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December 3, 2001
The Next Tax Bill Will Raise Revenue. Who Will Pay The Price?
The federal surplus is gone; we're in a recession; and the Bush Administration now says not to expect balanced federal accounts before 2005. What does all of this mean for federal tax legislation? Hard to say. That is, it's hard to say when to expect Congress to approve tax legislation and it's hard to say what provisions will be included in the next tax bill. But Tax Analysts' Economic Correspondent Martin Sullivan ventures a guess on the when and he makes three suggestions for tax increases that Congress should consider.

First, assuming Congress disposes of the pending Economic Stimulus Package this year, when will they next take up and approve tax legislation? Sullivan sees them taking up tax legislation in 2002, but not approving it. Why is that? Simple: P-O-L-I-T-I-C-S. "It will be an election year," says Sullivan. "The fight for control of the House˜will be fierce. And the air will be so thick with pre-election rhetoric it will make this year's squabbling seem like a tea party." Sullivan predicts that the Democrats will focus next year on the deficit and argue for rolling back President Bush's scheduled income tax rate cuts. He also predicts that the Republicans will fight for the cuts. Result: lots of press coverage of the Democrats' and Republicans' positions, but, in the end -- tax stalemate. "No matter how much it is needed," concludes Sullivan, "there is unlikely to be any real significant tax increase in 2002."

That means the earliest we will see a tax increase will be after the elections: 2003. And what are the tax increases Congress is likely to approve if we see tax legislation in 2003? A good place to start might be the list of revenue raisers published earlier this year by Congress's own Congressional Budget Office (CBO). CBO's list of 62 tax increases includes limits on itemized deductions (mortgage interest, charitable gifts, child and dependent care credits, etc.); restrictions on nonretirement fringe benefits; expansion of the payroll tax base; and limits on current tax preferences for businesses. (You can read CBO's list of "budget options" at http://www.cbo.gov). The problem with the CBO list, says Sullivan, is that it's been around too long; "too long" meaning long enough for vested interests to gear up to protect each item on this list of 62. But the revenue-raising game is not lost, according to Sullivan, if Congress instead turns to new starters. And Sullivan offers up three new starters or, as he calls them, "New Taxes for New Times." What are they? One: tax the income generated by large university endowments. Two: tax junk mail and internet spam. And three: tax OPEC. For details, go to www.tax.org/communications.

Please contact Tax Analysts for the full text of Sullivan's article.

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Media Release 2001-13

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