Case Study Assignment #1 Instructions
California’s Budget Crisis, Tax Reform and Domestic and International Tax Competition
This case highlights the continuing “progressivity debate.” It draws on a number of central concepts including the elasticity of tax bases, the tradeoffs between equality and efficiency in taxation, and tax competition.
INSTRUCTIONS
Format
- ion) to answer the following questions raised by the case. Answer all questions and subparts separately. The paper should be a minimum of 7-10 pages. See the syllabus for drafting instructions. Only the team presenting should prepare a power point presentation.
Question #1: From a tax perspective and based on the facts provided in the case, why can’t California solve its persistent fiscal deficits?
Question #2: Many voices in the case argue that progressive taxes stem growth and limit business investment by providing disincentives to earn more and locate in California. These disincentives, combined with the mobility of capital and high skilled labor in a globalizing economy, put pressure of the tax system to be less progressive and to rely, instead, on taxes such as the Value Added Tax (VAT). COTCE followed this model by encouraging businesses and talented individuals to work and invest in California shifting the tax burden away from capital and high incomes.
Is the COTCE proposal the right reform to spur growth?
Or should the state instead use revenues from capital and progressive income taxes to invest in public goods that improve the business environment and the quality of life in the state?
Question #3: Aside from its effects on economic growth, is COTCE’s move toward a less progressive system morally just? (i.e.: less progressivity may increase growth but places a greater burden on the poor; or would it reduce tax inequality)
When can we tell when the tax system has reached the right level of progressivity?
Question #4: As demonstrated in the case, tax havens raise the stakes in the debate on the merits and costs of progressive taxation. Are tax havens a good thing (evaluate pros and cons)?
Can progressivity survive this kind of tax competition?
Question #5: After reading the case and assigned readings, can progressive taxation survive in the modern economy and ease the tension or tradeoff between economic growth and tax burden distribution?