Aldona Robbins

Talks are underway about changing the way the CPI is computed, because it is believed that the current CPI index overstates inflation by as much as 1.1 percentage points. But if the CPI is lowered, it will result in reduced entitlement benefits but higher tax receipts to the federal goverment. Because of this "moral hazard," it is important that the CPI not be adjusted to suit political purposes, but rather to better reflect reality. This Policy Report explores the method and problems behind the CPI, and suggests remedies.

Articles include "The House Tax Package: A Good Deal?", "Fairy Tales: Fact and Fiction About Kids' Health Care", and "A Tax Deduction for Payroll Taxes." Facts on the Growth of Government: How Deregulation Creates Jobs.

The tax proposals approved by the House Ways and Means Committee give 75 percent of the individual tax cuts to taxpayers with less than $75,000 in adjusted gross income (AGI). Because they only pay 38% of all income taxes, this makes the tax package progressive. Contrary to those critics who believe this is a tax cut for the rich, the bill achieves a delicate balance between growth and political considerations. Though most of the tax cuts are directed at the middle class, growth generated by the bill would essentially offset the revenue loss over the next ten years.

Today, 40 percent of all workers with income tax returns pay more in payroll taxes than income taxes. That figure jumps to over 90 percent when the employer's share (also a part of employee compensation) is added. Under current law, payroll taxes withheld from workers' paychecks are counted as taxable wages--a tax on a tax. A proposal by Senator John Ashcroft (R-MO) would eliminate this double taxation by allowing workers an income tax deduction for their share of Social Security payroll taxes. Allowing this deduction would offer some relief, particularly for those with lower and middle incomes. It also would provide a modest boost to the economy and move in the same direction as broader-based tax reform, unlike the 'targeted' tax proposals such as child credits and tuition credits currently under consideration.

In his fiscal year 1998 budget, President Clinton has proposed a hodgepodge of targeted tax credits, tax deductions, tax cuts and tax increases. Problem is, the tax credits, tax deductions, and tax cuts have "sunset" provisions, meaning that if balanced budget goals are not achieved, they will expire in 2001. But--you guessed it--the tax increases go on indefinitely. There's no "sunset" for them if the budget balances.

Pro-growth tax cut proposals are sharply criticized as benefitting only "the rich." Often, the assaults of class warfare derail tax policies that would help boost economic growth and hence individual incomes. Our study shows that pro-growth tax cuts increase the incomes of the lowest income taxpayers by a greater percentage than anyone else, even "the rich." Because of this, the living standards of the lowest income taxpayers change for the better--more so than all other taxpayers. But to have such tax policy enacted will require abandoning class warfare rhetoric.

An analysis of the likely economic and budgetary effects of the major provisions demonstrates that targeting tax cuts is a move in the wrong direction.

This is a comprehensive examination of the Kennedy tax cut program, beginning with the changes in depreciation rules in 1962. The conclusion is that the Kennedy tax cuts clearly stimulated the incredible economic growth and job creation of the 1960s, despite the charges of recent critics. And economic growth only slowed when taxes began rising again toward the end of the decade.

Candidates Bob Dole and Jack Kemp have proposed a dramatic tax cut plan that is designed to stimulate increased economic growth, remedy the decline in the value of the dependent deduction, and reduce the punitive treatment of capital gains. An analysis demonstrates that the plan is likely to achieve its goals, and only requires a spending cut of less than 2% to pay for itself.

In this paper, economists Gary and Aldona Robbins describe in detail their dynamic revenue estimation model, and demonstrate several simulations to compare how dynamic analysis differs from static analysis. This paper is part of a project demonstrating ways that government estimators can build elements of dynamic analysis into their forecasting models, and contains an introduction by Senator John Ashcroft, and Rep. Tom Campbell.