indexation of the standard deduction, and other changes that would have beneficial tax effects on low- and moderate-income single-earner families. Rather small changes to combined marginal tax rates—single percentage points—could change the conclusions of this distributional analysis. The simple illustrations here stop short of such fine tuning, which would surely be a part of an actual legislative process.

The current tax structure—characterized by complexity and many narrow tax expenditures—and current tax rates have resulted from past policy debates and reflect the current balance of political interests. Higher revenue levels, accompanied perhaps by bold changes to establish a simplified tax structure for the personal income tax or introduce a VAT, would require different tradeoffs and a new consensus. The options presented here suggest, in broad outlines, the kinds of changes in tax structure that may be required if a decision is made to achieve fiscal sustainability by raising revenue levels to match higher future spending, taking into account the effects of such changes on efficiency, growth, and the distribution of tax burdens

NOTES

  

1. Other new federal taxes that have been proposed by some people include a carbon tax and increasing federal taxation on gasoline and diesel fuel. For simplicity, we considered only a VAT, which many countries have implemented successfully. A national sales tax might be possible in the United States, but we have not estimated this possibility in our scenarios. We also note that taxes are one kind of government revenue: customs duties and a miscellany of other receipts account for the remainder.

  

2. Controlling health care spending—including employer-provided care—is likely to have an indirect effect that would raise taxable compensation, boosting both payroll and personal income tax revenues in the future (compared with the baseline). This effect is likely because employers (often facing international competition) would probably have to defray increased health insurance costs out of taxable pay. Controlling health care costs would mitigate this reduction in taxable compensation, which would then be higher than otherwise. We have not attempted 75-year modeling of this indirect link between controlling health care spending and tax revenue, just as we do not model the macroeconomic consequences of alternative structures of the personal income tax. On the general relationship between health cost inflation and taxable compensation, see Nyce and Schieber (2009).

  

3. Personal income taxes also are paid by Subchapter S corporations, a few of them quite large.

  

4. Average tax rates can affect other aspects of behavior, too. Average rates for the committee’s illustrative options are discussed below.

  

5. The arithmetic of tax expenditure dollars is complex—the figures shown are just simple examples. An estimate of the revenue loss of a particular tax expenditure makes sense only in reference to a particular tax base and rate schedule.

  

6. Income tax compliance costs have been variously estimated at between 10 and 20 percent of revenues collected. Such estimates typically apply a per hour wage rate to the estimated number of hours that Americans spend on tax compliance activities.



The National Academies | 500 Fifth St. N.W. | Washington, D.C. 20001
Copyright © National Academy of Sciences. All rights reserved.
Terms of Use and Privacy Statement