Trade-offs Between Targeting and Simplicity: Lessons from the U.S. and British Experiences with Refundable Tax Credits

In the United Kingdom and many other European countries, every child receives a cash benefit. Eligibility for the benefit, as well as the benefit amount, is determined without regard to the parents' income or asset holdings or marital status. As automated data systems become more sophisticated and unique identifiers (e.g., the social security number in the United States) become more prevalent, universal benefits could be as easy to distribute as voter registration or library cards.Working Paper Number 04-42

Helping the Working Poor: Employer- vs. Employee-Based Subsidies

In the United States and Europe there has been renewed interest in subsidizing firms that employ disadvantaged workers as a means of addressing poverty and other social problems. In contrast, the prevailing practice is largely to provide social welfare benefits directly to individuals. Which approach is better? We re-examine the relative merits of employee- versus employer-based labor market subsidies and conclude there are good reasons to continue to rely on the direct, employee-based approach. In practice, low-wage workers are seldom either low-skill or low-income workers. Furthermore, workers who might quality for a firm-based subsidy are reluctant to so identify themselves for fear of being stigmatized or labeled as needy. Thus, employer-based subsidy programs have lower participation rates and correspondingly higher per capita expenditures than employee-based subsidy programs

Implications of Return-Free Tax Systems for the Structure of the Individual Income Tax

Many countries do not require all taxpayers to file an annual income tax return. Return-free systems shift some of the costs of operating the tax system from taxpayers to employers, other third parties, and the government. Return-free systems may work best when the tax system is simple: When the unit of taxation is the individual, the tax rate structure is flat, and there are few deductions and credits. The more the tax code is used to achieve tax and social policy goals other than simplification, the more difficult it may be to exempt most taxpayers from filing requirements.income tax reform, tax administration

Implications of Return-Free Tax Systems for the Structure of the Individual Income Tax

Many countries do not require all taxpayers to file an annual income tax return. Return-free systems shift some of the costs of operating the tax system from taxpayers to employers, other third parties, and the government. Return-free systems may work best when the tax system is relatively simple: when the unit of taxation is the individual, the tax rate structure is relatively flat, and there are few deductions and credits. The more the tax code is used to achieve tax and social policy goals other than simplification, the more difficult it may be to exempt most taxpayers from filing requirements.Return-Free Tax Systems, Individual Income Tax, tax policy, social policy

Implications of Return-Free Tax Systems for the Structure of the Individual Income Tax

The goals of tax policy are to raise revenue in an equitable, efficient, and simple manner. These goals often conflict. A tax system that is equitable may be complicated, while a system that is simple may be unfair or inefficient. Each of these goals may be sacrificed when the tax system is used to achieve other economic and social policy goals, such as encouraging home ownership or charitable contributions.Return-Free Tax Systems, Individual Income Tax, Tax Reform

The Tax Gap\u27s Many Shades of Gray

The “tax gap”—the difference between the amount of “true tax” and the amount of tax actually paid—has garnered widespread attention in recent months. Much of the commentary on the subject equates the tax gap with “tax evasion,” a term broadly understood to connote intentional (and potentially criminal) under reporting. This paper cautions against conflating the tax gap with tax evasion. The tax gap includes substantial gray areas where the law is ambiguous and the IRS’s determination of “true tax” is debatable. On top of that, the IRS’s methodology for measuring the tax gap includes upward adjustments that are recommended by front-line examiners but reversed on administrative appeal or judicial review. Moreover, a substantial portion of the estimated tax gap is derived from a statistical technique called “detection controlled estimation” that potentially magnifies the impact of later-reversed recommendations on the ultimate tax gap measure. Weighing in the opposite direction, the IRS’s approach to measuring the tax gap excludes some amounts that clearly constitute tax evasion (most significantly, under reporting of tax on illegal-source income)