There has been considerable discussion about the corporate tax system in the U.S. and the IRS’s global reach in the media over the past year. The rash of corporate inversions was the catalyst for the public discussion of...
- The Tax Policy Blog
- How Far we are from the Enlightenment
How Far we are from the Enlightenment
Bill Gale, co-author of the famous Tax Policy Center study that finds it is “mathematically impossible” to lower tax rates as Romney proposes without reducing revenue, elaborates on the central reasoning behind that study:
“Suppose Governor Romney said that he wants to drive a car from Boston to Los Angeles in 15 hours. And suppose some analysts employed tools of arithmetic to conclude that "If Governor Romney wants to drive from Boston to LA in 15 hours, it is mathematically impossible to avoid speeding." After all, the drive from LA to Boston is about 3,000 miles, so to take only 15 hours would require an average of 200 miles per hour. Certainly other road trips are possible -- but the particular one proposed here is not.”
Bill Gale just equated the certainty of the distance between Boston and LA with the certainty that future taxpayers will respond to changes in tax rates in the precise way that he describes. I’m reminded of what Adam Smith said about the “man of system”:
“He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse [sic] to impress upon it. If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably, and the society must be at all times in the highest degree of disorder.”
Predicting future human behavior is not simply about arithmetic, it is about economics and it is full of uncertainty. We have produced our own estimates of the effects of Romney’s plan, and they are very different from TPC’s. While we think our methods are more grounded in economics, and so do other economists, we must admit our predictions are likely to be less than perfectly accurate.
Follow William McBride on Twitter @EconoWill
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