(This methodology supports the research findings found in
the WebMemo: Jobs
Creation Act: Original Bill Provides Most
Growth.)
Methodology
I. Methods Used to
Simulate the Original Version of HR 2896
Researchers at the
Center for Data Analysis used the Global Insight, Inc. (G.I.I.),
U.S. Macroeconomic Model to perform the economic simulation of the
plan, setting the July 2003 G.I.I. U.S. Macroeconomic forecast as a
baseline. The analysis encompassed every enumerated provision of
the original plan as listed by the Joint Committee on Taxation
(J.C.T.) in its scoring document for that plan. Most provisions were
simulated by adjusting the model's effective federal tax rate on
corporate income by an amount targeting the J.C.T. static estimate
for the tax collection change resulting from each provision.
However several provisions were simulated differently because CDA
analysts felt that the provision could not be faithfully modeled
merely by reducing effective corporate tax rates. These provisions
are listed below.
Reduction in
corporate income tax rates for smaller corporate taxpayers: CDA
researchers simulated this provision by reducing the model's
federal marginal tax rate on corporate income by an amount
consistent with the J.C.T. static estimate for tax collection
changes resulting from this provision.
Extension and
modification of the research credit: CDA researchers adjusted
the model variable controlling the federal corporate tax credit for
research to hit the J.C.T. static estimate for tax collections
changes resulting from this provision.
Incentives to
reinvest foreign earnings: This provision is also known as the
Homeland Investment Act of 2003. This provision would change the
tax code to include a temporary incentive for American corporations
currently holding overseas substantial earnings from foreign
operations, to bring these earnings to the United States, with the
result of spurring economic activity at home. Researchers at JP
Morgan estimate that this provision would result in the
repatriation of about $300 billion in earnings from abroad.
This infusion of capital would be expected to fund a 2‑3%
increase in non-residential investment spending during the two
years subsequent to enactment of the provision. CDA analysts simulated
this provision by adjusting federal corporate tax collections and
non-residential investment within the model.
Two-year
extension of increased expensing for small business: This
provision would extend small business expensing of non-residential
investment for two years. CDA analysts simulated this provision by
adjusting the effective federal personal income tax rate in the
model to the J.C.T. static estimate for the change in tax
collections resulting from this provision.
One-year
extension of bonus depreciation: CDA economists adjusted bonus
depreciation-related model variables to reflect an extension of
bonus depreciation.
Expansion of
manufacturing equipment depreciation: CDA analysts simulated
this proposal by adjusting the model's federal effective tax rate
on corporate income as well as the model's cost of capital for
manufacturing to reflect accelerated depreciation.
II. Methods Used
to Simulate the Compromise Version of HR 2896
The CDA analysis
of the compromise version encompassed every enumerated provision of
J.C.T.'s static estimate of the effects of the proposal on tax
collections.
CDA economists used the G.I.I. U.S. macroeconomic model as its
research tool, setting the G.I.I. July 2003 forecast as a baseline.
As with the original plan, CDA economists estimated this plan's
fiscal and economic effects in the case of most provisions, by
adjusting the model's federal corporate effective tax rate on
corporate income. However CDA analysts simulated some provisions
without exclusive reliance on the effective corporate tax rate.
Manufacturing
rate cut and reduction in corporate income tax rates for smaller
corporate taxpayers: CDA researchers simulated this provision
by adjusting the federal marginal tax rate on corporate income in
order to target the J.C.T. static estimate for the effect of this
provision on federal revenue.
Two-year
extension of increased expensing for small business: CDA
analysts estimated this provision, as they did in simulating the
original package-through an adjustment in federal personal income
tax rates.
Repeal of
extra-territorial income provisions: This provision would
repeal tax rules intended to promote exports by American
corporations. Their repeal would exert an effect on federal revenue
as well as on the distribution of gross domestic product among its
components. CDA analysts believe that the effect of the repeal of
this provision would be to shift gross domestic product (GDP) away
from net exports and toward consumption, non-residential investment
and residential investment. Congressional staff estimated the
amount of the shift in GDP away from net exports and toward other
components of GDP.
Applying these estimates, CDA analysts phased in reductions in the
amount of 1.3 percent for imports and 1.7 percent for
exports.
(This
methodology supports the research findings found in the
WebMemo: Jobs
Creation Act: Original Bill Provides Most
Growth.)
Joint Committee on
Taxation, U.S. Congress, "Estimated Revenue Effects of H.R. 2896,
The `American Jobs Creation Act of 2003,'" August 1, 2003, at
www.house.gov/jct/x-71-03.pdf.