For the Press

Martin A. Sullivan: Congressional Budget Office Offers Nod to “Dynamic Scoring” of Tax Reform

November 16, 2012

Sullivan, Tax Analysts' Chief Economist, Says It Gives House Republicans "Some Powerful Talking Points" for the Upcoming Debate on Raising Taxes

FALLS CHURCH, VA — Martin A. Sullivan, Tax Analysts’ chief economist, says that a key congressional office has given House Republicans “some powerful talking points” about so-called dynamic scoring in a recent report that it issued about options for addressing federal budget deficits.

Traditionally, Congress has used static scoring to analyze policy changes, a method that entails estimating the result of legislative changes that close loopholes and limit tax breaks, things that are easily quantifiable. However, since 1994, House Republicans have increasingly pushed for dynamic scoring, which predicts the impact of fiscal policy by forecasting the way that people react to change, in this case by measuring the potential economic growth that would result from proposed tax reforms.

Sullivan highlights a recent report from the Congressional Budget Office (CBO), released November 8, 2012 that seems to signal a shift to dynamic scoring, a marked change for CBO analysis:

    • In "Choices for Deficit Reduction," buried on page 25 of the 31-page second report, CBO provides a "rough estimate" of a tax reform with a 5 percentage point rate cut on labor income offset by (statically scored) broadening of the tax base. The CBO economists found that this policy would increase the size of the economy by about two percent which in turn would “probably boost tax revenues by less than half a percent of GDP, or less than $100 billion in 2020." So, there you have it. One of Congress's official non-partisan scorekeepers is saying there are significant quantifiable positive macroeconomic effects from tax reform. And though it is only a rough estimate that is "probably" correct, the CBO was confident enough to publicly volunteer it without any apparent prodding from members. This does not mean that any tax reform proposals will actually be dynamically scored by the Joint Committee on Taxation, Congress's official estimator of tax changes. But it certainly gives Republicans at a minimum some powerful talking points in the upcoming contentious debate about raising taxes

Sullivan goes on to predict that, despite House Republicans support for dynamic scoring since as far back as 1994, the chances of Congress hard-wiring it into the legislative process seems remote. He cites a range of reasons, including the fact that it would be a radical departure from current practices, uncertainty among economists about the size of dynamic effects, the mechanics of implementing these changes, and the potential for partisan splits on calculating revenue based on predicted behavior.

Martin Sullivan is chief economist for Tax Analysts, writes extensively for its daily and weekly publications, and blogs regularly for Tax.com. An expert on corporate taxation, he is frequently cited in national media and has testified before Congress on issues related to tax reform. He is also author of Corporate Tax Reform: Taxing Profits in the 21st Century.

 

Media Notes: To request an interview with Mr. Sullivan or a copy of his full analysis, please contact Shaima Vargas at 703-531-4852 or shaima_vargas@tax.org