Seven public policy think tanks were recently asked how to put the federal budget on a more sustainable fiscal path, and the consensus among them was that new tax revenues are necessary. While the think tanks all agreed on the need for increased tax revenues, they had varying proposals on how to achieve this goal. It was found that without additional tax revenues, it would be nearly impossible to reduce the deficit solely through spending reductions.
The think tanks proposed different strategies to achieve deficit reduction, with some focusing on spending cuts and others on tax increases. The Center for American Progress and Economic Policy Institute leaned towards tax increases, while others such as American Action Forum, American Enterprise Institute, and Manhattan Institute prioritized spending reductions. The Progressive Policy Institute and Bipartisan Policy Center took a more centrist approach by incorporating tax increases along with their spending reduction strategies.
The Congressional Budget Office projected that revenues would account for 17.9 percent of GDP in 2034 and 18.8 percent in 2054, assuming the expiration of certain provisions from the 2017 Tax Cuts and Jobs Act. However, if the TCJA provisions are extended, revenues would be lower, making it harder to achieve balanced budgets. Most of the think tanks proposed increasing tax revenues above the CBO’s baseline, with varying levels of increase depending on the group.
The individual income tax rates proposed by the think tanks ranged from AEI’s proposal to lower the top rate to 35 percent to PPI’s suggestion to raise it to 50 percent. There were also proposals to modify tax deductions such as the home mortgage interest deduction and Child Tax Credit. Corporate tax rates were also a point of contention, with some think tanks proposing to lower the rate while others recommended increasing it.
Payroll taxes, Social Security taxes, and taxes at death were also areas of focus for the think tanks, with varying proposals on how to address these issues. While there was some consensus on repealing certain tax provisions, there were significant differences in how each group proposed to overhaul the tax code. This highlights the complexity and challenging nature of the fiscal debate that is expected to take place in Congress in the coming years.
Overall, the exercise conducted by the Peter G. Peterson Foundation revealed that while most participating think tanks agreed on the need for tax increases, there was significant disagreement on the specifics of how to reform the tax code. It was recognized that spending cuts alone would not be sufficient to reduce the deficit, emphasizing the importance of new tax revenues in any fiscal reform effort. The differing proposals put forth by the think tanks foreshadow a challenging fiscal debate that will likely unfold in the coming years.
