NCPA


Policy Issues

NCPA Publications

Both Sides

Editorial Opinions

Audio/Visual


NATIONAL CENTER FOR POLICY ANALYSIS
HOME / DONATE / ONE LEVEL UP / ABOUT NCPA / CONTACT US
CBO Report Doesn't Make the Grade
Daily Policy Digest

Tax Issues / Tax legislation

Wednesday, January 09, 2002
There is an old joke about some people who fell down a well. When they were unable to climb out, the economist among them said, "Assume a ladder."

A recent example of this can be found in a new paper by the Congressional Budget Office, "Economic Stimulus: Evaluating Proposed Changes in Tax Policy."

The purpose of the CBO paper is to grade various tax proposals to increase economic growth in the short-run. Since it deals only with tax initiatives, monetary policy is ignored, as are proposals for increased government spending. Moreover, the initiatives examined are not necessarily real proposals, in the sense that there is actual legislation that is being seriously pushed by the White House or the leadership in Congress.

More seriously, the CBO analysis assumes away all of the implementation problems of the proposals that it analyzes.

  • Thus the CBO rates a payroll tax holiday highest in terms of its "bang for the buck," although the National Payroll Consortium found that it would take up to 6 months for payroll systems to accommodate it.
  • For this reason, the Democratic staff of the Joint Economic Committee gives the payroll tax holiday low grades for stimulus.
  • The CBO also says that a sales tax holiday has merit, although there is no national sales tax to suspend.
By focusing only on the short-term and grading proposals mainly on their static budgetary effect, the CBO implicitly endorses proposals that it knows will be bad for growth in the long-term.

At this point in the business cycle, it makes more sense for the federal government to forget about short-term stimulus altogether, and just focus on sustaining the economic recovery that is already visible on the horizon.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, January 9, 2002.

For text
http://www.ncpa.org/edo/bb/2002/bb010902.html

For CBO report
http://www.cbo.gov/
showdoc.cfm?index=3251&sequence=0&from=7

For more on Tax legislation
http://www.ncpa.org/iss/tax/
12770 Coit Rd., Suite 800 - Dallas, TX 75251-1339 - 972/386-6272 - Fax 972/386-0924
601 Pennsylvania Ave. NW, Suite 900 South Building - Washington, DC 20004 - 202/220-3082 - Fax 202/220-3096
Copyright © 2002 National Center for Policy Analysis - All rights reserved.