July 14, 2006
Deficits and Game Shows II Posted by John Steele Gordon at 12:30 PM EST Mr. Zeitz cites a study by Isaac Shapiro and Joel Friedman of the Center on Budget Policy and Priorities that utilizes data from the Joint Tax Committee and the Congressional Budget Office.
The Center on Budget Policy and Priorities is a Washington think tank that is well on the left side of the political spectrum, and I imagine that most if not all of the people who work there would consider themselves liberal. There is nothing wrong with that, of course. Let a thousand flowers bloom. But I have no doubt whatever that, say, the Cato Institute has produced studies that are equally academically rigorous and come to exactly opposite conclusions. Economics is not one of the hard sciences.
But let’s look briefly at the sources of their data, the Joint Tax Committee and the Congressional Budget Office. These two creatures of Congress have an absolutely perfect track record when it comes to making predictions regarding the revenue effects of changes in the tax laws. They are always wrong. And they are always wrong in the same way. They always underestimate tax revenues, overestimate the “cost” of tax cuts and overestimate the new revenues from tax increases. Always. If consistency is a virtue, the CBO and the JTC are the most virtuous bureaucracies in Washington.
As I wrote a couple of days ago, the CBO was wildly off on estimating the costs of cuts in the capital gains tax in 2003. They estimated that the tax would raise $169 billion over three years if it was unchanged but would raise only $122 billion if it was cut. It was cut and it raised $185 billion. Oops.
Over the decade from 1997 to 2006 they underestimated tax revenues by a total of $800 billion. And actually their estimates were even worse, for they didn’t take into account the tax cuts of 1997, 2001, and 2003. The Joint Tax Committee estimated that the three tax cuts would cost the treasury $1.24 trillion through 2006, so they were off by a total of $2.04 trillion. Even in Washington, that is not a rounding error.
Like so many others, I am utterly mystified why the Republican majority in Congress allows the CBO and the JTC, year after year, to use the same old utterly discredited computer models to generate junk predictions that make implementing taxes changes that much more politically difficult.
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