↳ Taxation

October 28th, 2019

↳ Taxation

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The origins of American tax policy

Tax reform is at the forefront of contemporary policy debate. US citizens pay taxes at lower rates than their European counterparts, and a growing number of researchers agree that progressive taxes on wealth and income have the potential to rectify inequality. The historically less progressive nature of American tax policy is commonly explained as a product of the colonies' early opposition to "taxation without representation," as well as the large population of immigrants, the absence of traditional aristocracy, and the ubiquity of "country party republican" ideology which characterized the country's formation.

In an essay accompanying the publication of her 2006 book, historian ROBIN EINHORN introduces a new factor into the debate: the impact of domestic politics around slavery on early American state-building. From the piece:

"Americans are right to think that our anti-tax and anti-government attitudes have deep historical roots. Our mistake is to dig for them in Boston. We should be digging in Virginia and South Carolina rather than in Massachusetts or Pennsylvania, because the origins of these attitudes have more to do with the history of American slavery than the history of American freedom. In 1776, Congress was talking about slavery because its members were framing a national government for the new nation—what would become the Articles of Confederation. Trying to figure out how to count the population to distribute tax burdens to the various states, the members inevitably faced the problem of whether to count the population of enslaved African Americans. Since slaves were 4% of the population in the North and 37% of the population in the South, this decision would have a huge impact on the tax burdens of the white taxpayers of the northern and southern states.

Slaveholders developed three solutions to this general problem. First, they tried to guarantee that they dominated the legislative process by manipulating the representation rules. Second, they demanded weak governments that would make few of the decisions that provoked discussions of slavery. Third, they insisted on constraining the tax power through constitutional limitations on its use. Yet the real slaveholder victory lay in a fourth strategy—persuading the nonslaveholding majorities that the weak government and constitutionally restrained tax power actually were in the interests of the nonslaveholders themselves. Slaveholders persuaded many of their contemporaries that expansions of slavery are expansions of 'liberty,' constitutional limitations on democratic self-government are defenses of 'equal rights,' and the power of slaveholding elites is the power of the 'common man.' In the topsy-turvy political world we have inherited from the age of slavery, the power of the majority to decide how to tax became the power of an alien 'government' to oppress 'the people.'"

Link to the essay, and link to a 2000 academic article by Einhorn which presents the argument in greater historical detail.

  • "The growth in cash transactions was critical to the evolution of the modern income tax. Because the market's cash nexus permitted more and more individuals to derive a greater portion of their income and wealth from the sale of their labor services, lawmakers were able to more easily measure and tap the growing tax base. Consequently, the national tax structure began to shift away from a reliance on indirect levies, namely import duties and excise taxes on alcohol and tobacco, toward more direct and graduated taxes on income and wealth transfers." Ajay Mehrotra looks at the economic developments behind the passage of the 16th Amendment in 1913. Link.
  • In a new paper, Lucy Barnes links tax progressivity to the strength of capital-labor coalitions in European countries prior to World War I. Link.
  • A 2017 paper by Raymond Fisman, Keith Gladstone, Ilyana Kuziemko, and Suresh Naidu offers the first ever evidence on the taxation preferences of US citizens, finding that Americans are more likely to support taxes on wealth than on savings. Link. See also this 2016 paper by Naidu, Felipe González, and Guillermo Marshall on the role of slave property rights in promoting early American economic development. Link.
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February 24th, 2018

The Conquest of Space

DEFERRED ACTION

On the effects of DACA

Last week we linked to a paper that outlines the effects of DACA status on educational attainment and productivity:

"High school graduation rates increased by 15 percent while teenage births declined by 45 percent.… College attendance increased by 25 percent among women, suggesting that DACA raised aspirations for education above and beyond qualifying for legal status."

Given reader interest in that paper, we've compiled an overview, inspired by current events, of DACA-related studies across a range of domains.

  • On the economic effects of legal status for DREAMers, including the modeled impact of the DREAM Act: “We estimate DACA increased GDP by almost 0.02% (about $3.5 billion), or $7,454 per legalized worker. Passing the DREAM Act would increase GDP by around 0.08% (or $15.2 billion), which amounts to an average of $15,371 for each legalized worker.” Link.
  • The Cato Institute estimates the fiscal impact of the elimination of DACA, inclusive of projected productivity declines and enforcement costs: “The United States economy would be poorer by more than a quarter of a trillion dollars.” Link.
  • A study finds DACA moved 50 to 75 thousand unauthorized immigrants into the labor force while increasing incomes for immigrants at the bottom of the income distribution. Using these estimates, the author contends that the (now defunct) DAPA, which targeted unauthorized parents of US citizens and LPRs for legalization, would move over 250 thousand unauthorized individuals into employment. Link. Another finds a 38% reduction in the likelihood of poverty for DACA-eligible immigrants. Link.
  • As a complement to the above linked paper on education investment, more fine-grained results on education outcomes for DACA recipients: “the effect of DACA on educational investments depends on how easily colleges accommodate working students.” Link.
  • On the mental health outcomes of children of DACA recipients. Link. On the health outcomes for DACA recipients versus their unqualified DREAMer counterparts. Link. On Medicaid use in mixed-status families, and the effects of deportation risk thereon. Link.
  • Again from Cato, a report on the IRCA (alias "Reagan amnesty") reviews several studies of the economic effects of that 1986 law, which paired legalization for close to three million unauthorized immigrants with increased border security and employer verification. Alongside specific takeaways regarding wages and tax revenues for/from the population that gained legal status (increases in both), a larger claim emerges: legalization programs are most sensible "within the context of comprehensive immigration reform." Link. For more on the Reagan Amnesty and its legacy, see this report from the DHS and this post from the Migration Policy Institute.
  • Vox’s Dara Lind, one of the few reliably accurate mainstream reporters on immigration law and policy, gives an overview of the DREAMer generation: “It’s the combination of settledness and the difficulty of getting legal that make DREAMers generationally unique in the history of US immigration policy.” Link. An idea discussed in that post—that increased border enforcement paradoxically kept migrants in the U.S.—is given depth by Princeton sociologist Douglas Massey here and here. For more on the relationship between immigration law, increased enforcement, and the growth of the unauthorized population, see this paper, this book, and this article.
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