Opinion Editorial | |
| Monday, February 2, 1998 | |
Different Ways of Counting Federal Revenues Complicate Tax Cuts |
In a recent speech, House Ways & Means Committee Chairman Bill Archer
proposed limiting federal revenue to 19 percent of gross domestic product
(GDP). With revenues currently at 19.9 percent, this would require a tax
cut of more than $70 billion this year alone. Archer's proposal is a good one, but unfortunately will be far more difficult
to implement than he imagines. For one thing, it is not at all clear what
federal revenues actually are. Archer's data are based on figures compiled
by the Office of Management and Budget (OMB). They show that in fiscal
year 1997, which ended on September 30, 1997, the federal government collected
$1,579 billion. However, the Department of Commerce also collects data on federal revenues
that are quite different from OMB's (see figure). These data are compiled
as part of the U.S. National Income and Product Accounts, which is where
the GDP statistics come from. Commerce collects federal revenue data in
a way that is more consistent with the way GDP is computed. According to
Commerce, the federal government collected $1,692 billion in fiscal year
1997, $113 billion more than OMB calculated. The difference between OMB's and Commerce's figures are detailed in the
federal budget each year. The biggest differences have to do with the treatment
of nontax government receipts, such as Medicare Part B premiums. Commerce
counts these as government revenues, while OMB treats them as "offsetting
receipts" or negative spending. The impact on the deficit is the same,
but Commerce would show the government with higher receipts while OMB would
show it with lower spending. Another important difference between Commerce and OMB is in their treatment
of taxes the government pays to itself, such as the employer's share of
Social Security taxes on federal employees. OMB does not count such taxes
at all, while Commerce does. Of course, there is also a problem in calculating GDP. The data are
frequently revised, sometimes significantly, which can either raise or lower
receipts as a share of GDP even when receipts are known with accuracy.
Moreover, policymakers usually must rely on estimates of future revenues
and GDP when making policy. Unfortunately, recent experience has shown
that these can be very unreliable. All of this indicates that the simple notion of limiting revenues as
a share of GDP is not as simple as it sounds. Even if Congress and the
White House are sincere in their desire to do so, they must still figure
out exactly what a receipt is and find a much better way of estimating both
receipts and GDP. Otherwise, the effort may founder on the rocks of inaccuracy
and imprecision. Source: Bruce Bartlett (senior fellow, National Center for Policy Analysis),
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