The Republican tax overhaul plans have sparked great uncertainty amid heated debates. This article provides a framework for thinking through the issues.

My sister asked me, “How should we reform taxes, Bill?”

I asked what goal she wanted to achieve.

“Fairness.”

“OK,” I said, “we can work on fairness. But you’re not concerned about economic growth?”

She said she wanted strong economic growth, too.

If we had been talking about state and local taxes, I would have also mentioned revenue stability — how much revenue falls in a recession and rises in a boom. But for federal taxes, I assume the government can borrow if its revenue declines temporarily. So for federal taxation, I focus on fairness and growth.

Tax fairness is a very confused topic. The shifting of the tax burden blurs impacts on people: The person or company that writes a check to the tax collector may be able to pass the cost on to someone else. We all know that smokers pay more for cigarettes when the tobacco tax is increased. The taxes are paid by the manufacturers and distributors and passed along to the smoker.

Similarly, landlords write a check for property taxes, but we don’t imagine that renters are getting off scot-free. The taxes are passed on to them in higher rents.

So who pays the corporate tax? There have to be real live human beings bearing the burden. Some of them may be shareholders, but some may be the corporation’s workers and consumers of the corporation’s products. And even if you hope that it’s primarily shareholders who bear the burden of the tax, check out your own IRA or 401(k) before you assume that only fat cats are shareholders.

Some estimates are that 70% of the corporate income tax burden is borne by workers through lower wages while 30% is borne by owners of capital — both fat cats and middle-income investors. One liberal group uses 80% burden on owners of capital for long-term effects, but 100% for short-term impacts and 50% for changes in depreciation schedules. Those estimates seem closer to the academic mainstream.

Income taxes are more obviously related to ability to bear the tax burden, but not entirely. Two people work the same job. One takes off to go fishing every chance he gets. The other volunteers for overtime as often as possible. Why should the person who chooses money over leisure time have a greater responsibility to keep the government running than the other person? Why should the teacher with a three-month summer break have a lower responsibility than someone in a 12-month-a-year job? The best answer seems to be that the tax system is imperfect at best.

Our overall tax code, considering everything from Social Security taxes to liquor taxes, is pretty flat. Across a wide range of incomes, we all pay a similar percentage of our incomes in taxes.

Economic growth is one purpose of the tax reforms and should be the primary goal. But tax reform is a political act, so multiple special interests get involved. Martin Feldstein made a valuable contribution to the discussion in a recent Wall Street Journal article. He pointed out that cutting the corporate tax cut would result in benefits to economic growth that were slow but steady, cumulative and compounding. It will not be a short-run stimulus as Keynesians hope to find, but it will grow the economy — and wages — over a 10-year horizon.

Critics sometime deride corporate tax cuts as “trickle down” theory. Anyone who uses the phrase either has not tried to understand the motivation behind cutting corporate tax cuts or understands the motivation and chooses to intentionally mislead. The argument for cutting corporate tax rates is that it will stimulate business capital spending. Greater capital spending increases the economy’s total productive capacity, and it boosts the value of each additional worker. Thus, capital expenditures grow the economy and wages both. There is some room for argument about the magnitude of the incentive effect, but every economist will accept that there is some impact, whether small or large. The “trickle down” label denies the existence of the incentive to capital spending and is thus inappropriate in serious discussion.

All taxes have negative consequences for economic growth, but some taxes are worse than others. In general, the impacts are greatest when the taxpayers have great room for choice. For example, compare a tax on toilet paper with a tax on lobster. There are few good alternatives to toilet paper, so consumers will not change the quantity they purchase very much. The impact on the economy from a TP tax will be minimal. The tax on lobster is a different story. Sometimes I sit in a restaurant pondering whether to order the lobster or the steak. I look at the price before I make a decision. And there are always plenty of alternatives to the big crustacean. So imposing a tax on lobster alters buying behavior a great amount.

People who want to tax the rich would favor a lobster tax over a toilet paper tax, but they would find that the lobster industry would collapse, costing the economy many jobs. The toilet paper tax would have a greater financial hit on the poor than on the rich when measured as a percentage of their total income, but with little effect on the overall economy. Arthur Okun described the negative effects of taxation to equalize the distribution of income: “The money must be carried from the rich to the poor in a leaky bucket. Some of it will simply disappear in transit, so the poor will not receive all the money that is taken from the rich”

Among the taxes commonly in use, the worst for economic growth is taxes on investment. Investors have many choices, both within their home country and globally. Investors focus on after-tax returns, so a higher tax on investment returns will directly lead to reduced investment. The more open to foreign capital flows our country is, the greater the impact of taxes on investment returns. Many of the models that we economists use in teaching about economic growth assume no inflow or outflow of capital, or at least that capital flows are small relative to the size of the economy. That assumption is no longer true in the United States or most other economies.

After investment taxes, the next worst is tax on labor income. It may seem that we all have to work, but some people have choices about whether to work and how much to work. Consider the person who is 60 years old and could afford to retire. Some people choose to retire early, some to keep working. There are many factors involved, one of which is taxes on income. The person is weighing the effort and inconvenience of work against take-home pay. If nothing changes, but take-home pay goes down, some people decide the balance now tips toward retirement.

Some mothers also have flexibility. We all know some stay-at-home moms and some working mothers. Again, there are many issues involved in the decision, but effort versus take-home pay is certainly one consideration. And keep in mind that spouses of high-earning people have their wages taxed at higher marginal tax rates, so they are even more sensitive to tax rates than others.

In addition to people choosing to work or not, there are people who have some choice about how much to work. Commissioned sales people can work harder or not so hard. Some people have a choice about whether to work overtime or to pick up additional shifts. Others chooses careers based on how much work is typical. (Think of teachers compared to corporate executives.) All of these people will have taxes influence their decisions.

When taxes on income are low, more people work and they work more hours, boosting the overall economy.

Taxes with the lowest impact on economic growth are property and sales taxes. Value-added taxes are generally the same in economic impacts as sales taxes.

Any shift away from taxation of investment returns and income will boost economic growth. It may not increase growth enough to pay for the tax cut. That happens occasionally, but certainly not always, and probably not with regards to current tax reform proposals.

When tax cuts will not pay for themselves in the short-run, then the interest cost of deficits needs to be weighed against the economic benefits. In a time when interest rates are at historic lows, the balance shifts toward tax cuts that will stimulate growth in the long run.

The current tax proposals are in flux, but generally they will stimulate growth by cutting corporate taxes, but will not provide help by reducing income or capital gains tax rates.

The impact on business is uncertain at this time. First, we should be cautious about whether a tax reform bill will be passed at all, especially in light of Congressional Republicans’ inability to pass anything this year. Second, the final bill could contain changes that work against economic growth, offsetting some or all of the good that could come from reducing corporate tax rates.

Businesses that would most benefit from current tax reform proposals are manufacturers of capital goods. Business capital spending is boosted by lower corporate tax rates, and also susceptible to swings of optimism or pessimism. Look for business optimism to provide small, short-term help to capital goods industries.