Bill Thomas Fights To Modernize Government's Tax Models

by Mike Godfrey, Tax-News.com, New York

31 July 2002

Liberal economists thought that Ronald Reagan had established once and for all that cutting taxes both encourages economic growth and increases tax collections - but in the arcane recesses of the US government it appears that The Great Society still rules, and unreconstructed Keynesians still hold sway.

House Ways and Means Chairman Bill Thomas has now joined battle with the Joint Committee on Taxation, a seldom-noticed but powerful body which advises Congress on tax policy, to drag it into the world of modern economics.

At issue is the modelling structure used by the Joint Committee when it predicts the effects of alternative tax policies. Current Joint Committee modelling has a strong bias against tax cutting, says the Wall Street Journal. By assuming that tax cuts have little economic impact, the models predict far more revenue loss than tax cuts actually induce.

As an example, the Joint Committee predicted recently that abolishing Inheritance Tax, which currently yields the government $28bn a year, would cost the state $50bn a year. Huh? Run that one by me again, please.

With the help of a newly-appointed panel of experts, Mr Thomas is urging the Joint Committee's chief of staff Lindy Paull to make use of a technique known as dynamic scoring, which he says would provide more complete and accurate information to Members of Congress.

Needless to say, the Jeremiahs of the tax-and-spend fraternity are fighting back. Senators Tom Daschle and Kent Conrad, says the WSJ, have responded with a letter ordering Ms. Paull to "suspend" even her current exploration of a more accurate tax model.

The mighty Alan Greenspan is on the side of the angels here. In testimony earlier this year he said: "most economists would agree that in evaluating the effects of different fiscal policies, it would be far better to use what we call dynamic scoring, that is, the ability to get the interaction of the effect as well as the initial impact."

The Wall Street Journal nails its colours firmly to the mast as well, saying: " We hope Ms. Paull isn't intimidated and forges ahead with the new tax estimating models. If Congress is demanding more accurate numbers from Wall Street, it has an obligation to produce accurate numbers itself."

No prizes though for guessing what the New York Times says!

Recommended