Baker fellow testifies before Congress

Baker fellow testifies before Congress

BY FRANZ BROTZEN
Rice News staff

Deciding how best to measure tax revenues might not be the most provocative thing the U.S. Congress does, but it could have a significant effect on most people’s pocketbooks.

John Diamond, the Edward A. and Hermena Hancock Kelly Fellow in Tax Policy at the James A. Baker III Institute for Public Policy, testified
Sept. 13 before the U.S. House Budget Committee looking into how budgetary choices affect work, saving and growth.

It was Diamond’s first time to speak to a congressional committee.

“We were joking [before the hearing] that this would be a real sleeper,” he recalled. “But all the members were really interested. There is a movement to reform the budget process.”

http://budget.house.gov/hearings.htm

At a Sept. 13 hearing in Washington, John Diamond offers his opinions to members of the U.S. House Budget Committee on how best to estimate budget projections. Diamond is the Edward A. and Hermena Hancock Kelly Fellow on Tax Policy at the James A. Baker III Institute for Public Policy.

The subject of the hearing was what method to use to estimate budget projections into the future. “The controversy,” Diamond said, “is how those estimates are done.”
Conventional methods assume macroeconomic aggregates, like gross domestic product, are fixed — an assumption that has an effect on revenue estimates over the 10-year budget window. Some economists are pushing the Joint Committee on Taxation and the Congressional Budget Office, which look at the cost of tax and spending proposals, respectively, to adopt “dynamic scoring.” This would allow for macroeconomic effects to be included in revenue estimates, giving policymakers a more nuanced view of what impact their decisions could have.

Diamond argued before the Budget Committee that “dynamic scoring is theoretically preferred to the current budget-scoring process.” But he cautioned, “Many questions remain about how best to implement a consistent and practical framework that allows macroeconomic effects to be in included in the budget process.
“I’m not against it,” he said. “I just don’t think we’re there yet.”

Diamond told the committee members he preferred a halfway measure known as “dynamic analysis.” This method would include information about macroeconomic factors but would also “highlight the inherent uncertainty involved in estimating the macroeconomic effects of various policy initiatives.”

Because this involves Congress, there is a partisan element to the debate. “It’s safe to say almost everyone is for dynamic analysis,” Diamond said. But many Republicans support going all the way to dynamic scoring because it tends to reflect better on proposed tax cuts, he said.

Diamond emphasized that his role at the hearing was to offer his opinion without regard to political considerations. “To the best of my ability, I give them the best information possible,” he said. “If they listen to it – that’s up to them.”