Your SlideShare is downloading. ×
0
Mercatus Tax Lecture
Mercatus Tax Lecture
Mercatus Tax Lecture
Mercatus Tax Lecture
Mercatus Tax Lecture
Mercatus Tax Lecture
Mercatus Tax Lecture
Mercatus Tax Lecture
Mercatus Tax Lecture
Mercatus Tax Lecture
Mercatus Tax Lecture
Mercatus Tax Lecture
Mercatus Tax Lecture
Mercatus Tax Lecture
Mercatus Tax Lecture
Mercatus Tax Lecture
Mercatus Tax Lecture
Mercatus Tax Lecture
Mercatus Tax Lecture
Mercatus Tax Lecture
Mercatus Tax Lecture
Mercatus Tax Lecture
Mercatus Tax Lecture
Mercatus Tax Lecture
Mercatus Tax Lecture
Mercatus Tax Lecture
Mercatus Tax Lecture
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

Mercatus Tax Lecture

547

Published on

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
547
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
2
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  1. Principles of Tax Reform Dr. Jason J. Fichtner Senior Research Fellow Mercatus Center April 19, 2011
  2. Total Outlays and Revenues 2
  3. Congressional Budget Office - Budget Surplus/Deficit Source: Congressional Budget Office 3
  4. Federal Revenues by Fiscal YearSource: CBO 4
  5. Taxes – What you don’t know can cost you $$$ 5
  6. How do we evaluate tax policy?Why is tax policy important?What are the main tools used to evaluate tax policy? Estimates of Macroeconomic Effects Revenue Tables Tax Distribution TablesHow do we evaluate tax policies? Efficiency, Simplicity (Complexity), Equity (Fairness)What is Fairness?Horizontal versus Vertical Equity Generational EquityPoint of Payment versus IncidenceDirect vs. Indirect TaxesImportance of Marginal Rates vs. Effective RatesInclusive Rate vs. Exclusive Rate (23% NRST vs. 30%)What is the tax base? Wider base and lower rates more efficientSocial policy – tax expenditures versus government programsTaxes distort behaviorOnly PEOPLE can pay taxes!!! 6
  7. What is a Distribution Table?Example of Basic Distribution Table - Effective Tax Rate Average Tax Change Change in Federal Taxes Income Category Present Law Proposed Law $ (millions) Percent Percent Percent $Less than $10,000 -20 -0.2 7.1 7.0 -30010,000 to 20,000 -365 -1.0 8.1 8.0 -40020,000 to 30,000 -1,300 -1.5 15.2 15.0 -50030,000 to 40,000 -2,150 -1.9 17.6 17.3 -75040,000 to 50,000 -2,750 -2.1 19.3 18.9 -1,10050,000 to 75,000 -7,200 -2.3 21.2 20.7 -1,50075,000 to 100,000 -6,600 -2.4 23.9 23.2 -2,000100,000 to 200,000 -8,100 -2.2 26.2 25.5 -3,500200,000 and over -13,500 -3.1 29.2 27.6 -5,000Total, all taxpayers -$41,985 -2.4% 22.2% 21.5% -$650 7
  8. Why Are Distribution Tables Important to Tax Policy DebatesGraphics: (1) Wall Street Journal, 10/05/00 & (2) New York Times, 1/14/03 8
  9. How Inclusion/Omission of Data Can Lead to Different Perceptions of Fairness Slide 1 9
  10. How Inclusion/Omission of Data Can Lead to Different Perceptions of Fairness Slide 2 10
  11. How Inclusion/Omission of Data Can Lead to Different Perceptions of Fairness Slide 3 11
  12. Distribution of Tax Burden Percentage of Federal Personal Income Tax Paid by Different 100 % 86.34% 97.30% 90 % 80 % 69.94% 70 % 58.72% 60 % 50 % 38.02 % 40 % 30 % 20 % 10 % 2.70% Top Top Top Top Top Bottom 1% 5% 10% 25% 50% 50%Source: Department of the Treasury, Internal Revenue Service 12
  13. Percentage of Federal Personal Income Tax Paid by Ranked AGI Percentiles Percentage of FederalPercentiles Ranked Adjusted Gross Income Personal Income Tax Percentage of Federal by AGI Threshold on Percentiles Paid Adjusted Gross Income Top 1% $380,354 38.02% 20.00% Top 5% $159,619 58.72% 34.73% Top 10% $113,799 69.94% 45.77% Top 25% $67,280 86.34% 67.38% Top 50% $33,048 97.30% 87.25% Bottom 50% < $33,048 2.70% 12.75%Source: IRS (Tax Year 2008) 13
  14. Distribution of Tax Burden Tax Shares by AGI: 2000 and 2005 100% 90% 86.0% 84.0% Tax Year 2000 80% Tax Year 2005 70.3% 70% 67.3% 59.7% 60% 56.5% 50% 39.4% 40% 37.4% 30% 20% 10% 3.9% 3.1% 0% Bottom 50 percent Top 25 percent Top 10 percent Top 5 percent Top 1 percentSource: Department of the Treasury, Internal Revenue Service 14
  15. Distribution of Tax Burden: Current 100 Policy Baseline Law 80 70.2 60 Percent offederal 40taxes paid 18.5 20 8.5 0.4 2.4 0 Lowest Quintile Second Quintile Third Quintile Fourth Quintile Highest Quintile Source: President’s Advisory Panel On Tax Reform, Staff Presentation, July 20, 2005 - Department of the Treasury, Office of Tax Analysis Note: Estimates of 2006 law at 2004 income levels. 15
  16. Distribution of Tax Burden: 100 Flat Tax Proposals Flat Tax 80 Modified Flat Tax 71.7 69.0 Modified Flat Tax with top tax expenditures 64.0 60 Percentof federal 40taxes paid 21.0 18.7 17.6 20 10.5 9.2 8.1 3.7 2.6 2.1 0.7 0.3 0.3 0 Lowest Quintile Second Quintile Third Quintile Fourth Quintile Highest Quintile Source: President’s Advisory Panel On Tax Reform, Staff Presentation, July 20, 2005 - Department of the Treasury, Office of Tax Analysis Note: Estimates of 2006 law at 2004 income levels. 16
  17. Distributional analysis: National Sales 100 Tax with Prebate Current law 80 Sales tax with prebate 70.2 69.3 60 40 Percentof federal 18.5 21.0taxes paid 20 8.5 10.1 0.4 2.4 2.0 0 -2.5 Second Quintile Third Quintile Fourth Quintile Highest Quintile -20 Lowest Quintile Source: President’s Advisory Panel On Tax Reform, Staff Presentation, July 20, 2005 - Department of the Treasury, Office of Tax Analysis Note: Estimates of 2006 law at 2004 income levels. 17
  18. How the “Design” of Tax Policy Can Influence Results & Bias DebateDifferent Measures of Income AGI v. FEIVariables to Include / Exclude Tax Cut Amount, Change in Effective Tax Rate, Change in After-tax Income, Change in Taxes Paid, Tax SharesRates vs. BaseAssumptions of Tax IncidenceTax ExpendituresWhat’s the One Key Thing to Remember? 18
  19. Tax Expenditures• The tax expenditure budget comprises the estimated revenue losses attributable to various exclusions, exemptions, deductions, nonrefundable credits, deferrals, and preferential rates in the tax code.• These provisions reduce the income tax liabilities of individuals or businesses that undertake certain types of activities. For instance, people who donate to charities often deduct their donations on their tax returns and thus reduce their income tax.• Tax expenditures operate essentially like direct expenditures, even though they appear as tax breaks. They benefit hundreds of different types of activities and individuals and currently account for one-fourth to one-third of all benefits and subsidies granted to the public. 19
  20. Tax Expenditures• The Congressional Budget Act of 1974 requires that the budget include estimates for tax expenditures, but only for those provisions that affect the federal income taxes of individuals and corporations. The government could, but does not, formulate tax expenditure budgets for Social Security and other taxes.• Both the Office of Tax Analysis in the Treasury Department and the congressional Joint Committee on Taxation (JCT) estimate tax expenditures; the items that each includes and the estimated values are generally similar but do not always match.• The Office of Management and Budget (OMB) publishes the Treasury’s estimates in its Analytical Perspectives volume that accompanies each year’s publication of the Budget of the U.S. Government. Each year JCT issues estimates covering the current and four subsequent fiscal years. 20
  21. Tax ExpendituresMajor forms of tax expenditures• Tax expenditures may take any of the following forms: 1. Exclusions, exemptions, and deductions, which reduce taxable income; 2. Preferential tax rates, which apply lower rates to part or all of a taxpayer’s income; 3. Credits, which are subtracted from taxes as ordinarily computed; 4. Deferrals of tax, which result from delayed recognition of income or from allowing in the current year deductions that are properly attributable to a future year. 21
  22. http://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/spec.pdf 22
  23. Count of Tax Expenditures, 1985-2009 250 200 150 Count 100 50 0 YearSource: Authors calculations derived from the Joint Committee on Taxation annual pamphlets on tax expenditures, Estimates of Federal TaxExpenditures for Fiscal Years (1985 - 2009), various years 23
  24. Combined Top 10 Individual & Top 10 Corporate Tax Expenditures, 1975-2014 (Nominal dollars) 4000 3500 Total Amount (Billions of Dollars) 3000 2500 2000 1500 1000 500 0 1975-1979 1980-1984 1985-1989 1990-1994 1995-1999 2000-2004 2005-2009 2010-2014 Years (Five Year Intervals)Source: Authors calculations derived from Tables 1-8 Section IV of the Joint Committee on Taxation, “Background Information On Tax Expenditure Analysis AndHistorical Survey Of Tax Expenditure Estimates”, (JCX-15-11), February 28, 2011 24
  25. Principles to Keep in Mind -> Incentives MatterPerceived unfairness promotes system abuseHigh tax rates encourage avoidance andevasion.Bad tax systems chase investors awayGood tax systems attract investors and jobs 25
  26. Principles to Keep in Mind ->Tax reform should fix the problem!Policy positions should be based on clearlyarticulated principlesThe validity of each decision should be checkedagainst these principlesLong term solutions are superior to short term fixesThe best results come from fixing everything at thesame time.What’s the One Key Thing to Remember? 26
  27. Any Questions??? 27

×