Agenda - Council - 09/13/2022 - Laserfiche WebLink

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covered period, with inflation calculated using the Bureau of Economic Analysis's Implicit Price Deflator.358 Public Comment: Some commenters expressed concern regarding the choice of FY 2019 as the baseline, arguing that the choice lacked justification and would make the offset provision more restrictive as applied to recipient governments that experienced a decline in revenue independent of making any covered changes. Treasury Response: Measuring a "reduction" in net tax revenue requires identification of a baseline. In other words, a "reduction" can be assessed only by comparing two amounts. The Act defines "covered period" to begin on March 3, 2021, and thus the baseline year must end prior to March 3, 2021. As discussed in the interim final rule, FY 2019 is the last full fiscal year prior to the COVID-19 public health emergency, and thus is consistent with the statutory definition and does not include the extraordinary effects of the pandemic that began in 2020. Further, as discussed above, the interim final rule recognizes three potential ways that a recipient government may offset or "pay for" a reduction in net tax revenue due to a covered change: increases in taxes, decreases in spending, and organic revenue growth. U.S. gross domestic product rebounded to exceed its pre -pandemic level in 2021,359 suggesting that an FY 2019 pre - pandemic baseline is a reasonable comparator for future revenue levels and provides recipients with flexibility to identify organic growth as a permissible offset. Finally, this baseline year is consistent with the approach directed by sections 602(c)(1)(C) and 603(c)(1)(C), which identify 358 U.S. Department of Commerce, Bureau of Economic Analysis, GDP Price Deflator, https://www.bea.gov/data/prices-inflation/gdp-price-deflator (last visited Apr. 30, 2021). The FY 2019 baseline revenue is adjusted annually for inflation to allow for direct comparison of actual tax revenue in each year (reported in nominal terms) to baseline revenue in common units of measurement; without inflation adjustment, each dollar of reported actual tax revenue would be worth less than each dollar of baseline revenue expressed in 2019 terms. 359 Economy Statement by Catherine Wolfram, Acting Assistant Secretary for Economy Policy, for the Treasury Borrowing Advisory Committee November 1, 2021 (Nov. 1, 2021), available at https://home.treasury.gov/news/press-releases/jy0453. 327