Tax policy

Tax policy is an administrative apparatus that is built to levy and collect tax, through applying different tariff and basis taxation, in order to apply policy that has built.

Philosophy

Policymakers debate the nature of the tax structure they plan to implement (i.e., how progressive or regressive) and how they might affect individuals and businesses (i.e., tax incidence).

The reason for such foitution (??? substitution?) effect, because anything that does not change relative prices is nondistortionary. One must also consider the income effect, which for tax policy purposes often needs to be assumed to cancel out in the aggregate. The efficiency loss is depicted on the demand curve and supply curve diagrams as the area inside Harberger's Triangle.

National Insurance in the United Kingdom and Social Security in the United States are forms of social welfare funded outside their national income tax systems, paid for through worker contributions, something labeled a stealth tax by critics.

Administration

The implementation of tax policy has always been a tricky business. For example, in pre-revolutionary colonial America, the argument "No taxation without representation" resulted from the tax policy of the British Crown, which taxed the settlers but offered no say in their government. A more recent American example is President George H. W. Bush's famous tax policy quote, "Read my lips: no new taxes."

Compromise Agreement on Taxes

Tax Relief Unemployment Insurance Reauthorization and Job Creation Act of 2010

President Obama and Congressional Republicans have agreed on a set of changes to the tax code that would affect tax liabilities for one or two years. The Tax Policy Center has analyzed the distributional effects of the following provisions:

2011 and 2012

• Extend all 2001 and 2003 individual income tax cuts

• Extend EITC and child tax credit provisions in the 2009 stimulus act

• EITC phaseout threshold for married couples filing jointly
• 45 percent EITC phase-in rate for families with three or more children
• $3,000 threshold (unindexed) for refundability of child tax credit

• Extend American Opportunity Tax Credit for higher education

• Impose the estate tax with an effective exemption of $5 million and a 35 percent tax rate; replace the state death tax credit with a deduction

2011

• Reduce the Social Security (OASDI) tax rate on employees to 4.2 percent for 2011; reduce self-employment tax rate by two percentage points but do not reduce the amount that can be deducted against income

2010 and 2011

• Implement alternative minimum tax (AMT) patch setting the AMT exemption at $47,450 foe single filers and $72,450 for married couples filing jointly ($48,450 and $74,450 for 2011); allow credits against AMT, regardless of tentative AMT

• Extend selected “extender” tax provisions

• Deduction for state and local general sales taxes
• Above-the-line deduction for education expenses
• Educator expense deduction

See also

• Tax law