By Max Behlke
One of the first moves of the new Republican-controlled Congress on Jan. 6 was to mandate a change of how the Congressional Budget Office and Congress’ Joint Committee on Taxation score, or how they determine how much revenue is gained or lost, on proposed tax legislation.
This new requirement, called “dynamic scoring,” requires both of the nonpartisan offices to forecast the macroeconomic effect of legislation. This is in contrast to the previous method, known as “static scoring,” which determines how much money the legislation will raise or cost the federal government assuming that the legislation itself will not change economic behavior.
Proponents of dynamic scoring claim spending legislation affects the economy, as well as the behavior of taxpayers, and those effects should be part of substantive analysis.
Opponents, however, call dynamic scoring “voodoo economics,” because the scoring practice requires analysts to predict how legislation will affect the economy and that the suppositions are subjective. Either way, it is quite rare when a technical change by Congress is received so controversially.
Here is a basic example of the two approaches:
A government currently imposes a 10 percent tax on cigarettes and received $100,000 in tax revenue the last year on $1 million in cigarette sales. Proposed legislation would raise the tax to 25 percent.
Static Score: A static score would assume that the following year, there would again be $1 million in cigarette sales; thus, the new tax revenue would total $250,000.
Dynamic Score: A dynamic score might assume the increase in the price of cigarettes would entice some smokers to quit or find alternative means of tobacco assumption. That assumption could lead to estimating that the following year would see $800,000 in cigarette sales, or $200,000 less. Therefore, the new tax revenue would total $200,000.
While dynamic scoring is supported by an array of audiences and ideologies, it is typically supported by Republican members of Congress. As congressional Republicans generally support lower taxes and smaller government, many in the party often use dynamic scoring to explain their tax cutting proposals.
This belief, supported by the theory of supply-side economics, which was championed by conservative economist Art Laffer, revolves around the idea that tax cuts will increase business investment and thus grow the economy. Based on that reasoning, supporters think the macroeconomic impact should be included in budget analysis.
Conversely, opponents of dynamic scoring, including many congressional Democrats, say it's impossible to accurately forecast how legislation will affect the entire economy because it's based on subjective factors employed by analysts, and is simply a ruse used by Republicans to increase public support for tax cuts.
Either way, the use of the dynamic scoring will continue to be controversial in Washington and only time will tell how or if it will impact federal budgetary decisions.
Max Behlke is manager of state-federal relations in NCSL's Washington, D.C., office.
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