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Digest

Ownership Concentration and Strategic Supply Reduction

Ownership Concentration and Strategic Supply Reduction
  • The Federal Communication Commission (FCC) plans to shift airwaves from TV broadcast to wireless use to respond to shifts in airwave demand.
  • In 2016, the FCC held a two-phase auction. In the first phase, TV broadcasters determined the lowest acceptable selling price. In the second phase, wireless data companies determined the highest acceptable purchase price. Taxpayers kept the difference which can be used to cover the cost of license reassignment.
  • However, simulations show that the FCC’s auction rules don’t maximize taxpayer value. When one company owns multiple TV broadcast licenses, it’s possible for that company to increase the selling price by limiting the supply of licenses available on the auction. Therefore, companies with multiple licenses can shift wealth from taxpayers to themselves.

Putting the Pension Back in 401(k) Retirement Plans: Optimal Versus Default Longevity Income Annuities

Putting the Pension Back in 401(k) Retirement Plans: Optimal Versus Default Longevity Income Annuities
  • A recent regulatory change makes it easier for people to use 401(k) and IRA money to buy Longevity Income Annuities (LIAs) that pay out a lifetime benefit starting no later than age 85.
  • The benefits of purchasing an LIA are positive for most people, but differ by sex, education, wealth and life expectancy. The benefit men receive from purchasing an LIA is more than double the benefit for women.
  • In a recent working paper, Wharton faculty member, Olivia Mitchell, and coauthors argue that using about 10% of 401(k) and IRA savings above a threshold to purchase LIAs would enhance wellbeing.

Fundamental Tax Reform: A Comparison of Three Options

Fundamental Tax Reform: A Comparison of Three Options
  • Consumption taxes have the potential to reduce taxes on saving, which may lead to economic growth.
  • A partial-replacement value added tax (VAT), a full-replacement X tax and a full-replacement personal expenditure tax (PET) all have different implications for how the tax is administered, transition costs, and international transactions. Policymakers will need to weigh the tradeoffs between a consumption tax and the current income tax system.
  • The economic impact of an X tax hinges on whether it is based on domestic consumption (includes a border-adjustment) or on domestic production.

Tax Policy and Retirement Savings

Tax Policy and Retirement Savings
  • Tax subsidies for retirement saving cost $180 billion in 2016 and are one of the largest tax sources of revenue loss for the government.
  • Evidence based on administrative data finds that tax incentives only induce a minority of households to save more. So-called “nudges” might be just as or more important.
  • In 2017, 30 states are exploring different types of retirement savings reforms. State reforms may help inform a national policy to increase household saving.

U.S. Capital Gains and Estate Taxation: A Status Report and Directions for a Reform

 U.S. Capital Gains and Estate Taxation: A Status Report and Directions for a Reform
  • Estate tax rates were lowered and exemptions raised dramatically in the 21st century with the result that married couples can potentially pass on an estate of up to $10,980,000 with no tax liability.

  • President Trump’s proposal to eliminate the estate tax while taxing capital gains at death could, in theory, raise a comparable amount of tax revenue as the current estate tax, if his proposed exemption allowance is lowered.

  • More research is needed to measure the impact of estate taxes and reforms to estate taxes on economic efficiency, behavior and the distribution of wealth.

The Economics of Corporate and Business Tax Reform

The Economics of Corporate and Business Tax Reform
  • U.S. statutory corporate tax rates are higher than other developed countries and based on worldwide income instead of domestic income.
  • Corporate tax reform can address both domestic inefficiencies such as debt structure and international inefficiencies such as the lockout effect, corporate inversions and income shifting.
  • More ambitious reforms may eliminate more inefficiencies. However, more research is needed to study their impact on revenue, the distribution of income, administrative costs and the response of other nations.

Tax Policy Toward Low-Income Families

Tax Policy Toward Low-Income Families
  • In 2013, tax credits for low-income families cost $124 billion. Nearly 20 percent of all households that filed taxes benefited from the Earned Income Tax Credit (EITC) alone.
  • The majority of EITC benefits go to single parents and to households with annual income below $30,000. The EITC is more likely to increase the employment of single parents relative to other groups.
  • Expanding the EITC program to childless households and increasing the refundability of the Child Tax Credit (CTC) are predicted to improve work incentives while providing more benefits for the lowest income households.

Tax Benefits for College Attendance

Tax Benefits for College Attendance

  • Tax benefits for higher education make up 17 percent of federal aid for postsecondary students.
  • Families find it difficult to take advantage of tax benefits for higher education. About 14 percent of families do not take benefits for which they qualify. Evidence that tax benefits for higher education induce more students to go to school is weak.
  • The authors explore the potential impact of different simplification strategies, providing a roadmap for future empirical work.

 

Economic and Distributional Effects of Tax Expenditure Limits

Economic and Distributional Effects of Tax Expenditure Limits

  • Reforms to certain tax expenditures considered in this paper can increase tax revenue by as much as $366.3 billion in 2016, equal to almost half of the budget deficit. Smaller reforms produce less revenue.
  • The method of limiting certain tax expenditures, however, can have substantially different impacts on the distribution of taxes paid by income.

Tax Compliance and Enforcement: An Overview of New Research and Its Policy Implications

Tax Compliance and Enforcement: An Overview of New Research and Its Policy Implications
  • The government loses almost 14.5 percent of revenue due to noncompliance, enough money to substantially narrow or even eliminate the federal deficit.
  • Third-party reporting of income is effective at improving reporting of income. However, increased reporting of income from third parties does not necessarily lead to increased tax revenue. In addition, most studies indicate that an appeal to moral duty is not effective at improving reporting of income to tax authorities.
  • Instead, increasing the chances of audit is effective at reducing tax evasion.

Environmental Taxation

Environmental Taxation
  • A carbon tax is a cost-effective way to correct for environmental costs imposed by the production of the energy sector.
  • A carbon tax can produce substantial revenue that can be used to lower other taxes, reduce the deficit, or redistribute income.
  • A carbon tax would reduce carbon dioxide emissions, but by how much is uncertain.

Effects of Income Tax Changes on Economic Growth

Effects of Income Tax Changes on Economic Growth
  • Not all changes to tax policy have the same impact on growth. Studies indicate that tax cuts, if not well designed, could even reduce economic growth.
  • Tax cuts that target new economic activity, reduce distortions to capital accumulation, and are not deficit financed are more likely to lead to economic growth.