Federal Tax Complexity & Costs Demand Reform

 

The Measurement and Distribution of the Federal Tax Burden

Chairman Whitehouse, Rating Member Grassley, and distinguished members of the Senate Price range Committee, thanks for the chance to supply testimony on the distribution of the federal tax burden. I’m William McBride, Vice President of Federal Tax Coverage and Stephen J. Entin Fellow in Economics on the Tax Basis, the place I deal with how we will enhance our federal tax code.

Right this moment, my testimony will deal with 4  factors. First, I’ll describe the present federal tax system, exhibiting that tax collections are close to an all-time excessive and the burden is very progressive. Second, I’ll describe how the tax code’s growing complexity provides to this burden, elevating compliance prices for taxpayers and administrative prices for the Internal Revenue Service (IRS). Third, I’ll describe the financial prices of the tax code’s excessive marginal earnings tax charges, which gradual financial progress and scale back dwelling requirements.

Lastly, I’ll suggest methods to reform the federal tax code to cut back complexity and enhance financial incentives, develop the economic system, profit low- and middle-income employees, and lift ample revenues at or above present ranges.

Federal Tax Collections are Close to File Highs

Because of the financial restoration popping out of the pandemic and surging inflation, federal tax collections hit an all-time excessive of $4.9 trillion in fiscal 12 months (FY) 2022 that ended September 30, topping the prior 12 months’s file collections by $850 billion.[1] As a share of gross home product (GDP), federal tax collections in FY 2022 reached a multi-decade excessive of about 19.6 p.c, up from 17.9 p.c within the prior fiscal 12 months and approaching the final peak of 20.0 p.c set in the course of the dot-com bubble in FY 2000.

Solely two different years in U.S. historical past noticed federal tax collections as a share of GDP exceed the FY 2022 stage, each throughout World Conflict II: in 1943, federal tax collections reached 20.5 p.c of GDP earlier than falling to 19.9 p.c in 1944. FY 2022 tax collections exceeded the post-war common of 17.2 p.c of GDP by 2.4 proportion factors.

In the newest fiscal 12 months, particular person earnings tax collections contributed probably the most to the surge in federal tax collections, rising 29 p.c to $2.6 trillion in FY 2022 from $2.0 trillion in FY 2021. Payroll taxes grew 13 p.c to $1.5 trillion in FY 2022 from $1.3 trillion in FY 2021, whereas company taxes grew 14 p.c to $425 billion from $372 billion, and different revenues grew 13 p.c to $356 billion from $316 billion.

Particular person earnings tax collections reached 10.5 p.c of GDP in FY 2022, the very best stage on file. That stage considerably exceeded the prior file of 9.9 p.c of GDP set in FY 2000 in addition to the World Conflict II-era file of 9.2 p.c of GDP set in FY 1944.[2]

The surge in particular person earnings tax income is partly attributable to progress in capital features income on account of booming inventory and housing markets in 2021, itself a operate of inflationary fiscal and financial stimulus in the course of the pandemic.[3] The Congressional Price range Workplace (CBO) estimates that capital features realizations and income roughly doubled in the course of the pandemic years: realizations grew to $2.0 trillion in 2021 and $1.7 trillion in 2022 from $881 billion in 2019 whereas revenues grew to $304 billion in FY 2021 and $378 billion in FY 2022 from $169 billion in FY 2019.[4]

Excessive financial volatility in recent times makes it tough to evaluate how tax collections have been impacted by the Tax Cuts and Jobs Act (TCJA), which was enacted in 2017. Amongst different modifications, the TCJA diminished the company tax charge p.c to 21 p.c from 35 p.c. Company and different federal tax revenues have been comparatively low in 2018 by means of the primary 12 months of the pandemic however have since rebounded with the economic system and inflation. Common federal tax collections within the 5 years because the TCJA’s enactment are about 17.3 p.c of GDP—larger than the 16.7 p.c forecasted by the CBO following its passage, larger than most years earlier than the TCJA, and better than the post-war common of 17.2 p.c.[5]

Because the inflationary growth of 2021 has become a bust over the course of the final 12 months, and because the Federal Reserve continues to lift rates of interest to combat the inflation, progress in federal tax collections is prone to gradual in FY 2023. On a preliminary foundation, the CBO experiences that federal tax collections within the first half of FY 2023 (October 2022 to March 2023) are down 3 p.c from the identical interval in FY 2022, with particular person earnings tax income down 8 p.c.[6] Nonetheless, based mostly on present projections, federal tax collections as a share of GDP will probably stay above the historic common in FY 2023.

A lot of the Federal Tax Burden is Paid by Excessive Earners

By any goal measure, the U.S. tax code is extraordinarily progressive and really redistributive. In accordance with the most recent IRS information for 2020, the highest 5 p.c of taxpayers (about 7.9 million filers that earn greater than $220,521) paid in mixture $1.1 trillion in earnings taxes, amounting to 62.7 p.c of all earnings taxes paid that 12 months.[7] The highest 1 p.c of taxpayers (about 1.6 million filers who earn greater than $548,336) paid $723 billion in earnings taxes, or 42.3 p.c of all earnings taxes paid—a bigger share than the underside 95 p.c of taxpayers mixed.

The share of federal earnings taxes paid by the highest 1 p.c is larger than it has been in a minimum of 20 years, in keeping with IRS information.[8] In 2001, the highest 1 p.c’s share of earnings taxes paid was 33.2 p.c, then fluctuated with the enterprise cycle and the ups and downs of the housing and inventory markets, earlier than rising steadily to its present excessive of 42.3 p.c in 2020. The highest 1 p.c’s share of earnings taxes may effectively go larger in 2021 and 2022 on account of progress of capital features income, which is paid primarily by excessive earners.

Excessive earnings taxpayers additionally pay the very best tax charges, in keeping with the IRS. The common earnings tax charge in 2020 was 13.6 p.c. The highest 5 p.c of taxpayers paid a 22.4 p.c common charge whereas the highest 1 p.c of taxpayers paid a 26.0 p.c common charge—greater than eight instances larger than the three.1 p.c common charge paid by the underside half of taxpayers. The highest 0.001 p.c, or the richest 1,575 tax returns filed in 2020, paid almost $71 billion in earnings taxes and had an average tax rate of 23.7 p.c.

The typical tax charge for the highest 0.001 p.c is barely decrease than that of the highest 1 p.c as a result of a bigger share of the highest 0.001 p.c’s earnings is capital features, which face a decrease charge schedule. One justification for the decrease charge is that capital features earnings is earned in an surroundings the place different taxes have already been utilized. Specifically, shareholder taxes on capital features and dividends primarily apply on prime of the company earnings tax of 21 p.c. That’s, the identical greenback of company earnings is first taxed by the company earnings tax after which taxed once more when distributed to shareholders within the type of capital features and dividends. Observe that the shares and common tax charges cited above don’t replicate the extra burden of the company earnings tax.[9]

Evaluation from the CBO offers a extra full image of the distribution of the federal tax burden. When accounting for particular person earnings taxes—together with the outlay portion of refundable tax credit—company earnings taxes, payroll taxes, property taxes, and excise taxes, CBO finds that the federal tax system, as an entire, is progressive. [10]  The most recent information signifies that households within the highest earnings quintile paid about 69 p.c of all federal taxes in 2019, and the highest 1 p.c of households paid about 25 p.c of all federal taxes.[11] In distinction, the underside quintile of households paid about 0.1 p.c of all federal taxes.

Just like the IRS information on federal earnings taxes, the CBO evaluation signifies the share of all federal taxes paid by excessive earners has grown over time. For instance, the share of federal taxes paid by households within the prime 1 p.c has roughly doubled to about 25 p.c in 2019 from roughly 12 p.c within the early Nineteen Eighties.

Moreover, the CBO evaluation signifies that common federal tax charges enhance considerably with earnings. For instance, the highest quintile of households paid a median federal tax charge of 24.4 p.c in 2019 and the highest 1 p.c of households paid a median federal tax charge of 30.0 p.c. In distinction, the underside quintile paid a median federal tax charge of 0.5 p.c, reflecting the truth that refundable tax credits for this group virtually fully offset payroll taxes and different federal taxes.

The CBO notes that inside the prime 1 p.c’s common federal tax charges are comparatively flat at about 30 p.c, because the impact of decrease capital features tax charges are offset by larger common company tax charges.[12] For instance, the highest 0.01 p.c of households paid a median federal tax charge of 30.2 p.c in 2019.

Over time, the typical federal tax charge paid by the highest 1 p.c has remained inside a variety of about 25 to 35 p.c since 1979, and as of 2019 is about in the course of that vary and near the typical of 30.5 p.c over the interval 1979 to 2019. Nonetheless, the typical federal tax charge for the underside quintile has declined considerably, to just about zero in 2019 because of the introduction and growth of refundable tax credits from a excessive of about 12 p.c in 1984.

Information from the Joint Committee on Taxation (JCT) confirms that common federal tax charges constantly rise with earnings. When together with all federal taxes, the underside 50 p.c of taxpayers face a median federal tax charge of 6.3 p.c, in comparison with a median charge of 24.8 p.c for the highest 1 p.c of taxpayers. The federal earnings tax is probably the most progressive of the federal taxes, with company earnings taxes and property and gift taxes additionally including to federal progressivity. The progressive tax sources greater than offset payroll taxes and excise taxes that apply larger common tax charges to decrease earnings teams. The JCT information additionally reveals common federal taxes rise inside the prime 1 p.c, from a median tax charge of twenty-two.6 p.c for these within the 99th to 99.fifth percentiles of earnings to 32.9 p.c for the highest 0.01 p.c of earners, representing about 15,000 taxpayers in the USA.

Tax Code’s Complexity Provides to the Burden

By any measure, the federal tax code is extraordinarily advanced. Totaling greater than 6,000 pages and about 4 million phrases (plus about 15,000 pages of related tax regulation interpretations), no taxpayer can fairly be anticipated to totally understand it.[13] The complexity derives partly from the essential problem of defining and taxing earnings, an endeavor the nation launched into greater than 100 years in the past. Each Congress and administration since has revised and added to an accumulating pile of deductions, credit, and particular provisions. By official measures, there at the moment are greater than 200 such particular provisions referred to as “tax expenditures,” costing about $2 trillion yearly. Within the final three years alone greater than 100 tax expenditures have been created or amended.[14]

Whereas some tax expenditures are vital structural components of the tax code, many are difficult and disproportionately profit particular industries or kinds of households.[15] The CBO finds about half of the overall earnings tax advantages of expenditures go to high-income households.[16]

The Inflation Discount Act (IRA), enacted final 12 months, provides a number of difficult provisions to the tax code, together with a ebook minimal tax, a inventory buyback tax, and greater than 20 totally different tax subsidies for inexperienced vitality. All of those require intensive regulatory steerage which continues to roll out at the same time as a lot of the regulation took impact firstly of this 12 months.[17] Taxpayers, too, have highlighted a number of remaining considerations and ambiguities within the regulation (e.g., reporting necessities and relevant monetary statements for the ebook minimal tax, and home content material guidelines for the inexperienced vitality tax credit).[18]

The uncertainty within the regulation additionally interprets into uncertainty concerning the budgetary prices and distributional impacts. For instance, researchers now estimate the budgetary value of the IRA’s inexperienced vitality credit and subsidies will exceed $1 trillion over a decade, 3 times the unique value estimated by the CBO and the JCT, with the advantages accruing primarily to excessive earners.[19]

In the identical month the IRA was enacted, Congress handed the CHIPS and Science Act, which offers billions of {dollars} of focused (and complicated) incentives and funding tax credit for semiconductor manufacturing, together with quite a lot of eligibility and reporting necessities.[20]

In 2022 (earlier than the IRA or the CHIPS Act), People spent greater than 6.5 billion hours making an attempt to adjust to the tax code, in keeping with the most recent estimates from the White Home Workplace of Info and Regulatory Affairs (OIRA).[21] Based mostly on wage and profit estimates for tax preparers and licensed public accountants, we estimate the hourly compliance prices of the tax code equates to about $313 billion every year in misplaced productiveness, or 1.4 p.c of GDP.[22] The compliance burden for particular person taxpayers is almost $74 billion yearly, whereas the burden on company entities of complying with simply their earnings tax returns is greater than $60 billion. A lot of the remaining $179 billion of prices comes from complying with a whole bunch of different enterprise tax kinds and rules, corresponding to these referring to depreciation and amortization. Compliance with earnings tax returns for estates and trusts prices $18 billion a 12 months, approaching the quantity of tax income raised by the estate tax.

Our estimate of compliance prices doesn’t embrace the price of tax planning, which is a big trade by itself. Nor does it embrace the price of uncertainty within the regulation for taxpayers, which makes planning for taxes in addition to funding and different financial actions tough and dear.

Nearly all of the compliance burden is from the advanced taxing of enterprise earnings, which entails monitoring and reporting a number of objects of earnings and expense to reach at web taxable earnings and permitting offsets from web earnings to account for previous losses (in a typical 12 months roughly 40 p.c of corporations are in a loss place).[23] As well as, the U.S. tax code accommodates a number of enterprise credit, exclusions, and different particular provisions that enhance compliance prices. Multinational firms face a slew of advanced provisions that topic varied kinds of overseas earnings and cross-border transactions to tax, together with Subpart F, International Intangible Low-Taxed Revenue (GILTI), International-Derived Intangible Revenue (FDII), and Base Erosion and Anti-Abuse Tax (BEAT).[24]

For particular person filers, compliance prices usually enhance proportionally with earnings, such that many of the compliance burden is borne by excessive earners.[25] Excessive incomes people usually have a number of sources of earnings past wages, together with capital features, dividends, rents, royalties, and pass-through business earnings from partnerships and S corporations (earnings from these enterprise kinds is topic to individual income tax somewhat than corporate income tax).

One other side of the tax code’s complexity is the executive prices and challenges for the IRS, an company whose tasks have grown effectively past easy income assortment to incorporate administration of subsidies and advantages referring to youngsters, well being care, training, housing, vitality, the surroundings, financial stimulus, and extra.[26] Pursuant to its expanded position, in FY 2021 the IRS processed some 261 million returns and kinds and obtained some 4.7 billion items of data, detailing the composition and actions of almost each American family and enterprise.[27] Lately, the IRS has discovered itself actually buried in paperwork, leading to processing delays, hundreds of thousands of returns backlogged, and poor customer support.[28] Final 12 months, as an illustration, the IRS answered solely about 13 p.c of the 173 million cellphone calls it obtained from taxpayers asking for assist; those that acquired by means of waited a median of 29 minutes.[29] Clearly, administrative challenges on the IRS are additionally problematic for taxpayers.

A report from the Authorities Accountability Workplace (GAO) sheds gentle on the challenges confronted by the IRS and taxpayers because of the growing complexity of the code.[30] The report finds that the typical variety of hours the IRS spends per audit has elevated about 30 p.c in recent times, to six.5 hours in 2021 from 5.0 hours in 2010. The rise is concentrated in high-income returns. Common hours per audit elevated 209 p.c for incomes of $5 million and above, to about 58 hours in 2021 from about 19 hours per return in 2010. Common hours per audit elevated 118 p.c for incomes between $500,000 and $5 million, to 34 hours from about 16, and 103 p.c for incomes between $200,000 and $500,000, from about 10 to 21 hours. In distinction, audits for incomes beneath $200,000 took significantly much less time—about 2 hours on common for incomes beneath $25,000, and 6 hours for incomes between $25,000 and $200,000, This remained secure over this era.

The GAO report notes that IRS officers attribute the rise in common audit hours to “better complexity of higher-income audits and elevated case transfers on account of auditor attrition.” The GAO report mentions a number of legislative modifications which have added to the IRS’s tasks in recent times, together with the Affected person Safety and Reasonably priced Care Act, the International Account Tax Compliance Act, the TCJA, in addition to some 496 million stimulus funds totaling $837 billion as a part of the CARES Act and different pandemic reduction packages. (Observe the GAO report was revealed earlier than enactment of the IRA or CHIPS Act.)

As a measure of the effectivity of audits, or the “bang for the buck,” the GAO in contrast the really helpful further tax with hours spent on audits. The GAO discovered that audits of the very best earnings returns—these with earnings of $5 million or extra—resulted within the highest quantities of really helpful further tax per audit hour ($4,880 in 2021), adopted by audits of these claiming the EITC ($3,130) and people reporting lower than $25,000 of earnings ($2,120). In mixture, the vast majority of the overall really helpful further tax got here from audits of taxpayers with earnings beneath $200,000. On common, roughly half of really helpful further quantities are in the end collected, nevertheless the gathering charge for EITC returns exceeds 70 p.c since these audits are usually finished previous to issuing refunds.

Lastly, the GAO report paperwork that audit charges for particular person earnings tax returns have decreased for all earnings ranges, dropping to 0.25 p.c in 2019 from a median of 0.9 p.c in 2010, which IRS officers attribute primarily to diminished staffing because of diminished funding. Audit charges decreased probably the most for top earners as a result of, in keeping with IRS officers, these audits are usually extra advanced and require extra employees time to finish.

Simplifying the tax code would scale back IRS assets required to extra successfully administer it, together with by decreasing the time wanted to audit the at the moment advanced returns of excessive earners. A less complicated tax code would additionally scale back taxpayer confusion in order that there could be much less want for the IRS to supply volumes of steerage and reply to hundreds of thousands of taxpayer requires help. Much less confusion on the a part of taxpayers would additionally increase compliance.[31] Because the IRS Taxpayer Advocate explains: “Essentially the most environment friendly manner to enhance compliance is by encouraging and serving to taxpayers to do the suitable factor on the entrance finish. That’s less expensive and simpler than making an attempt to audit our manner out of the tax hole one taxpayer at a time on the again finish.”[32]

The Financial Value of Excessive Marginal Revenue Tax Charges

Many years of financial analysis amply demonstrates the steep value of excessive marginal earnings tax charges that arises from disincentives to work, save, and make investments.[33] The financial hurt of earnings taxes will increase with the sq. of the tax charge, that means excessive earnings tax charges include a disproportionately giant further extra burden. This burden is over and above the tax income collected, manifesting itself over the course of a number of years as a drag on financial progress by means of much less funding, much less innovation, fewer jobs, and decrease wages.[34]

A research based mostly on postwar tax reforms in the USA discovered that decreasing marginal tax charges on particular person earnings for the highest 1 p.c of earners results in will increase in actual GDP and declines in unemployment, with a 1 proportion level lower within the tax charge growing actual GDP by 0.78 p.c by the third 12 months after the tax change.[35] Given the dimensions of the U.S. economic system right now, that equates to about $204 billion in further GDP for every 1 proportion level lower within the marginal tax rate on particular person earnings earned by the highest 1 p.c. The research reveals the advantages of the ensuing financial progress could be felt all through the economic system.

In wanting on the expertise of developed nations over the interval 1971 to 2004, researchers on the Organisation of for Financial Co-operation and Improvement (OECD) concluded that “a discount within the prime marginal [individual] tax charge is discovered to lift productiveness in industries with doubtlessly excessive charges of enterprise creation. Thus, decreasing prime marginal tax charges could assist to boost economy-wide productiveness in OECD nations with a big share of such industries.”[36]

The CBO modeled three kinds of tax will increase to fund a everlasting enhance in authorities spending of 10 p.c of GDP yearly: a flat labor tax, a flat earnings tax, and a progressive earnings tax. The CBO discovered {that a} progressive earnings tax is probably the most economically damaging of the three choices, decreasing GDP by 10 p.c after 10 years, and decreasing lifetime consumption and hours labored, particularly for youthful households.[37]

Company earnings taxes are usually extra economically damaging than particular person earnings taxes, since they make funding alternatives much less worthwhile on an after-tax foundation for firms, decreasing the probability that marginal investments shall be pursued. In most nations together with the U.S., enterprise funding makes up the majority of all non-public sector funding; extra uniquely within the U.S., about half of enterprise funding is completed by firms and the opposite half by pass-through companies topic to particular person earnings taxes.

An OECD research inspecting information from 63 nations concluded that company earnings taxes are probably the most economically damaging solution to elevate income, adopted by particular person earnings taxes, consumption taxes, and property taxes.[38] A research on taxes in the UK discovered that taxes on consumption are much less economically damaging than taxes on company and particular person earnings.[39] A research of U.S. tax modifications since World Conflict II discovered {that a} 1 proportion level lower within the common company tax charge raises actual GDP per capita by 0.6 p.c after one 12 months, a considerably bigger influence than a equally sized lower in particular person earnings taxes.[40] Based mostly on U.S. state taxes, a research discovered {that a} 1 proportion level lower within the company tax charge results in a 0.2 p.c enhance in employment and a 0.3 p.c enhance in wages.[41]

Moreover, a number of research display that the company tax is borne partly by employees.[42] For example, a research of company taxes in Germany discovered that employees bear about half of the tax burden within the type of decrease wages, with low-skilled, younger, and feminine staff disproportionately harmed.[43]

The company tax can also be borne by homeowners of shares, together with retirees incomes significantly lower than $400,000. Within the brief run, the JCT assumes homeowners of capital bear the entire company tax, but that features greater than 90 million tax filers incomes lower than $200,000. In the long term, the JCT assumes employees bear a portion of the company tax, such that the burden falls on greater than 150 million tax filers incomes lower than $200,000.[44]

One other issue to contemplate concerning the company tax particularly is competitiveness with respect to our main buying and selling companions, as company funding is very cell internationally and can circulate to decrease tax areas all else equal. The company tax charge discount from the TCJA introduced the U.S. nearer to the typical amongst developed nations accounting for federal and state stage taxes, although it stays barely above common. The U.S. mixed federal-state company tax charge in 2022 was 25.8 p.c, in comparison with 21.2 p.c within the common EU nation and 23.6 p.c within the common OECD nation.[45]

Lastly, probably the most problematic and economically damaging elements of the U.S. tax code is the double taxation of company earnings by the company earnings tax (and now additionally the ebook minimal tax) and shareholder taxes on capital features and dividends. Accounting for federal and state company and particular person incomes taxes, the highest built-in tax charge on company earnings distributed as dividends is about 47 p.c within the U.S., in comparison with an OECD common of about 42 p.c.[46] A number of OECD nations have built-in company and particular person tax codes to remove or scale back the unfavorable results of double taxation of company earnings. Within the U.S., after many years of double taxing company earnings, a big share of enterprise exercise has migrated to pass-through kind, which has just one layer of earnings tax as homeowners report pass-through income on their particular person earnings tax returns.[47]

Suggestions for Reform

For a number of years, the Tax Basis has noticed and analyzed tax programs from world wide and evaluated them based mostly on the ideas of sound tax coverage.[48] Most tax coverage specialists agree that taxes ought to be easy, clear, and secure over time so they’re straightforward to know, adjust to, and administer. One other aspect of sound tax coverage is neutrality: the tax code ought to usually deal with taxpayers equally with minimal preferences, which extends to equal remedy of quick versus delayed consumption through saving. A tax code that embodies these ideas naturally helps financial flourishing, together with plentiful jobs, rising wages, upward mobility, innovation, progress, and better requirements of dwelling.

In our annual rating of probably the most aggressive tax programs, we discovered for the ninth 12 months in row that Estonia has one of the best tax code within the OECD. [49] That is partly as a result of it has a completely built-in earnings tax system that avoids double-taxing company earnings by means of taxes at each the entity and shareholder ranges. As a substitute of a sophisticated company earnings tax and separate guidelines that apply to passthrough companies, all companies are topic to a easy 20 p.c tax on distributed income (together with dividends and inventory buybacks). On the particular person stage, a easy flat tax of 20 p.c applies to all particular person earnings besides dividends, since they’re already taxed by the distributed income tax. Capital features are taxed as odd earnings at 20 p.c. Somewhat than a sophisticated property tax like ours that taxes collected financial savings at dying, bequeathed property are merely taxed as capital features when offered by the inheritor with deductible foundation decided solely by prices incurred by the inheritor.[50]

Simplicity and neutrality are the hallmarks of the Estonian earnings tax system.[51] Taxes are so easy in Estonia that they will usually be filed in 5 minutes, and the price of compliance for companies is among the many lowest of any nation.[52] Estonia’s tax system can also be very pro-growth, growing small enterprise entrepreneurship, funding, labor productiveness and thereby wages.[53] Estonia’s earnings tax system does all of this whereas producing substantial income akin to different developed nations.[54]

We lately analyzed the impact of a revenue-neutral reform of the U.S. tax code alongside the traces of the Estonian earnings tax system, preserving solely sure options of the present code that profit low-income households (such because the EITC and Youngster Tax Credit score) and assist saving (corresponding to 401ks).[55] By vastly simplifying the federal tax code, these reforms would considerably scale back compliance prices, doubtlessly saving U.S. taxpayers greater than $100 billion yearly, comprised of greater than $70 billion in diminished compliance prices for companies and greater than $30 billion in diminished compliance prices for people associated to particular person earnings and property tax returns.

Along with compliance value financial savings, our modeling of the reform’s impacts on the U.S. economic system signifies it might enhance GDP by 2.3 p.c in the long term, amounting to about $400 billion in further annual output by 2032 and $1 trillion in the long term (each in 2023 {dollars}). These modifications would enhance the long-run capital inventory by 3 p.c, amounting to $2.1 trillion in 2023 {dollars}. Moreover, we estimate it might add 1.3 million full-time equal jobs and lift wages by 1.3 p.c. By growing GDP, we would scale back the debt burden as measured by the debt-to-GDP ratio by 5.9 proportion factors over the long term.

Distributionally, we discover the reform would enhance after-tax income general by 2.1 p.c within the long-run, accounting for improved financial progress, with a bigger increase of two.7 p.c for the underside quintile of earners and three.0 p.c for the second quintile.

Extra usually, the U.S. may study from the expertise of different nations within the OECD, which rely extra closely on consumption taxes than the U.S. does.[56] Worth added taxes (VATs) are a significant income in nearly each developed nation besides the U.S., and because the literature cited above signifies, VATs and different taxes on consumption are among the many least economically dangerous methods to lift income.[57]

OECD nations have additionally tended to desert extra difficult technique of taxing excessive earners corresponding to wealth taxes on account of their administrative and financial challenges.[58] Somewhat than excessive capital features taxes, or any try to tax unrealized capital features, most OECD nations have decrease capital features tax charges than the U.S., and tax capital earnings general at decrease common tax charges.[59]

Consumption taxes might be designed to progressively tax the consumption of upper earners with out the executive complexity and compliance prices of our present progressive earnings tax system. For instance, by splitting the VAT base in two, companies would pay taxes on their money circulate (gross sales much less purchases and compensation paid), whereas households would pay taxes on compensation obtained. Making use of a progressive charge schedule on the family stage, with the highest charge matching the speed on enterprise money circulate, is a comparatively easy solution to obtain progressivity inside a consumption tax.[60] Below a extra commonplace value-added tax, probably the most environment friendly solution to enhance progressivity could be to supply focused reduction to lower- and middle-income households.[61]

Conclusion

We as a rustic have constructed a federal tax system that’s inherently advanced, pricey, and controversial, one that’s centered on taxing each particular person and enterprise earnings at progressive tax charges and plagued by varied preferences. To the extent it’s understandable in any respect, taxpayers don’t understand it as honest. The IRS has actual challenges administering such a sophisticated tax system, however boosting the IRS funds is not going to repair the underlying downside that brought about People to name the company 173 million instances final 12 months asking for assist.

As prime precedence, lawmakers ought to simplify the tax code in order that taxpayers can perceive the legal guidelines and the IRS can administer them with minimal value and frustration. Because the IRS’s Nationwide Taxpayer Advocate states of their most up-to-date report back to Congress, “Simplifying the Code is an important step Congress can take to cut back taxpayer compliance burdens. Simplification is crucial to the integrity of the U.S. tax system and can improve voluntary compliance.”[62] Now we have outlined reforms that would scale back taxpayer compliance burdens by a minimum of $100 billion per 12 months.

Second, lawmakers ought to scale back the financial drag brought on by the tax code, notably as financial progress is predicted to gradual this 12 months and most economists are forecasting a recession.[63] The tax code is without doubt one of the only levers accessible to lawmakers to handle this financial slowdown, however it shouldn’t be finished by means of preferences which are focused and sophisticated however as an alternative by broadly enhancing incentives to work, save, and make investments by means of decrease marginal tax charges on particular person and company earnings.

Now we have proven that revenue-neutral tax reform can vastly enhance financial progress, growing GDP by 2.3 p.c in the long term, including 1.3 million jobs, and elevating wages by 1.3 p.c such that after-tax incomes for the underside 40 p.c of earners enhance by almost 3 p.c on common. Moreover, the expertise of different nations reveals that taxing consumption versus earnings raises substantial income in a extra economically environment friendly manner. To handle distributional considerations, lawmakers can design consumption taxes to progressively tax the consumption of upper earners with out the executive complexity and compliance prices of our present progressive earnings tax system.

[1] William McBride, “Inflation is Surging, So Are Federal Tax Collections,” Tax Basis, Oct. 13, 2022, https://taxfoundation.org/federal-tax-collections-inflation-surging/; Congressional Price range Workplace, Price range and Financial Information, https://www.cbo.gov/data/budget-economic-data.

[2] Workplace of Administration and Price range, Historic Tables, Desk 2.3-Receipts by Supply as Percentages of GDP: 1934-2028, https://www.whitehouse.gov/omb/budget/historical-tables/; An identical measure from the Bureau of Financial Evaluation (BEA) signifies federal and state particular person earnings taxes as a share of non-public earnings reached an all-time excessive of 14.7 p.c in calendar 12 months 2022. See BEA, Nationwide Revenue and Product Accounts, Desk 2.1 Private Revenue and Its Disposition, https://www.bea.gov/itable/national-gdp-and-personal-income.

[3] William McBride, “Inflation is Surging, So Are Federal Tax Collections,” Tax Basis, Oct. 13, 2022, https://taxfoundation.org/federal-tax-collections-inflation-surging/.

[4] Congressional Price range Workplace, “The Price range and Financial Outlook: 2023 to 2033,” February 15, 2023, https://www.cbo.gov/publication/58848; CBO, Price range and Financial Information, Income Projections, by Class, https://www.cbo.gov/information/budget-economic-data#7

[5] Congressional Price range Workplace, Price range and Financial Information, https://www.cbo.gov/data/budget-economic-data.

[6] Congressional Price range Workplace, “Month-to-month Price range Assessment: March 2023,” April 10, 2023, https://www.cbo.gov/publication/58995.

[7] Inner Income Service, Statistics of Revenue, “Variety of Returns, Shares of AGI and Complete Revenue Tax, AGI Flooring on Percentiles in Present and Fixed {Dollars}, and Common Tax Charges,” Desk 1, and “Variety of Returns, Shares of AGI and Complete Revenue Tax, and Common Tax Charges,” Desk 2, https://www.irs.gov/statistics/soi-tax-stats-individual-income-tax-rates-and-tax-shares; Erica York, “Abstract of the Newest Federal Revenue Tax Information, 2023 Replace,” Tax Basis, Jan. 26, 2023, https://taxfoundation.org/publications/latest-federal-income-tax-data/.

[8] Erica York, “Abstract of the Newest Federal Revenue Tax Information, 2023 Replace,” Tax Basis, Jan. 26, 2023, https://taxfoundation.org/publications/latest-federal-income-tax-data/.

[9] The IRS statistics on shares and common tax charges additionally don’t embrace the outlay portion of refundable tax credit, such because the Earned Revenue Tax Credit score (EITC) and the Child Tax Credit (CTC), which if included would scale back additional the typical tax charges paid by low-income filers and enhance the share of federal earnings taxes paid by high-income filers.

[10] Congressional Price range Workplace, “The Distribution of Family Revenue 2019,” Nov. 15, 2022, https://www.cbo.gov/system/files/2022-11/58353-HouseholdIncome.pdf; Garrett Watson, “CBO Evaluation Finds Revenue Development and Progressive Tax Code in 2019,” Tax Basis, Jan. 10, 2023, https://taxfoundation.org/us-income-growth-progressive-tax-code/.

[11] In CBO’s evaluation, the highest 1 p.c earnings group represents about 1.2 million households. Revenue thresholds defining every earnings group differ by family dimension. For instance, a one individual family within the prime 1 p.c of earnings earns greater than $447,200 in 2019 whereas a 4 individual family within the prime 1 p.c earns greater than $894,400.

[12] In CBO’s evaluation, 75 p.c of company earnings taxes are allotted to homeowners of capital in proportion to their earnings from curiosity, dividends, rents, and adjusted capital features, and 25 p.c to employees in proportion to their labor earnings.

[13] Demian Brady, “Tax Complexity 2021: Compliance Burdens Ease for Third 12 months Since Tax Reform,” NTU, April 15, 2021, https://www.ntu.org/foundation/detail/tax-complexity-2021-compliance-burdens-ease-for-third-year-since-tax-reform.

[14] The Joint Committee on Taxation, “Estimates of Federal Tax Expenditures for Fiscal Years 2022-2026,” Dec. 22, 2022, https://www.jct.gov/publications/2022/jcx-22-22/; Treasury Division, “Tax Expenditures,” https://home.treasury.gov/policy-issues/tax-policy/tax-expenditures.

[15] Alex Muresianu, “JCT Tax Expenditure Report: Not All Expenditures Are Created Equal,” Tax Basis, Feb. 13, 2023, https://taxfoundation.org/largest-tax-expenditures-saving-investment-tax/; Erica York and William McBride, “Lawmakers Might Pay for Reconciliation Whereas Enhancing the Tax Code,” Tax Basis, Oct. 25, 2021, https://taxfoundation.org/pay-for-reconciliation-tax/.

[16] Congressional Price range Workplace, “Distribution of Main Expenditures in 2019,” October 2021, https://www.cbo.gov/system/files/2021-10/57413-TaxExpenditures.pdf.

[17] Alex Durante, Cody Kallen, Huaqun Li, William McBride, and Garrett Watson, “Particulars & Evaluation of the Inflation Discount Act Tax Provisions,” Tax Basis, Aug. 12, 2022, https://taxfoundation.org/inflation-reduction-act/; Cody Kallen, William McBride, and Garrett Watson, “Minimal E-book Tax: Flawed Income Supply, Penalizes Professional-Development Value Restoration,” Tax Basis, Aug. 5, 2022, https://taxfoundation.org/inflation-reduction-act-accelerated-depreciation/; Daniel Bunn, “How Does the Inflation Discount Act Minimal Tax Examine to the International Minimal Tax,” Tax Basis, Aug. 2, 2022, https://taxfoundation.org/inflation-reduction-act-minimum-tax/; Alex Muresianu, “Breaking Down the Inflation Discount Act’s Inexperienced Vitality Tax Credit,” Tax Basis, Sept. 14, 2022, https://taxfoundation.org/inflation-reduction-act-green-energy-tax-credits/; Inner Income Service, “Newest Updates on the Inflation Discount Act of 2022”, https://www.irs.gov/inflation-reduction-act-of-2022.

[18] Chandra Wallace, “Company AMT Remark Letters Wealthy in Element – And Disagreement,” Tax Notes, Mar. 22, 2023, https://www.taxnotes.com/tax-notes-today-federal/corporate-alternative-minimum-tax/corporate-amt-comment-letters-rich-detail-and-disagreement/2023/03/22/7g804; Yuka Hayashi and Richard Rubin, ”New EV Guidelines Imply Fewer Fashions Eligible for Tax Credit score,” Wall Avenue Journal, Mar. 31, 2023, https://www.wsj.com/articles/new-ev-rules-mean-fewer-models-eligible-for-tax-credit-98b6b63c?st=ks82qvy8bxihh8h&reflink=desktopwebshare_permalink.

[19] John Bistline, Neil Mehrotra, and Catherine Wolfram, “Financial Implications of the Local weather Provisions of the Inflation Discount Act,” Brookings Papers on Financial Exercise, March 2023, https://www.brookings.edu/wp-content/uploads/2023/03/BPEA_Spring2023_Bistline-et-al_unembargoedUpdated.pdf; Jason Furman, “Touch upon “Financial Implications of the Local weather Provisions of the Inflation Discount Act,”” Mar. 30, 2023, https://www.brookings.edu/wp-content/uploads/2023/02/2b_20230330-BPEA-climate-furman-comment.pdf; Christine McDaniel, “The Value of Battery Manufacturing Tax Credit Supplied within the IRA,” Forbes, Feb. 1, 2023, https://www.forbes.com/sites/christinemcdaniel/2023/02/01/the-cost-of-battery-production-tax-credits-provided-in-the-ira/?sh=362fc62279ef; Christine McDaniel, “The Prices of Wind Manufacturing Tax Credit Supplied within the IRA,” Forbes, Mar. 8, 2023, https://www.forbes.com/sites/christinemcdaniel/2023/03/08/the-costs-of-wind-production-tax-credits-provided-in-the-ira/?sh=7cd6f4295ff7; Goldman Sachs, “Carbonomics: The Third American Vitality Revolution,” Mar. 22, 2023.

[20] Erica York, “Cautious What You Want For: CHIPS Subsidies Require “Extra Income” Sharing,” Tax Basis, Mar. 2, 2023, https://taxfoundation.org/biden-semiconductor-chips-act-subsidies/. 

[21] White Home Workplace of Info and Regulatory Affairs, Info Assortment Assessment, https://www.reginfo.gov/public/do/PRAMain.

[22] Scott Hodge, “The Tax Compliance Prices of IRS Laws,” Tax Basis, Aug. 23, 2022, https://taxfoundation.org/tax-compliance-costs-irs-regulations/.

[23] Arthur P. Corridor, “Home Method & Means Committee Testimony: Compliance Prices of Different Tax Methods II,” Tax Basis, March 1996, https://files.taxfoundation.org/legacy/docs/8926e37c5827f958604933276fcb4864.pdf?_gl=1*1bocc81*_ga*MjkzNjU2MTcuMTY4MDg2NjcyOA..*_ga_FP7KWDV08V*MTY4MTI5MzY4Ni40LjEuMTY4MTI5MzczNy45LjAuMA.

[24] Kyle Pomerleau, “A Hybrid Method: The Therapy of International Income underneath the Tax Cuts and Jobs Act,” Tax Basis, Might 3, 2018, https://taxfoundation.org/treatment-foreign-profits-tax-cuts-jobs-act/.

[25] Daniel Berger, Eric Toder, Victoria Bryant, John Guyton, and Patrick Langetieg, “Estimating the Results of Tax Reform on Compliance Burdens,” City Institute, Might 19, 2018, https://www.urban.org/research/publication/estimating-effects-tax-reform-compliance-burdens.

[26] Alex Muresianu and Garrett Watson, “Chaotic IRS Submitting Season Reveals the Perils of Working Social Coverage By way of the Tax Code,” Tax Basis, Apr. 18, 2022, https://taxfoundation.org/irs-filing-season-2022/.

[27] Inner Income Service, Information E-book 2021, Might 2022, https://www.irs.gov/statistics/soi-tax-stats-irs-data-book; Joseph Bishop-Henchman, “Remodeling the Inner Income Service,” Cato Institute, Apr. 11, 2023, https://www.cato.org/policy-analysis/transforming-internal-revenue-service/. 

[28] Inner Income Service Nationwide Taxpayer Advocate, “2022 Annual Report back to Congress,” Jan. 11, 2023, https://www.taxpayeradvocate.irs.gov/news/national-taxpayer-advocate-delivers-2022-annual-report-to-congress/; Joseph Bishop-Henchman, “Remodeling the Inner Income Service,” Cato Institute, Apr. 11, 2023, https://www.cato.org/policy-analysis/transforming-internal-revenue-service/.

[29] Inner Income Service Nationwide Taxpayer Advocate, “2022 Annual Report back to Congress,” Jan. 11, 2023, https://www.taxpayeradvocate.irs.gov/news/national-taxpayer-advocate-delivers-2022-annual-report-to-congress/.

[30] Authorities Accountability Workplace, “Tax Compliance: Developments of IRS Audit Charges and Outcomes for Particular person Taxpayers by Revenue,” Might 17, 2022, https://www.gao.gov/products/gao-22-104960.

[31] Garrett Watson, “Closing the Tax Hole and Enhancing the Tax Code Are Complementary Objectives,” Tax Basis, November 21, 2019, https://taxfoundation.org/closing-tax-gap-improving-tax-code/.

[32] Erin Collins, “NTA Weblog: IRS Strategic Working Plan Has Potential to Rework Tax Administration,” Nationwide Taxpayer Advocate Weblog, April 6, 2023, https://www.taxpayeradvocate.irs.gov/news/nta-blog-irs-strategic-operating-plan-has-potential-to-transform-tax-administration/.

[33] N. Gregory Mankiw, Matthew Weinzierl, and Danny Yagan, “Optimum Taxation in Concept and Observe,” Journal of Financial Views 2009, quantity 23(4), https://eml.berkeley.edu/~yagan/OptimalTaxation.pdf; William McBride, “What Is the Proof on Taxes and Development,” Tax Basis, Dec. 18, 2012, https://www.taxfoundation.org/what-evidence-taxes-and-growth/; Alex Durante, “Reviewing Current Proof of the Impact of Taxes on Financial Development,” Tax Basis, Might 21, 2021, https://taxfoundation.org/reviewing-recent-evidence-effect-taxes-economic-growth/; Timothy Vermeer, “The Affect of Particular person Revenue Tax Modifications on Financial Development,” Tax Basis, June 14, 2022, https://taxfoundation.org/income-taxes-affect-economy/.

[34] Robert Carroll, “The Extra Burden of Taxes and the Financial Value of Excessive Tax Charges,” Tax Basis, August 2009, https://files.taxfoundation.org/legacy/docs/sr170.pdf; Martin Feldstein, “Tax Avoidance and the Deadweight Lack of the Revenue Tax,” The Assessment of Economics and Statistics 81:4 (November 1999): 674-680, https://www.jstor.org/stable/2646716;

[35] Karel Mertens and José Luis Montiel Olea, “Marginal Tax Charges and Revenue: New Time Collection Proof,” The Quarterly Journal of Financials 133:4 (November 2018), https://academic.oup.com/qje/article-abstract/133/4/1803/4880451?redirectedFrom=fulltext.

[36] Åsa Johansson, Christopher Heady, Jens Arnold, Bert Brys, Cyrille Schwellnus, & Laura Vartia, “Taxation and Financial Development.”

[37] Congressional Price range Workplace, “The Economics of Financing a Giant and Everlasting Enhance in Authorities Spending: Working Paper 2021-03,” Mar. 22, 2021, https://www.cbo.gov/publication/57021; see additionally Garrett Watson, “Congressional Price range Workplace and Tax Basis Modeling Present That Some Tax Hikes Are Extra Damaging Than Others,” Tax Basis, Mar. 26, 2021, https://www.taxfoundation.org/tax-hikes-are-more-damaging-than-others-analysis/.

[38] Åsa Johansson, Christopher Heady, Jens Matthias Arnold, Bert Brys, and Laura Vartia, “Taxation and Financial Development,” Organisation for Financial Co-Operation and Improvement Working Paper No. 620, July 3, 2008, https://www.oecd-ilibrary.org/economics/taxation-and-economic-growth_241216205486.

[39] Ahn D. M. Nguyen, Luisanna Onnis, and Raffaelle Rossi, “The Macroeconomic Results of Revenue and Consumption Tax Modifications,” American Financial Journal: Financial Coverage 13:2 (Might 2021), https://www.aeaweb.org/articles?id=10.1257/pol.20170241&&from=f.

[40] Karel Mertens and Morten O. Ravn, “The Dynamic Results of Private and Company Revenue Tax Modifications within the Unites States,” American Financial Assessment 103:4 (June 2013), https://www.aeaweb.org/articles?id=10.1257/aer.103.4.1212.

[41] Alexander Ljungqvist and Michael Smolyansky, “To Minimize or To not Minimize? On the Affect of Company Taxes on Employment and Revenue,” Nationwide Bureau of Financial Analysis Working Paper No. 20753 (October 2018), https://www.nber.org/system/files/working_papers/w20753/w20753.pdf.

[42] Stephen J. Entin, “Labor Bears A lot of the Value of the Company Tax,” Tax Basis, Oct. 24, 2017, https://www.taxfoundation.org/labor-bears-corporate-tax/; and Alex Durante, “Who Bears the Burden of Company Taxation? A Assessment of Current Proof,” June 10, 2021, https://www.taxfoundation.org/who-bears-burden-corporate-tax/.

[43] Clemens Fuest, Andreas Peichl, and Sebastian Siegloch, “Do Larger Company Taxes Scale back Wages? Micro Proof from Germany,” American Financial Assessment 108:2 (February 2018): 393–418, https://www.doi.org/10.1257/aer.20130570.

[44] Joint Committee on Taxation, “Income Estimates and Distributional Analyses,” Aug. 3, 2021, https://www.finance.senate.gov/imo/media/doc/jct_analysis_on_corporate_tax_increase.pdf.

[45] Cristina Enache, “Company Tax Charges across the World, 2022,” Tax Basis, December 13, 2022, https://taxfoundation.org/corporate-tax-rates-by-country-2022/.

[46] OECD, Tax Database Desk II.4. General Statutory Tax Charges on Dividend Revenue, https://www.oecd.org/tax/tax-policy/tax-database/; Elke Asen, “Double Taxation of Company Revenue in the USA and the OECD,” Tax Basis, January 13, 2021, https://taxfoundation.org/double-taxation-of-corporate-income/.

[47] Scott Eastman, “Company and Go-through Enterprise Revenue and Returns Since 1980,” Apr. 23, 2019, https://www.taxfoundation.org/pass-through-business-income-since-1980/

[48] TaxEDU, “Ideas of Sound Tax Coverage,” Tax Basis, https://taxfoundation.org/principles/.

[49] Daniel Bunn and Lisa Hogreve, “Worldwide Tax Competitiveness Index, 2022,” Tax Basis, Oct. 17, 2022, https://taxfoundation.org/2022-international-tax-competitiveness-index/.

[50] William McBride, “Biden’s New Tax Proposals are Difficult and Rife with Double Taxation,” Tax Basis, Mar. 13, 2023, https://taxfoundation.org/biden-tax-fairness/.

[51] Estonia’s easy strategy to taxing enterprise and particular person earnings has additionally been applied in Latvia and Georgia. Daniel Bunn, “Higher than the Relaxation,” Tax Basis, Oct. 9, 2019, https://taxfoundation.org/estonia-tax-system-latvia-tax-system/; Gia Jandieri, “Tax Reform in Georgia 2004-2012,” Tax Basis, July 17, 2019, https://taxfoundation.org/tax-reforms-in-georgia-2004-2012/.

[52] Kyle Pomerleau, “The Greatest A part of the Estonian Tax Code Is Not 5 Minute Tax Submitting,” Tax Basis, Jul. 21, 2015, https://taxfoundation.org/best-part-estonian-tax-code-not-5-minute-tax-filing/; William McBride, Garrett Watson, Erica York, “Taxing Distributed Income Makes Enterprise Taxation Easy and Environment friendly,” Tax Basis, Mar. 1, 2023, https://taxfoundation.org/distributed-profits-tax-us-businesses/.

[53] Jaan Maaso, Jaanika Meriküll, and Priit Vahter, “Gross Revenue Taxation Versus Distributed Revenue Taxation and Agency Efficiency: Results of Estonia’s Company Revenue Tax Reform,” The College of Tartu College of Economics and Enterprise Administration Working Paper No. 81-2011, March 23, 2011, https://ssrn.com/summary=1793143 or http://dx.doi.org/10.2139/ssrn.1793143; Jaan Masso and Jaanika Merikull, “Macroeconomic Results of Zero Company Revenue Tax on Retained Earnings,” Baltic Journal of Economics, 11:2 (2011): 81-99, https://www.tandfonline.com/doi/pdf/10.1080/1406099X.2011.10840502; Aaro Hazak, “Firms’ Monetary Selections Below the Distributed Revenue Taxation Regime of Estonia,” Rising Markets Finance & Commerce 45:4 (2009): 4-12, https://www.jstor.org/stable/27750676; Eduardo Davila and Benjamin Hebert, “Optimum Company Taxation underneath Monetary Frictions,” NBER Working Paper No. 25520, October 2021, https://www.nber.org/papers/w25520.

[54] Over the past 10 years, Estonia’s central authorities tax collections from earnings and revenue quantity to about 7.4 p.c of GDP, in comparison with 7.3 p.c for the median OECD nation and eight.4 p.c averaged throughout OECD nations. See OECD Tax Income Statistics, https://stats.oecd.org/Index.aspx

[55] William McBride, Huaqun Li, Garrett Watson, Alex Durante, Erica York, and Alex Muresianu, “Particulars and Evaluation of a Tax Reform Plan for Development and Alternative,” Tax Basis, February 14, 2023, https://taxfoundation.org/growth-opportunity-us-tax-reform-plan/

[56]Daniel Bunn and Cecilia Perez Weigel, “Sources of Authorities Income within the OECD,” Tax Basis, Feb. 23, 2023, https://taxfoundation.org/oecd-tax-revenue-by-country-2023/.

[57] William McBride, “What Is the Proof on Taxes and Development,” Tax Basis, Dec. 18, 2012, https://www.taxfoundation.org/what-evidence-taxes-and-growth/.

[58] Daniel Bunn, “What the U.S. Can Study from the Adoption (and Repeal) of Wealth Taxes within the OECD,” Tax Basis, Jan. 18, 2022, https://taxfoundation.org/wealth-taxes-in-the-oecd/.  

[59] Daniel Bunn and Elke Asen, “Financial savings and Funding: The Tax Therapy of Inventory and Retirement Accounts within the OECD,” Tax Basis, Might 26, 2021, https://taxfoundation.org/savings-and-investment-oecd/#Capital; Jacob Lundberg and Johannes Nathell, “Taxing Capital—An Worldwide Comparability,” Tax Basis, Might 11, 2021, https://taxfoundation.org/tax-burden-on-capital-income/. 

[60] This design is called the “X Tax,” developed by the late economist David Bradford. See Robert Carroll and Alan D. Viard, Progressive Consumption Taxation: The X Tax, (Washington, D.C: The Rowman & Littlefield Publishing Group, 2012).

[61] See Rita de la Feria and Michael Walpole, “The Affect of Public Perceptions on Normal Consumption Taxes,” British Tax Assessment 67:5 (Dec. 4, 2020), 637-669, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3723750 for a dialogue on how different approaches, corresponding to exemptions or diminished charges can, counterintuitively, enhance regressivity by offering extra advantages to higher-income households.

[62] Internatal Income Service Nationwide Taxpayer Advocate, “2022 Annual Report back to Congress,” Jan. 11, 2023, https://www.taxpayeradvocate.irs.gov/news/national-taxpayer-advocate-delivers-2022-annual-report-to-congress/.

[63] See as an illustration: Nationwide Affiliation of Enterprise Economics, “Outlook Survey,” February 2023, https://nabe.com/NABE/Surveys/Outlook_Surveys/February_2023_Outlook_Survey_Summary.aspx; The Convention Board, “Probablity of US Recession Stays Elevated,” April 12, 2023, https://www.conference-board.org/research/economy-strategy-finance-charts/CoW-Recession-Probability.