Across-the-board cuts are often referred to as using a “meat ax,” as opposed to more carefully targeted cuts, which are compared to using a “scalpel.” Interest group pressure will weigh in against targeted cuts, however, and especially in our current divided government, across-the-board cuts are the only realistic way to cut spending.
There was only one lane open as I made my trip to Atlanta; the other three were blocked with those unhappy yellow and black make-believe barrels used by the highway folks. Traffic flow was constrained by efforts to repair potholes and broken pavement. We in the slow lane had little choice in the matter. Instead of 70, we were slowed to 20 miles per hour. We had to accept our fate, or find another route at the next exit.
In the wake of the 2007–09 banking crisis, some economists recommended imposing new taxes on banks. These proponents contend that policy makers could apply the taxes to correct “negative externalities,” or adverse spillover effects onto overall welfare, allegedly created by individual banks. Spillovers are assumed to arise from individually optimal bank decisions that fail to account for the higher risks that the aggregation of those choices might create for the banking system as a whole. Taxing banks is supposed to nudge the banks to restrain operations that contribute to total societal risks.
The American Taxpayer Relief Act of 2012 (ATRA, P.L. 112-240) may be more significant for what it does not do than for what it does. Hopes for a ‘‘grand bargain’’ were not realized. In fact, ATRA does (almost) nothing to address the major fiscal problems that the United States continues to face.
This paper addresses three criticisms of sin taxes: First, the traditional Pigouvian justification applied to sin goods, such as alcohol and tobacco, is frequently misapplied to a progressively broader base of goods and services where the “sin good” label is questionable, such as automobile tires, candy, soft drinks, and fast food.
The home mortgage interest deduction is the largest explicit tax deduction for households in the federal income tax code. Politicians have been reluctant to even consider removing this deduction, believing it to be one that provides significant benefits to middle-class taxpayers and encourages homeownership. These benefits are greatly over- stated: most taxpayers do not benefit from this deduction at all or receive a very small benefit. The only taxpayers who do receive a large benefit are those in the upper income brackets. Taxpayers and the entire economy would be better served by removing the mortgage interest deduction and lowering marginal tax rates to offset the change.
Critics of the Bush tax cuts often dismiss the tax changes as a failed experiment in free-market economics. Noting that economic growth was slower in the years following the cuts than in the years preceding them, some critics see the experience as evidence that tax cuts simply do not work. But the claim that these tax cuts exemplified free-market economic thinking is baseless.
A new Mercatus study suggests an additional, largely unexamined cost of the United States’ tax-policy uncertainty: “unproductive” or “destructive” entrepreneurship—the diversion of resources away from economically productive activities to the unproductive activity of lobbying for preferential tax-policy treatment.
This study documents the economic distortions and inefficiencies that result from a tax system filled with tax expenditures. We review each of the ten largest tax expenditures for individuals and corporations, focusing the following distortions of economic activity: spending on goods and services, capital allocation, the distribution of income, and lobbying and rent-seeking.