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Dynamic Scoring Approved By US House

by Mike Godfrey,, Washington

09 January 2015

On January 6, as was expected, the United States House of Representatives divided mainly on a partisan basis to pass, by a vote of 234-172, a rule that will require "dynamic scoring" on major tax legislation in the future.

The Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) currently use "static" revenue estimating techniques, which make the assumption that tax policy changes – regardless of their magnitude – have no impact on the economy's performance. This methodology has been widely criticized, on the grounds that it could provide policy makers with inaccurate numbers and create a bias against lower tax rates.

On the other hand, "dynamic scoring," which has been championed for some time by the Republican party, is said to recognize that taxes do affect economic growth. For example, dynamic scoring assumes that higher tax rates would discourage work, saving, and investment, and reduce economic growth, thereby not raising the amount of revenue suggested by static estimates.

The approved rules for the 114th Congress will now include a requirement that the CBO and the JCT, to the extent practicable, incorporate long-term budgetary and macroeconomic effects into official cost estimates for "major legislation," which is defined as that causing a gross budgetary effect in any fiscal year that is equal to or greater than 0.25 percent of the projected US gross domestic product (GDP) for that year.

Based on a level of US GDP in 2013 of USD16.8 trillion, only tax and appropriation bills having a budgetary effect of around USD42bn will therefore be subject to dynamic scoring under the new rule, although the Chairman of the House Budget Committee will also be allowed to designate other bills as "major legislation" for its purposes.

That Chairman, Tom Price (R – Georgia), praised "the inclusion of this realistic analysis provision in the House rules as an important victory in a larger effort to bring more transparency and accountability to the legislative process."

"As history has shown and common sense would lead one to believe, laws passed by Congress can have a broad effect on the nation's economic activity, on job creation and investment decisions," he continued. "What we are saying is let us take what the experts at CBO and JCT can measure about the real-world impact of policies and incorporate those more realistic assessments into an honest analysis that policymakers can use to make better informed decisions."

However, House Ways and Means Committee Ranking Member Sander Levin (D – Michigan), who had previously said that said that the change "would undermine fiscal responsibility," added that it is "not about more information. … Republicans are changing House rules to be able to cook the books to implement their long-held, discredited notion that tax cuts pay for themselves."

The White House also expressed its opposition through the Director of the Office of Management and Budget (OMB), Shaun Donovan. In the OMB's blog, he wrote that dynamic scoring "could call into question the accuracy, consistency, and fairness of CBO and JCT budget estimates. … Based upon assumptions in areas with unusually great uncertainty, [the new rule] risks injecting bias into a broadly accepted, non-partisan scoring process that has existed for decades."

TAGS: tax | fiscal policy | law | budget | legislation | United States | revenue statistics | tax reform | Tax

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