Director of Federal Fiscal Policy
Rep. Kevin Brady, who chairs the Joint Economic Committee, argued in the Wall Street Journal recently that the distribution estimates which the Joint Committee on Taxation (JCT) and the Tax Policy Center (TPC) produce on how tax proposals would affect different income groups have “serious limitations.” Brady essentially implied such estimates should be downplayed or ignored in crafting tax-reform legislation.
Brady’s criticisms, however, are far off base. And JCT and TPC distribution estimates are critical to a tax-reform process.
At this time of wide and rising income inequality, tax reform shouldn’t make the tax code less progressive. In the same vein, fiscal commission co-chairs Erskine Bowles and Alan Simpson have made it a core principle of their work that deficit reduction must increase or maintain the tax code’s progressivity. They used detailed TPC estimates to try to ensure their proposals met that test.
Chairman Brady tosses out a litany of ill-considered complaints. He says that JCT and TPC distribution tables do not include all of the information relevant to assessing tax reform proposals. That is true, but irrelevant: no single set of tables could. Distribution tables are one of the key pieces of information that policymakers need, and other essential information for evaluating tax-reform proposals and options also is readily available to policymakers from JCT and TPC.
Brady also claims that distribution tables simplistically show taxpayers only by broad income category “without regard to other factors.” In fact, both JCT and TPC provide information for different types of households (e.g., married, single, with and without children, and elderly).
Chairman Brady also complains that distribution tables ignore the changing tax burden of income groups over time. But TPC and the Congressional Budget Office (a non-partisan agency like JCT) do produce estimates of the changes over a number of years in the share of taxes that the different groups have paid as well as changes in effective tax rates. Furthermore, when assessing proposed tax changes, TPC and JCT routinely produce estimates for more than one year. JCT provides the effects of a tax change for every other year throughout the ten-year budget window.
Brady also contends that the distribution tables aren’t meaningful because they show average, rather than median, income and tax burden figures for each income category. Medians and averages do show different data, and they can be misused, as we have noted ourselves. But, Brady is wrong to suggest that the large differences between averages and medians that show up when one looks at the entire U.S. population undermine confidence in distribution tables that divide the population into smaller income categories.
Brady also attacks the JCT and TPC tables on the grounds that the percentage of filers within any income group who are at the exact average for the group is very small. This is another observation that is true but irrelevant. (Moreover, this is just as true for median figures as for averages.) Although neither the average income and tax burden nor the median figures will apply to every household in an income category, such figures give policymakers essential information on the broad impact of tax policies on people within different income ranges.
Finally, Chairman Brady asserts that the “most important defect” of the distribution tables is that they don’t reflect the growth effects of tax reform. That’s true — and appropriate. The official revenue estimates of tax changes exclude so-called “dynamic” effects, because the macroeconomic estimates of the effects of tax changes are highly uncertain.
As CBPP’s Paul Van de Water has explained, “Economists don’t agree on the size of macroeconomic feedbacks from reducing marginal income tax rates or other tax changes.” Incorporating highly uncertain macroeconomic effects — either in revenue or distribution estimates — would undermine the credibility of the estimates and of the budget process itself. “[B]ecause the estimates of macroeconomic feedbacks are so uncertain,” Van de Water warns, “observers would almost surely view the revenue estimates on which they are based as biased and politically motivated.”
We’d certainly favor more information, particularly on distribution issues. But policymakers should not let Chairman Brady’s overblown concerns and distorted descriptions convince them that JCT and TPC distribution data are fundamentally flawed and should be ignored. Distribution estimates are critical to tax reform efforts, and the information that JCT and TPC give policymakers is solid — and very important.