Policy Report

Support is growing among the American public for far-reaching tax reform, but which plan? The National Sales Tax? The Flat Tax? Or the USA Tax? This report computes the tax bases of each type of tax reform, and from there determines what tax rates are necessary to make each plan revenue-neutral under the traditional static analysis employed by government forecasters. The results may surprise you.

In a previous report (#131), we showed that the recent decline in America's saving rate is tied to the tax treatment of capital. In this report, we show that a similar relationship exists between business capital formation and the tax treatment of new investment.The results of this study have clear implications for tax policy and the tax reform debate. The evidence suggests that lowering taxes on capital may produce enough positive economic effects to offset most or all of the static revenue loss. Unfortunately, the current practice of government revenue estimators is to deny that any relationship exists between the aftertax return to capital and capital formation. Unless this practice is corrected, the outcome of the upcoming tax reform debate will produce unintended consequences and missed opportunities for the economy and the budget.

This report is the first step in a long project of making the case that in order to stimulate the economy through increased saving and investment, that United States should change its tax policy to remove the penalties on saving and investment. In ohter words, to move toward the taxation of consumption. This report is chock full of data, tables, and formulas, and the data is available in a Lotus spreadsheet on the File Download Page of this Web site (see table of contents).

The House and Senate welfare reform bills represent a change from the status quo and a move in the right direction, while the Clinton plan represents more of the same failed Federal programs. This report analyzes the House, Senate, and Clinton proposals in light of the following criteria, and scores each proposal on a scale from -2 to +2: Total Expenditures, Work Requirements, Program Coverage, Time Limits on Benefits, Fail-Safe Provisions, Treatment of Entitlements, Additional Incentives, Shifting Power to the States, and Other Aspects.

Government-Sponsored Enterprises (GSEs) such as Freddie Mac, Fannie Mae, Sallie Mae, and the Federal Home Loan Banks comprise a federal taxpayer liability of about $1.5 trillion dollars. It is time to begin privatizing these GSEs, because nearly all financial services provided today by GSEs are also available from effective private competitors without the taxpayer risk.

In only six short years, the Social Security trust fund has lost $8.8 trillion, or three-fourths of its projected balance. This study explains what happened, and what we can do about it.

Published in Cooperation with the Lehrman Institute.

Faulty static government forecasting methods that are biased in favor of spending and against tax cuts have contributed to out-of-control government spending and spiralling budget deficits. Dynamic scoring, which better reflects the reaction of taxpayers and businesses to changes in tax law, should be incorporated into the government forecasting process. This paper is the definitive case for dynamic scoring.

In 1995 government at all levels will spend almost a billion dollars a day on welfare, yet today we have a higher poverty rate than the one reported in 1966. Clearly, what we've been doing for the past 30 years isn't working.

A survey of major tax bills since 1954, demonstrating that, with a few notable exceptions, the constant effort to make the tax code "fairer" by raising tax rates on capital and labor have resulted in a tax code that discourages business formation, job creation, and capital formation, thus limiting growth.

The U.S. economy is lagging in GDP growth relative to recent history. This study proposes and evaluates a package of six changes to the tax code that would increase job creation and GDP growth, and restore long-term growth prospects.