The incoming House Democratic majority unveiled a set of proposed rules Jan. 1 that includes eliminating the use of dynamic scoringDynamic scoring estimates the effect of tax changes on key economic factors, such as jobs, wages, investment, federal revenue, and GDP. It is a tool policymakers can use to differentiate between tax changes that look similar using conventional scoring but have vastly different effects on economic growth. in the House budgeting process. While the Republican-controlled Senate should keep dynamic scoring as an option, House lawmakers would lose an important tool for judging the true economic and fiscal impact of various taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. proposals.
Dynamic scoring provides important context as to how taxes impact the economy. It helps emphasize the idea that no two tax changes impact the economy in the same way. Two tax policies may have the same “conventional” score, but because one changes the incentive to work, save, and invest while the other does not, they can have different dynamic scores. This moves the tax debate past a simple argument over how much revenue we should raise to a more important debate over how we should raise revenue.
Over the past several years, the Joint Committee of Taxation (JCT) has used dynamic scoring to analyze the economic and budgetary impact of tax changes. These changes range from making bonus depreciationDepreciation is a measurement of the “useful life” of a business asset, such as machinery or a factory, to determine the multiyear period over which the cost of that asset can be deducted from taxable income. Instead of allowing businesses to deduct the cost of investments immediately (i.e., full expensing), depreciation requires deductions to be taken over time, reducing their value and discouraging investment. permanent to full reforms to the tax code outlined in former House Ways and Means Chairman Dave Camp’s tax reform proposal of 2014.
In addition to the JCT, several independent groups such as the Tax Foundation, Penn Wharton, and Tax Policy Center have regularly used dynamic scoring to assess the impact of proposals introduced by political candidates and politicians. These groups analyzed the tax reform plans introduced by the presidential candidates in 2015 and 2016, the House GOP Blueprint in 2016, and the multiple plans leading up to the Tax Cuts and Jobs Act in 2017.
Inevitably, the use of different models can lead to different results. Often, the differences in projections come down to differences in methodology, such as views on whether an increase in the deficit crowds out private sector investment. However, these differences are not usually significant and have always been well understood because the dynamic scoring modeling community is transparent about its assumptions, its methodology, and its approach. This transparency allows for an open dialogue, which is a vital part of the process of improving dynamic scoring.
Whatever the House chooses to do, the economic modeling community will continue its good faith, open dialogue on dynamic scoring on how to improve existing models. Having JCT participate by scoring proposed tax changes helps that endeavor.
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