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How Should Governments Use Revenue from Corrective Taxes? (Article)
Donald MarronAdele Morris

Corrective taxes can encourage healthier, safer, and less polluting behavior. But how should governments use their revenue? Options abound to cut other taxes, boost spending, or reduce borrowing. We organize those uses into four categories: offsetting new burdens, furthering the same goal, compensating people harmed by the taxed activity, or funding unrelated priorities. We illustrate them with examples including greenhouse gas emissions, unhealthy foods, financial transactions, tobacco, gasoline, and other products. We discuss the pros and cons of competing revenue uses and describe tradeoffs across their social benefits and political appeal.

Published: 01/29/16
Availability:   PDF

Financial Transaction Taxes: An Overview (Policy Briefs)
Leonard E. BurmanWilliam G. GaleSarah GaultBryan KimJim NunnsSteven Rosenthal

The massive financial market failures that led to the Great Recession have prompted renewed calls for a financial transaction tax (FTT) to discourage excessive risk taking and recoup the costs of the crisis. A well-designed FTT could raise up to about 0.4 percent of GDP ($75 billion in 2017) in the United States and would be quite progressive. We discuss design options and the effects of an FTT on various aspects of financial sector behavior and its ambiguous effects on economic efficiency.

Published: 01/20/16
Availability:   PDF

Taxation of Dependents Under the Income Tax (Article/Tax Facts)
Jim Nunns

This Tax Fact explores the taxation of dependents under the income tax.

Published: 01/04/16
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An Analysis of Donald Trump's Tax Plan (Research Report)
Leonard E. BurmanJim NunnsJeff RohalyJoseph Rosenberg

This paper analyzes presidential candidate Donald Trump’s tax proposal. His plan would significantly reduce marginal tax rates on individuals and businesses, increase standard deduction amounts to nearly four times current levels, and curtail many tax expenditures. His proposal would cut taxes at all income levels, although the largest benefits, in dollar and percentage terms, would go to the highest-income households. The plan would reduce federal revenues by $9.5 trillion over its first decade before accounting for added interest costs or considering macroeconomic feedback effects. The plan would improve incentives to work, save, and invest. However, unless it is accompanied by very large spending cuts, it could increase the national debt by nearly 80 percent of gross domestic product by 2036, offsetting some or all of the incentive effects of the tax cuts.

Published: 12/22/15
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Should We Tax Unhealthy Foods and Drinks? (Research Report)
Donald MarronMaeve GearingJohn Iselin

What we eat and drink can cause obesity, diabetes, hypertension, and other conditions. In response, many governments have enacted or are considering taxes on unhealthy food and drinks. This report evaluates the rationale behind such taxes; reviews evidence on their effects; analyzes different ways of structuring them; draws lessons from taxes on tobacco, alcohol, and carbon emissions; and offers a framework for assessing their benefits and costs. Taxing can influence what people eat and drink, but it is not a silver bullet. Governments must balance potential health gains against taxes’ limits and costs.

Published: 12/14/15
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Reforming the Child Tax Credit: How Different Proposals Change Who Benefits (Research Brief)
Elaine Maag

The federal child tax credit provides a credit of up to $1,000 per child under age 17; the refundable portion of the credit, which is crucial for low-income families, is limited to 15 percent of earnings above a defined threshold. That threshold is set to increase from $3,000 to almost $15,000 after 2017, which will dramatically reduce benefits for the lowest income families and eliminate benefits entirely for almost half of workers in the lowest fifth of the income distribution who have children. This brief analyzes the impact of extending current rules beyond 2017 along with other reforms that tend to benefit higher-income families.

Published: 12/09/15
Availability:   PDF

Options to Reform the Deduction for Home Mortgage Interest (Research Report)
Chenxi LuJoseph RosenbergEric Toder

Taxpayers can currently deduct interest on up to $1 million in acquisition debt used to buy, build, or improve their primary residence or a second designated residence. They can also deduct interest on up to $100,000 in home equity loans or other loans secured by their properties, regardless of the purpose of loans. This brief considers three proposals for restructuring the mortgage interest deduction: replacing the deduction with a 15 percent non-refundable interest credit, reducing the ceiling on debt eligible for an interest subsidy to $500,000, and combining the substitution of the credit for the deduction with the reduced limit on the interest subsidy.

Published: 12/08/15
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An Analysis of Governor Bush's Tax Plan (Research Report)
Leonard E. BurmanWilliam G. GaleJohn IselinJim NunnsJeff RohalyJoseph RosenbergRoberton Williams

This paper analyzes presidential candidate Jeb Bush’s tax proposal. It would reduce individual and business marginal tax rates, curtail tax expenditures, and convert the corporate income tax into a cash-flow consumption tax. The proposal would cut taxes at all income levels, reducing federal revenues by $6.8 trillion over its first decade before considering macro feedbacks. The plan would improve incentives to work, save, and invest, but unless accompanied by very large spending cuts, it could increase the national debt by as much as 50 percent of GDP by 2036, which would tend to put a drag on the economy.

Published: 12/08/15
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Taxing Carbon and Recycling the Revenue: Who Wins and Loses? (Article/Tax Facts)
Donald MarronEric ToderLydia Austin

This Tax Fact explores the distributional impact of taxing carbon dioxide to combat climate change and in recycling the revenues into tax cuts.

Published: 11/30/15
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Major Tax Issues in 2016 (Commentary)
William G. GaleAaron Krupkin

Looking specifically at taxes, Brookings Senior Fellow William Gale and Research Assistant Aaron Krupkin write that the US does not have a good tax system that raises the revenues needed “to finance government spending in a manner that is as simple, equitable, and growth-friendly as possible.” Noting that often simply discussing a tax proposal publicly can kill it, they highlight five general areas where tax policy could be improved: raising long-term revenue; increasing environmental taxes; reforming the corporate tax; treating low- and middle-income earners equitably and efficiently; and ensuring the appropriate taxation of high-income households. “Comprehensive tax reform is easy to talk about, but hard to do. The pursuit of sweeping tax simplification is a noble goal, but quixotic.”

Published: 11/25/15
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