Tax — Federal
Several dozen temporary tax-expenditure provisions, collectively known as “tax extenders” because Congress routinely extends them, are set to expire again at year’s end. More such provisions expire at the end of 2014. Given the importance of addressing mid-term and long-term deficits, policymakers should make a firm commitment to pay for any extension of these provisions.
A key goal of tax reform should be to generate revenue to help reduce long-term deficits. Policymakers should not undermine this goal by using budget gimmicks to exaggerate the savings from a proposed tax-reform package or, worse, as cover for tax "reforms" that expand deficits.
Four common timing gimmicks that could conceal fiscally irresponsible individual income tax reform are:
- Treating as tax increases changes that raise revenues initially but lose as much or more revenues later.
- Ignoring the fact that the revenue gains from some tax changes shrink over time.
- Phasing in costly provisions so their full cost doesn't show up in the ten-year budget window.
- "Sunsetting" costly provisions that Congress intends to extend permanently.
Timing Gimmicks Pose Threat to Fiscally Responsible Tax Reform
Savings in First Decade Need to Continue in Second Decade
By using timing shifts or one-time tax savings, policymakers could assemble a tax reform package that meets the revenue targets for reform over the ten-year budget window but falls well short of those targets in subsequent decades. That would put greater pressure on future deficits. (It also would cause any revenue contribution to deficit reduction to dissipate in the long run, even as the contribution from entitlement cuts likely continued to grow.)
It is critical that policymakers hold tax reform to the same standard as major health and immigration reform proposals, so that the fiscal target that the proposal must achieve over the first ten years is also achieved during the subsequent decade.
- The Problem With Deficit-Neutral Tax Reform
- Tax Expenditures: Ripe for Reform, Needed for Deficit Reduction
- The Next Act: Further Deficit Reduction Must Include a Mix of Revenues and Spending Cuts
The income tax on individuals and the payroll tax, which is deducted from workers’ wages and used to help finance Social Security and Medicare, each made up about 40 percent of federal revenues in 2010. The federal government also collects revenue from corporate taxes, excise taxes, and other sources.
The Center analyzes major tax proposals, examining their likely effects on the economy and on the government’s ability to address critical national needs, especially over the long term. We place particular emphasis on the effects of tax proposals on households at different income levels. In addition, we analyze trends in the level of federal revenues, income distribution, and tax burdens.
December 9, 2013
December 4, 2013
October 30, 2013
Statement from Robert Greenstein, President, on the Agreement to Reopen the Government and Avert Default
October 16, 2013
Updated October 8, 2013
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