Wednesday, July 24, 2013

New article publication (relevant to tax reform design)

The Canadian Tax Journal has just published my short article, "The Bucket and Buffett Approaches to Raising Taxes on High-Income U.S. Individuals," at volume 61, pages 425-434 (2013).  A PDF is available here.

It's in a "Policy Forum on Recent Developments in U.S. Tax Policy" that also features an article by Andrew Samwick on long-term fiscal policy challenges that the U.S. faces.

My abstract for the piece, which I wrote for SSRN rather than for the publication as such, can be slightly revised to go something like this:

"In the aftermath of the 2012 U.S. presidential election, while it was agreed to increase high-income individuals’ taxes, there was and is considerable disagreement about how this might best be done. In particular, while some favor raising upper-bracket marginal income tax rates, others prefer an approach that I call distributionally selective base-broadening. Here the idea is to restrict or deny the benefit of various tax preferences in such a way as to target the impact of the base-broadening on high-income individuals who have such items. An inevitable byproduct of such an approach is that different individuals will in effect face different tax bases.

"This brief article, prepared for a forthcoming tax policy forum in the Canadian Tax Journal, assesses two such approaches that have received recent attention. The first is a "'bucket' approach to limiting the use of particular tax preferences, endorsed by the 2012 Romney campaign. The second is the so-called ''Buffett tax,' endorsed by the Obama Administration. I argue that, while either might conceivably be better than politically feasible alternatives, they have significant defects that should be kept in mind as well, and in some respects bring to mind the much-reviled alternative minimum tax."

While I wrote the article against the backdrop of the then-pending fiscal cliff negotiations, I think it has ongoing relevance to discussions about how to raise high-income individuals' taxes, if this ends up being done.  Distributionally selective limitations on tax benefits, such as those that these two approaches would employ, have in my view gotten better press than they deserve, relative to the alternative of more straightforwardly broadening the base and/or raising high-end rates.  So these issues may well arise again.

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