Over the last 40 years, corporate influence and trickle-down ideology have pervaded the tax code, resulting in large tax breaks for corporations and the wealthy. These low rates have failed to deliver the widespread growth that was promised, and the results for the typical American have been disastrous: Wealth at the top skyrocketed with no equivalent boom in growth. At the same time, median wages have remained largely stagnant, and the United States now ranks 10th out of 13 OECD countries in upward mobility. To correct our current trajectory, America needs a wholesale reconsideration of tax incentives and their impact on various economic activities.
In this brief based on previously published work by Roosevelt Institute Chief Economist Joseph E. Stiglitz, we propose a new paradigm for thinking about the tax system: Rather than rewarding bad behavior and using the tax and transfer system to redress poor outcomes after the fact, the tax code should be structured to encourage productive economic activities and a more equitable pre-tax distribution. The tax code can be used to adjust incentives and curb shortsighted, risky, and otherwise undesirable economic behavior. Loopholes should be closed, high taxes should be levied on harmful activities, and tax cuts and subsidies should be focused on productive investment that promotes inclusive growth and general well-being.
Our proposal aims to bring about inclusive growth through tax reform built around progressivity and positive incentives.