NCPA - National Center for Policy Analysis

A Tax Amnesty Can Raise Revenue

June 23, 2003

A federal, state and local tax amnesty program would quickly raise lots of money and give the economy a supply-side jump-start, says economist Arthur B. Laffer.

Tax amnesties are legislated periods during which the payment of past unpaid tax liabilities is allowed without fear of legal reprisal. It is a fairly common practice for state and local governments.

  • Over the past 20 years there have been no fewer than 62 separate state tax amnesty programs in 40 different states.
  • Connecticut, Massachusetts, New Jersey and New York have had three amnesty programs each and Louisiana has had four.
  • Most of these state tax amnesty programs have also included local governments and have encompassed all forms of taxation.

Past state tax amnesty programs have raised far more revenues for fiscally strapped state and local governments than even their most vocal advocates projected. For example, the amnesty ended this past December in Connecticut raised an estimated $109 million -- far above the legislated goal of raising $24 million. Estimating that an amnesty would increase government revenues by 1 percent in the first year:

  • A federal, state and local tax amnesty program, combined with an aggressive offer-in-compromise outreach, could immediately increase federal revenues by well over $100 billion.
  • By bringing former noncompliers above ground and paying future taxes, the projected 10-year revenues to the federal government might be $175 billion.
  • State and local governments would add some $50 billion in the first year and $25 billion over the coming 10 years.

"It is imperative," concludes Laffer, "to combine a federal, state and local amnesty program with President Bush's excellent tax reform and tax rate reductions."

Source: Arthur B. Laffer, "Tax Amnesty --A Win-Win for Everybody," State of the Economy, Wall Street Journal, June 23, 2003.

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