Table of Contents

PREFACE
Who are we? Why did we team up to write this book? What's the book about? Why did we write a second edition? Who provided invaluable assistance on this project?
PART I HOW ARE WE TAXED?
1 The View from 30,000 Feet a. Why is everyone always so worked up about taxationb. Why was everyone especially worked up in 2018? (Hint: a lot has changed)c. What is a taxd. What are the major kinds of taxese. How are taxes like ducksf. Are there "hidden" taxesg. Are there ways to raise revenue other than taxesh. Why not just borrow the money instead of raising taxesi. How can taxes be like regulationsj. How can regulations and spending programs be like taxesk. How have taxes changed over timel. How do state and local taxes varym. How does the composition of tax vary across federal, state, and local governmentsn. Is the United States really the highest taxed country in the worldo. Federal taxes in the United States have been at about 18 percent of GDP for 50 years. Does that mean that this is the natural rate of taxationp. Why is the long-term fiscal outlook so dire?
2 Personal Income Taxesa. What's the difference between personal taxes and business taxesb. Who really bears the burden of taxc. Are there cases in practice where it does matter who writes the checkd. Can taxes affect asset pricese. What is the personal income taxf. Isn't the income tax a fraudg. What are exclusions, deductions, exemptions, and creditsh. What is the standard deductioni. Why are there itemized deductions? Isn't it unfair that most people don't benefit from themj. Who benefits from the itemized deduction for state and local taxes (SALT)? k. Why could raising the standard deduction and limiting the SALT deduction depress home prices and charitable givingl. At what income level do people start owing income taxm. Is it true that half of households owe no income taxesn. Is this bad for democracyo. Do we tax capital income the same as labor incomep. What is economic incomeq. Why do economists think my home earns me rentr. Why don't we tax economic incomes. How do we tax capital gains and dividendst. What are the arguments for and against lower capital gains tax ratesu. What is the "Angel of Death" loopholev. What is carried interestw. If we want to favor capital gains and dividends, does it make sense to do it via lower ratesx. What is the AMT? y. What is the "Buffet Rule"? z. What are hidden tax bracketsaa. Does Uncle Sam really want you to live in sinbb. How does inflation affect the income taxcc. Why did TCJA change the inflation index for adjusting tax brackets and other parametersdd. What are payroll taxes and how are they different from income taxesee. Aren't other taxes also dedicated to Medicare and Social Securityff. Is it true that most taxpayers owe more payroll than income tax?
3 Business Income Taxes a. How do we tax corporations' incomeb. Why do economists say that we "double-tax" corporations' incomec. What are the other ways business income is taxedd. Why tax corporationse. Which people bear the burden of the corporate income taxf. What are the impacts of double-taxing corporate incomeg. What would happen if we just eliminated the corporate income taxh. How can some companies get away with paying no income tax despite billions in profitsi. Why is it troublesome that some companies view their tax departments as profit centersj. Income earned by corporations is double-taxed, and tax avoidance opportunities abound. Make up your mind-is corporate income taxed too much or too littlek. What is depreciationl. What are expensing and bonus depreciationj. Should businesses' interest expenses be deductiblek. Why do many corporate executives prefer tax cuts to expensingl. Are there implicit spending programs run through the corporate income taxm. Are multinational corporations taxed differently than domestic companiesn. Should we try to tax corporations on their worldwide incomeo. What is a territorial systemp. Will shifting from a worldwide to a territorial system bring American jobs homeq. What is transfer pricing? Why is it important to multinational corporations (and taxpayers)? r. What are tax havenss. What is a global minimum tax and why does it matter in a territorial systemt. What is formulary apportionment? Would that be a better option than trying to enforce transfer pricing rulesq. How does the U.S. corporate tax rate compare to the rate of other countriesr. Did our relatively high corporate tax rate hurt our companies' competitiveness and the country's competitiveness?
4 Taxing Spendinga. What is a consumption taxb. Why tax consumption rather than incomec. A consumption tax sounds great. What's the catchd. What is a retail sales taxe. What is a use taxf. What is a luxury taxg. What is an excise taxh. What is a sin taxi. What is a Pigouvian taxj. What is a VAT? k. The credit-invoice VAT sounds really complicated. Why do it that wayl. Are small businesses subject to the VAT? m. Why doesn't the United States have a VAT? n. How much money would a VAT raiseo. What is the typical VAT rate in other countriesp. How would a federal VAT interact with state and local sales taxesq. Does a VAT promote exportsr. The destination-based cash flow tax (DBCFT) is a mouthful. What is its. Why could imposing a border adjustable tax (BAT) hurt importers and help exporterst. A DBCFT sounds like a VAT with a longer and unpronounceable acronym. How is it differentu. What is the "Angel of Death" loopholev. Wouldn't a flat tax be super simple and fairw. There are flat taxes all over Eastern Europe. Are they the same as the flat tax advocated for the United Statesx. What is the X taxy. What is a consumed income taxz. Are tax breaks for saving and retirement indirect steps toward a consumption taxaa. Do these tax breaks actually encourage savingbb. If the economy runs on consumption, why would we want to encourage savingcc.What's the difference between Roth and traditional IRAsdd. Do consumption taxes disproportionately burden the old?
5 Other Kinds of Taxes a. What is the estate taxb. How is estate tax liability calculatedc. Why tax estates when the assets that went into them were already subject to plenty of taxd. What are the estate tax's effects on work and savinge. How does the estate tax affect small businesses and family farmsf. Should the United States adopt a wealth taxg. What is the difference between an estate tax and an inheritance taxh. What is a financial transaction taxi. What is the property taxj. What is a lump-sum taxk. Do economists have other goofy ideas about ideal tax systemsl. Do these ideas explain why people don't like economists?
PART II THE COSTS AND BENEFITS OF TAXATION
6 Taxes and the Economy a. How do taxes affect the economyb. Why do economists think that raising funds costs much more than the tax sticker pricec. Do some taxes help the economyd. What is the Laffer Curvee. Which is a better economic stimulus, cutting taxes or spending moref. What kinds of taxes provide the most stimulusg. What are built-in stabilizersh. How do taxes affect prosperity and growthi. How do taxes affect working and savingj. How do taxes affect entrepreneurshipk. How do taxes affect research and innovationl. What is "trickle-down" economicsm. Why do smart, serious people disagree about optimal tax policyn. Why not run deficits forevero. Are the benefits of tax cuts diminished, or eliminated, if they increase deficitsp. If people care about their children, won't they just save more to make up for any deficits? That is, dodeficits matter at allq. Will the Tax Cuts and Jobs Act boost the economy and make most Americans better off?
7 The Hidden Welfare State a. Are a trillion dollars in middle-class entitlement programs really hidden in the tax codeb. What exactly is a tax expenditurec. Why do we call tax expenditures entitlement programs? They're tax cuts.d. Who benefits from tax expenditurese. Why has the use of tax expenditures been growing in recent yearsf. How should policymakers decide whether to run a subsidy through the tax systemg. How should tax expenditures be designedh. Does the mortgage interest deduction encourage homeownershipi. Why does tax-free health insurance push up health care costsj. Was the Affordable Care Act (Obamacare) actually a giant tax lawk. Are all tax expenditures run through the income taxl. Is the whole concept of tax expenditures based on the fallacious assumption that government owns all your money?
8 The Burden of Taxationa. What makes a tax system fairb. What is the benefit principlec, Do special fairness concerns come into play when tax laws changed. How is the tax burden distributede. Why can analysts draw different conclusions about whether a particular tax change is progressivef. What is the burden of deficitsg. Is progressive taxation class warfare?
9 Running a Tax System: Administration and Enforcementa. How much does it cost to run the U.S. tax systemb. How does tax remittance and collection workc. Who gets audited and why? What's the DIFΓ<Fd. What is information reportinge. How can the United States "require" foreign financial institutions to report on U.S. taxpayersf. What is tax withholdingg. Why do people cheat on their taxes? Why do they complyh. How much cheating is therei. How much more tax could the IRS collect with better enforcementj. Should states be able to tax Internet and mail-order sales from other statesk. Why not audit everyonel. Why not ramp up the penalty for evasionm. Are refundable tax credits especially prone to tax evasionn. Do most people get tax refundso. How many people use tax preparers? Do they help or hinder compliance?
10 Simplicity and Complexitya. How complicated is the U.S. income taxb. How is tax complexity measured, and how should it be measuredc. Do fewer tax brackets promote simplicityd. Why is there a trade-off between simplicity and other goals such as fairnesse. How fast are we moving toward e-filingf. If almost everyone uses tax software or paid preparers, should we stop worrying about complexity? Should we start worrying about democracyg. Could most taxpayers be spared any filing requirement (as in the United Kingdom)? h. Could the IRS fill out our tax returns for usi. Would simplifying tax compliance be unfair to H&R Block and Intuitj. What is a data retrieval platformk. Did the TCJA simplify the income tax?
11 The Behavioral Economics of Tax Policy (or Tax Policy for Imperfect Humans)a. What is behavioral economicsb. Why does behavioral economics matter for tax policyc. Why do sticks (fees) work better than carrots (bonuses) at changing humans' behaviord. Do excise taxes depress spending more than equivalent sales taxese. Should we tax internalities like externalitiesf. The tax on people without health insurance (the "individual mandate") was the least popular feature of Obamacare. Is it possible that many who were coerced to seek insurance were made better offg. Does tax complexity cause people to make costly mistakes?
PART III A TOUR OF THE SAUSAGE FACTORY
12 Misperceptions and Reality in the Policy Process
a. What does the public know about taxesb. What does the public think about taxesc. How are new taxes enactedd. Was the TCJA like the Tax Reform Act of 1986-e. What are regulations and why are they importantf. How does the tax sausage get made? (House and Senate rules)g. Who estimates the revenue impact of tax changesh. How do they do it? Do they ignore behavioral responses to taxationi. What is dynamic scoringj. Must taxes be raisedk. Can we solve the problem by raising tax rates only on those with high incomes?
13 Snake Oil a. Wouldn't a flat tax be super simple and efficientb. How about offering a new tax system on an elective basisc. What is the "starve-the-beast" theoryd. Does the taxpayer protection pledge protect taxpayerse. What is the "two Santas" theoryf. Should we eliminate the IRS? g. The FairTax sounds, well, fair. Is ith. How did the Tax Cuts and Jobs Act become the law that must not be named?
14 Tax Reform a. Tax reformers talk about a broad base and low rates. What does that meanb. Was the so-called Tax Cuts and Jobs Act real tax reform or just a giant tax cutc. Is the broadest base always the best based. Does the framing of taxes mattere. What is a revenue-neutral tax changef. Are there some sensible tax reform ideasg. What have we learned?
NOTES
GLOSSARY
INDEX