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.

Options for Reforming America’s Tax Code 2.0

Trade-offs of Expanding Individual Tax Credits While Repealing SALT Deduction

June 24, 2021

Expanding the generosity of tax credits for lower-income individuals can help make the tax code more progressive, but it also reduces federal revenue. Pairing a credit expansion with a tax offset may sustain federal revenue but can also hamper economic growth.

Who Bears the Burden of Corporation Taxation? A Review of Recent Evidence

June 10, 2021

The Biden administration has pledged to not raise taxes on anyone earning less than $400,000 a year. However, the administration’s corporate tax proposals would likely violate that pledge, given that corporations are comprised of people who also might earn less than $400,000.

Broad-Based Taxes on Consumption and User Fees Are Efficient Ways to Raise Federal Revenue for Infrastructure

June 10, 2021

Rather than relying on damaging corporate tax hikes, policymakers should consider user fees and consumption taxes as options for financing new infrastructure to ensure that a compromise does not end up being a net negative for the U.S. economy.

A Closer Look at Eliminating the AMT

June 8, 2021

In our new Options for Reforming America's Tax Code 2.0, there are several options that would simplify the tax code, including eliminating the alternative minimum tax (AMT). While this move would remove a source of complexity, policymakers should also consider reforming the deductions that created a justification for the AMT in the first place.

Closer Look at Option to Restructure EITC/CTC to Help Low-Income Households

June 1, 2021

We take a closer look at the most extensive of these proposals: restructuring the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) based on the Family Security Act proposed by Sen. Mitt Romney (R-UT) in February.

Repealing Tariffs Would Be a Simple Option to Boost U.S. Economic Growth

June 1, 2021

Of the many tax policies modeled in our new Options for Reforming America’s Tax Code 2.0, repealing the tariffs imposed under President Trump’s administration would be one of the simplest ways policymakers could boost economic growth.

Evaluating Options to Help Low-Income Households

May 4, 2021

While strong economic growth—fueled by higher levels of investment, productivity, and jobs—will lift after-tax incomes over time, policies that provide relief by immediately boosting after-tax incomes of lower-income households are also available. As lawmakers consider such policies, they should keep in mind the trade-offs among them.

Reviewing Options to Raise Tax Revenue and the Trade-offs for Economic Growth and Progressivity

May 3, 2021

There’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.

Providing Full Cost Recovery for Investment and Lowering Taxes on Firms Are Best Options for Boosting Growth

April 27, 2021

As 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.

Comparing the Trade-offs of Carbon Taxes and Corporate Income Taxes

April 23, 2021

President Biden’s choice to fund new spending programs with increased corporate taxes comes with trade-offs for American output and incomes.

Raising the Corporate Rate to 28 Percent Reduces GDP by $720 Billion Over Ten Years

April 21, 2021

The Options guide presents the economic effects we estimate would occur in the long term, or 20 to 30 years from now, but we can also use our model to show the cumulative effects of the policy change—providing more context, for instance, about how the effects of a higher corporate income tax rate compound over time, which we estimate would reduce GDP by a cumulative $720 billion over the next 10 years.

Trade-offs of Expanding Individual Tax Credits While Repealing SALT Deduction

June 24, 2021

Expanding the generosity of tax credits for lower-income individuals can help make the tax code more progressive, but it also reduces federal revenue. Pairing a credit expansion with a tax offset may sustain federal revenue but can also hamper economic growth.

Broad-Based Taxes on Consumption and User Fees Are Efficient Ways to Raise Federal Revenue for Infrastructure

June 10, 2021

Rather than relying on damaging corporate tax hikes, policymakers should consider user fees and consumption taxes as options for financing new infrastructure to ensure that a compromise does not end up being a net negative for the U.S. economy.

Repealing Tariffs Would Be a Simple Option to Boost U.S. Economic Growth

June 1, 2021

Of the many tax policies modeled in our new Options for Reforming America’s Tax Code 2.0, repealing the tariffs imposed under President Trump’s administration would be one of the simplest ways policymakers could boost economic growth.

Evaluating Options to Help Low-Income Households

May 4, 2021

While strong economic growth—fueled by higher levels of investment, productivity, and jobs—will lift after-tax incomes over time, policies that provide relief by immediately boosting after-tax incomes of lower-income households are also available. As lawmakers consider such policies, they should keep in mind the trade-offs among them.

Reviewing Options to Raise Tax Revenue and the Trade-offs for Economic Growth and Progressivity

May 3, 2021

There’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.

Providing Full Cost Recovery for Investment and Lowering Taxes on Firms Are Best Options for Boosting Growth

April 27, 2021

As 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.

Comparing the Trade-offs of Carbon Taxes and Corporate Income Taxes

April 23, 2021

President Biden’s choice to fund new spending programs with increased corporate taxes comes with trade-offs for American output and incomes.

Raising the Corporate Rate to 28 Percent Reduces GDP by $720 Billion Over Ten Years

April 21, 2021

The Options guide presents the economic effects we estimate would occur in the long term, or 20 to 30 years from now, but we can also use our model to show the cumulative effects of the policy change—providing more context, for instance, about how the effects of a higher corporate income tax rate compound over time, which we estimate would reduce GDP by a cumulative $720 billion over the next 10 years.

Trade-offs of Expanding Individual Tax Credits While Repealing SALT Deduction

June 24, 2021

Expanding the generosity of tax credits for lower-income individuals can help make the tax code more progressive, but it also reduces federal revenue. Pairing a credit expansion with a tax offset may sustain federal revenue but can also hamper economic growth.

Broad-Based Taxes on Consumption and User Fees Are Efficient Ways to Raise Federal Revenue for Infrastructure

June 10, 2021

Rather than relying on damaging corporate tax hikes, policymakers should consider user fees and consumption taxes as options for financing new infrastructure to ensure that a compromise does not end up being a net negative for the U.S. economy.

Evaluating Options to Help Low-Income Households

May 4, 2021

While strong economic growth—fueled by higher levels of investment, productivity, and jobs—will lift after-tax incomes over time, policies that provide relief by immediately boosting after-tax incomes of lower-income households are also available. As lawmakers consider such policies, they should keep in mind the trade-offs among them.

Reviewing Options to Raise Tax Revenue and the Trade-offs for Economic Growth and Progressivity

May 3, 2021

There’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.

Comparing the Trade-offs of Carbon Taxes and Corporate Income Taxes

April 23, 2021

President Biden’s choice to fund new spending programs with increased corporate taxes comes with trade-offs for American output and incomes.

Trade-offs of Expanding Individual Tax Credits While Repealing SALT Deduction

June 24, 2021

Expanding the generosity of tax credits for lower-income individuals can help make the tax code more progressive, but it also reduces federal revenue. Pairing a credit expansion with a tax offset may sustain federal revenue but can also hamper economic growth.

Who Bears the Burden of Corporation Taxation? A Review of Recent Evidence

June 10, 2021

The Biden administration has pledged to not raise taxes on anyone earning less than $400,000 a year. However, the administration’s corporate tax proposals would likely violate that pledge, given that corporations are comprised of people who also might earn less than $400,000.

A Closer Look at Eliminating the AMT

June 8, 2021

In our new Options for Reforming America's Tax Code 2.0, there are several options that would simplify the tax code, including eliminating the alternative minimum tax (AMT). While this move would remove a source of complexity, policymakers should also consider reforming the deductions that created a justification for the AMT in the first place.

Closer Look at Option to Restructure EITC/CTC to Help Low-Income Households

June 1, 2021

We take a closer look at the most extensive of these proposals: restructuring the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) based on the Family Security Act proposed by Sen. Mitt Romney (R-UT) in February.

Evaluating Options to Help Low-Income Households

May 4, 2021

While strong economic growth—fueled by higher levels of investment, productivity, and jobs—will lift after-tax incomes over time, policies that provide relief by immediately boosting after-tax incomes of lower-income households are also available. As lawmakers consider such policies, they should keep in mind the trade-offs among them.

Reviewing Options to Raise Tax Revenue and the Trade-offs for Economic Growth and Progressivity

May 3, 2021

There’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.

Comparing the Trade-offs of Carbon Taxes and Corporate Income Taxes

April 23, 2021

President Biden’s choice to fund new spending programs with increased corporate taxes comes with trade-offs for American output and incomes.