WASHINGTON -- Passing bills to loosen tax law curbs on municipal bonds may become easier if House Republicans move forward with proposals to revamp the method for calculating revenue gains and losses for such bills, lobbyists said last week.
Incoming House Ways and Means Committee chairman Bill Archer, R-Tex., and other top Republicans said recently they want to change those calculations to reflect the effect that tax proposals have on the economy, and not just on the Treasury's balance sheet. Such a change would cause bond proposals to get smaller price tags than they have received in the past, lobbyists said.
Revenue estimates are Crucial to the tax-writing process because tax lawmakers, for the last several years, have insisted on passing only "revenue neutral" legislation -- that is, any proposals that lose money for the federal government have to be offset by revenue-raisers.
Estimating the gains or losses to the federal government is done by economists at the Joint Tax Committee, the Congressional Budget Office, and the Office of Management and Budget. Traditionally, the three agencies have relied on so-called static economic models to form their calculations. Such models measure only how Treasury coffers are affected by budget and tax proposals, and not how the overall economy is affected.
House Republicans have said they want to switch to a "dynamic" model for scoring tax proposals. Under such a model, revenue estimators would take into account job creation and other economic factors of tax proposals.
Thus proposals that might have been seen as big revenue losers in the past no longer would be, if they were found to give the economy a boost. Republicans are most interested in the dynamic model for scoring proposals to reduce the tax rate on capital gains.
But municipal lobbyists said proposals to ease bond curbs would benefit as well, because they also create jobs and have other beneficial effects on the economy -- despite being tagged as relatively large revenue losers.
"If the dynamic model ends up scoring tax-exempt bonds as having a positive as opposed to a negative impact, then I think it will make things a little easier" legislatively for bond proponents, said Catherine L. Spain, the director of the Government Finance Officers Association's federal liaison center.
Milton Wells, the chief lobbyist for the National Association of State Treasurers, said the chief value of using a dynamic forecasting model "is that you're changing the basic premise, which has been that all money is the [federal] government's."
Under that premise, tax expenditures in general and tax-exempt bonds in particular "are a massive leakage" of revenue, Wells said. "Even fairly modest changes are scored with huge numbers." So switching to a dynamic model "might be quite helpful."
Using a dynamic model makes sense because "presumably any tax cut is theoretically intended to increase economic activity, which then has positive benefits for the economy," said Frank Shafroth, the chief lobbyist for the National League of Cities.
Increasing economic activity wOuld, in turn, "thereby increase [federal tax] revenues, and thereby, instead of costing money, it will result in deficit reduction," said Shafroth, the league's director of policy and federal relations.
Republicans, however, face a roadblock to their plans for changing the revenue estimating process: The Clinton Administration.
White House Chief of Staff Leon Panetta warned last week that President Clinton would oppose changing to a dynamic model, and called the model a "scorekeeping gimmick." Panetta, in a speech to the Council on Competitiveness, said Clinton is committed to lowering the deficit and wants to make sure accurate accounting is used for tax proposals.
Archer, meanwhile, although calling for changes in revenue estimating, still endorsed the work of the Joint Tax Committee. In a press conference earlier this month, Archer said he had no plans to propose getting rid of the panel.
"I think it provides a very sound set of staff members" who are "tremendously helpful ... on extremely complex matters," Archer said. "It is a resource of outstanding professional capability which we need desperately as long as we keep the income tax."