A helpful guide to wonky tax terminology
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We throw around a lot of numbers here at Marketplace, but also a lot of names, groups and terms. In our ongoing coverage of the GOP plan to overhaul the tax code, there’s a bunch of wonky terminology floating around. Here’s a short glossary of some names and terms to know, and we’ll be adding to it. Suggestions for additions welcome!
THE NUMBER CRUNCHERS
Lots of different groups have weighed in on the cost and impact of the various versions of the tax plans and bills. Here are some of the major players.
Congressional Budget Office: The CBO is the greatest ally and enemy of members of Congress trying to push legislation. The agency “scores” legislation to determine how much a bill will cost the government and how it will affect Americans. When those scores don’t line up with what someone wants to hear, the agency is often labeled as biased. The director of the CBO is appointed by House and Senate leadership, and the current director, Keith Hall, was appointed by Republicans. Here’s an interview he did with Marketplace’s Kai Ryssdal.
From the website: “Since 1975, CBO has produced independent analyses of budgetary and economic issues to support the Congressional budget process. Each year, the agency’s economists and budget analysts produce dozens of reports and hundreds of cost estimates for proposed legislation.”
Joint Committee on Taxation: This committee helps members of the House and Senate with research on tax-related matters. Its primary function is to provide reports to members of Congress, but some of its information is public. Often when you hear about reports from the JCT, members of Congress have leaked them to the media or think tanks, rather than them being available to the public.
From the website: The Joint Committee on Taxation is a nonpartisan committee of the United States Congress. … The Joint Committee operates with an experienced professional staff of Ph.D. economists, attorneys, and accountants, who assist Members of the majority and minority parties in both houses of Congress on tax legislation.”
Council of Economic Advisers: This is the White House team of economic counselors, chosen by the president. Its read of taxes and the economy typically most closely reflects the views of the administration. Kevin Hassett leads the team, and spoke with Kai Ryssdal about the pitch for corporate tax cuts.
From the website: “The Council of Economic Advisers, an agency within the Executive Office of the President, is charged with offering the President objective economic advice on the formulation of both domestic and international economic policy.”
Tax Foundation: The Tax Foundation is generally considered a right-leaning think tank and provides many detailed analyses of how the various tax plans could impact the economy. The group faced some criticism for the way it crunched the numbers on the House plan, and subsequently changed its model and issued a correction.
From the website: “The Tax Foundation is the nation’s leading independent tax policy nonprofit. Since 1937, our principled research, insightful analysis, and engaged experts have improved lives through smarter tax policy.”
Urban-Brookings Tax Policy Center: Also called just the Tax Policy Center, this is a joint project with tax experts from both the Urban Institute and the Brookings Institution, and is considered center or slightly left leaning. This group also has very detailed analyses of the various tax plans. The TPC found an error in its original analysis of the House bill and issued a correction.
From the website: “The Urban-Brookings Tax Policy Center aims to provide independent analyses of current and longer-term tax issues and to communicate its analyses to the public and to policymakers in a timely and accessible manner.”
From the website: “Tax Analysts is the only independent, nonpartisan multimedia organization dedicated to fostering an open and informed debate on taxation.”
Center on Budget and Policy Priorities: The CBPP focuses primarily on how policies impact the poor and relate to economic inequality. This often means its research is critical of legislation that benefits the wealthy at the expense of the poor and social safety net programs, or that adds to the national debt.
From the website: “We are a nonpartisan research and policy institute. We pursue federal and state policies designed both to reduce poverty and inequality and to restore fiscal responsibility in equitable and effective ways.”
Committee for a Responsible Federal Budget: This group’s board members come from both sides of the aisle. They have been particularly critical of the Republican tax plans for adding to the debt and deficit. CRFB also says many of the estimates for the cost of the tax bills don’t reflect the full economic impact of the GOP plans.
From the website: “The Committee for a Responsible Federal Budget is a nonpartisan, nonprofit organization committed to educating the public on issues with significant fiscal policy impact.”
TAX TERMS TO KNOW
Reconciliation rules: In the Senate, a budget reconciliation can set rules that will allow bills to pass by a simple majority instead of requiring the normal 60 votes. In the cases of the tax bill, the rules say the legislation can’t add more $1.5 trillion to the deficit over 10 years.
Byrd Rule: In the Senate, a rule that says legislation can’t add to the deficit at all after 10 years. This is why, to pass some expensive bills, senators may include “sunset clauses” that allow certain parts of a plan to expire in a decade, rather than continue to add to the deficit.
SALT: Short for state and local tax deduction. Under current law, people can deduct what they pay on their state and local taxes from their taxable income, therefore lowering their federal tax bill. Proponents say that it prevents double taxation (being taxed twice on the same income), but opponents say it causes people in low-tax states to subsidize deductions for people in high-tax states. The biggest beneficiaries of SALT deductions tend to be wealthier people on the coasts.
Tax credit: A part of the tax code that lowers someone’s tax bill. If it’s a “refundable” credit, someone can get the value of the credit as a refund even if they don’t pay any taxes. Common credits include the earned income tax credit and the child care tax credit. Credits are often compared to tax deductions.
Tax deduction: A tax deduction lowers your taxable income (the money you pay taxes on); this will lower your overall tax bill, but not by as much as a credit of an equal value. Common deductions include mortgage interest and retirement contributions.
Pass-through businesses: A business where the profits are “passed-through” to the owners, and the owners pay taxes on that profit with their regular income, often at the top tax bracket. The vast majority of American businesses are pass-through businesses.
Tax rate vs. “effective” tax rate: There’s a difference between where someone’s personal income or business profits may land them in the tax brackets and what they actually pay in taxes. For example, in the U.S., the corporate tax rate is 35 percent, but after deductions, credits and the work of professional accountants, the effective tax rate (what companies actually pay in taxes) is closer to the mid-20s.
“Scoring” the bill: Analyzing a piece of legislation to determine how much it will cost, and/or how it will affect people. You’ll commonly hear this term in conjunction with the CBO — the “CBO score” or “the CBO is scoring the bill.”
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