Tax Policy and the Federal Budget

Article excerpt


Theoretical economics has been concerned with the study of the economic behavior of individuals in response to changes in tax rates and structure. Unfortunately, few of the findings are directly relevant to resolving tax issues in the United States economy. An analysis of the federal budge reveals only a minor contribution towards this end when comparing the coverage of receipts as opposed to outlays. Outlays are identified according to priorities, national needs, benefit cost analysis, functional or agency and account classifications and the use of a credit budget. On the contrary, the reporting of tax revenues is brief and fragmented throughout the document.

The following pages will furnish information concerning tax reporting in the budget and recent tax legislation: Economic Recovery Tax Act of 1981 (ERTA), Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), and Tax Reform Act of 1986 (TRA). Then, major objectives of these acts such as fairness, simplicity, growth, and tax neutrality together with other criteria will be used as the basis for an evaluation of four taxes in a Tax Report Card. Other means for improving revenue decision making will be discussed including a more detailed tax resolution at the outset of the congressional budget process and a new structure for reporting budget receipts that encompasses tax expenditures and offsetting collections in a single statement.

Tax Reporting in the Federal Budget

"Federal Receipts by Source" are discussed for eighteen pages in the Budget of the U. S. Government FY 1990. "Federal Programs by Function" (Outlays) compose 182 pages and the "Federal Program by Agency and Account (outlays) compose 191 pages of the same budget. These proportions have been typical of federal budget documents since the introduction of the unified budget in FY 1969.

Federal revenues are composed mainly of income tax collections. In FY 1990, income taxes are estimated to account for 55.1 percent of total revenues, down from 59.7 percent of estimated receipts in FY 1980. Payroll taxes, next in importance, are estimated at 37 percent in FY 1990, up from 30.5 percent in FY 1980. Excise taxes account for 3.3 percent and estate and gift taxes 4.6 percent of the balance of total revenues in FY 1990.

Explanation of federal revenues in the budget has included discussion of their composition, enacted legislation, effect of major legislation enacted on receipts, receipts proposals and estimates of the effect of enacted and proposed changes. However, coverage is brief and there are two important aspects of federal revenues that are not a part of the "Federal Receipts by Source" section: tax expenditures and offsetting collections. Both of these receipts-affecting categories appear in the outlay sections of the budget.

Offsetting Collections

Offsetting collections consist of two categories: those that are credited to appropriation accounts and those deposited in receipt accounts. Both categories result from business-type and intragovernmental activities. Those collections which are credited to appropriation or fund accounts include the revolving funds. They are business-type enterprises that are authorized by law to use the proceeds from the sale of their products and services to finance the provision of additional products and services. Among the federal enterprises operating under such laws are the Federal Housing Administration (FHA) and the Federal Deposit Insurance Corporation (FDIC). Crediting these collections to an appropriation account results in reducing outlays in advance of budget reporting.

The second type of setting collection which is deposited to the receipt accounts may augment a general fund, special fund or trust fund. There are two ways in which the credit may appear in the budget: as "undistributed offsetting receipts" where the adjustment is made at the total budget authority and outlay level or as "offsetting receipts by type" which can be deducted at the subfunction and agency levels. …