Focus on Tax Policy

By BRUCE BARTLETT, Posted: July 15, 2010

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In a July 7 post, economist Donald Marron notes that federal revenues as share of GDP are very substantially below normal—14.9 percent currently versus a postwar average of 18.2 percent. Because revenues rise faster than economic growth due to a progressive tax system, the Congressional Budget Office is forecasting a substantial tax increase in coming years even if various legislated tax increases, such as for the AMT, are prevented from taking effect.

In a July 5 article, University of Texas law professor Calvin Johnson presents a laundry list of revenue-raising options that would in total produce $1 trillion without raising statutory rates or imposing a VAT.

A July 2 poll from The Economist magazine asked people how best to tax estates. A majority said they favor a top rate of 20 percent or less; only 10 percent of those polled favor returning the top rate to 55 percent, as it will next year under current law.

On June 28, the European Union released new data on taxation in the EU. The overall tax/GDP ratio was 39.3 percent in 2008, and Denmark was the most heavily taxed country with a tax/GDP ratio of 48.2 percent. The average top statutory income tax rate has fallen to 37.5 percent in 2010 from 44.7 percent in 2000.

On June 17, the CBO released new data on average federal tax rates in 2007. CBO director Doug Elmendorf comments here.

In a May 28 post, political scientist Alvin Rabushka, co-author of the Hall-Rabushka flat tax proposal, said that supply-siders overstate the negative impact of tax increases on the economy.

An April study by Lily Bachelder and Eric Toder looks at government spending programs administered by the Internal Revenue Service. They argue that such programs are not subjected to the same level of scrutiny or performance evaluation. Reforms are suggested that would improve their effectiveness. (Note: Lily Bachelder was recently named chief tax counsel of the Senate Finance Committee.)

Conservatives are universally critical of the Nordic economic model because of the high levels of taxation it imposes. Writing in the second issue of the Columbia Journal of Tax Law for 2010, Richard M. Bird and Eric M. Zolt point to an important element of Nordic tax policy that conservatives overlook. Although countries such as Denmark, Norway, Finland and Sweden impose high progressive tax rates on labor, tax rates on capital are much lower and very competitive internationally. This explains why these countries haven’t imploded economically as conservative theory predicts. It may be that the composition of taxation is more important than the level.

In the first issue of the Columbia Journal of Tax Law for 2010, Duke Law School professor Lawrence Zelenak criticizes Congress for enacting tax laws that require increasingly complex mathematical calculations. This appears to be a reaction to the increasing ease of doing such calculations using tax preparation software. However, when people lose the capacity to comprehend how their tax liability is calculated, the tax system loses legitimacy and makes it more difficult for taxpayers to do tax planning, he argues.

Note: I previously posted readings on tax policy on June 14.

Bruce Bartlett is an American historian and columnist who focuses on the intersection between politics and economics. He blogs daily and writes a weekly column at The Fiscal Times. Read his most recent column here. Bartlett has written for Forbes Magazine and Creators Syndicate, and his work is informed by many years in government, including as a senior policy analyst in the Reagan White House. He is the author of seven books including the New York Times best-seller, Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy (Doubleday, 2006).

Previous posts:

July 14: Do Tax Cuts Starve the Beast?
July 13: Focus on Value-Added Tax
July 12: Focus on Stimulus
July 9: Weekly Roundup

On July 14, the Senate Finance Committee held a hearing on the future of individual tax rates and their effects on economic growth and distribution. Witnesses included economists Len Burman, Doug Holtz-Eakin, and Donald Marron.In a July 7 post, economist Donald Marron notes that federal revenues as share of GDP are very substantially below normal—14.9 percent currently versus a postwar average of 18.2 percent. Because revenues rise faster than economic growth due to a progressive tax system, the Congressional Budget Office is forecasting a substantial tax increase in coming years even if various legislated tax increases, such as for the AMT, are prevented from taking effect.In a July 5 article, University of Texas law professor Calvin Johnson presents a laundry list of revenue-raising options that would in total produce $1 trillion without raising statutory rates or imposing a VAT.A July 2 poll from The Economist magazine asked people how best to tax estates. A majority said they favor a top rate of 20 percent or less; only 10 percent of those polled favor returning the top rate to 55 percent, as it will next year under current law.On June 28, the European Union released new data on taxation in the EU. The overall tax/GDP ratio was 39.3 percent in 2008, and Denmark was the most heavily taxed country with a tax/GDP ratio of 48.2 percent. The average top statutory income tax rate has fallen to 37.5 percent in 2010 from 44.7 percent in 2000.On June 17, the CBO released new data on average federal tax rates in 2007. CBO director Doug Elmendorf comments here.In a May 28 post, political scientist Alvin Rabushka, co-author of the Hall-Rabushka flat tax proposal, said that supply-siders overstate the negative impact of tax increases on the economy.An April study by Lily Bachelder and Eric Toder looks at government spending programs administered by the Internal Revenue Service. They argue that such programs are not subjected to the same level of scrutiny or performance evaluation. Reforms are suggested that would improve their effectiveness. (Note: Lily Bachelder was recently named chief tax counsel of the Senate Finance Committee.) Conservatives are universally critical of the Nordic economic model because of the high levels of taxation it imposes. Writing in the second issue of the Columbia Journal of Tax Law for 2010, Richard M. Bird and Eric M. Zolt point to an important element of Nordic tax policy that conservatives overlook. Although countries such as Denmark, Norway, Finland and Sweden impose high progressive tax rates on labor, tax rates on capital are much lower and very competitive internationally. This explains why these countries haven’t imploded economically as conservative theory predicts. It may be that the composition of taxation is more important than the level.In the first issue of the Columbia Journal of Tax Law for 2010, Duke Law School professor Lawrence Zelenak criticizes Congress for enacting tax laws that require increasingly complex mathematical calculations. This appears to be a reaction to the increasing ease of doing such calculations using tax preparation software. However, when people lose the capacity to comprehend how their tax liability is calculated, the tax system loses legitimacy and makes it more difficult for taxpayers to do tax planning, he argues.Note: I previously posted readings on tax policy on June 14.
Bruce Bartlett is an American historian and columnist who focuses on the intersection between politics and economics. He blogs daily and writes a weekly column at The Fiscal Times. Read his most recent column here. Bartlett has written for Forbes Magazine and Creators Syndicate, and his work is informed by many years in government, including as a senior policy analyst in the Reagan White House. He is the author of seven books including the New York Times best-seller, Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy (Doubleday, 2006). Previous posts: July 14: Do Tax Cuts Starve the Beast?
July 13: Focus on Value-Added Tax
July 12: Focus on Stimulus
July 9: Weekly Roundup