Excise taxes and other types of "indirect" taxes reduce the revenues derived from individual and corporate income taxes and payroll taxes. When CBO and the Joint Committee on Taxation estimate the budgetary effects of changes in indirect taxes, they generally reduce the estimated change in indirect tax revenues by applying an income and payroll tax offset.

This report explains how indirect taxes affect net tax revenues, how the rate of the income and payroll tax offset is determined, the cases in which CBO does and does not apply the offset in its cost estimates, and how it reflects the offset in its baseline projections of revenues under current law.