Paul L. Caron

Thursday, April 21, 2011

Feldstein: Capping Individual Tax Expenditure Benefits

Martin Feldstein (Harvard University, Department of Economics), Daniel Feenberg (NBER) & Maya MacGuineas (New America Foundation) have posted Capping Individual Tax Expenditure Benefits on NBER. Here is the abstract:

This paper analyzes a new way of reducing the major individual tax expenditures: capping the total amount that tax expenditures as a whole can reduce each individual's tax burden. More specifically, we examine the effect of limiting the total value of the tax reduction resulting from tax expenditures to 2% of the individual's AGI. Each individual can benefit from the full range of tax expenditures but can receive tax reduction only up to 2% of his AGI.

Simulations using the NBER TAXSIM model project that a 2% cap would raise $278 billion in 2011. The paper analyzes the revenue increases by AGI class. The 2% cap would also cause substantial simplification by inducing more than 35 million taxpayers to shift from itemizing their deductions to using the standard deduction. For any taxpayer for whom the 2% cap is binding, a cap would reduce the volume of wasteful spending and the associated deadweight loss. Even for those taxpayers for whom the cap is not binding but who are induced by the cap to shift from itemizing to using the standard deduction, the deadweight loss associated with deductible expenditures would be completely eliminated.

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Tax Expenditure Benefits?

R we back to Orwell again?

Posted by: Sandy P | Apr 21, 2011 1:04:06 PM

clayton berger: Why would the IRS want to relitigate this issue again?

I'm going to go out on a limb and guess "money".

Posted by: anon | Apr 21, 2011 9:29:55 AM

When I was a Trial Lawyer with the Tax Division of DOJ from 1974 to 1978 the Department went after employers for claiming their employees were independent contractors.Eventually Congress required employers to issue 1099's to independant contractors and I thought the problem was solved and everyone was happy. Why would the IRS want to relitigate this issue again?

Posted by: clayton berger | Apr 21, 2011 7:47:09 AM