Tax Policy

Tax Policy

Research

Jason J. Fichtner, Adam Michel | Jan 29, 2015
The tax code is often manipulated by arbitrarily shortening depreciation timelines through accelerated depreciation or bonus expensing. As a solution to the current inequity and inefficiency of depreciation policies, this paper advocates full expensing. Expensing incentivizes investment by allowing businesses to write off all expenditures in the year they occur, resulting in a zero effective tax rate on equity-financed capital.
Cecil Bohanon | Jul 01, 2014
How have federal personal income tax obligations evolved over the past 60 years? A common perception is that the federal income tax burden on the poor has increased while the tax burden on the rich has declined. This study focuses on three archetypical households.
Jason J. Fichtner, Jacob Feldman | Jun 19, 2014
The $69 billion mortgage interest deduction (MID) is often viewed as an element of the tax code that promotes middle-class prosperity. However, 64 percent of the benefits, as measured by effective tax reduction, goes to households earning more than $100,000 per year. The large variation in nominal benefits is one of the reasons why many economists state that the MID is regressive.
Christopher Coyne, Lotta Moberg | May 16, 2014
The governments of American states often attempt to incentivize businesses to locate within their borders by offering targeted benefits to particular industries and companies. These benefits come in many forms, including business tax credits for investments, property tax abatements, and reductions in the sales tax. Despite good intentions, policymakers often overlook the unseen and unintended negative consequences of targeted-benefit policies. This paper analyzes two major downsides of these policies: (1) they lead to a misallocation of resources, and (2) they encourage rent-seeking and thus cronyism. We argue that these costs, which are often longer-term and not readily observable at the time the targeted benefits are granted, may very well outweigh any possible short-term economic benefits.
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.

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

Apr 15, 2015

The current state of entrepreneurship is receiving considerable attention as debate simmers around questions of business dynamism in the United States. According to a Gallup article, the U.S. has dropped to 12th among developed nations in terms of business startups. Economists also recently found evidence for this downward trend in business activity and attribute it to diminished incentives for entrepreneurs to start new firms.
Apr 14, 2015

Genuine income tax reform would lower tax rates, reduce double taxation of income that is saved and invested, and cut out loopholes that tilt the playing field in favor of politically connected interest groups. In this vein, we should get rid of deductions that let taxpayers write off state and local income taxes. I’m all for people keeping more of their income, but this exemption actually leads to bad policy by state and local government.
Apr 13, 2015

Taxes are obviously on everybody's mind this time of year, which makes it the perfect time to ask where — or to whom — all our money is going. First things first: In 2014, the government collected roughly $3 trillion. It spent $3.5 trillion. In other words, it had to borrow $500 billion to pay for all the spending on top of the taxes collected.
Apr 07, 2015

It's tax season again, and all across the country, taxpayers and tax accountants are feeling the effects of filing a return or an extension so they don't end up on the wrong side of the IRS, get audited or, worse, get put in prison. It's never easy, but this year is even more painful than ever.
Mar 16, 2015

Federal spending on transportation infrastructure is a perfect example of partisan disagreement, unfortunately, neither side is asking a more fundamental question: Should the federal government be involved at all?
Mar 02, 2015

Taxing junk food not only doesn't work, but also directs attention away from useful solutions to the problem of unhealthy eating. The solution to large-scale public health issues in the United States is not simple, but we need to understand why those in poverty are making unhealthy choices. Policymakers must switch from a regulation mentality to an empowering mentality. Only after finding ways to integrate good choices into the daily lives of our fellow citizens can we see lasting change.

Charts

Revenues from the gas tax are dedicated to the federal Highway Trust Fund for spending on highway and transit projects. But this revenue, along with the revenue from other smaller dedicated taxes, hasn’t been enough to cover the annual amounts authorized by Congress in recent years, forcing policymakers to transfer more than $60 billion from general funds to the Highway Trust Fund since 2008.

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 and a nationally syndicated columnist. Her primary research interests include the U.S. 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 director for 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 director for 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

Veronique de Rugy | April 15, 2015
The existing tax code creates numerous problems for American families. Veronique de Rugy outlines taxation issues in this interview with CBS Radio and discusses opportunities for tax reform.

Recent Events

Please join us for lunch with Mercatus Center Senior Research Fellow Jason Fichtner to discuss pro-growth policy options. He’ll also address the research and ideas Mercatus shares with policymakers in order to advance the debate on economic issues.

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

Jason J. Fichtner | Jul 24, 2014
This excerpt originally appeared in FOX Business.
Jason J. Fichtner | Jul 17, 2014
This excerpt originally appeared in FOX Business.
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.
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