We explained in October that Rep. Paul Ryan was making noise about changing official estimates for tax measures to incorporate “dynamic scoring.” This approach assumes that tax cuts boost economic growth so much that they partly or completely pay for themselves.
Ryan’s call has only intensified since the election. Now the battlefront has expanded as organs of the conservative movement, like the Wall Street Journal and Grover Norquist’s Americans for Tax Reform have called for new leadership at the Joint Committee on Taxation (JCT), which scores tax measures, and the Congressional Budget Office (CBO), which scores spending measures.
There is simply no agreement among economists about how tax cuts affect the broader economy, which makes it impossible to incorporate such effects into an apolitical revenue-estimating process for Congress that is trusted by everyone. In fact, no one really knows whether cutting taxes encourages most people to work and invest more (because they get to keep more of their income) or less (because they can work and invest less and still achieve whatever after-tax income goal they have set for themselves).
But that has not stopped Douglas Holtz-Eakin, a former CBO director, from siding with Ryan. His logic is that the budget-estimating process incorporates all sorts of guesswork so lawmakers should be willing to accept even more guesswork and embrace dynamic scoring.
Nor has it stopped the Wall Street Journal from putting forward people such as Steve Entin of the Tax Foundation to lead JCT.
Incidentally, in 2009 Citizens for Tax Justice blasted both Holtz-Eakin and Entin for reports they penned on the federal estate tax. Holtz-Eakin cherry-picked evidence to conclude that repealing the estate tax would create 1.5 million jobs. Entin concluded that estate tax repeal would magically increase revenue. To say these people have controversial views on the effects of tax cuts would be an understatement.
JCT always considers the effects of changes in tax policy on individual and business’s behavior. But only when it considers certain major tax legislation, such as Rep. Dave Camp’s tax reform plan, does JCT provide dynamic analysis, which considers possible impacts of the policy change on the size of the economy overall. Currently, this analysis provides a wide range of scenarios because no one can agree on which model and which assumptions are correct.
For example, Camp’s reform plan is, based on conventional revenue-estimating, revenue-neutral in the first decade. (It loses $1.7 trillion in the second decade, but that’s a different story.) The dynamic analysis provided by JCT provided eight different scenarios about the dynamic impact on revenue, ranging from a low of $50 billion to a high of $700 billion. Naturally Camp chose to highlight the version that speculated that dynamic effects would raise $700 billion over a decade and ignored the rest.
Sen. Rob Portman has introduced a so-called Accurate Budgeting Act that would require JCT to provide a single dynamic score for tax legislation. The House passed a similar bill in April. Given the range of uncertainty and lawmaker’s desire to clutch at whatever analysis presents the rosiest assessment of their proposals, this could warp the estimating process and cause a lot of misinformation.