The Tax Foundation is the nation’s leading independent tax policy research organization. Since 1937, our principled research, insightful analysis, and engaged experts have informed smarter tax policy at the federal, state, and local levels.
Testimony of Scott A. Hodge,
President, Tax Foundation
Before the Subcommittee on Fiscal Responsibility and Economic Growth
of the Committee on Finance
“Creating Opportunity Through a Fairer Tax System”
April 27, 2021
Thank you, Madame Chairman, ranking member Cassidy, members of the committee. I
appreciate the opportunity to speak to you today about tax fairness, economic growth, and
funding government investments.
A famous economist once said, “There are no solutions, there are only trade-offs.” That
lesson is especially true in tax policy and in the choices lawmakers must make in funding
The scales of justice may have two trays, but tax policy has three trays that lawmakers
must balance—revenues, equity, and economic growth. But, these factors cannot be
In other words, lawmakers must decide which is most important: (1) how much revenues a
tax will raise, (2) progressivity, or who bears the burden of the tax, or (3) what impact those
tax changes will have on economic growth.
Extensive economic modeling and empirical evidence tells us that there is a clear trade-off
between progressivity and economic growth. This is especially true with so-called success
taxes—taxes on capital and business income.
Understanding these dynamics matters in how you fund government investments.
Research by the Congressional Budget Office (CBO) has found that government
investments deliver only half of the economic returns of private sector investments. Given
the opportunity costs that come with government spending, lawmakers must be careful
in choosing offsets that don’t do more harm to the economy than the modest benefits
generated by the public investments.
TA X FOUNDATION | 2
Indeed, the U.S. tax system is already very progressive and redistributive, so making the
tax code even more progressive through proposals such as a wealth tax, a minimum tax on
book income, or an increase in the corporate tax rate are among the most economically