Policy Documents

The Economics of the Blank Slate: Estimating the Effects of Eliminating Major Tax Expenditures and Cutting Tax Rates

Michael Schuyler, and Stephen J. Entin –
July 26, 2013

In this study, the authors at the Tax Foundation write that Senators Max Baucus and Orrin Hatch, the Chairman and Ranking Member of the Senate Finance Committee, have proposed in a letter to colleagues a “blank slate” approach to tax reform. They envision an income tax system “without all of the special provisions in the form of exclusions, deductions and credits and other preferences that some refer to as ‘tax expenditures.’” A key consideration when deciding if a so-called tax expenditure should be kept or ended, and one which Senators Baucus and Hatch explicitly mention, is how the income tax provision affects economic growth. Would abolishing the provision severely damage investment, employment, production, international competitiveness, and future opportunities? Would the damage to the economy eliminate some or all of the expected revenue gain? Would ending the provision raise enough net tax revenue to warrant the economic damage?