NBER Paper: Individual Progressive Taxation Outperforms Household-Based System
A new National Bureau of Economic Research working paper by Hans A. Holter, Dirk Krueger, and Serhiy Stepanchuk argues that shifting the U.S. tax system from household-based to individual-based progressive taxation would significantly enhance economic efficiency and social welfare. The study models one- and two-earner households, finding that individual taxation increases labor force participation and average human capital by lowering effective tax rates for secondary earners near the participation margin. Consequently, the peak of the Laffer curve rises by 18 percentage points compared to the current system. Maximum revenue is achieved with double the current progressivity at a 42% average tax rate. This reform creates substantial fiscal space without inducing negative labor supply effects from increased transfers. The authors estimate steady-state social welfare gains equivalent to a 0.8% increase in consumption, with significant benefits also accruing to cohorts born during the transition period. The research suggests that optimal progressivity is higher than the current U.S. status quo, challenging traditional joint filing structures and offering a pathway to higher government revenue and improved societal well-being through targeted tax policy adjustments.
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NBER Paper: Individual Progressive Taxation Outperforms Household-Based System
A new National Bureau of Economic Research working paper by Hans A. Holter, Dirk Krueger, and Serhiy Stepanchuk argues that shifting the U.S. tax system from household-based to individual-based progressive taxation would significantly enhance economic efficiency and social welfare. The study models one- and two-earner households, finding that individual taxation increases labor force participation and average human capital by lowering effective tax rates for secondary earners near the participation margin. Consequently, the peak of the Laffer curve rises by 18 percentage points compared to the current system. Maximum revenue is achieved with double the current progressivity at a 42% average tax rate. This reform creates substantial fiscal space without inducing negative labor supply effects from increased transfers. The authors estimate steady-state social welfare gains equivalent to a 0.8% increase in consumption, with significant benefits also accruing to cohorts born during the transition period. The research suggests that optimal progressivity is higher than the current U.S. status quo, challenging traditional joint filing structures and offering a pathway to higher government revenue and improved societal well-being through targeted tax policy adjustments.
National Bureau of Economic Research Working Papers