Papers

Taxation is an enduring focus of economic policy debates. This book presents a series of policy options, authored by leading tax experts and backed by rigorous analysis, to increase federal revenue in ways that are both efficient and equitable. The policies include better tax enforcement, improved, corporate taxation, increased taxation of wealth, and taxes on some transactions. 

How the government raises tax revenue has critical implications for economic prosperity. Moss, Nunn, and Shambaugh provide a framework for assessing various tax policies and their implications for growth and inequality.

One driver of high inequality and low intergenerational mobility is the inefficient and inequitable way that inheritances are currently taxed. In this proposal, Lily Batchelder describes reforms that would raise revenue and put inherited income on a more level playing field with income earned from work.  

The United States has high levels of income and wealth inequality, in part because of shortcomings in how we tax concentrated income and wealth. To raise revenue and more effectively tax income from wealth, Greg Leiserson explores several key design considerations and discusses four potential approaches to wealth taxation. 

The federal government requires more funding to sustain economic growth and opportunity, and raising such funds may require new sources of tax revenue. In this proposal, Antonio Weiss and Laura Kawano propose a financial transaction tax that would raise substantial revenue (largely from high earners) without hindering market functioning. 

Retirement and health-care commitments necessitate steadily rising spending at a time when the federal government is already missing other opportunities to make valuable public investments. William Gale proposes a value-added tax—paired with a refundable credit to all households—in order to raise revenue in an efficient and progressive manner. 

A proposal by Kimberly Clausing offers near-term and fundamental reforms to improve the taxation of multinational companies. Formulary apportionment would raise substantial new revenue without harming U.S. competitiveness.  

A proposal by Jason Furman offers several reforms to the corporate tax code to improve the tax base and increase tax rates. This combination makes it possible to increase growth, well-being, and revenue.  

In the coming decades, federal spending will need to grow just to enable the government to continue to provide the services it does today. Natasha Sarin, Lawrence Summers, and Joe Kupferberg propose a suite of tax reforms that will raise revenue by broadening the tax base and strengthening tax enforcement. 

Interacting with the criminal justice system is an expensive proposition. Its reliance on bail to encourage return after pretrial release, on fines to punish and provide restitution, and on fees to fund the system implies that an individual’s economic means may determine how burdensome any interaction is. These nine economic facts characterize the current use of monetary sanctions in the criminal justice system, highlighting the economic and social costs that they pose to defendants and society.

In this paper Michael Makowsky of Clemson University describes how the reliance of local governments on fees, fines, and asset forfeiture for revenue generation shapes law enforcement activities. Makowsky proposes a set of reforms that would decouple the revenue collection from the public safety objectives of law enforcement. Breaking this link would realign the criminal justice system with its traditional public safety goals.

There is broad agreement about the importance of transportation infrastructure, but disagreement about the goals of transportation policy and the appropriate means to achieve these goals. In this paper, Matthew Turner of Brown University examines the current state of U.S. infrastructure and discusses different reforms that focus on improving both access to opportunity and the efficiency of the highway and bus transit systems.

The $700 billion U.S. intergovernmental grant system is often poorly targeted to areas that are struggling. Tracy Gordon proposes reforms to Medicaid and other programs that would make federal aid to states more targeted toward struggling areas and more responsive to economic shocks.   

For a century, the progress our nation made toward realizing broadly shared economic growth gave our economy much of its unparalleled strength. However, for the last several decades, that progress has seemed to stall. On critical measures such as household income, poverty, employment rates, and life expectancy, there exist yawning persistent gaps between the best- and worst-performing communities. These conditions demand a reconsideration of place-based policies. The evidence-based proposals contained in this volume can help restore the conditions of inclusive growth that make it possible for individuals from any part of the country to benefit from economic opportunity.

Over the past few decades there have been troubling indications that dynamism and competition in the U.S. economy have declined. Markets are more concentrated than they were a few decades ago, and entrepreneurship is less common, with both the number and employment share of new firms well below the levels of previous decades. Carefully assessing these trends as they relate to public policy is necessary to achieving a more competitive, productive economy that generates broadly shared growth.

State business incentives tilt the economic playing field in favor of large, incumbent firms and thereby discourage economic dynamism. However, basic collective action problems prevent any state from unilaterally eliminating these incentives, as businesses would migrate to states that continued to provide incentives. Chatterji proposes a federal Main Street Fund that would encourage states to redirect incentive payments towards initiatives that support new businesses and economic dynamism. These initiatives include management training for new entrepreneurs, increased occupational licensing reciprocity, investment in broadband infrastructure, and customized initiatives to support the creation and success of new businesses.

Ordinarily, the progressive income tax system acts to mitigate differences in before-tax earnings. However, the tax treatment of married couples tends to raise the tax rate faced by the spouse who is the lower earner in a couple. This group of spouses, often referred to as secondary earners, is still predominantly female. Consequently, the current tax treatment of married couples reduces wives’ labor force participation and creates other inefficiencies. LaLumia proposes a new second-earner deduction equal to 15 percent of the earnings of a lower-earning spouse. The proposed deduction would raise the after-tax return to work for many wives, encouraging an increase in married women’s labor supply, and would reduce marriage penalties on average.

The United States has an enviable entrepreneurial culture and a track record of building new companies.Yet women and minority entrepreneurs often face even greater obstacles. In this discussion paper, Michael Barr calls for an expanded State Small Business Credit Initiative and an enlarged and permanent New Markets Tax Credit to encourage private sector investment in new and small businesses.

In this policy memo, Hilary Hoynes proposes expanding the Earned Income Tax Credit (EITC) by raising the benefits for families with one child to be on par with the benefits for families with two children. This proposal aims to strengthen work incentives for low-income, one-child families; raise 410,000 people—including 131,000 children—out of poverty; and increase after-tax income by about $1,000 for one-child EITC beneficiaries, leading to improvements in health and children’s cognitive skills. This proposal is chapter eleven of The Hamilton Project’s Policies to Address Poverty in America, and a segment in Improving Safety Net and Work Support.

In this policy memo, James P. Ziliak proposes converting the federal Child and Dependent Care Credit from a nonrefundable tax credit to a refundable one, capping eligibility at $70,000 and making the credit a progressive function of income, child age, and use of licensed care facilities. This proposal, targeted at low- and middle-income families with children under the age of twelve, aims to increase labor force participation, disposable income, and the use of higher-quality child care. This proposal is chapter ten of The Hamilton Project’s Policies to Address Poverty in America, and a segment in Improving Safety Net and Work Support.

The current tax system hampers low- and middle-income families who add secondary earners to the workforce to augment their primary breadwinner’s income. In a new Hamilton Project discussion paper, Melissa Kearney and Lesley Turner propose a secondary earner tax deduction that would help make work pay for dual-earner families.

Creating a value-added tax (VAT) in the United States could raise revenue in a manner that does not distort saving and investment choices. William Gale and Ben Harris consider how a VAT could be designed to help address the nation’s fiscal challenges.

Adele Morris proposes a carbon tax as a new source of revenue that could also help address climate change. She suggests that a carbon tax would reduce the buildup of greenhouse gasses, replace command-and-control regulations and expensive subsidies with transparent and powerful market-based incentives, and promote economic activity through reduced regulatory burden and lower marginal tax rates.

Diane Lim’s approach to individual income tax expenditures would raise revenue more efficiently and progressively by reducing tax expenditures, limiting potential negative impacts on subsidized sectors by preserving certain tax incentives, and equalizing implicit subsidies across middle- and higher-income taxpayers.

Karen Dynan examines the design of government incentives for personal savings, outlining how reforms to these programs would improve saving and economic security for low-income households and reduce expensive and ineffective federal subsidies for high-income households.

Limiting subsidies for fossil fuels could raise revenue for the federal government while also benefiting the environment. Joseph Aldy proposes eliminating twelve subsidies to help level the playing field among fossil fuel producers relative to other businesses, and lead to potentially lower global fuel prices by providing the United States with increased leverage in negotiations over eliminating fossil fuel subsides in the developing world.

Tax reform discussions often center on tax expenditures. Alan Viard proposes to replace the mortgage interest deduction with a refundable credit as a way to reduce the artificial incentive for the construction of high-end homes by better targeting the tax breaks for housing.

As policymakers work to find solutions to reduce the federal budget deficit, The Hamilton Project presents 15 pragmatic, evidenced-based proposals that would both reduce the deficit and also bring broader economic benefits from leading experts from a variety of backgrounds.

Cindy Williams proposes measures for sustaining a strong military while reducing future annual defense expenditures, mainly through addressing growing internal costs in the defense budget and reshaping military forces in a way that reduces future budgets while preserving strong and ready military capabilities.

The federal budget deficit is still the nation’s major economic focus. In this month’s employment analysis, The Hamilton Project explores the potential impacts of enacted budget cuts, including the looming sequester, on America’s economic well-being. The Project finds that smart deficit reduction will require creative thinking about which budget areas can be made more efficient without damaging programs that are essential to promoting economic growth.

This week, lawmakers passed the American Taxpayer Relief Act to avoid much of the near-term drag on the economy that could have been triggered by the tax increases and spending cuts in the so-called fiscal cliff. In this month’s employment analysis, The Hamilton Project explores the projected effects of the bill on economic growth and the long-run budget deficit. The Project finds that the immediate budgetary effects of the bill are a positive step, but the debt-to-GDP level will continue to rise and lawmakers face more work in the months ahead.

The Hamilton Project examines the relationship between government spending and unemployment, finding that states that spent more during the Great Recession experienced a smaller increase in their unemployment rate.

To provide an economic context for tax reform, The Hamilton Project has a set of economic facts focusing on the role of our tax system in the long-run budget deficit, global competitiveness, and rising income inequality.

As tax time approaches, one focus of debate has been the progressivity of the U.S. tax code. Evidence shows that the current U.S. tax system is less progressive than the tax systems of other industrialized countries, and considerably less progressive today than it was just a few decades ago.

A popular tax myth is that a large segment of Americans do not pay taxes and instead free ride off of our society. The Hamilton Project explores this myth and finds that virtually all Americans will pay some form of tax during their lifetime.

The U.S. corporate tax system introduced more than 100 years ago has not kept pace with changes to the economy. The growing role of financial innovation and the increasingly global nature of U.S. corporate operations are chief among these changes, necessitating reform. This paper proposes two reforms to the U.S. corporate tax system.

Akash Deep and Robert Z. Lawrence propose an affordable federal instrument that could mitigate the adverse impact of tax-revenue shocks on communities by allowing them to buy tax-base insurance.

This paper proposes increasing the return to work for low-income families through the expansion the earned income tax credit for low-income childless taxpayers and the creation of a targeted wage subsidy in certain economically depressed areas.

This paper describes a carbon tax swap that is revenue and distributionally neutral. The tax swap levies a tax on greenhouse gas emissions with revenue being used to fund a reduction in the income tax, tied to earned income.

This paper argues that the current system of taxing multinational firms generates tax distortions. It proposes a new system that would protect the U.S. tax base while alleviating problems created by the current system.

The dynamic forces of technological change, financial innovation, and globalization present new challenges for progressive taxation. This strategy paper offers several broad principles that reflect the new challenges facing our tax system in the 21st Century.

Lily Batchelder proposes replacing the estate tax with an inheritance tax. She argues that this tax would lower taxes on heirs receiving smaller inheritances and those with moderate incomes.

In this paper, Edward D. Kleinbard introduces the Business Enterprise Income Tax (BEIT), a proposal for reforming business income taxation. He argues that the BEIT would achieve comprehensive and consistent taxation of capital income.

In this paper, Austan Goolsbee proposes phasing in a simple program known as the "Simple Return," that would allow the U.S. government to take advantage of the country’s information technology gains to lighten the tax compliance burden on an estimated 40 percent of American taxpayers.