Progressive Tax Reform in the Era of Globalization
Progressive Tax Reform in the Era of Globalization Jason Bordoff, Policy Director Hamilton Project, Brookings Institution January 30, 2009
2/18/2009
...
Progressive Tax Reform in the Era of Globalization Jason Bordoff, Policy Director Hamilton Project, Brookings Institution January 30, 2009
2/18/2009
1
Building Consensus for Progressive Tax Reform
Widespread dissatisfaction with tax code
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“If you were to start from scratch, the current tax code would provide a guide on what to avoid in designing an income tax system.” – President’s Advisory Panel on Tax Reform (2005)
2
2
Building Consensus for Progressive Tax Reform
Widespread dissatisfaction with tax code
“If you were to start from scratch, the current tax code would provide a guide on what to avoid in designing an income tax system.” – President’s Advisory Panel on Tax Reform (2005)
Rising inequality
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3
Building Consensus for Progressive Tax Reform
Widespread dissatisfaction with tax code
“If you were to start from scratch, the current tax code would provide a guide on what to avoid in designing an income tax system.” – President’s Advisory Panel on Tax Reform (2005)
Rising inequality Protectionist backlash
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4
Lack of Broadly-Shared Growth Productivity and Real Median Family Income Growth, 1947-2007 400 350
Productivity
300
1947=100
250 200
Real median family income
150 100 50 0 1947
1952
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1957
1962
1967
1972
1977
5
1982
1987
1992
1997
2002
2007
5
Rise in Income Inequality Share of Nation’s Income Going to Top 1%, 1928-2006 25%
The Trend Toward Less Progressive Taxation Average Federal Tax Rates for Selected Income Groups, 1960-2004
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8
8
The Trend Toward Less Progressive Taxation Changes in the Average Federal Tax Rate for the Top 0.1% of Households Change from 1960 to 2004 (percentage points)
Contribution to total change (percent)
Individual income and payroll taxes
-2.7
10%
Corporate taxes
-14.0
53%
Estate taxes
-9.6
37%
All federal taxes
-26.4
100%
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9
9
The Trend Toward Less Progressive Taxation Average Federal Tax Rates for Selected Income Groups, 1960-2004
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10
10
The Trend Toward Less Progressive Taxation Effects of 2001-2006 Tax Cuts Made Permanent Percent Change in Income for Selected Income Groups When Tax Cuts are Fully in Effect in 2012
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a. Assumes tax cuts are financed by a reduction in government transfer payments, or an increase 11household. in lump-sum taxes, that is the same total amount for each
The Case for More Progressive Taxation
Tax code has become less progressive Declining marginal utility of income and desire for “equal sacrifice”
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12
The Case for More Progressive Taxation
Tax code has become less progressive Declining marginal utility of income and desire for “equal sacrifice” Mitigating inequality
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13
13
The Case for More Progressive Taxation
Tax code has become less progressive Declining marginal utility of income and desire for “equal sacrifice” Mitigating inequality Insurance
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14
14
The Case for More Progressive Taxation
Tax code has become less progressive Declining marginal utility of income and desire for “equal sacrifice” Mitigating inequality Insurance Automatic stabilizer
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15
15
Protectionist Backlash Share of Americans Who Believe Free Trade is Good for their Country 80%
70%
60%
50% 2002 2/18/2009
Source: Pew Research Center
16
2007
16
Protectionist Backlash Percent of Republicans Supporting Free Trade, 2007
Other (9%) Skeptical (59%)
Supportive (32%) Source: Wall Street Journal
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17
17
Protectionist Backlash U.S. Imports from Developing Nations 1989-2007 9%
China
8%
Mexico
7%
Other Developing
5% 4% 3% 2% 1%
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18
07 20
06 20
05 20
04 20
03 20
02 20
01 20
00 20
99 19
98 19
97 19
96 19
95 19
94 19
93 19
92 19
19
91
90 19
89
0%
19
Percent of GDP
6%
18
Achieving Progressive Reform
Individual Income Taxes
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19
Achieving Progressive Reform
Individual Income Taxes
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Repeal or let expire Bush tax cuts for top earners Robust tax on estates and bequests Switch from deductions to credits
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20
Achieving Progressive Reform
Individual Income Taxes Corporate Taxes
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21
Achieving Progressive Reform
Individual Income Taxes Corporate Taxes
Complex, inefficient, fail to raise intended revenue Broaden base, lower rates Problems to address include:
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Book-tax income gap Treatment of foreign source income Treatment of different types of investment
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22
Achieving Progressive Reform
Individual Income Taxes Corporate Taxes Simplification
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23
Achieving Progressive Reform
Individual Income Taxes Corporate Taxes Simplification
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Consolidate subsidies with similar purposes Return-free filing AMT reform
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24
Achieving Progressive Reform
Individual Income Taxes Corporate Taxes Simplification Compliance
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25
Achieving Progressive Reform
Individual Income Taxes Corporate Taxes Simplification Compliance
