Some have argued that lower capital gains rates promote investment, but this case appears overstated. Among other reasons, it is hard to imagine entrepreneurs making decisions about investment and risk on the basis of the capital gains tax regime: Mark Zuckerberg was not focusing on the capital gains tax when he was in his dorm room coding up Facebook.
Given the magnitudes at stake, scorekeeping procedures employed in evaluating capital gains should be made more transparent and the subject of external professional debate and review. This transparency would facilitate discussion between professional scorekeepers and outside experts about the extent to which models can be improved and new data collected. It would also facilitate the comparison of estimates across a broader set of proposals and help ensure that consistent scorekeeping practices are applied.
Transparency is a double-edged sword. Given the importance of official scores to legislative decision-making, releasing the assumptions underlying scorekeepers’ estimations to the public would invite greater lobbying around those assumptions by supporters and critics of different reforms. Our proposal is not to open the floodgates with respect to scorekeeping writ large. A natural structure is in place: the Congressional Budget Office already has a panel of advisors who provide input on economic issues. This group or a related subgroup of experts can be convened to advise the JCT, as well as the CBO and the Treasury’s Office of Tax Analysis. It would be important for diverse views to be represented in this body, and it would be valuable to work with the full set of scorekeepers to select a panel of people who are thoughtful and likely to be taken seriously by the revenue-estimating community. Short of such a formal gathering, promoting informal conversations and collaborations between scorekeepers and academics would facilitate advancing the research frontier in the most useful directions.
Our call to action is born from a position of enormous respect and admiration for the integrity and seriousness of the scorekeepers. The ultimate goal is to continue to advance our understanding of taxpayer behavior and the revenue potential of capital gains and other tax-reform efforts to inform the policy-making process.
This essay is adapted from a January 2021 working paper, “Rethinking How We Score Capital Gains Reform,” by Natasha Sarin, Lawrence H. Summers, Owen M. Zidar, and Eric Zwick.
Natasha Sarin is assistant professor of law at the University of Pennsylvania.
Lawrence H. Summers is the Charles W. Eliot University Professor and president emeritus at Harvard University, and served as the 71st secretary of the US Treasury and the director of the National Economic Council.
Owen M. Zidar is professor of economics and public affairs at Princeton.
Eric Zwick is associate professor of finance and a Fama Faculty Fellow at Chicago Booth.