) You are chief counsel to the chairman of the Joint Committee
on Taxation, the body primarily responsible for identifying
taxation issues and their consequences as Congress seeks to
implement a comprehensive and coherent tax policy. Currently, the
United States is in a bit of an economic slump. Corporate earnings
reports are relatively weak; the stock market is about 25% off of
its 5-year highs, and tax revenues are down. Largely as a result of
the last issue, the government finds itself operating under an
annual deficit, and the national debt hovers around $7,000,000,000.
Interest rates, however, remain at historic lows. The president has
suggested a multiple-pronged attack to revitalize the economy.
First, he has proposed going to a flat tax rather than the current
progressive tax system. (No recommendation regarding what that flat
tax rate should be has been made, although the president has
indicated that he would not be likely to accept any figure above
15%.) As part of this plan, however, the president has proposed
eliminating many of the current individual income tax deductions,
including (I) the home mortgage interest deduction and (II) the
property tax deduction. He has also proposed eliminating the
deduction for dependents. Furthermore, he has proposed eliminating
the child care and earned income credits to help make up for any
potential shortfalls in revenue.
The chairman has asked you for your analysis of these
provisions. Please prepare a memorandum outlining your thoughts on
each, including, but not necessarily limited to
(I) the effect of each recommendation on revenues and
deficits, both in the short and long run;
(II) the effect of each recommendation on the economy;
(III) the relative effects of each recommendation on different
socioeconomic groups of taxpayers;
(IV) the relative fairness of each recommended change;
and
(V) your conclusion regarding whether any or all should be
adopted.