Policy Report

The Alternative Minimum Tax, or AMT, is an inefficient, expensive to administer portion of the federal tax code. It began in 1969 to ensure that every taxpayer paid some tax by disallowing certain tax deductions if they reduced tax liability beneath a certain level. Today, it does not even accomplish that goal. Right now, it impacts a relatively small amount of taxpayers, but in the next 10 years, one of every 14 taxpayers will be ensnared by the AMT--and the government is counting on it. They've already factored this into the rosy budget surplus scenarios.

The Food and Drug Administration (FDA) after David Kessler is a much more powerful bureaucracy with more intrusive control over the medical industry than ever before. Author Dr. Robert Goldberg quotes Dr. essler's own writing: 'If members of our society were empowered to make their own decisions about the entire range of products for which the FDA has responsibility, however, then the whole rationale for the agency would cease to exist.' Dr Goldberg concludes, 'It would be a mistake to assume that it would be possible to reinvent the FDA by appointing a new commissioner. Kessler's use of power set a standard and transformed the way the FDA operates.'

Talks are underway about changing the way the CPI is computed, because it is believed that the current CPI index overstates inflation by as much as 1.1 percentage points. But if the CPI is lowered, it will result in reduced entitlement benefits but higher tax receipts to the federal goverment. Because of this "moral hazard," it is important that the CPI not be adjusted to suit political purposes, but rather to better reflect reality. This Policy Report explores the method and problems behind the CPI, and suggests remedies.

Among the most persistent of political myths is the assumption that the 1981 Reagan tax rate reductions caused the massive and persistent federal budget deficits of the 1980s. In reality, out-of-control deficits were created when Congress dramatically increased government spending after the 1981 tax cuts. The entire deficit by 1985 was a product of drastically increased spending. Based on this myth that the 1981 tax cuts were responsible for large persistent federal deficits, more than 500 economists signed their name to a statement opposing 1996 Republican Presidential challenger Robert Dole's proposed 15 percent across-the-board tax rate reductions. They were all wrong.

Today, 40 percent of all workers with income tax returns pay more in payroll taxes than income taxes. That figure jumps to over 90 percent when the employer's share (also a part of employee compensation) is added. Under current law, payroll taxes withheld from workers' paychecks are counted as taxable wages--a tax on a tax. A proposal by Senator John Ashcroft (R-MO) would eliminate this double taxation by allowing workers an income tax deduction for their share of Social Security payroll taxes. Allowing this deduction would offer some relief, particularly for those with lower and middle incomes. It also would provide a modest boost to the economy and move in the same direction as broader-based tax reform, unlike the 'targeted' tax proposals such as child credits and tuition credits currently under consideration.

Pro-growth tax cut proposals are sharply criticized as benefitting only "the rich." Often, the assaults of class warfare derail tax policies that would help boost economic growth and hence individual incomes. Our study shows that pro-growth tax cuts increase the incomes of the lowest income taxpayers by a greater percentage than anyone else, even "the rich." Because of this, the living standards of the lowest income taxpayers change for the better--more so than all other taxpayers. But to have such tax policy enacted will require abandoning class warfare rhetoric.

In this report, economist Stephen Moore compares the budget requests of presidents Gerald Ford through Bill Clinton. Among the interesting findings are these: (1) The bulk of the deficit that built up during the Reagan administration was due to Congressional appropriations, not Reagan budget requests. Had Reagan's vetos been upheld, and his recissions honored, the deficit would have been significantly lower; and (2) that Bill Clinton is the first president in a generation to outspend Congress, outspending both the Democrat 103rd Congress, and the Republican 104th Congress.

In this paper, economists Gary and Aldona Robbins describe in detail their dynamic revenue estimation model, and demonstrate several simulations to compare how dynamic analysis differs from static analysis. This paper is part of a project demonstrating ways that government estimators can build elements of dynamic analysis into their forecasting models, and contains an introduction by Senator John Ashcroft, and Rep. Tom Campbell.

The Institute for Policy Innovation and the Alexis de Tocqueville Institution asked leading experts on government regulation for examples of the worst government regulations. The result is a rogue's gallery of the worst examples of government regulation based on pork politics, bad science, bureacratic inefficiency, and invasion of privacy. All are candidates for the newly-instituted Corrections Day calendar.

In recent months the news has been filled with reports of sluggish economic growth and the problems such inadequate growth causes, such as declining personal income, corporate layoffs, etc. But how did the economy get in this shape, and is there anything we can do about it? In this report economist Stephen Moore documents the change in fiscal policy that has taken place under Presidents Bush and Clinton, and contrasts the results of this change with the economic results experienced during the 1980s under President Reagan. The result is a strong case for a return to the supply-side policies of the 1980s.