Tax Policy Center: Economic Growth and Dynamic Scoring

Dynamic Scoring: Not so Fast!

info@taxpolicycenter.org ( Rudolph G. Penner) — Fri, 21 Apr 2006 00:00:00 EST

Using dynamic scoring to weigh the effects of tax and spending proposals poses a high risk that ideological biases will pollute the analysis, senior fellow Rudolph Penner warns in a Ripon Forum commentary. The former director of the Congressional Budget Office also points out that consistent dynamic scoring is logistically impossible given current technology.

Bush Administration Tax Policy : Introduction and Background

info@taxpolicycenter.org ( William G. Gale, Peter Orszag) — Mon, 13 Sep 2004 00:00:00 EST

This paper is the first of a series that summarizes and analyzes these policies and proposals. The series has two broad goals: to describe, interpret, and assess what has happened; and to examine the consequences of making the tax cuts permanent. This paper provides background information intended to help frame the issues analyzed in subsequent papers. Those papers will examine the distributional effects; tax cuts and fiscal policy; the effects on long-term growth; the effects as a short-term stimulus; the effects on government spending; and the extent to which the tax cuts serve as an effective prelude to fundamental tax reform.

The 'No New Taxes' Pledge

info@taxpolicycenter.org ( William G. Gale, Brennan Kelly) — Mon, 12 Jul 2004 00:00:00 EST

This article examines the "no new taxes" pledge that has been signed by President Bush and 258 members of Congress. Although it is intended to restrict the size of government, the authors believe that the pledge probably hinders rather than helps efforts to restore fiscal responsibility. Evidence from trends in aggregate taxes and spending, the success or failure of budget rules, and the voting records of pledge signers casts doubt, the authors assert, on the view that signing the pledge is an effective effort to "starve the beast" or an act of fiscal responsibility. If all of the signers uphold the pledge, it will prove impossible to repeal any part of the 2001, 2002, and 2003 tax cuts before President Bush leaves office, though the legislation could expire as scheduled even if all the signers supported extension, they find. The authors also think that the pledge may also have implications for appropriate budget scoring rules.

The Budget Outlook : Baseline and Adjusted Projections

info@taxpolicycenter.org ( William G. Gale, Peter Orszag) — Mon, 22 Sep 2003 00:00:00 EST

The CBO's new budget update provides the opportunity to reassess fiscal prospects and reconsider policy options. This paper examines the baseline CBO projections and adjusts the official data in ways that we believe more accurately reflect the current trajectory of tax and spending policies and the government's underlying financial status. Although the CBO baseline projects unified deficits that average 1 percent of GDP and shrink over the next decade, realistic assumptions about current policy imply persistent deficits of in excess of 3 percent of GDP in the unified budget and in excess of 5 percent of GDP exclusive of retirement trust funds. All budget projections deterioriate sharply and permanently after the current decade ends.

The Economic Effects of Long-Term Fiscal Discipline

info@taxpolicycenter.org ( William G. Gale, Peter Orszag) — Thu, 24 Apr 2003 00:00:00 EST

This paper examines long-term fiscal discipline and economic performance, with two main results. First, declines in budget surpluses (increases in deficits) reduce national saving and therefore reduce future national income, regardless of their effect on interest rates. Second, increases in expected future deficits raise long-term interest rates. Thus, the costs of long-term deficits are significant and need to be compared carefully to the potential benefits of tax and spending changes that increase deficits.

Making the Right Case for Dynamic Analysis

info@taxpolicycenter.org ( C. Eugene Steuerle) — Mon, 21 Apr 2003 00:00:00 EST

A recent Congressional Budget Office report presented many estimates, both positive and negative, for the effect of the presidents proposed tax cut on the economy. In issuing this report, CBO indirectly called into question many of the more nave statements made about the ability of Congress to "dynamically" score tax cuts in a way that significantly lowered their budget cost. However, there is a good case for dynamic analysis, which is that raising taxes (and spending money) causes distortions which generally cost taxpayers more than what is reported in the budget. The burden of proof for government action, therefore, lays with the advocates for that action. There should be gains to taxpayers from spending programs that offset the additional costs associated with taxation.

Score-Keeping and Spending

info@taxpolicycenter.org ( C. Eugene Steuerle) — Mon, 07 Apr 2003 00:00:00 EST

Dynamic score-keeping -- the recording of budget feedback effects as people react to government actions such as tax cuts -- is a hot topic again, fueled in part by the recent release of a Congressional Budget Office study of the revenue effects of the president's tax proposals. The topic is also one of the most misunderstood. Some Republicans like to believe that almost any tax rate cut has very large feedback effects that make its costs significantly lower. Some Democrats like to believe that there is no issue here worth discussing. As is usual when an issue becomes politicized to this extent, things are more complicated than they appear.

Fiscal Policy and Economic Growth : A Simple Framework

info@taxpolicycenter.org ( William G. Gale, Peter Orszag) — Mon, 03 Feb 2003 00:00:00 EST

The effect of fiscal policy on economic growth is a controversial and long-standing topic in economic theory, empirical research, and economic policymaking. It is at the heart of the policy debate surrounding the sharp increases in official federal budget surpluses in the 1990s, the equally sharp decline in the fiscal outlook since January 2001, and the increasingly imminent retirement of the baby boom generation. In this article, we provide a brief overview of the macroeconomic relations between budget surpluses and deficits, the tax and spending policies that influence those budget outcomes, and economic growth.

Dynamic Scoring and Budget Estimations

info@taxpolicycenter.org ( Deborah Kobes, Jeff Rohaly) — Tue, 11 Jun 2002 00:00:00 EST

Dynamic scoring is meant to provide a more complete picture of the budget effects of tax and spending proposals by incorporating the macroeconomic effects of the legislation. Official estimates already account for the microeconomic effects on individual behavior. Incorporating macroeconomic feedback effects to reflect how policies might affect economic growth would be, in theory, desirable. In practice, however, dynamic scoring would not improve the reliability of budget estimates. Because the process would necessarily require many subjective decisions, it would also risk opening up the scoring agencies to criticism of bias.