Highlights of the NABE and AUBER 2003
Washington Economic Policy Conference

For those AUBER members who were unable to attend the 2003 NABE and AUBER Economic Policy Conference held in Washington, DC, at the end of March, the following paragraphs briefly summarize sessions sponsored by AUBER and presentations made by R. Glenn Hubbard, former chair of the Council of Economic Advisers, and Ben S. Bernanke, member of the Board of Governors of the Federal Reserve System.

State and Local Fiscal Crisis

R. Keith Schwer <schwer@unlv.edu>, former AUBER president and director of the Center for Business and Economic Research at the University of Nevada, Las Vegas, organized and moderated the session.

Nicholas W. Jenny, senior policy analyst of the Nelson A. Rockefeller Institute of Government, spoke on the current fiscal crisis affecting the entire country. He emphasized the sharp decline in state tax revenues in 2002. The average state tax revenues in 2002 dropped 6.3% from 2001 levels. The West and Northeast regions were hit hardest, with declines of 15.3% and 11.4%, respectively. Jenny discussed three main causes of the boom and subsequent bust. First, economic growth in the late 90s gave way to broad recession. Second, state personal income tax collections surged in the late 90s, then crashed. Finally, much of the growth in personal income taxes was the result of capital gains and other investment-related income that has now disappeared. Unfortunately, the outlook is not positive. Jenny pointed out that states are still proposing further spending cuts in an attempt to fix huge gaps-some of more than 10%-in their FY2004 budgets. Furthermore, a decline in the consumption rate or other economic setback could worsen the problems. Bottom line: don't look for a huge state tax refund anytime soon.

Richard G. Sims, director of tax policy, Institute on Taxation and Economic Policy, continued the discussion on taxes. He spoke about the problem of regressive taxes, calling state tax systems both "inadequate and inequitable." Sims emphasized that the current movement to more retail sales tax dependence at the state level is making taxes more regressive over time. He proposed some possible solutions to the problem.

1.		Eliminate corporate and personal income tax loopholes or sales tax exemptions.
2.		Introduce new broad-based taxes.
3.		Freeze or repeal previously enacted tax cuts.
4.		Introduce rate hikes in sales, income, and excise taxes.
5.		Introduce temporary income "surtaxes."

Statistics and Policy:
Agenda for Improvement

Randall S. Kroszner, member of the Council of Economic Advisors, focused his presentation on the steps federal statistical agencies are taking to improve their accuracy, efficiency, and confidentiality. He spoke mainly of the Confidential Information Protection and Statistical Efficiency Act of 2002 (CIPSEA). The act facilitates the sharing of important data by the BEA, BLS, and Census Bureau, thus increasing accuracy and resolving data anomalies. It also includes penalties for unauthorized disclosure of confidential data. Kroszner pointed out that the two main parts of the CIPSEA Act will work together to reduce reporting burdens and provide greater assurances of confidentiality. This combination will raise the likelihood that businesses will respond to surveys, and therefore lead to more accurate descriptions of the economy-something that will benefit us all.

John F. Peterson, unit chief for projections in the Congressional Budget Office, explained how the quality of data impacted the revenue forecast for 2002. The forecast was off by $452 billion. The quality of data can greatly affect forecasts and the decisions Congress makes based on them. He was a strong advocate of better and more timely data collection.

William L. Wascher, assistant director of the Federal Reserve Board, stated that in order for economic statistics to be useful they must be published in a timely manner and they must be reliable, relevant, and transparent. How does the Bureau of Labor Statistics measure up? In most cases, it does well, although Wascher offered a wish list that included more and better data on compensation packages, publishing compensation data on a quarterly basis, and examining the effect of seasonable adjustment problems or major one-time events.

Long-Term Fiscal Policy

R. Glen Hubbard, former chair of the Council of Economic Advisers, believes the current cycle of recession and recovery is very different from past cycles, due, in part, to the overinvestment in capital goods, the accounting scandals, and the view that the economy will bounce back if the war with Iraq goes according to plan. Of the three elements of the President Bush's economic plan, the elimination of the double tax on corporate income is the most controversial. Hubbard thinks those who say the plan won't happen are mistaken; don't rule out President Bush's ability to negotiate. In terms of long-term fiscal concerns, Medicare is the real danger, not Social Security.

Monetary Policy in a Changing World

Ben S. Bernanke, member of the Board of Governors of the Federal Reserve System, discussed the policy of inflation targeting, its potential benefits, and some common misconceptions about it. He described the system of inflation targeting as a combination of "a policy framework of constrained discretion, and a communication strategy that attempts to focus expectations and explain the policy framework to the public." Bernanke proposed that together, these elements promote price stability and well-anchored inflation expectations. He also cleared up some key misconceptions about inflation targeting, stressing that it is not a system of mechanical, rule-like policymaking, but rather a system that takes just as much human insight and judgment as any other system of monetary policymaking. Additionally, Bernanke discarded the idea that inflation targeting ignored output and employment data. He concluded that a well executed policy of inflation targeting can deliver good results, while enabling the public to obtain a more transparent view of the banks central objectives.