Capitol Hill Blue Forums Hot Topics & Breaking News News US budget deficit hits $984 billion, highest in 7 years

anywho...

…ctd:
2. This suggests that the impact of – most - changes to marginal tax rates on revenues is primarily a result not of direct taxing behavior, but, rather, an indirect result stemming from those changes’ impact on Growth. This means that the structure of changes in tax rates matters very much, since what you are trying to incentivize is production. A temporary tax rebate that lowers effective tax rates for a single year doesn’t change incentives, and doesn’t change long term behavior. George W. tried this to little-or-no effect in 2001 and again in 2008. Long-term rate changes, in contrast, do change incentive structures, and therefore can change long-term behaviors.

Different levels and kinds of taxes also demonstrate different levels of elasticity (responsiveness to changes). Changes in payroll taxes, for example, produce relatively less changes to the incentive to work (because they impact especially those who have little choice), whereas changes in capital gains or top marginal income rates produce relatively greater changes to incentives (because those activities are more easily shifted in response).

What this means for scoring tax rate changes is that tax policy can’t be scored in a vacuum if it is to be scored accurately (and this is the part that sucks because it makes actually scoring the dang thing an absolute nightmare of complicated and even complex interactions). Tax Rates have to share their impact with Regulatory Policy and exogenous factors.

An extreme example which shows the rule: The Kardashian Administration of 2036 decided to cut all taxes to a 20% flat rate of monies earned over 200% FPL (hooray!), got Congress to re-take regulatory law issuance (hooray!) and started automatically sunsetting aging regulatory structures unless Congress was willing to re-issue them under its own authority (hooray!). Growth is gonna do great!.

Unfortunately, Clone-Putin who had replaced Previous Putin 1.0 in Russia turned out to have some unrecognized brain damage, and he nuked the eastern seaboard. Net Impact of Government Actions on Revenues: +5, Net Impact of Exogenous Factors: -5,000,000.

A more relevant recent example of Exogenous impacts could include the development of the American Shale-Oil industry (major boon) in response to rising gas prices back in 2009-2010 (major not-so-boon). Tax Policy didn’t drive growth in that sector of the economy and any resulting revenues except to the degree that it either discouraged it or failed to discourage it.

Reductions to long-range tax rates such as the ones that the Trump Administration put into law, therefore, are:

A) not going to be the primary driver of changes to revenues unless they are the primary driver of changes in growth rates, which can happen.
B) Positive, but can be mitigated by other federal policies (such as, for example, a poorly-thought-out trade war), while also being:
C) Boosted by other federal policies (such as, for example, a predictable regulatory regime, (which, if I may respectfully point out, plays a major role in growth that the left does not like to discuss, because doing so would force them to deal with the point that their preferred policy roles for the government can have unintended negative consequences)), and also while being:
D) Impacted by exogenous factors (such as, for example, international growth slowing, driving capital to the United States markets).

TL/DR: This crap is really complex, which is why even the math and policy geniuses at the CBO are so often off.