Tax Reform and the Goal of Revenue Neutrality (CRS Report for Congress)
| Release Date |
Sept. 7, 2005 |
| Report Number |
RS22242 |
| Report Type |
Report |
| Authors |
Gregg Esenwein, Government and Finance Division |
| Source Agency |
Congressional Research Service |
Summary:
The President's Advisory Panel on Tax Reform has been tasked to issue a reportwith revenue neutral policy options for reforming the federal Internal Revenue Code.The executive order establishing the Advisory Panel specifies neither the baseline northe time horizon for achieving revenue neutrality.If the Advisory Panel uses current law (the CBO revenue baseline) as itsbenchmark for revenue neutrality, then the reform proposal will have to raise taxesrelative to their current levels by $2.3 trillion over the next 10 years. However, usingcurrent law as its benchmark is problematic because current law does not fully take intoaccount anticipated or possible changes to the tax system. If the Advisory Panel includesthe effects of these possible changes to the tax system in its baseline for determiningrevenue neutrality, then its 10-year revenue target would be substantially lower thanunder the CBO baseline. But relative to the CBO baseline, under this benchmark, thedeficit could increase by approximately $2.6 trillion over the next 10 years.The Advisory Panel has indicated that it plans to recommend repeal of thealternative minimum tax (AMT) for individuals as part of its reform options. Unless therevenue loss from the AMT were fully replaced, the deficit would increase considerablyover the next 10 years compared to the CBO baseline. In addition, if the Advisory Panelchooses a five-year time horizon as a benchmark for revenue neutrality, then it wouldsignificantly understate the potential long-run (beyond 2010) costs of tax reform.
