How should policymakers reform the US tax code so that it is fairer, growthier, more efficient, and less cronyist — and raises enough dough to pay the bills, both today and tomorrow? Flat tax, FairTax, X tax? Lower tax rates for companies, increase tax credits for parents? The Camp plan, Ryan plan, Obama plan?
Before you answer, consider the following:
1.) US real GDP growth averaged 1.8% annually in the 2001-2013 period vs. 3.7% in the 1950-2000 period.
2.) During two recent extended periods of strong average annual real GDP growth — 4.4% in 1983-1989, 4.3% in 1996-2000 — the average top marginal tax rate on labor income averaged 41%, capital gains income 23%.
3.) From 1974 through 2013, the federal government spent an average of 20.5% of GDP and took in revenue that averaged 17.4% of GDP. In 2013, spending was 20.8%, revenue 16.8%.
4.) The US has the highest corporate tax rate – including loopholes and all — among advanced economies. (And the burden of the corporate income tax falls on human beings — investors and workers.)
5.) Forty-three percent of households paid no income tax in 2013, but two-thirds of those households did pay payroll taxes.
6.) April 2014 median household income was 7.0% lower than the median of $56,941 in January 2000.
7.) Post-tax, post-transfer, household-size adjusted (but not counting health benefits) median income rose just 1.0% from 2000 to 2007 vs. 14.4% in the 1990s and 12.0% in the 1980s.
8.) In 2013, the CBO says, more than half of the combined benefits of the 10 largest tax expenditures — worth nearly $1 trillion — went to households with income in the highest quintile of the population, with 17% going to households in the top 1% of the population.
9.) Although parents would prefer to have, on average, 2.6 kids, the US fertility rate has fallen to 1.9. And in the long run, low rates of fertility are associated with diminished economic growth, according to an NBER study.
10.) US productivity growth averaged 2.3% annually for most of the 20th century. But it slowed from 1973 through 1994 to 1.4%, bounced back to 2.4% from 1996 through 2004, and has slowed again to 1.2%.
11.) The federal debt (held by the public) as a share of GDP was 25% in 1981, or $789 billion. In 2007, those numbers were 35% of GDP, and $5 trillion. In 2013, 72% and $12 trillion.
12.) Under its alternative fiscal scenario, the CBO projects the federal (publicly-held) debt to GDP ratio will rise to 190% by 2038.
13.) Over the next 25 years, 60% of the rise of health-related entitlement spending will come from aging, and only 40% from rising medical costs.
14.) There have been jobless recoveries after each of the past three downturns, with each leading to a depressed share of middle-class jobs.
15.) The average labor force participation rate of prime-aged men in 1980 was 94.3% vs. 88% last month. Only 83 prime-aged men out of every 100 have a job today.
16.) The overall US employment rate is 58.9% vs. 62.9% pre-Great Recession.
So what’s the best tax reform for America?