News Release

December 17, 2002

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Tax Policy-Writing Plagued by Incorrect and Biased Figures
Tax expert proposes changes to ensure accurate revenue estimates

WASHINGTON -- The data that Congress use when writing new tax policy are biased and provide policymakers with inaccurate and incomplete revenue estimates, according to a Policy Analysis released today by the Cato Institute.

In "Reforming the Federal Tax Policy Process," David R. Burton, principal in the Argus Group, a Virginia law and government relations firm, details 13 needed reforms of the procedures used by the U.S. Department of the Treasury and the congressional Joint Committee on Taxation (JCT). The changes he suggests would increase the accuracy of the estimates, improve transparency of the process, and create more oversight in the development of tax policy.

Burton argues that the JCT and the Treasury's Office of Tax Analysis (OTA) need to use dynamic models to predict tax revenue, rather than the one-dimensional, static models currently employed. "Major changes in marginal tax rates substantially affect economic activity and create powerful feedback effects on federal revenue," he writes. "Yet those real world economic feedback effects are generally ignored by JCT and OTA estimates." Consequently, he argues, their estimates are often wrong.

Burton presents six other modifications to tax revenue estimates, such as improving the calculations behind distribution tables and including tax compliance cost estimates in official analyses.

He additionally notes that the closed process in which the estimates are made "results in inferior analysis being provided to policymakers because the process is not subject to critiques by outside experts." Finally, Burton proposes new supervision of the JCT and OTA by introducing a separate oversight board and economics staff outside of the organizations.

"Changing the tax policy system so that policymakers are provided with more accurate and complete information will make it easier to enact economically sound tax policies," concludes Burton.

"Reforming the Federal Tax Policy Process"