Policymakers Should Include Dynamic Scores for Tax Reform

As policymakers consider extending parts of the Tax Cuts and Jobs Act (TCJA) and possibly making other tax changes, there will be discussion about how best to score the deficit effects of any changes.  "Conventional scoring” incorporates the effects of tax changes on individual and business behavior, but it does not account for the effects on macroeconomic variables such as output, employment, inflation, and interest rates, while “dynamic scoring” does incorporate macroeconomic effects.  

The following is a statement from Maya MacGuineas, president of the Committee for a Responsible Federal Budget:

True, economic growth is not the only consideration when developing policies, but everything else equal, growth is highly desirable in that it produces a larger output and leads to a higher standard of living. Of course, other considerations, from the appropriate role of government to how resources are shared, are important, but information about potential growth effects of policies is useful to inform the discussion.  

It is therefore desirable to include dynamic scores where possible and appropriate. Particularly when policies are larger and more likely to have consequential macroeconomic effects, dynamic scores should be included for consideration and to help guide policy development.  

However, with near-record debt levels, dynamic scoring should not be a license to engage in massive new borrowing. Tax reform should be deficit-neutral or better yet, deficit-reducing, on both a conventional and dynamic basis so any dynamic gains can be used as a down payment on fiscal improvements.

Furthermore, dynamic scoring needs to come from the neutral scorekeepers. Calls for dynamic scoring should not be an excuse for make-believe scoring, cherry-picking, or choosing your own referee. Lawmakers should rely on the impartial scorekeepers – the Congressional Budget Office and Joint Committee on Taxation – to assess the full economic impact of all parts of the bill. Credible reform requires credible estimates.

Lawmakers should request an official dynamic analysis of an extension of the TCJA and a dynamic score or analysis of whatever legislative changes they ultimately develop. But faster economic growth will not replace the need to identify real offsets, modify parts of the TCJA, and/or let some measures expire.

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For more information, please contact Matt Klucher, Assistant Director for Media Relations, at klucher@crfb.org.