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Tax reform: making sense of the numbers |
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October 28, 2017 |
By U.S. Senator Mike Crapo
This column is the third in a series of columns
to discuss the need for comprehensive tax
reform, rather than solely debating traditional
rate cuts, review many of the tax reform
proposals and ideas put forward from across the
political spectrum, consider how reforms are
estimated and reflect on the potential effects
of the reforms being considered.
The goal with this series of tax reform columns
is to carry on a discussion with Idahoans about
the reform efforts underway. In this column, I
will write about how the cost of tax reform
legislation is estimated, as it may be useful
for the American people to understand a little
more about how congressional scorekeepers will
evaluate tax reform legislation under
consideration in Congress.
The devastating hurricane season has
familiarized many Americans with the many
different models that meteorologists use, like
the Global Forecast System (GFS) model or the
European model, to predict future weather
activities.
We see a similar situation when forecasting
future effects on federal revenues of changes in
tax policy.
The Joint Committee on Taxation (JCT), the
official revenue scorekeeper for Congress, also
employs a number of different revenue estimating
models. An explanation of the JCT’s revenue
estimating process can be reviewed
here.
Like the different weather models, each revenue
forecasting model has its own capabilities and
limitations. In both cases, these models will
produce a range of most likely outcomes.
To better guide its decision-making process,
Congress requires JCT to also select a specific
point estimate from within that range of
potential outcomes to be considered the
“official” revenue estimate for that proposed
tax policy change. However, in reality, none of
the specific point estimates generated by any
model should be considered to be 100 percent
precise and accurate as to what would actually
occur should the proposed policy be enacted.
The JCT explains that, “A JCT revenue estimate
compares predicted Federal revenues under the
proposal with predicted revenues under present
law. The revenue estimate equals:
* Predicted future revenues under proposed new law (proposal revenues).
* Less predicted future revenues under present law (baseline revenues).”
Estimating the future costs of tax reform policy
is challenging, as there are many variables to
consider. But, these guides are needed to inform
sound policy decisions. That is why we need to
closely consider the estimates being used and
continuously work to ensure that they are as
accurate as possible.
The challenge there is that a comprehensive
reform to the tax code, last seen 30 years ago,
would be expected to produce much greater
secondary macroeconomic changes to federal
revenues than we would have seen from many of
the typical straight tax cuts or tax increases
we have experienced since the last major reform,
when macroeconomic modeling was much less
evolved. Many of the measurement standards and
talking points that we often see in tax debates
in recent decades may not necessarily apply
here.
The momentum in Congress and the Administration
to comprehensively reform our complex, costly to
comply with, unfair and anti-competitive tax
code is encouraging. Comprehensive tax reform
can not only help set our nation on a more sound
and competitive economic course, but also
simplifying the tax code would be beneficial to
Americans who exhaust finances and time filing
under the current overly-complex tax code.
Please continue to share your views and urge
friends and family to get involved and let their
Senators and Representatives know how they feel
about the importance of these issues. Your
efforts continue to be very valuable as we work
together toward the enactment of the
comprehensive tax reform our country needs. |
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