Judging from the feedback, including a call from Fox Business, last week\u2019s column struck some kind of cord. \u00a0Everywhere I was asked about it, the same questions kept coming up. \u00a0So this week, I want to acknowledge those queries and give answers.<\/p>\n
As a reminder, the column called for creation of a shadow Congressional Budget Office, a Team B for budget estimates. \u00a0I called it a Citizen\u2019s Budget Office. \u00a0The idea was to establish a truly independent estimating body outside the government. \u00a0It would produce parallel projections of the changes in tax rates on economic growth and government revenues. \u00a0I suggested supply-siders Kurt Hauser, Arthur Laffer, and Lawrence Kudlow for a council of budget advisors that would run it.<\/p>\n
But what about bi-partisanship, I have been asked. \u00a0Aren\u2019t Hauser, Laffer, and Kudlow all cut from the same political cloth? How can you put out estimates without bipartisanship?<\/p>\n
Perhaps it shouldn\u2019t have, but the question surprised me. \u00a0The idea behind the column was that in estimating the impact of tax rates on revenues, bipartisanship has failed us. \u00a0It has led the official CBO to making bad assumptions that have produced bad results. \u00a0Over and over, promised revenues from rate increases have not materialized, while instead of revenue losses, rate cuts have been followed by revenue boosts.<\/p>\n
I noted the Hauser Rule, product of San Francisco financier Kurt Hauser, one of my nominees for the council of budget advisors. \u00a0Some years ago and repeatedly since, Hauser asked what has been the historic impact of changes in tax rates on the overall federal tax receipts as a proportion of GDP? \u00a0Analyzing tax collections from 1950 to the last year of available data, he has repeatedly found the answer was zero.<\/p>\n
High tax rates or low tax rates, government receipts have always consistently fallen in a narrow band around 19 percent of GDP. \u00a0So Hauser asked, which would we rather have: 19 percent of the larger economy that low tax rates foster or of the smaller GDP that high tax rates produce? The official CBO never has asked that question, as it has never acknowledged the Hauser Rule. \u00a0The shadow CBO I envision would incorporate the Hauser Rule into its projections and, through those projections, into the debate over tax rates?<\/p>\n
Today, thanks to bipartisanship, tax debates revolve around Fantasyland numbers that always seem to work to the same purpose. \u00a0They debunk the long-observed fact that tax rates have an impact on economic growth and so ignore the impact of rate changes on revenues. \u00a0For example, suggesting that Republicans have distorted the tax debate, Politico <\/em>last week reported the official-CBO finding that only two or three percent of small business owners would be affected by tax cuts on people making over $200,000 annually. \u00a0Job creation is a key economic reason for the GOP\u2019s tax stance. It is well documented that the bulk of small business jobs are created by two or three percent of small businesses, presumably the greater part of them in that same two or three percent that CBO fingered. \u00a0By making that link, a shadow CBO could change the tax debate entirely.<\/p>\n The point of a shadow CBO is not to produce estimates that are bi-partisan but estimates that are right. \u00a0It could help shift the burden of proof from those who call for taking account of the impact of rates on economic activity to those who, fantastically, resist.<\/p>\n An essential part of my proposal is that the shadow CBO would post its estimates, placing the official CBO\u2019s results along side, and then post the actual results of policy changes as they come out. \u00a0In other words, it would provide a tool for making the official CBO accountable for its accuracy, not just for achieving a political consensus. After all, if the shadow CBO repeatedly proves more accurate, the official CBO will have to change its methods or become irrelevant.<\/p>\n An old joke has it that an economist is one who sees something in practice and asks if it works in theory. \u00a0In a period of economic crisis, we cannot afford to work from political numbers that are right only in theory. \u00a0\u00a0Bipartisanship is one thing, when it leads to policies that are grounded in reality. \u00a0It is very different when it becomes a vehicle for willful delusion.<\/p>\n We are in a deep recession. \u00a0How do we get out of it? \u00a0That is the question of the day. \u00a0A shadow CBO \u2013 a Citizen\u2019s Budget Office \u2013 could help to lead the way.<\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":" Judging from the feedback, including a call from Fox Business, last week\u2019s column struck some kind of cord. \u00a0Everywhere I was asked about it, the same questions kept coming up. \u00a0So this week, I want to acknowledge those queries and give answers. As a reminder, the column called for creation of a shadow Congressional Budget […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[48],"tags":[12],"class_list":["post-787","post","type-post","status-publish","format-standard","hentry","category-us-debt-crisis","tag-hugh-hewitt"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.clarkjudge.org\/wordpress\/wp-json\/wp\/v2\/posts\/787","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.clarkjudge.org\/wordpress\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.clarkjudge.org\/wordpress\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.clarkjudge.org\/wordpress\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.clarkjudge.org\/wordpress\/wp-json\/wp\/v2\/comments?post=787"}],"version-history":[{"count":3,"href":"https:\/\/www.clarkjudge.org\/wordpress\/wp-json\/wp\/v2\/posts\/787\/revisions"}],"predecessor-version":[{"id":956,"href":"https:\/\/www.clarkjudge.org\/wordpress\/wp-json\/wp\/v2\/posts\/787\/revisions\/956"}],"wp:attachment":[{"href":"https:\/\/www.clarkjudge.org\/wordpress\/wp-json\/wp\/v2\/media?parent=787"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.clarkjudge.org\/wordpress\/wp-json\/wp\/v2\/categories?post=787"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.clarkjudge.org\/wordpress\/wp-json\/wp\/v2\/tags?post=787"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}