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Monday, January 31, 2011

Social Security: Raising or Eliminating the Taxable Earnings Base


Janemarie Mulvey
Specialist in Aging and Income Security

Social Security taxes are levied on covered earnings up to a maximum level set each year. In 2010, this maximum—or what is referred to as the taxable earnings base—is $106,800. The taxable earnings base serves as both a cap on contributions and a cap on benefits. As a contribution base, it establishes the maximum amount of each worker’s earnings that is subject to the payroll tax. As a benefit base, it establishes the maximum amount of earnings used to calculate benefits.

Since 1982, the Social Security taxable earnings base has risen at the same rate as average wages in the economy. However, because of increasing earnings inequality, the percentage of covered earnings that are taxable has decreased from 90% in 1982 to 85% in 2005. The percentage of covered earnings that is taxable is projected to decline to about 83% for 2014 and later. Because the cap was indexed to the average growth in wages, the share of the population below the cap has remained relatively stable at roughly 94%. Of the 9.5 million Americans with earnings above the base, roughly 80% are men and only 9% had any earnings from self-employment income. New Jersey has the highest share of the population above the maximum (11.6%) and South Dakota has the lowest share (2.1%).

CRS estimated the potential impact of eliminating the taxable wage base on future benefits and taxes. If the base were removed in 2013, CRS estimates that by 2035, 21% of beneficiaries would have paid some additional payroll taxes over the course of their lifetimes. However, the average change in taxes and benefits would be small. Looking only at individuals who would pay any additional taxes over the course of their lifetimes, at the median, total lifetime tax payments would rise by 3% and benefits would increase by 2% relative to current law. In general, those in the highest income groups would have the largest changes in both tax payments and in benefits relative to current law.

Raising or eliminating the cap on wages that are subject to taxes could reduce the long-range deficit in the Social Security Trust Funds. For example, if the maximum taxable earnings amount had been raised in 2005 from $90,000 to $150,000—roughly the level needed to cover 90% of all earnings—it would have eliminated roughly 40% of the long-range shortfall in Social Security. If all earnings were subject to the payroll tax, but the base was retained for benefit calculations, the Social Security Trust Funds would remain solvent for the next 75 years. However, having different bases for contributions and benefits would weaken the traditional link between the taxes workers pay into the system and the benefits they receive.



Date of Report: January 11, 2011
Number of Pages: 27
Order Number: RL32896
Price: $29.95

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Federal Deductibility of State and Local Taxes


Steven Maguire
Specialist in Public Finance

Under current law, taxpayers who itemize can deduct state and local real estate taxes, personal property taxes, and income taxes from federal income when calculating taxable income. In addition, a temporary deduction for sales taxes in lieu of income taxes is available, though it expires December 31, 2011. The federal deduction for state and local taxes results in the federal government paying part of these taxes through lower federal tax collections. Theory would suggest that taxpayers are willing to accept higher state and local tax rates and greater state and local public spending because of lower federal income taxes arising from the deduction. In addition, there is some evidence that state and local governments rely more on these deductible taxes than on nondeductible taxes and fees for services.

Repealing the deductibility of state and local taxes would affect state and local government fiscal decisions, albeit indirectly. Generally, state and local public spending would decline, although the magnitude of the decline is uncertain. And, repealing the deduction for state and local taxes would shift the federal tax burden away from low-tax states to high-tax states. Maintaining the current deductibility would continue the indirect federal subsidy for state/local spending.

Expanding deductibility, such as extending the sales tax deduction option or allowing nonitemizers to deduct taxes paid, would likely increase the subsidy for state and local spending. The sales tax deduction option would primarily benefit taxpayers in states without an income tax that are already itemizing. The effect of allowing non-itemizers to deduct taxes paid would depend on the type of deductible tax. For example, property taxes are only paid (directly) by property owners whereas all consumers pay sales taxes in states that levy a sales tax.

In the 111
th Congress, P.L. 111-5, the American Recovery and Reinvestment Act, provided for an above-the-line deduction for sales and excise taxes paid on new vehicle purchases for nonitemizers. The President’s FY2011 budget does not include an extension of the sales tax deduction option and proposes a limit on the tax rate at which itemized deductions would reduce tax liability.

P.L. 111-312, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, extended the sales tax deduction option through the 2011 tax year.



Date of Report: January 18, 2011
Number of Pages: 14
Order Number: RL32781
Price: $29.95

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Upcoming Rules Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act


Curtis W. Copeland
Specialist in American National Government

Maeve P. Carey
Analyst in Government Organization and Management


Congress delegates rulemaking authority to agencies for a variety of reasons and in a variety of ways. The Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111-203, July 21, 2010, hereafter the “Dodd-Frank Act”) is a particularly noteworthy example of congressional delegation of rulemaking authority to federal agencies. A previous CRS report identified more than 300 provisions in the act that require or permit the issuance of rules to implement the legislation.

One way for Congress to identify upcoming Dodd-Frank Act rules is by reviewing the Unified Agenda of Federal Regulatory and Deregulatory Actions, which is published twice each year (spring and fall) by the Regulatory Information Service Center (RISC), a component of the U.S. General Services Administration, for the Office of Management and Budget’s (OMB) Office of Information and Regulatory Affairs (OIRA). The Unified Agenda lists upcoming activities, by agency, in five separate categories or stages of the rulemaking process: the prerule stage, the proposed rule stage, the final rule stage, long-term actions, and completed actions. All entries in the Unified Agenda have uniform data elements, including the department and agency issuing the rule, the title of the rule, its Regulation Identifier Number (RIN), an abstract describing the nature of action being taken, and a timetable showing the dates of past actions and a projected date for the next regulatory action. Each entry also contains an element indicating the priority of the regulation (e.g., whether it is considered “economically significant” under Executive Order 12866, or whether it is considered a “major” rule under the Congressional Review Act).

This report examines the most recent edition of the Unified Agenda, published on December 20, 2010 (the first edition that RISC compiled and issued after the enactment of the Dodd-Frank Act). The report identifies upcoming proposed and final rules listed in the Unified Agenda that are expected to be issued pursuant to the Dodd-Frank Act. The Appendix lists these upcoming proposed and final rules in a table. The report also briefly discusses the long-term actions listed in the Unified Agenda, as well as some options for congressional oversight over the Dodd-Frank Act rules.



Date of Report: January 25, 2011
Number of Pages: 29
Order Number: R41611
Price: $29.95

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A Brief Overview of Rulemaking and Judicial Review

Vanessa K. Burrows
Legislative Attorney

Todd Garvey
Legislative Attorney


The Administrative Procedure Act (APA), which applies to all agencies, provides the general procedures for various types of rulemaking. The APA details the rarely used procedures for formal rules as well as the requirements for informal rulemaking, under which the vast majority of agency rules are issued. This report provides a brief legal overview of the various methods by which agencies may promulgate rules, which include formal rulemaking, informal (notice-andcomment or § 553) rulemaking, hybrid rulemaking, direct final rulemaking, and negotiated rulemaking.

There is substantial case law regarding APA procedures and agency rulemakings. This report concisely mentions the standards that reviewing courts will use to discern whether agency rules have been validly promulgated. Additionally, inquiries regarding the APA often concern agency actions that involve exceptions to APA requirements or additional steps that agencies voluntarily have taken or imposed upon themselves that are not required by the APA. For example, adversely affected parties may contest agency uses of the “good cause” exceptions to the APA procedural requirements to promulgate an interim final rule. Another frequent topic of inquiry is whether an agency guidance document should have been issued as a legislative rule under APA notice-andcomment procedures.

This report does not address the requirements of presidential review of agency rulemaking under Executive Order 12866 or other statutes that may impact particular agency rulemakings, such as the Regulatory Flexibility Act, the National Environmental Policy Act, the Congressional Review Act, or the Unfunded Mandates Reform Act. Additionally, issues of standing, ripeness, finality of agency action, or exhaustion of administrative remedies may arise. As this brief report does not address these potentially applicable statutes or legal issues in depth, the authors may assist with legal questions regarding such requirements or agency-specific rules.



Date of Report: January 4, 2011
Number of Pages: 14
Order Number: R41465
Price: $29.95

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U.S. Travel and Tourism Industry


Suzanne M. Kirchhoff
Analyst in Industrial Organization and Business

The U.S. travel and tourism sector, the main economic and employment engine in a number of states, suffered a steep decline in 2008 and 2009 as the nation sank into recession. Though the United States remained the world’s top travel destination by dollar value, spending by foreign visitors in the country plunged 15% in 2009—a record. U.S. tourism-related businesses shed nearly 400,000 workers in 2009. The layoffs exceeded the job loss in 2001, when the September 11 terrorism attacks crippled business and pleasure travel. Travel and tourism—which account for 6% of U.S. employment—began to rebound in 2010, but there have been concerns about a possible decline in business along the Gulf Coast due to the April 2010 BP oil spill.

Partly in response to the sharp downturn in the sector, Congress passed, and President Obama in March 2010 signed into law, the Travel Promotion Act (P.L. 111-145), creating a nonprofit corporation that will receive up to $100 million annually in federal funds through 2014 to market the United States as an international travel destination. Lawmakers during the 111
th Congress proposed initiatives to aid Gulf tourism-related businesses affected by the oil spill, and legislation (H.R. 4676) to provide $50 million in government grants over five years for domestic tourism marketing efforts. At the same time, a number of states and localities have increased taxes on tourism-based businesses, including levies on hotel rooms and car rentals. Such efforts are spurring a pushback by consumers and businesses that is spilling into Congress, including a bill introduced during the 111th Congress (H.R. 4175) to limit the ability of states and localities to impose future taxes on automobile rentals. In addition, the online hotel booking industry is seeking legislation to set a national standard for hotel taxation.

While lawmakers have enacted or proposed specific legislation to aid travel and tourism, most congressional activities that affect the sector, sometimes in a major fashion, are indirect. The sector feels the impact of congressional action on such issues as the minimum wage; funding for national parks, forests, and historical sites; gaming industry regulation; and visa and immigration policy. As travel and tourism have developed from an “invisible” area of the economy—one that businesses and officials considered important, but for which there was little comprehensive data—to a widely analyzed sector, it has become a larger factor in legislative give-and-take in select areas. For example, some lawmakers from states with major coastal tourism businesses oppose proposals to expand offshore oil and gas drilling, based on tradeoffs or perceived tradeoffs between the energy and tourism industries. Likewise, many tourism-related businesses have weighed in on debates regarding homeland security and immigration, asking Congress to streamline the process for obtaining a visa to visit the United States or to go through airport security, arguing that current policies serve as a deterrent to would-be visitors.



Date of Report: January 11, 2011
Number of Pages: 32
Order Number: R41409
Price: $29.95

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The Self-Employment Assistance (SEA) Program


Katelin P. Isaacs
Analyst in Income Security

Self-employment is one potential pathway to exit a spell of unemployment. The regular Unemployment Compensation (UC) program generally requires unemployed workers to be actively seeking work and to be available for wage and salary jobs as a condition of eligibility for UC benefits. These requirements constitute a barrier to self-employment and small business creation for unemployed workers who need income support. The Self-Employment Assistance (SEA) program, however, provides an avenue for combining income support during periods of unemployment with activities related to starting one’s own business.

Thus, within the joint federal-state UC program, the SEA program focuses on the reemployment of UC beneficiaries. State SEA programs help unemployed workers generate their own jobs through small business creation. SEA waives state UC work search requirements for those individuals who are working full time to establish their own small businesses. SEA provides a weekly allowance in the same amount and for the same duration as regular UC benefits. It is available only to individuals who would otherwise be entitled to UC benefits and have been determined likely to exhaust their UC benefits. Despite the unique configuration of SEA, which pairs self-employment activities and income support, participation in the program by states as well as unemployed workers is limited. Currently, only eight states have active SEA programs. In part, the small-scale nature of the program is likely due to the authorizing legislation requirement that SEA be budget neutral; that is, no UC funds may be used to provide self-employment training.

P.L. 103-182, the North American Free Trade Agreement Implementation Act, created the SEA program on December 8, 1993. It was permanently authorized by P.L. 105-306, the Noncitizen Benefit Clarification and Other Technical Amendments Act, which was signed on October 28, 1998. Like the rest of UC, the SEA program is financed by federal taxes under the Federal Unemployment Tax Act (FUTA) and by state payroll taxes under the State Unemployment Tax Acts (SUTA).



Date of Report: January 11, 2011
Number of Pages: 9
Order Number: R41253
Price: $19.95

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