Find a proposal for some type of tax reform proposal to the U.S. tax system, and write a paper that argues for or against the proposal, using the models from this course. Your argument in favor of a proposal should either be that the tax reform would have favorable behavioral effects (more saving or investment without less incentives to work, for example), without causing an unacceptable change in the distribution of tax burdens; or that it “improves” the distribution of tax burdens without causing unacceptable behavioral effects.
If it is clear that the tax reform will reduce tax revenue, then you should add your own proposal for what taxes should be increased to offset the revenue loss, and then evaluate the combination of the chosen tax reform and your revenue-raising reform. But avoid picking proposals that are mainly intended to lower the size of governments, and do not accept unsupported claims that the tax reform will increase economic growth so much that government revenue will increase even though tax rates have dropped.
Only papers written on previously approved topics will receive credit.
Your paper should include:
1. Title page.
2. A description of the tax reform proposal, in enough detail for the reader to be able to understand your arguments without needing to read the proposal.
4. Conclusion: Are you for or against the proposed tax reform, and why? If the authors of the proposal have made particular claims about it, you should state why you agree or disagree with them.
5. A list of references, including where to find the proposal, sources of data, and any references with analyses that you are using. All references should be cited where they are used in the paper. See below on how to cite. Avoid using references with unsupported claims (which often happens with newspaper and magazine articles written by non-economists), and remember that the main point of the paper is to apply theories from the course.
6. Diagrams and tables. These are optional and will depend on your paper topic. Any diagrams you create may be hand drawn or computer generated, with reference to them within the paper (such as, “see Figure 1”). The main text of your paper should describe how the diagrams or tables are being used in your analysis.
Useful websites with links to many tax reforms:
Guidelines for Acceptable Tax Reforms
A. Source of Proposals
I will not approve proposals taken from textbooks. They do not contain enough distinguishing features for you to provide an original critique. I will also not approve proposals taken from newspaper articles, since they do not contain enough details. Most of the proposals in the websites above are by members of the U.S. Senate, the U.S. House of Representatives, or U.S. Presidential commissions and advisors. But in some cases, I will approve proposals by economists, law professors, or tax accountants.
B. No more than two students can write on the same proposal.
Proposals will be approved in the order that they are submitted, so submit early if you want a specific proposal approved. If I do approve two papers on the same proposal, then the analysis in your papers must be sufficiently different to convince me that the two papers have been independently written. Otherwise, both papers get a zero.
C. Revenue Neutrality
Do not pick a tax reform proposal that is clearly intended to reduce government revenue. The goal of a proposal should be to reduce the social costs of raising a given amount of revenue, or to achieve a better distribution of tax burdens, not to raise less revenue.
D. Fundamental Tax Reform vs. Improving the Existing Tax System
Your tax reform proposal may either be about “fundamental tax reform,” which basically involves replacing the U.S. income tax system with another type of tax, or it may be about specific recommendations for improving the existing tax system (which might include new forms of taxation). Fundamental tax reform has often involved proposals for moving to some type of consumption tax, but this doesn’t need to be the case. A good source of information on how fundamental tax reform proposals work is given by:
Proposals for improving the existing tax system might involve changes in exemptions or deductions for the personal or corporate income tax, reforms of tax-favored savings accounts, reforms of the AMT, reforms of the EITC, reforms of the estate tax, reforms of the corporate income tax, and various reforms to simplify the tax code and lower administrative or compliance costs. For example, if you are proposing new limitations on itemized deductions, then you will want to talk about incentive effects such as charitable giving, and you would also want to discuss whether these limitations create a more equitable tax system.
E. State and Local Taxes
Although the main focus of EC436 is on federal taxes, I may approve specific proposals for reforming state or local taxes. But you will need to read ahead in the syllabus, since we will not finish the material on state and local taxes until close to the end of the course.
Important state and local taxes include the property tax, sales tax, and state income taxes (both personal and corporate). An current issue on sales taxation is how to tax sales over the internet (aka “Amazon Tax”).
Obtaining approval for your topic
All topics must be approved by me, no later than Tuesday, November 10. If you do not receive approval from me by that date, or do not get a short extension, then you cannot receive full credit for the paper.
Guidelines for writing the paper
1. The paper cannot be longer than 1500 words, not including tables, diagrams, title page, footnotes and reference list. I am willing to exclude your first paragraph from this limit, if it is devoted only to describing the tax proposal. (I don’t want the students with long proposals to have more trouble staying within the word limit.) Otherwise, you will receive a grade penalty if you exceed the word limit.
2. Submit your paper as a Microsoft Word document or equivalent (no PDF files).
3. Number your pages.
4. Notes on how to cite:
a. You can do this in one of two ways: Footnote the relevant passage, or include the cite in parentheses at the end of the relevant sentence in your paper (but before the period ending the sentence), e.g., “…(Wilson, 2005).” See my comments in part c below. Note: All references that you cite must be included in your list of references at the end of the text, e.g., if “Wilson, 2005” is cited, then “Wilson, 2005” must be found at the end of the paper. Similarly, is “Wilson, 2005” is not cited, then do not put it in your list of references.
b. Footnotes at the bottom of pages are useful for explaining how you are using a particular reference, e.g., “Wilson (2005) provided the brilliant insight that…,” or “The interest rate data for 1995-2000 is from Wilson” (2005).”
c. Do not simply insert, for example, “Wilson (2005)” at the end of a paragraph unless it is completely clear that the reference is referring only to the sentence and not everything else in the paragraph. When in doubt, explain what ideas you are using in a footnote. Otherwise, I may interpret entire paragraphs as paraphrasing some other writer’s ideas (in your own words if there are no quotations).
d. Use quotations where needed, but avoid quoting long passages. The main ideas in the paper should be written in your own words. If you instead use quotes a lot, it will not be clear that you understand what is being quoted.
5. Note on Plagiarism: Ignorance of what constitutes plagiarism is not a valid excuse for plagiarism. If you have not done so already, you should consult the MSU policies on plagiarism.
6. Final Comment: The purpose of this paper is to use the material from this course to analyze actual tax reform proposals. You are free to use tax experts’ ideas, where they are directly relevant for your analysis, provided you fully cite the source of the ideas. But these ideas should be worked into your own analysis, rather than serving as a complete replacement for your own analysis.
1. Tuesday, November 10: Deadline for topic choice.
2. Monday, November 16: Final deadline for approval of topics. No credit given for paper if this deadline is missed.
3. Wednesday, November 25: Deadline for first draft if you missed November 10 topic choice deadline.
4. Tuesday, December 1: Deadline for first draft if you did not miss topic choice deadline.
5. Wednesday, December 9: Deadline for final paper.
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