Taxation, growth, and welfare: a framework for analysis and some preliminary results

Reform of the U.S. tax system has become the focus of much political discourse in recent years. Proposals have called for many types of change-from the relatively modest, like more favorable treatment of capital gains or tax credits for college education, to more radical plans to introduce a flat tax and "end the IRS as we know it." The benefits of such proposals, advocates claim, range from a more efficient, less burdensome tax collection process to higher long-run growth. ; In this article, Mark Wynne provides a framework for analyzing the validity of some of these claims. He begins with a look at how U.S. tax rates on capital, labor, and consumption compare with similar tax rates of other major industrialized countries. Wynne then develops a framework for analyzing how some potential tax reforms might affect the economy's long-run growth rate. He uses a series of simple tax reform experiments to illustrate a basic principle of efficient taxation: that a shift toward heavier taxation of consumption would be beneficial.