Dec 12, 2013
Every country faces an intertemporal budget constraint, which requires that its government’s future expenditures, including servicing its outstanding official debt, be covered by its government’s future receipts when measured in present value. The present value difference between a country’s future expenditures and its future receipts is its fiscal gap. The US fiscal gap now stands at $205 trillion. This is 10.3 percent of the estimated present value of all future US GDP. The United States needs to raise taxes, cut spending, or engage in a combination of these policies by an amount equal to 10.3 percent of annual GDP to close its fiscal gap. Closing the gap via raising taxes would require an immediate and permanent 57 percent increase in all federal taxes. Closing the gap via spending cuts (apart from servicing official (debt) would require an immediate and permanent 37 percent reduction in spending. This grave picture of America’s fiscal position effectively constitutes a declaration of bankruptcy.
Nov 14, 2013
In a new study published by the Mercatus Center at George Mason University, Charles P. Blahous, a Mercatus senior research fellow and public trustee for Medicare and Social Security, examines the causes of federal deficits by systematically examining the federal budget itself, quantifying all contributions to the deficit regardless of when they were enacted.
Sep 17, 2013
The US federal tax code contains a number
of provisions designed to encourage
individuals to save for retirement. These
provisions allow individuals to avoid or
defer taxes if they choose to set aside a
portion of their income for future consumption.
When all of these provisions are combined, they
are the second largest “tax expenditure” category
as defined by the Joint Committee on Taxation.
The exclusion of retirement savings from taxation
causes some economic distortions, which we will
discuss in this paper. However, unlike some other
tax expenditures, there is a strong economic rationale
for not taxing savings. Higher rates of investment
lead to higher rates of economic growth, and
it may be sound policy for the tax code to encourage
this behavior, even after considering the economic
costs. Excluding retirement income from
taxation may also make the tax system more efficient,
even though most other tax expenditures
Sep 12, 2013
The success of BRAC shows how to overcome public choice dynamics at a
time of crisis. These lessons apply today, but they must be understood correctly.
While creating a small commission or task force to tackle a problem has many
advantages, it is just one aspect of what made BRAC succeed. A spending
commission modeled on BRAC should be focused, independent, composed of
disinterested citizens given clear criteria for their decisions, and be structured in
a way that allows its recommendations to be operative unless Congress rejects
them. This prescription is the only way that a spending commission has a
chance to actually result in spending cuts.
Sep 10, 2013
The exclusion of employer-provided health insurance from taxation lowers federal tax revenue significantly. According to the Office of Management and Budget, the federal government missed out on over $170 billion in income tax revenue and another $108 billion in payroll tax revenue in fiscal year 2012 due to the exclusion.1 Over the next five fiscal years, the federal government would collect around $1 trillion in income tax revenue if employer-provided health benefits were taxed, plus another $600 billion payroll tax revenue. Given the large deficits that the federal government continues to accumulate, this exclusion is a tempting source of new revenue. But closing this loophole would also mean a significant tax increase on all working Americans that currently receive health insurance from their employer.
Aug 21, 2013
Amid the recent debates about federal tax policy fairness, we critically compare various
measures of tax progressivity and the methodology used to estimate their value with empirical
data. First, we propose criteria for properly measuring tax progressivity and apply them to
these measures. Next, we propose criteria for evaluating the process of estimating these
measures with data on the distribution of income earned and taxes paid. Last, we examine
these various methods of measuring tax progressivity using an example dataset to reveal the
differences in tax-progressivity values produced by these various progressivity measures. The
analysis as a whole identifies a superior progressivity measure and estimation methodology
that can be applied to a more comprehensive set of income and tax-burden distribution data to
reveal a consistent and accurate measure of federal tax policy progressivity. This index is
capable of producing testable claims on the degree of progressivity, where these test results can
edify the normative federal tax policy debate.