This paper argues that a progressive tax system combined with individual taxation
of married couples can generate more revenue than the current household-based U.S. system,
especially when the extra revenues do not induce negative labor supply effects through increased
government transfers. A progressive system that taxes individuals rather than couples jointly
leads to larger labor force participation and higher average human capital, creates more “fiscal
space”, Laffer curves shift up and social welfare potentially rises. In our model with one- and
two-earner households, human capital and an extensive margin labor supply decision, the peak of
the Laffer curve is 18 percentage points higher with an individual-based, progressive tax system
than with the current U.S. tax system.