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News from EPI Enacting smart and progressive revenue options would support a more robust economic recovery

For Immediate Release: Thursday, April 18, 2013 Contact: Donte Donald or Dan Crawford 202-775-8810

Enacting smart and progressive revenue options would support a more robust economic recovery

Pairing progressive changes to the tax code with temporary spending increases would support economic recovery in the short term while helping to stabilize the country’s long-term fiscal outlook, a new EPI report shows. In Many options exist for raising revenue in a smart and progressive manner, EPI federal budget policy analyst Rebecca Thiess outlines eight progressive revenue policies that would create a fairer tax code and support a more robust economic recovery.

“Addressing the nation’s jobs crisis should be policymakers’ chief priority, but unfortunately too much of our attention remains on deficit reduction,” said Thiess. “However, if political constraints demand deficit reduction must occur, reductions achieved through revenue increases—specifically progressive revenue increases—are far less damaging to economic recovery than spending cuts. And there are numerous sound revenue policies that exist and should be considered in this debate.”

Effective smart and progressive revenue options include:

Reforming current income tax rates, creating additional brackets for top earners, and taxing capital gains as ordinary income, which would raise over $1.6 trillion in revenue over 10 years. These reforms would raise substantial sums of revenue and make the tax code fairer and more progressive, without unduly restraining economic growth.

Capping the marginal tax rate on itemized deductions ($513 billion). Limiting the rate at which itemized deductions reduce filers’ tax liability would raise revenue, increase fairness and progressivity in the tax code, help mitigate income inequality, and improve efficiency.

Pursuing international corporate income tax reform, including repealing deferral of foreign profits ($606 billion). This change would target U.S. multinational corporations that engage in convoluted transactions to avoid paying the full corporate income tax. Such reforms would raise revenue as well as reduce incentives for firms to move and keep operations and profits offshore.

Enacting a carbon tax ($943 billion). Pricing carbon through either a carbon tax or the auctioning of pollution permits would lead to the reduction of greenhouse gases and yield significant revenue.

The report also recommends taxing carried interest as ordinary income, eliminating the loophole allowing the wealthy to not pay taxes on inherited stocks and bonds, enacting a progressive estate tax, and enacting a financial transactions tax. Taken together, the policies could result in raising over $5.1 trillion in deficit reduction over 10 years (not including interaction effects among the eight policies).

These revenue options take into account the wider economic context of recent decades, including the growing importance of a strong social safety net for working families and the staggering rise in income and wage inequality over the past three decades.

“Ensuring our long-term fiscal health requires passing smart and efficient revenue policies, which would go a long way toward strengthening our middle class and combating widespread inequality,” Thiess said.