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Tax Reform in an Era of Hyper-Deficits

Tax Reform in an Era of Hyper-Deficits. by Jon Forman Professor in Residence IRS Office of Chief Counsel (Room 3501; 622-7639) & Alfred P. Murrah Professor of Law University of Oklahoma Norman, Oklahoma. Overview. The Budget Outlook Short-term 2010 Federal Budget Long-term

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Tax Reform in an Era of Hyper-Deficits

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  1. Tax Reform in an Era of Hyper-Deficits by Jon Forman Professor in Residence IRS Office of Chief Counsel (Room 3501; 622-7639) & Alfred P. Murrah Professor of Law University of Oklahoma Norman, Oklahoma

  2. Overview The Budget Outlook Short-term 2010 Federal Budget Long-term Congressional Budget Office Government Accountability Office Fiscal Gap Taxes,Tax Expenditures, and Tax Reform

  3. Projected Budget Totals • Office of Management and the Budget, A New Era of Responsibility: Renewing America’s Promise (2009), at 114 (table S-1).

  4. Where Does the Money Go? • U.S. Department of the Treasury, Financial Management Service, A Citizen’s Guide to the Financial Report of the United States Government (2008), at 4.

  5. U.S. Department of the Treasury, Financial Management Service, A Citizen’s Guide to the Financial Report of the United States Government (2008), at 3.

  6. Proposed Budget Receipts • Office of Management and the Budget, A New Era of Responsibility: Renewing America’s Promise (2009), at 119 (table S-4).

  7. Deficits and Public Debt • Office of Management and the Budget, A New Era of Responsibility: Renewing America’s Promise (2009), at 114 (table S-1).

  8. Congressional Budget Office, The Economic and Budget Outlook (November 24 2009), at 7.

  9. Congressional Budget Office, Presentation to The Group of Thirty “Exit Strategy” for Fiscal Policy (December 4, 2009), at 9.

  10. Majority Staff, Senate Budget Committee, Brief Analysis, President Obama’s FY 2010 Budget (February 27, 2009), http://budget.senate.gov/democratic/index.html.

  11. Department of the Treasury, Treasury Bulletin 3 (December 2009) http://fms.treas.gov/bulletin/b2009_4poe.doc.

  12. Department of the Treasury, Treasury Bulletin 4 (December 2009) http://fms.treas.gov/bulletin/b2009_4poe.doc.

  13. U.S. Department of the Treasury, Financial Management Service, A Citizen’s Guide to the Financial Report of the United States Government (2008), at 7.

  14. U.S. Government Accountability Office, The Federal Government’s Long-Term Fiscal Outlook: Fall 2009 Update (GAO-10-137SP, 2009), at 5.

  15. Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2008 to 2018 (January 23, 2008), Charts at 13.

  16. U.S. Government Accountability Office, Saving Our Future Requires Tough Choices Today (GAO-08-465CG, January 14, 2008), at 5

  17. U.S. Government Accountability Office, Saving Our Future Requires Tough Choices Today (GAO-08-465CG, January 14, 2008), at 6

  18. Why the Fiscal Gap? Aging of American Health Expenditures

  19. Congressional Budget Office, Presentation to The Group of Thirty “Exit Strategy” for Fiscal Policy (December 4, 2009), at 11.

  20. Jonathan Barry Forman & Yung-Ping [Bing] Chen, Optimal Retirement Age, in New York University Review of Employee Benefits and Compensation—2008, Volume II, Chapter 14 (2008). 20

  21. 21

  22. 22 Jonathan Barry Forman & Yung-Ping [Bing] Chen, Optimal Retirement Age, in New York University Review of Employee Benefits and Compensation—2008, Volume II, Chapter 14 (2008).

  23. U.S. Department of the Treasury, Financial Management Service, Financial Report of the United States Government (2008), at 122.

  24. Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2008 to 2018 (January 23, 2008), Charts at 12.

  25. 25 • Congressional Budget Office, Growth in Health Care Costs (January 31, 2008), Charts at 8.

  26. Factors Explaining Future Federal Spending on Medicare, Medicaid, and Social Security(percentage of GDP) • Congressional Budget Office, The Long-Term Budget Outlook (June 2009), at 12 (Box 1-2).

  27. SS Unfunded Obligations(Present values as of January 1, 2008; trillions of dollars) 2008 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds, Table IV.B6.

  28. Medicare Unfunded Obligations(Present values as of January 1, 2008; trillions of dollars) 2008 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, Table III.B10.

  29. U.S. Department of the Treasury, Financial Management Service, A Citizen’s Guide to the Financial Report of the United States Government (2008), at 8.

  30. Clearly Revenues Will Be Needed in the Future Tax Expenditures What Is the Best Tax Base?

  31. Federal Revenues by Source, 1940-2014 (Millions of dollars) • Office of Management and the Budget, A New Era of Responsibility: Renewing America’s Promise (2009), at Historical Tables (table 2.1) .

  32. Principles to Guide Tax Reform Legislation Distribution matters A just distribution of economic resources Progressivity Taxing earnings and investments Intergenerational justice/ Deficits Behavioral consequences matter Encourage work and savings Marriage penalties and bonuses Keep effective tax rates as low as possible Growth and a stronger dollar Simplification 33

  33. Tax Base Income Consumption Earnings Wealth

  34. Top 10 Income Tax Expenditures, 2009 (Billions of Dollars) 35 2009 Federal Budget, Analytical Perspectives, Chapter 19, Tax Expenditures, Table 19-3

  35. 36 • Office of Management and the Budget, A New Era of Responsibility: Renewing America’s Promise (2009).

  36. 37 • Office of Management and the Budget, A New Era of Responsibility: Renewing America’s Promise (2009).

  37. How an Integrated Tax & Transfer System Would Affect a Single Parent with 2 Children ($2,000 Personal Tax Credits, $2,000 per Worker Credits, and 20 & 35% Tax Rates) 38

  38. 39

  39. Consumption Tax Options • Progressive Personal Consumption Tax • Subtraction method Value Added Tax • Treasury Department proposal for Business Activity Tax (BAT) • Credit-method (European style) VAT • National retail sales tax (RST) • Charles E. McClure, Jr., Why the United States Needs a Value Added Tax (2009).

  40. Conclusion President needs 60 votes in the U.S. Senate The whole tax and benefit system is in play And will be in play for years The lobbyists will be tripping over each other Change is almost always incremental

  41. About the Author • Jonathan Barry Forman (“Jon”) is • the Professor in Residence at the Internal Revenue Service Office of Chief Counsel, Washington, DC, for the 2009-2010 academic year; • the Alfred P. Murrah Professor of Law at the University of Oklahoma College of Law, teaching tax and pension law; and • the author of Making America Work (Washington, DC: Urban Institute Press, 2006). • Prior to entering academia, Professor Forman served in all three branches of the federal government. He has a law degree from the University of Michigan and master’s degrees in both economics and psychology. • Jon can be reached at jforman@ou.edu, 405-325-4779 • Slides, etc. at www.law.ou.edu/faculty/forman.shtml 43

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