The Future of Tax Expenditures and Entitlements in the Era of HyperDeficits

1
The Future of Tax Expenditures and Entitlements
in the Era of Hyper-Deficits

• Tax Colloquium
• Dedman School of Law
• Southern Methodist University
• March 5, 2009
• by Jon Forman
• Alfred P. Murrah Professor of Law
• University of Oklahoma

2
Overview

• The Budget Outlook
• Short-term
• 2010 Federal Budget
• Long-term
• Congressional Budget Office
• Government Accountability Office
• Fiscal Gap
• Taxes and Tax Expenditures
• Entitlements

3
2010 Budget
Office of Management and the Budget, A New Era of
Responsibility Renewing Americas Promise
(2009), at 114 (table S-1).
4
Projected Budget Totals
Office of Management and the Budget, A New Era of
Responsibility Renewing Americas Promise
(2009), at 114 (table S-1).
5
Where Does the Money Go?
U.S. Department of the Treasury, Financial
Management Service, A Citizens Guide to the
Financial Report of the United States Government
(2008), at 4.
6
Proposed Budget Outlays
Office of Management and the Budget, A New Era of
Responsibility Renewing Americas Promise
(2009), at 119 (table S-4).
7
U.S. Department of the Treasury, Financial
Management Service, A Citizens Guide to the
Financial Report of the United States Government
(2008), at 3.
8
Proposed Budget Receipts
Office of Management and the Budget, A New Era of
Responsibility Renewing Americas Promise
(2009), at 119 (table S-4).
9
Deficits and Public Debt
Office of Management and the Budget, A New Era of
Responsibility Renewing Americas Promise
(2009), at 114 (table S-1).
10
Office of Management and the Budget, A New Era of
Responsibility Renewing Americas Promise
(2009), at 14.
11
Congressional Budget Office, The Budget and
Economic Outlook Fiscal Years 2009 to 2019
(January 8, 2009), Charts at 2.
12
House Budget Committee, Summary of the
Presidents Fiscal Year 2010 Budget (February 27,
2009), http//budget.house.gov/pres_budg.shtml.
13
House Budget Committee, Summary of the
Presidents Fiscal Year 2010 Budget (February 27,
2009), http//budget.house.gov/pres_budg.shtml.
14
U.S. Department of the Treasury, Financial
Management Service, A Citizens Guide to the
Financial Report of the United States Government
(2008), at 7.
15
House Budget Committee, Summary of the
Presidents Fiscal Year 2010 Budget (February 27,
2009), http//budget.house.gov/pres_budg.shtml.
16
Congressional Budget Office, The Budget and
Economic Outlook Fiscal Years 2009 to 2019
(January 8, 2009), Charts at 5.
17
Majority Staff, Senate Budget Committee, Brief
Analysis, President Obamas FY 2010 Budget
(February 27, 2009), http//budget.senate.gov/demo
cratic/index.html.
18
U.S. Department of the Treasury, Financial
Management Service, A Citizens Guide to the
Financial Report of the United States Government
(2008), at 2.
19
Congressional Budget Office, Growth in Health
Care Costs (January 31, 2008), Charts at 8.
20
U.S. Government Accountability Office, Saving Our
Future Requires Tough Choices Today
(GAO-08-465CG, January 14, 2008), at 8.
21
Congressional Budget Office, The Budget and
Economic Outlook Fiscal Years 2008 to 2018
(January 23, 2008), Charts at 13.
22
U.S. Government Accountability Office, Saving Our
Future Requires Tough Choices Today
(GAO-08-465CG, January 14, 2008), at 5
23
U.S. Government Accountability Office, Saving Our
Future Requires Tough Choices Today
(GAO-08-465CG, January 14, 2008), at 6
24
Why the Fiscal Gap?

• Aging of American
• Health Expenditures

25
(No Transcript)
26
Jonathan Barry Forman Yung-Ping Bing Chen,
Optimal Retirement Age, in New York University
Review of Employee Benefits and
Compensation2008, Volume II, Chapter 14 (2008).
27
Jonathan Barry Forman Yung-Ping Bing Chen,
Optimal Retirement Age, in New York University
Review of Employee Benefits and
Compensation2008, Volume II, Chapter 14 (2008).
28
U.S. Department of the Treasury, Financial
Management Service, Financial Report of the
United States Government (2008), at 122.
29
Congressional Budget Office, The Budget and
Economic Outlook Fiscal Years 2008 to 2018
(January 23, 2008), Charts at 12.
30
2008 Annual Report of the Board of Trustees of
the Federal Old-Age and Survivors Insurance and
Disability Insurance Trust Funds.
31
The Long-Range SS Forecast(Best estimate)

• In 2017, tax revenues into the trust funds
  forecasted to be less than benefits due that
  year. Interest on the reserves and the assets
  themselves will help pay for benefits until 2041.
• In 2041, reserves are projected to be depleted.
  Income is forecast to cover 78 of benefits due
  then.
• By 2082, assuming no change in taxes, benefits or
  forecasts, revenue would cover 75 of benefits
  due then.

32
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.
33
Congressional Budget Office, Growth in Health
Care Costs (January 31, 2008), Charts at 2.
34
Congressional Budget Office, Growth in Health
Care Costs (January 31, 2008), Charts at 6.
35
Office of Management and the Budget, A New Era of
Responsibility Renewing Americas Promise
(2009).
36
Office of the Actuary, Centers for Medicare
Medicaid Services, U.S. Department of Health
Human Services, 2008 Actuarial Report on the
Financial Outlook for Medicaid 24(2008).
37
2008 Annual Report of the Boards of Trustees of
the Federal Hospital Insurance and Federal
Supplementary Medical Insurance Trust Funds.
38
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.
39
U.S. Department of the Treasury, Financial
Management Service, A Citizens Guide to the
Financial Report of the United States Government
(2008), at 8.
40
Dealing with the Recession(Various Forecasts of
Real GDP)
Council of Economic Advisors, Economic
Projections and the Budget Outlook (February 28,
2009).
41
House Budget Committee, Summary of the
Presidents Fiscal Year 2010 Budget (February 27,
2009), http//budget.house.gov/pres_budg.shtml.
42
House Budget Committee, Summary of the
Presidents Fiscal Year 2010 Budget (February 27,
2009), http//budget.house.gov/pres_budg.shtml.
43
Office of Management and the Budget, A New Era of
Responsibility Renewing Americas Promise
(2009).
44
Office of Management and the Budget, A New Era of
Responsibility Renewing Americas Promise
(2009).
45
Office of Management and the Budget, A New Era of
Responsibility Renewing Americas Promise
(2009).
46
Office of Management and the Budget, A New Era of
Responsibility Renewing Americas Promise
(2009).
47
Key Tax Cuts in 2010 Budget(billions of dollars)
Office of Management and the Budget, A New Era of
Responsibility Renewing Americas Promise
(2009), at 121-22 (tables S-5, S-6).
48
Clearly Revenues Will Be Needed in the Future

• Obama Budget
• Tax Expenditures
• What Is the Best Tax Base?

49
Key Tax Increases in 2010 Budget(billions of
dollars)
Office of Management and the Budget, A New Era of
Responsibility Renewing Americas Promise
(2009), at 122-23 (table S-6).
50
Top 10 Income Tax Expenditures, 2009 (Billions of
Dollars)
2009 Federal Budget, Analytical Perspectives,
Chapter 19, Tax Expenditures, Table 19-3
51
Tax Base

• Income
• Consumption
• Earnings
• Wealth

52
Principles to Guide Tax 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

53
Entitlement Reform

• Only Two Possible Solutions
• Cut benefits
• Raise taxes
• Health care
• Rationalization of the system

54
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

55
About the Author

• Jonathan Barry Forman (Jon) is the Alfred P.
  Murrah Professor of Law at the University of
  Oklahoma College of Law, where he teaches courses
  on tax and pension law.
• Professor Forman is also Vice Chair of the Board
  of Trustees of the Oklahoma Public Employees
  Retirement System (OPERS) 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 masters degrees in
  economics and psychology.
• Jon can be reached at jforman_at_ou.edu, (405)
  325-4779, or www.law.ou.edu/faculty/forman.shtml.