The means available and potential combinations of policies for assuring income are numerous. These policies each involve different opportunity costs and vary both in terms of benefits and the extent of costs, as well as who ultimately bears the burden of that cost. Sometimes who bears the incidence, or cost, of a proposal is not directly clear.⁴¹⁴Social Security wage and payroll contributions, which include 6.2 percent paid by the employer, are commonly thought to be “passed on” to workers through lower wages. That is, workers may bear the incidence, even though employers pay the cost. Melguizo and González-Páramo 2012 review decades of literature on the matter and find that “in the long run, workers bear between two thirds of the tax burden in Continental and Anglo-Saxon economies, and nearly 90% in the Nordic economies.”

Minimum wage increases on the other hand may fall primarily on employers through an increase in labor costs. In some industries, however, the cost of labor might be passed on to consumers in the form of higher prices or even borne by the workers themselves through automation and lost jobs.

One common viewpoint is that an economic security portfolio that raises federal spending must be accompanied by an equivalent increase in revenue or reduction in spending somewhere else, that otherwise the portfolio is not fiscally sustainable. Many individuals, including some members of the Study Panel, disagree with that idea. Some point out that all federal spending is not equal, and that some forms of spending—such as investment in children or large infrastructure projects—create positive externalities that will increase future tax dollars through their beneficial effect on the economy. The outlay cost is partially or fully recouped via the investment return, and the “bill” for these types of policies should consider a full accounting of the costs and benefits.⁴¹⁵This all-encompassing analysis is referred to as “dynamic scoring.” The Congressional Budget Office is the agency in charge of estimating the cost of federal legislation. They only provide dynamic scoring when it is requested by Congress, or when “the gross budgetary effects of a bill would equal or exceed 0.25 percent of gross domestic product (the economy’s total output) in any year” (CBO 2018). The Tax Policy Center provides an overview of dynamic scoring and dynamic analysis. Others argue, instead, that the conventional framework for viewing the cost of legislation in terms of budget deficits and the national debt does not apply to a nation like the U.S. that controls its own currency and whose currency is a global reserve currency.⁴¹⁶James Chen of Investopedia explains the U.S. dollar as a reserve currency and its implications. Under certain conditions, governments may spend much more freely to improve the economy without having to balance the fiscal budget.⁴¹⁷This idea is more commonly known as modern monetary theory (MMT). These explainers by Vox, Business Insider, and The Conversation are a few of many. A Bipartisan Policy Center blog post lays out some of the more common arguments against undertaking an MMT framework in the U.S. moving forward.

The cost of economic security policies discussed in this report might be assessed differently under a more expansive framework. This report follows the conventional policy, however, that an increase in spending should be “paid for” by either an accompanied commensurate increase in revenue or reduction in spending.

Since this report is not about how to reform or reduce spending in other social programs, it instead focuses on increasing tax revenues to pay for any economic security policy. Further, because these policies are aimed at improving economic security, the report eschews policies that would increase taxes on or decrease investment in lower-income households. Thus, the options presented are not representative of all revenue options, but only those that cohere with improving economic security.⁴¹⁸The federal budget is a key tool in shaping economic and social policy. For a background on the budget, the Peterson Foundation provides a webpage titled Understanding the Budget. (PGPF 2020).

Every other year since 2014, the Congressional Budget Office (CBO) has released a report of scored budget options. It includes a detailed description of the policy and the revenue that CBO estimates it would raise. Over one hundred elements span expenditure-decreasing options (e.g., reduce the Department of Defense’s budget) and revenue-increasing options (e.g., increase tax rates). If CBO has scored a policy, the analysis in this report defers to those estimates in the options below.⁴¹⁹Revenue-raising options are only one part of CBO’s report, which also includes spending reductions. The most recent CBO report, titled Options for Reducing the Deficit: 2021 to 2030, was released in December 2020. For options not scored in CBO analysis, this report provides other estimates and strives to give an overview of all existing revenue estimates in the footnotes.

Not discussed here are social insurance programs. In large part, these programs have self-contained financing. Benefits and associated administrative costs can be paid only if the dedicated revenue covers those costs. If revenue is insufficient, the benefits are not paid.⁴²⁰Although Medicare Part A receives almost all of its funding from payroll taxes, Parts B and D of Medicare receive a majority of funding from general revenues (Cubanski et al. 2019, Figure 7). Unemployment insurance is also supported by general revenues (particularly during times of financial crisis); Walczak 2021 states that the federal government had spent almost $430 billion as of January 2021 to provide additional unemployment relief during the coronavirus pandemic. The need for general revenue spending might be mediated by better efforts to build and retain trust fund reserves. Any increase in a social insurance dedicated revenue should finance only the specific benefit it funds. This report discusses illustrative revenue options in the presentation of policy options in the benefit section.⁴²¹The Center on Budget and Policy Priorities provides a brief overview of payroll taxes (CBPP 2020).

The policy options outlined in this section involve altering taxes on ordinary income, income flowing from wealth, and business income. Regarding ordinary income, the analysis examines changes in marginal tax rates and adjustments or deductions to gross income. Regarding income flowing from wealth, the discussion examines changes in marginal tax rates on long-term capital gains and changes in the treatment of transfers of wealth from one individual or couple to another. Last, regarding business income, this section of the report examines corporate income taxes, adjusting the treatment of certain business income with regard to personal income, ensuring a minimum tax on U.S.-based global firms, and the treatment of depreciation in the tax code.

Options:

1. Raise marginal tax rates on ordinary income. Half of all federal revenue comes from individual income taxes.⁴²²The Center on Budget and Policy Priorities provides an overview of the various sources of federal tax revenue (CBPP 2020). The income tax is bracketed and progressive. “Bracketed” means that a tax rate is applied to brackets, or ranges, of income levels subject to certain income tax rates. A “progressive” tax means that the higher the income bracket, the higher the marginal tax rate.

For example, assume that two individuals file taxes, one earning $50,000 and the other $500,000. They both pay 10 percent on the first $9,950 of income [the first bracket] and 12 percent on income from $9,951 to $40,525 [the second bracket].⁴²³This example does not take into consideration adjustments to income or deductions to income. It is only after adjustments and deductions that federal income taxes take effect. Because adjustments vary significantly from person to person, we do not take them into account in this example. Most low- and middle-income filers take the standard deduction to income (as opposed to itemized deductions), which was $12,400 for individuals and $24,800 for joint filers for tax year 2020. The individual with $50,000 has a maximum marginal tax rate of 22 percent, applied from $40,526 to $50,000, but the individual with $500,000 has a maximum marginal rate of 35 percent, applied from $209,426 up to $500,000. The 2021 income tax brackets for ordinary income and their marginal rates are shown below.⁴²⁴El-Sibaie, Amir. 2019. 2020 Tax Brackets. The Tax Foundation.

CBO estimates that raising marginal tax rates on ordinary income by 1 percentage point might raise an additional $114 billion to $884 billion over ten years, depending on whether rates are raised for all brackets, the top four brackets, or the top two brackets.⁴²⁵Congressional Budget Office. 2020. Options for Reducing the Deficit: 2021-2030. Revenues Option 1—Increase Individual Income Tax Rates. p. 59.

Using CBO estimates as a basis, each percentage point increase in the top two brackets raises an additional $114 billion over ten years. Each percentage point increase on the top four brackets raises an additional $203 billion over ten years. Each percentage point increase on all brackets raises an additional $884 billion over ten years. These dollar increments will decline as rates are increased to higher levels, but they are useful for rough estimates of revenue increases.⁴²⁶This idea is illustrated by the Laffer Curve, which shows that after a certain point, an increase in tax rates will decrease tax revenue because the behavior being taxed is disincentivized by the tax. In the case of income taxes, all else equal, work is disincentivized by higher tax rates.

2. Eliminate certain deductions. Deductions reduce the amount of income subject to the federal income tax. Most households take the standard deduction ($12,400 for single filers and $24,800 for married filers) unless the sum of their itemized deductions is larger.⁴²⁷Nerdwallet. 2020. Standard Tax Deduction: How Much It Is in 2020–2021 and When to Take It. Deductions other than the standard deduction mainly flow to high-income households. Furthermore, because high-income households face higher marginal income tax rates, deductions are worth more as one moves up the income scale (though they tend to account for a smaller portion of one’s income). Examples of itemized deductions include the State and Local Tax Deduction and the deduction for charitable contributions.⁴²⁸The Tax Foundation provides a concise definition of the State and Local Tax Deduction. CBO estimates eliminating all itemized deductions would raise $1.7 trillion over a ten-year period.⁴²⁹Congressional Budget Office. 2020. Options for Reducing the Deficit: 2021–2030. Revenues Option 4—Eliminate Itemized Deductions. p. 62.

3. Raise marginal tax rates on long-term capital gains and qualified dividends. Certain types of individual income have different rate schedules. Qualified dividends and long-term capital gains (assets held more than a year) have three marginal rates: 0 percent, 15 percent, and 20 percent.⁴³⁰The Tax Policy Center provides a four-part overview of taxes on capital gains and dividends and how they might be improved. Short-term capital gains are taxed as ordinary income. Separately, all short-term and long-term capital gains are subject to a 3.8 percent tax called the Net Investment Income Tax if the taxpayer’s modified adjusted gross income is above $200,000 ($250,000 married filing jointly).⁴³¹The Balance explains how the IRS calculates and utilizes modified adjusted gross income (MAGI) (Fisher 2020). The 2021 income tax brackets for long-term capital gains and their marginal tax rates, excluding the Net Investment Income Tax, are shown below.⁴³²Orem, Tina. 2020. 2020–2021 Capital Gains Tax Rates–and How to Calculate Your Bill. Nerdwallet.

CBO estimates that a 2 percentage point increase in all tax rates on long-term capital gains and qualified dividends would raise an additional $75 billion over ten years.⁴³³Congressional Budget Office. 2020. Options for Reducing the Deficit: 2021-2030. Revenues Option 2— Raise the Tax Rates on Long-Term Capital Gains and Qualified Dividends by 2 Percentage Points. p. 60. This change would translate to tax brackets for long-term capital gains and qualified dividends of 2 percent, 17 percent, and 22 percent.

Using CBO estimates, each percentage point increase in all tax brackets for long-term capital gains raises an additional $37.5 billion over ten years. These dollar increments will decline as rates are increased to higher levels, but they are useful for rough estimates of revenue increases.⁴³⁴This idea is illustrated by the Laffer Curve, which shows that after a certain point, an increase in tax rates will decrease tax revenue because the behavior being taxed is disincentivized by the tax. In the case of capital gains taxes, all else equal, investments are disincentivized by higher tax rates.

4. Repeal the stepped-up basis at death. A number of proposals call for a shift from the “step-up in basis” at death to the “carryover basis,”⁴³⁵The Tax Policy Center explains the difference between these two terms and the implications of their use for the tax system. which is what is used for transfers not at death. Under this proposal, estates or inheritors would pay a tax based on how much the value of an asset has appreciated since it was acquired by the person who died rather than owing capital gains taxes only on the amount the asset appreciated from the time of the inheritance. CBO estimates that this change raises an additional $110 billion over ten years.⁴³⁶Congressional Budget Office. 2020. Options for Reducing the Deficit: 2021–2030. Revenues Option 6—Change the Tax Treatment of Capital Gains from Sales of Inherited Assets. p. 64. If the capital gains tax rate were to increase, the potential revenue change from this option would also increase.⁴³⁷Batchelder and Kamin 2019 estimate that this change (denoted “Tax Accrued Gains at Death and Increase CG/Dividends Rate to 28%” in Table 2) accompanied with an increase of the top tax rate for long-term capital gains and qualified dividends to 28 percent would raise $290 billion over ten years.

5. Lower exemptions and increase the tax rate under the Federal Estate Tax. The federal estate tax is a tax levied on the value of an estate at an individual’s death. The tax is paid by the estate before disbursements are made to inheritors.⁴³⁸The Tax Policy Center provides a brief, seven-part overview of the Estate Tax: what it is, who pays it, and options for reforming the estate tax in addition to options to tax other forms of wealth transfers (Tax Policy Center 2020). The Tax Foundation provides a concise definition. Estimates are that fewer than 0.1 percent of individuals who die had an estate subject to the tax in 2020.⁴³⁹Tax Policy Center. 2020. How many people pay the Estate Tax? The taxation of assets at death might be changed in a variety of ways. Policy makers might change the threshold above which estates must pay the tax and they might change the tax rate. The estate tax might also be converted into an inheritance tax, which would involve taxing the people who inherit money and assets rather than taxing the estate itself.⁴⁴⁰See What Is an inheritance tax? from the Tax Policy Center for more information about the differences between an estate tax and an inheritance tax. Depending on how the estate tax is changed, this option might raise anywhere from $60 billion to $646 billion over a ten-year period.⁴⁴¹CBO does not offer revenue impact estimates of changes to the estate tax in Options for Reducing the Deficit: 2021–2030. The Urban-Brookings Microsimulation Model projects revenue impacts for nine variations of an inheritance tax (in lieu of current law) that varies along lifetime exemption levels and tax rates and institutes a change from the step-up in basis to the carryover basis in T19-0046 – Revenue Impact of an Inheritance Tax Proposal with Different Lifetime Exemptions and Tax Rates with the Current-Law Estate Tax Repealed, 2022–30. On the low end it estimates a net-revenue increase of $141 billion between 2022 and 2030 for a $2 million lifetime exemption and a tax rate of the larger of one’s marginal income tax rate plus 10 percent or 30 percent. On the high end it estimates a net-revenue increase of $646 billion between 2022 and 2030 for a $1 million lifetime exemption with a tax rate of the larger of one’s marginal income tax rate plus 20 percent or 40 percent. Other proposals and revenue estimates are presented by Batchelder and Kamin 2019, Sarin and Summers 2020, Philips and Wamhoff 2018, Sammartino et al. 2016, Auxier et al. 2016, and The Penn Wharton Budget Model (Bennet Plan and Sanders Plan).

6. Reform taxes on corporations.

a. Raise the corporate income tax. CBO estimates that raising the corporate income tax rate by 1 percentage point (from 21 percent to 22 percent) would raise an additional $99 billion over ten years.⁴⁴²Congressional Budget Office. 2020. Options for Reducing the Deficit: 2021–2030. Revenues Option 19— Increase the Corporate Income Tax Rate by 1 Percentage Point. p. 77.

According to CBO estimates, each percentage point increase in the corporate tax rate generates around $99 billion over ten years. These dollar increments will decline as rates are increased to higher levels, but they are useful for rough estimates of revenue increases.⁴⁴³This idea is illustrated by the Laffer Curve, which shows that after a certain point, an increase in tax rates will decrease tax revenue because the behavior being taxed is disincentivized by the tax. In the case of corporate income taxes, all else equal, creating corporate income is disincentivized by higher tax rates. Other groups have projected the impact of larger increases to the corporate tax rate.⁴⁴⁴The Tax Foundation projects a ten-year revenue increase of $522 billion using conventional scoring and $392 billion using dynamic scoring for an increase in the corporate tax rate from 21 percent to 25 percent between 2022 and 2031. They project increases of $886 billion and $644 billion for an increase to 28 percent using conventional and dynamic scoring, respectively. Batchelder and Kamin 2019 project a ten-year revenue increase of $730 billion for a rate increase to 28 percent. Mermin et al. 2020 similarly project a ten-year revenue increase of $727 billion for a rate increase to 28 percent. The Penn Wharton Budget model projects the following revenue increases over ten years for the following tax rate hikes from 21 percent: 1) a rate of 25 percent yields an additional $592 billion; 2) a rate of 28 percent yields an additional $1,029 billion; 3) a rate of 30 percent yields an additional $1,315.3 billion.

b. Repeal the pass-through deduction.⁴⁴⁵Greenberg 2018 provides an extensive overview of the pass-through deduction for the Tax Foundation. The pass-through deduction, also known as the qualified business income deduction, “allows non-corporate taxpayers to deduct up to 20 percent of their qualified business income (QBI), plus up to 20 percent of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income” from their personal income.⁴⁴⁶Internal Revenue Service. 2021. Tax Cuts and Jobs Act, Provision 11011 Section 199A: Qualified Business Income Deduction FAQs. Although 76 percent of pass-through businesses are sole proprietorships, they account for only 18 percent of pass-through business net income. S corporations and partnerships make up 13 percent and 11 percent of pass-through businesses, respectively, but are responsible for 26 percent and 55 percent of pass-through business net income.⁴⁴⁷York, Erika. 2019. Pass-Through Businesses Q&A. Tax Foundation. Using this deduction, certain high-income individuals effectively are able to lower their top marginal income tax rate of 40.8 percent (37 percent plus 3.8 percent from Medicare self-employment taxes⁴⁴⁸The IRS outlines the 2.9 percent self-employment tax for Medicare hospital insurance and the additional Medicare tax rate of 0.9 percent on “wages, compensation, and self-employment income above a threshold amount” (Internal Revenue Service, Self-Employment Tax (Social Security and Medicare Taxes)).) to 33.4 percent.⁴⁴⁹Batchelder, Lily, and David Kamin. 2019. Taxing the Rich: Issues and Options. p. 5.

Batchelder and Kamin 2019 estimate that a repeal of the pass-through deduction, enacted under the Tax Cuts and Jobs Act of 2017 (TCJA),⁴⁵⁰The IRS lists relevant tax laws prior to the Tax Cuts and Jobs Act and what changed under the new law (Internal Revenue Service, Tax Cuts and Jobs Act: A Comparison for Businesses). would raise $280 billion between 2021 and 2030 relative to current law (under which the deduction is set to expire after 2025) and $620 billion assuming current law is expanded through 2030.⁴⁵¹Batchelder, Lily, and David Kamin. 2019. Taxing the Rich: Issues and Options. pp. 10, 37. These estimates assume an increase of the top marginal tax rate on ordinary income from 37 percent to 39.6 percent. The Penn Wharton Budget Model estimates the repeal would raise $433 billion between 2021 and 2029 relative to current law.⁴⁵²Penn Wharton Budget Model. 2020. Senator Michael Bennet’s “The Real Deal” Tax Plan: Budgetary Effects.

c. Replace the minimum tax on global intangible low-taxed income (GILTI) with a minimum tax on profits earned by foreign subsidiaries of U.S. firms. Global minimum taxes aim to disincentivize companies from shifting profits abroad to avoid paying taxes in their “home” countries.⁴⁵³Leigh Thomas and David Lawder explain global minimum taxes for Reuters. Enacted under the TCJA in 2017 as a first effort to capture potential tax revenues that were shifted abroad, GILTI instituted a 10.5 percent rate (half of the corporate tax rate passed under the TCJA).⁴⁵⁴The Tax Policy Center explains GILTI and provides an example of how it (and similar taxes) might work in practice. This option ensures that if the profits of foreign subsidiaries of U.S.-based firms are being taxed at rates lower than the legislated minimum, then the difference—the tax expenses that the firm would save but for this law—is paid as U.S. taxes. Two analyses estimate the ten-year revenue impacts of a 21 percent minimum tax on profits of foreign subsidiaries of U.S. firms: Clausing 2018 estimates an increase of $340 billion, and Mermin et al. 2020 an increase of $442 billion.⁴⁵⁵Clausing, Kimberly A. 2018. Profit Shifting before and after the Tax Cuts and Jobs Act 73(4), National Tax Journal 1233–1266 (2020), UCLA School of Law, Law-Econ Research Paper No. 20-10.

Mermin, Gordon B., Janet Holtzblatt, Surachai Khitatrakun, Chenxi Lu, Thorton Matheson, and Jeffrey Rohaly. 2020. An Updated Analysis of Former Vice President Biden’s Tax Proposals. Tax Policy Center.

d. Eliminate accelerated cost recovery for large businesses. Under current law, depreciation of assets purchased by businesses may be written off in an accelerated manner. Companies may claim higher depreciation expenses than implied by an asset’s economic life, deduct those expenses from their income, and therefore lower their taxable income.⁴⁵⁶Committee for a Responsible Federal Budget provides an overview of accelerated depreciation in its blog post on Senator Max Baucus’s 2013 proposal. This policy, also known as “xpensing,” is undergirded by the notion that reductions to the short-term cost of new investments will increase U.S. investment and later returns on the investments will be taxed at a higher rate but for the expensing model. Batchelder 2017 casts doubt on this assumption, suggesting that accelerated cost recovery is “paid for” by higher corporate tax rates and that investment decisions are more responsive to corporate tax rates than expensing.⁴⁵⁷Batchelder, Lily L. 2017. Accounting for Behavioral Considerations in Business Tax Reform: The Case of Expensing.

This option would institute a policy like the policy that then–Senate Finance Chairman Max Baucus (D-MT) proposed in 2013 to shift to an economic cost recovery model—ensuring equal and more accurate depreciation deductions for assets each year—for large businesses.⁴⁵⁸U.S. Senate Committee on Finance. 2013. Baucus Works to Overhaul Outdated Tax Code. One portion of that proposal, covering the “amortization of intangible assets,” was passed in the TCJA of 2017 and takes effect in 2022. Batchelder and Kamin 2019 estimate that fully enacting the provisions drafted by Senator Baucus would raise an additional $760 billion over ten years. Batchelder 2017 suggests that if policy makers were concerned that this policy might disincentivize investment, then they might use revenue increases to offset corporate income taxes.

1. Create a carbon tax. A carbon tax is a tax on emissions of carbon dioxide (CO₂). Most of the various proposals for such a tax involve a tax per metric ton of CO₂ emitted that is increased in amount every year. The proposals would levy the tax on oil producers, natural gas refiners (for sales outside the electricity sector), and electricity generators. CBO estimates that a $25 per metric ton tax that increased 5 percent per year (inflation-adjusted) would raise $1.0 trillion dollars over a ten-year period.⁴⁵⁹Congressional Budget Office. 2020. Options for Reducing the Deficit:2021-2030. Revenues Option 28— Impose a Tax on Emissions of Greenhouse Gases. p. 85. The estimates take into account that emissions would fall considerably over that period due to higher carbon costs, and that revenue would therefore decrease over time. A higher rate would increase the revenue raised.⁴⁶⁰Rosenberg et al. 2018 find that rates of $73 per metric ton (+1.5 percent per year), $50 per metric ton (+2 percent per year), and $14 per metric ton (+3 percent  per year) would raise $3.0 trillion, $2.1 trillion, and $742 billion respectively over ten years. Other proposals and revenue projections (in highest to lowest net revenue order) come from Horowitz et al. 2017, Pomerleau and Asen 2019, Huntley and Rico 2019, and Sobhani et al. 2019.Resources for the Future provides a Carbon Pricing Calculator which allows one to explore the impacts of a carbon tax on a variety of outcomes using their model.Fichtner 2019 makes the case for using carbon tax revenue to offset other taxes in order to promote economic growth. Most proposals range from a $10 to $70 tax per ton.

2. Create a national value added tax (VAT). Many states and localities have a sales tax on goods and some services; it is a tax on the value of the product or service collected at retail. A VAT has a similar goal (taxing the value of the product or service), but collection of the tax occurs before the final sale at interim stages of the supply chain.⁴⁶¹The Tax Policy Center explains the VAT and makes the case that it is “administratively superior to a retail sales tax.” Proposals for a VAT vary in the rate of the tax (e.g., 5 percent or 10 percent) and the coverage of the tax (which products and services are subject to it and which purchasers pay it). Most assume that a VAT would be passed on to consumers through higher prices.⁴⁶²In this regard, the VAT is considered regressive insofar as households with lower incomes spend a higher proportion of their income. Gale 2020 proposes a VAT which offsets regressivity by funding a universal basic income. CBO estimates that a 5 percent VAT would raise $1.8 trillion to $2.8 trillion over the ten-year period, depending on the base of goods and services subject to the tax and the process for phasing in the tax.⁴⁶³Congressional Budget Office. 2020. Options for Reducing the Deficit: 2021–2030. Revenues Option 27—Impose a 5 Percent Value-Added Tax. p. 84. VAT proposals range from tax rates between 1 percent and 10 percent.⁴⁶⁴Gale 2020 proposes a 10 percent VAT with certain exemptions and projects it would net $10.0 trillion over ten years. This projection includes the cost of increasing benefit payments in federal cash transfer programs to account for increased prices. If the revenue were used to fund a UI at 20 percent of the federal poverty level ($2,576 per year, $215 per month in 2021), $2.9 trillion in new revenue would remain over ten years.Huntley et al. 2019 project a 1 percent VAT with certain exemptions and a progressive universal rebate would net $700 billion over ten years.

3. Create a financial transaction tax (FTT). An FTT is an excise tax imposed on the trades of financial products, such as stocks, bonds, and derivatives.⁴⁶⁵The tax is levied on stocks when they are issued, only when they are exchanged between traders. Klein 2020 explains the financial transactions tax in further detail. A very small version of an FTT already exists to fund the costs of the Securities and Exchange Commission.⁴⁶⁶As of February 2021, the financial transactions fee rate was “$22.10 per million of covered sales,” or 0.0021 percent. Proposals vary in the rate of the tax, from 0.01 percent to 0.1 percent, and whether the tax rate depends on the type of financial product. CBO estimates a 0.1 percent tax would raise $752 billion in revenue over a ten year window.⁴⁶⁷Congressional Budget Office. 2020. Options for Reducing the Deficit: 2021–2030. Revenues Option 29—Impose a Tax on Financial Transactions. p. 86. The range of revenue projected depending on the transactions taxed and other specifics vary widely.⁴⁶⁸Pollin et al. 2017 project than an FTT with rates of 0.5 percent of value for stock purchases, 0.1 percent of value for bond purchases, and 0.005 percent for derivative purchases along with a tax credit for moderate- to low-income filers would net $3.0 trillion in revenue over ten years. This figure is the product of 1.2 percent of GDP (from the paper) multiplied by CBO’s projected GDP as of July 2020.Batchelder and Kamin 2019 project $810 billion over ten years for a 0.1 percent FTT on all financial assets. Other projections come from Burman et al. 2016, Sammartino et al. 2016, Weiss and Kawano 2020, and Schulmeister 2008.

4a. Create a wealth tax. A wealth tax would impose a tax on wealth for individuals whose net wealth–financial assets plus nonfinancial assets minus debts–is above a certain amount.⁴⁶⁹This is the definition of net wealth put forth by Emmanuel Saez and Gabriel Zucman in How Would a Progressive Wealth Tax Work? Evidence from the Economics Literature. Saez and Zucman are considered two of the foremost experts on the wealth tax and assisted Senator Elizabeth Warren in developing one of her proposals for the 2020 presidential campaign. The key parameters for a wealth tax are the level of net wealth that is exempt, types of assets that are exempt (if any), and the tax rate(s) for net wealth exceeding the exemption level. Senator Elizabeth Warren’s (D-MA) original plan, for example, proposed a 2 percent tax per year on net wealth exceeding $50 million and a 3 percent tax per year on net wealth exceeding $1 billion, and it would include both domestic and foreign assets.⁴⁷⁰Breuninger, Kevin, and Tucker Higgins. 2019. Elizabeth Warren proposes “wealth tax” on Americans with more Than $50 Million in Assets. CNBC. Asset exemptions might include domestically held assets, as is the policy in Italy, or all assets outside of real estate, as in France.⁴⁷¹Asen, Elke. 2020. Wealth Taxes in Europe. The Tax Foundation.

Proposals in the U.S. range in potential revenue raising of up to $6.7 trillion over a ten-year window.⁴⁷²Batchelder and Kamin 2019 project that a 2 percent tax on the top 0.1 percent of net-wealth holders and a 3 percent tax on net wealth exceeding $1 billion over ten years would raise $6.7 trillion with no avoidance, $5.1 with 15 percent avoidance, and $3.5 trillion with 30 percent avoidance. They also project that a 2 percent tax on the top 1 percent of net-wealth holders would raise $3.3 trillion with no avoidance, $2.6 trillion with 15 percent avoidance, and $1.9 trillion with 30 percent avoidance.Other revenue projections include Li and Smith 2020 (analysis of two proposals), Leiserson 2020 (analysis of two proposals), Penn Wharton Budget Model 2020 (Sanders proposal), Saez and Zucman 2019, Penn Wharton Budget Model 2020 (Warren Proposal), Gleckman 2019, and Sarin and Summers 2019 (which states that Warren’s proposal will bring in only 12–40 percent of projections). Many tax experts believe that realizing this revenue fully would be difficult, as wealthy households would successfully engage in some version of tax avoidance.⁴⁷³Gleckman 2019 discusses best practices for effectively taxing the rich, and Bunn 2021 discusses the difficulties other countries have faced in implementing their wealth taxes. The Tax Policy Center hosted a recorded event in 2019 that discussed the many questions around taxing wealth in detail.

4b. Create an accrual tax.⁴⁷⁴An accrual tax effectively repeals the stepped-up basis and is typically thought of as an alternative to a wealth tax due to its ability to tax asset growth every year. An accrual tax would tax net accrued capital gains and dividends each year independent of whether one’s gains are realized. Currently, capital gains taxes are deferred until an investment is sold. The key parameters for an accrual tax are the rate at which net accrued capital gains and dividends are taxed, the treatment of net accrued capital losses,⁴⁷⁵Under current law, net capital losses of up to $1,500 per individual per year can be deducted from taxable income. Net capital losses exceeding the limit can be carried over and deducted from taxable income in future years (Internal Revenue Service, Helpful Facts to Know About Capital Gains and Losses). and the treatment of illiquid/nontradeable assets (which are typically more difficult to assess in terms of “fair market value,” especially if they have not been bought/sold recently).

Two main ideas for achieving an accrual tax have been proposed: 1) mark-to-market taxation and 2) a retrospective capital gains tax.⁴⁷⁶Leiserson and McGrew 2019 provide an overview of mark-to-market taxation for the Washington Center for Equitable Growth. Eastman et al. 2019 evaluate a mark-to-market approach for the Tax Foundation. The former system levies annual taxes on net capital gains and dividends, while the latter charges the tax when the gain is realized and requires interest payments on any deferred taxes (also known as a deferral charge or a lookback charge). Due to the difficulties in estimating changes in the values of illiquid/nontradeable assets (such as intellectual property, jewelry, and art), certain proposals call for mark-to-market taxation of publicly traded assets and a retrospective capital gains tax for non-publicly traded assets.⁴⁷⁷In 2019, Senator Ron Wyden (D-OR) made this proposal with certain exemptions to ensure that the tax affected the wealthiest taxpayers. His proposal also called for capital gains income to be taxed at the same rate as ordinary income.

Batchelder and Kamin 2019 estimate that such a proposal would raise $2.1 trillion over ten years if applied to the top 1 percent of the wealth distribution and $750 billion if applied to the top 0.1 percent.⁴⁷⁸The Batchelder and Kamin 2019 analysis taxes capital gains as ordinary income and uses 39.6 percent as the top tax rate on ordinary income (plus 3.8 percent for the Medicare tax or the Net Investment Income Tax) and assumes a 15 percent avoidance rate for the revenue estimates listed here. The paper also shows revenue estimates for 0 percent avoidance and 30 percent avoidance. The Penn Wharton Budget Model estimates a revenue increase of $2.2 trillion for a similar proposal.⁴⁷⁹Penn Wharton Budget Model. 2020. Senator Michael Bennet’s “The Real Deal” Tax Plan: Budgetary Effects.

1. Invest in IRS administration and increase funding for auditing and enforcement. As CBO notes, the IRS received 20 percent less in funding in 2018 than it did in 2010.⁴⁸⁰Congressional Budget Office. 2018. Options for Reducing the Deficit: 2019-2028. p. 306. In 2015 six former IRS commissioners of both political parties wrote Congress alerting them to the effect that the budget cuts were having on the agency’s ability to fulfill its mission.⁴⁸¹Erb, Kelly Phillips. 2015. Former IRS Commissioners Differ on Politics, United Against Agency Cuts. Forbes. CBO estimates that increasing funding by $2.5 billion over the next five years for enforcement and then maintaining that level would lead to net revenue raised of $41 billion over ten years.⁴⁸²Congressional Budget Office. 2020. Options for Reducing the Deficit:2021-2030. Revenues Option 31— Increase Appropriations for the Internal Revenue Service’s Enforcement Initiatives. p. 88. The Biden and Harris administration is calling for significantly larger funding increases, in the ballpark of an additional $80 billion per year to be phased in over ten years.⁴⁸³Faler, Brian. 2021. Biden Proposes Doubling IRS Workforce as Part of Plan to Snag Tax Cheats. Politico. The proposal has been praised by a bipartisan group of five former IRS Commissioners.⁴⁸⁴Gibbs, Lawrence B., Fred T. Goldberg, Margaret M. Richardson, Charles O. Rossotti, and John Koskinen. 2021. Opinion: Five Former IRS Commissioners: Biden’s Proposal would Create a Fairer Tax System. The Washington Post.

Sarin and Summers 2020 discuss similarly broad increases in the IRS budget. They estimate that adequate enforcement resources would raise $715 billion over ten years, increased and improved information reporting would raise $350 billion over ten years, and information technology investments would raise $100 billion over ten years.⁴⁸⁵Sarin, Natasha, Lawrence H. Summers, and Joe Kupferberg. 2020. Tax Reform for Progressivity: A Pragmatic Approach. The Hamilton Project. Together, these investments would raise about $1.2 trillion over ten years.

As an additional note, if the previously mentioned taxes were created, the IRS would need additional funding to establish adequate tax administration and enforcement.⁴⁸⁶Fichtner et al. 2019 review the literature and conclude that “the aggregate cost of federal tax compliance for[U.S.] taxpayers probably exceeds $200 billion annually” and draw on IRS data in their discussion of the $458 billion in tax revenue per year that went uncollected between 2008 and 2010.