In honor of April 15, read the latest from our Economic Studies scholars on taxes and the Tax Cuts and Jobs Act (TCJA).
On taxes in general:
1. Most Americans support increasing taxes on the rich
Isabel Sawhill and Chris Pulliam find that while public opinion toward specific tax proposals varies, most Americans are in favor of increasing taxes on the wealthy and corporations. However, average federal tax rates on the top one percent have remained stable since 1979, reflecting the trend of elected officials being more responsive to economic elites and business interests than to the average citizen.
2. The U.S. gas tax is one-sixteenth the size of the petroleum tax in other G7 countries
In 12 framing facts from his new book, “Fiscal Therapy,” William Gale outlines a plan for a carbon tax that would make us a leader in combating climate change while providing assistance to workers affected by subsequent declines in the coal industry. Check out Gilbert E. Metcalf’s recent Brookings Papers on Economic Activity paper for more details on the potential impacts of a carbon tax on emissions and the economy.
3. 1 out of every 6 dollars owed in federal taxes goes unpaid
Tax evasion—the act of not paying taxes that are owed, either deliberately or unintentionally—amounts to about three-quarters of the annual federal budget deficit. As William Gale and Aaron Krupkin describe, evasion is most prevalent for income taxes, and can be combatted with administrative design that reduces the reporting burden on individuals.
4. The US is the only OECD country without a value-added tax (VAT)
Isabel Sawhill and Chris Pulliam recommend implementing a VAT (the equivalent of a national sales tax, with specific provisions to ensure fairness) in order to raise revenue in a transparent, simple fashion.
5. The income tax system consolidates and simplifies access to and administration of social programs
While the tax system is undeniably complicated, William Gale argues that by offering “one-stop shopping” for citizens to access a wide range of public programs, the income tax actually makes life simpler than it could be.
6. The growth of the gig economy is making tax compliance more difficult for the average worker
An Urban-Brookings Tax Policy Center conference addressed what we know about the gig economy and considered ways the tax system should adapt.
On the Tax Cuts and Jobs Act (TCJA):
7. The TCJA improves the revenue code in some ways, but falls short on economic growth, fiscal sustainability, and distributional effects
William Gale explains that while the TCJA will simplify tax filing and create some new investment incentives, it will have a negligible impact on economic growth, increase deficits, and increase income inequality.
8. The TCJA increases the overall financial burden on lower- and middle-income households
Because tax cuts are typically paid for with offsetting decreases in government spending, their full effect cannot be understood by calculating changes in tax burdens alone. Adding financing into the equation, William Gale finds that the TCJA will raise the net burden on the bottom 60 percent of households, while reducing the burden on the top 40 percent of households.
9. The TCJA significantly reduced total tax revenues in 2018
While policymakers hoped that the tax cut would “pay for itself” by spurring economic growth, William Gale and Aaron Krupkin show that 2018 revenues fell short of predictions, mostly due to reductions in corporate and personal income tax revenue.
10. AOC wants to raise tax rates on high earners as high as 60 or 70 percent—but the TCJA already did
Adam Looney explains a poorly understood aspect of the bill which subjects executive pay in excess of $1 million to both state and federal corporate taxes, affecting around 18,000 employees and expected to raise about $1 billion per year.