Taxes, Fiscal Policy, and Inflation
Consumer prices rose by 7 percent in 2021, the highest annual rate of inflation since 1982. Where did this inflation come from and what might its impacts be? Tax and fiscal policy offer important clues.
5 min readConsumer prices rose by 7 percent in 2021, the highest annual rate of inflation since 1982. Where did this inflation come from and what might its impacts be? Tax and fiscal policy offer important clues.
5 min readLow-skilled workers have been the hardest hit by the pandemic-induced economic slowdown. When deciding on bonus depreciation, which is currently set to expire in 2026, policymakers should remember that disadvantaged workers would be the most likely to benefit from making it permanent.
2 min readWhile taxes are not at the root of supply chain disruptions, improvements to the tax code could make supply chains more resilient in the future.
3 min readWhile President Biden has many proposals aimed at increasing the supply of affordable housing, including tax credits, his plans to raise business taxes could hinder that goal.
4 min readTackling climate change and shifting the economy towards renewable energy has been a key part of the Biden administration’s agenda. However, this effort must first confront an overly complicated and non-neutral tax code, particularly in how it treats nuclear energy, for the White House to reach its ambitious goals.
6 min readThe ideal treatment is to match the tax code to a firm’s cash flow—allow immediate deductions for all expenses, including all forms of investment, while taxing the resulting returns from the investments.
4 min readThree upcoming tax law changes scheduled by the 2017 Tax Cuts and Jobs Act (TCJA) to help offset its revenue losses would be canceled by proposed legislation that would prevent the tax treatment of investment from worsening over the coming years.
4 min readLast week, an analysis by Reuters suggested that U.S. firms pay less income tax than foreign competitors, in part because “the U.S. tax code is unusually generous with tax breaks and deductions,” also known as corporate tax expenditures. However, the Reuters analysis is at odds with other data and studies indicating that U.S. corporate tax expenditures and effective tax rates are about on par with those in peer countries in the OECD.
3 min readWhile parts of the U.S. tax code can handle inflation, full expensing of capital investment would be a major improvement along these lines.
5 min readThe Biden administration has suggested several tax increases for his infrastructure plan. Public infrastructure can help increase economic growth, but by raising taxes on private investment, the net effect on growth may be negative. However, tax options like retaining expensing for private R&D investment or making 100 percent bonus depreciation for equipment permanent would be complementary to the goals of infrastructure spending.
5 min readThe negative effects of President Biden’s proposed 28 percent corporate income tax rate could be tempered by improving how the corporate income tax base treats investment expenses.
4 min readIf the U.S. is suggesting a 15 percent effective rate as the minimum acceptable rate for a global agreement, then the tax bases of the various minimum taxes adopted as part of the agreement should be aligned to minimize complexities and unintended consequences.
5 min readWhile much of the tax policy now under debate aims to increase the tax burden on businesses, several policies in the newly released Republican Study Committee (RSC) budget for Fiscal Year 2022 focus on reducing the tax code’s barriers to investment and saving.
3 min readThis week the Australian government released its latest budget proposal and two policies that stand out in its fiscal response to the pandemic should be helpful as the economic engine of the country turns back on. The first is full expensing for some investments and the second is the introduction of a loss carryback provision. The new budget takes both these temporary policies and extends them into 2023.
2 min readThere’s a useful contrast between two revenue options related to President Biden’s infrastructure push. The president’s American Jobs Plan includes a proposal to raise the corporate tax rate to 28 percent. Meanwhile, historically, the gas tax is the main revenue source for transportation funding.
8 min readAs policymakers consider tax options to boost the U.S. economy’s long-run economic growth, they should consider reforms that would increase growth the most while minimizing forgone tax revenue.
4 min readTo help countries face the pandemic-related financing needs while reducing inequality, the International Monetary Fund (IMF) has released a series of policy recommendations based on a temporary COVID-19 tax, levied on high incomes or wealth.
4 min readAs part of the 2021 Budget, the UK introduced a 130 percent super-deduction for plant and equipment for the next two years, meaning that businesses can take a deduction amounting to 130 percent of the costs in the year the investment is made.
4 min readThe ongoing pandemic has once again highlighted the importance of investment. To address the economic fallout of the pandemic, several OECD countries have temporarily accelerated depreciation schedules for various assets.
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