The Tax Policy Blog

November 18, 2014

Today, Japanese Prime Minister Shinzo Abe announced a delay in the implementation of the second phase of his own tax hike plan, seeking a mandate for his decision by calling for snap elections in December.

Back in April, Japan’s VAT increased from 5 to 8 percent in the first of two planned sales tax hikes orchestrated by Prime Minister Abe as part of his three-pronged economic reform plan, widely termed “Abenomics.”...

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November 18, 2014

MIT Economist Jonathan Gruber, an architect of the Affordable Care Act, has been in the news lately for several comments on the design of the health care bill. One such story includes some remarks on the Cadillac Tax, a tax levied on employer-provided health plans. Gruber believes it was an important step towards...

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November 18, 2014

The top 20 percent of taxpayers pay a disproportionate share of federal income taxes and total federal taxes, according to a new report by the Congressional Budget Office on the distribution of household income and federal taxes. (For an overview, see here.)

The report finds that the top 20 percent of households earn 52 percent of income...

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November 18, 2014

Last week, the Center for Budget and Policy Priorities released a report arguing that bonus depreciation should remain expired. They base this on three main claims:

  • Bonus depreciation was a temporary stimulus and should be allowed to expire
  • Allowing bonus depreciation to continue is an overly-generous subsidy for business investment
  • It does not align with the goals of tax reform

The CBPP’...

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November 18, 2014

Economic growth has hovered around 2 percent in recent years. One reason for the slow growth is that saving and investment have been declining in the U.S. for nearly a half century. Both are crucial to the economy.

Investment is important, because it provides American workers with the means to be more productive. Saving is important, because it provides the money needed for investment, which explains the...

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November 17, 2014

This week, the CBO released its estimate of the distribution of household income and federal taxes. This report measures both average household income and average federal tax burden by income quintile in 2011.

There are many important parts to this report, but the main feature of this report is its estimation of the distribution of household income and federal taxes....

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November 17, 2014

Household incomes have stagnated in recent years. From 1980 to 2000, when the economy was growing at a higher rate, real household income increased from $47,668 to $56,800, where it peaked. But since 2000, and after two recessions, median household income in the United States has declined. In 2013, median household income was $51,939, the lowest it has been since 1995.

...

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November 17, 2014

Milton Friedman once said that “nothing is more permanent than a temporary government program.” However, it turns out that nothing may be as permanent as a temporary tax increase, either. According to a new report from the Urban Institute, many of the temporary taxes created to fill state budget gaps...

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November 14, 2014

The economy is growing modestly again, in spite of several increases in taxes on saving and investment since 2012. This has led some people to believe that taxing investment does not matter. In fact, the recession knocked the economy back to a lower-than-optimal starting point, and the subsequent tax increases are making it impossible to recapture lost ground. The level of GDP should be much higher at this stage of the recovery. Looking only at the positive movement in GDP while failing to...

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November 14, 2014

The global financial crisis impacted the U.S. labor force. The U.S. employment-to-population ratio, which reflects the number of working-age individuals who are employed, declined from 63 percent in 2007 to about 58 percent in 2009, the largest decline in the past 50 years.

Even as the economy has slowly recovered, the labor market has not. The employment-to-population ratio remains below 60 percent, levels we have not seen since the late 1970s and early 1980s.

...

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November 13, 2014

The global financial crisis dramatically harmed the U.S. economy, reducing overall output by $455 billion in real terms.

Typically after recessions, the economy quickly recovers. However, this recovery has not been quick. While the U.S. economy has been growing for the past couple of years, it has been slow—too slow to fully recover from the crisis.

In fact, the Congressional Budget Office (CBO) projects that the U.S. economy will permanently remain below the pre-recession...

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November 12, 2014

Since 2000, GDP growth in the U.S. has been persistently low, averaging about 2 percent. This is much lower than the economic growth we saw in the past.

Between 1970 and 2000, GDP growth averaged above 3 percent. In fact, in multiple years throughout 1970s, 1980s, and 1990s, the economy grew at rates above 4 percent.

The recent trend toward slower growth in the U.S. is troubling, but its a trend that better economic policy can reverse.

...

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November 11, 2014

Americans often look at businesses impersonally. We think of them as lifeless entities that earn profits and don’t do much else. When we think of businesses this way, it becomes very easy to think that business taxes are somehow different than other taxes.

But the reality is that businesses are simply groups of people; they are workers, consumers, and shareholders. This means that when we tax businesses, we actually tax people; workers through lower wages, consumers through higher...

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November 10, 2014

One of the biggest issues with today’s tax code is that a lot of economic activity is taxed more than once. The most obvious instance is with corporate income.

Corporate income is taxed at the entity level then again at the shareholder level. This is due to the fact that the tax system treats shareholders and the corporation as separate entities. Even if the United States lowered its corporate income tax rate to 25 percent, the combined tax on corporate income would be high.

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November 10, 2014

Some of the most heated debate over taxes focuses on a single feature of the tax code: the top marginal rate. Some people argue that the top marginal rate on income is an important feature in the incentives to work and invest. Others argue that the top bracket of the income tax is a key source of revenue for public priorities. Both arguments are fair.

In 2012, a deal was passed that increased the top marginal rate from 35% to 39.6%. In order to illustrate the effects of the top...

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