September 6, 1978
Page 27980
Mr. MUSKIE. Mr. President, I thank the majority leader for his thoughtful statement both with respect to the condition of the economy, as he views it, and the relevance of the budget resolution before us to those circumstances.
His statement is a further indication of his commitment and dedication to the budget process and the attempt to make Congress a full partner in the establishment and development of fiscal policy, and especially as it relates to the other instruments for Government influence on economic conditions.
In his presence I wish to express my gratitude to him for the support of myself, Senator BELLMON, the budget process, and the often frustrating, from the point of the leadership, procedures which could starve and delay action on the floor, but which, with the cooperation of his excellent Policy Committee staff headed by Tom Hart, I think has worked very smoothly to minimize delay without denigrating the procedures. I want to say "thank you," to him for that at this point.
Mr. ROBERT C. BYRD. I thank the able chairman of the Budget Committee.
Mr. MUSKIE. Mr. President, I ask unanimous consent that Rhona Weaver of Senator BUMPERS' staff have the privilege of the floor during the consideration of this resolution, as well as Karen Mandan of Senator CRANSTON's staff.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. MUSKIE. Mr. President, I would be remiss if I did not at this point express my appreciation to and extend my compliments to the Congressional Budget Office, headed by Alice Rivlin. The Congressional Budget Office has steadily improved in its capacity to serve the needs of the Budget Committees of the House and the Senate, as well as the Senate as a whole.
I am most grateful for the expertise, insights, information, and analyses which they have produced for us, and I would like to say "thank-you" to them at this point for that service.
Mr. BELLMON. Mr. President, will the Senator yield?
Mr. MUSKIE. Yes, I yield.
Mr. BELLMON. Mr. President, I would simply like to join the chairman of the Budget Committee in paying tribute to the Congressional Budget Office. They have been an invaluable resource. We simply could not have made the budget process work as well as it has without their help and, as the chairman has said, they have become more and more proficient as the years have gone by, and they are now an absolutely invaluable resource for the Congress, and I am sure as time passes they will become even more so.
Mr. MUSKIE. Mr. President, I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The assistant legislative clerk proceeded to call the roll.
Mr. MUSKIE. Mr. President, I ask unanimous consent that the order for the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. MUSKIE. Mr. President, I yield my colleague from Maine (Mr. HATHAWAY) such time as he may require.
Mr. HATHAWAY. I thank my distinguished colleague for yielding.
Mr. President, I just wanted to ask a few questions and make a comment in regard to the second budget resolution.
First, I am concerned about the size of the recommended tax reduction and the revenue estimates which underlie it. It is my understanding that the second budget resolution assumes, first, a reduction of $8.2 billion to accommodate extension through fiscal year 1979 of temporary income tax reductions; second, additional general income tax reductions to become effective on January 1, 1979, which would reduce revenue collections by $14 billion during the fiscal year; and, third, structural tax law changes which, together, would reduce fiscal year 1979 revenues by $1.2 billion.
Furthermore, the resolution provides that the $14.0 billion of general income tax reductions representing $19.4 billion of reductions on a full-year basis become effective on January 1, 1979, 3 months after the beginning of the fiscal year. The first resolution assumed a $19.4 billion annual reduction made effective January 1, 1979, which would reduce fiscal year 1979 revenues by $15.0 billion. I understand that the $1.0 billion smaller fiscal year 1979 revenue loss for the second resolution general reductions represents a CBO reestimate of the extent to which a full-year tax reduction is reflected in the tax collections for the first 9 months of the annual period.
The report on the second resolution states that:
The Committee assumed an expansion of $0.5 billion in refundable earned income credits payable to recipients in excess of their tax liabilities. The Committee believes that contemporaneous expansion of non-refundable earned income credits which reduce recipients' income tax liabilities is to be accommodated as part of the tax reductions allowed for in the Second Budget Resolution.
Now, all of these tax changes are anticipated to result in total revenue collections of about $447 billion in fiscal year 1979, rising to $726 billion in fiscal year 1983.
There has been a great deal of speculation concerning revenue estimates after tax changes are made. I understand that generally, only the first tier affects, that is, without so-called "feedback" are taken into account in the initial revenue loss projections. Is this correct?
Mr. MUSKIE. My colleague has raised an important issue, Mr. President, with respect to the techniques employed in estimating the impact of tax legislation on Federal revenue collections. Some of the questions relate particularly to possible proposed changes in capital gains taxation.
I believe some clarification is necessary as to the methods currently used to calculate the revenue effects of tax legislation.
For all tax bills estimators calculate the extent to which revenue collections will change if the legislation had no other effects on the economy or on taxpayer behavior. Apparently, there is some belief that this type of so-called static estimate is the only type of estimate used in conjunction with tax legislation. That is the point which the Senator's question raises.
In fact, two different types of secondary effects or feedback effects are taken into account by estimators:
First, estimates of aggregate budget receipts made for budget resolutions take into account additional receipts resulting from the impact of the overall level of tax reductions assumed in those resolutions. These additional receipts are the feedback from the increased economic activity which results from providing taxpayers in the aggregate with increased after-tax income to spend. Estimates for specific, particular tax law changes do not include feedback effects for these general changes in overall economic activity. To include them would be to count their effects twice.
On the other hand, and now I sound like my good friend Senator HOLLINGS' typical economist, secondary or feedback effects that reflect specific behavioral changes have been taken into account by revenue estimators in recent years when there is some degree of consensus on the part of the experts as to what the behavioral effects of such changes are likely to be.
However, it often is extremely difficult for experts to agree on the likely secondary behavioral effects of the same tax law changes. In some cases, however, these assumptions are made. For example, when new tax expenditures are developed, assumptions are made as to the likely level of their usage, as, for example, the use of recently proposed tax credits for home heating insulation. So, occasionally, behavioral effects and secondary effects are taken into account. but even then only if a consensus among expert estimators is developed.