TaxProf Blog

Editor: Paul L. Caron
Pepperdine University School of Law

Friday, March 11, 2011

CBO Releases Tax Revenue Options

CBO The Congressional Budget Budget Office yesterday released Reducing the Deficit: Spending and Revenue Options:

The CBO regularly issues a compendium of budget options to help inform federal lawmakers about the implications of possible policy choices. This volume—one of several reports that CBO produces regularly for the House and Senate Committees on the Budget—presents more than 100 options for altering federal spending and revenues. Nearly all of the options would reduce federal budget deficits. The report begins with an introductory chapter that describes the current budgetary picture and the uses and limitations of this volume. Chapters 2 and 3 present options that would reduce mandatory and discretionary spending, respectively. Chapter 4 contains options that would increase revenues from various kinds of taxes and fees.

Individual Income Tax Rates


Option 1 Increase Individual Income Tax Rates


Option 2 Raise Tax Rates on Capital Gains


Individual Income Tax Base

Option 3 Use an Alternative Measure of Inflation to Index Some Parameters of the Tax Code


Option 4 Gradually Eliminate the Mortgage Interest Deduction


Option 5 Limit or Eliminate the Deduction for State and Local Taxes


Option 6 Curtail the Deduction for Charitable Giving


Option 7 Limit the Tax Benefit of Itemized Deductions to 15 Percent


Option 8 Include Employer-Paid Premiums for Income Replacement Insurance in Employees' Taxable Income


Option 9 Include Investment Income from Life Insurance and Annuities in Taxable Income


Option 10 Tax Carried Interest as Ordinary Income


Option 11 Tax Social Security and Railroad Retirement Benefits in the Same Way That Distributions from Defined-Benefit Pensions Are Taxed


Option 12 Reduce Limits on Contributions to Retirement Plans


Option 13 Replace the Tax Exclusion for Interest Income on State and Local Bonds with a Direct Subsidy for the Issuer


Individual Income Tax Credits


Option 14 Modify or Eliminate the Child Tax Credit


Option 15 Eliminate Certain Tax Preferences for Education Expenses


Social Security Payroll Tax


Option 16 Increase the Maximum Taxable Earnings for the Social Security Payroll Tax


Option 17 Expand Social Security Coverage to Include Newly Hired State and

Local Government Employees


Corporate Income Tax Rates


Option 18 Increase Corporate Income Tax Rates by 1 Percentage Point


Option 19 Set the Corporate Income Tax Rate at 35 Percent for All Corporations


Taxation of Income from Businesses and Other Entities


Option 20 Repeal the "LIFO" and "Lower of Cost or Market" Inventory Accounting Methods


Option 21 End the Expensing of Exploration and Development Costs for Extractive Industries


Option 22 Extend the Period for Depreciating the Cost of Certain Investments


Option 23 Repeal the Deduction for Domestic Production Activities


Taxation of Income from Worldwide Business Activity


Option 24 Eliminate the Source-Rules Exception for Exports


Option 25 Tax the Worldwide Income of U.S. Corporations As It Is Earned


Option 26 Exempt Active Foreign Dividends from U.S. Taxation and Change the Tax Treatment of Overhead Expenses


Consumption Taxes and Excise Taxes


Option 27 Impose a 5 Percent Value-Added Tax


Option 28 Increase Excise Taxes on Motor Fuels by 25 Cents


Option 29 Increase All Taxes on Alcoholic Beverages to $16 per Proof Gallon


Health Care Provisions


Option 30 Accelerate and Modify the Excise Tax on High-Cost Health Care Coverage


Option 31 Increase the Payroll Tax Rate for Medicare Hospital Insurance by 1 Percentage Point


Option 32 Repeal the Individual Health Insurance Mandate


Other Taxes and Fees

Option 33 Impose a Fee on Large Financial Institutions


Option 34 Reinstate the Superfund Taxes


Option 35 Impose a Price on Emissions of Greenhouse Gases


Options That Would Increase the Deficit


Option A-1 Permanently Extend the Individual Income Tax Provisions of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010


Option A-2 Provide Relief from the Individual Alternative Minimum Tax


Option A-3 Modify Estate and Gift Taxes


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I think people are smart enough to understand that limiiting a deduction is essentially the same thing as raising taxes. Get rid of the much hated by academics and much loved by tax payers mortgage interest deduction and you will be giving a large tax hike to millions of middle class families. Ditto for the other elements of the schedule A. Spin it how they want that is the reality.

Posted by: George W | Mar 11, 2011 7:15:16 AM

Preferred option of Obama and then the Tea Party

Option 36: All of the above
Option 37: None of the above

Posted by: Woody | Mar 11, 2011 8:34:00 AM

Kind of funny that Republicans are saying that we need to tighten our belts and make sacrifices yet, fight for lower tax rates for the wealthy and corporations.

I think that the lower tax rates for the wealthy are counterintuitive at this point. They will save and not spend it on the economy which has degraded into a rentier economy, i.e., a non-manufacturing economy when our companies are busy offshoring.

Raise taxes, build factories and infrastructure here, and the wealthy will start spending. Otherwise, the money is either offshore or stuck in non-producing bank accounts propped up by the U.S. Government.

Posted by: Anonymous | Mar 11, 2011 10:35:46 AM

This is great analysis and research, thanks for posting access to it. It also leads to what should be but won't be the first campaign rule for 2012. Any candidate proposing to change anything with respect to taxes and spending must list in detail the exact changes he or she proposes.

1. If they propose tax cuts, they must list not only the cuts and whose taxes will go down, but also how they will be paid for (other tax increases, reductions in specific programs or increases in the national debt.

2. If they propose new program they must not only list the programs, but how they will be paid for (cuts in other specific programs, specific tax increases or increases in the national debt).

3. If they argue for a reduction in waste, fraud and inefficiency they must identify the specific waste, fraud and inefficiency.

Enforce this rule and I am not sure you need any others.

Posted by: Sid (real one) | Mar 11, 2011 11:48:28 AM

Option 28 Increase Excise Taxes on Motor Fuels by 25 Cents

I thought that's already in the budget?

Posted by: Sandy P | Mar 11, 2011 6:40:46 PM

Option 12 Reduce Limits on Contributions to Retirement Plans

they've been itching to get at this cash for 2 decades. I remember reading an article in the WSJ I think in the late 80s about this, no later than say by 1993. They were whining back then how much Uncle Sam "lost" in revenue because of 401Ks, it was in the billions at that time.

They really want to bleed us dry, don't they? I read that E-vat tax paper. He hates inheritance. JMHO.

Posted by: Sandy P | Mar 11, 2011 6:44:58 PM