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  1. The pandemic precipitated the steepest decline in economic output and employment in recent history, which is leading to a drop in tax revenue. At the same time, the federal response to the crisis is producing a large increase in spending. This combination will cause the federal budget deficit to spike.
  2. While there are legitimate reasons for increasing and levying excise taxes, legislatures should proceed with caution in the aftermath of the pandemic. Importantly, revenue from increased excise taxes should generally be allocated to spending related to the negative externalities as that revenue is too volatile and unreliable to rely on for long-term budget priorities.
  3. The House Republican Study Committee released a proposal, "Reclaiming the American Dream," which includes 118 policy recommendations to address education, labor, and welfare policy with the aim of expanding opportunity, liberty, and free enterprise for all Americans.
  4. Taxing capital income and labor income similarly is a difficult goal to achieve and comes with real trade-offs that policymakers have to consider when proposing tax changes. There are opportunities to reduce avoidance incentives in the tax code by ensuring that effective tax rates between business forms and sources of financing are as neutral as they can be, in addition to shoring up rules related to self-employment taxes. Biden’s tax plan, however, would go the other direction by increasing the bias in favor of debt-financing and non-corporate investment.
  5. State tax revenue collections were down 5.5 percent in FY 2020, driven by a dismal final quarter (April through June) as states began to feel the impact of the COVID-19 pandemic. While these early losses are certainly not desirable, they are manageable and far better than many feared.

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