The Babe Theory Of Political Movements.
Mar. 21, 2005 11:50 AM
Iran's Sham Election In Houston.
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Yes, Kanye, Bush Does Care.
Oct. 31, 2005 12:41 AM
Health Care vs. Wealth Care.
Nov. 23, 2005 3:28 PM
Americans Voting With Their Feet.
Nov. 30, 2005 1:33 PM
Idea Majorities Matter.
May 12, 2006 6:15 PM
Twilight Zone Economics.
Oct. 17, 2006 12:30 AM
The "Shrinking" Middle Class.
Dec. 13, 2006 1:01 PM
From Ashes, GOP Opportunities.
Dec. 18, 2006 6:37 PM
Battle Between Entitlements & Pork.
Dec. 21, 2006 12:31 PM
Let Economic Freedom Reign.
Dec. 22, 2006 10:22 PM
Biggest Health Care Moment In Decades.
July 25, 2007 4:32 PM
Unions Antithetical to Liberty.
May 28, 2008 11:12 PM
Right To Work States Rock.
June 9, 2008 12:25 PM
Social Security Reform Thursday.
March 13, 2008
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The Carnival Of Classiness.
Mar. 14, 2006
Quotational Therapy: Obama.
Apr. 4, 2008
Mainstream Melee: Wolfowitz.
May 19, 2007
Pundit Roundtable: Leaks.
July 9, 2006
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Trivia Tidbit Of The Day: Part 433 -- JCT & CBO Projections.
Very Wrong, Very Often-
You have have heard or read about the recent controversy involving the Congressional Research Service (CRS). Basically, the CRS, now that the Republicans are no longer in charge, will no longer track earmarks/pork passing through Congress. Pretty shady business, there.
But the CRS is not the only taxpayer-funded organization to play politics with research and analysis. Other essentially in-house government think-tanks have some 'splaining to do, when it comes to their faulty projections, slanted assumptions, and often worthless analysis.
The track record of both the Congressional Budget Office and Joint Committee on Taxation are terrible:
...Congress cut the capital gains tax rate from 20 percent to 15 percent in 2003. The JCT estimated that this would cause a revenue loss of $5.4 billion from 2003 to 2006.
First, a visual of the JCT's 138 billion dollar error, with regard to Capital Gains tax relief:
Next, the CBO's 68% error:
And that's just the Capital Gains tax relief.
JCT and CBO made the same estimating errors for the 1997 capital gains rate cut, underestimating capital gains tax revenue by $217 billion in the first two years after the cut alone. But, inexcusably, the two agencies learned absolutely zero from the 1997 experience and went ahead with similarly ridiculous projections for the 2003 rate cuts.
Lots of errors on display here, typically due to a lack of dynamic analysis of the effects of tax policies, and a lack of understanding of pro-growth policies. Sure, on a static balance sheet, cutting taxes will reduce revenue, especially in the short run. But reducing tax rates also propels economic growth, narrowing the expected revenue gap. Over the long haul, though, lower taxes (and the economic conditions created by them) produce higher levels of tax revenues than higher taxes.
Unfortunately, Congress relies heavily on CBO and JCT projections to make its decisions; even some Republicans in Congress sometimes reject proposed free market reforms because they would be "too costly" according to the CRS, CBO, and JCT. The Washington press corps also relies on these official governmental publications to frame their articles on a variety of policy topics.
Whether it's tax policy, Social Security, health care, education, or just about anything else, our government's official analysts seem to consistently spin the numbers in a partisan/ideological fashion, hurting free market conservative Republican proposals in the process. Maybe they are doing it on purpose, or maybe they are just incompetent. Either way, it's bad.
While trying to abolish these acronym-heavy government organizations, or even replace their personnel (pretending for a moment that conservatives control Congress), would be fodder for the latest media-driven non-scandal, fitting perfectly into the narrative about Republicans firing civil servants with which they disagree, something really must happen to change the way these groups project consequences of policy proposals.
In a global economy increasingly reliant on information, we just deserve better from our "official" think-tanks.
Previous Trivia Tidbit: A Little Less Tax Freedom This Year.
Posted by Will Franklin · 2 April 2007 06:06 PM
These kinds of errors are nothing new. The same shenanigans occurred when Reagan cut tax rates too. Whether it is an ideological problem or simple lack of imagination, a failure of education, I don't know. But I don't expect it to change. Too many in power have too much invested in high tax rates.
Posted by: Tom Bri at April 2, 2007 10:01 PM
Thanks for the graphs, Will! I'm constantly amazed that an institution that is tasked with coming up with accurate numbers to be used in making policy can be THIS wrong THIS often on this subject.
If this were subcontracted out to a Corporation like Halliburton, there would be Congressional Investigations, Tribunals, Indictments... the full circus.
Providing, of course, the numbers went against the Left. Going agains the Free Market Conservatives makes it all fair game.
Posted by: Mr. Michael at April 2, 2007 10:12 PM
I think that part of this is because companies had massive incentives to repatriate money from overseas subsidiaries to take advantage of the new tax rates and subsequently, many companies declared dividends that had not done so in the past to take advantage of the short term (which is set to expire) tax laws.
The bigger issue is that in order for the economy to grow consistently and the capital markets to make long term investments, we need tax law CONSISTENCY and long term security of tax rates. Whenever there is a loophole or short term change, people jump and that is actually bad for the economy in the long run.
Take for instance the 100% immediate depreciation allowance in 2004 for vehicles over 6k lbs. That sent every business owner and their dog out to buy big SUVs and take the depreciation credit. So short term, car dealers and auto manufacturers saw a huge spike in production requests, profits, and demand, but this immediately went away on January 1.
The tax cuts expiring is going to create the same kind of rush to pay dividends and take profits before the change which will result in less capital available for expansion of business causing a slowdown in consumer and business spending which will have a long run negative effect, not to mention the fact that receipts will immediately fall because the higher tax rates are, the harder people fight to avoid them--especially the educated wealthy folks.
Posted by: Justin B at April 3, 2007 03:22 PM
"Kind of a big error." Heh.
Posted by: Assistant Village Idiot at April 3, 2007 10:09 PM