Conservative spotlight: Institute for Policy Innovation: Dick Armey

Human Events, Jan 22, 1999 by D'Agostino, Joseph A

The Institute for Policy Innovation (IPI), founded years ago by current House Majority Leader Dick Armey (R.-Tex.), has one overriding goal: to have the static economic forecasting models now used by government agencies replaced by dynamic ones.

IPI promotes the work of Gary and Aldona Robbins, who have dedicated much of their careers to advocating the use of dynamic models. They and many other free-market economists have demonstrated that cutting taxes on productive money not only leads to greater growth, but also does not shrink the flow of tax revenue by the amounts predicted by the economic models commonly employed by the Congressional Budget Office (CBO) and other federal government agencies.

Gary Robbins used to work for the Treasury Department and "is one of the few people in Washington who actually understand the tax code;' said Tom Giovanetti, president of IPI. Aldona Robbins spent a decade at the Social Security Administration.

"If someone proposes a cut in the capital gains tax," Giovanetti said, "that will receive very biased scoring from government forecasters." (When forecasters "score" a tax bill, they attempt to predict what effect it will have on future government revenue so that those in charge of the budget can know what they will have to work with.)

By using "static scoring;' government agencies refuse to take into account tax cuts' effects on the economy and on people's behavior. For example, said Giovanetti, "a tax [rate] cut could lead to increased government revenue by stimulating more economic growth," which provides the government with more income to tax.

Another example: "Eliminating the estate tax wouldn't cost the government anything," said Giovanetti, pointing out that right now the estate tax-which often confiscates over half of estate values over $650,000--discourages Americans from saving money to pass on to their heirs. If more money were saved and invested in the economy, the resulting growth would make up for the loss of estate tax revenue. House Policy Committee Chairman Chris Cox (R.Calif.) has re-introduced a bill to abolish the estate or "death"-tax and has nearly 200 cosponsors for it in the House.

"Most of the economic models used in this country are Keynesian;' complained Giovanetti. "They crank out the best results with increased government spending." But as Giovanetti pointed out, "A cut in the capital gains tax or the estate tax gives you much more bang for the buck than something silly like a child tax credit or eliminating the marriage penalty." Giovanetti acknowledged that there are other reasons to support such proposals-"and every tax cut is good"-but the stimulation of economic growth and the benefits that come with it for all Americans-more jobs, higher wages-are not among them.

"To get people to earn more and to save more and to invest their money," he said, "unfortunately, you do that by giving a tax break to the rich." Taxcutting politicians are in two camps, he said: "those who want to cut taxes on the poor, and those who want to cut taxes on everybody." The fact is, he said, cutting taxes on the rich is necessary to help poorer people obtain jobs and a better standard of living.

Though located in the same area, IPI is not, as many people think, connected with the National Center for Policy Analysis (NCPA), another influential conservative organization. And IPI does not work on Texas state policy questions. "We are where we are because we were founded by Congressman Armey," Giovanetti said. "We don't find it a hardship to be down here, especially in recent years with all the technology. Someone from IPI goes up to Washington regularly."

Armey is no longer involved with the think tank. "Rep. Armey wisely resigned from the boards of all the groups he was involved with when the Republicans took over Congress," Giovanetti said. "Armey loves IPI," said Richard Diamond, spokesman for Armey. "It was his baby, but he had to give it up."

IPI has five or six staff members at any given time. "We contract out to researchers project by project," said Giovanetti. "We have no researchers on staff. Most people who run think tanks come from politics or academia. I come out of the business world, and I try to squeeze as much out of a dollar as I can."

Giovanetti called on the Republicans in Congress to "clean house at CBO. They need to get the Keynesians out of there." After taking over Congress in 1994, he said, the Republicans "blew it" by not immediately replacing the CBO staff. This means, he said, that even now, under a GOP-controlled Congress, when a tax cut is proposed, the CBO predicts a greater drop in revenue than would actually occur, making resistance to adopting tax cuts that much the greater.

And now that the current director of the CBO is leaving, Giovanetti said, the Republicans should act to make up for their past personnel failures.

IPI may be reached at 250 S. Stemmons, Suite 215, Lewisville, Tex 75067 (972-874-5139; fax: 972-8745144; e-mail: ipi@ipi.org; website: www.ipi.org).