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1 Scott Hodge, Raising Revenue: The Least Worst Options 1 (2012)

handle is hein.taxfoundation/ffdeexz0001 and id is 1 raw text is: December 5, 2012 No. 344 Raising Revenue: The Least Worst Options By Scott Hodge With the fiscal cliff looming, lawmakers are looking for new revenues as a component of any bipartisan deal to reduce the federal deficit. While raising new revenues may be politically necessary to seal a deal, lawmakers must keep in mind that not all revenue raisers are equal. Some will have far more harmful economic consequences than others. Indeed, after careful study, OECD economists have established a hierarchy of which taxes are most and least harmful for long-term economic growth. They determined that the corporate income tax is the most harmful for long-term economic growth, followed by high personal income taxes. Consumption taxes and property taxes were found to be less harmful to economic growth relative to taxes on capital and income. Why this hierarchy? It is determined by which factors are most mobile and, thus, most sensitive to high tax rates. Capital is the most mobile factor in the economy and therefore most sensitive to a hike in tax rates. Naturally, land is the least mobile and less sensitive to high tax rates. This is not to say that high taxes won't affect consumption and property patterns but their impact will simply be less than the impact of taxes on capital and income. With these rules of thumb in mind, here is a short list of ways to raise new revenues ranking from least harmful to most harmful: #1 Least Harmful-Economic growth: This may seem obvious, but whether or not we have enough new economic growth to generate more revenues for the Treasury is directly dependent upon some of the policy choices listed below. #2 Asset sales: The U.S. federal government owns hundreds of billions worth of assets that it can, and should, sell off in order to pay down the national debt. As of 2008, the Office of Management and Budget (OMB) reported public lands worth $833 billion and loans worth $209 billion. Other state-owned enterprises such as Amtrak, the Power Marketing Administration utilities, and the Tennessee Valley Authority could all generate considerable cash on the open market. The biggest benefit of asset sales is turning tax-subsidized enterprises into tax-generating ones.

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