The Committee for a Responsible Federal Budget (CRFB) is an organization with which Citizens for Tax Justice (CTJ) often disagrees. A new report released by CRFB this week, however, demonstrates that CTJ and CRFB have something in common when it comes to addressing the federal budget deficit. As CRFB explains, "reforming tax expenditures should be at the top of the budget reform agenda… [and] money raised from broadening the [tax] base will have to help close the fiscal gap rather than to pay for lower tax rates."
The CRFB recommendations appear to draw heavily on proposals from the Congressional Budget Office (CBO), President Bush’s 2005 tax reform panel, and President Obama’s Economic Recovery Advisory Board. CRFB’s report is quite bold, recommending the reform or outright repeal of multiple itemized deductions, including those for charitable contributions, mortgage interest, and state and local tax payments.
The report also discusses the possibility of enacting a broad limitation on all itemized deductions that’s even more aggressive than what President Obama has proposed — specifically, limiting the value of all itemized deductions to 15% of a taxpayer’s taxable income.
While the CRFB report focuses mostly on individual tax expenditures, it also mentions (however briefly) the importance of looking at corporate tax expenditures to "raise revenue, increase economic efficiency, and provide fairness." CRFB appears to have given up all hope of achieving this first objective, however, as its report simply states that "it is likely" that the repeal of corporate tax breaks "will be used to pay for revenue-neutral reform of the corporate income tax."
CRFB also recommends a number of changes to the budget process in order to make the tough uphill battle against tax expenditures just a bit easier. As their report correctly points out, "One of the problems … of tax expenditures is that they are not subject to annual budget review: they are created without the same level of scrutiny received by other areas of the budget, and then run open-ended with little review. Because they escape the normal budget process, policymakers have found them particularly attractive, and the tax expenditure budget has grown tremendously."
In order to bring these programs under control, the CRFB recommends "an immediate moratorium on new tax expenditures," or as a second-best solution, "a separate tax expenditure pay-as-you-go regime, so that any new tax expenditures would be paid for by reductions in other tax expenditures, thereby keeping policymakers from further expanding tax expenditures."
CRFB also recommends conducting tax expenditure performance reviews (which CTJ has pushed for as well), and coupling these reviews with "hard savings targets" for lawmakers to strive toward when determining how to reduce tax expenditure spending.
Following the comprehensive reform of tax expenditures, CRFB would like to see a "hard cap on this area of the budget," and the inclusion of tax expenditures "in the regular annual budget process" so that they can be "treated more similarly to other spending programs." No specifics are provided regarding CRFB’s preferred means of accomplishing this last recommendation.
For more information, see CRFB's report and CTJ’s comparison of tax expenditures and direct expenditures by budget category.