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Tax Policy SimulationThe U.S. federal government has run considerable budget deficits since 2002. The government has been spending around $400 billion more than it takes in each year (once one considers the money borrowed from the Social Security Trust Fund). Closing that gap is difficult on both the spending and revenue sides of the ledger. On the spending side, the deficit represents 17% of all spending, 40% of all discretionary spending, and 80% of non-defense discretionary spending. In turn, eliminating the deficit entirely on the revenue side would require a 17% increase in all federal taxes (including payroll taxes for Social Security, Medicare, and unemployment) or a 22% increase in non-payroll tax revenues. In addition, the elimination of the estate tax in 2010 will cost $28 billion in foregone revenues relative to the current situation (although the estate tax would resume in 2011 under existing law). Assume (optimistically, perhaps) that consistent economic growth and some spending reductions shave $150 billion off of the deficit by 2011. In this simulation, you are all staffers on the Joint Committee on Taxation of the U.S. Congress. Your job is to find another $250 billion in revenues to balance the budget. You have been asked to eliminate at least $50 billion in tax expenditures with the rest of the money to be raised via higher tax rates. The Democratic and Republican caucuses have agreed not to raise corporate income tax rates. Thus, the $200 billion must come from some combination of personal income taxes, sales (excise) taxes, the estate tax, and payroll taxes. However, you cannot raise Social Security taxes and you can raise Medicare tax revenues by no more than $20 billion. You can cut some tax rates for some or all people as long as you meet the revenue enhancement target of $250 billion. Using the Excel file provided for this simulation, you need to develop recommendations regarding the following questions:
In addition, you need to develop answers to the following questions. Your answers must appear in the text of the message to which you’ve attached your spreadsheet. 1] What tax principles and/or goals guide your recommendations? 2] How does your plan reflect those principles? 3] Why should citizens back your proposal? 4] Why should legislators vote for this proposal? On Day Three we will meet to endorse a specific set of recommendations. I will choose 6 proposals (2 from each roundtable group) via random number generator at the beginning of Day Three’s simulation session. Each of those students will then make a 3-minute speech justifying their respective recommendations (NOTE: This means that all students need to come prepared to make this presentation with a written 1-page outline that they will submit at the end of this class session.). Each presenter will then field at least 2 questions from the audience (other presenters cannot ask questions). Then we will vote on which plan to recommend to the Joint Committee on Taxation. If no proposal receives 20 votes on the first ballot, then we will eliminate the least-voted proposal(s) and vote again. This process will continue until a proposal obtains 20 votes. Simulation Procedures This is a different style of simulation relative to our health policy exercise. As you can see from the initial description, this simulation involves no role-playing of particular political parties or interest groups. You are all role-playing career staffers who have been asked to provide your professional opinions on some major decisions facing the U.S. government. In turn, while there is group work involved, the group consists of the entire class. You are working together across this simulation to develop the best recommendations possible. At the end of this simulation, you will choose collectively which proposal to recommend. This means that our class time will be spent debating how to address each of the three components of the mission: base-broadening, reform of the tax structure to generate more revenues, and potential reform of the effective tax rates for the individual income tax. I will break the class up into 3 different groups that will discuss each of these 3 components in roundtables over the course of the first two days of the simulation. Unlike the prior simulation, these groups are purely logistical: they exist simply to enable more views to be exchanged that could take place among 31 students meeting as a single group. Here is how this simulation will unfold: **All students must post their complete proposals (spreadsheet attachments and text rationales) on the appropriate forum of the Blackboard discussion board by 6pm on Sunday 4/8/07.** DAY ONE [4/9/07] 1] summary of proposals from all participants by moderator (may include clarifying questions from the moderator) -- 25 min. 2] roundtables re: tax expenditures -- 25 min. **All students must repost revised spreadsheets on the appropriate forum of the Blackboard discussion board by 6pm on Tuesday 4/10/07. You must make at least one change relative to your initial proposal. In your message, you need to summarize your change(s) and explain why you made the change(s) you did. DAY TWO [4/11/07] 1] roundtables re: revenue enhancement -- 25 min. 2] roundtables re: effective income tax rates -- 25 min. **All students must repost revised spreadsheets on the appropriate forum of the Blackboard discussion board by 6pm on Thursday 4/12/07. You must make at least two changes relative to your second proposal. In your message, you need to summarize your change(s) and explain why you made the change(s) you did. DAY THREE [4/13/07] 1] selection of the 6 proposals -- 5 min. 2] 3-minute presentations (followed by 2 minutes of Q&A) by each proposal’s author -- 30 min. 3] each student will rank-order their respective preferences regarding these 6 proposals – 2 min. 4] voting on the proposals until 1 proposal has the support of at least 20 students |
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