The General Accounting Office has released 21st Century Challenges: Reexamining the Base of the Federal Government. Pages 76-81 discuss Tax System Challenges in the 21st Century.  Here is the opening:

American taxpayers paid about $1.9 trillion in combined federal taxes, including income, payroll, and excise taxes, in fiscal year 2004. These taxes, along with over $4 trillion in deficit borrowing, funded the federal government. The tax revenue raised represented about 16% of gross domestic product — at the low end of the range of federal taxes as a share of GDP for the last 40 years.

Beyond funding government, any tax system, including the current one, has profound effects on the economy as a whole and on individual taxpayers, both for today and tomorrow. Taxes affect decisionmaking throughout the economy, including decisions concerning how much and where to work, save, and invest. These decisions, in turn, affect economic growth and future income, and thus future tax revenues.

Concerns about the tax system’s effect on future economic performance are one driver of the current debate about the future of that system. The U.S. position in the worldwide economy has fundamentally changed and the structure and composition of our economy has shifted. U.S. workers and firms must now succeed in a world of fast-paced technological change and constantly evolving global competition. Also, as noted in section 1, the imbalance between federal revenues and expenditures, if allowed to persist long term, will affect economic growth. Addressing the imbalance will require greater scrutiny of both tax revenues and expenditures.

The following challenges and illustrative questions provide a framework for thinking about these issues in the future.