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32 Tax Features 1 (1988)

handle is hein.tera/taxfeaturs0032 and id is 1 raw text is: TAX FOUNDATION'S VOL. 32, NO. 1 JANUARY 1988 TAX. FATUR Slow Growth, Modest Inflation Seen By Conference Board Economist for 1988 U.S. Endures Two Decades of Accelerating Tax Legislation; Wobbling in Federal Policy The 22-year span between 1964 and 1986 has witnessed the most frequent and dramatic changes in the Federal tax system in history. Congress has enacted 16 major tax bills and doz- ens of lesser bills affecting Federal revenue lev- els. Of the 14 major tax acts presented in Table 1, five have, on balance, increased revenues, eight reduced them, and one, the Tax Reform Act of 1986 is estimated to be revenue neutral over the five-year period of 1987-91. The revenue amounts involved in these tax acts range from an estimat- ed fiscal year reduction of $309 billion in 1990 under the original Economic Recovery Tax Act of 1981 (ERTA) to an estimated $60 billion increase in the same fiscal year under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA). The individual, corporate, and total Federal revenue impact of major enacted legislation since 1964 appear in Table 1. Here the budget result of each tax act is presented in isolation without netting the effects of subsequent legislation. The total revenue impact includes all taxes and mis- cellaneous receipts and is also presented as a percentage of gross national product (GNP). The Office of Management and Budget prepares the budget effect revenue estimates each fiscal year for the purposes of the budget presentation. They measure only the direct effect of tax legislative changes on receipts, with feedback effect lim- ited to the overall income forecast and its impact on receipts by major source. Unlike the original legislative intent estimates, budget effect esti- mates reflect actual economic experience or revi- sions in the economic forecast. Tax Reductions The Revenue Act of 1964 and the Economic Recovery Tax Act of 1981 were by far the largest (Continued on page 2) Economic Outlook for 1988 The forecast has some good news and some THIS bad news, economist Edgar R. Fiedler told ISSUE: some 275 attendees at the Tax Foundation's 39th National Conference in New York December 2. PAGE 1: Fiedler, Vice President and Economic Counselor Conference of The Conference Board, keynoted the confer- ence's morning session with the traditional eco- Recent Tax nomic forecast for the coming year. Paul H. History O'Neill, President and Chief Executive Officer of Alcoa and a member of the Tax Foundation's PAGE 3: Shadow Committee on the Federal Budget, Budget chaired the session. Watch The good news, Fiedler observed, is no re- PAGE 5: cession and no accelerating in the current 4 per- Front cent inflation rate. The bad news is that neither I Burner nor any of my fellow forecasters has any confi- INSERT: dence in this forecast. Even in the best of Discouraging times, forecasting is a hazardous profession,he Tax Package noted, adding, This is the worst of times. The Conference Board's number one economist advised the corpo- rate executives attending the Conference, Keep your powder dry. That is, keep your company's plans flexible, ready to switch to a strategy suitable for either a weaker or a stronger economy in 1988 as the unfolding statistics reveal it, because right now, you can't trust your forecaster. Nevertheless, Fiedler dutifully provided estimates of the major eco- nomic indicators for 1988, including: 2 percent increase in real GNP, 4 percent inflation, unemployment rising from about 6 percent now to 6 1/4 percent, or a little more, by the end of 1988, and interest rates not moving very much. My own bet would be that interest rates will go up from here rather than go down, but not very far, he said. Deficits - A Double Threat While Fiedler conceded that the budget deficit is a very serious issue for the performance of the economy over the next decade or two, he questioned that it had much to do with the October 1987 col- lapse of the stock market. Rather, he argued, longer term massive deficits pose two serious threats that cannot be ignored. In the first place, such deficits present a constant temptation to try to inflate our way out of the problem by monetizing the deficits. The second threat, which he cited as not so dramatic ... but just as debilitating, is the drain on our supply of savings that would otherwise be avail- (Continued on page 5) TAX FOUNDATION'S VOL. 32, NO. 1 JANUARY 1988

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