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1 Michael Schuyler & Stephen J. Entin, The Economics of the Blank Slate: Estimating the Effects of Eliminating Major Tax Expenditures and Cutting Tax Rates 1 (2013)

handle is hein.taxfoundation/ffdhixz0001 and id is 1 raw text is: FONAINFiscaLl F act July 29, 2013 No. 378 The Economics of the Blank Slate: Estimating the Effects of Eliminating Major Tax Expenditures and Cutting Tax Rates By Michael Schuyler, PhD & Stephen J Entin Senators Max Baucus and Orrin Hatch, the Chairman and Ranking Member of the Senate Finance Committee, have proposed in a letter to colleagues a blank slate approach to tax reform. They envision an income tax system without all of the special provisions in the form of exclusions, deductions and credits and other preferences that some refer to as 'tax expenditures.' For income tax provisions that the Joint Committee on Taxation (JCT) regards as tax expenditures, the blank slate would retain only those that could be successfully defended in terms of simplicity, efficiency, and fairness. The senators emphasize the opportunity to channel the new revenue into income tax rate cuts while noting that some could go toward deficit reduction. The senators recognize that an item should not necessarily be dropped from the income tax code just because it is called a tax expenditure by the JCT. (The U.S. Treasury also compiles a tax expenditure list with somewhat different items and estimates than the JCT's.) The benchmark against which the JCT and Treasury measure tax expenditures is based on what is known as the Haig-Simons concept of income. That tax base is inherently complicated, has a strong bias against saving and investment, and ignores many important policy and administrative concerns. A different benchmark, such as income used for consumption (a personal expenditure tax), would differ sharply in what it calls a tax expenditure.1 Moreover, the JCT and the Treasury make many subjective, sometimes arbitrary, sometimes differing choices when envisioning the baseline and drawing up their tax expenditure lists. A key consideration when deciding if a so-called tax expenditure should be kept or ended, and one which Senators Baucus and Hatch explicitly mention, is how the income tax provision affects economic growth. Would abolishing the provision severely damage investment, employment, production, international 1 For an illuminating discussion of the difference between the pure income and consumed income tax bases, see Office of Management and Budget, Budget of the United States Government, Analytical Perspectives, Fiscal Year 2009, ch. 19, 318-325. One can be most confident a tax provision should truly be classified as a tax expenditure if it qualifies as a tax expenditure under both the pure income and consumed income baselines.

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