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We provide a quantitative analysis of the distributional effects of the 2018 increase in tariffs by the United States and its major trading partners. We build a trade model with incomplete asset markets and households that are heterogeneous in their age, income, wealth, and labor skill. When tariff revenues are used to reduce distortionary taxes on consumption, labor, and capital income, the average welfare loss from the trade war is equivalent to a permanent 0.1% reduction in consumption. Much larger welfare losses are concentrated among retirees and low‐wealth households, whereas only wealthy households experience a welfare gain. [ABSTRACT FROM AUTHOR]

We estimate government spending and tax multipliers in the United States via a flexible proxy‐SVAR model, where identification is achieved by combining fiscal and non‐fiscal instruments with additional parametric restrictions. We find that, while the spending multiplier is robustly estimated to be larger than one across different models, the estimate of the tax multiplier is sensitive to the combination of instruments that we use. We unveil that the key factor behind these heterogeneous estimates is the assumption of orthogonality between total factor productivity (our main non‐fiscal proxy) and the tax shock. If this assumption is imposed, the tax multiplier is around one. If it is not imposed, the tax multiplier is three times as large. Our results point to the need of accounting for the large uncertainty surrounding the tax multiplier for the design of optimal fiscal policies. [ABSTRACT FROM AUTHOR]

Using a neoclassical model with endogenous growth, this study examines the effects of increasing housing taxation and eliminating the mortgage interest tax deduction on economic growth and household welfare in the United States. The optimal tax policy reduces taxation of income in favor of increased taxation of housing and consumption. This policy increases the growth rate by 0.49 percentage points. In addition, simply shifting the tax burden by reducing the tax rates on productive forms of capital toward housing can increase the growth rate up to 0.18 percentage points. This study also find that eliminating the income tax deduction on mortgage interest and lowering income taxes would increase growth by about 0.016 percentage points. Each of these proposed policies improves household welfare. [ABSTRACT FROM AUTHOR]

This paper builds on the literature examining the circumstances surrounding municipal fiscal distress by constructing a broader picture of the factors related to distress and why some cities file for bankruptcy or seek state intervention while others do not. Drawing on previous work, we identified a set of eight possible factors that may serve as predictors of municipal insolvency in the United States. In this article, we examine how prevalent these factors are across 42 fiscally distressed cities and identify significant associations between these factors. We then analyze how these eight factors vary between fiscally distressed cities that have filed for bankruptcy and those cities that are distressed but have not filed for bankruptcy. We found that high percentages of public union density and unfunded pension liabilities were most prevalent risk factors among cities and that significant associations exist between unfunded pension liabilities and three other factors: fiscal home rule authority, intergovernmental aid, and tax and expenditure limits. We also found that both low levels of state aid and evidence of financial mismanagement were more common among distressed cities that filed for bankruptcy than those that did not. Lastly, we identify areas where future research is needed. [ABSTRACT FROM AUTHOR]

In the early 1920s, legal and economic experts in the U.S. Treasury Department played a pivotal role in developing U.S. fiscal policy. Thomas S. Adams was one such expert and a key architect of the World War I fiscal state. After the war, Adams envisioned an innovative business tax that could have been the first broad-based, national consumption tax in the United States but was rejected by populist lawmakers. Later, Adams would be identified as one of the intellectual pioneers of the modern value-added tax (VAT)—a tax that has been adopted in nearly every developed country in the world except the United States and has also come to underwrite expansive, progressive social-welfare spending. How did a tax that began with an American expert fail to take hold in the United States? Democratic forces in the shape of organized political and economic interests both facilitated and frustrated the development of seemingly rational tax laws and spending policies crafted by fiscal experts. While Adams learned firsthand how these democratic forces influenced the relationship between expertise and state capacity, this missed opportunity to enact a comprehensive national consumption tax also influenced the peculiar development of the modern American fiscal and social-welfare states. [ABSTRACT FROM AUTHOR]

In the United States, tax favoritism—an approach that has weakened the extractive capacity of the federal government by providing tax loopholes and preferences for taxpayers—has remained since the 1930s. It has consumed the amount of tax revenue the government can spend and therefore weakened the possibility of the redistribution of fiscal resources. It has also made the federal tax system complicated and inequitable, resulting in undermining taxpayer consent. Therefore, since the 1930s, a tax reform to create a simple, fair, and equitable federal income tax system with the capacity to raise revenue has been long overdue. Many scholars have evaluated the Tax Reform Act of 1969 (TRA69), which Richard M. Nixon signed into law on December 30, 1969, as one of the most successful steps toward accomplishing this goal. This article demonstrates that TRA69 left tax favoritism in the United States. Furthermore, it points out that TRA69 turned taxpayers against the idea of federal taxation, a shift in public perception that greatly impacted tax reform in the years to follow. [ABSTRACT FROM AUTHOR]

Wasteful healthcare spending persists[1] but is concentrated and amenable to change: Hospital Referral Regions (HRRs) with higher per capita expenditures provide more low-value care,[2] and more wasteful Accountable Care Organizations reduce low-value care use after entering value-based payment plans.[3] We hypothesized that increasing adoption of value-based payment models - introduced by the Centers for Medicare and Medicaid Services (CMS) in 2010 and designed to reduce waste - might reduce geographic variation in per capita healthcare spending and slow per capita expenditure growth in higher spending areas. Table 1 For Hospital Referral Region Defined Quintiles of Per Capita Fee-for-Service Medicare Expenditures in 2007: Per Capita Expenditures on Total, Episodic Care, and Service Care and Their Components in 2007 (left), and Compound Annual Inflation Rates for 2007-2010, 2010-2014, and 2014-2017 (right). [Extracted from the article]

The goal of this paper is to examine the effect of religious heterogeneity on various important metro-area variables such as total expenditure, taxes, property taxes, debt, and employment as well as spending on the specific services of education, roads, police, health, and welfare. Two indices are used to measure religious heterogeneity, a fractionalization index and a polarization index. Polarization, designed to be a measure of social conflict, generally led to less spending and taxes, while fractionalization, the probability that two randomly chosen individuals belong to different religious groups, generally led to more spending and taxes. [ABSTRACT FROM AUTHOR]

Obesity is a public health problem in the United States that has been linked to excess sweetener consumption. The American Heart Association (AHA) recommends no more than 6–9 teaspoons/capita/day, while the U.S. Food and Drug Administration (FDA) recommends 200 calories/capita/day of caloric sweetener consumption. Both recommendations are well below the reported 2016 sweetener consumption levels. We quantify the input tax rates needed to reduce the current excess sweetener consumption level to the AHA and FDA recommended standards. We calculate the joint tax in the United States on two major sweeteners, sugar and High Fructose Corn Syrup (HFCS), to be 31 and 24 cents per pound, respectively, based on the AHA standard, and 19 and 17 cents per pound, respectively, using the FDA standard. These taxes would be roughly the magnitude of the existing sugar and HFCS prices. In both cases, the tax incidence on producers is much smaller than on consumers. Our focus is very different from past studies in that it deals with the effect of taxes on inputs to meet the recommended target rather than a selective tax (sugar‐sweetened beverage tax). If a sweetener tax were implemented, U.S. sugar and HFCS producers would lose US$398–US$489 and US$683–US$844 million per year, respectively. [ABSTRACT FROM AUTHOR]

We find that the Friedman rule is not optimal with real government transfers and distortionary taxation. As transfers cannot be taxed, a positive nominal net interest rate is the indirect way to tax the additional income derived from transfers. This result holds for heterogeneous agents, standard homogeneous preferences, and constant returns to scale production functions. The presence of real transfers changes the standard optimal taxation result of uniform taxation. Higher transfers imply higher optimal inflation rates. We calibrate a model with transfers to the US economy and obtain optimal values for inflation substantially above the Friedman rule. [ABSTRACT FROM AUTHOR]

The growth of the digital economy, and, in particular, cloud computing, has put a significant strain on sales taxation and other consumption tax systems. The borderless, anonymous, and digital nature of cloud computing raises questions about the paradigm used to determine the character of the transaction and the location where consumption, and therefore, taxation occurs. From a U.S. perspective, the effective resolution of these issues continues to grow in importance in light of the recent Supreme Court decision in South Dakota v. Wayfair and the growing number of U.S. businesses transacting overseas in jurisdictions that impose value-added taxes (VATs). The cloud magnifies difficulties with VAT compliance and enforcement, as businesses increasingly are subject to VAT laws in multiple jurisdictions. Tax authorities therefore have to collect from remote vendors who have numerous opportunities for VAT avoidance and evasion. The outcome of these challenges is unfair competition, a burden on international trade, and a huge gap in VAT revenues. In this important Article, we closely analyze these cutting-edge challenges and contribute to the debate on how to tax the digital economy. We argue that while the approaches taken by both the Organisation for Economic Co-operation and Development, of which the United States is a member, and the European Union introduce some noteworthy improvements to the current system, more substantial measures are necessary. Thus, we propose a range of fundamental changes that include improving the existing registration-based VAT system through the enhanced use of new technologies, replacing the current system with a blockchain real-time basis VAT system, and shifting the VAT collection burden from suppliers to payment intermediaries. As the digital transformation of the economy accelerates, each of these changes will help adapt consumption taxation to the modern realities of our digital era. [ABSTRACT FROM AUTHOR]

The Tax Cuts and Jobs Act (TCJA) was the most significant piece of federal tax legislation passed in thirty years. Not surprisingly, the TCJA has spurred the states to rethink their tax systems. This rethinking of state taxes was necessary even before the TCJA. To date, the states have primarily considered reforms that respond to the capping of the State and Local Tax (SALT) deduction, and the current proposals, if enacted and successful, would only return the states to where they were in 2017, which is to say to quite mediocre revenue systems. This Article, the first in a series, argues that the TCJA should provide the final motivation to move the states to reform their tax systems in fundamental ways that made sense even before the passage of the TCJA. The reform that is the focus of this Article is the implementation of entity-level consumption taxes. The states should have implemented such taxes long ago for a number of reasons. Prominent among such reasons is that the United States under-taxes the consumption tax base generally and, if well-designed, a low-rate entity-level tax is not likely to spur much additional evasion. The passage of the TCJA makes such a tax more appealing because this tax would be imposed on business entities, and businesses can still deduct state and local taxes. Thus, this proposal represents a response to the new SALT cap. Two other complementary reforms are developed. First, states should tax the windfall given to certain unincorporated businesses by the TCJA. This too can be a form of SALT workaround, as the tax on the windfall can be reduced for those taxpayers hurt by the capping of the SALT deduction. Finally, states should bolster their laws governing the apportioning of the income of multistate corporations. These laws already govern the apportionment of the state corporate income and would also control the apportionment of the tax base for the two new taxes proposed in this Article (namely, a new tax on consumption and on the federal windfall). [ABSTRACT FROM AUTHOR]

This article describes a U.S. tax system in the 1990s. Tax experts have devised a variety of specific consumption-based taxes. But no consensus has yet been reached on the details. Two interrelated issues will first have to be dealt with. The first is whether a tax on consumption is a desirable addition to the federal revenue system. The second is the specific form it should take. In practice, much of the impact of shifting to a consumption tax base would depend on how the tax is structured. The two major alternatives are expenditure taxes levied on total purchases and value-added taxes collected on individual sales. Expenditure taxes would be collected much as income taxes are. The annual taxpayer return continued to be at the center of the collection system. An expenditure or consumption tax can be calculated via a top down approach, building on the records available to provide the data needed for enforcement of corporate and personal income taxes. In contrast, a business transfer tax or a value-added tax represents a very different way of collecting a general tax on consumption. Value added is the difference between a firm's sales and its purchases from other companies. It is not surprising that politicians in many countries favor sales-type taxation.

The article presents an analysis of a tax increases' impact on retail trade chain stores and its customers. The market is defined by oligopolistic conditions and firms raise prices in response to the new taxes. The different market conditions under pure competition and complete monopoly conditions are described. In theory, independent stores will move in to capitalize on chain stores' raising prices. The impact on the consumer is discussed as primarily negative. Chain stores are negatively impacted in direct proportion to the tax increase.

The article examines the impact of states' sales taxes in the U.S. The author reviews economic literature on expenditure taxation by economists such as Nicholas Kaldor, John Kenneth Galbraith, and Irving Fisher. He explores the meaning and purpose of the terms "regression" and "progression" as they refer to an analysis of expenditure taxes. The policy of excluding food from taxes is explored. The author also discusses liberal government policies, the redistribution of wealth in an affluent society, the Fisher concept of income, and consumption expenditures.

The article discusses the operation of the progressive consumption tax upon national economic aggregates in the United States. The author contends that policies towards the consumption sector of the economy are crucial to ward off inflation during a period of increased defense spending. After discussing existing taxes such as the sales tax and the income tax, the author examines the progressive consumption tax, first proposed by Walter A. Morton. The progressive consumption tax proposed makes possible the removal of inflationary pressure from the consumption sector in a defense-economy.

This study explores the effects of state‐imposed local tax and expenditure limits or TELs on the budgetary solvency of city governments in the US. Most local TELs were enacted in the late 1970s and early 1980s, and have remained largely unchanged in the last three to four decades. These quasi‐permanent fiscal institutions do not take into account changes in voters’ fiscal policy preferences across time or the possibility of external fiscal shocks that require flexibility in changing tax and spending policies. Without this flexibility, TELs can lead to poor financial management practices that negatively affect budgetary solvency. The empirical analysis produces strong evidence supporting this argument. Whether TELs are assumed to be exogenously or endogenously determined, the results of the econometric analysis, including various robustness tests, indicate that TELs weaken city budgetary solvency. [ABSTRACT FROM AUTHOR]

This research examines the determinants of municipal capital investment in the United States. Using a data set of 100 large cities in five select years over 1992–2012, the regression analysis finds that local tax and expenditure limitations and legal debt limitations restrict municipal capital spending. The receipt of intergovernmental revenue, governmental fund balance, and some demographic factors have significant effects on the capital outlays. The empirical findings shed light on how to address the lag of critical investment in infrastructure at the municipal level in the United States. [ABSTRACT FROM AUTHOR]

We document contemporaneous differences in the aggregate labour supply of married couples across seventeen European countries and the U.S. Based on a model of joint household decision making, we quantify the contribution of international differences in non-linear labour income taxes and consumption taxes to the international differences in hours worked in the data. Through the lens of the model, taxes, together with wages and the educational composition, account for a significant part of the small differences in married men's and the large differences in married women's hours worked in the data. Taking the full non-linearities of labour income tax codes, including the tax treatment of married couples, into account is crucial for generating the low cross-country correlation between married men's and women's hours worked in the data, and for explaining the variation of married women's hours worked across European countries. [ABSTRACT FROM AUTHOR]

For a large number of countries, we augment the specification of import demand in NiGEM by accounting for different import contents of individual expenditure components. Three examples illustrate that these changes have important implications for model outcomes. In the case of the recently enacted US tax reform and in a 'hard landing' scenario for China, spillovers become more pronounced while the domestic effects turn out more muted than in the default specification. The reverse is true for the ramifications of a public investment push in Germany. Hence, we believe that our add-on to NiGEM can be a useful tool for robustness exercises, in particular for spillover studies. [ABSTRACT FROM AUTHOR]

The article focuses on modest rate credit-invoice value-added tax (VAT) and using the proceeds to reform the current corporate and individual income tax and consumption tax alternatives. Topics discussed include businesses require upfront investments in research and development (R&D) and marketing to facilitate a global reach for their products and services, corporate tax rate could facilitate legislation that would limit the tax planning opportunities and U.S. investments.

How do taxpayers respond cognitively to add-on sales taxes versus all- inclusive excise taxes? If structural variations produce cognitive differences, then do the differences affect buying behavior? These are important questions because consumer spending drives the U.S. economy and directly determines the amount of tax revenues collected from consumption taxes. If the negative opinion that people have about taxes (Tax Foundation 2009) increases the saliency of the tax, then an add-on sales tax might decrease consumer spending more than an all-inclusive excise tax pricing structure. Instead, results suggest that demand is higher when the add-on component is a sales tax as compared to an excise tax that is embedded into the total price. The effects on demand are even more pronounced and people recall lower prices when the add-on sales tax is presented as a percentage of the base price--as is generally the case in the U.S.--rather than as an additional currency component. [ABSTRACT FROM AUTHOR]

Using US cross-sectional data, this paper calculates the welfare cost of a 10 percent inflation for different individuals and finds that the difference in cost between the poorest 20 percent, measured by their net worth, and the richest 20 percent is in the order of 102 percent. That is, a poor person is on average willing to forgive 102 percent more of their total consumption in order to have inflation reduced from 10 percent to 0. In absolute terms this represents a cost of 0.461 percent of consumption for the poorest and 0.228 percent for the richest. I accomplish this by introducing preference heterogeneity in a monetary search model first developed by Lagos and Wright, and calibrate the model to match each agent's type of cash holdings, approximated by their holdings in transactional accounts that bear almost no interest, as a fraction of their net worth using data from the Survey of Consumer Finances. I also show that this welfare difference increases to 130 percent (2.28 percent for the poorest 20 percent and 0.992 percent for the richest 20 percent) whenever frictions in the use of money are imposed (holdup problem). This distributional effect is further augmented if more frictions in the terms of trade are present. The ability to explicitly model these frictions is the advantage of using this model. Hence, inflation in this framework, as other studies have shown, acts as a regressive consumption tax; and this regressiveness is augmented with the holdup problem. [ABSTRACT FROM AUTHOR]

The article discusses omission bias in the context of benefits and a call for American policymakers to pay more attention to beneficial omissions as opposed to beneficial or harmful commissions, focusing on U.S. environmental policies and the possibility of compensating individuals who refrain from generating negative externalities. The internalization of externalities is addressed, along with incentives, residential consumption of electricity, and a proposed negative-consumption tax.

An essay is presented on the question of whether there will be a bicentennial celebration for the U.S. federal income tax in 2113, focusing on long-term tax deferrals and the differences between an income tax and a consumption tax as of October 2013. According to the article, Republicans in the U.S. House of Representatives have been trying to terminate the nation's income tax for nearly 20 years. Economist Irving Fisher and a cash-flow consumption tax are examined, along with flat taxes.

An essay is presented on the 100th anniversary of the U.S. federal income tax, the potential impact of technology on American income tax laws, and the reported emergence of tax compliance software. Consumption taxes and the U.S. Internal Revenue Service (IRS) are mentioned, along with tax rates and the economic impact of cash income that does not get reported to the IRS. Tax evasion and bans on certain cash transactions in Italy and Greece are assessed, along with efforts to raise tax revenue.

This paper reviews in some detail the 1913 tax legislation since it represents the beginnings of modern taxation policy. Earlier attempts to create an income tax based system were not very successful. Most taxes enacted from the Revolutionary War to the Civil War were excise or consumption taxes on items such as alcoholic beverages and tobacco products. Following the Revolutionary War, Adam Smith in 1776, in his "The Wealth of Nations," recommended an income tax. He felt that the ideal tax system should tax individuals based upon their "ability to pay." This concept remains central to our existing tax system as we continue to use a progressive tax rate system that taxes the wealthy at a higher tax rate than the poor. Although the 1913 tax legislation was only 27 pages in length, it was packed with detailed information concerning the creation of the United States' first comprehensive "income" based tax system. This paper reviews the many aspects of the 1913 law that pertains to individual taxes, business taxes, and other miscellaneous taxation issues. Finally, the authors review some of the aspects of this law that continue to be included in our current taxation system. [ABSTRACT FROM AUTHOR]

The article discusses the debate over replacing the existing income tax in the U.S. with an alternative tax structure while presenting proposals to replace or modify the income tax structure as well as identifying reasons for and against proposing changes. It mentions several types of taxes that could be imposed in place of the income tax including consumption tax, retail sales tax and hybrid income tax. It argues on economic efficiency and problems in switching to any of such tax systems.

The article discusses the corporate income tax reform and the corporate consumption tax. Topics discussed include value-added tax (VAT) and other related consumption taxes, the three basic consumption taxes such as the retail sales tax, the credit-invoice VAT, and the subtraction-method VAT along with the two variations on the subtraction-method VAT or "two-tier VATs" such as the Flat Tax and the X-Tax. It also discusses the growth and investment tax plan and the modern corporate tax.