The Reality of Raising Taxes at the Top, Part 6: How to Raise Taxes at the Top Consistent with Economic Growth?

May 2, 2012 at 11:03 am

This blog series and our new report have shown that tax increases on high-income people of the magnitude under consideration would not change their behavior in ways that would hurt economic growth.  Moreover, the revenues from tax increases can reduce the deficit or fund investments that support growth.  So how should policymakers consider raising taxes at the top?

One way is to scale back inefficient tax expenditures.  Tax expenditures, such as the home-mortgage interest deduction, are essentially spending subsidies delivered through the tax code.  Any serious attempt to reform tax expenditures would affect high-income taxpayers, because they benefit more from the tax breaks than low- and moderate-income taxpayers do.

Broadening the tax base by reforming tax expenditures could increase the efficiency of the tax code by reducing opportunities for tax avoidance.  For that reason, we should aim for the broadest base and lowest rate possible to raise the revenues we need.  That doesn’t mean, however, that marginal rate increases for high-income taxpayers should be off the table, nor that the revenues generated by base broadening should be used to finance tax rate cuts.  In fact, the evidence should point policymakers to consider both base broadening and tax rate increases, because:

  • There’s a limit to how much tax expenditure reform is possible. Many of the tax breaks meet important needs or are politically difficult to reform.
  • Base broadening reduces opportunities for tax avoidance.  That, in turn, reduces the economic cost of additional tax rate increases.
  • The economic cost of unsustainable government debt is much higher than the cost of modestly raising taxes at the top to help reduce the deficit.
  • Fairness matters. Without rate increases, low- and moderate-income people would likely bear a greater share of the deficit reduction burden through deeper cuts to programs or tax expenditures that benefit them.

Put simply, tax increases on high-income taxpayers of the sort under consideration would not hinder — and could even bolster — economic growth. With this in mind, policymakers should aim for a balanced deficit reduction package that shares the load through a mix of tax increases and spending cuts.

Costly Tax Plan Advances in Kansas

May 1, 2012 at 4:21 pm

Kansas lawmakers are moving forward with a costly plan to make deep cuts to income taxes — with the biggest benefits going to wealthy individuals and profitable corporations — and to help pay for it with higher taxes on the working poor.  The plan also could very well lead to more cuts to an already underfunded school system.

The plan, which a House-Senate conference committee approved last week, would:

  • Make Kansas the first state in the nation to exempt all “pass-through” business income from an otherwise broad-based income tax.
Read more

The Reality of Raising Taxes at the Top, Part 5: Can Tax Increases Help Economic Growth?

May 1, 2012 at 9:44 am

In this blog series, and in our new report, we’ve considered how raising taxes at the top might affect economic growth.  We’ve found no convincing evidence that raising taxes at the levels that policymakers are considering would negatively affect high-income people’s reporting of taxable income, the amount they work, their saving and investment, the health of small businesses, or the rate of entrepreneurship.  But what if we look directly at the relationship between taxes on high-income people and growth?

Read more

An Easy Call on How to Pay for Student Loan Plan

April 30, 2012 at 3:38 pm

Policymakers across the political aisle agree that we should avoid the sharp increase in interest rates on student loans scheduled for July 1, but that consensus falls apart when it comes to how to pay for the proposal.

It shouldn’t.  This should be an easy call.

One option, which the House approved last week, would eliminate a fund that promotes preventive health care.  The other, much more sensible option (which the Senate will consider next week) would crack down on people who underreport their income to the IRS, thereby addressing a significant tax compliance problem that we have previously described.

Read more

Medicare Needs to Protect Social Security Numbers

April 30, 2012 at 2:15 pm

The Social Security Administration works hard to protect Social Security numbers (SSNs) from unauthorized use and thereby prevent identify theft.  The agency advises people to be careful about sharing their SSNs.  Moreover, it says, “DO NOT routinely carry your card or other documents that display your number.”

In recent years, both public and private institutions have curtailed their use of Social Security numbers.  SSNs no longer appear on driver’s licenses or college IDs.  Medicare, however, has not gotten the message.

I recently applied for Medicare.

Read more