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Think tanks wrap-up II

WASHINGTON, April 7 (UPI) -- The UPI think tank wrap-up is a daily digest covering opinion pieces, reactions to recent news events and position statements released by various think tanks. This is the second of several wrap-ups for April 7.


The National Center for Policy Analysis

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(The NCPA is a public policy research institute that seeks innovative private sector solutions to public policy problems.)

DALLAS, Texas -- A first crack at dynamic scoring

by Bruce Bartlett

On March 25, the Congressional Budget Office released an important study of President Bush's budget proposal. What was novel about this study is that the CBO attempted to calculate the impact of the proposal on the economy as a whole. Normally, it assumes that even large changes in taxing and spending will have no effect whatever on such things as the unemployment rate, real growth in the economy, inflation and interest rates, among other things.

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This method of analysis has long frustrated advocates of supply-side tax cuts. They believe that holding the economy constant when calculating the effects of such tax changes exaggerates their budgetary cost, thereby decreasing their chances of being enacted by Congress. After all, the whole point of a supply-side tax cut is to increase economic growth by stimulating work, saving and investment.

Some people believe that the inclusion of macroeconomic effects in revenue estimates is some kind of trick to make tax cuts appear costless. It is often alleged that Ronald Reagan played such a trick on the American people in 1981 by saying that the big tax cut that year would not reduce federal revenue. This is nonsense. The Reagan administration always said that the 1981 tax cut would lose large revenues and its estimates were comparable to those made by independent analysts.

Furthermore, supply-side economists who made private estimates of the revenue impact of the Reagan tax cut -- estimates that did incorporate growth effects -- also showed large revenue losses. For example, an estimate by economist Norman Ture of an early version of the Reagan plan showed large net revenue losses even 10 years after enactment. Economist Michael Evans came to similar conclusions.

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What supply-siders always said is that the Reagan tax cut would not lose as much revenue as conventional (static) estimates predict. Economist Lawrence Lindsey, then at Harvard, concluded that when all was said and done the net revenue loss from the 1981 tax cut was about a third less than official estimates predicted. A CBO study found that it was about 25 percent less.

Supply-siders believe that a dynamic analysis of Bush's tax plan would show approximately the same thing -- that the net revenue loss will be between 25 percent and 33 percent less than a static estimate would show.

Unfortunately, because of political and bureaucratic resistance, techniques for calculating the dynamic effect of tax cuts are not very far along. So the new CBO effort must be viewed as very preliminary. Nevertheless, it does support basic supply-side theory. It shows that marginal tax rate reductions will increase aggregate hours worked, and that elimination of the double taxation of corporate profits will increase investment and productivity.

Because supply-side theory is not yet well understood at the CBO, some of the mathematical models used to estimate the effects of Bush's proposal are rather primitive. And some of the assumptions that the CBO made are quite unrealistic. However, under the leadership of its newly appointed director, economist Douglas Holtz-Eakin, I expect that the analysis will improve with time.

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Consequently, the best way of measuring supply-side effects may be with commercial econometric models. Corporations use them to calculate the impact on sales of changes in economic growth, interest rates and other economic variables. These models are based on past economic data and assume that people will behave in the future as they have in the past to changes in economic conditions.

CBO used two commercial models to look at the Bush plan. The best known of them, the Global Insight model (formerly the DRI-WEFA model) showed continuing positive growth effects from the tax cut. A larger economy recoups about 30 percent of the static revenue loss, it estimates, which sounds about right to me.

One problem with the CBO analysis is that it looked at all provisions of the president's budget, including higher spending and those tax cuts that clearly will have no growth effect. The higher spending retards growth, while the non-supply-side tax cuts inflate the revenue loss without producing any economic feedback. If the analysis were limited only to the supply-side features of the tax plan, all of the models would show strong growth effects.

In the future, I hope that the CBO will do more to break out specific provisions of tax and spending proposals and look at them individually. This will show that some tax cuts significantly raise growth, while others have no impact whatsoever. Hopefully, this will encourage Congress to enact more of the former and less of the latter.

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In any case, the CBO is to be commended for taking the first baby step toward dynamic revenue estimating. I look forward to its future efforts.

(Bruce Bartlett is a senior fellow with the National Center for Policy Analysis.)


The Institute for Public Accuracy

(The IPA is a nationwide consortium of policy researchers that seeks to broaden public discourse by gaining media access for experts whose perspectives are often overshadowed by major think tanks and other influential institutions.)

WASHINGTON -- Bush and Blair in Belfast

-- Mairead Corrigan McGuire, a Nobel Peace Prize laureate for her work in Northern Ireland and co-founder of the Peace People, has been on a liquid fast since the invasion of Iraq began. She is holding a silent vigil in front of the White House every day from noon to 2 p.m.

"The visit by Bush to meet with Blair and their talking about the Northern Ireland peace process are hypocritical. Bush and Blair have started an illegal and immoral invasion and occupation over the Iraqi people."

-- Mary Kelly, a participant in the Shannon Peace Camp, has become well known in

Ireland for allegedly taking a hatchet to a U.S. Navy cargo plane at Shannon Airport, causing substantial damage. Charges against her are pending.

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"Under our constitution, we're not supposed to have uniformed armed forces in Ireland." Kelly also cited the Nuremberg Tribunal, which declared: "Individuals have international duties which transcend the national obligations of obedience. Therefore (individuals) have the duty to violate domestic laws to prevent crimes against peace and humanity from occurring."

-- Davy Carlin is a representative from the Northern Ireland Public Service Alliance, the largest trade union in Northern Ireland, to the Stop the War Coalition of Northern Ireland.

"Given that we're trying to end 30 years of conflict in Northern Ireland, it's really ironic that there's a war summit in Belfast. Many of those politicians here who say they are anti-war will meet with Bush, and many in the community are appalled by this. Meeting with Bush puts Sinn Fein in a dilemma. Bush is trying to manipulate the Irish-American community by portraying himself to them as a man of peace. Words like imperialism, which once seemed out of fashion, now describe too many U.S. policies in the Mideast."

-- Eamonn McCann is author of the books "War and Peace in Northern Ireland" and "Bloody Sunday in Derry."

"Now, every day is Bloody Sunday in Iraq."

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