Statista: Ocasio-Cortez's Tax Plan Isn't Unprecedented | Statista

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Chart: Ocasio-Cortez's Tax Plan Isn't Unprecedented | Statista

New NBER Working Paper: Redistributing the Gains From Trade Through Progressive Taxation

A new working paper from Spencer G. Lyon and Michael E. Waugh  

Abstract:

Should a nation's tax system become more progressive as it opens to trade? Does opening to trade change the benefits of a progressive tax system? We answer these question within a standard incomplete markets model with frictional labor markets and Ricardian trade.  Consistent with empirical evidence, adverse shocks to comparative advantage lead to labor income losses for import-competition-exposed workers; with incomplete markets, these workers are imperfectly insured and experience welfare losses.  A progressive tax system is valuable, as it substitutes for imperfect insurance and redistributes the gains from trade.  However, it also reduces the incentives for labor to reallocate away from comparatively disadvantaged locations.  We find that optimal progressivity should increase with openness to trade with a ten percentage point increase in openness necessitating a five percentage point increase in marginal tax rates for those at the top of the income distribution.

Gated copy available here.

Progressives Logroll Themselves Out of a Pro-Tax Constitutional Amendment … But For How Long? | NewBostonPost

My latest contribution to NewBostonPost.com: A look at last week's SJC ruling on the so-called "millionaire's tax."  Link

John Cochrane makes the case for a progressive value added tax

A thorough blog post by the University of Chicago's John Cochrane on the virtues of a value added tax, tailored for the U.S. 

I’m proposing a VAT and nothing else, and let’s put all the cross-subsidies and mandates on budget where we can see them. If we make it progressive, the highest rates hit levels that would please Piketty. I’m not sure there is a lot more to squeeze out of this! 

Maybe energy taxes are not so regressive after all

A new NBER paper by William A. Pizer and Steven Sexton suggests that energy taxes levied to curb carbon emissions may not be as hard on low income consumers as commonly believed.

Despite popularity among economists for their efficiency, energy pollution taxes enjoy less political support than standards-based regulation because of common perceptions that they burden the poor relative to the rich. However, the literature on pollution tax incidence and consumption surveys in Mexico, the United Kingdom, and the United States, suggest energy taxes need not be as regressive as often assumed. This paper demonstrates that the incidence of such taxes varies according to the energy commodities that are taxed, the physical, social and climatic characteristics of jurisdictions in which they are implemented, and how the revenue is used. It is also shown that the variation in household energy expenditure within income groups is greater than variation across income groups in many cases. These horizontal equity impacts are reviewed, as are their implications for policy making.

Can a carbon tax be progressive?

From Vertical and Horizontal Redistributions from a Carbon Tax and Rebate by Julie Anne Cronin, Don Fullerton, Steven E. Sexton

Abstract: Because electricity is a higher fraction of spending for those with low income, carbon taxes are believed to be regressive. Many argue, however, that their revenues can be used to offset the regressivity. We assess these claims by employing data on 322,000 families in the U.S. Treasury's Distribution Model to study vertical redistributions between rich and poor, as well as horizontal redistributions among families with common incomes but heterogeneous energy intensity of consumption (different home heating and cooling demands). Accounting for the statutory indexing of transfers, and measuring impacts on annual consumption as a proxy for permanent income, we find that the carbon tax burden is progressive, rising across deciles as a fraction of consumption. The rebate of revenue via transfers makes it even more progressive. In every decile, the standard deviation of the change in consumption as a fraction of consumption varies around 1% or 2% and is larger than the average burden (about 0.7%). When existing transfer programs are used to rebate revenue, the tax and rebate together increase that variation to more than 3% within each decile. The average family in the poorest decile gets a net tax cut of about 1% of consumption, but 44% of them get a net tax increase. Relative to no rebate, every type of rebate we consider increases this variation within most deciles.

Link: NBER #23250