Erica York is Senior Economist and Research Manager with Tax Foundation’s Center for Federal Tax Policy. She previously worked as an auditor at a large community bank in Kansas and interned at Tax Foundation’s Center for State Tax Policy.
Her analysis has been featured in The Wall Street Journal, The Washington Post, Politico, and other national and international media outlets. She holds a master’s degree in Economics from Wichita State University and an undergraduate degree in Business Administration and Economics from Sterling (KS) College, where she is currently an adjunct professor. Erica lives in Kansas with her husband and their two children.
Taxes present one policy tool available to ease the impending liquidity crunch brought on by the coronavirus crisis, which policymakers are already pursuing by postponing the tax payment deadline and waiving interest and penalties.
The bill, the Families First Coronavirus Response Act, would expand federal medical leave, create an emergency paid sick leave requirement, and provide tax credits against employer-side payroll taxes to help offset the cost of these two programs, among other provisions.
Joe Biden and Bernie Sanders have each proposed changes to the individual income tax, one of the largest sources of federal revenue. Our new analysis compares the economic, revenue, and distributional effects of the various proposals.
As policymakers evaluate changes to the tax code, such as proposals coming from presidential candidates and the White House, it will be important for them to evaluate the relative effects of various provisions. According to our analysis, making full expensing permanent would be one of the most efficient ways to increase after-tax incomes for the middle class.
The latest IRS data shows that the U.S. individual income tax continues to be very progressive, borne primarily by the highest income earners. The top 1 percent of taxpayers pay a 26.8 percent average individual income tax rate, which is more than six times higher than taxpayers in the bottom 50 percent (4.0 percent).
2020 Democratic presidential candidates have proposed various changes to the corporate income tax, which includes increasing the rate, ranging from 25 percent to 35 percent, imposing a corporate surtax or a minimum tax, and lengthening depreciation schedules.
Making 100 percent bonus depreciation permanent avoids the uncertainty associated with the phaseout of a powerful pro-growth policy and would provide a cost-effective boost to long-run economic output, wages, and employment in the United States.
The “Real Deal” would increase the tax burden on saving, investing, and working in the United States, and reduce the global competitiveness of the U.S. economy.
Full expensing is one of the most powerful pro-growth policies in terms of revenue forgone. Given that structures comprise a large share of the private capital stock, improving their tax treatment would end a large bias against investment in the tax code.
Even two years after enactment of the federal Tax Cuts and Jobs Act (TCJA), many states have yet to issue guidance explaining how they conform to key provisions of the law, particularly those pertaining to international income.
Investments in worker training and education can increase productivity and economic output as growth in human capital accumulates, though the time horizon for these effects is longer than that of physical capital accumulation.
Understanding the channel through which a tax policy change is expected to affect the economy is crucial. Absent this understanding, we are likely to reach the wrong conclusions on what sound tax policy looks like and what changes would improve the tax code.
Taken together, these proposed tax changes would significantly raise marginal and effective tax rates and increase the cost of capital, all of which would lead to a reduced level of output and less revenue than anticipated.
