One prominent reform strategy is to eliminate most or all of the individual income and payroll tax expenditures. In the current system, two taxpayers with the same level of income could face very different tax bills because one taxpayer is able to take advantage of more tax breaks than the other. However, some of the most expensive tax expenditures are also the most popular and were designed to meet certain policy goals, including those that cover retirement plans, employer-provided health benefits, and credits for parents of dependent children. For that reason, major changes to the tax code should be phased in gradually to give people time to adjust.

Eliminating some or all individual tax expenditures could allow for a number of other changes to the tax system, while producing additional revenues to improve our long-term fiscal outlook. It could also improve the efficiency of our economy and improve taxpayers’ confidence in the fairness of the overall system.

Increasing tax rates on some or all taxpayers would increase federal revenues by a proportionate amount. For example, The Congressional Budget Office estimates that an increase of 1 percentage point across all tax brackets would increase federal revenues by $1.1 trillion over 10 years, while increasing rates by 2 percentage points across the four highest brackets would raise around $500 billion.

There are many considerations when revising individual income tax rates. For instance, raising rates across all tax brackets, even by a small amount, may bring in a lot of revenues for the federal government, but such an action may impose additional financial hardship on lower-income Americans. Meanwhile, raising tax rates only on higher-income Americans may be seen as more equitable by many, but opponents argue that tax rates are already much higher for higher earners.

The capital gains tax is a levy on income received from the profitable sale of a capital asset — such as stocks, bonds, or real estate. That profit, known as a capital gain, is generally taxed at a lower marginal rate than ordinary income. Higher-income households derive a larger share of their income from capital gains, and therefore tend to benefit more than lower-income households from that preferential tax treatment.

Proponents for increasing capital gains taxes note that it could raise additional revenues and promote a more equitable tax system. Critics of increases to the capital gains tax argue that maintaining or even lowering the tax rates could increase economic growth and encourage entrepreneurship and job creation.