Describe and contrast the deficits projected

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Reference no: EM13176367

In March and August of each Year, the Congressional Budget Office (CBO), the independent analysis arm of Congress, publishes "An Update to the Budget and Economic Outlook". These documents look out at the following decade to determine the impact of existing tax and budget policies on the government's fiscal health and on the economy.

The body of the report includes substantial discussion of the implications of budgets being enacted under current law, which includes the expiration of various provisions of the so called 'Bush era tax cuts' and the compromise agreed upon by the current congress to extend the debt ceiling (Budget Control Act of 2011 -Public Law 112-25), which are set to take effect in January 2013. (These are the so called "Fiscal cliff" provisions)

To illustrate the consequences of possible changes to current law, the CBO also produced alternative projections under the heading "An Alternative fiscal scenario." This work incorporates the following assumptions: that all expiring tax provisions are extended indefinitely ( except the payroll tax reduction in effect in calendar years 2011 and 2012) and that the Alternative Minimum Tax is indexed for inflation after 2011. The scenario also extends other provisions in current law that are set to expire.

ASSIGNMENT

Read the CBO report "An Update to the Budget and Economic Outlook: 2012-2022" and answer the following questions. Be sure that you are able to differentiate the reports "Baseline Projections" from the "Budget Projections under Alternative Scenarios." Limit your responses to each question to one short paragraph.

1. Using the tax evaluation criteria for economic efficiency and equity discussed in class, evaluate the effect of the expiration of the tax rate deductions, expanded deductions and expansion of tax credits described in the report.

2. Describe and contrast the deficits projected under the baseline and alternative fiscal scenario (summarized in Table 1-6) and the implications of the projections based on the CBO report.

3. What is the Alternative Minimum Tax (AMT) and what is its purpose?

4. What does indexing the AMT for inflation do for the revenue raising capacity of the income tax?

Reference no: EM13176367

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