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Some thoughts on the tax proposals in the American Families plan https://www.whitehouse.gov/briefing-room/statements-releases/2021/04/28/fact-sheet-the-american-families-plan/
1. The enforcement proposal is very good. It goes after the tax gap, which is sizable. And boosts funding for the IRS, which has been badly underfunded. Increasing enforcement, improving IT and service, and more info reporting will likely help improve fairness and revenues.
1b. There are many opaque business structures that cost substantial revenue and reduce the effective progressivity of the tax code. For example, when we estimated tax payments by pass-through businesses, we found that a substantial amount faces little tax due to opaque structures
1c. Increasing the number of audits and auditors, especially on complex business structures, and providing more information on returns and better computing resources will help address some of these issues (in part via increased compliance and more efficient audit selection)
2. The revenue potential of increased capital gains taxes is likely higher than many commentators and scorekeepers believe, especially when accounting for base broadeners like eliminating stepped-up basis at death and ideally charitable giving. https://twitter.com/omzidar/status/1386694058089791491?s=20
2b. I'm not sure why the exemption is 1M (or 2.5M for a couple including existing real estate exemptions), seems like it could be 400K. I also am not sure why charitable giving isn't included as a realization event. Limiting like-kind exchanges to 500K helps broaden the base.
2c. Generally, these base broadeners will likely help reduce the elasticity of realizations wrt the tax, reduce distortions, and increase revenues. Given the substantial pool of unrealized gains, especially since the start of the pandemic, the revenue potential is quite large
3. The evidence on the investment effects of cutting dividend taxes suggests that raising dividend tax rates may have modest investment effects https://eml.berkeley.edu/~yagan/DividendTax.pdf
4. In the legislative process requires changes, a top income tax rate above 39.6% is a reasonable lever to consider. Reverting back to the tax code of 1997 would raise considerable revenue and likely have modest growth impacts https://equitablegrowth.org/a-modest-tax-reform-proposal-to-roll-back-federal-tax-policy-to-1997/
4b. Unwinding the 2001 and 2017 reductions in estate and gift taxation by returning to a 55 percent top rate and setting a $1 million effective exemption would also be worth considering
5. While it's a bit hard to tell what the 3.8% loophole closures will entail without more detail, closing the Gingrich-Edwards loophole ( https://home.treasury.gov/system/files/131/NIIT-SECA-Coverage.pdf) is a good base broadener. Removing tax incentives that encourage business owners to label wages as profits is great
5b. These tax incentives have important consequences for measuring the labor share and for tax revenue.
5c. In recent work (a new version will be coming out soon), we find that reallocating activity to the form it would have taken prior to to TRA 1986 accounts for one third of the decline in the corporate sector labor share btwn 1978 and 2017. https://scholar.princeton.edu/sites/default/files/zidar/files/passthrough_labshare.pdf
5d. I like @jasonfurman would have liked to see a repeal of the "small business" tax deduction 199A (and generally agree with @jasonfurman and @kearney_melissa on the other provisions-- see more here:
https://twitter.com/jasonfurman/status/1387407012258975744?s=20
https://twitter.com/kearney_melissa/status/1387450012704116746?s=20)
https://twitter.com/jasonfurman/status/1387407012258975744?s=20
https://twitter.com/kearney_melissa/status/1387450012704116746?s=20)
