Overhauling the U.S.

Tax System: Addressing Americas Greatest Challenges Through More Economically Efficient Tax Policy

Robbie Bruens December 10, 2010 Public Policy 192 Ulrich

The United States tax code needs a complete overhaul. An overhaul is necessary not simply because a

wide variety loopholes, exemptions, and carve outs have infested the system with unfairness, complexity and inefficiency. Even more importantly, the United States needs a tax structure that will help it confront the economic and environmental challenges of the 21st century in a sophisticated, effective way. Closing loopholes and eliminating special interest giveaways, while appealing and worthwhile, is just not enough good enough in a world of staggering economic imbalances and looming climate catastrophes. We must pursue a more ambitious approach. We should eliminate the federal income tax and the payroll (or FICA) tax and replace them with more sensible revenue measures to fund the bulk of government expenditure. Basic economic principles indicate that governments should tax activities in order to reduce their incidence. For this reason, governments have so-called sin taxes on alcohol, cigarettes and gambling. But sin taxes only provide revenue on the margin. The largest revenue streams of the federal government tax income. But income is a positive activity. Governments should want more, not less of it. The payroll tax is also extremely regressive, and so it might be more precise to say that it taxes work which is another activity governments should not be discouraging. This might be a necessary contradiction if there were no other alternatives for raising the amount of revenue needed to maintain the essential government function of a modern wealthy superpower. However, there are fairly straightforward options for raising comparable revenues by taxing more negative activities. Instead of raising the bulk of the federal governments revenue through income and payroll taxes, we should raise the same (or greater) revenue through taxing excessive consumption and deleterious pollution. The federal income tax should be replaced by a progressive consumption tax. Under a progressive consumption tax, Americans would report their income to the Internal Revenue Service as they do now but they would also report their annual savings. The difference between these two amounts would constitute taxable consumption. Basic necessities would be exempted in the form of a standard deduction dependent on family size. Rates would start low but as taxable consumption rose, the tax rate on additional consumption would also rise. The payroll tax should be replaced by a tax on man-made greenhouse gas emissions, primarily carbon. Several countries have instituted a tax on each ton of atmospheric carbon emitted and we could model our tax on the most successful international versions. However, in order to raise as much revenue as the payroll tax does

presently, the tax on carbon and other climate distorting pollutants would have to be quite high. This would cause the costs of various goods and services to rise dramatically, but individuals and families will be able to cope with increased costs as their paychecks will be much bigger due to the repeal of the payroll tax. This will also allow consumers to make informed choices by imposing the true costs of energy use on all economic activities. Market discipline will allow consumers to more easily look for alternatives that pollute less or not at all. There are innumerable reasons for instituting such an admittedly radical reform but the main desirable effects of these proposed changes would be to encourage saving and to make pollution as burdensome economically as it already is environmentally. Given the role that unsustainable debt and overleveraging played the recent financial crisis and subsequent Great Recession, the wisdom of building the tax code around making saving more advantageous should be clear. And the largest burden we are currently building up to leave to future generations is not a fiscal deficit at all. Rather, it is a climate debt of monstrous proportions. We are condemning our grandchildren to a world that is more impoverished, fractious and possible uninhabitable. Replacing the payroll tax with a climate pollution tax is not only good policy, it is a moral imperative. To supplement these substantial alterations to the current tax system, we should also add a small financial transactions tax, a tax on bank size, and a tariff on imports from countries that do not put a similar price on carbon. A financial transactions tax would mostly afflict speculators while helpfully slowing down the often blindingly fast speeds of financial markets. A tax on bank size would serve as useful cudgel against the persistent problem of too big to fail financial institutions. A carbon tariff along the lines of that endorsed by Nobel-prize winning economist Paul Krugman is the only way to level the playing field between countries with responsible climate policies and those without. The considerable additional revenues raised by these supplements could be used both for budget deficit reduction and to finance long-neglected investments in public education and infrastructure.

The Central Problems of the U.S. Tax System

The problems of the U.S. Tax System are almost innumerable, but I will describe only the most inimical flaws that this proposed overhaul will address. These can be categorized broadly in three groups: problems of unfairness, problems of inefficiency and problems of complexity. The tax code is unfair when it derives revenue in a needlessly regressive manner as in the case of the funding source for Social Security and Medicare. The FICA Tax that raises revenue for those programs is flat and thus by definition regressive. An individual earning $20,000 annually is in the same income bracket as a person earning $90,000 in the same year as far as the FICA tax is concerned. To make matters worse, only the first $106,800 of wages is subject to Social Security portion of the tax while investment income is not subject to the tax at all. This means that for three fourths of Americans, the FICA tax represents a majority of their tax liability. But for the wealthiest people in the country, the FICA tax is a minuscule part of their bill. 1 The federal income tax is more progressive in structure than the FICA tax, but it has become dramatically less progressive in recent decades. At the same time as the richest Americans became ever wealthier while every other income group stagnated, the federal government has been effectively providing a regular boost to the aftertax income of the top income bracket. Thus the government has only been exacerbating an already pernicious problem of rapidly growing income inequality. 2 In addition to its dwindling vertical equity, the federal income tax is also economically inefficient. Conservatives of various stripes regularly make an argument against the federal income tax on this basis. But some progressives have articulated the point as well, with Robert Frank arguing in the liberal American Prospect magazine that taxes do more than pay for public services. Taxing any activity both generates revenue and discourages the activity.3 With this in mind, he reasons that we should not tax work or income, as both the federal income tax and the FICA tax do, because we do not want to discourage either of those activities. It is highly inefficient for governments to discourage desirable economic activities through taxes, and can only be justified if there are no alternative mechanisms for raising necessary revenue. However, there are alternatives. Finally, a growing chorus of voices has been calling for root-and-branch tax reform simply because the

1 2

M.S. Dealing with Social Security. The Economist. September 8, 2010. Lowrey, Annie. Income Inequality and Recession. The Washington Independent. September 15, 2010. 3 Frank, Robert. Post-Consumer Prosperity. The American Prospect. March 24, 2009.

code has grown so complex in the past quarter century since the last major revision. 4 Both parties abuse tax expenditures as a way to favor their political priorities without adding any new spending to the budget even though the fiscal effect is usually the same and tax expenditures are often far less economically efficient. 5 Coupled with the intense influence of special interest groups who constantly lobby for special tax privileges and the like, the tax code seems to inevitably turn to swiss cheese within a few decades of each major reform. Perhaps this is unavoidable, but the need for fairly regular reform does give the country an opportunity to seriously reconsider its tax system every few decades. Instead of squandering this opportunity by only eliminating loopholes and adjusting rates while keeping suboptimal revenue sources in place, we should embrace the chance to use an overhaul to creatively address our nations biggest challenges. The Mechanics of a Progressive Consumption Tax Lets look at how a progressive consumption tax would actually differ from the federal income tax by looking at the prospective tax bills of two fictional American families of very different means. The Smiths, a middle class family of four, earn $50,233 annually. That puts them very near the median income of the U.S.6 Under the status quo federal income tax, their first $16,700 of earnings is taxed at a 10 percent rate and the rest is taxed at a 15 percent rate. 7 This adds up to a total liability of about $6,700. Without going into too much detail, we can assume that a family at this income level probably does not itemize deductions but is very likely to be eligible for benefits such as the child tax credit so their actual tax bill will be lower. Lets assume a final liability of around $4,500. Now, lets recalculate the Smiths tax liability under the progressive consumption tax. The Smiths would report $50,233 in income. If they saved around the 2010 average of 6.4 percent, they would report $3,214 in savings.8 Then they would get a standard deduction for basic consumer necessities based on their family size. For a family a four, it would be $25,000. By subtracting their savings and their standard deduction from their total income, their taxable consumption is derived: $22,019. Using the same marginal rates as the federal
4 5

Calmes, Jackie. Obama Weighs a Broad Tax Overhaul. The New York Times. December 9, 2009. Ulrich, Roy. Lectures from Public Policy 192. Goldman School of Public Policy. Fall 2010. 6 Household Income Rises, Poverty Rate Unchanged, Number of Uninsured Down U.S. Census Bureau. August 26, 2008. 7 Perez, William. 2009 Tax Rate Schedules. About.com. 8 Mui, Ylan Q. U.S. savings rate at highest level in a year, data show. The Washington Post. August 4, 2010.

income tax, the first $16,700 of taxable consumption would be taxed at 10 percent while the rest would be taxed at 15 percent. Therefore their tax bill would come out to be approximately $2,500. Even if we assumed that the Smiths were able to reduce their tax bill considerably more under the current income tax because of the various deductions and credits available, they probably could not get a better deal than under the progressive consumption tax. But how would the federal government deal with the shortfall of revenue through lessened liabilities on middle class families like the Smiths? For the answer, we turn to the Joneses. The Joneses, a wealthy family of four, earn $20 million every year and that puts them firmly in the top one percent income bracket. They are movie stars or corporate executives but in any case they earn an obscene amount of money. Under the status quo federal income tax, they would owe about $100,895 on their first $372,951 of income and an additional $6,869,467 on the rest of their income. Leaving aside the innumerable deductions and credits they could use to lower their bill, they have a total liability of about $7,000,000. To recalculate their liability under the progressive consumption tax, we would subtract the standard deduction ($25,000) and their savings ($6,600,000 or roughly third of their income) from their total income to get their taxable consumption: $13,375,000. For ordinary people, its hard to imagine spending that much money in a single year but the rich are able to do it. They remodel their mansions, buy sports cars, collect highly valued art, fly all over the world, and stay in ridiculously expensive hotels for extended periods of time. For this reason, calculating their tax liability under the progressive consumption tax will be a bit more complicated than it was for the Smiths. Under an income tax, governments must be careful to avoid raising effective rates too high for doing so would discourage work and earning more income. However, because discouraging excessive consumption is part of the point of the progressive consumption tax, it is actually quite desirable from an economists perspective to have steeply graduated rates. 9 For the purposes of this proposal, I will keep the same rates as the income tax on their first $137,300 of taxable consumption for married joint filers with progressively higher rates for each dollar of further consumption. I have included a possible rate schedule for the progressive consumption tax in the appendix, which shows how much the Joneses would owe. According to those calculations, they
9

Frank, Robert. Post-Consumer Prosperity. The American Prospect. March 24, 2009.

would owe approximately $11,593,819. Even assuming that there will be some further deductions available with a progressive consumption tax, this is dramatically higher liability than they would have under a federal income tax. And this would help make up for the lower tax liabilities of the middle class. Of course, the Joneses are unlikely to pay that total because they would probably scale back their consumption in order to pay less to the IRS at the end of the year. Thus they would save and invest more, which will be better for the economy.

A Progressive Consumption Tax Limits Excessive Consumption The wealthy individuals who have made most of the significant income gains in recent decades have spent much of their new riches on positional goods. The value of positional goods hinges largely on how they compare with comparable goods bought by others in the same social strata. Many analysts have concluded this trend has occurred because individual consumer demands hugely depend on the surrounding social environment.10 Therefore, when one CEO buys a private jet, another CEO is likely to buy a bigger private jet. A third CEO might buy an even larger private jet, and the first CEO will finally respond by purchasing a grandiose yacht. While this scenario may seem comical, it amply demonstrates the absurd wastefulness of much positional spending. It also begins to illustrate the cascading effect of such consumption. Greater spending by the rich also moves the goal posts that frame what the near rich consider necessary or desirable, which compels them to spend more. Of course, this moves the goal posts for those just below the near rich, and so on, all the way down the income ladder.11 While this phenomenon of trickle-down consumption may seem ridiculous, it has very real and very detrimental effects on quality of life, not to mention the environmental costs of endless inefficient resource use.12 To give an example, the frame of reference for consumption determines acceptable housing for different income groups. Of course, a middle class family could choose to spend less on housing and take more vacation time or take on less debt. But without a positional focus on a maximal housing purchase, that family sacrifices its access to a good school district, which dooms the children to a lesser education and more narrow
10 11

Frank, Robert. Post-Consumer Prosperity. The American Prospect. Ibid. 12 Hertzberg, Hendrik. Not Insane. The New Yorker.

opportunities later in life.13 Indeed, the negative effects of the struggle for better positional goods have been linked to everything from the significant expansion of commuter hours to the drop in the number of vacation days both of which have occurred as inequality has risen. 14 Fortunately, a sufficiently progressive consumption tax could curb spending on positional goods significantly. With a top marginal rate of ninety or one hundred percent, the purchase of extremely expensive items such as a yacht or a private jet would become that much more expensive and the likeliest outcome will be that the richest families will respond by scaling back their positional spending. This will allow near rich families to scale back and so on.15 Of course, conspicuous consumption would continue but its greatest excesses will be limited and the country would actually benefit in a number of ways. Limiting endless positional consumption would undoubtedly help preserve our natural environment and lower individual debt burdens while redirecting resources towards savings and investment or increased leisure time. The former would strengthen our economy in a sustainable way while the latter would improve quality of life.

Progressive Consumption Tax Cuts Effective in Staving Off Recessions During recent debates over how to best stimulate the economy in a recessionary environment, conservatives argued for more tax cuts while others contended that standard tax cuts would not have the intended effect because many Americans understandably fearful about losing their jobs would just save their tax cut or use it to pay off debts rather than spend it leaving aggregate demand unaffected. 16 But if a progressive consumption tax cut were in place, a temporary rate cut for such a tax would be highly beneficial in a recessionary climate. This is because in order to take advantage of the cut, individuals would have to spend more right away.17 In effect, the federal government could stymie a recession by the public policy equivalent of declaring a sale on all goods and services in the country. Such a tax cut would likely have support across partisan lines and that would mean speedy enactment, which is crucial to alleviate the worst effects of a recession.
13 14

Frank, Robert. Falling Behind. Frank, Robert. Post-Consumer Prosperity. The American Prospect. 15 Ibid. 16 Krugman, Paul. Ideas for Obama. The New York Times. 17 Frank, Robert. Post-Consumer Prosperity. The American Prospect.

A Brief Note on Deductions, Exemptions and Credits One of the major reasons to overhaul the U.S. tax code is to clean up the myriad deductions, exemptions and credits that now riddle the system. With that in mind, many of the deductions available under the federal income tax should not be available under the progressive consumption tax, although useful ones could be included. It would likely be necessary and helpful to exempt some but hopefully not all charitable donations from taxable consumption. Employer-provided health insurance is an issue that best remains part of broader debate about the U.S. health care system, so this overhaul would not touch the status quo tax policy on health insurance. The mortgage interest deduction is popular but has little basis in sound economics and should be eliminated.18 The child tax credit would essentially be replaced by a standardized deduction that would increase with family size. However, the Earned Income Tax Credit presents another issue. My preference would be to convert the EITC into something like a living wage supplement. Workers with low wages would simply receive a wage supplement roughly equivalent to the EITC. This would have the added benefit of removing the complexity of the EITC application process. All working low-income tax filers would receive the living wage supplement. The Mechanics of a Carbon Tax Carbon taxes have been successfully implemented in many European countries. However, most of these countries do not rely on their carbon taxes as a primary source of revenue for the government as I am proposing. If the payroll tax were repealed, it would leave a hole in the budget of approximately $1 trillion. 19 In order to raise this amount of revenue from a carbon tax, the U.S. would have to tax carbon at a rate of roughly $175 per metric ton emitted. Most European countries do not have a such a steep tax on carbon. 20 However, Sweden started putting a tax on carbon comparable to what we would need almost two decades ago and has continued to experience stronger than average economic growth ever since. They also have
18 19

Ozimek, Adam. The Mortgage Interest Deduction: Winners and Losers. Modeled Behavior. December 3, 2010. What are the federal governments sources of revenue? Tax Policy Center. April 22, 2009. 20 Babiker et al. Assessing the Impact of Carbon Tax Differentiation in the European Union. Environmental Modeling and Assessment.

a rate of carbon emissions per capita that is about one fourth of the U.S. average. 21 If the U.S. achieved Swedish rates of carbon emissions, worldwide carbon emissions would drop by 15 percent. Sweden levies its carbon tax upstream, which leaves the bulk of responsibility on industry rather than individuals. The U.S. should follow the successful Swedish model except for all of the exemptions in their tax program. We will not need exemptions because businesses and consumers will experience a windfall from the lifting of the payroll tax and therefore will be able to adjust to the higher prices of carbon-intensive energy. In addition, a multiyear transition period would allow for a slow phase out of the payroll tax in concert with a gradual phase in of the carbon tax. Many are concerned that a carbon tax would make our economy less competitive with China and other nations that may not impose a similar price on carbon emissions in their own countries. 22 Over the long term, countries that depend on dirty, unsustainable fossil fuels will inevitably fall behind those who innovate new energy solutions. But over the short term, critics of a carbon tax for competitive reasons are essentially right. That is why the U.S. must pair a carbon tariff with its carbon tax. Such a tariff could be designed to comply with WTO rules. There are rough analogues in two different places: sales taxes apply to foreign imports and domestic goods equally, and the Montreal Agreement that regulates the Ozone layer pollutants included a trade adjustment component. 23 If handled delicately, such a tariff might push the world closer to a global agreement on climate change action. Such a policy would not be very extreme, as no less a luminary than Nobel Prize winning economist and international trade expert Paul Krugman has strongly endorsed a carbon tariff paired with domestic pricing of carbon. 24 The revenue from a carbon tariff could be used to lower our domestic carbon tax rate marginally and to fund a renewable energy infrastructure. The Necessity of Pricing Carbon The scientific community has been very clear about the enormous risks posed by human-caused climate change.25 Societies continue to heedlessly burn fossil fuels at their own peril. As the world leader in per capita carbon emissions, the U.S. has an awesome responsibility to set an example and end our dependence on carbon pollution once and for all. The most obvious way forward is to craft public policy that makes carbon much more
21 22

Swedish Greenhouse Gas Emissions. Natur Vards Verket. December 15, 2009. Krugman, Paul. Empire of Carbon. The New York Times. May 14, 2009. 23 Editorial. Trade and Climate. The New York Times. July 18, 2009. 24 Krugman, Paul. Empire of Carbon. The New York Times. May 14, 2009. 25 Intergovernmental Panel on Climate Change. IPCC Fourth Assessment Report. 2007.

costly to emit over time. Whether or not this country decides to overhaul its tax code, it must put a price on carbon if it is serious about addressing the great, unavoidable challenge of our time. I am simply suggesting that rather than add a carbon tax to the system on its own, replace the payroll tax designed for the economic realities of the 1930s with a pollution tax tailored to the world of today. In this way, instead of imposing new economic costs onto individuals and businesses, we just shift the costs off of wage labor and onto unsustainable energy production and use. Taxing the Lords of Finance The financial crisis of 2008 has exposed deep-seated problems in our countrys finance sector. Besides the obvious dangers of overleveraged banks, largely unregulated shadow banking operations and housing bubbles, the crisis demonstrated the unmatched political influence wielded by these businesses that were able to extract an enormous bailout over the loud, passionate objections of nearly everyone in the country. Many began to question whether some of these institutions had any redeeming social value whatsoever other than as a government-backed casino of the elites.26 Most of these problems can only be addressed through public engagement and legislation such as that passed into law earlier this summer. But it is worthwhile to note what role tax policy can play. Any true free market capitalist would be alarmed at the enormous profit margins that the financial industry enjoyed in the 2000s. In a well-functioning market, competition inexorably drives profits down. 27 The financial sector eventually accounted for nearly half of all corporate profits in the United States, in a clear sign of a dysfunctional market.28 This is what too big to fail really means. But as any tax policy expert will tell you, if something gets too big, just tax it down to size. I propose doing this in two ways. First, the U.S. should institute a Speculation Tax on financial transactions. With a small fee of 0.25 percent on the sale or transfer of stocks, bonds and all other financial instruments, ordinary investors would feel very little burden. However, speculators and other actors engaging in high-speed trades of dubious social value would bear significant costs, likely causing them to slow down or
26 27

Cassidy, John. What Good is Wall Street? The New Yorker. November 29, 2010. Kwak, James. Sustained High Profits: Should You Be Worried? Wall Street Pit. July 30, 2009. 28 Johnson, Simon. The Quiet Coup. The Atlantic. May 2009.

rethink their activities. Such a tax could raise up to $100 billion in additional revenue every year while only seriously discouraging undesirable speculative activities. Much of the significant burden would fall on the trading desks of the major banks and financial institutions, which is exactly where the financial crisis contagion started.29 Second, the U.S. should levy a tax on all bank, thrift and insurance companies with more than $50 billion in assets. The tax should not apply to customers insured savings but only to assets in risk-taking operations. The rate should be set based on the level of excess profitability of the financial industry. At a minimum, it should raise $90 billion over ten years like a similar proposal from the Obama White House. 30 Once again, the federal government can raise needed revenue by discouraging the size of too big to fail banks. The new revenues could be used in a number of different ways. My preference would be to set aside a small portion in a financial stability fund so that any future crises could be dealt with more easily while using the bulk of the money to reinvest in public infrastructure and close state budget gaps in order to lower the unemployment rate and improve future economic prospects. Once the country has a stronger economy and near full employment, this revenue could be redirected to deficit reduction. Corporate Income, Capital Gains and Estate Taxes This tax overhaul plan would leave the corporate income tax, the capital gains tax and the estate tax largely intact. None of these taxes are perfect, but they all serve important roles. Corporations gain enormous privileges from their governmentally recognized legal status and they should have to pay for these privileges. No business is forced to incorporate, and so technically the corporate income tax is a voluntary opt-in cost for businesses who want corporate privileges. Capital gains taxes are a tax on investment, but they are necessary in order to level the playing field between wealth and work. Living off investment income while others have to work for a living is already a sweet deal. The deal should not go untaxed. If anything the capital gains tax should be increased to at least the level it was during the stock market boom of the 1990s. The estate tax is a bulwark against the growth of an entrenched aristocracy in the U.S. It should be expanded significantly for all estates

29

Baker, Dean. The Benefits of a Financial Transactions Tax. The Center for Economic and Policy Research, December 2008. 30 Calmes, Jackie. Taxing Banks for the Bailout. The New York Times, January 14, 2010.

worth more than $3.5 million. If there are any ideas that achieve the goals listed here in a more efficient way, I would include them in a future version of this plan. The corporate income tax in particular seems to be quite flawed. Concluding Remarks This plan will not fix every budget and tax problem that this country faces. But it is a bold step towards addressing two of our greatest challenges: perilous economic imbalances and a dangerous dependence on fossil fuels. It has the potential to be much more economically efficient, vertically equitable, and environmentally beneficial than the status quo. It may even be a simpler way to collect revenue for the U.S. government. I have only outlined the broad contours of the plan, there is a plethora of ways to specify rates and other details based on targeted revenue and efficiency. As a final note, there is a reason I have proposed such a dramatic change to the tax system rather than just tinkering around the margins. Tax policy is one of the many areas where embracing change and creativity are absolutely necessary to deal with the increasingly rapid transformations of the twenty-first century. We should build the imperative to change with the times into our tax code, and that is why I have proposed making a climate pollution tax one of the main sources of revenue for the U.S. government. Ideally, the tax will cause carbon emissions to drop dramatically over the coming decades. The government will have to respond initially by continuously raising the tax rate but this should cause emissions to drop even further until eventually the U.S. will have to find a new major source of revenue. Some would call this a defect, but I see it as a feature. Pretending we can institute permanent solutions to any problem is a recipe for political sclerosis. The need to replace the carbon tax will compel us to keep evolving rather than cling to the broken status quo as we have too often done in the past. Thats what redesigning any public policy should be all about. Works Cited
Babiker et al. Assessing the Impact of Carbon Tax Differentiation in the European Union. Environmental Modeling and Assessment. Baker, Dean. The Benefits of a Financial Transactions Tax. The Center for Economic and Policy Research, December 2008. Calmes, Jackie. Taxing Banks for the Bailout. The New York Times, January 14, 2010. Calmes, Jackie. Obama Weighs a Broad Tax Overhaul. The New York Times. December 9, 2010. Cassidy, John. What Good is Wall Street? The New Yorker. November 29, 2010. Editorial. Trade and Climate. The New York Times. July 18, 2009. Frank, Robert. Falling Behind. New York: University of California Press, 2007.

Frank, Robert. Post-Consumer Prosperity. The American Prospect. March 24, 2009. Hertzberg, Hendrik. Not Insane. The New Yorker. March 23, 2009. Household Income Rises, Poverty Rate Unchanged, Number of Uninsured Down U.S. Census Bureau. August 26, 2008. Intergovernmental Panel on Climate Change. IPCC Fourth Assessment Report. 2007. Johnson, Simon. The Quiet Coup. The Atlantic. May 2009. Krugman, Paul. Empire of Carbon. The New York Times. May 14, 2009. Krugman, Paul. Ideas for Obama. The New York Times. January 11, 2009. Kwak, James. Sustained High Profits: Should You Be Worried? Wall Street Pit. July 30, 2009. M.S. Dealing with Social Security. The Economist. September 8, 2010. Lowrey, Annie. Income Inequality and Recession. The Washington Independent. September 15, 2010. Mui, Ylan Q. U.S. savings rate at highest level in a year, data show. The Washington Post. August 4, 2010. Ozimek, Adam. The Mortgage Interest Deduction: Winners and Losers. Modeled Behavior. December 3, 2010. Perez, William. 2009 Tax Rate Schedules. About.com. Swedish Greenhouse Gas Emissions. Natur Vards Verket. December 15, 2009. Ulrich, Roy. Lectures from Public Policy 192. Goldman School of Public Policy. Fall 2010. What are the federal governments sources of revenue? Tax Policy Center. April 22, 2009.

Appendix Tax Bracket 10% 15% 25% 35% 45% 55% 65% 75% 85% 95% 100% Taxable Consumption $16,700 $16,701 $67,900 $67,901 $137,050 $137,051 $208,850 $208,851 $372,950 $372,951-$500,000 $500,001-$1,500,000 $1,500,001-$3,000,000 $3,000,001-$6,000,000 $6,000,001-$12,000,000 $12,000,000+ Joneses Tax Liability $1,670 $7,680 $17,287.5 $25,130.35 $73,845 $69,876.95 $650,000 $1,125,000 $2,550,000 $5,700,000 $1,375,000

Notes: The Joneses taxable consumption is only $1,375,000 above $12 million so they pay 100% on that number. The sum of the third column equals their total tax liability of $11,593,819.