[Congressional Record Volume 141, Number 17 (Friday, January 27, 1995)]
[Senate]
[Page S1709]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                        DYNAMIC REVENUE ANALYSIS

  Mr. ABRAHAM. Mr. President, a few weeks ago I sat through a hearing 
of the House and Senate Budget Committees on the issue of dynamic and 
static revenue estimating. At this hearing, the staff of the Joint 
Committee on Taxation presented a statement that seemed particularly 
concerned about an article that Bruce Bartlett of the Alexis de 
Tocqueville Institution had published in the Wall Street Journal a few 
weeks ago. Since I know Mr. Bartlett personally, I was especially 
interested in what he had to say.
  Apparently what the Joint Committee staff is most concerned about was 
Mr. Bartlett's discussion of an exchange Senator Packwood, the chairman 
of the Finance Committee, had had with the Joint Tax Committee 
regarding the revenue effect of raising the top tax rate to 100 percent 
on those earning more than $200,000. According to Senator Packwood, the 
Joint Committee had predicted some $200 billion per year in additional 
revenues from this tax change. Senator Packwood rightly characterized 
this estimate as questionable.
  Now, according to the Joint Committee staff, there was nothing wrong 
with this estimate because it included a caveat that it did not take 
into account any behavioral response. They then included in an appendix 
to the statement a complete set of correspondence between Senator 
Packwood and the Joint Tax Committee on this matter. Apparently, the 
Senator from Oregon has had a long time interest in this issue and has 
periodically asked the Joint Committee to update its estimates.
  I do not believe that simply appending a caveat is at all adequate. 
The fact is that a 100-percent tax rate would raise zero revenue and 
everyone knows it.
  If this were merely an academic discussion, it would not concern me. 
But under the budget laws and established practice, we are required to 
treat these estimates from the Joint Committee as if they are 
scientific truth. And we all know that these estimates carry enormous 
weight when it comes to legislating changes in the Tax Code. If the 
Joint Committee says a tax cut will lose $101 million and there is only 
room in the budget for a $100 million tax cut, then you are out of 
luck. A point of order will prevail and your tax proposal is out the 
window.
  Now, I had always assumed that the whole point of having revenue 
estimates on tax bills was so that we could project the actual effect 
of tax changes on the Government's aggregate revenues as accurately as 
possible. Yet here we have clear evidence that the Joint Committee has 
produced estimates for the chairman of the Finance Committee that do 
not fully account for behavioral changes.
  I am very concerned about this because the Joint Committee on 
Taxation probably produces hundreds of estimates during the course of a 
year that effectively have the force of law. Even the Treasury 
Department's estimates do not have the same weight as those produced by 
the Joint Committee, because the Congress will always defer to its own 
staff in a dispute with the administration. It makes me wonder what 
other caveats are buried in these estimates that have not gotten any 
attention in the past.
  In any case, the sensible thing would seem to be for the Joint 
Committee to produce estimates that it actually believes are as correct 
as possible, in terms of the actual effect on the Government's revenues 
of any changes in tax policy.
  Apparently, this matter of improving the quality of revenue estimates 
has become a political issue, with those opposed to certain tax 
proposals standing firm against any dynamic scoring. This is apparent 
from the article I read in the Wall Street Journal, in which the 
chairman of the President's Council of Economic Advisers, Laura 
D'Andrea Tyson, also attacks my
 friend Bruce Bartlett for noting several instances in which the Joint 
Committee's estimates for tax increases were far too high.

  Ms. Tyson states that Mr. Bartlett ignored the many times their 
estimates were too low, as though this constitutes a defense of the 
Joint Committee's methodology. However, it seems to me that being too 
low is just as bad as being too high.
  Ms. Tyson further notes that the Joint Committee's estimates were 
somethings wrong because of unforeseen events. She implies that the 
collapse of oil prices in the early 1980's was such an unforeseen event 
that made the Joint Committee's estimate of the windfall profits tax be 
far too high. In fact, as I recall, there were a number of economists 
at that time who were arguing that decontrol of the price of oil was 
very likely to reduce the price of oil by encouraging additional 
drilling and exploration. In fact, I believe that this is exactly what 
did happen.
  Lastly, Ms. Tyson indicates that the reason why corporate tax 
revenues fell after the Tax Reform Act of 1986, rather than rise in 
accordance with Joint Committee estimates, is because corporations 
ceased doing business as corporations and began operating as 
partnerships or subchapter S corporations. Thus the revenue that was 
lost on the corporate side was made back on the individual side.
  The point here is that the 1986 act lowered the top individual income 
tax rate below the top corporate rate. I think most tax lawyers could 
have easily predicted that this would lead people to take advantage of 
this differential by reorganizing their businesses so as to be taxed at 
the individual rate rather than the corporate rate.
  While it may be true, as Ms. Tyson says, that the Treasury did not 
actually suffer that much of a net revenue loss, it still does not 
explain the Joint Committee's apparent estimating errors.
  Personally, as a legislator, I want the best possible information 
before I make a decision. I think the Joint Committee and the 
Congressional Budget Office should at least explore the possibility of 
preparing dynamic revenue estimates. Their revenue estimating models 
should be improved and updated to account more fully for changes in 
behavior and economic growth. Perhaps a commission comprised of public 
and private sector experts could be established to recommend reforms in 
the revenue estimating process.
  I would suggest we keep the current static revenue scoring, but 
require the Joint Committee to provide a range of possible dynamic 
revenue estimates for major tax bills for illustrative purposes only. 
After a period of time, we could compare the static and dynamic 
estimates to see which ones came closer to reality.
  As a member of the Senate Budget Committee this is a matter I intend 
to follow closely as time goes by. My only interest, as I said, is to 
get the best, most accurate, information possible. I yield the floor.


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