RandomGuy
02-19-2016, 01:17 PM
FWIW
This week, the Tax Policy Center — a well-regarded non-partisan think tank — issued a report saying that Ted Cruz’s tax plan would cost the government $8.6 trillion over the next 10 years. Which is fine, except that back in October, the Tax Foundation — a well-regarded nonpartisan think tank — looked at the same plan and estimated it would cost $768 billion. Even in the world of federal budgets, a $8 trillion gap is a lot of money.
Meanwhile, on the Democratic side of the race, a fight broke out among economists over the likely impact of Bernie Sanders’s tax and spending plans. Others have covered the battle in more depth, but the short version is that Gerald Friedman, a University of Massachusetts economist who has consulted for the Sanders campaign,1 released a report estimating that Sanders’s proposals would create millions of new jobs, increase household incomes by tens of thousands of dollars and boost the overall size of the economy by more than a third. (The Sanders campaign has embraced Friedman’s analysis. According to The Washington Post’s Jim Tankersley, however, Friedman is not planning on voting for Sanders.) Mainstream Democratic economists responded by saying, more or less, “You’ve got to be kidding me”; former Obama administration economic adviser Austan Goolsbee likened the Sanders plan to “magic flying puppies with winning Lotto tickets tied to their collars.” The Tax Foundation, for its part, estimates the Sanders proposals would shrink the economy by nearly 10 percent over the long term.
If the supposed experts can’t even agree on the direction of a plan’s impact, is there any hope for a normal voter? Yes — but it helps to understand a few things about how experts reach these estimates, and why they differ so widely.
First, this week’s jumbled headlines notwithstanding, there is actually a lot that the experts do agree on. The Republican plans, especially Donald Trump’s, would reduce federal revenues by trillions of dollars. Sanders’s plan would increase both taxing and spending by trillions (the disagreement surrounds whether the new taxes would pay for all the new spending).
Second, most of the disagreement among experts is about the broader economic impact of the various plans, not the plans themselves. Here’s what I mean by that: Figuring out how much extra money a tweak to the tax code would bring in, or how much a new policy would cost, is relatively straightforward. This is what is known as “static” analysis — taken in isolation, how would these plans change things? Economists can usually agree on an answer, or at least come close. (Emphasis on “usually.” Some proposals, such as Sanders’s single-payer health system or Cruz’s value-added tax, are so dramatic that experts reach wildly different estimates of their impact.)
The trouble is, these plans don’t exist in isolation: Changes in tax policy have far-reaching ripple effects on the economy. In theory, there is little doubt that we should try to take such “dynamic effects” into account, but in practice there is often significant disagreement among economists about how exactly to do so. The Tax Foundation, which tends to lean to the right, thinks the tax increases that Sanders is proposing will slow the economy, further reducing tax receipts (since there will be less money to tax) and making the revenue impact look larger than it would under a static model. Friedman, at UMass, thinks the extra government spending that Sanders is proposing will speed up the economy, making the plan less expensive than it looks at first.2
Unfortunately, the Tax Policy Center — which, despite some criticism from Republicans in the last presidential race, is probably the closest thing out there to a neutral observer — doesn’t produce dynamic estimates. But its well-regarded static estimates can still be a useful baseline. Take the TPC’s recent analysis of Rubio’s tax plan, which the center concluded would reduce federal revenue by $6.8 trillion over 10 years, or about 2.6 percent of economic output. That’s close to half of all discretionary spending. Think of that as a worst-case scenario for Rubio. The Tax Foundation’s dynamic analysis — which concludes Rubio’s plan would cut revenues by $2.4 trillion, or about 1 percent of economic output — is, if not a best-case scenario, then at least an optimistic one. (The range of credible outcomes is wider for Cruz’s plan because it has more moving parts.)
Not all points along that spectrum of possible outcomes are equally plausible, of course. Most mainstream economists think Friedman’s analysis of Sanders’s plan is based on unrealistic assumptions — and I tend to agree. (Economists have directed their harshest criticism at Friedman’s analysis, not at the Sanders plan itself, much of which is basically a more aggressive version fairly standard liberal policies.) But that doesn’t mean mainstream economists are right. At a certain point, voters still have to decide who they believe.
http://fivethirtyeight.com/features/no-one-can-agree-how-much-the-presidential-candidates-tax-plans-will-cost/
This week, the Tax Policy Center — a well-regarded non-partisan think tank — issued a report saying that Ted Cruz’s tax plan would cost the government $8.6 trillion over the next 10 years. Which is fine, except that back in October, the Tax Foundation — a well-regarded nonpartisan think tank — looked at the same plan and estimated it would cost $768 billion. Even in the world of federal budgets, a $8 trillion gap is a lot of money.
Meanwhile, on the Democratic side of the race, a fight broke out among economists over the likely impact of Bernie Sanders’s tax and spending plans. Others have covered the battle in more depth, but the short version is that Gerald Friedman, a University of Massachusetts economist who has consulted for the Sanders campaign,1 released a report estimating that Sanders’s proposals would create millions of new jobs, increase household incomes by tens of thousands of dollars and boost the overall size of the economy by more than a third. (The Sanders campaign has embraced Friedman’s analysis. According to The Washington Post’s Jim Tankersley, however, Friedman is not planning on voting for Sanders.) Mainstream Democratic economists responded by saying, more or less, “You’ve got to be kidding me”; former Obama administration economic adviser Austan Goolsbee likened the Sanders plan to “magic flying puppies with winning Lotto tickets tied to their collars.” The Tax Foundation, for its part, estimates the Sanders proposals would shrink the economy by nearly 10 percent over the long term.
If the supposed experts can’t even agree on the direction of a plan’s impact, is there any hope for a normal voter? Yes — but it helps to understand a few things about how experts reach these estimates, and why they differ so widely.
First, this week’s jumbled headlines notwithstanding, there is actually a lot that the experts do agree on. The Republican plans, especially Donald Trump’s, would reduce federal revenues by trillions of dollars. Sanders’s plan would increase both taxing and spending by trillions (the disagreement surrounds whether the new taxes would pay for all the new spending).
Second, most of the disagreement among experts is about the broader economic impact of the various plans, not the plans themselves. Here’s what I mean by that: Figuring out how much extra money a tweak to the tax code would bring in, or how much a new policy would cost, is relatively straightforward. This is what is known as “static” analysis — taken in isolation, how would these plans change things? Economists can usually agree on an answer, or at least come close. (Emphasis on “usually.” Some proposals, such as Sanders’s single-payer health system or Cruz’s value-added tax, are so dramatic that experts reach wildly different estimates of their impact.)
The trouble is, these plans don’t exist in isolation: Changes in tax policy have far-reaching ripple effects on the economy. In theory, there is little doubt that we should try to take such “dynamic effects” into account, but in practice there is often significant disagreement among economists about how exactly to do so. The Tax Foundation, which tends to lean to the right, thinks the tax increases that Sanders is proposing will slow the economy, further reducing tax receipts (since there will be less money to tax) and making the revenue impact look larger than it would under a static model. Friedman, at UMass, thinks the extra government spending that Sanders is proposing will speed up the economy, making the plan less expensive than it looks at first.2
Unfortunately, the Tax Policy Center — which, despite some criticism from Republicans in the last presidential race, is probably the closest thing out there to a neutral observer — doesn’t produce dynamic estimates. But its well-regarded static estimates can still be a useful baseline. Take the TPC’s recent analysis of Rubio’s tax plan, which the center concluded would reduce federal revenue by $6.8 trillion over 10 years, or about 2.6 percent of economic output. That’s close to half of all discretionary spending. Think of that as a worst-case scenario for Rubio. The Tax Foundation’s dynamic analysis — which concludes Rubio’s plan would cut revenues by $2.4 trillion, or about 1 percent of economic output — is, if not a best-case scenario, then at least an optimistic one. (The range of credible outcomes is wider for Cruz’s plan because it has more moving parts.)
Not all points along that spectrum of possible outcomes are equally plausible, of course. Most mainstream economists think Friedman’s analysis of Sanders’s plan is based on unrealistic assumptions — and I tend to agree. (Economists have directed their harshest criticism at Friedman’s analysis, not at the Sanders plan itself, much of which is basically a more aggressive version fairly standard liberal policies.) But that doesn’t mean mainstream economists are right. At a certain point, voters still have to decide who they believe.
http://fivethirtyeight.com/features/no-one-can-agree-how-much-the-presidential-candidates-tax-plans-will-cost/