Posted on 02/10/2006 1:06:27 PM PST by Reagan Man
All of the press commentary on President George W. Bush’s 2007 budget proposal has paid virtually no attention to one of its most significant initiatives. And it is no wonder: how could a move to improve the way the government analyzes tax policy compete with cutting outdated programs, making the United States more competitive, and winning the global war on terrorism?
This little-noted initiative, however, may be historically important. Buried deep in the President’s proposals for the Department of the Treasury is a plan to create a Dynamic Analysis Division within the Treasury’s Office of Tax Analysis. This division would advise the President and other key policymakers on how proposed changes to U.S. tax policy would affect economic activity. Inside the Beltway, this type of analysis is called “dynamic scoring.” Outside the Beltway, this is called “economics.”
So why is this news? Hasn’t the government been studying the effects of tax policy on the economy all along? Aren’t Washington policymakers routinely advised about how tax changes will affect jobs and output and how those, in turn, will affect government revenues?
Surprisingly, the answer is often no. Until very recently, no official Washington agency produced estimates of the economic and tax-revenue effects of proposed tax policies. Congress’s official tax policy scorekeeper, the staff of the Joint Committee on Taxation, began building this capability a few years ago and since has produced a few dynamic scoring documents. The Congressional Budget Office also recently began publishing its estimates of how the President’s and Congress’s budget plans (which include tax changes) would affect economic activity. However, all of these documents together still fit into a slim file folder. So far, the Treasury Department has done almost nothing to contribute to that literature.
Unless policymakers can see that some tax policy changes support more vigorous economic activity while others do not, they may (and indeed have) enact tax laws that are, at best, economically meaningless or, at worst, downright harmful. Dynamic scoring can help to sort the good from the bad.
Take, for example, the child tax credit. Advocates of the credit (now worth $1,000 per child) argued that it would put money into the hands of consumers, who would spend those funds, thus fueling economic activity. Had those policymakers been advised about the likely economic effects of this tax change, they would have learned that the credit would do nothing to lower the costs of working or investing—two of the biggest drivers of economic activity—and that cash windfalls almost always are saved, especially by taxpayers with children. There is nothing wrong with saving for a child’s education, but it will not lead to the bump in current consumption that advocates of the child tax credit expected.
While the child tax credit has not done very much, if anything, for today’s economy (as dynamic scoring would have projected), the same cannot be said for raising taxes to reduce the federal budget deficit. Advocates of this approach appear to argue that tax increases will not affect economic activity but that growing budget deficits do. Standard models of the economy, however, show that income tax increases are harmful to growth in employment, investment, output, savings, and even government revenues. They also show that deficits by themselves have little effect on interest rates. In short, raise taxes to reduce deficits, and the result will be higher unemployment, a slower pace of economic growth, and revenues that are not rising as quickly as static scoring predicted.
Dynamic scoring might not prevent bad tax policy from becoming law, but it would help. Furthermore, reporting the economic consequences of tax proposals will be enormously helpful in redesigning the tax system. The President has called for fundamental tax reform, and he and Congress will find fundamental reform a much easier exercise if routine and sophisticated dynamic scoring is in place when that task is tackled.
So, congratulations to the Bush Administration and particularly to the Department of the Treasury! This little-noted proposal may be the most important change in many, many years to the way tax policy is formulated.
Hoo-yah
Flat tax anyone?
An even more commonsense change would be to eliminate baseline budgeting, so that decreases in the rate of increased spending aren't reported as cuts in spending. Or, perhaps even more radical, how about Congress limiting its spending to those areas it is Constitutionally permitted for it to spend. Yes, I know....pigs will fly before that happens. (Or should that be pork?)
This may benefit tax policy, but now they will have no reason to cut any spending, which they had to do when tax cuts were static.
A flat percentage income tax rate would be fine with this conservative. Dick Armey's flat tax proposal from a few years back, formulated an 18% rate would be enough to support the government back then. I've seen them go as high as 23%. Any serious changes made to the federal income tax code would be better then what we have now.
Heck no. Charge everyone the same amount! Everyone is treated equally and taxed the same amount. How one arranges ones private affairs is just that. One man one vote, one man one tax bill. I do not give a rip about taxes being regressive. Worrying about regressive taxes is just handing government a license to plunder.
If the government wants to raise taxes they have to do so for everyone, no dividing and conquering as the current system or a flat tax with a sliding scale would do.
While the child tax credit has not done very much, if anything, for today’s economy ...
Saving does help the economy. The question is, how does current consumption of discretionary consumer goods (as opposed to capital goods) help the economy in the long run? Would the money "help" the economy if it were spent on movie tickets for the latest Hollywood dreck instead of being saved?
Unfortunately, the XXIVth Amendment stands in the way.
What you're talking about is a true flat tax. One figure to be paid by every taxpayer. Ain't gonna happen. The flat percentage tax rate would at least charge everyone the same rate schedule for federal taxes. Far far better then the hideous tax code system we have in place today.
The man has no economic credibility.
I'm onboard but I seriously doubt whether this new organization will pursue this avenue.
I call B.S. on this! Rates of saving are at a long time low. The birthrate is down. Future entrepreneurs/taxpayers are inestimably important to the economy.
If that is the case, I am against the flat tax but I agree that the tax code needs to be rewritten.
I never asked for a poll tax. Just for everyone to be treated equally. Treating everyone equally is supposed to be a good thing.
A Taxreform bump for you all.
If anyone would like to be added to this ping list let me know.
John Linder in the House(HR25) & Saxby Chambliss Senate(S25) offer a comprehensive bill to kill all income and SS/Medicare payroll taxes outright and replace them with with a national retail sales tax administered by the states.
H.R.25,S.25
A bill to promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national retail sales tax to be administered primarily by the States.Refer for additional information:
A flat percentage income tax rate for each taxpaying American, would be different. If it was set at 18% a year, everyone would pay 18% of their earnings to the federal govt. Whether you made $1,000,000 per year, or $10,000 per year. Sounds fair to me.
The "Flat Percentage" is just a fancy way of saying unequal tax bills. What is the sense in swapping on unequal tax for another unequal tax? If one is for everyone being treated equally under the law, everyone should receive the same tax bill.
Now if you believe from each according to his abilities... I understand why you would support a system that charges different people different unequal amounts. :)
Okay, that makes sense. The key word is "percentage". I am now in favor of the "Flat Percentage Income Tax Rate". Thanks for your insights and your knowledge.
That maybe true, but a true "flat tax" will never, ever see the light of day in America. I think most Americans, right or left would see that type of tax to be socially unacceptable to American values of fair play. Even to run a government half the size of what we have today, a true "flat tax" would definitely place an undue burden on most Americans, effecting the poorest Americans most severely.
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