Bryan Caplan and David Henderson

Tax Reform

A Category Archive (68 entries)

Alvin Rabushka's Triumph

Tax Reform
David Henderson
On Thursday I was up at the Hoover Institution to do the interview with Erin Ade of RT's BoomBust and I always use those chances to visit some of my favorite Hoover colleagues. One of them is Alvin Rabushka, who... MORE

Why no Kansas miracle?

Macroeconomics
Scott Sumner
The past two years Kansas reduced its state income tax rates. As a result, the top rate of income tax faced by Kansas residents (combined state and federal) rose from 41.45% in 2012 to 48.3% in 2013 and then fell... MORE

The correct reason to oppose high MTRs

Tax Reform
Scott Sumner
In a recent post I suggested that relatively high marginal tax rates on consumption of the ultra-rich might be justified as part of a tax reform package that abolished the personal income tax, and also abolished the corporate income tax,... MORE

Steve Moore's Alternative Maximum Tax

Taxation
David Henderson
Last week, I credited John Cochrane for his idea of the alternative maximum tax. I pointed out, though, that there was a basic problem with his having it apply to all levels of taxation: federal, state, and local. Then I... MORE

Jared Bernstein Gets Efficiency Wrong

Taxation
David Henderson
Jared Bernstein, formerly chief economist for Vice-President Joe Biden, argues for a measure that I agree with him on, but ends up arguing, on one criterion, against the measure. He doesn't know that this argument goes the other way, which... MORE

Tim Kane and Means-Testing

Behavioral Economics and Rationality
Bryan Caplan
Whenever an economist or libertarian opposes means-testing of Social Security and Medicare, I immediately ask: "So should we extend all currently means-tested programs to the entire population?"  Listeners often admit that it's a persuasive challenge.  At our last lunch, however,... MORE

How Would a Georgist Single Tax Work in Monopoly?

Economic Education
Bryan Caplan
Another fascinating aside from Larry White's The Clash of Economic Ideas (Kindle price just $23.40):Georgist theory was even the inspiration for the board game Monopoly.  The game's original creator called it "The Landlord Game" and intended it to illustrate the... MORE

Bruce Bartlett's Mistake

Taxation
David Henderson
I wrote on Friday: Bruce's bottom line may be right, but there's something fishy about these numbers. Start with the fact that the median income for the whole country is at or around the bottom end of this bracket. That... MORE

By keeping average taxes the same, while reducing marginal tax rates, it is possible to encourage people to earn and report more income. This is from Alan Reynolds, "Marginal Tax Rates," in the first edition of The Concise Encyclopedia of... MORE

Romney's Tax Cut

Taxation
David Henderson
There is a lot of controversy about Mitt Romney's proposal for cutting tax rates and broadening the tax base by limiting deductions and exemptions. I've discussed this here and here and Garett Jones highlighted Josh Barro's piece on it yesterday.... MORE

Feldstein and Rosen on Romney Tax Cut

Taxation
David Henderson
I posted recently about Brad DeLong's correct criticism of a Wall Street Journal op/ed by Martin Feldstein. In the op/ed, Marty claimed that under reasonable assumptions, the 20% cut in marginal tax rates that Romney proposes would be revenue-neutral for... MORE

My Review of Bruce Bartlett

Taxation
David Henderson
My review of Bruce Bartlett's latest book, The Benefit and the Burden: Tax Reform -- Why We Need It and What It Will Take is on-line. Two paragraphs from early in my review: Bartlett's bitterness about his firing has turned... MORE

A Search-Theoretic Critique of Georgism

Tax Reform
Bryan Caplan
Economist Henry George famously advocated a 100% (or near 100%) "Single Tax" on the unimproved value of land.  Many modern tax economists, most notably Joseph Stiglitz, conclude that George's logic was sound: Since the unimproved value of land is perfectly... MORE

One-Sentence Tax Reform

Tax Reform
Arnold Kling
Richard Green writes, Let's just start by designing a code that requires that as adjusted gross income rises, the effective tax rate may not fall. That way taxpayers would be able to look at their own effective rate, and know... MORE

He testifies, I have long thought that the Mortgage Interest Deduction is a residual of the 1913 tax code, accomplishes little that its supporters claim for it, pushes capital away from plant and equipment toward housing, and benefits high income... MORE

Nothing to the Rumor

Tax Reform
Arnold Kling
Herman Cain apparently has proposed a tax reform along lines I once suggested. I made the case from a public choice perspective that single-digit tax rates would reduce the incentive to lobby for tax breaks. Still, there is nothing to... MORE

Stop Coddling Warren Buffett

Income Distribution
Arnold Kling
He writes, Last year my federal tax bill -- the income tax I paid, as well as payroll taxes paid by me and on my behalf -- was $6,938,744. That sounds like a lot of money. But what I paid... MORE

Progressive Nudges for Household Savings

Behavioral Economics and Rationality
Arnold Kling
If I were a card-carrying progressive, I would not stoop to being a lapdog for Wall Street and the real estate industry, playing the violin for "affordable housing" and low-down-payment mortgages. True, if somebody buys a house with little money... MORE

Deficit Reduction and Tax Policy

Tax Reform
Arnold Kling
Mark Thoma writes, Why, for example, are tax cuts included in a proposal to reduce the national debt? That makes no sense at all except as an attempt to impose a particular ideology on the tax code. For decades, economists... MORE

Amar Bhide (WSJ, subscription) makes a good case that it is just corporate welfare. Big companies with large R&D budgets, unsurprisingly, favor the proposal. But it's a bad idea. Tax credits for R&D don't encourage the broad-based innovation that is... MORE

A Tax Increase I Can Support

Tax Reform
Arnold Kling
Getting rid of the mortgage interest deduction. Subsidizing mortgage indebtedness is not a good thing. I am not buying any "starve the beast" arguments. My personal starve-the-beast approach is to donate a lot of my income to charity. But the... MORE

The Commission, the Deficit, and the VAT

Fiscal Policy
Arnold Kling
Greg Mankiw writes, let's suppose that you are a conservative and you want the fiscal commission to succeed. You will have to agree to higher taxes as part of the bargain. But what should you aim to get in return?... MORE

Real Change in Domestic Policy

Fiscal Policy
Arnold Kling
From a web site put together by Congressman Paul Ryan, It is a real plan, with real proposals, real numbers to back them, and real legislation to implement it. Based on the analysis of government actuaries, this plan is projected... MORE

Biggs on Bracket Creep

Tax Reform
Arnold Kling
Andrew Biggs writes, If the tax cuts expire, income-tax revenues by 2018 will rise to 10.8% of the total economy from 8.7% today – an increase of 24%. Compared to the average over the last 50 years, allowing the rates... MORE

Almost all economists ridicule the notion that - at its current margin - the U.S. government can raise revenue by cutting taxes. Well, let me put forward a promising new candidate for a free lunch tax cut: Much lower taxes... MORE

Kotlikoff on the Fair Tax

Tax Reform
Arnold Kling
Laurence Kotlikoff writes, What if Mr. Megabucks sits and counts his money? With a direct wealth tax Mr. Megabucks pays $15 million immediately and is left with $50 million in purchasing power. Under the FairTax, Mr. Megabuck is in the... MORE

My Essay on the Fair Tax

Tax Reform
Arnold Kling
On my earlier post, commenter Morgan wrote, This is where the transparency of the sales tax is such a huge advantage. For the first time we can say, do you support this Bill at the cost of $.01 of sales... MORE

Why The Fair Tax is Unworkable

Tax Reform
Arnold Kling
Brad DeLong explains. Estimates of the actual rate of taxation required for the FairTax to be "revenue neutral" (meaning for it to bring in exactly the same amount of revenue that the federal government collects under the current system) start... MORE

A topic at lunch: How much tax revenue could the U.S. raise by imposing efficient Pigovian taxes on things with negative externalities? For starters, how much could be raised by taxing pollution, congestion, and violent and property crime to the... MORE

Taxes and Economics

Tax Reform
Arnold Kling
Alan Blinder gives a pretty good lesson. just remember one simple principle: If we tax Activity A at 15 percent and Activity B at 38 percent, a free-market economy will give us more A and less B. Some of this... MORE

The Default Path for Taxes

Tax Reform
Arnold Kling
Greg Mankiw points to a letter from the Congressional Budget Office which says that with no change in tax law we will be able to finance higher health care spending by the government. Greg writes, For the median married taxpayer... MORE

Malevolent Aspirations

Tax Reform
Bryan Caplan
As the Tick might say, this modest proposal from Reihan Salam is "just plain... plain wrong! And no-one should do it, ever!"[T]here is a way to sharply reduce immigration. It just so happens that most of us, on the right... MORE

Jason Furman on Taxes

Tax Reform
Arnold Kling
Jason Furman sent me an email that I think provides some good background on the economics of taxation. So let me welcome his "guest blog."... MORE

My Tax System

Tax Reform
Arnold Kling
Jason Furman chides me for not describing my ideal tax system. I once wrote, let me offer the Bleeding-Heart Libertarian approach to income redistribution. Conceptually, it would involve abolishing public education, all forms of free or subsidized health care, and... MORE

Answering Jason Furman

Tax Reform
Arnold Kling
He defends the corporate income tax. All taxes are ultimately paid by people. Just who those people are in the case of corporate taxes is a complicated and controversial question. But in almost any theory, those people are, on average,... MORE

Sense and Nonsense on Tax Reform

Tax Reform
Arnold Kling
Jason Furman, Larry Summers, and Jason Bordoff write We believe these principles should command wide assent as policymakers consider tax reforms, whether incremental or far-reaching: 1. Fiscal responsibility requires addressing both taxes and spending. 2. Rising inequality strengthens the case... MORE

Sounds Right to Me

Tax Reform
Arnold Kling
Ramesh Ponnuru writes, What they're saying is that, yes, expensive health plans would be taxed more [under the recent Bush health proposal]. But people would respond to the new policy by scaling back their health plans. Thus they’d avoid the... MORE

The Case Against Tax Breaks

Tax Reform
Arnold Kling
Maya MacGuineas writes, Most tax expenditures are really spending programs designed to look like tax cuts. Picture them as vouchers for healthcare, mortgage payments, daycare, transportation -- name the tax break. Dressing these programs up as tax cuts makes them... MORE

Explaining the AMT spike

Tax Reform
Arnold Kling
Joe Kristan has the story. Congress has fought the arithmetic with "temporary" increases in the AMT exemption. The 2006 exemption is set at $62,550 for joint filers and $42,500 for single taxpayers. Without further legislation, the exemption reverts in 2007... MORE

Alternative Minimum Tax Puzzle

Tax Reform
Arnold Kling
The graph in this Wall Street Journal piece shows a steep rise in the proportion of middle-income taxpayers who will be subject to the Alternative Minimum Tax. Greg Mankiw reproduces the graph. I could not think of a reason for... MORE

Why Do Sales Taxes Exist?

Tax Reform
Bryan Caplan
Mankiw's post on AMT reform reminds me of yet another simple challenge to the rational, selfish voter model: Since we can deduct state & local income and property taxes on our federal income tax, but not state & local sales... MORE

New Interview with Milton Friedman

Tax Reform
Arnold Kling
Russ Roberts is the interviewer. To listen, go here. To read a transcript, go here. I was struck by the following: But it's always been true that business is not a friend of a free market... the real problem here... MORE

Tax Reform

Tax Reform
Arnold Kling
Sebastian Mallaby writes, The same argument holds for tax incentives to buy health insurance. Just over a quarter of this subsidy is swallowed by households in the $100,000-plus bracket; far from promoting the wider dissemination of health insurance, it may... MORE

The Kotlikoff Budget Plan

Fiscal Policy
Arnold Kling
Laurence J. Kotlikoff writes, the U.S. government is, indeed, bankrupt, insofar as it will be unable to pay its creditors, who, in this context, are current and future generations to whom it has explicitly or implicitly promised future net payments... MORE

The Case for Tax Reform

Tax Reform
Arnold Kling
Politically, of course, it's dead in the water. But Andrew Chamberlain and Patrick Fleenor show why it makes economic sense. The current system requires six tax rates ranging from 10 percent to 35 percent to raise the $912 billion in... MORE

Hard Heads, Soft Hearts

Social Security
Arnold Kling
Niall Ferguson and Laurence J. Kotlikoff, writing in The New Republic (subscription required), propose to tackle the fiscal mess three ways. First, they suggest replacing existing Federal taxes (personal income, corporate income, payroll, and estate) with a consumption tax that... MORE

Learning vs. Persistent Mistakes

Tax Reform
Arnold Kling
Andrew Chamberlain writes thanks to arbitrage, rational people stand to profit when irrational people let prices and wages stray from efficient levels. That’s what justifies the economist’s assumption of rationality—a small number of rational profit-seekers keep markets rational as a... MORE

Taxes and Market Time

Tax Reform
Arnold Kling
Steven J. Davis and Magnus Henrekson write, Regressions on rich-country samples in the mid 1990s indicate that a unit standard deviation tax rate difference of 12.8 percentage points leads to 122 fewer market work hours per adult per year, a... MORE

Tax Breaks vs. Subsidies

Tax Reform
Arnold Kling
Edward Lotterman writes, When or why should government use direct payments versus tax breaks? The answers are more political than economic. One skeptic has argued, "Politicians and economists have a love-hate relationship with tax breaks. Politicians love them and economists... MORE

Complex System, Poorly Enforced

Tax Reform
Arnold Kling
Amar Bhide writes, India's financial difficulties stem from a badly designed and administered tax system. Rates and rules for personal and corporate income taxes appear reasonable by international standards. Nonetheless, India's government collects income taxes amounting to only about 3.7%... MORE

Single Tax Rate

Tax Reform
Arnold Kling
Alan Reynolds argues that many problems with tax systems go away if you use a single tax rate. First, a single tax rate makes it much easier to integrate business and individual taxes. Income originating in business (and used to... MORE

Tax Reform

Tax Reform
Arnold Kling
Bruce Bartlett writes, A federal VAT is the best way to raise net new revenue to pay for tax reform and deficit reduction at the same time. Thinking along similar lines, I write What I propose is that we adopt... MORE

Taxes and Social Security

Fiscal Policy
Arnold Kling
Laurence J. Kotlikoff proposes to replace the payroll tax with a sales tax. replacing the payroll tax with a sales tax is the same as (a) eliminating the payroll tax ceiling, (b) taxing wealth at the payroll tax rate, and... MORE

All Holes, No Cheese?

Tax Reform
Arnold Kling
Steven Pearlstein reports on your elected representatives at work this election year. Congress was unveiling the final details of a corporate tax bill so laden with subsidies, and so infused with government industrial policy, that any Eurocrat would be proud... MORE

Policy Specifics

Economics of Health Care
Arnold Kling
In my latest essay, I look at the specifics of the President Bush's economic proposals. Overall, I am afraid that the President's concept of the "ownership society" owes more to David Brooks than it does to Stephen Bainbridge. But the... MORE

Is Kerry Listening?

Tax Reform
Arnold Kling
Russell Roberts writes, The truth is that payroll taxes fund government spending generally. We ought to eliminate the ruse that payroll taxes fund social security, eliminate the payroll tax and roll it into the income tax. Then we could give... MORE

Hours Worked In the U.S. vs. Europe

Labor Market
Arnold Kling
The OECD looks at total hours worked in its member countries. The performance of US labour markets also looks quite strong when assessed in terms of hours worked per capita, a more comprehensive measure of “labour utilisation” than the employment... MORE

Welfare State Free Lunch?

Fiscal Policy
Arnold Kling
In his New York Times column last week, Jeffrey Madrick referred to the work of Peter Lindert on the ability of countries to grow in spite of welfare state distortions. Lindert's argument can be found in Why the Welfare State... MORE

Tax Simplification

Tax Reform
Arnold Kling
Bruce Bartlett writes that we have met the enemy and he is us. If people really want simplicity, it can be done. But my experience is that when push comes to shove, people would rather have complexity and keep whatever... MORE

Trade Deficit, Saving, and Tax Policy

International Macroeconomics: Exchange Rates, International Debt, etc.
Arnold Kling
I argue that our trade deficit is really a savings deficit. Increasing exports relative to imports is not a matter of beating up on China to live up to its commitments in the World Trade Organization. It is not a... MORE

Consumption Tax?

Tax Reform
Arnold Kling
Pejman Yousefzadeh makes the case for a consumption tax. A consumption tax such as the one contemplated by H.R. 25 and S. 1493 will reduce transaction costs to a minimum, eliminate the need for concerns about loopholes and exemptions, and... MORE

More Tax Day Thoughts

Tax Reform
Arnold Kling
Virginia Postrel writes, most Americans want the tax system to do three things: to be progressive, to treat households with the same incomes equally, and to treat all individuals with the same incomes equally, whether or not they're married. The... MORE

Tax Day Thoughts

Tax Reform
Arnold Kling
April 15th is an appropriate day to consider the complexity of the tax code. Here is a piece by Chris Edwards written in October of 2001 on the case for a consumption-based tax. The key factor that causes rising income... MORE

Impact of Dividend Tax Reform

Tax Reform
Arnold Kling
The users of housing rehabilitation tax credits believe that the Bush Administration proposal to eliminate double taxation of dividends will hurt their industry. Richard Moe writes, By allowing shareholders to receive tax-free dividends only on corporate profits that are fully... MORE

Economic vs. Non-economic Savings Incentives

Microeconomics
Arnold Kling
Hal Varian compares the potency of two types of incentives to save. One incentive is a tax break for savings. The other is a non-economic incentive, in which it becomes easier for an employee to sign up (or harder not... MORE

Consumption Taxation

Tax Reform
Arnold Kling
Writing in Slate, Tim Noah discusses consumption taxation, an idea for tax reform that goes back well over half a century. Lester Thurow, a liberal economist, made the case two decades ago for a consumption tax that would include a... MORE

Migratory Lucky Duckies

Income Distribution
Arnold Kling
One of the weaknesses of using income variation in a single year as a measure of the distribution of income is that people change income brackets over time. In general, the trend for any given household is upward, as households... MORE

Tax Reform Timidity

Public Choice Theory
Arnold Kling
The New York Times' Daniel Altman describes the state of the income tax code. Washington managed to hack through much of the underbrush of the tax code in an overhaul that President Ronald Reagan signed into law in 1986. But... MORE

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