Tax Policy

Tax Policy

Research

George H. K. Wang | Mar 26, 2014
This paper discusses arguments for and against a securities transaction tax (STT) and evaluates the pros and cons based on a review of empirical evidence concerning the impact of STTs on equity and futures markets (i.e., trading volume, bid-ask spreads, and price volatility) and market efficiency in various countries. I find that an STT would likely reduce trading volume and increase trading cost, but may not reduce price volatility. The size of potential STT revenue depends on the STT’s impact on market activity. A sizable STT on futures and equity markets would not only fail to generate the expected tax revenue, it would also likely hurt the international competitiveness of US equity and futures markets.
Laurence Kotlikoff | 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.
Jeremy Horpedahl, Harrison Searles | 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 reduce efficiency.
Jeremy Horpedahl, Harrison Searles | 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.
Michael D. Stroup, Keith Hubbard | 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.
Bruce Yandle | Jun 17, 2013
The US economy is creating new wealth and growing employment, albeit at a slow pace. But uncertainty is the key word that describes the economic situation at mid-2013. There are major unknowns with respect to Fed policy, taxing and spending, the effects of Obamacare on employment, the implementation of Dodd-Frank financial reform, regulatory policy affecting the production of electricity, and the prospects for Europe’s recovery from an extended recession. Add to this pallid picture reductions in growth in China, India, and the developing world taking some of the edge off the global boom, which, in spite of that growth haircut, is still tugging away on America’s export growth.

Testimony & Comments

Research Summaries & Toolkits

| Sep 24, 2013
The Mercatus State Policy Guide is intended to summarize and condense the best research available on the most relevant topics. It’s a starting point for discussion, not a comprehensive overview of economic policy. Each statement is supported by academic research, with links provided in the endnotes. Mercatus scholars are available to further explain the results of their studies. We hope the guide will prove to be a valuable tool in your economic policy research.
| Jul 23, 2013
The Mercatus Policy Guide is intended to summarize and condense the best research available on the most pressing topics. It serves as a starting point for discussion, not a comprehensive overview of economic policy. Anyone who wants to go deeper into these studies should consult the references listed at the back. Mercatus scholars are available to further explain the results of their studies. We hope the guide will prove to be a valuable tool in your evaluation of economic policy.
Veronique de Rugy, Jason J. Fichtner, Charles Blahous, Matthew Mitchell | Mar 15, 2013
Despite years without a federal budget, trillion-dollar deficits, and ad hoc, crisis-driven fiscal and economic policies that failed to deal with the looming entitlement crisis, leaders on both sides in Washington are now touting seemingly miraculous progress toward a “fix” to our budgetary woes.
Jason J. Fichtner, Veronique de Rugy | Jan 25, 2013
The debt ceiling, or the legal limit the federal government may borrow, is set currently at $16.4 trillion.[1] In his latest report, Secretary of the Treasury Timothy Geithner predicts that the United States will need to increase the debt ceiling sometime between February 15, 2013, and early March 2013.[2] The Congressional Research Service estimates the federal government will have to issue an additional $700 billion in debt above the current statutory limit to finance obligations for the remainder of FY2013…
| Feb 13, 2012
This policy brief takes a look at the president's FY2013 budget proposal and emphasizes the need for fundamental reform in the areas of spending, taxes, and the budget process.
| Nov 2011
A new working paper, “Why the United States Needs to Restructure the Corporate Income Tax,” by Mercatus Center at George Mason University senior scholar Jason Fichtner suggests successful reform of the U.S. corporate tax code must address its fundamental problems: 1) the uncompetitive corporate income tax rate; and 2) the outdated “worldwide” system for corporate tax collection.

Expert Commentary

Feb 13, 2014

The Internal Revenue Service has been in some hot water lately for allegedly targeting political enemies. In 2013, it was revealed that the federal tax agency systematically hassled and unfairly scrutinized nonprofit organizations applying for tax-exempt status, simply on the basis of their names or assumed political leanings.
Sep 24, 2013

On June 7, the Senate Banking Committee voted to back Fred Hochberg’s second term as president of the U.S. Export-Import Bank without bothering to ask the Obama administration about the future of that expensive, inefficient New Deal–era agency. The vote, in which 28 Republicans joined 54 Democrats in supporting Hochberg, was not a good sign for anyone hoping that the GOP’s latest promises of fiscal restraint would prove more trustworthy than all the broken promises before.
By Nita Ghei |
Aug 23, 2013

The latest volley in a low-level trade war is the Commerce Department’s recent announcement of tariffs on imported shrimp, affecting imports worth $3.5 billion. While the taxes are levied on foreign producers ostensibly to offset “harm” to domestic producers, findings that importers “dumped” their products are dubious. The imposition of countervailing duties are ultimately a tax on American consumers, who suffer from the inevitable result: higher prices and fewer options in the marketplace.
Aug 07, 2013

Spending on monthly Social Security disability insurance payments is exploding as the number of recipients has skyrocketed in the last 30 years, even though medical advances during the same period allow many more people to remain on the job longer than ever before.
Aug 05, 2013

As back-to-school shopping gets under way, many states are offering shoppers a sales-tax-free weekend in an attempt to help consumers and retailers alike. However, researchers at the Mercatus Center at George Mason University have found that the tax holidays do little to help the economy and allow government officials to favor some business and industries over others.
Aug 04, 2013

Doctors routinely advise patients to avoid a wide range of unhealthy behavior, such as smoking, excessive alcohol consumption, a poor diet, and lack of exercise. Beyond these salutary suggestions, however, there is also a growing paternalistic trend to prohibit activities like smoking—and through targeted taxation, governments are taking aim at food deemed unhealthy for having too much fat, preservatives, salt, or sugar.

Charts

This week’s charts use data from the Congressional Budget Office and Internal Revenue Service to display average estimated federal tax burdens in 2010 and EITC trends from 1975 to 2010. The data show that, contrary to popular belief, federal tax burdens are quite low—and sometimes negative—for the lowest quintiles of the income distribution. Trends in EITC spending and beneficiaries over the past four decades shed more light on the program’s growing prominence.

Experts

Antony Davies is a Mercatus Center–affiliated senior scholar at George Mason University and associate professor of economics at Duquesne University. He also is a member of the Research Program on Forecasting at George Washington University. He specializes in econometrics, public policy, and economic psychology.
Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University. Her primary research interests include the US economy, the federal budget, homeland security, taxation, tax competition, and financial privacy. Her popular weekly charts, published by the Mercatus Center, address economic issues ranging from lessons on creating sustainable economic growth to the implications of government tax and fiscal policies. She has testified numerous times in front of Congress on the effects of fiscal stimulus, debt and deficits, and regulation on the economy.
Jason J. Fichtner is a senior research fellow at the Mercatus Center at George Mason University. His research focuses on Social Security, federal tax policy, federal budget policy, retirement security, and policy proposals to increase saving and investment.
Matthew Mitchell is a senior research fellow at the Mercatus Center at George Mason University, where he is the lead scholar on the Project for the Study of American Capitalism. He is also an adjunct professor of economics at Mason. In his writing and research, he specializes in economic freedom and economic growth, public-choice economics, and the economics of government favoritism toward particular businesses.
Eileen Norcross is a senior research fellow at the Mercatus Center at George Mason University. As lead researcher on the Mercatus Center’s State and Local Policy Project, she focuses on questions of public finance and how economic institutions support or hamper economic resiliency and civil society. She specializes in fiscal federalism and institutions, state and local governments and finance, pensions, public administration, and economic development.

Podcasts

Jason J. Fichtner | March 05, 2014
Jason Fichtner Discusses Tax Reform on NPR's On Point

Recent Events

This program is not about the accounting and legal particulars of tax law, but a broader look at the impact of tax policy on the economy.

Books

Jason J. Fichtner | Aug 27, 2012
This book shows not only what is wrong with the current federal spending plan, but ways to fix it. Business professionals and anyone interested in the government’s response the recession will find this an important book. Mercatus senior research fellow Jason Fichtner authored Chapter 5: “Three Approaches to Fostering Economic Competitiveness.”…

Media Clippings

Eileen Norcross | Aug 26, 2013
Eileen Norcross cited at Variety.
Jason Sorens, William Ruger | Aug 22, 2013
Freedom in the 50 States Project mentioned at Investor's Business Daily…
Vincent H. Smith | Jul 17, 2013
Farming, it turns out, is not so risky after all. Smith reports that the annual failure rate for farms is only 0.5 percent, compared to 7 percent for other businesses.
Veronique de Rugy | Jul 16, 2013
Mercatus Center Economist Veronique de Rugy found, “Between fiscal years 2007 and 2010, annual wind subsidies grew from $476 million to nearly $5 billion.”…
Tyler Cowen | Jul 09, 2013
Economist Tyler Cowen, who blogs at Marginal Revolution, worries that the program will suffer because it is most attractive to those who would provide the least into the system.
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