Tag: tax foundation

Corp Tax: JCT Revenue Estimate Is Bad but CBO Analysis Is Good

I recently questioned two connected remarks by Wall Street Journal reporter Richard Rubin that (1) “Each percentage-point reduction in the 35% corporate tax rate cuts federal revenue by about $100 billion over a decade” and that (2) “independent analyses show economic growth can’t cover all the costs of rate cuts.”

That first remark–about each percentage-point reduction in the rate losing $100 billion over a decade–is an interpretation of pages 178-79 from a Congressional Budget Office (CBO) report on “Options for Reducing the Deficit.”

But the CBO was just talking about raising the corporate rate by one point, not cutting it 10-20 points. That can’t be converted into a rule of thumb because each percentage point reduction in the top corporate tax rate can’t lose the exact same amount of dollars. A percentage point reduction in a 35% rate loses more static revenue than a percentage point reduction in a 30% rate, which loses more than a percentage point reduction in a 25% rate, and so on. 

Yet even for a single percentage point, I called the $100 billion 10-year projection a “bad estimate” because it assumes zero change in the economy and zero change in tax avoidance (“elasticity”).

CBO corp tax baseline plus 1%

Getting Highway Numbers Right

“Gasoline taxes and tolls pay for only a third of state and local road spending,” claims a report released yesterday by the Tax Foundation, an independent, nonpartisan group. “The rest was financed out of general revenues.” According to the group’s calculations, users paid just $49 billion of the $155 billion cost of roads in 2010, the last year for which data are available.

I am the first to admit that highways are subsidized. But do subsidies cover more than two-thirds of the costs of roads? No way. The Tax Foundation, which strives to be “guided by the principles of sound tax policy: simplicity, neutrality, transparency, and stability,” is simply wrong.

First, the group counts federal aid to states as “general funds.” In fact, 100 percent of that federal aid comes from gas taxes and other user fees such as taxes on large trucks and tires.

According to the Federal Highway Adminitration’s Highway Statistics table HF-10, the feds collected $35 billion in gas taxes in 2010, of which $29 billion was given to the states for roads. For some reason, the Tax Foundation counts state gas taxes as user fees, it doesn’t count federal gas taxes as user fees.