Thursday, July 29, 2010
Following up on last week's post, WSJ: Washington's Tax Oracles and Revenue Estimates (July 21, 2010): Calvin H. Johnson (Texas) has published a letter to the editor in today's Wall Street Journal, It's Hard to Predict the Future, Especially About Taxes:
I think that the Journal is on to something on revenue estimates from spot changes to the Internal Revenue Service code ("Washington's Tax Oracles," Review & Outlook, July 21). Taxpayers flock to a new loophole in ways current statistics available to the Joint Committee on Taxation cannot pick up, so the revenue loss from a new opening exceeds the estimate. Taxpayers also find ways around loophole closing.
But you have the effect mixed up. Overestimating the gain from closing loopholes means Congress does not raise revenue as much as it needs to. It declares it will win, and goes home too early. Underestimating the losses from opening a new loophole means that Congress explodes the deficit when it just thinks it is giving a little item for some constituent. The effect of not taking into account tax planning means a greater deficit and more of a head-in-the-sand attitude. The errors lead to lower taxes than we need to cover the deficit and bigger loopholes. The errors thus, if true, create not a bigger government, but less responsibility in paying for it.