Yesterday, in the context of the Tax Foundation’s score of the Tax Cuts and Jobs Act, the Washington Center for Equitable Growth published a partial critique by Greg Leiserson, Director of Tax Policy and Senior Economist, of the model the Tax Foundation uses to project the macroeconomic impact of tax legislation. We provided a copy of the analysis to Tax Foundation staff on Wednesday, November 8, the day before its release.
This critique made two key arguments:
- The Tax Foundation appears to incorrectly model the interaction between federal and state corporate income taxes, thus overstating the effect of statutory rate cuts.
- The Tax Foundation appears to treat the estate tax as an annual property tax paid by businesses, which results in inflated estimates of the effect of repealing the tax.
As noted in the original, this critique did not attempt a complete assessment of the Tax Foundation model, which would be impossible without greater knowledge of the equations that make up the model.
The Tax Foundation has since acknowledged that the interaction between federal and state corporate income taxes in its model is incorrect and stated that the flaw will be addressed. Accordingly, the organization reduced its projected growth figure for the Tax Cuts and Jobs Act. We appreciate the Tax Foundation’s prompt attention to this issue. Leiserson has provided additional technical assistance to help with the changes to the model necessary to correct the problem.
In addition, the Tax Foundation indicated that staff would be putting out a longer response that would provide greater detail on the modifications it made to the model in response to Leiserson’s first critique and would address the second issue he raised. As this latter issue potentially has an effect on the growth estimate of nearly 1 percent of gross domestic product, any changes could substantially affect the results of its analysis of pending tax legislation. We look forward to this additional analysis.