-down" structure of tax incentives for retirement saving.

Published: 07/07/05
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How to Better Encourage Homeownership (Policy Briefs/Tax Policy: Issues and Options)
Adam CarassoC. Eugene SteuerleElizabeth Bell

The way federal housing benefits are doled out suggests a U-shaped curve; subsidies are heaped on most households at higher incomes and some at very low incomes. Those in between get little. This brief describes revenue-neutral reforms that would level out the U-shaped curve and deliver ownership subsidies more equitably and efficiently to lower-to-middle-income households. Converting home-related tax deductions into refundable, capped credits introduces greater progressivity into the tax system, encourages homeownership among those at lower incomes, and curtails government subsidies for ever greater amounts of home borrowing.

Published: 06/29/05
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Tax Credits for Health Insurance (Policy Briefs/Tax Policy: Issues and Options)
Leonard E. BurmanJonathan Gruber

Over 40 million Americans under age 65--the overwhelming majority of them in working families--lack health insurance. The public ultimately shoulders the burden of paying for the medical treatment of those lacking insurance, either through higher taxes or higher health care costs. Expanding health coverage through the tax system may not be the most efficient path, but tax subsidies appear the only game in town for expanding the federal role in the provision of health insurance. This policy brief examines implications of major expansions in tax credits for health insurance, starting with the President's refundable tax credit proposal.

Published: 06/23/05
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Options to Reform the Estate Tax (Policy Briefs/Tax Policy: Issues and Options)
Leonard E. BurmanWilliam G. GaleJeff Rohaly

Retargeting the estate tax to very wealthy households and lowering its rates would blunt much of the criticism against it while retaining many of its advantages. This brief explains how the estate tax works and examines who is affected by it under current law. It discusses how reform would affect tax revenues, the distribution of tax burdens, farms and small businesses, and charitable giving and bequests. A concluding section discusses ways to reduce the tax's complexity.

Published: 03/23/05
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High-Income Families Benefit Most from New Education Savings Incentives (Policy Briefs/Tax Policy: Issues and Options)
Susan Dynarski

If funds from education savings plans are not used for schooling, the penalties more than offset the tax benefits for lower-income families. But higher-income families gain even if their children do not go to college. A new breed of tax-advantaged savings vehicle has emerged for the college bound. Earnings on both the federal Coverdell Education Savings Account (ESA) and the state-level 529 savings plan are tax-free if the funds are used for postsecondary education. One reason that the advantages of these education plans rise sharply with income is that that those with the highest marginal tax rates benefit the most from sheltering income. This brief explains how these new college plans work.

Published: 02/28/05
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