The voices of Tax Policy Center's researchers and staff
Last night, the House Republican leadership proposed new rules that would require the Joint Committee on Taxation and the Congressional Budget Office to incorporate macroeconomic effects of “major” legislation into their official budget estimates. But there may be less to these new rules for so-called “dynamic scoring” than meets the eye.
The GOP did not make the language easy to find. But here is a link to the legislative language. Here is one to the section-by-section analysis, and here is an interpretation of the new rules by House Budget Committee Chair Paul Ryan, who is about to become chair of the Ways& Means Committee and was very likely the prime mover behind the changes.
On a first reading, there are three interesting things going on:
- The new rules would not require dynamic scoring for all bills. They would only apply to “major legislation,” which is defined as having annual budgetary effects of at least 0.25 percent of Gross Domestic Product. At current GDP levels, that’s about $45 billion (though the rules would allow exceptions). Appropriation bills are excluded. Ryan says just three bills considered in the last Congress would have been scored under these rules.
- JCT and CBO are asked to produce a “qualitative” assessment of macroeconomic effects “to the extent practicable.” CBO and JCT don’t normally use only “qualitative” analysis to score legislation, and it is tough to imagine how such an assessment could lead to an accurate budget score. And it is impossible to know how the phrase “to the extent practicable” will be interpreted.
- The rules will require macroeconomic analysis over 20 years, double the traditional 10-year budget window. On one hand, this may limit some of the gaming that lawmakers use to make tax law changes look like they raise more money than they really do. On the other, any estimate of how any tax change will affect the economy over 20 years would be highly uncertain at best.
Finally, it is important to note that past tax reforms have driven very modest changes in the economy. My Tax Policy Center colleague Bill Gale and Dartmouth College economist Andrew Samwick surveyed the reform literature in this useful paper.
Note that JCT included macroeconomic effects when it did an alternative score of Ways & Means chair Dave Camp’s tax reform plan earlier this year. It found that Camp’s rewrite of the tax code would have boosted revenue by somewhere between $50 billion and $700 billion over 10 years.
That huge spread only begins to show how tough it is to accurately project how tax changes affect the enormously complex U.S. economy. In a critique of JCT’s models, Jane Gravelle of the Congressional Research Service shows how just one controversial assumption (about how Camp’s plan would have shifted intellectual property from overseas to the U.S.) drove one model’s optimistic estimates. See pg 12-13.
There is little doubt that, with Republicans controlling the House and Senate, JCT and CBO will be called upon to include some macro effects of tax changes when figuring their budget impact. But even if the Senate adopts the House rules, it is not clear how much of a difference they will make.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.