How to Measure the Revenue Impact of Changes in Tax Rates

Publication Date: September 2002

Publisher: Heritage Foundation (Washington, D.C.)

Author(s): Daniel J. Mitchell

Research Area: Banking and finance; Economics

Keywords: Taxes

Type: Report

Abstract:

To get America growing again, tax policy will have to change. In the short term, immediate tax rate reductions are needed to boost growth; in the long term, the entire tax code should be replaced by a simple, flat tax. Unfortunately, these pro-growth changes will be harder to achieve if revenue estimators continue to use outdated and inaccurate static models. Dynamic revenue estimates, by contrast, would provide policymakers with more accurate information. Dynamic forecasting is based on a proper understanding of how the economy works, and history has shown this approach to be far more realistic.