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Tax Disrupters: Rapid Technological and Demographic Changes
Presented to NCSL Fiscal LeadersOctober 5, 2017
William F. Fox, Director
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Technology
• E-Commerce/digitization
• Autonomous vehicles
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ESTIMATED TOTAL E-COMMERCE SALES
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• Nexus rules
• Increase ability to enforce the use tax through information reporting – Colorado, Nebraska, Washington
• Income tax filing – 25 states allow individuals to report use tax liability on income tax returns
STATES ARE USING SEVERAL APPROACHES TO ENFORCE TAX AT DESTINATION
June 12, 2017 William F. Fox • http://cber.haslam.utk.edu 4
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BROADER APPROACHES
• Cooperation – Streamlined Sales Tax Governing Board (24 states)
• Federal legislation
• Marketplace Fairness Act of 2017
• Remote Transactions Parity Act of 2017
• Reconsideration of the Quill case – Several states have legislation to enforce collection on remote sales – Alabama, South Dakota, Tennessee
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Autonomous Vehicles• Some employment effects in transition
• Fewer cars manufactured – assembly and parts
• Less demand for drivers in taxis and car sharing services
• Fewer truck drivers
• Fewer new cars sold, insured, and financed
• Will other jobs develop to replace these? Who will get these jobs?
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Some tax implications
• Sales tax revenues decline with fewer vehicles sold
• Motor vehicle registrations and titles fees decline
• Motor fuel tax revenues fall with more electric vehicles
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Policy options – keep tax structure up-to-date• Consider taxing transportation services, such
as vehicle sharing and taxis
• Carefully consider how to tax other shared assets with eye towards level playing field
• Work to overcome the Quill limitation
• Marketplace Fairness Act
• Reconsideration by the Supreme Court
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Demographic Issues
• Growing populations
• Aging populations – living longer, baby boomers passing 65
• Falling birth rates
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U.S. Population Growing More Slowly
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Population Growth
• Varies widely across states – very fast in some states such as Arizona and Colorado and very slow in others such as Maine and Pennsylvania. Difference arises mostly from in-migration.
• Growth adds tax revenues, but creates corresponding expenditures which depend on the demographics of the new population, so uncertain how the fiscal position is affected
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Birth Rates Continue to Decline(Birth Rates per 1,000 Population)
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Birth rates are lower for Under 30 (Birth rates per thousand by mother age)
William F. Fox • http://cber.haslam.utk.edu 13August 29, 2017
Age Band 2007 Birth Rate Per
Thousand2015 Birth Rate Per
Thousand
15-19 42.5 22.3
18-19 73.9 40.7
20-24 106.3 76.8
25-29 117.5 104.3
30-34 99.9 101.5
35-39 47.5 51.8
40-44 9.5 11
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Abpve 65 Population Rising Rapidly
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Population 65 Years and Older, 2016
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Less than 15.0%15.0% to 16.9%17.0% to 18.9%19.0% to 19.7%Greater than 19.7%
U.S. Average: 15.2%
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Population Aging in Every State(Population 65 Years and Older, 2030)
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Less than 15.0%15.0% to 16.9%17.0% to 18.9%19.0% to 19.7%Greater than 19.7%
U.S. Average: 20.0%
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Expenditure implications of aging
• State and local pensions
• Health care
• Employees or retirees
• Low income elderly
• Education – will the elderly want less?
• Demand for different services, such as more or different recreation
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Personal Income Tax
• Effects from aging arise from behavioral changes and from structure of statutes
• Behavioral effects
• Labor force participation varies by age, but will likely see more transitional retirement
• Average earnings increase through careers, and then drop with retirement
• Income changes to relatively more pensions, interest and capital gains
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Lower but Rising Labor Force Participation Rate for 55 and Up
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Personal Income Tax • Statutory effects
• Progressivity affects how demographics impact income tax revenues
• More limited taxation of capital income
• 37 states have some type of special provision for pension income, and all have some favorable treatment for the elderly
• Only six states tax social security to the same extent as the Federal Government
• Many have special treatment for other pensions
• Other credits and exemptions – GA cost more than $250 million per year a decade ago
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Sales Tax • Some consumption smoothing over life but
consumption patterns change with age – middle aged spend the most, oldest and youngest groups spend a little more than half as much
• Elderly consume more health care and food at home, so breadth of base affects how sales tax responds
• Aging population will cause per capita tax revenues to fall, with the most being in Hawaii, Colorado and North Carolina
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Sales Tax and Millenials• How will Millenials lower (at least to this point)
asset accumulation alter sales tax? Fewer cars with car sharing and autonomous vehicles?
• Sales tax collection and remote sales
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Property tax
• Again, behavioral effects and statutory effects
• Millenial effects
• How will they behave in terms of property ownership?
• Household formation affects new property
• Decisions to own versus rent could alter the value of property
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Household Formation has Slowed Dramatically
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New Privately Owned Housing Units Started
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Property tax
• Behavior - Older people spend less on housing – want to stay in their home but most ultimately downsize
• Statutory
• Age specific homestead exemptions
• Move into nontaxable nursing homes, etc.
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Policy Options
• Keep tax bases broad
• Limit any further age related (and all) exemptions
• Tax pensions and Social Security under PIT
• Tax food and services under sales tax
• What about health care?
• Homestead exemptions?
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Boyd Center for Business & Economic Research
Haslam College of Business
The University of Tennessee, Knoxville
716 Stokely Management Center
916 Volunteer Boulevard
Knoxville, Tennessee 37996-0570
phone: 865.974.5441fax: 865.974.3100
http://cber.haslam.utk.edu
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