Response to Washington Center for Equitable Growth Tax Model Critique

Yesterday, Greg Leiserson of the Washington Center for Equitable Growth contacted the Tax Foundation about a possible error in the Tax Foundation’s economic model relating to the interaction between federal and state taxes.

Upon examination, we discovered that the formula for the service price of capital in the Tax Foundation’s model contained an erroneous term relating to the interaction between federal and state taxes.

We have updated the Tax Foundation’s model to correct for this error. All future Tax Foundation estimates will be based on the corrected service price formula.

We are working on correcting the Tax Foundation’s estimates of the effects of the House Tax Cuts and Jobs Act. From a preliminary examination, we expect that correcting this error will lower the Tax Foundation’s estimate of the effect of the House Tax Cuts and Jobs Act on long-run GDP from 3.9% to approximately 3.6%.

The Tax Foundation is grateful for all constructive feedback on its estimates, and will continue to strive to estimate the economic, revenue, and distributional effects of tax changes with the greatest accuracy possible.