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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. Surviving the storm: How climate-related disasters reshape tax morale in sub-Saharan Africa

Author:
Enrico Nichelatti and Abrams Tagem
Publication Date:
04-2025
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Climate-related disasters have increased over recent decades, with severe human and economic consequences. While research has examined their macroeconomic effects and impact on households’ income and consumption patterns, little attention has been given to their impact on tax morale—taxpayers’ intrinsic motivation to comply with tax obligations. This study fills this gap by estimating the impact of climaterelated disasters on tax morale in 26 sub-Saharan African countries using Afrobarometer survey data from 2011 to 2021. The analysis considers six climate-related shocks: droughts, earthquakes, extreme temperatures, floods, storms, and wildfires. We hypothesize that the impact of climate-related disasters on tax morale depends on the specific disasters considered, and that these heterogeneous effects work through two key mechanisms: economic inequality and trust in public institutions. First, they can exacerbate inequality by reducing government revenue, increasing economic hardship for vulnerable groups (through loss of livelihoods), and eliciting unequal policy responses from government. Climate-related disasters can also reduce inequality when associated with increased economic hardship for richer households (by destroying their productive assets. Second, tax morale declines when citizens perceive government responses as inadequate or unfair; conversely, it increases if citizens perceive the government to be responding adequately. Logistic regression results confirm this heterogeneity. Droughts, extreme temperatures, floods, and storms reduce tax morale, while earthquakes and wildfires increase it. Incorporating regional heterogeneity shows that the negative effects of disasters on tax morale are more profound in rural areas. Mediation analysis confirms inequality and institutional trust as key transmission channels. These findings underscore the need for inclusive tax policies and effective post-disaster governance to sustain revenue mobilization in sub-Saharan Africa.
Topic:
Climate Change, Natural Disasters, Tax Systems, and Economic Inequality
Political Geography:
Africa and Sub-Saharan Africa

3. The German 'Schuldenbremse' crisis: a symptom to be taken seriously in Europe

Author:
Clara Bösche
Publication Date:
01-2024
Content Type:
Working Paper
Institution:
Robert Schuman Foundation (RSF)
Abstract:
The priority to be given to the ecological transition and its practical implementation are dividing Germany and Europe. The European Union is being accused of making the conditions of production for farmers even more difficult: the number of demonstrations across the European Union has been rising after the Germans began their protests on 15 January 2024, as they denounced the ambitions of the European Green Deal, as well as the human and financial costs. At the start of 2024, the German coalition government (SPD, Greens and FDP Liberals) led by Chancellor Olaf Scholz (SPD) is struggling, since its draft budget has been cut by around €60 billion. The origins of the budget cuts to which the government has had to resort lie in a decision taken by the Constitutional Court of Karlsruhe dated 15 November 2023. The latter censured the decision to reallocate 60 billion €, initially intended to cushion the economic impact of the pandemic crisis, to a special fund for the transformation of the economy and the climate. For two months now, opposition has been growing in Germany over the resources allocated, the priorities to be defined and the rules governing public debt. The constitutional appeal was lodged by CDU-CSU members of parliament, who denounced the government's "sleight of hand". As Germany enters a recession, the debate is whether or not it is still appropriate to limit public debt to 0.35% of GDP. Current circumstances no longer justify bending the rule: the pandemic crisis is over, and the exceptional funds earmarked should not be used for the economy or the environment. As a result, since the Constitutional Court's ruling against the federal budget, in addition to opposition over the priority to be given to the green transition in economic and agricultural life, further opposition has emerged: regarding whether the constitutional principle of the debt brake (Schuldenbremse) should be reformed or not. This principle is firmly defended by Friedrich Merz, leader of the CDU and of the CDU/CSU in the Bundestag. In his view, the debt brake is the only way to avoid saddling future generations with debt, and he fears that lifting it might have a knock-on effect in terms of the financial stability of other European Union countries. Within the government, the SPD and the Greens (led by the Vice-Chancellor and Minister for the Economy, Robert Habeck), would like to reform the debt brake to facilitate the necessary investments, in line with the European Green Deal. However, within the same government, the FDP Liberals, led by Finance Minister Christian Lindner, have long refused to challenge this constitutional principle, in the same way as the CDU/CSU opposition. Christian Lindner is therefore in a difficult situation, caught between traditional positions, his coalition partners and the opposition. A hard-won agreement on the 2024 budget, on 13 December 2023, provides for cuts that will result, in particular, in the reduction of tax relief on diesel on agricultural machinery - the main focus of demonstrations in Germany – but also in a postponement of the “climate bonus”. Priorities have had to be set because of this cutback, but they are the source of dissatisfaction both on the part of the farmers, as well as the promoters of the European Green Deal. The debate on Germany's levels of debt, in the light of the demonstrations now rocking the country, is further weakening the coalition - the aim in this paper is not to take position on this - but above all, to consider the problem of the priorities to be identified, not only in Germany but also in Europe.
Topic:
Budget, European Union, Tax Systems, and Green Transition
Political Geography:
Europe and Germany

4. 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

5. The EU Tobacco Tax Structure: Impact on Prices, Revenues, and Smoking Patterns

Author:
Oxford Economics
Publication Date:
05-2024
Content Type:
Special Report
Institution:
Oxford Economics
Abstract:
Multilateral organisations such as the World Bank and the IMF have made the argument that specific excise taxes for cigarette taxation can provide significant benefits over ad valorem excise taxes. Chief among the benefits they identify are: more stable and predictable government excise tax receipts; a lower administrative burden for tax management and collection; and internalising the externalities produced by cigarette consumption. Across the EU, Member States have been restructuring their excise tax systems to create an increasingly prominent role for specific excise taxes. Between 2010 and 2023, authorities in the EU opted to rebalance towards specific excise and away from ad valorem excise, with the average ad valorem rate across Member States falling from 36.7% to 27.0% of retail selling price (RSP). As a result, in this period the average specific excise burden across the EU increased from 30.9% to 44.5% of total taxation. However, this shift has not been uniform across Member States and the approach to cigarette taxation has diverged. Countries like Denmark and Sweden have moved to an almost total reliance on specific excise taxes. Meanwhile in some Member States such as Italy and Spain, the share of specific excise tax in total taxation has remained very low. In this study, we examine the experience of eight EU Member States that have all taken differing approaches to cigarette excise policy in recent years. In four countries that have rebalanced to achieve a higher proportional use of specific excise taxes since 2010, we found excise tax receipts to have remained stable or increased, despite flat or falling rates of legal consumption. In four countries that have not significantly rebalanced towards specific excise taxes, the results were more mixed. Italy and Spain, notably, have seen a decline in their cigarette excise tax receipts over the period, despite below-average declines in cigarette consumption. Ad valorem-based excise tax systems do not provide as strong an incentive for manufacturers to raise prices as a specific excise-based system would. In addition, ad valorem dominated excise tax systems can encourage downward substitution from consumers for cheaper alternatives, exacerbating the decline in excise tax receipts.
Topic:
Economics, European Union, Tax Systems, Tobacco, Price, and Revenue
Political Geography:
Europe

6. Broader border taxes: a new option for European Union budget resources

Author:
Pascal Saint-Amans
Publication Date:
03-2024
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
There is widespread agreement on the need for new resources to fund the European Union's budget in order to meet increasing spending demands, not least repayment of debt incurred as part of the EU’s post-pandemic economic recovery. In particular it is seen as desirable that the EU should have ‘own’ resources, or reliable ongoing revenue streams. But there is little agreement on what new own resources could consist of. Limited reform so far has led to the introduction of a levy paid by EU members depending on plastic packaging waste generated in their territory and not recycled. Meanwhile, the European Commission has proposed resources for the EU budget from emissions trading revenues, and from levies collected under the EU carbon border adjustment mechanism (CBAM). There proposals are pragmatic and move in the right direction, but do not go far enough. The debate about own resources should focus on whether the EU will be able to build genuine own resources based on common tax policies. The EU suffers from ‘tax leakage’ in which profits are shifted from high-tax to low-tax EU countries, and from there onto no or low-tax non-EU jurisdictions, often without the application of withholding taxes. It may not be too much of a stretch to compare this situation of tax leakage with the situation addressed by CBAM – a quasi-tax at the border. So far, an opportunity for what could be seen as a tax at the border of the internal market, aiming to protect the market from harmful competition, may have been missed. Such a tax could reflect the undertaxed profit rule agreed as part of the international deal on the corporate minimum tax. Focusing on protecting the revenues of EU members by common tax borders could offer scope for new own resources.
Topic:
Budget, European Union, Borders, and Tax Systems
Political Geography:
Europe

7. Bold International Tax Reforms to Counteract the OECD Global Tax

Author:
Adam N. Michel
Publication Date:
02-2024
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
Nearly 140 countries, including the United States, have endorsed a new global tax system proposed by the Organisation for Economic Co-operation and Development (OECD). This proposal, which aims to increase global business taxes and targets America’s most successful companies, threatens to undermine crucial features of the international corporate tax system. Congress will face a decision in 2025: conform to the OECD’s system or opt out and safeguard America’s position as the most attractive place to do business. The taxation of multinational businesses often raises concerns about a “race to the bottom” through harmful tax competition and businesses shifting profits to low-tax countries. Yet the magnitude and effect of these two phenomena are commonly misunderstood. Tax competition has allowed average statutory corporate tax rates to be cut in half over the past four decades, fueling investment and economic growth. Among OECD countries, revenues have increased while tax rates declined. The magnitude of profits shifted to low-tax countries is often inflated by researchers relying on data that overstate income in tax havens. A more comprehensive picture shows that about 8 percent of US corporate profits are reported in tax havens, only half of US multinationals have any presence in a tax haven, and they face higher effective tax rates than domestic competitors. Where it does exist, profit shifting acts as a tax cut on investment, boosting jobs and economic growth in both tax havens and higher-tax home markets. Following the long history of costly reforms to stop businesses from moving profits overseas, US policymakers should try a different approach. Instead of enacting new rules to stop income shifting out of the United States, Congress should focus exclusively on increasing the attractiveness of the United States as an investment destination.
Topic:
Reform, Business, Multinational Corporations, Tax Systems, OECD, and Competition
Political Geography:
Global Focus

8. 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

9. Assessing the Fiscal Regime in Ghana’s Lithium Agreement

Author:
Thomas Scurfield and Denis Gyeyir
Publication Date:
07-2024
Content Type:
Policy Brief
Institution:
Natural Resource Governance Institute
Abstract:
NRGI modeling indicates that the Ghanaian government has negotiated a government take for the country’s first lithium mine that is higher than Ghana’s legislated fiscal regime and the regimes of many other current and imminent lithium hard rock producers, such as Australia, the Democratic Republic of Congo and Zimbabwe. Modeling suggests an average effective tax rate (government revenues as a share of mine profits) of 58 percent (excluding paid state equity). Seventy percent of these government revenues depend on the profits that mine leaseholder Barari DV Ghana reports. To limit the risk of revenue shortfalls, the agreement should define the process for pricing the lithium, limit the deductibility of interest from taxable income, ensure state equity is non-dilutable and establish rules in the shareholders’ agreement about dividend payments. Given that modeling indicates an after-tax internal rate of return for investors in the Ewoyaa mine of around 102 percent (after debt financing), the government may be able to negotiate an even higher take in future deals for similarly profitable mines. A variable rate royalty could help achieve this higher take. To increase the prospects for a lithium refinery in Ghana—the government’s other key objective—the government should ensure Barari conducts a rigorous feasibility study, publish it and then hold a multistakeholder consultation to agree on subsequent actions.
Topic:
Tax Systems, Fiscal Policy, Lithium, Revenue Management, and Minerals
Political Geography:
Africa and Ghana

10. Global Minimum Tax: Policy Impact on Investment Promotion and Incentives in ASEAN Member States

Author:
Sufian Jusoh and Intan Murnira Ramli
Publication Date:
10-2024
Content Type:
Policy Brief
Institution:
Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:
The Association of Southeast Asian Nations (ASEAN) Member States are some of the most important foreign direct investment destinations in the world. Investment in ASEAN Member States covers all four pillars of investment typology: natural resources, market-seeking, export oriented, and strategic assets. Key sectors – such as semiconductors, tourism, consumer products, e-commerce, banking, and commodities (e.g. nickel) – are expected to benefit from this trend. Many of the investors in ASEAN are multinational enterprises, and multinational enterprises earning €750 million or more in two of the four fiscal years, are now subject to the Global Minimum Tax (GMT) in more than 140 jurisdictions around the world. With the introduction of the GMT, ASEAN Member States must rethink their incentives and investment promotion strategies to maintain their competitive edge over other foreign direct investment destinations around the globe.
Topic:
Tax Systems, Investment, ASEAN, and Incentives
Political Geography:
Asia