The basic administrative goals of tax policy are uncontroversial: taxes should be easy to understand and comply with, and they should be enforced and administered in a competent and fair manner. Despite nearly universal agreement on these goals, administrative concerns raise difficult issues for researchers and policy makers. Researchers have not reached consensus regarding many of the most basic questions about the existing tax system, such as the costs of compliance and the determinants of tax evasion. Even when research does produce reliable answers to these questions, policy makers face difficult trade-offs both among various administrative goals and between administrative goals and other widely held goals of tax policy, such as equity and efficiency.
Administrative issues have also been in the forefront of efforts to reform taxes in recent years. Perhaps the most common complaint about the existing tax system is the level of complexity. The nature of activities undertaken by the Internal Revenue Service has also proved highly controversial. The desire to address these issues generates much of the impetus for fundamental tax reform – replacing the current system with either the flat tax or a national retail sales tax.
This chapter examines the role of administrative factors in tax policy and tax reform. After summarizing conceptual and measurement issues relating to tax complexity and tax evasion, we explore why complexity and evasion continue to exist.
Abstract - This paper examines elements of British tax policy and discusses their implications for the United States, where several recent proposals would mirror aspects of the British system. These include reducing filing requirements under the individual income tax, indexing capital gains for inflation, cutting mortgage interest deductions, enacting a value-added tax, and integrating the corporate and personal income taxes. The paper also discusses implications of the poll tax for tax reform. Britain and America have made different choices involving equity, efficiency, simplicity, and other goals. These choices offer the chance to help identify the impact of tax policy.
Tax policy debates in the United States are noteworthy for their frequency, intensity, and largely inward-looking focus. Very seldom is reference made to the experiences of other countries, and the references that are made are often seriously misleading. Yet many of the major reform ideas put forth in recent years in the United States are closely related to programs that already exist in other countries.
This paper examines selected elements of British tax policy and experience and discusses their implications for United States tax policy. Britain is an instructive choice for this purpose because the British tax system is fundamentally like the American system in many respects, but contains many features that relate directly to changes currently or recently proposed in the United States.
The systems are most obviously similar in that they rely on income and payroll (social security) taxes for the bulk of their revenue.
The succession of major federal tax changes in the 1980s and the simultaneous acceleration of trends toward income inequality have intensified interest in how the federal tax system imposes burdens and redistributes resources across income groups. Despite the tax changes, the authors project virtually no change in the overall “effective tax rate” (ETR) between 1980 and 1993, and a slight decline in the progressivity of the overall federal tax structure, with ETRs for the top 1 percent falling by the largest absolute and relative amount. Within the period, ETRs and progressivity fell between 1980 and 1985 and are projected to rise between 1985 and 1993.
Effective tax rates are affected by shifts in tax law; demographics; the level, distribution, and composition of income; and other factors. To examine the direct effects of changes in tax law (abstracting from incentive effects), the authors apply “indexed tax laws” from different years to the income and demographic data for a given year. This method, contrary to the initial results, suggests that the tax system itself became less progressive in the 1980s. Incorporating estimates of the effects of tax rates on cash earnings and realized capital gains does not significantly alter the results.
The paper provides important information on the distributional aspects of recent federal tax reform. In particular, the findings are inconsistent with the view that tax reforms were the driving force behind the widening income distribution.
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