WHEN TREASURY Secretary James Baker appeared before the Ways and Means Committee, Chairman Dan Rostenkowski started by asking a key question about the administration's tax reform plan. Will it lose money? That question isn't easily answered, but trying to answer it ought to be a big congressional concern.
Many forecasters believe that the economic assumptions that the administration uses in its revenue estimates are on the optimistic side. But, since these are presumably the same assumptions it uses in measuring taxes under the existing system, that doesn't necessarily mean that the new tax system would be a net loser: it means that no matter which system stays in effect the federal deficit will be bigger than the current projection.
Still it is possible, even likely, that the new system would behave differently under varying economic conditions and that prospect ought to be taken into account. The supply-siders, for example, will argue that the lower tax rates on the wealthy will stimulate faster economic growth. Others may disagree. Revenues may also depend heavily on how taxpayers -- and congressmen -- react to the system.
How quickly will shelter promoters adjust to the new set of incentives? What happens to revenues when the $60 billion transitional tax runs out? What effects are expected for particular industries and sectors? How sensitive are estimates to inflation and unemployment? In short, what added debt is the Treasury likely to incur in the period between now and that far-off time when, Treasury says, individual tax cuts and corporate tax increases will be in balance?
The best way to approach these questions would be to follow the procedure used in costing out Social Security and other programs -- run the computer models, varying economic and other assumptions and see what happens. The results wouldn't be precise, but they would provide a margin of assurance that is now lacking. With deficits running to $200 billion a year, Congress needs to know a lot more about the reliability of the revenue estimates on which these tax proposals are based.