Vice President Dick Cheney is energetically carrying the supply-side banner forward by insisting the bureaucrats perform "dynamic analysis" to properly estimate the effects of changing federal tax policy. In his address to the Conservative Political Action Conference in Washington recently, Cheney began to push back against decades of bureaucratic inertia when he put the bureaucracy on notice that the days of "static analysis" are coming to an end:
"The president's tax policies have strengthened the economy, as we knew they would. And despite forecasts to the contrary, the tax cuts have translated into higher federal revenues. To take just one example, in 2003 the Joint Committee on Taxation in the Congress projected, or scored, a fall-off in capital gains tax revenues in 2004 and 2005. In fact, since the 2003 capital gains tax rate was reduced to 15 percent, tax revenues from capital gains have been up substantially."
Back at the White House, President Bush set into motion a re-examination of the bureaucracy's estimating methods by requesting $513,000 from the Congress to establish a six-person office at the Treasury Department to subject major tax proposals to dynamic analysis. At the Treasury Department, a statement was released saying, "Dynamic analysis, which incorporates the full gamut of behavioral responses, including how tax policy changes affect total output, has the advantage of emphasizing the economic benefits of many of the president's tax policy initiatives."
Bravo! After decades of the Washington Establishment's ignoring the dynamic effects of tax policy changes on the economy, the Bush administration has finally made a commitment to getting economic and revenue estimates correct. As the Treasury statement pointed out, "Dynamic analysis will also help frame the public dialogue on tax reform by highlighting its economic benefits."
To appreciate just how wrong Washington bureaucrats have been over the years with their static revenue estimating methodology, check out the section on dynamic scoring at the Web site of the Institute for Policy Innovation, which houses more than 40 examples of dynamic scoring in action.