A Proposal to Impose a Federal Revenue Ceiling

Last week’s grand-bargain discussions between House Speaker John Boehner and President Barack Obama included a highly unusual feature, according to two people familiar with the situation: a ceiling on future federal revenues, in order to limit the size of any future tax increase.

The Boehner-Obama deal fell apart, so the complicated arrangement isn’t going anywhere right now. But it could resurface in future negotiations over a tax overhaul and new revenues. That’s likely to be a recurring topic in deficit-plagued Washington.
The revenue ceiling being advanced by the speaker’s side would have capped future federal revenues at $36.2 trillion over the next decade, according to one person familiar with the discussions. That’s about $800 billion more than the amount that’s expected to be produced by current tax policies, including the Bush-era rates for individuals. But it’s far less than the amount that would be produced by returning as scheduled to pre-Bush rates after 2012, as Mr. Boehner has noted in the last few days.
Republicans hoped that the extra $800 billion in revenues would come in whole or part from higher economic growth stemming from a streamlined tax system, rather than from any policy changes that would be involved in a tax overhaul, such as limiting deductions. The ceiling on overall revenue collections was intended to help prevent a revamp of the tax code from turning into a tax increase.
That, in turn, would have helped them sell the higher revenue number to their tax-averse rank-and-file members. The speaker and others familiar with the discussions say the deal would not have been a tax increase.
“We had an agreement on a revenue number, a revenue number that we thought we could reach based on a flatter tax code with lower rates and a broader base that would produce more economic growth, more employees and more taxpayers, and a tax system that was more efficient in collecting the taxes that were due the federal government,” Mr. Boehner said in his news conference late Friday. He blamed the collapse of the discussions on a recent White House demand for another $400 billion in future revenue increases.
Claims of higher government revenues from tax changes have been a point of dispute in Washington for decades. By and large, congressional scorekeepers have been skeptical of claims of big revenue increases from broad tax overhauls.
But with deficits so deep and the U.S. tax system so riddled with complications, some lawmakers are likely to keep pressing the argument that streamlining the code will pay off for Uncle Sam as well as everyone else.