Posted on 05/23/2025 5:07:16 PM PDT by E. Pluribus Unum
The revenue estimates it and the JCT churn out ignore the real effects of tax policy.
White House chief economist Kevin Hassett hit on a wider problem last week when he criticized the overly pessimistic prediction out of the Congressional Budget Office’s revenue-estimating partner. The Joint Committee on Taxation said extending the 2017 tax cuts would cost some $4.6 trillion in government revenue over 10 years. Mr. Hassett pointed out that if the House reconciliation bill’s tax cuts could boost economic growth to 3%—still less than the post-World War II average—it would restore more than $4 trillion in income to Washington. In doing so, Mr. Hassett uncovered an issue that has swerved Washington into bad policy for decades.
The most powerful forces on Capitol Hill aren’t the House speaker and Senate majority leader, they’re the CBO and JCT. These two unelected bodies forecast how legislation could change spending and revenue over the next decade. Too often, these predictions are wildly off base.
In their defense, it isn’t an easy job. As Yogi Berra is supposed to have said: “Making predictions is hard to do, especially about the future.” What’s less defensible: The computer models that the CBO and JCT use for their predictions keep making the same mistakes.
The CBO and JCT routinely overestimate revenue from tax-rate increases as well as losses from tax cuts. The most recent example is the CBO estimate of the 2017 Trump tax cut’s fiscal effects. Its prediction has proved almost $1.5 trillion too low so far.
The explanation for this persistent error is that the CBO’s and JCT’s computer models fail to take adequate account of how tax-rate changes affect the amount and timing of...
(Excerpt) Read more at wsj.com ...
Had cause to investigate this recently.
The Reagan years, with a tax rate cut, in the 1980s. Tax revenue increased from the 1970s, during which there was an actual tax rate increase.
But when you normalize for population growth . . . evaluating it all as tax revenue per capita, there was no such increase.
In other words, if you reduce tax rates slightly, and increase the number of people paying those lower rates, then OF COURSE you will get an increase in total revenue. But not per capita. (Oh, and if you toss inflation in there too, the whole evaluation becomes silly)
So no, there is nothing horrible about agencies who have the audacity to discover that if you lower tax rates, you probably aren’t going to generate more taxes, with the obvious other factors controlled for.
In that case, we should just have a 100% tax rate and be done with it.
The Reagan years featured deficits that were larger than not just White House, but Congressional Budget Office estimates every year of his tenure. The Laffer curve is true for a confiscatory level of taxation. At under 20% of national income, current Federal taxation is not confiscatory.
Note that Reagan ran with 3% deficits. While deficits are cumulative, he had the good fortune to start with a debt to annual national income ratio of 32%. Trump is now running a 7% deficit - vs his first term’s 3% pre-pandemic average - on a debt to income ratio of 120%. The numbers are getting to the point interest payments will soon be the biggest piece of Federal spending going forward.
I’m surprised the WSJ is sticking up for the BBB.
I have yet to hear anyone from Trump on down deny the 4 Trillion Dollar increase in the deficit.
And so the Journal feels it necessary to attach the CBO?
All. Righty. Then.
The CBO just makes guesses.
When Kennedy cut the maximum tax rate from 91% to 65% it greatly increased revenues. When Reagan cut them again, it lead to huge gains in revenues. However, Congress has a spending problem and saw the increased revenue as an opportunity to increase the deficit even more.
[When Reagan cut them again, it lead to huge gains in revenues.]
“So no, there is nothing horrible about agencies who have the audacity to discover that if you lower tax rates, you probably aren’t going to generate more taxes, with the obvious other factors controlled for.
In that case, we should just have a 100% tax rate and be done with it.”
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The Laffer Curve isn’t a perpetual motion or money machine. The “returns” decline as overall taxes get lower, to the point where it doesn’t produce sufficient revenue for basic government responsibilities.
Bkmk
We can't have “returns” declining, whatever the hell that means.
That experiment has not been performed.
But the ones noted have been. It’s very stark. Lower tax rates do not magically increase tax revs. Population gain does.
Have not examined that time period. 91% rates likely were applied to extremely high annual income — collecting which there would be very few people. So their small numbers would preclude such conclusions.
This is politics — declare something and never, ever examine other variables in the equation.
I just glanced at the Kennedy tax cut. It was never implemented until he was dead. Delays pretty normal for fiscal changes.
And what did that mean? No impact until ‘65 and later, and the Vietnam War’s beginning with first troops arriving in early ‘65. Gov’t spending boost, G is part of the GDP equation, goosed GDP, and military contracts goosed everything.
Higher GDP = more tax revs. No reason to imagine that was going to happen without a war underway.
Why is everything “over 10 years”? That spans too many (5) iterations of Congress...
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