All posts by Janet Byrd

Tax policy colloquium, week 7: Lisa Philipps’ Gendering the Analysis of Tax Expenditures: Bridging Two Solititudes in Canadian Tax Policy

This past Tuesday, Lisa Philipps presented the above-titledpaper, happily the day before (rather than that of) our hideous Nor’easter. I was unable to post the next day, as I usually do, due to the crush of other obligations, but now, from a sunnier realm than NYC, here are some thoughts about the paper and topic.

The impetus for the paper (co-authored with Isabella Bakker) is as follows.  Canada’s executive branch, which one might say (without reckless exaggeration) is at present somewhat differently directed than our own, has begun disseminating gender-based analysis of budget measures.  But tax expenditure (TE) analysis and information reporting have not similarly changed.  So the paper’s main impetus is to argue that gender-based analysis of the impact of Canadian TEs would offer a worthwhile expansion of publicly available information and knowledge.

The paper then offers preliminary analysis of various TEs as officially listed and measured. What makes this technically feasible is that Canada has separate filing by married couples. So access to the data permits one to say, for a particular TE, X amount has been claimed by men, and Y amount by women.

Among the pertinent items on the list are childcare and dependent benefits, a child care expenses deduction, and narrowly tailored tax credits or deductions for volunteer firefighters, clergy, police, and members of the military. Also, alimony deductions (and presumably exclusions, as under U.S. income tax law for pre-2019 divorce agreements). And also, pension-splitting.  Under this one, half of one’s pension payments can be reported in taxable income by one’s spouse, rather than by oneself, if both sign an agreement to that effect, without regard to whether said spouse has a legal claim to said half. This is commonly called income-splitting for pensions, in the same sense that, under the U.S. rules, having a joint return in which all relevant dollar amounts (such as tax brackets) are double their levels under individual returns may be arithmetically equivalent to separate returns with income splitting. (The key point here, of course, is the effect of progressive rates.)

Anyway, here are some of my thoughts on the topics raised by the paper:

1) What is a tax expenditure? – The paper takes the government’s official listing of TEs for granted, which is perfectly fine given its purpose of expanding public knowledge regarding the gender impact of various tax rules. But this is a pet topic for me that I have written about elsewhere. In brief, I think the only way to make the term analytically useful or meaningful, in the context of income taxation, is as a way of distinguishing between purely allocative rules (the clear TEs) and those that are part of the distribution system’s doing its job. For example, it would be hard to argue reasonably that solar panel tax credits are an aspect of figuring out who is better off and who is worse off. Rather, such a feature of an income tax would have to reflect (as a matter of plausible rationales, and even if in fact it was passed to reward campaign contributors in the solar panels industry) an allocative aim of affecting people’s energy choices.

From this perspective, many of the items that the paper discusses – for example, the treatment of alimony or marriage or pension benefits within the household or children – really aren’t reasonably labeled as TEs. Even if also reflecting allocative effect and intent (as they well might), they are also a part of how the distribution system “decides” to distribute tax burdens between individuals based on household information about them.

But none of this in any way leans against the paper’s analysis, which takes the official TE list for granted. Indeed, the fact that none of the household-related items are TEs, if one accepts my view as to how thate term is best used, does not in the slightest detract from the importance of analyzing their gender impact.

2) Incidence issues with respect to tax expenditures– The paper takes advantage of the fact that, because Canada has separate filing by married couples (along with information regarding the filer’s claimed gender), one can actually figure out, by gender, who is claiming particular tax benefits. In the US, joint returns would make this impossible from an available data standpoint. But there are still (as the authors acknowledge) incidence questions regarding benefit. E.g., suppose a man in the 40 percent bracket makes deductible alimony payments to a woman in the 20 percent bracket.

Case 1, she is being conned (e.g., as he has better legal representation) and she gets the same amount they would have agreed to had they structured so that it wasn’t called alimony and was neither deductible nor includable. (This is feasible under U.S. income tax law for pre-2019 agreements; I don’t know whether Canadian law makes this any harder.) Here the economic incidence equals the nominal incidence – benefit to him, ost to her.

Case 2, this is mutually well-advised tax minimization. Given the tax bracket differences, her periodic receipt is adjusted upwards by between 20 and 40 percent, relative to the case where the payments would neither be deductible nor includable. In this scenario, both are better-off by reason of the tax treatment.

It’s an empirical question, and one that cannot be answered via tax return information, which of these two cases is more representative in practice, at a particular time and place.

3) Joint return vs. separate return – I increasingly feel that, for analytical purposes, it’s confusing rather than helpful to distinguish between the “joint return” and “separate return” approaches. (This is not to deny, of course, that, if one is making a concrete political proposal, using the terminology may be essential.)

Case in point, joint returns with double for all the dollar amounts can be the same as separate returns with income-splitting (i.e., half of the total income reported on each return).

Here’s what’s of greater interest: (a) the use of what I’d call “household information” (including income of other household members, the # of mouths to be fed, etc.) in determining taxes and/or transfers for any individuals in the household; (b) what for now I’ll just call “the rest” (administrative and filing aspects, legal liability with respect to claims made, etc.)

I tend to be less instinctively predisposed than the paper’s authors to put legal ownership to particular items at the center of how to think about what’s actually going on (for tax and transfer purposes) in a particular household. But agreed, that stuff can matter, and indeed a lot, depending on the household’s (hard to observe) internal rules and power relationships.

4) Secondary earners – Often in a couple, whether married or not and whether or not recognized by tax or transfer systems as a couple, there will be a “primary earner” and a “secondary earner.” This is not just a function of who is earning more this year, but of who is more definitely tied to engaging in taxable market work. When a given couple has a “secondary earner,” that individual tends to be much more tax-elastic with respect to labor supply than the primary earner. Among other things, this may reflect said individual’s capacity to perform valuable non-market and hence non-taxable services, including taking care of the couple’s children (if any) but also anything else that takes time and effort.

Secondary earners’ greater labor supply elasticity (where present) provides a standard efficiency reason for taxing them at lower rates. But of course in a U.S. joint return, if the primary earner will be working in any event and the question is whether the secondary earner will choose to do so, such individual’s first dollar of potential earnings may already face a high marginal tax rate, because the couple is taking for granted that the primary earner will be earning $X and thus running them at least partway up the marginal rate ladder.

In response to this problem, from 1981(?) to 1986 the U.S. federal income tax system offered a secondary earner deduction. But this was repealed in 1986, on the rationale that it was both too costly and no longer necessary given flatter marginal rates. (But of course, if it hadn’t been necessary it wouldn’t have raised significant revenue – hence these two rationales were inconsistent with each other.)

Anyway, I think secondary earner deductions should be back on the table as an important possible change to current US federal income tax rules. Note, they needn’t require retaining joint returns if there is sufficient cross-reference between spouses’ “separate” returns.

Secondary earner deductions have the potential to be both efficient and horizontally equitable. Efficient because they respond to the possibility that the secondary earner, by working, is forgoing tax-free imputed income. Horizontally equitable, because two couples with the same net taxable incomes are not in fact similarly situated if one has two earners in the workforce and the other just one. The former evidently has both a lower current wage rate and less time available for tax-free yet valuable home production.

There are lots of design questions around reinstating the secondary earner deduction. But if it tends to offer greater benefits higher up the income scale than lower, other adjustments can be made to retain the vertical burden distribution that one wants. Note also that, while I’ve followed past practice in calling it a secondary earner “deduction,” it might also be structured as, say, a flat percentage credit.

5) Other U.S. fiscal system bias against two-earner couples – The fact that the secondary earner has taxable income upon working but not upon staying home is only one way in which the U.S. fiscal system both discourages secondary earners from working and disfavors two-earner households. Other important aspects (and there is a huge literature on this – I’m just referring here to issues that are very well-known in some circles) include the design of Social Security and Medicare, both of which discourage work by secondary earners and disfavor two-earner couples relative to one-earner couples.

6) Childcare expenses – One needs an integrated response to all this, but the question of how the tax system should treat actual or imputed childcare expenses is another huge topic that I don’t think the U.S. system currently handles very well. And this of course goes well beyond just the tax system or even the fiscal system, to include broader issues that might conceivably be better handled through “spending.”


I am currently rushing to complete a particular section of the article I’m in the middle of writing on the new international tax rules from the 2017 act, before heading out tomorrow (weather permitting) for an all too short vacation respite during part of our spring break.

If nothing else, the two particular rules that I’ve been writing about so far are cleverly named – BEAT (for “base  anti-erosion tax”) and GILTI (for “global intangible low-taxed income”).  Less so for the third that I’ll get to later this month, FDII (for “foreign-derived intangible income”).

Tax article writers have already been having much fun in their titles with both names.  E.g., “Get With the BEAT,” “More GILTI Than You Thought,” and “Guilty as Charged.”

By contrast, my current article title is “Does the United States Now Have a ‘Territorial’ Tax System?” I answer this question “NO” by the top of page 2, and then get on with the rest of it.

But I couldn’t help thinking of how GILTI might be renamed, without any loss of acroynmic punch. Suppose it were called “Foreign Intangible Low-taxed or Tax Haven Income.” This would support using the acronym FILTHI.

Hurrah for spring break

“I might take a boat, I might take a plane,
I might have to walk but I’m going just the same
To Negril, Jamaica – Negril, Jamaica, here I come
They’ve got some crazy good sunsets there,
And I’m going to see me some.”
Actually the airplane option – endangered by the storm, but hopefully things will have cleared up enough by tomorrow – would appear to be the only realistic one here. 
Before going, however, or perhaps just afterwards, I’ll plan to post regarding yesterday’s interesting Tax Policy Colloquium paper, by Lisa Philipps of Osgoode Law School in Canada.

NYU Law Forum on the 2017 tax act

Early last month, I participated (with my colleagues Lily Batchelder, David Kamin, and Mitchell Kane) in an NYU Law Forum were we discussed the 2017 tax act with a room full of law students. (The discussion was pitched to their generally not being tax experts.)  We had a pretty good time, and it even somehow seemed as if the audience largely enjoyed it, too.

An article on the NYU website discussing the session is available here.  And if you scroll down, you’ll find a video of the full event.

Tax policy colloquium, week 6: Jacob Goldin’s Tax Benefit Complexity and Take-Up: Lessons from the Earned Income Tax Credit

My recent radio silence here reflects multiple demands on my time these days, including health issues for a more senior close relative. These things are never fun, but everyone goes through them at some point, unless something even worse happens.

But anyway, back here at NYU, after a week off (due to calendar complexities), the Tax Policy Colloquium resumed yesterday, with Jacob Goldin presenting this paper on increasing EITC take-up by individuals who are eligible for it. It draws on related empirical work (by Goldin and Taylor Cranor) suggesting that, when jurisdictions require employers to provide EITC information to their employees, this has “precise null effects on EITC take-up.” That is, Cranor and Goldin conclude in the empirical paper, not that they can’t find any effect on take-up, but that they have found, with high confidence, a lack of any effect.

In the paper that we discussed yesterday at the colloquium, Goldin assessess how EITC take-up might best be increased. He concludes that by far the most efficacious method would be to increase income tax filing by eligible individuals, in particular those who would get a net refund from filing but don’t currently do so.

A key point on which this argument relies is the near-ubiquity of assisted preparation methods (APMs) among filers who qualify for the EITC. An APM can either involve electronic software, a la TurboTax, or the aid of a tax professional, including through free VITA assistance. (Or both, as the tax professional is likely to be using electronic software.)

With APMs that use electronic software, the paper argues that the issue of computational complexity for the EITC pretty much disappears. Enter the pertinent information, and presumably the net liability or refund, including by reason of the EITC, will come out on the other end.

There is still the problem of informational complexity, given the multiple factual prerequisites for claiming the EITC. (E.g., where a child is spending time in multiple households &/or is supported in part by multiple adults, one gets the question of who is entitled to claim the EITC.) But the paper argues that the EITC has almost no marginal effect on informational complexity for a given taxpayer, since nearly all of the facts that are needed to determine EITC eligibility and its amount are also needed on the tax return for other purposes.

Here are a few other interesting issues that the paper invites one to think about:

1) Is there any way to loosen up a bit on who gets to claim the EITC? In principle, ought it to be allowed to anyone who is involved in the child’s support? Obviously the problem here is coordinating between potential claimants, so that only one claims it, and preferably it’s whomever they agreed to. Probably not realistically feasible to address this without much greater changes to how tax filing takes place, and/or how the income tax is generally administered. But there may be a decent number of cases in which, seemingly, there is both under-claiming by the person who’s supposed to claim it, and an “incorrect” claim by someone else, in circumstances where it makes little or no difference. This can lead to misleading statistics regarding both under-claiming and EITC  malfeasance.

2) Is stigma a significant issue in discouraging EITC take-up? I am inclined to doubt it. After all, one gets it via one’s tax return, a refund is cash, and it’s associated with work that our society valorizes (and perhaps even over-valorizes). But on the other hand, Vanessa Williamson’s paper from week 5 suggested that people value being called ‘taxpayers.”

The main reasons for underclaiming may be (a) under-awareness of it, leading to non-filing where one would have gotten a net refund, and (b) rationally choosing not to file, e.g., because the refund would be smaller than the cost of the APM one would use. But rational non-filing is less benign when what makes it personally rational is that the refund would be garnished and used, say, to pay back arrears in child support.

3) The EITC, of course, is far more generous for taxpayers with children than those without.  This seems misguided in one sense, but not another.

It makes a whole lot of sense for the fiscal system to be more generous, especially at the low end of the distribution, to households with children (or more children) than to those without them. The welfare of the children is the main reason for this, but their presence may also greatly increase the marginal utility of a dollar to their parents or other caregivers.

For reasons I’ll discuss shortly, it also may make sense to have an EITC – even taking as given that the overall amount of aid given to poorer individuals will be constant with or without it, so that the only question at issue is whether some of the aid is positively tied to wages, EITC-style.

But the case for basing such aid on wages seems to me to be primarily independent of the case for giving more aid to poor households with children than to those without.

Why would one tie the relative benefit that poor households with children receive, relative to those without children, to whether the caregivers work? One reason is that working raises the cost of childcare. But that in principle ought to be handled at a more general level, without tying it to wages earned in the way that the EITC does. Perhaps a second reason is that the reasons for encouraging low-wage work, where the alternative is no work rather than higher-wage work, might include modeling working to the kids. But the latter is a bit of a thin reed here, e.g., since why punish children in households where the caregivers don’t have market jobs.

4) Why favor increased EITC take-up? I agree with the paper that we should favor it (other than perhaps in cases where it’s rationally not claimed and this doesn’t reflect the garnishment issue. But the analysis of why we should favor it has several complications that are worth noting.

The main reason for favoring increased take-up, of course, is to increase the welfare of people in the claimants’ households. But also, the EITC can have positive labor supply effects that are part of the EITC’s underlying rationale.

Labor supply effects may arise either on the extensive margin (whether or not one works) or on the intensive margin (how much one works). I believe the EITC empirical literature suggests that the extensive effects tend to be more significant empirically.  This is a good thing, given that the EITC’s extensive effects ought to be purely positive. One never has a negative EITC – it’s either positive (rising via an initial 40% wage subsidy) or zero (reflecting its being phased out at a 21% rate). The intensive effects, by contrast, can be either positive or negative. Wage-earning is encouraged at the margin during the 40% phase-in stage, and discouraged at the margin during the 21% phase-out stage.

Why encourage work, via a wage subsidy? In a standard optimal tax model, it usually turns out that the tax rate on earnings should be somewhere between 0% and 100%, rather than being negative 40% via the payment of a wage subsidy.

Note, by the way, that the wage subsidy causes the EITC to be anti-insurance, as between successful and unsuccessful job-seekers. The former are already doing better than the latter by reason of having succeeded in the mutual job quest, then they’re further rewarded by the EITC, while the latter get nothing.

The reasons for nonetheless possibly favoring a wage subsidy via the EITC include:

(a) claims about positive externalities, if working today increases the likelihood of working in the future & this benefits others, such as one’s children or for that matter other taxpayers,

(b) parallel claims about positive internalities, and

(c) concern about the overall marginal tax rate. At low income levels, even if one gets a 40% wage subsidy via the EITC, one may still have a positive MTR due to other features of the fiscal system, such as the phase-out of means-tested benefits.

But now let’s bring this back to the question of increasing take-up. Suppose people get the EITC despite not knowing it’s there. Or more precisely, suppose they know too little about it to have any well-developed understanding of how it is affecting their after-tax-and-transfer bottom line. This wouldn’t negate favoring increased take-up due to the welfare effects in claimants’ households – but does it negate reliance on the work-encouraging rationales for the EITC?

Not necessarily. Many years ago at the colloquium, we had an econometrics paper (I believe, by Nada Eissa and Hilary Hoynes) that showed apparent behavioral responses to fine points of EITC design. An attendee scoffed at the findings, saying they couldn’t be true because surely none of the people whose actions the data reflected had more than the crudest understanding of how the rules actually worked. The author’s response was: That may well be, but nonetheless our empirical finding is what it is.

My thought (and that of others in the room) at the time was that this wasn’t actually implausible. Suppose there was a work subsidy, always positive at the extensive margin whether or not at the intensive margin, that no-one knew was there (although workers knew how much $$ they ended up with, reflecting payment of the subsidy into their bank accounts). It might still increase labor supply at the extensive margin, through the following mechanism. It would cause people who worked to do better than they would have otherwise. People might have a sense of how they were doing overall when they worked vs. didn’t work, and might also have this sense as to their neighbors. The invisible wage subsidy might thus encourage work indirectly, by causing people to associate working with a better end state of affairs.


In yesterday’s colloquium regarding Vanessa Williamson’s Read My Lips: Why Americans Are Proud to Pay Taxes, the word “loophole” came up a lot, because it is important to people’s perceptions regarding the supposed regressivity of income taxes in practice.

I’ve always been bemused by this term, in part because I thought it derived linguistically from knotholes in wood. But apparently it derives instead from narrow vertical holes in walls from which inside defenders could shoot arrows.

Tax experts generally don’t use the term “loophole” among themselves, because we consider it too imprecise. We’d be more inclined to discuss tax benefits that might be “unintended,” or else intended by someone but poorly rationalized, or else the product of unforeseen interactions between separate provisions or of linguistic ambiguity or formalism in the tax law, etc.

I’m fairly sure I had never once used it in an article, unless perhaps with reference to public opinion, until we used it in Tax Games 1 and Tax Games 2 given the broad readership that we were seeking (as it happened, far more successfully than we had ever imagined was possible).

But one fun thing at yesterday’s colloquium was hearing from attendees about parallel terms in other languages. Apparently the German term is “schlupfloch,” which (per Wikipedia plus the vagaries of Google Translate) is derived from the term for a small opening from which one can escape from a passage or location.

And the French term is “niche fiscale.” We of course have long since borrowed the term “niche” into English, with some broadening of its most literal sense as a shallow recess or nook (more comparable, perhaps, to “schlupfloch” than “loophole”). But in English it would now have a wholly distinct valence.

What do we learn from this? Nothing, I suppose, beyond what we literally learn from this (i.e., what the words are), but that’s enough for me.

NYU Tax policy colloquium, week 5: Vanessa Williamson’s “Read My Lips: Why Americans Are Proud to Pay Taxes”

Yesterday at the colloquium, Vanessa Willamson of the Brookings Institution presented two chapters from her book Read My Lips: Why Americans Are Proud to Pay Taxes. Specifically, we read chapters 2 and 4, which could be collectively titled “How the Taxpaying Experience Obscures Low-Income Taxpayers and Shapes Attitudes Towards Progressivity.”

The book is the product of in-depth survey research (via one-hour phone interviews with a broad range of respondents) regarding Americans’ views of the tax system. There are quantitative aspects to the research, but the main contribution is qualitative – exploring people’s beliefs and sentiments in a setting that encourages them to be reflective rather than, say, emphasizing partisan talking points. The interviews were conducted in 2013-2014, hence after the Obama-Romney campaign but before Clinton-Trump.

The title is a bit of a misnomer, picked (I would presume) by the publisher with an eye to sales appeal rather than descriptive precision. The book doesn’t so much document that the respondents are made to feel proud by the act of paying taxes as such, as that they view “taxpayers” as morally superior to “non-taxpayers” – even when they describe themselves as non-taxpayers. The pride attaches to the status, not the act, although it’s true that without the act one presumably can’t get the status..

The research was performed before Trump in 2016 proclaimed that not paying taxes is “smart,” rather than discreditable. So it would be interesting to see if Republican voters’ attitudes have been changed by this. I would like to hope not. Trump presents himself to his adorers as unique and special, a kind of fantasy projection for them. So perhaps they are like nerds who can cheer the violence wreaked by the protagonists in superhero films without either thereby becoming violent themselves or starting to admire violence by peers or even other political leaders. Presumably Trump supporters would still mind if a Democrat (or a “moderate” Republican?) paid no taxes on a large income. But then again,  it’s way too early to judge the long-term damage to cooperative social norms generally that the current era is wreaking.

Anyway, back to the underlying common public attitude about taxpayers versus non-taxpayers. I view it as a culturally particular instantiation of a fundamental human psychological frame.

Starting with the more universal part: human beings, like lots of other social species, regularly engage in cooperative undertakings for general benefit, in which it is hard to observe others’ degree of cooperation, or else in which cooperation and thus reliance is sequential. This creates prisoner’s dilemmas that are eased by natural or cultural selection for having some degree of emotional inclination to cooperate (which may help to overcome both short-sightedness and the difficulty of faking a good attitude), while also raising the probability that defectors will be punished when they are found out, and that people will play tit-for-tat when deciding whether to cooperate.

As it happens, vampire bats show such attributes as well. When some have succeeded and others have failed in their nightly blood quests, the former will sometimes regurgitate and share a part of their booty with the latter. They keep track of who shares with them and who doesn’t, which apparently requires having relatively large brains despite the caloric cost. So vampire bats not only sometimes front-end the generosity (someone has to go first), but at the back end distinguish between cooperators and defectors, and play at least a degree of tit-for-tat.

Blood-sharer = taxpayer? Obviously, here we are in a culturally contingent application of the underlying concept. It’s one thing to say that human beings are often emotionally inclined to adopt a tit-for-tat framework that valorizes contributors while disparaging shirkers, and another to generalize about their predilection to base this on one’s status as a taxpayer or non-taxpayer. And note that the main distinction Williamson’s respondents had in mind was NOT that between users and non-users of aggressive tax shelters, so much as that between higher and lower earners (where the latter can be assumed to pay little or no federal income tax).  Pending parallel qualitative surveys conducted in other countries (which would be a great and most-welcome contribution), this might be a distinctively 21st century American way of coding contributor vs. shirker.

I’m certainly as subject as anyone to feeling the emotional tug of the contributor vs. shirker / tit-for-tat psychological frame. But I regard it as preposterous to apply that frame to people who earn enough vs. don’t earn enough to pay significant (income) taxes. For example, (1) it’s a current-year rather than a long-term assessment, (2) it looks at the gross not the net (taxes alone, rather than taxes vs. benefits), and (3) it treats low-earners as shirkers rather than as (a) unfortunate and (b) mostly internalizing the downside of their bad outcomes (it’s not as if we had a generous social safety net).

The viewpoint brings to mind Romney’s infamous “47%” comment in 2012. So why did he get flogged so badly for it in the public sphere? I think his main problem was overdoing it, by smearing 47% of the population as wholly unwilling to take responsibility for their own lives. Just as, back in the day, blatant racists risked offending casual and unconscious racists when they too-clearly stated beliefs that the latter shared, so Romney made problems for himself here. Indeed, one could almost call his statement a Kinsley gaffe – defined as occuring “when a politician tells the truth – some obvious truth he isn’t supposed to say” – except that here it wasn’t an actual truth, but rather something that many people believed to be true.

Viewing “taxpayers” as better than “non-taxpayers,” where the difference lies in having enough earnings rather than in the degree of one’s tax avoidance  behavior, is a normative choice, albeit one I find unappealing. So it’s not factually “untrue.” But the Williamson book suggests that people do indeed commit factual error by applying the frame solely with regard to income taxes – as distinct from, say, sales and payroll taxes.

The book further argues, I think persuasively, that this narrow-sightedness reflects differences in the degrees of “effort” associated with paying different taxes. Payroll taxes are collected so seamlessly (other than from independent contractors), and indeed so invisibly so far as the employer half is concerned, that people scarcely notice they are paying them. By contrast, income taxes, despite withholding’s role in easing or even reversing the April 15 out-of-pocket bite, are associated with such stressful acts as getting one’s financial info together, getting the return done, feeling anxiety about whether (amid all the bewildering complications) one has found all the right tricks for reducing one’s liability, etc.

Sales taxes are a funny intermediate case. Williamson finds that poor people, whose budgets even a modest sales tax can stretch, are keenly aware of them. But higher-earners treat the sales tax as invisible on small purchases, and worth noticing only on big purchases where the bite is large enough to notice. Hence, astonishingly, they seem to view flat-rate sales taxes as progressive! In effect, the heuristic of ignoring trivially small amounts leads them to view the sales tax almost as if it were a luxury tax – without, it seems, any reliance on the fact that, say, groceries but not restaurant meals are typically exempted.

Decades of Republican rhetoric has surely done a lot to spread the view that “taxes” just means income taxes, which leads to distorted views of who is a taxpayer. But the book suggests that it is also about the income tax’s being (despite withholding) a relatively high-effort and high-visibility, rather than low-effort, tax instrument.

Here’s a further subtlety from the book regarding what the notion of “effort,” for this purpose, seems to mean. Gasoline taxes are pretty much hidden – you just pay the after-tax price at the pump, and the tax isn’t even separately stated. Yet apparently people are keenly aware that, if you do a whole lot of driving, you will pay a whole lot of gasoline tax. So they notice and complain about it, even though it’s low-visibility apart from the general understanding that it’s there (and rises with mileage).

One obvious payoff to these findings is that, if you are a policymaker who likes Tax A better than Tax B, you should try to structure things so that Tax A is low-effort or relatively invisible, whole Tax B is more high-effort and visible. So perhaps the Democrats ought to go all-in on seeking to enact automatic filing a la ReadyReturn in California. The aim would be, not to win votes ex ante by promising it, or gratitude ex post by delivering it, but rather to reshape the cognitive fiscal landscape in their favor once automatic presumptive filing was in place. But this would require the Democrats to be strategic and forward-looking, which is asking quite a lot of them.

One further set of findings from the book is as follows: While people tend to have mixed feelings about progressive redistribution of market income – seeming to combine an implicit “equal sacrifice” theory, plus aversion to high-end inequality even though they immensely under-estimate its scope, with concern about work effort and high-earners’ distributive desert – they do on balance seem to favor rising marginal and average tax rates. (Which is not to say that they have a firm grasp of the distinction between these two measures.)

Yet  people erroneously think that a “flat tax” would be more progressive than the then-existing (pre-2017) graduated income tax, because they exaggerate the empirical significance of “loopholes.” What they think the term “flat tax” means is unclear. No “deductions”? But presumably they don’t think it would be a tax on the gross, rather than the net, from a given business. And of course, the question of what constitutes a “loophole,” or for that matter a deduction, may not be well-understood.

Not clear how much any of this matters to actual political outcomes, given the falsity (as per Achen and Bartels) of the “folk theory of democracy,” under which voters’ policy preferences guide outcomes. But still all worth knowing, as information about our world.

Budgeting For A New Home

Budgeting For A New Home in 2018

The 2018 Tax deadline is soon approaching and many time to pay your taxesfamilies will be getting a tax return soon as the April deadline approaches. What will you do with your tax return? Save it for a rainy day? Pay off some debt that needs to be cleared up? There are many ways a taxpayer can spend or save that money depending on the individual’s personal situation.  Some people pay out the maximum amount monthly to the IRS in hopes to receive a nice big return. If this is you and you are planning on saving for a new home in 2018 then you may want to reconsider this.

Buying A New Home

home builders designIf you are planning on buying a new home then you will want to make sure that your credit score is in a reasonable place. If you have large debts it would be wise to pay those down to increase your credit score. If you have not been paying taxes on your income it would also be wise to start paying that so that you have earnings records for the lender. No lender is going to loan money to an individual that doesn’t have tax history with the IRS. So if you are planning on buying a new home in 2018 this is something to take into consideration.

Building A New Home

The process of building a new home is a bit different than the process of buying a home that has already building the perfect homebeen built and is on the market. Building a new custom home is a multistep process that requires multiple loans and purchases along the way. First, you need to secure a property to build on, then you need to find a custom home builder to create the blueprint for your new home. This is always an exciting step in the process, designing your home with the builder allows you the opportunity to specify the layout, room count, bathroom locations and kitchen modifications.

Setting Achievable Goals

Once you have determined how you want to proceed you can begin implementing a game plan for savings. Getting a budget in place, adjusting the amount of taxes taken out of your paychecks, and staying on course in 2018 will assure you that your new home buying or home building goals are met.

Follow-up plug for my DBCFT piece

I hope it’s not too tedious to insert another plug here for my short article on the DBCFT, which I recently posted on SSRN, but here goes. Goodbye to All That? A Requiem for the Destination-Based Cash Flow Tax is available here.

Not to put too fine a point on this, but, with the article’s current download total standing at only about .06% of that for Games 1 plus Games 2, I suppose it’s only fair to say that, at least so far, it is not exactly flying off the virtual shelves.

It’s clearly a piece that’s aimed at tax policy experts, not at the broader public. And yes, the DBCFT does not currently appear to be a live policy option, at least in the US. But it should still be of interest to those who like to follow, and wish to understand, the decades-long and still-continuing business tax reform debate. E.g., the piece compares the DBCFT to earlier, but still well-known, tax reform proposals such as the flat tax and the VAT, and explains why I think the proposal as such (i.e., within its particular packaging) does not merit a continuing place at the ideas table, even though its overall substance has significant potential merit.  Goodbye to All That also briefly addresses some other topics of continuing interest, such as why the US has no VAT, and how we should think about the merits and demerits of origin-based corporate income taxation.

So I’ll just mention it one more time: Act now while (virtual) supplies last!