We present a model of optimizing government behavior in which a need for increased revenue leads to the introduction of a new revenue source, such as a VAT, accompanied by a reduction in income taxes. We argue that this is a plausible outcome for the United States, in view of international...

Two Democratic presidential candidates, Senator Elizabeth Warren (D-Massachusetts) and Senator Bernie Sanders (I-Vermont), have proposed annual wealth taxes. Annual wealth taxes have been adopted in a number of European countries (many of which later repealed them), but not in the United States....

This article outlines six realities that will likely shape the policy response to the long-run fiscal imbalance. First, defense spending will likely continue trending downward as a share of GDP over the long run because defense needs do not rise proportionately to income, and defense will likely...

Democratic presidential candidates and members of Congress are vying with one another to raise marginal tax rates for high-income earners, particularly the top 1 or 2 percent of taxpayers. A careful review of economic theory and evidence suggests that raising tax rates at the top is an...

Congress is considering allowing the Bush tax cuts' rate reductions for high-income households to expire at the end of 2010 while providing a deficit-financed extension of the middle-class portion of the tax cuts. This combination would damage economic growth by hiking marginal tax rates on...