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1. Eight Principles for the 2025 Tax Policy Debate (that Republicans and Democrats Should Be Able to Agree On)

Author:
Kimberly A. Clausing
Publication Date:
02-2025
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
The Tax Cuts and Jobs Act, which Congress passed in 2017, came with a built-in policy time bomb—several of the more popular provisions are set to expire on the last day of 2025. These tax cut expirations limited the cost of the law to meet the requirements of the budget reconciliation process and thereby avoid being blocked by a Senate filibuster. The bill's architects deliberately made the less popular provisions (corporate tax cuts) permanent, but they wagered that the more popular individual tax cuts could be extended when the time came. That time has arrived. Yet Congress faces daunting challenges in extending the expiring tax cuts this year, including their high costs, competing fiscal priorities, a fractious Republican caucus with narrow House and Senate majorities, and President Trump's mercurial demands. As the 2025 tax policy debate moves forward, Clausing offers eight principles that both parties should be able to agree on. Of course, actual agreement on these principles is far from likely in today's political environment. Still, she suggests "middle of the road" positions for those who would resuscitate bipartisan tax policy cooperation.
Topic:
Budget, Domestic Politics, Tax Systems, and Fiscal Policy
Political Geography:
North America and United States of America

2. Why Trump's tariff proposals would harm working Americans

Author:
Kimberly Clausing and Mary Lovely
Publication Date:
05-2024
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
At the beginning of its history, the United States relied on tariffs—taxes on imported goods—as its major source of government revenue. That changed starting in the early 20th century, with the enactment of the federal income tax and the advent of a new consensus recognizing tariffs as regressive, burdening the working class while leaving untaxed much of the income accruing to the wealthy. At present, less than 2 percent of government revenue in high-income countries comes from import taxes. Today, however, the United States may be on the cusp of reverting to an antiquated approach to funding its government. Presidential candidate Donald Trump is proposing to reduce US reliance on income taxes while increasing our reliance on import tariffs. He proposes extending expiring tax cuts from 2017 and has also suggested possible new rounds of tax cuts. At the same time, he has proposed a ten percent "across-the-board" tariff and a 60 percent or more tariff on imports from China. Together, these policy steps would amount to regressive tax cuts, only partially paid for by regressive tax increases. The tariffs would reduce after-tax incomes by 3.5 percent for those in the bottom half of the income distribution and cost a typical household in the middle of the income distribution about $1,700 in increased taxes each year. If executed, these steps would increase the distortions and burdens created by the rounds of tariffs levied during the first Trump administration (and sustained during the Biden administration), while inflicting massive collateral damage on the US economy. This Policy Brief leverages recent research to provide approximate calculations for the cost of the higher proposed tariffs to US consumers, considering the distribution of these costs across US households and the consequences for US federal revenues. In sum, Trump's tax proposals entail sharply regressive tax policy changes, shifting tax burdens away from the well-off and toward lower-income members of society while harming US workers and industries, inviting retaliation from trading partners, and worsening international relations.
Topic:
Elections, Tax Systems, Trade Policy, Donald Trump, and Protectionism
Political Geography:
North America and United States of America

3. Slashing Tax Rates and Cutting Loopholes: Options for Tax Reform in the 119th Congress

Author:
Adam N. Michel
Publication Date:
06-2024
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
The 2017 Tax Cuts and Jobs Act (TCJA) marked a significant overhaul of the US tax system. It reduced taxes for individuals and businesses through the end of 2025 and boosted economic growth. However, beginning in 2026, Americans face an automatic tax increase of about 8 percent (more than $400 billion a year). In the context of the debate over the expiration of the TCJA, the next Congress has an unprecedented opportunity to cut tax rates to their lowest level in almost a century. The Cato Institute is putting forth this tax plan that pairs massively pro-growth tax cuts with the elimination of $1.4 trillion worth of annual tax loopholes, corporate welfare, and other special-interest tax subsidies. The plan would reduce the top income tax rate to 25 percent, the capital gains rate to 15 percent, and the corporate rate to 12 percent; enact full expensing for all investments; and repeal the estate tax, alternative minimum tax, and net investment income tax. The more aggressively Congress eliminates loopholes in the tax code and cuts spending, the deeper it can slash tax rates, eliminate the costliest taxes, and boost the economy.
Topic:
Reform, Economy, Economic Growth, and Tax Systems
Political Geography:
North America and United States of America

4. An Impact Analysis of California’s State-County Assessors’ Partnership Agreement Program

Author:
Geoffrey Propheter
Publication Date:
01-2022
Content Type:
Journal Article
Journal:
California Journal of Politics and Policy
Institution:
Institute of Governmental Studies, UC Berkeley
Abstract:
California’s State-County Assessors’ Partnership Agreement Program (SCAPAP) provided select counties with a dollar-for-dollar matching grant from the state for assessment administration over a three-year period from fiscal year 2015 through 2017. One of the policy goals for the grant was to finance administrative activities that would lead to an increase in the property tax base, thereby increasing property tax revenue. This study evaluates how well the grant accomplished this goal. Using the synthetic control method on data from 2007 through 2018, I find little evidence SCAPAP funds increased participating counties’ property tax base. Since the purpose of the program is based on sound economic theory, I caution interpreting this conclusion as a reason to discontinue policy experimentation.
Topic:
Economics, Governance, Tax Systems, and Fiscal Policy
Political Geography:
California, North America, and United States of America

5. Montana’s Hard Right Turn

Author:
Paul Haber
Publication Date:
01-2022
Content Type:
Journal Article
Journal:
California Journal of Politics and Policy
Institution:
Institute of Governmental Studies, UC Berkeley
Abstract:
Budgets, combined with tax policy, provide rich evidence of the applied values of legislative bodies and executives. This paper evaluates budget and tax legislation in Montana that resulted from the 67th legislative session in 2021 that set policy for the 2023 biennium. Montana, whose political complexation has long been purple, moved unambiguously red in the elections of November 2020. This paper speaks to how this changed things in Montana's public policy, in the areas of budget and tax, and a series of other policy areas. One of the more notable findings is that while budget and tax certainly shifted right with the dominance of the Republican Party that itself has moved further right than where it was as recently as 2019, it did not move as far right as many observers had anticipated. The explanation provided here is that this was largely a result of the large infusion of federal COVID relief funds.
Topic:
Governance, Budget, Tax Systems, and Partisanship
Political Geography:
North America, United States of America, and Montana

6. Taxless fiscal states: Lessons from 19th-century America and 21st-century China

Author:
Yuen Yuen Ang
Publication Date:
03-2022
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
How do modern fiscal states arise? Perhaps the most dominant explanation, based on the European experience, is that democratic institutions that limited the extractive power of states—exemplified by the 1688 Glorious Revolution in England—paved the way for the rise of fiscal capacity and subsequent prosperity. Revisionist accounts, however, reveal that this dominant narrative is flawed. In fact, numerous factors converged to enable the rise of European fiscal states, and in England, debt and land were particularly salient factors. Building off this literature, I bring attention to the role of ‘taxless public financing’ (i.e. financing public infrastructure through means other than taxation) in the making of fiscal states in two seldom compared cases: 19th-century America and 21st-century China. Both countries relied heavily on taxless financing to launch an infrastructure boom that spurred rapid growth along with massive corruption and financial risks.
Topic:
History, Finance, Tax Systems, and Land
Political Geography:
China, Asia, North America, and United States of America

7. Who Pays Sin Taxes? Understanding the Overlapping Burdens of Corrective Taxes

Author:
Christopher Conlon, Nirupama Rao, and Yinan Wang
Publication Date:
07-2022
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
“Sin taxes”—or excise taxes on particular goods that society deems harmful—are popular in the United States. Federal, state, and local governments levy taxes on alcohol and tobacco with the dual and sometimes conflicting goals of curbing consumption and raising revenue. For many of these products, taxes represent a large share of the overall price. In New York City, a 1.75L bottle of vodka might sell for as little as $11.99 of which $7.97 is tax; and a $13.00 pack of cigarettes includes $6.86 in taxes.
Topic:
Tax Systems, Economic Policy, and Consumer Behavior
Political Geography:
North America and United States of America

8. The Economic Impact of Tax Changes, 1920–1939

Author:
Alan Reynolds
Publication Date:
01-2021
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Estimates of the elasticity of taxable income (ETI) investigate how high‐​income taxpayers faced with changes in marginal tax rates respond in ways that reduce expected revenue from higher tax rates, or raise more than expected from lower tax rates. Diamond and Saez (2011) pioneered the use of a statistical formula, which Saez developed, to convert an ETI estimate into a revenue‐​maximizing (“socially optimal”) top tax rate. For the United States, they found that the optimal top rate was about 73 percent when combining the marginal tax rates on income, payrolls, and sales at the federal, state, and local levels. A related paper by Piketty, Saez, and Stantcheva (2014) concluded that, at the highest income levels, the ETI was so small that comparable top tax rates as high as 83 percent could maximize short‐​term revenues, supposedly without suppressing long‐​term economic growth. Such studies could be viewed as part of a larger effort to minimize any efficiency costs of distortive taxation while maximizing assumed revenue gains and redistributive benefits.
Topic:
Economics, History, Tax Systems, and High-Income People
Political Geography:
North America, Global Focus, and United States of America

9. Illicit Cigarette Consumption in Mexico

Author:
Oxford Economics
Publication Date:
09-2021
Content Type:
Policy Brief
Institution:
Oxford Economics
Abstract:
This research seeks to quantify the size and scale of the illicit consumption of cigarettes in Mexico, as well as the impact on government revenues, and how this has changed in recent years. This study shows that: In the first half of 2021, an estimated 18.8% of all cigarettes consumed in Mexico were of illicit origin. In volume terms, this was more than 38% higher than the same period in 2019 (pre-Covid level). The rise in Illicit Consumption has been driven by an increased presence of cigarettes without the SAT’s security code – particularly the brands ‘Economicos’ and ‘Link’ – with Domestic Illicit now accounting for around two thirds of total Illicit Consumption in Mexico (up from 50% in 2019). Non Domestic Illicit consumption – primarily consisting of cigarettes originating from China – has been relatively stable over the last few years. Foregone Excise Tax receipts amounted to an estimated 19.4% of total potential Excise Tax revenues in 2021 H1.
Topic:
International Trade and Finance, Tax Systems, Illegal Trade, and Consumption
Political Geography:
North America and Mexico

10. Tax Equality for Immigrants: The Indispensable Ingredient for Remedying Child Poverty in the United States

Author:
Roberto Suro and Hannah Findling
Publication Date:
09-2021
Content Type:
Journal Article
Journal:
Journal on Migration and Human Security
Institution:
Center for Migration Studies of New York
Abstract:
Both at the federal and state levels, tax credits have proved effective policy instruments to combat poverty, and they are at the heart of President Biden’s massive initiative on childhood poverty. However, about one of every five children suffering poverty in the United States has an unauthorized immigrant parent and thus little or no access to tax credits. That is nearly two million children, and 85 percent of them are US citizens. Achieving historic reductions in childhood poverty thus will be impossible without remedying the eligibility exclusions and bureaucratic impediments that unauthorized immigrants face in the US tax system. All individuals who make money and reside in the United States are obliged to pay federal income taxes via a return filed with the Internal Revenue Service (IRS). For unauthorized immigrants and others who do not qualify for a Social Security Number (SSN) that requires an Individual Taxpayer Identification Number (ITIN). In this two-tier system, ITIN filers have the same income tax due as Social Security filers, but they do not receive the same credits. ITIN filers have never been eligible for the Earned Income Tax Credit (EITC) and some of their children were excluded from the Child Tax Credit (CTC) in the Trump administration’s 2017 tax bill. Both credits are highly effective anti-poverty programs, providing immediate relief while also incentivizing work and earnings. The tax credits are the critical policy tool in Biden’s American Plan for reducing child poverty, and they would be funded through the budget reconicilation legislation devised by Congressional Democrats in the summer of 2021. As summer drew to a close, ITIN inclusion was beginning to enter the discussion among advocates and legislators about the bill’s detailed provisions. But eligibility is not the only barrier. Internal government monitors have repeatedly criticized the IRS for heavy-handed and inefficient practices that have placed undue burdens on ITIN taxpayers and that have hindered compliance with the law. The use of ITINs has plummeted in recent years from a high of 4.6 million returns in 2014 to 2.5 million in 2020. Prompted by the economic losses and the medical toll suffered by unauthorized immigrants during the pandemic and by their newly valued roles as “essential workers,” the federal government and several state governments have taken important steps to lessen the exclusion of ITIN taxpayers. The first federal stimulus package excluded not only ITIN holders but also their family members with SSNs. Congress extended eligibility to members of ITIN households with SSNs for the second and third stimulus checks. Meanwhile, California, Colorado, Maryland, New Mexico, Washington, Maine, and Oregon broke with the federal government and made ITIN filers fully eligible for their state EITCs, and as of July 2021 similar measures were under consideration in four other states. Early evidence from California and Colorado suggests that ITIN inclusion could prove a highly effective means of reaching poor children with the benefits of a state EITC.
Topic:
Children, Child Poverty, Immigrants, and Tax Systems
Political Geography:
North America and United States of America