[Congressional Record Volume 142, Number 59 (Thursday, May 2, 1996)]
[Extensions of Remarks]
[Page E701]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

[[Page E701]]


                  THE DYNAMIC WAY TO SCORE TAX POLICY

                                 ______


                           HON. TOM CAMPBELL

                             of california

                    in the house of representatives

                         Thursday, May 2, 1996

  Mr. CAMPBELL. Mr. Speaker, I rise today in support of reforming the 
Federal budget process, to make the Federal budget process more 
manageable and responsive to the American people. Today, I am 
introducing, along with my colleagues, the Honorable Majority Leader 
Dick Armey, Joint Economic Committee Vice Chairman Jim Saxton, 
Congressmen Shays, Sanford, Horn, Thornberry, Ewing, Cunningham, and 
Manzullo, a sense-of-Congress resolution that would promote the concept 
of dynamic economic modeling.
  Congress can gain valuable insight from the States in many key policy 
areas, and one important area is in the accurate estimation of the 
revenues available to provide Government services in the first place. 
Through the sound application of an accounting device known as dynamic 
economic modeling, several State governments are providing clearer and 
more accurate insight into revenue patterns for future years. The 
sense-of-Congress resolution I am introducing today is in support of 
the premise that dynamic economic modeling is a valuable means of 
estimating the effect Federal tax policy. In addition, this is a 
concept that Congress and the Federal Government should explore 
further.
  The formulas now used to predict the economic impact of changes in 
the Tax Code don't fully reflect the fact that tax changes spur 
behavior and macroeconomic changes. If you don't factor in these 
behavior changes you get phony revenue numbers and, consequently, 
inaccurate budget numbers. My resolution is designed to encourage the 
consideration of real life and real dollars back into Government 
projections.
  At the heart of this discussion is whether we should encourage growth 
and opportunity in our tax policy. By implementing dynamic economic 
modeling, one can get a better idea of the revenue effects that changes 
in sensitive tax policy cause. The Commonwealth of Massachusetts, for 
example, has been using dynamic economic methods for several years. My 
home State of California, it should be noted, has completed initial 
design and testing of a computable general equilibrium model [CGE]. As 
a State senator in California, I took part in this process by authoring 
Senate bill 1837, a bill authorizing the implementation of dynamic 
economic modeling techniques. This bill was passed by the California 
legislature and signed by Governor Wilson in 1994.
  The California Department of Finance, I am pleased to say, has sent a 
copy of the model paper to members of Governor Wilson's council of 
economic advisers, specifically John Cogan, John Taylor, and Michael 
Boskin of Stanford University. I expect this model will be circulated 
to other academics in California and elsewhere, and am confident that 
these models will be excellent tools to help policymakers at the State 
and Federal levels understand the full economic consequences of tax 
legislation.
  Dr. Boskin, also a former Bush administration economic adviser, 
argued last year before Congress that dynamic economic modeling is not 
an attempt to cook the books as defenders of conventional models might 
suggest. As Dr. Boskin added, those who claim that this is an attempt 
to cook the books are starting with the erroneous proposition that the 
books are now in good shape. What he acknowledged is that there are 
serious problems in conventional accounting and in the current 
presentation of information.
  Let me illustrate how dynamic modeling may work. The House of 
Representatives Joint Economic Committee [JEC] cites a 1990 projection 
of Congressional Budget Office [CBO] realizations after capital gains 
tax rates were increased. Initial estimates of capital gains 
realizations showed significant gains even after a large increase in 
the capital gains tax rate after 1987. According to recent Internal 
Revenue Service data, however, actual realizations were less than half 
of what was projected by CBO for 1993. Instead of projected 
realizations of $295 billion in 1993, capital gains realizations 
remained stagnant at $141 bilion--an error or over 100 percent. In the 
words of the Joint Economic Committee, the higher capital gains tax 
rate has produced less annual real revenue in the 1990-93 time period 
under the lower rate of 1985, despite a larger economy.
  These problems are serious enough to justify exploration of policy 
changes in how we project revenue. At the very least, the idea of 
dynamic economic modeling could provide a range of revenue estimates 
around the number produced by the static model.
  It is time for Congress to take notice of dynamic economic modeling's 
implementation by States, and with the help of leading accounting firms 
and academics, adopt it. Ignoring the debate on alternative revenue 
estimating will create a bias against tax policies to create growth 
which are now under consideration. Good ideas which could enrich our 
future standard of living are a risk of outmoded economic calculations 
if we do not begin this dialog.

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