CBO Plays “Let’s Pretend” on Kerry–Lieberman Scoring

David Kreutzer / July 08, 2010

Here’s a principles-of-economics question: Suppose the U.S. gross domestic product (national income) is currently $14 trillion. Then suppose the U.S. raised all tariff, income tax, and sales tax rates to 100 percent. How much money would the government collect? If you realized that nobody would generate taxable income under such a regime and answered “zero,” congratulations.

If, instead, you answered $14 trillion, you may have a future at the Congressional Budget Office (CBO), because that is how they analyze (score) the fiscal impacts of the Kerry–Lieberman climate change bill. In defense of the many good economists at the CBO, the Kabuki Theater of legislation-scoring requires they use static analysis—that is, they have to assume that higher tax rates do not affect investment or work-effort decisions and, therefore, have no negative impact on national income and income-tax revenues. (more…)