Working Paper: NBER ID: w20672
Authors: Martin S. Feldstein
Abstract: Limiting tax expenditures can raise revenue without increasing marginal tax rates. Such a policy is equivalent to reducing government spending now done as subsidies through the tax code for a wide range of household spending and income. This paper explores one way of limiting tax expenditures: a cap on the total reduction in tax liabilities that each individual can achieve by the use of deductions and exclusions. The analysis describes the revenue effects and the distributional consequences of such a cap, and examines the sensitivity of these results to various design features.
Keywords: tax expenditures; revenue generation; fiscal policy; tax policy
JEL Codes: H2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Cap on tax expenditures (H26) | Increase in personal tax revenue (H29) |
| Cap on tax expenditures (H26) | Simplified tax preparation (H26) |
| Cap on tax expenditures (H26) | Lower compliance costs (K29) |
| Cap on tax expenditures (H26) | Increased progressivity in tax system (H29) |
| Cap on tax expenditures (H26) | Lower effective marginal tax rates (H31) |