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.
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.
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.
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.
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.
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