Speculation continues over whether congressional Democrats and Republicans might be able to reach some sort of agreement on tax reform this fall. In her most recent column in Tax Notes, Concord Chief Economist Diane Lim Rogers reviews some of the options.
Under current law – which calls for the Bush tax cuts to expire at the end of 2012 – government revenue levels would allow deficits to come down to sustainable levels over the next 10 to 20 years, Rogers explains. While entitlement reform would also be necessary, any big changes would likely be phased in gradually and consequently take longer to have a large impact on the federal budget.
If the Bush tax cuts were again extended, as they were last year, there would still be several different routes to greater fiscal sustainability, Rogers said. Policymakers could choose to keep marginal tax rates low by broadening the tax base (consistent with fundamental tax reform goals), or they could impose higher marginal tax rates only on households at the very top of the income distribution (such as a “millionaire surtax”).
These approaches would be consistent with imposing strict pay-as-you-go rules for extending tax cuts -- rules which the congressional super committee should adopt.