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Daily Archives: December 21, 2014

Taxing Capital Income: Effective Marginal Tax Rates Under 2014 Law and Selected Policy Options

“The federal tax treatment of capital income affects investment incentives, both for the amounts invested and for allocations among assets. When tax rates are high, investors require higher before-tax rates of return and thus forgo investments with lower returns that they otherwise would have made. Current law produces significant variations in the taxation of capital income from different investments, thus leading investors to require higher before-tax rates of return on some investments than on others. Those differences reduce economic efficiency—the extent to which resources are allocated to maximize before-tax value. An effective marginal tax rate (hereafter referred to as an effective tax rate or ETR) measures an investor’s tax burden on returns from an investment. An ETR combines a statutory tax rate with other features of the tax code (various deductions and credits, for example) into a single percentage that applies to before-tax capital income realized over an investment’s lifetime. (In this report, capital income consists of receipts minus the cost of goods sold, operating expenses, interest paid, and an allowance equal to the decline in value of capital assets because of economic depreciation—that is, wear and tear or obsolescence.) The higher the ETR, the greater the distortion in investments, holding all else equal; thus, the greater the variation (or nonuniformity) of ETRs among different investments, the less likely it is that resources will be used efficiently. For this report, CBO estimated ETRs on income from marginal investments (those expected to earn just enough, after taxes, to attract investors) in such tangible capital assets as equipment, structures, land, and inventories (assets held for resale). In considering both corporate and individual taxation—but only with respect to the permanent features of federal income tax law in 2014—CBO arrived at the following conclusions:

  • The ETR on capital income is, on average, 18 percent;
  • The ETR on income from owner-occupied housing is close to zero; and
  • The ETR on capital income generated by businesses is, on average, 29 percent.”

CBO’s 2014 Long-Term Projections for Social Security

“Social Security is the federal government’s largest single program. Of the 59 million people who currently receive Social Security benefits, about 71 percent are retired workers or their spouses and children, and another 10 percent are survivors of deceased workers; all of those beneficiaries receive payments through Old-Age and Survivors Insurance (OASI). The other 19… Continue Reading

2012 Manufacturing and International Trade Report

“This new annual report from the U.S. Census Bureau will, for the first time, provide a comprehensive comparison between detailed manufacturing product class data and associated import and export data. The data are published on a North American Industry Classification System basis from the 2012 Economic Census Industry Series, presented with official U.S. export and import… Continue Reading

New GAO Reports – Airport Privatization, Anthrax, Dodd Frank Regulations, Education, Emergency Preparedness, Ground Radar

Airport Privatization: Limited Interest despite FAA’s Pilot Program, GAO-15-42: Published: Nov 19, 2014. Publicly Released: Dec 19, 2014. Anthrax: Agency Approaches to Validation and Statistical Analyses Could Be Improved, GAO-15-80: Published: Dec 19, 2014. Publicly Released: Dec 19, 2014. Dodd-Frank Regulations: Regulators’ Analytical and Coordination Efforts [Reissued on December 18, 2014, GAO-15-81: Published: Dec 18, 2014. Publicly Released:… Continue Reading