Wednesday, September 23, 2020

CBO Director Swagel testifies on the budget

Congressional Budget Office Director Phillip Swagel testified before the Senate Budget Committee today on the CBO's 2020 Long-Term Budget Outlook, which was released earlier this week.

Links here for the written testimony and video of the hearing.

Here's an exchange from near the end of the hearing, where Swagel describes certain assumptions that the CBO uses in its projections. 

Senator Mike Braun: In the modeling that you use to come up with predictions on what raising, lowering taxes would do, I'm assuming it's a dynamic system that does reflect that when you raise taxes it generally, as a rule, is going to depress economic growth. Do your models incorporate that?

Director Swagel: Yes, they do. We look at the details of the tax, so a higher tax on capital for example would mean a lower return to investment. We would have less investment, less saving, that would affect the capital stock. Similarly, a higher tax on wage income would affect people's willingness to work, and that would affect the economy as well.

At the same time, JPMorgan's Jamie Dimon pushed for higher taxes on "well-to-do people" like himself, saying they would not slow down growth. His assertion is supported by the academic literature. For example, in Optimal Taxation of Labor Incomes in 2014, Thomas Piketty, Emmanuel Saez, and Stefanie Stantcheva showed that cutting tax rates for top earners did not lead to higher economic growth.

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