It’s a relief to be able to take a far less negative tone in my second piece addressing aspects of the 2017 act than in my first.
In the particular context of the 2017 act, suppose all that one changed was to base the centrally reported dynamic score numbers on gross national product (GNP), rather than gross domestic product (GDP). That would focus attention on the change in Americans’ wealth, rather than on growth in the U.S. economy without regard to how much of the value being produced was owned by foreigners. That would be no less “dynamic” a score. What is more, neither GNP or GDP is inherently a better measure. – it depends entirely on what one wants to know. But in context this would likely have been less misleading, as consumers of the dynamic score, and the growth effects it suggested, probably implicitly assumed that it was all to the benefit of U.S. individuals.
This brings me back to the point that dynamic scoring was pushed by people on the right as a weaponized tool to favor their side in the tax cut debate. This point is not contradicted by dynamic scoring’s having arguments in its favor, and indeed potentially improving information with regard to the particular narrow questions that it addresses.
This in turn calls less for rejecting it than recalibrating its use and seeking other tools to give greater prominence instead. These should both aim to supply useful information and to counter pervasive short-termism in the political budget process (possibly through different and complementary measures).
But a further question of interest is the following. Great, the right has had a shot at weaponizing the instruments used in budget debate in order to tilt the budgetary battlefield in its favor. Suppose people on the left wanted to do the same thing, only in their favor. Then what sorts of measures might they urge Congress, along with other information providers, to emphasize?
Here are three ideas that emerged from discussions that I had in relation to the colloquium. (I am putting it this way to minimize taking undue personal credit for ideas I got from other people, while also not directly reporting on the colloquium discussion, which was off the record.) None is anywhere close to fully formed or ready for primetime. They are rather possible directions for further thinking.
Idea #1 – dynamic scoring for growth-promoting public spending – For example, educational and infrastructure investment could have budget estimates that reduce the net cost by taking account of expected productivity gains and (perhaps separately) the tax revenue consequences of productivity gains.
Idea #2 – a measure that focuses on how tax changes affect inequality. This might be focused on high-end inequality (and separately on low-end inequality), and could take a number of different forms.
I don’t think that a Gini-style composite measure is at all useful here. It both conflates two quite distinct issues – high-end and low-end inequality – and is too bloodless and technocratic-looking.
Instead, some sort of measure that looks at gains to the top 1% and the top 0.1%. This could be put in a number of different ways, but the point is to have something that combines good optics with being intellectually defensible to focus attention on plutocrats’ gains from 2017-style tax changes.
Idea #3 – middle-class tax impact: Suppose one were to assume that unfunded tax cuts (or, say, income tax cuts) will be offset at some point by income tax increases, and that the latter will be proportionate to the different income percentiles’ shares of overall federal tax (or income tax) liability after adoption of the tax cuts. Hence, anything that cut taxes disproportionately for people at the top, a la the 2017 tax act, would be shown as increasing middle class taxes once the tax cut was funded in the specified manner.
In each of these cases, accurate information would actually have been provided. (In case 3, this pertains to the particular set of questions being asked, whether or not it’s true that the funding for the tax cut would definitely take that form.) So, no less than dynamic scoring, both may expand the information that policymakers have, only with a rather different focus on what questions are being asked.
Given that these ideas are still so preliminary and unformed, let me close here by making a more general point. This is not a matter of right or wrong – political players have every reason to try to tilt the process in their own favor – but I believe Republicans have, for decades, been much more active than Democrats in trying to shift the rules of various ongoing poltical games in their favor – whether we’re talking about districting, campaign finance, voting restrictions, budget rules, or budgetary information. This has led to asymmetric warfare that one could blame, if one is so inclined, more on the Democrats than on the Republicans.
Democrats ought as a matter of self-interest to address this. In the budgetary realm in particular, one thing they ought to do, if they take control of Congress in 2018 or later, is change the budgetary and information reporting rules, and much else as well, in their favor. It’s how the game is played these days. Dynamic scoring, other ways of doing dynamic scoring, and budgetary and information-providing rules more generally (in tax and elsewhere) are areas that they would be poring over carefully, if they were smart, in search of places to take advantage.
If the so-called wave emerges later this year, we will see if any of this actually happens.
But let’s start here with why one might want to do dynamic scoring. By saying that “one” might want to do it, I am abstracting for a moment from the political process, in which dynamic scoring is a weaponized tool pushed by those on the political right to advance their own subjective policy preferences, to ask only why it might be of interest to good faith players who wanted more and better information, even absent that entire side of things.
To set things straight from the start, conventional revenue estimates, no less than “dynamic” ones, are completely dynamic in a microeconomic sense. They build in, for example, the point that, if one doubled tax preferences for solar panels on people’s roofs, there would likely be a supply side response (more $$ spent by more people on such panels). What conventional revenue estimates treat as fixed is the macroeconomic side of things – aggregate labor supply, savings, available capital, etc.
Now, those things are not in fact fixed. They can change in response to a tax change, at least if it’s big enough and has some direct impact on them. So in principle one ought to take those things into account.
Suppose, for example, that the 2017 tax act actually would have paid in full for itself. That would have been worth knowing. And even if it, say, one-third pays for itself, that, too, is worth knowing.
Suppose further that members of Congress ask the staff: At what level do you project 2020 GDP, (a) without vs. (b) with a particular tax bill’s being enacted? It’s a reasonable question to ask, and one that merits a fully informed answer. But this brings us to the various “buts” regarding dynamic scoring, especially as practiced.
An iniital point is sharp dissensus among macroeconomic models. But that of course doesn’t mean we should have no such estimates, it just means they should be handled with care and that there should probably be multiple forecasts presented. (But JCT was instead told to provide a single operative estimate this time around.)
A second, more telling point, is that estimators are being asked to forecast incompletely specified policies. A budget forecast should be forward-looking for two reasons. One is that we should care about the future. The second is that actual economic actors may be forward-looking, so what they do may reflect their expectations about the future.
When there’s a preexisting fiscal gap, and a giant tax cut would make it even worse (even building in today’s actors’ expectations), the actual full set of policies, including the consequences of the set of pay-fors, remains unspecified. Now, this does not entirely defeat one’s making estimates about what will happen over the next ten years if the announced policies remain in force. But it creates a set of discontinuities – inside vs. outside the budget window, and announced vs. as yet unannounced policies – that can be misleading to policymakers and the public even if the 10-year forecast is accurate.
If there’s one fundamental political economy problem in budget policymaking, other than power imbalances and disregard for the interests of the less powerful, it’s short-termism. Politicians and voters want good stuff now without due regard for the nation’s future. (This is the subject, for example, of James Buchanan and Robert Wagner’s famous book, Democracy in Deficit.)
Dynamic scoring, when added to a budget window, accentuates short-termism. (One could reasonably argue, however, that the underlying problem is more about the budget window than dynamic scoring as such.) It gets back to the question that, as I noted in my prior post, policymakers might reasonably want to ask their staff: What would a given tax bill do, say, to GDP in 2 or 3 years? Revenue-losing tax bills such as the 2017 act have a tendency to increase short-term GDP growth in exchange for lowering it in the long run, due to fiscal crowdout. So while one ought to supply the information, one makes the political process worse if the result is to increase focus on the short term at the expense of the long term.
To put it another way, budget rules aren’t just about the quantum of information, they’re also about relative emphasis (as well as imposing specific constraints in particular cases, although the dynamic score was not used that way in 2017). Dynamic scoring as used – not necessarily, as an inherent conceptual thing – accentuates short-termism, when arguably the single most important thing that budget rules and scoring methodologies should do, apart from just supplying information, is to counter short-termism.
What happens if one puts dynamic scoring at the center of the process, and cares only about net revenue cost and GDP growth within the 10-year window? It’s possible that this would lead to one’s deriving the result that GDP would be the highest if federal revenue went all the way to zero – i.e., no taxes whatsoever.
To put it more precisely, the only way that wouldn’t be true is if crowd-out within the ten year period from having no tax revenues whatsoever, hence skyrocketing public debt and annual interest charges, sufficiently suppressed growth within the 10-year period by reason of crowd-out. Now this might happen in the forecast, even if estimators didn’t decide that they needed to consider modeling a full-blown fiscal crisis inside the budget window.
But there’s still a sense in which the wrong question (at least as a matter of emphasis) is being asked. If one centrally relies on dynamic scoring PLUS exclusive focus on the 10-year budget window, the optimal level of taxation appears to be that which would be optimal if (a) one had to pay interest charges and deal with crowd-out within the 10-year period, but also (b) at the end of 10 years, one got to cancel the public debt run-up – settle it for zero -without this having been anticipated or having adverse effects afterwards.
That is obviously not a sensible way to approach actual budget policy. As the Leiserson paper convincingly shows, dynamic scoring – again, conditioned on how it is being used, not necessarily in the abstract as one tool among dozens – creates bias in favor of ever larger tax cuts without offering any clue as to the fact that diminishing government revenues adversely affects people who therefore either get less from the federal government, now or in the future, or else end up paying more taxes later due to new enactments.
One last perspective that I want to offer with regard to dynamic scoring is its having been used as a “weaponized” tool in the federal budget and tax policy wars, and its not being the only possible weaponized tool, in support of the only existing interests, that one could imagine. But I will leave that point for a separate post that is to follow shortly.
At the session, Greg Leiserson of the Washington Center for Equitable Growth presented his very timely paper, “Removing the free lunch from dynamic scores: Reconciling the scoring perspective with the optimal tax perspective.”
Obviously, this paper comes in the immediate aftermath of the enactment of the 2017 tax act, in which “dynamic scoring” played what I would call a quasi-prominent role. I modify “prominent” with “quasi” because:
1) the regular score, not the dynamic score, was the one that ended up being used to measure compliance with the budget rule capping the revenue loss at $1.5 trillion,
2) due to the rushed process, the Joint Committee on Taxation wasn’t able to issue its dynamic score until late in the process, when the end result was verging on fixed and certain. So it doesn’t seem to have had any direct influence on what happened. Plus, once the score came out, showing an estimated dynamic revenue loss of about $1 trillion, Senate Republicans promptly rejected it for no good reason, based purely on their supposed intuitions.
Nonetheless, the score did matter atmospherically in a couple of ways that may linger. For one, it actually rebutted claims that the act would pay for itself, and even come close for doing so. For another, it did indeed predict a significant, albeit inadequate, growth response to the tax cuts, which it showed as reducing the revenue cost by about one-third.
As it happens, there are many reasons why I and others think that the $1 trillion dynamic revenue score was way too optimistic. Just as a starting point to motivate viewing it as very contingent, it’s based on weighted combinations of three radically different forecasting models, without disclosure as to what each of those models separately showed. JCT really hasn’t disclosed very much regarding the inputs to the dynamic aspect. But that says nothing as such about too low versus too high, except insofar as one might draw inferences from the extreme pressure JCT was under from its bosses to lean towards optimism, at least to the degree consistent with its incentive to limit harm to its own institutional reputation.
My reasons for thinking the score was probably too low, not too high, are as follows:
1) I think their regular score was too low, reflecting insufficient adjustment for the massive tax planning opportunities that the act has encouraged and that we will be reading about in the newspapers within a year or two, if not sooner.
2) There are several reasons for thinking the dynamic adjustments were too high. Perhaps the most important is that the model is based on assuming that other countries won’t respond by lowering corporate tax rates in response to what we’ve done. That’s an extremely unrealistic assumption, adopted solely because it’s outside their models to build in how other countries are likely to respond. But just because that’s hard to model (or outside their models) doesn’t mean it isn’t both likely and important.
3) My prior would have been to lean towards the Penn-Wharton budget model, which came out a bit higher.
All this is just background for Greg Leiserson’s paper. He is interested in dynamic scoring as an approach, not (for purposes of this paper) in whether the estimators got it right. He raises important challenges to what he calls the emerging consensus on how dynamic scoring is (and ostensibly should be) done. But I will save this set of issues for my next post.
One theme that has emerged is that states can encourage charitable giving by taxpayers, to causes that the states will help fund, in lieu of direct state and local tax deductibility. E.g., taxpayers can give donations to state entities, perhaps serving particular purposes, that are creditable (in whole or large part) against, say, one’s state income tax liability.
It occurs to me that proponents of examining this response (including me) have at times not been charitable enough to themselves regarding how this effort should be described.
Suppose a state offers 95% credits against state income tax liability, for contributions to state-run charitable entities that serve broad “silos” that are dedicated to different purposes – healthcare, housing, education, infrastructure, public safety, etc. And suppose the amounts are indeed dedicated, such as via a “trust fund” methodology, to the indicated purposes, although annual spending levels may be constrained to, say, 100% or 105% of the amount the legislature had separately designated for spending in the areas that these silos represent.
As I and others have been discussing, there is a risk of the IRS making “substance over form” challenges to these efforts, under the view that the state-creditable charitable contributions are “really” just re-labeled state and local tax payments.
But consider Point #1: If you build enough economic substance into it, it works. The analogy to economic substance in business deals is important, because there one typically has to have a pretax profit motive and business purpose. Here, we are talking about what people want to do about issues that they care about from a charitable standpoint. So just as in the famous Learned Hand quote about no one having an obligation to pay more federal income tax than is due, here it’s okay that one was mindful of the federal income tax benefits of doing it this way, so long as there was indeed charitable purpose and charitable substance to what the taxpayer did. (Meaning here the donor, but he or she will be responding to the institutional setup that the state government has decided to offer.)
Then there is Point #2: There is absolutely no reason to think of this as trying to end-run the limit on state and local tax deductibility. Rather, it is about serving the objectives that were previously served by tax-funded state and local government spending. It’s about advancing healthcare, public safety, education, etcetera, via the best mechanisms available, which is partly a function of how Congress has decided to structure federal income tax deductibility.
If (1) Congress decides to continue granting deductions for charitable contributions that advance public goals, but to limit state and local income tax deductions (above the $10K level) that could fund spending advancing the same goals, and (2) states and individuals restructure so that they are now doing things the way that Congress apparently likes, rather than the way that it apparently (at least relatively) dislikes, they aren’t avoiding Congressional intent – they are fulfilling it.
To say that one was just looking for end runs would be both inaccurate and unfair to the actual motivations that are at work. What’s really at issue here is the underlying objectives (healthcare, public safety, infrastructure, income support, etcetera). It is not the use of one means versus another as an end in itself. What Congress has addressed is the use of one means versus another, and proponents of restructuring state charitable credits are taking it at its word, and seeking to do what it has encouraged them to do, in the way that it has encouraged them to do it.
Just for the record, as all are good friends and outstanding members of the field, they are: Joe Bankman, David Gamage, Jacob Goldin, Daniel Hemel, Darien Shanske, Kirk Stark, Dennis Ventry, and Manoj Viswanathan.
The piece addresses the issue of what state governments can do to address the repeal of state and local income and property tax deductibility by individuals above the first $10,000. Plus, it addresses whether the federal government should respond, either administratively or legislatively, to such state government responses.
In particular, the question presented is whether states can tax-effectively rely on charitable contribution credits against state tax liability, and thereby permit their own taxpayers who take advantage to claim federal charitable deductions.
To illustrate the basic idea, suppose I would pay New York State (and New York City) $100,000 of income taxes if I did nothing differently in the future than I have in the past. But now suppose that I can reduce my New York State and City income tax liability, dollar-for-dollar, by making charitable contributions to designated state and local government entities. E.g., I give $90,000 in such contributions, and thereby reduce my remaining liability to $10,000 that falls within the deduction limit.
For this to offer maximum benefit, the income taxes would need to be provide 100% credits against such liability for particular donations. There are already some such provisions in existing state and local income tax law, however, as the article documents in its appendix. And these have generally been held, by case law and/or administrative rulings (with and without express precedential effect), to work for federal income tax purposes. That is, one gets the full charitable deductions contribution for the amount one paid that was 100% creditable against state and/or local income tax liability.
There are two main legal obstacles to success of this gambit under federal income tax law.* The first is allowance of the full federal charitable deduction despite any issue regarding the state tax law benefit that one garnered by reason of making the charitable contribution. By analogy, suppose I gave $100 to NPR and got a bookbag that is worth $20. Then my federal charitable deduction would be limited to $80, i.e., to the gift minus the offsetting benefit. So legal question #1 in the above scenario is whether my federal charitable deduction would be offset by the value of the state income tax saving.
The second main federal legal obstacle to success is substance over form doctrine. Am I actually, in substance as this question is analyzed for federal income tax purposes, making a charitable contribution, rather than simply relabeling my state income tax liability?
The first main point that the article makes is that current legal authority, both from cases and IRS administrative pronouncements, strongly supports what it calls the “Full Deduction Rule.” This rule holds that “the amount of the donor’s charitable contribution is not reduced by the value of state tax benefits.” In short, legal obstacle #1 as described above should not prevent the relabeling from working. As a matter of formal legal analysis, the main point here is that the state and local income tax liability doesn’t actually exist until one fully applies the pertinent law. So the fact that the income tax liability never arose, due to the credit, means that there was no legally cognizable benefit. Again, the article shows that this line of reasoning has repeatedly been upheld.
The second main point that the article makes is that there are good policy rationales in favor of continuing to allow the Full Deduction Rule to apply. E.g., does one draw the line at 100% credits? Should charitable deductions generally be reduced for the value of state and local charitable deductions? Must taxpayers always compute alternative state liabilities with and without the credits? Etc. Plus, the article argues that the Full Deduction Rule serves important federalism values and is consistent with decades of federal tax policymaking. Hence, “Congress should tread carefully if it seeks to alter the Full Deduction Rule by statute.”
I find these arguments convincing. But there is still the issue, not addressed by the article as it would require a much longer and largely distinct analysis, of the circumstances in which 100% (or lesser) credits against state and local income tax liability, for charitable contributions to particular state entities, would have economic substance.
Here is a preliminary thought of mine regarding one way of establishing the requisite economic substance. Key word here is preliminary: A lot of people need to weigh in on this, regarding both federal income tax law and state and local government practicalities.
Suppose a state government offers large buckets to which one can charitably designate one’s charitable contributions that generate a 100% credit against the tax liability. E.g., Medicaid and Public Health; Schools; Infrastructure, etc. Suppose there were 4 or 5 buckets and that one could get a 100% credit for up to X% of one’s state income tax liability by making such designated contributions, but that no more than Y% could go to any one bucket.
The state government would still determine overall annual spending in each category, which wouldn’t be directly affected by taxpayers’ charitable contribution designations. (NOTE – these contributions probably should be required to be paid separately and prior to the state tax itself – not by designation on the state income tax return.)
So where’s the economic substance? Point #1, I get to decide where “my” dollars, as opposed to someone else’s, go. Many people actually care about this, as a matter of subjective psychological fact.
But what if the designations to a given category exceed what the state wants to spend on that category? Simple. The state designates those extra $$ as notionally in a “trust fund” that it currently pledges WILL be spent on that budgetary purpose in the future. Consider the analogy to the Social Security Trust Fund. My FICA payroll taxes ostensibly “will” be spent at some point on paying Social Security benefits. Now, budget aficionados may think this doesn’t really mean much. But actual voters and taxpayers, and perhaps even the U.S. Congress, actually do think it matters. So who are we to second-guess them? (Especially as they may be correct in the sense of the Trust Fund’s affecting likely future political outcomes.)
Hence we get Point #2 for economic substance. My, say, Medicaid-designated contributions WILL, the state now pledges, be spent on Medicaid or other public health either this year in the future. A trust fund pre-commits them to be spent in this way. Sure, the state could change the law next year and take back the promise without recourse on the donor’s part. But, just as in the case of the Social Security Trust Fund, the donor gets the benefit of the political force, if any, that the designation might have in the future. Plus, the state legislators are getting what they might deem valuable information about taxpayer sentiment.
Do others agree with the economic substance analysis that I offer here? Are there other features that they’d deem important? Can states make this workable for themselves and their taxpayers, without undue inconvenience on either side? I am hoping that others will address these issues as well.
* Extra challenges may arise making this practically workable in the case of (a) local as well as state income tax liability, and (b) property taxes that often are paid to a smallish local government unit.
Plus, I have other academic writing interests that, at the moment, grab me a bit more. My book about literature and high-end inequality is # 1 in this regard, but I’m also writing a short paper about the destination-based cash flow tax on a short time fuse.
That paper will be based on the various versions of slides that I’ve posted in the past, such as here, but it will be much more focused on the academic literature than on last year’s Republican House proposal, which I would presume is politically dead. My main point is that academics should move on from it, too – it’s a multi-instrument package, and each of the instruments is worth taking seriously, but the packaging serves no good purpose and should be dropped, as it only confuses even experts who should know better.
A couple of months ago, I wrote a first draft of a short international tax paper, which I haven’t posted or submitted anywhere. It’s now partly obsolete due to the new 2017 tax bill. But that’s actually a good thing, even from the comically self-centered standpoint of a writer with sunk costs. I felt a bit bored at times writing the piece, not always a recipe for one’s best work (although I think it has some good features), and I now have something fresh to put into it, i.e., responding to the new international rules in light of the framework that I use in the piece, which is based on my past international work.
So I have given myself homework for the holidays, in the form of printing out the international provisions in the final bill and conference report (I’m still old-fashioned enough to prefer paper for non-casual reading that is long-form), plus a few associated items that will help me think about them. And I plan to take more of a deep dive over the next couple of weeks than I have so far.
My initial sense of the international tax rules in the final bill is that they are less bad than the other features I have been discussing. That’s a pretty low bar, of course, when one has been thinking about the passthrough rules. But a couple of points in favor of the new international rules, compared to the bill’s worse elements are:
1) They started from what everyone agrees is really bad present law. (By contrast, the passthrough rules gratuitously screwed up something that was previously working fine, i.e., the absence of any such rules.) This inevitably affects a fair assessment of whether they have made things worse. Case in point, they’ve created incentives to move assets abroad, but under present law one may already have such incentives.
2) One thing that’s distressed me elsewhere in the bill is frequent lack of concern about tax avoidance, where that’s defined as taxpayers getting favorable results that don’t follow from a good faith policy aim. Case in point is not trying to limit exploitation of the 21% corporate rate by personal service corporations and the like. People incorporating so they can get the low rate for their labor income is NOT part of any reasonable rationale for lowering the corporate rate in response to international tax competition. Then, in the passthrough rules, while they make some effort to limit the ability of some service professionals to take advantage, the whole thing is so unprincipled to begin with that I’ve noted that I can’t see what the concept of undue tax avoidance even means there, unless one defines it as people and industries that the Republicans like versus those that they don’t like.
International is different. The extent to which they wanted to address tax avoidance seems clearly to have been greater than zero. Whether it’s adequate or well-executed is another question, but at least we are starting here from a higher baseline.
I also note that they seem to have at least gestured towards, and perhaps even implemented to a degree, a couple of ideas that I have been pushing in international tax policy debate. The first is steering away from what I call a 100% MRR (marginal reimbursement rate) for foreign taxes paid. Foreign tax credits that are allowable immediately are only one mechanism for having a 100% MRR in practice. Global “minimum tax” rules can also have this effect, as can anti-base erosion rules in some settings where they focus either directly or indirectly on shifting foreign income to tax havens.
A second idea that I’ve been pushing, and that I believe the bill reflects (but will have to study it more carefully) is that one’s base erosion rules shouldn’t over-rely on domestic residence. Prior U.S. international tax law, even if it did too little overall about base erosion, did too much of what it did via the subpart F rules, which only apply to U.S. companies with foreign subsidiaries. The ability to have controlled foreign corporation (CFC) rules, like our subpart F, for domestic companies but not foreign companies means that one can do more to address (and fine-tune one’s addressing) base erosion by the domestic than the foreign. This creates a tradeoff, in that one may want to take advantage of the extra tools where one can, but there may otherwise be no reason to treat the residents worse than the nonresidents. Again, there appears to be some of this in the new rules, perhaps reflecting the political ease of going after foreign relative to domestic multinationals.
Some of the biggest defects in the new international rules may be multilateral or strategic. Obviously there is the treaty issue that Rebecca Kysar has been writing about, and that we discussed in both Games 1 and Games 2. Plus there are strategic issues: even insofar as doing X benefits the U.S. unilaterally – i.e., in the case where it doesn’t change what anyone else does – what if other strategic players actually do respond to us? The prospect of both imitation and retaliation can affect how we think about taking a given step, keeping in mind that the question here is how others change what they do by reason of what we did.
So there’s a lot for me to think about, but I do think I will end up sounding more measured, simply because a measured (even if in some respects critical) response seems more likely to be deserved.
Anyway, if I can bear to read all this stuff over the holidays – and, if not, I’ll do it in early January – then I will have some updates on what I think about it, eventually I’d presume in academic writing but initially here.
My name is Yon Yonson
I live in Wisconsin
I work in a lumberyard there
The people I meet when I walk down the street
Ask my name and I say:
My name is Yon Yonson
I live in Wisconsin
I work in a lumberyard there
[ETCETERA AD INFINITUM]
In the aftermath of the 2017 tax act, I think we are ready for a new version. But I am still working on the fifth line. Here’s what I have so far:
My name is Ron Johnson
I represent Wisconsin
My millions from passthroughs are there
The people I meet when I walk down the street
Ask which senator threatened to vote against the tax bill unless tax benefits for passthroughs were expanded, and I say:
My name is Ron Johnson
I represent Wisconsin
My millions from passthroughs are there
[ETCETERA AD INFINITUM]
Suppose a lot more people incorporate than the Joint Committee on Taxation anticipated when it scored the legislation. Then the overall revenue losses will be even bigger than the JCT predicted. But “corporate” revenue will be higher than forecast, due to the unanticipatedly high shifts.
One thing you can be certain of, if this happens: proponents of fake and overstated “dynamic” scoring will cherry-pick this number, and claim that it vindicates them. In short, an oversight that loses revenue will be treated by them as evidence that tax cuts actually do raise revenue. Of course, this requires staying tightly focused on corporate revenues, not overall revenues, but I am sure that this constraint will prove no difficulty.
Any good academic study of the revenue effects of the 2017 bill will, of course, take this issue into account. But competent and good-faith academic studies are not what I am talking about here.
UPDATE: BTW, this point was made to me by the WSJ’s Richard Rubin. Didn’t want to mention him by name without his approval.