What New Taxes May Come?

What New Taxes May Come?

It’s been quite an expensive year for the American tax system. By mid-June, about $267 billion had been distributed nationally in the form of economic stimulus checks to the majority of eligible recipients. The CARES Act provided about $659 billion in small business relief funds across two rounds by that same point, and there was widespread debate about additional forthcoming rounds of relief funds and stimulus checks alike.

All that money by itself came close to a trillion dollars in total, with the possibility of much more to come. This was unquestionably necessary to shield our country against economic fallout from the pandemic, but still incredibly expensive.

On top of that, local, state, federal, and local revenue shortfalls are occurring all over the nation due to reduced business taxes caused by closures. In fact, state budget shortfalls could become the largest on record. As one example of how serious this is, the purchasing power of Washington D.C. had declined about 8.74% between fiscal years 2019 and 2020 by mid-June. Experts project it will take as long as four long years to recover from the loss.

Eventually, our country’s giant tax bill is going to come calling. So how is the nation going to pay for it? What kinds of new taxes might be on the horizon?

 

Concepts and Policy Ideas for Paying Our Tab

Unfortunately, when our stimulus tax tab comes, dining-and-dashing won’t be a viable option. We’re going to have to come up with comprehensive ways to make up the budget shortfalls and cover the costs of pandemic relief programming.

There have been numerous possible ways of achieving this under debate in our national fiscal conversation, though nothing definitive has emerged at the time of this writing. When examined in a big-picture sense, several commonalities are present among various U.S. states and regions. They include several of the following frequently discussed concepts:

  • Gross receipt taxes. Several states have been debating taxing businesses based on their gross receipts, or their overall revenues before expenses are deducted. A few states have this already, such as Washington and Ohio. Supporters of this method say it’s a viable option because a business would not have to be profitable to be taxed.
  • Increased sales taxes on online purchases to help offset the losses in sales taxes caused by business closures. Some states have threshold values that may be lowered to allow more online transactions to be taxable. Other states may increase their sales tax rates for online purchases.
  • Excise taxation on digital services. This pertains to streaming services like Netflix and other online services, which generally aren’t typically taxed currently.
  • Corporate income tax increases. The corporate income tax rate was cut in 2017, which shifted a bigger share of revenue dependence onto individual income taxes. The current high unemployment rate however might force this to change back to higher levels.
  • Cross-border corporate income taxes for employees that work in one state but are physically working remotely from another. Notably, Indiana is an exception to states considering this option while work-from-home orders are in effect. The Dept. of Revenue said that it will not impose corporate income taxes against out-of-state businesses based on relocation of employees to Indiana during the pandemic.
  • Tax increases for wealthier income brackets. This also includes breaking up brackets, and/or increasing rates.
  • Reducing the estate tax exemptions to previous levels. Prior to 2016, the size of estates that were pass to heirs tax-free was much lower than it is today.
  • Property tax increases. Many major cities throughout the country, including Chicago, have said that property tax increases are still on the table as an option to intake new revenue. Additionally, certain parts of the country that have rate increase caps subject to voter approval might be surprised to learn that disaster declarations can remove the voting requirement.
  • Shoring up employee misclassifications. This is a common and widespread tax problem, particularly for gig employers and independent contractors. Worker misclassification enables companies to skirt certain taxes. Reforms to these regulations could close these loopholes.
  • Fuel tax increases. The current lower price of gasoline and the fact that several states are imposing new fuel taxes this year has revived discussion of potential new fuel tax increases in many states.

 

A Lot Remains to be Seen

These tax policy considerations are only some of the topics up for discussion at this point and are by no means a sure thing. Different regions have various unique plans of their own as well, including spending cuts, reinvestment, reprioritization of capital projects, and a lot more. Monetary policy reforms are yet another experiencing major debate at this point too.

For the time being, only one thing is clear – tax policymakers have a lot on their minds. It’s likely the American taxpayer will be experiencing some form of those ideas not-too-distant future.

 

 

 


Sources: SmartAsset, American Action Forum, U.S. SBA, D.C. Policy Center, CNBC, Yahoo Finance, Reuters, et al.

Category Features, Finance