Found and lost Stanford economist

Found and lost

Stanford economist Michael Boskin appeared to have made a new contribution to the federal deficit debate by identifying undercounted future revenues on the order of $9-$19 trillion dollars by 2040. These would have come from taxes on pensions, IRAs, and other tax deferred accounts. Boskin's paper (apparently never more than a draft) may be found here: "Deferred Taxes in the Public Finances". A skeptical blog posting by Mindles Dreck, reporting on the study, may be found here: "Found: $12 Trillion". My understanding is that a draft of the study has existed since January 2003 and that the recent publicity dates to a June 16 story in Barrons.

If Boskin were right, it would mean that federal deficits would not be as large as currently projected. Although I assume that there would still be a concern - the Center on Budget and Policy Priorities (CBPP) projects a $4 billion deficit over the next ten years, here, and deficit projections don't really begin to explode (because of medicare and social security) until after that.

But he isn't right. Alan J. Auerbach, William G. Gale, and Peter R. Orszag produced this Brookings Institution paper by mid-July: "Reassessing the Fiscal Gap: Why Tax-Deferred Saving Will Not Solve the Problem". The abstract reads:

"A variety of recent studies have found that the United States faces a substantial fiscal gap � that is, a sizable imbalance between projected federal outlays and receipts. A recent study by Boskin (2003) suggests these findings are overstated because they largely or entirely omit projected revenues from tax-deferred saving plans. This paper reassesses estimates of the long-term fiscal status of the United States in light of Boskin�s analysis and draws three principal conclusions. First, the nation continues to face a substantial long-term fiscal gap, as conventionally estimated. Second, Boskin�s projections of revenue from tax-deferred accounts have only a very modest effect on the long-term fiscal outlook because almost all of the relevant revenue is already incorporated into the revenue projections that generate sizable fiscal gaps. Third, the primary focus of Boskin�s analysis is the overall effect on the budget from retirement accounts � not how much of that effect is already included in the budget projections. We also find that his estimated overall budgetary effect is substantially overstated."

Now, Boskin is cautioning that the paper contains programming errors:

"However, the part of the paper projecting the future contained a programming error that in turn resulted from a word-processing error which I should have but did not catch," he said. (This admission style is more popularly known as a full-frontal Tenet. [This must be an editorial interjection - Ben]) Something "was inadvertently dropped from the investment equation," he writes, and this led "to a considerable overstatement of future deferred taxes. I am in the process of correcting this problem, but as the preliminary draft, circulated for comment, has gotten into the public domain . . . I especially want to alert you" to the problem. "Please do not cite or quote anything from the original paper without explicit permission. I apologize for any inconvenience this may have caused you. The fault is entirely my own, not that of anyone who may have quoted the preliminary draft."

(Boskin, as quoted by Al Kamen in yesterday's Post, here: "A Few Too Many Zeroes".)

This posting draws heavily on this by Max Zawicky: "BOSKIN BUNGLES".