I have made mention before of the disparities between the Congressional Budget Office’s (CBO) Joint Committee on Taxation (JCT) and the Office of Management and Budget (OMB). The JCT is a body which scores tax policy for the impact of changes to the taxation system. Needless to say they are a very busy group. Unfortunately they are attached to the CBO, the unfortunate part being that first initial—Congressional. It has become more and more clear that the financial obfuscation of “fair” and “balanced” tax policy, the “cost” of programs, and the necessity to “offset” costs with increases in tax, is really a cover for providing to the Congress-critters with a financial toybox—one which allows them to dispense their largess in return for re-election, secular power and the enhancement of their self-importance.

How can one be sure of this? The JCT has always utilized static models of taxation. These models implicitly assume that taxpayer behavior is held constant when evaluating changes to the tax system. Thus Laffer and other economists who point out, correctly, that taxation policy drives consumer and corporate behavior, are completely ignored. This static model is the same one that predicted larger than actual deficits on the basis of the Bush tax cuts. The static model was completely wrong in predicting the impact of these cuts on the economy, both nationally and to the States . Any reasonable person should be able to connect their microbehavior in the face of tax policy with the macro results of that same policy. How many of us sock a few extra bucks into the ole IRA account in January? This is clearly policy driven behavior.

The problem, of course, is that the dependent variable is related to the rate of change of that dependent variable—i.e. the equation is not linear, it folds upon itself. In all probablity, there are many equations like this all coupled together relating tax impact with rax rates. Now, as some know (aeronautical engineers for instance), this is not unlike the basic equations governing flight. Writing a flight model for the simulation of an aircraft basically involves solving twenty or so non-linear second and third order differential equations. So people know how to do these things. And even when the coefficients are not evident, Kalman filters allow these to be derived. And the result is that aircraft simulators are so refined that when the simulation differs from the aircraft performance, they check the aircraft to see what went wrong.

Over at the White House, the OMB economists apparently get this. In all fairness, I expect that the JCT people get this also, but they have to work for those aforementioned Congress-critters. Either they can’t explain it to the Senators and Representatives because it is beyond 8th grade math, or they can’t explain it because they would have a first-hand view of the effect of unemployment financial impact.

Bush has proposed to restructure the $250 billion of annual federal tax subsidies on employer-sponsored health insurance by treating it as taxable income and then capping a deduction at $15,000 per family. This would provide incentive funding for uninsured and low income workers. The Democrats have declared it to be a non-starter and Congress refused to even consider the program. The JCT has scored the plan and estimated that it would save over $333 billion over the next ten years (The first JCT estimate was $526 billion.) The revenue windfall would be enough to fund millions of $5,000 healthcare vouchers to the low income and underemployed.

So why do the Democrats who support universal health care attack such a plan? Maybe because it’s a Bush plan? The OMB economists suggest that the program will save 3% or $60 billion per year on heath care expenses (Close to the JCT original estimate). The plan would equalize the tax treatment of heath care funding at the basic level and create more accountability by asking consumers to actually pay attention to what their plans cost. Estimates are that an additional 10 million people would obtain new heath insurance under the plan. This would be a positive first step in rationalizing the current health care system.

But under the current Congress, JCT has suggested that modifying the taxation policy in this manner would have no impact on health care consumption. Congress refuses to investigate the plan. So based on such denial of the obvious, what agenda exists to support this behavior. Perhaps it is that the plan would allow the American people and not the government to control their health care spending. Perhaps it’s those fat campaign contributions from HMOs and drug conglomerates. Whatever the underlying reason, clearly when their own JCT predicts a cost savings using their static model, the basis for “fair” and “balanced” tax impact is not the issue. Or…

Power corrupts, and absolute power is actually pretty neat..