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 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.
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.
May 20, 2013
The tax code, far beyond simply collecting revenue to fund the operations of the federal government, attempts to perform policy and political functions as well. This paper does not examine the normative value of these provisions, but instead examines the hidden costs of today’s tax code: time and money spent submitting tax forms, foregone economic growth, lobbying expenditures, and gaps in revenue collection. These problems grow larger as the Internal Revenue Code becomes more complicated and temporary. Based on the studies reviewed in this paper, we estimate that hidden costs range from $215 billion to $987 billion and that the tax code results in a $452 billion revenue gap in unreported taxes. The economic costs are substantial relative to the $2.45 trillion in revenues raised by the federal government in 2012.
Mar 26, 2013
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.