Evaluating U.S. Tax Reform Options & Trade-Offs

The economic crisis caused by the coronavirus pandemic poses a triple challenge for tax policy in the United States. Lawmakers are tasked with crafting a policy response that will accelerate the economic recovery, reduce the mounting deficit, and protect the most vulnerable.

To assist lawmakers in navigating the challenge, and to help the American public understand the tax changes being proposed, the Tax Foundation’s Center for Federal Tax Policy modeled how 70 potential changes to the tax code would affect the U.S. economy, distribution of the tax burden, and federal revenue.

In tax policy there is an ever-present trade-off among how much revenue a tax will raise, who bears the burden of a tax, and what impact a tax will have on economic growth. Armed with the information in our new book, Options for Reforming America’s Tax Code 2.0, policymakers can debate the relative merits and trade-offs of each option to improve the tax code in a post-pandemic world.

 

One Big Beautiful Bill Pros Cons
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The Good, the Bad, and the Ugly in the One Big Beautiful Bill Act

The One Big Beautiful Bill Act makes many of the individual tax cuts and reforms of the TCJA permanent. It improves upon the TCJA by making expensing for R&D and equipment permanent. However, for the most part, it does not include further structural reforms, and instead introduces many new, narrow tax breaks to the code, adding complexity and raising revenue costs.

7 min read
State Implications of the GILTI to NCTI Conversion The One, Big, Beautiful Bill’s (OBBB) changes to the taxation of international income
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State Implications of the GILTI to NCTI Conversion

The One Big Beautiful Bill’s changes to the taxation of international income have surprising implications for state codes, yielding tax increases and a revised tax base that, through quirks of state incorporation, bears very little resemblance to the federal base and almost nothing of its purpose.

10 min read
European Digital Services Taxes DST State of Play
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Digital Services Taxes State of Play

Policymakers continue to debate international tax rules after the US gained agreement on a new approach at the G7 that could result in US anti-avoidance policies existing side-by-side with the global minimum tax.

4 min read
No Tax on Social Security vs. Proposed $4,000 Senior Bonus Senior Tax Deduction One Big Beautiful Bill Act OBBB
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How Does the Additional Senior Deduction Compare to No Tax on Social Security?

The increased senior deduction with the phaseout would deliver a larger tax cut to lower-middle- and middle-income taxpayers compared to exempting all Social Security benefits from income taxation and would not weaken the trust funds as much. But given the temporary nature of the policy, it would increase the deficit-impact of the reconciliation bills without boosting long-run economic growth.

3 min read
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Short Form

Taxes and the Road to Revolution: A Brief Overview

Independence Day is notable for its insistence not just on light taxation, but more importantly on taxation being subject to the consent of the governed through a representative form of government.

4 min read
qbai exemption, one big beautiful bill, fdii and gilti
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A Partial Defense of the QBAI Exclusion

Lawmakers should consider maintaining QBAI and applying the several billion dollars from the Senate’s change toward other pro-growth international tax reforms instead.

6 min read