In: Economics
The Federal Budget
ENACTING NEW TAXES
Policymakers could also boost revenues by introducing new taxes. The largest potential revenue sources would be a value-added tax (already levied in every other developed nation) or a carbon tax (which would target the pollutants causing climate change). Other recent proposals include taxes on financial transactions, wealth, and unhealthy foods and drinks.
BOOSTING ECONOMIC ACTIVITY
All else equal, a bigger economy generates more tax revenue. Policies that boost economic activity, incomes, and wealth can thus lift revenues as well. Examples include policies that increase the number of people in the labor force, the number of hours they work, and their skills. Policymakers can also modify the tax code to increase workers’ physical and intellectual capital.
Immigration reform is one way to boost economic activity. Bringing new workers into the country would expand the labor force and attract new capital; allowing unauthorized workers to enter the legal workforce would boost their productivity and taxable wages.
Other policies that might boost economic activity include investing in infrastructure, education, and innovation; reforming the rules of social programs that discourage some people from working; and restructuring the tax code to encourage domestic investment. Actual economic gains depend on policy specifics; poorly designed investments and reforms could boomerang, reducing economic activity.
The ways in which the federal revenue can be spent is education, Social Security, Medicare Hospital Insurance, and unemployment insurance, Military services and benefits.