I have just published on SSRN an article draft that I prepared over the summer, entitled Tax Reform Implications of the Risk of a U.S. Budget Catastrophe.
The link for downloading the article is here.
The abstract is as follows:
"Despite the demographic causes of the long-term U.S. fiscal gap, only severe dysfunction in our political system, abetted by malfunctioning and discontinuously responsive global financial markets, could lead to a U.S. budget catastrophe. Unfortunately, the risk of disaster appears to be alarmingly high. The rising danger has implications both for income tax reform and for the possible adoption of new tax instruments.
"For income tax reform, the main implication is that base-broadening should be undertaken without accompanying 1986-style tax rate reduction. The threat of a fiscal catastrophe also raises concern about otherwise desirable but potentially revenue-losing reforms, such as to the rules for corporate and international taxation.
"A number of tax instruments not currently used in the U.S. might be appealing even if the reform that included them was revenue-neutral overall. These include a value-added tax (VAT), a carbon tax, and a financial activities tax (FAT), although in my view a financial transactions tax (FTT) would not have comparable merit. All of these instruments potentially gain appeal if they could be used to ease the political prospects for raising overall U.S. tax revenues, and thus for reducing the risk of a budgetary catastrophe."
A few words in further description: I prepared this short article draft pursuant to my obligations as a speaker at the University of Louisville Law Review Symposium on Federal Budget and Debt Reduction, which will be held at the University of Louisville Law School on Saturday, October 22, from 10 am to 4 pm. A link to this conference is available here. The rule for article submissions was 25 pages tops, so my article tries to cover a lot of ground very fast, and inevitably a bit superficially (or at least relying on conclusions from elsewhere that are not substantially defended in the text). That said, it does offer a general perspective on tax reform issues (pertaining to both the existing income tax and possible new instruments) in light of the fiscal dangers that we face.