Friday, February 23, 2007

Budget Options

CBO has just released its biannual report on Budget Options. The document is wonderfully useful to estimate the budget effects of numerous policy alternatives.

For example, if I am reading it correctly, we could increase the gasoline tax by $1 (see revenue option 48) and reduce all ordinary income tax rates, AMT rates, and dividend and capital gains rates by 2 percentage points (see revenue option 1) to produce an approximately revenue-neutral tax reform.

If that policy were already in place, would many people advocate raising income tax rates in order to lower the gas tax? I don't think so. Opposition to this proposed reform seems to be an example of status quo bias.