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Chapter 6: Down the Rabbit Hole

DISINCENTIVES CAN BE A PROBLEM
The Tax Foundation has published an
International Tax Competitive Index. According to the
foundation, the index measures the extent to which a
country’s tax system adheres to the two principles of
tax policy—competitiveness and neutrality. A
competitive tax code is one that limits taxation on
businesses and fosters investment. Tax codes that are
not competitive drive investment elsewhere, leading to
slower economic growth. By neutrality, the Tax
Foundation means a tax system that seeks to raise the
most revenue with the least economic distortions.

According to the Tax Foundation, the United
States ranks thirty-second of the thirty-four
industrialized countries in the Organization for
Economic Co-operation and Development (OECD) for
tax neutrality. Tax neutrality is characteristic wherein
taxes do not interfere with the natural flow of capital
toward its most productive use. According to the Tax
Foundation, America’s tax system is at odds with tax
neutrality. As part of President Trump’s economic
agenda, Congress passed a new tax law in 2018 that has
simplified and shortened the statute to make it more
competitive with other nations.

UNFUNDED LIABILITIES

Unfunded liabilities occur when the government
commits itself to spending money on programs, but
does not make adequate provisions to fund the program
into the future. Therefore, the government is incurring
liability without proper funding.

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