Issue Brief posted June 28, 2016
CBO Report on Distribution of Income and Taxes Shows Taxes Matter
The Congressional Budget Office (CBO) has released its periodic report on the distribution of household income and federal taxes, extending the data series on these figures from 2012 to 2013. This latest edition of the CBO report shows how the enactment of the American Taxpayer Relief Act of 2012 (ATRA) and its accompanying tax increases affected taxpayer bills and…
Backgrounder posted June 23, 2016
Congress Should Lay the Groundwork for Tax Reform
The U.S. economy is currently operating below its potential. High taxes on capital and labor, as well as the reduction in the labor force of prime age workers, are keeping the economy from growing faster. Tax reform, by reducing penalties on work and capital formation, allows the economy to grow in size. Under a less complex tax code, valuable resources become…
Backgrounder posted May 9, 2016
American Business Competitiveness Act: Good Steps Toward Business Tax Reform
On January 13, 2016, Representative Devin Nunes (R–CA) introduced the American Business Competitiveness Act (ABC Act) to reform business taxation provisions of the U.S. Internal Revenue Code. The legislation would be a large step in the right direction for the business side of the tax code, as it makes the major changes that are necessary to fix the current broken…
Issue Brief posted December 22, 2015
JCT Should Not Predict Federal Reserve Actions in Dynamic Scoring
The Joint Committee on Taxation (JCT) provides estimates of the budgetary effects of tax legislation for Congress. In 2015, for the first time, Congress mandated that the JCT provide dynamically scored estimates of major legislative changes. Dynamic scoring takes into account the macroeconomic feedback effects of changes in tax policy on revenues and spending. In other…
Issue Brief posted November 16, 2015
A Flat Consumption Tax Would Be Fair and Efficient
Congress has the power to design a tax system to fund the necessary functions of government. It also has a responsibility to design a tax system that is fair and efficient. A flat consumption tax is the least economically destructive tax system. Relative to the current income tax system, a consumption tax has the potential to increase economic growth substantially. …
Issue Brief posted November 3, 2015
JCT Dynamic Score of Bonus Depreciation: Highly Flawed
Congress requires the Joint Committee on Taxation (JCT) to account for the macroeconomic impact of large tax bills. Dynamic scores, as opposed to static scores, include the budgetary feedback effects of changes in the economy. For instance, when a policy change increases economic growth, the dynamic score would include the effect that more growth has on the federal…
Issue Brief posted October 28, 2015
Analysis of the Bipartisan Budget Act of 2015
The federal budget is on a dangerous trajectory and immediate corrective action is required. The U.S. national debt is at $18.1 trillion. According to the Congressional Budget Office (CBO), if the government remains on its currently planned course, it will spend $7 trillion more over the next 10 years than it will receive in taxes, piling on even more debt.
Issue Brief posted September 30, 2015
Taxation of Debt and Equity: Setting the Record Straight
The U.S. tax system treats debt financing and equity financing differently. In debt financing, a business raises money by issuing debt, usually by selling a bond. In equity financing, a business raises funds by selling a share in the business through the sale of stock.
The tax system provides a relative advantage to financing capital expenditures through debt because…
Issue Brief posted September 30, 2015
An Alternative Way to Treat Interest Properly in Tax Reform
Achieving the proper tax treatment of interest is critical to any effort in reforming the tax code. Specifically, it is important to keep tax policy regarding interest—and all tax policy—neutral. Neutrality holds that tax policy should not influence the economic decisions of individuals or businesses in either a positive or negative way.
Neutrality is the guiding…
Issue Brief posted September 11, 2015
Congress Should Not Use International Tax Reform to Delay Highway Trust Fund Insolvency
Some Members of Congress are considering a proposal that would reform international business taxation income and divert revenue generated to the Highway Trust Fund (HTF). Details of the plan are not yet public, but based on information released by the House Ways and Means Committee, chaired by Paul Ryan (R–WI), it would likely work as follows:
Issue Brief posted September 9, 2015
Boustany–Neal Innovation Box: Complex and Unsound Policy
Talk in Congress of establishing an innovation box (also called a patent box) has increased in recent days. An innovation box would lower tax on income earned from certain types of intellectual property (IP).
Innovation boxes exist in several countries around the world, including many major U.S. trading partners. The purpose of the boxes is to lower the tax rate on…
Backgrounder posted September 2, 2015
Blueprint for Congressional Fiscal Action in the Remainder of 2015
Congress has set the federal government budget on a dangerous trajectory and must take corrective action now. Taxpayers pay enormous amounts of money to the government, and the government borrows additional huge amounts of money. The government uses the taxes that it collects and the money that it borrows to pay for excessive spending, including spending for…
Backgrounder posted August 18, 2015
An Innovation Box for the U.S.? Congress Should Focus on Business Tax Reform Instead
There is growing talk of Congress pursuing tax reform through the creation of an “innovation box” instead of focusing on broad business tax reform. This would be a mistake.
An innovation box, often called a patent box in Europe, offers lower tax on certain types of income derived from intellectual property, or IP.
Earlier this year, it seemed possible Congress and…
Backgrounder posted August 3, 2015
New Generation of Tax Reform Offers Greater Potential for Growth
Earlier this year, Senators Mike Lee (R–UT) and Marco Rubio (R–FL) released a tax reform plan. Their plan would reduce tax rates, lessen double taxation, and eliminate many tax preferences that do not promote economic growth. These policies have traditionally been part of tax reform.
However, Lee–Rubio deviates from traditional tax reform in one important way: It…