NCPA - National Center for Policy Analysis

United States Must Broaden Tax Base

August 15, 2011

Over the past three decades, the distribution of U.S. tax liability has become more skewed.  A rising percentage of citizens pay few or no federal taxes so that a smaller share of the citizenry increasingly bears the tax burden.  According to researchers, the skewed distribution of the U.S. tax liability is correlated with higher debt and greater entitlement spending, says the Mercatus Center.

  • Tax policies in the United States have skewed the distribution of the tax liability so that a substantial portion of the population pays little or no federal taxes, while a smaller and smaller share of the population is liable for more and more of the taxes.
  • These trends do not appear to raise total spending, but do affect government debt and the programs on which the government spends.
  • As the distribution of tax liability has become more intensified on those with high incomes and less intensified on those with low incomes, the U.S. debt-gross domestic product (GDP) ratio has risen, as have the ratios of entitlement spending to GDP and the total budget.
  • These results support the contention that if the United States is to get its fiscal house in order, the tax laws will have to be changed to broaden the base, just as President Obama's deficit reduction commission has argued.

Since currently there are no constitutional constraints on deficit spending, research calls for policymakers to broaden the tax base so that more citizens will feel the cost of deficit spending and to take action to reduce the associated tax burdens.  When the tax-price of government services is zero, more will always be demanded.

Source: Jody Lipford and Bruce Yandle, "The Relationship between Taxpayers and Tax Spenders: Does a Zero Tax-Price Matter," Mercatus Center, August 2011.

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