Social Security is by far the largest federal government spending program, constituting 21 percent of the federal budget, or $1.3 trillion, in FY 2023—larger than the entire nondefense discretionary budget. The latest trustees report shows the program is on a fiscally unsustainable path that will exacerbate the US debt crisis if its imbalances are not addressed in the near term. By 2035, the Old-Age, Survivors, and Disability Insurance (OASDI) Trust Fund will be depleted, and current payroll taxes will only be able to fund 83 percent of the scheduled Social Security benefits. Absent any reforms, Social Security recipients would immediately face a 17 percent cut in benefits.
New IRS data shows the US federal income tax system continues to be progressive as high-income taxpayers pay the highest average income tax rates. Average tax rates for all income groups remain lower after the Tax Cuts and Jobs Act (TCJA).
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By 2036, more than one out of every four dollars raised in total government revenue will go to pay interest on the debt.
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.
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With changes to payroll taxes likely to be part of a toolkit for reform, both policymakers and the public would benefit from understanding how the payroll tax works, who pays it, and its impact on the economy.
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As policymakers consider reforms to the individual income tax, understanding the types of income that make up the individual income tax base can help them understand the trade-offs of different changes to the tax system.
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Scandinavian countries are well known for their broad social safety nets and their public funding of services such as universal health care, higher education, parental leave, and child and elderly care. High levels of government spending naturally require high levels of taxation. So, how do these countries raise their tax revenues?
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The US fiscal trajectory is on an unsustainable path over the next 35 years, regardless of whether the IEEPA tariffs are struck down or maintained.
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President Donald Trump’s fixation on tariffs as a solution for just about everything, including the deficit, has led him to run roughshod over the law and norms of international trade.
While the OBBBA brings some stability by making many of the TCJA’s reforms permanent, it generally fails to reform the tax code’s accumulating complexity.
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Our experts explain how this major tax legislation may affect you and how policymakers can better improve the tax code.
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Short FormWhen you hear about tax policy, you may think of the IRS, the agency responsible for collecting federal taxes. But who is responsible for drafting, reviewing, assessing, and passing tax legislation at the federal level?
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What happens when the country’s most important retirement program runs out of money? Social Security faces a funding crisis by 2035. We unpack how the system works, why it’s in trouble, and what fixes could keep it afloat.
President Trump has repeatedly floated the idea of entirely replacing the federal income tax with new tariffs. Recently, he has said that when tariff revenues come in, he will use them to replace or substantially cut income taxes for people making under $200,000.
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Given the poor state of the budget process and worsening debt trajectory, lawmakers should move boldly and quickly to address the issue, including via a fiscal commission process. Issues to consider should include reforms to both spending and taxes.
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If lawmakers are serious about pro-growth policies and fiscal responsibility, they will need to put policies forward that achieve those goals. Simply adjusting the baseline doesn’t reduce actual deficits in the coming years.
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New IRS data shows the US federal income tax system continues to be progressive as high-income taxpayers pay the highest average income tax rates. Average tax rates for all income groups remain lower after the Tax Cuts and Jobs Act (TCJA).
6 min read
The Social Security trust funds face looming insolvency if policymakers don’t reform the program. One issue that garners a lot of attention in the debate over solutions is the payroll tax cap.
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Fiscal pressures are likely to weigh heavily on lawmakers as they craft a tax reform package. That increased pressure could result in well-designed tax reform that prioritizes economic growth, simplicity, and stability, or it could encourage budget gimmicks and economically harmful offsets. Lawmakers should avoid the latter.
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We estimate Trump’s proposed tariffs and partial retaliation from all trading partners would together offset more than two-thirds of the long-run economic benefit of his proposed tax cuts.
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While federal tax collections—especially corporate taxes—have reached historically high levels, these gains have not kept pace with escalating spending, particularly on debt interest, leading to a substantial and concerning budget deficit in FY24.
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