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1 Michael Schuyler, The Effects of Terminating Tax Expenditures and Cutting Individual Income Tax Rates 1 (2013)

handle is hein.taxfoundation/taxfaaqa0001 and id is 1 raw text is: TAXM~n FOUNDATION September 30, 2013 No. 396 The Effects of Terminating Tax Expenditures and Cutting Individual Income Tax Rates By Michael Schuyler, PhD Leading members of the House and Senate tax writing committees are examining the possibility of trading a broader tax base for dramatically lower rates. Representative Dave Camp (R-MI), the chairman of the House Ways and Means Committee, is believed to be seeking enough revenue enhancers to lower the top corporate and individual income tax rates to 25 percent while maintaining revenue neutrality. Senators Max Baucus (D-MT) and Orrin Hatch (R-UT), the chairman and ranking member of the Senate Finance Committee, respectively, have proposed a blank slate approach, in which most tax expenditures -income tax exclusions, deductions, and credits, and other provisions that the Joint Committee on Taxation (JCT) classifies as preferences-would be abolished, except for those that could be convincingly defended, with the money dedicated to rate cuts and perhaps deficit reduction. One of the primary motivations for tax reform is a recognition that the U.S. income tax system is a serious drag on economic growth. Its anti-growth effects, which are inadvertent but powerful, hurt Americans' productivity and incomes, reduce their ability to compete in an increasingly global marketplace, and diminish their future opportunities. Many believe that these ill effects could be moderated through tax reform. In the words of Representative Camp and Senator Baucus, Tax reform provides an opportunity to spark economic growth, create jobs, and make U.S. businesses more competitive, both here at home and in the global marketplace. It can provide America a real shot in the arm.' Of course, as the congressman and senators have also noted, while growth is extremely important, it is not the only criterion by which to judge proposed tax changes. In response to the blank slate proposal, and in order better to understand which trade-offs of tax expenditures for lower rates would be most conducive to growth, we used our Taxes and Growth Model (TAG Model), which accounts for the impact taxes have on our economy, to examine eleven large tax provisions in the individual income tax that the JCT regards as tax expenditures.2 The eleven provisions 1 Press Release, House Committee on Ways and Means, Camp, Baucus Highlight How Tax Reform Can Spark Innovation at Stop in Silicon Valley (Aug. 20, 2013), http://waysandmeans.house.gov/news/documentsingle.aspx?DocumentlD=346344. 2 The U.S. Treasury also compiles a list of tax expenditures. The two government lists are similar, but they are far from identical because deciding what items constitute tax expenditures is a subjective process that requires many value judgments.

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