Projecting results of tax policy
Opinion Journal: Congress has a dreadful record predicting the economic impact of its policies, in part because it relies on computer models that are as reliable as tarot cards. So it's a good sign that before going on recess a majority of the Senate endorsed "dynamic scoring" of changes in tax law. For decades the official forecasters at the Congressional Budget Office and Joint Committee on Taxation have assumed that changes in tax rates have little impact on how businesses and households behave or on the competitiveness of the U.S. economy. In this alternative universe, people work nearly as much at a 60% income tax rate as they do with a 30% rate, and investors don't care all that much if the tax on capital gains is 15% or 30%. This often leads to crazy results. In January 2003, for example, the modelers predicted that capital gains revenues would be $68 billion in 2006 and $73 billion in 2007. In May 2003 Congress cut the capital gains tax rate to 15% from 20%,...