The Tax Reform Tradeoff: Eliminating Tax Expenditures, Reducing Rates

In this exercise, TPC estimates the revenue and distributional effects of proposals that would eliminate income tax expenditures to finance lower individual and corporate tax rates and reduce the federal budget deficit.

This paper provides results for three proposals: (1) eliminate almost all individual and corporate expenditures and reduce income tax rates across the board to maintain long-run revenue neutrality; (2) eliminate almost all tax expenditures but retain those that primarily benefit low-income households, while reducing income tax rates to maintain long-run revenue neutrality (as in the first proposal); and (3) eliminate the same tax expenditures as in the second proposal and adjust individual income tax rates and brackets to maintain both long-run revenue neutrality and the current distribution of tax burdens.