Efficient Taxation of Income
Encyclopedia
The Efficient Taxation of Income is an approach to taxation that would apply different tax rates for property-type income and earned income from work. Earned income would be taxed at a flat rate of 10%, while property-type income would be taxed at 30%. The plan was created by Dale Jorgenson, Samuel W. Morris University Professor at Harvard University
, and Kun-Young Yun, Professor of Economics at Yonsei University
, Korea. Jorgenson states that the plan would provide big gains in economic efficiency that would result from making the tax treatment of income from corporate, non-corporate and household property the same. The plan has been discussed before the United States Congress
but a bill
has not been introduced.
Under Efficient Taxation of Income, each dollar of new business investment would generate a credit against taxes on business income. The rates for these credits would make tax burdens on all income sources the same. Taxes on new investments by households would be collected by car dealers, real estate developers, and other providers. These would not apply to existing home owners and would protect property values. Jorgenson states that the Efficient Taxation of Income could be implemented without cumbersome transition rules. In the United States
, the tax treatment of Social Security
and Medicare
contributions and benefits would be unaffected, as would the treatment of private pension plans. Jorgenson estimates that the total one-off gain from Efficient Taxation of Income in the U.S. would be $4,900 billion, while adoption of the Flat Tax
would yield only $2,060 billion. The gains underscore the benefits of shifting investment to higher-yielding assets and reflect greater investment and faster economic growth.
Harvard University
Harvard University is a private Ivy League university located in Cambridge, Massachusetts, United States, established in 1636 by the Massachusetts legislature. Harvard is the oldest institution of higher learning in the United States and the first corporation chartered in the country...
, and Kun-Young Yun, Professor of Economics at Yonsei University
Yonsei University
Yonsei University is a Christian private research university, located in Seoul, South Korea. Established in 1885, it is one of the oldest universities in South Korea, the top private comprehensive universities in South Korea, and is widely regarded as one of the top three comprehensive...
, Korea. Jorgenson states that the plan would provide big gains in economic efficiency that would result from making the tax treatment of income from corporate, non-corporate and household property the same. The plan has been discussed before the United States Congress
United States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....
but a bill
Bill (proposed law)
A bill is a proposed law under consideration by a legislature. A bill does not become law until it is passed by the legislature and, in most cases, approved by the executive. Once a bill has been enacted into law, it is called an act or a statute....
has not been introduced.
Under Efficient Taxation of Income, each dollar of new business investment would generate a credit against taxes on business income. The rates for these credits would make tax burdens on all income sources the same. Taxes on new investments by households would be collected by car dealers, real estate developers, and other providers. These would not apply to existing home owners and would protect property values. Jorgenson states that the Efficient Taxation of Income could be implemented without cumbersome transition rules. In the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, the tax treatment of Social Security
Social Security (United States)
In the United States, Social Security refers to the federal Old-Age, Survivors, and Disability Insurance program.The original Social Security Act and the current version of the Act, as amended encompass several social welfare and social insurance programs...
and Medicare
Medicare (United States)
Medicare is a social insurance program administered by the United States government, providing health insurance coverage to people who are aged 65 and over; to those who are under 65 and are permanently physically disabled or who have a congenital physical disability; or to those who meet other...
contributions and benefits would be unaffected, as would the treatment of private pension plans. Jorgenson estimates that the total one-off gain from Efficient Taxation of Income in the U.S. would be $4,900 billion, while adoption of the Flat Tax
Flat tax
A flat tax is a tax system with a constant marginal tax rate. Typically the term flat tax is applied in the context of an individual or corporate income that will be taxed at one marginal rate...
would yield only $2,060 billion. The gains underscore the benefits of shifting investment to higher-yielding assets and reflect greater investment and faster economic growth.