Dynamic Scoring and Trickle Down Economics

“When previous tax cuts are examined econometrically, the impact on economic growth is hard to find.” Mark Thoma, CBS News

The first vote the new House of Representatives casted in the 114th Congress requires the Congressional Budget Office (CBO) to “Score” the future cost and benefits of pending major legislation by a method known as “Dynamic Scoring”. Dynamic Scoring is an Macro-Economical tool that plays an integral part of Supply-Side Economic Theory, which we know as  Trickle-Down Economics. The new House rule was passed by party lines, 234-172.

The contentious element of Dynamic Scoring is it’s tendency to show that lowering the tax rate will  pay for itself because it assumes a lower tax rate will stimulate the economy enough to compensate for the lost tax revenue. In order to properly “Dynamically Score” a proposed bill the CBO will need to correctly  predict the affect the legislation has over many different variables. The economy doesn’t happen in a vacuum—there are unpredictable economic events that influence the predicted results. Economics isn’t an exact science.

President George W. Bush’s administration used Dynamic Scoring to justify the Bush Tax Cuts. In reality those tax cuts did  not pay for themselves. In 2003, after the tax cuts started, a CBO study was develop to see:

“if currently proposed tax cuts would increase revenues. The study used dynamic scoring models as supply side advocates had wanted and was conducted by a supply side advocate. The majority (seven out of nine) of the models applied predicted that the proposed tax cuts would not increase revenues.”

We need to look at the big picture. The GOP has been preparing to change the tax code, but has done nothing until they attained control of both Chambers. Rep. Reed has reminded us of the size of the tax code, and is concerned on how much it costs constituents to file their taxessupply-side-economics-trickle-down-peanuts-cartoon-via-greekshares-dot-comThe GOP leaders are setting the stage to again lower tax rates, especially on the wealthiest. Getting Dynamic Scoring in place is Step One. Step Two is to replace the democratic appointed nonpartisan CBO Director,  whose term ended last week, with one who is more favorable to their Supply Side philosophy. The Third Step is to change the tax code. Our congressman will then explain how the lower-tax rates will help increase jobs in our district.

If we don’t learn from history we are doomed to repeat it. The New York Magazine  reminds us of the recent economic history that we should learn from:

“When Bill Clinton raised the top tax rates, conservatives predicted it would trigger another recession. Instead the economy boomed. When George W. Bush reduced the top tax rates, conservatives predicted it would usher in new heights of prosperity. Instead the economy produced a tepid recovery that was itself inflated by a bubble, culminating in a devastating collapse. The current recovery has picked up speed after the Bush tax cuts for the rich expired.”

The Brookings Institute published a 2014 study, “Effects of Income Tax Changes on Economic Growth” concludes that the Bush Tax Cuts stymied  economic growth:

“The argument that income tax cuts raise growth is repeated so often that it is sometimes taken as gospel. However, theory, evidence, and simulation studies tell a different and more complicated story. Tax cuts offer the potential to raise economic growth by improving incentives to work, save, and invest. But they also create income effects that reduce the need to engage
in productive economic activity, and they may subsidize old capital, which provides windfall gains to asset holders that undermine incentives for new activity.”

Rep. Paul Ryan, new chair of the Ways and Means Committee, and architect of the House Budget, is a strong proponent of Dynamic Scoring. He wrote, “Elected officials can’t strengthen the economy if they don’t even know how their decisions affect the economy,” in an article that explains his reasonings for the new rule.

There are many on-line articles questioning the republican motivation for revamping this scoring tool. It is difficult to find one that fully supports it. A search of Fox News kicked me over to Fox Business News for a pretty neutral article. A search of NewsHounds.us (They watch Fox so we don’t have to!) ended without a success. Did  FOX decided not to inform their faithful followers of Congress’ New Rule?

I wonder how our Congressman, Rep. Tom Reed, will justify  Dynamic Scoring when he is asked about it at his Town Hall Meetings.

 

 

 

 

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About pystew

Retired Teacher, political science geek, village trustee. I lean a little left, but like a good political discussion. My blog, the New NY 23rd (http://newny23rd) is about discussing the issues facing the people of our new congressional district. Let's hear all sides of the issues, not just what the candidates want us to hear.
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6 Responses to Dynamic Scoring and Trickle Down Economics

  1. whungerford says:

    Thank you Rich for this timely article. Supply side–trickle down–is an article of faith with the GOP that they adhere to without regard for the facts; they want to believe because it feathers their nest.

  2. Deb Meeker says:

    When I was being trained to be an electronics assembler decades ago, a method used for pricing a product, involved someone in the engineering dept. cost out how long it should take to build thousands of a particular board or cable by building one single prototype. Invariably, the time for gathering equipment and materials, setting up the assembly area, and allowing for the inevitable breakdown of tools was not figured in with “time padding”. There was that disconnect – between the reality of the prototype maker and the assemblers on the line. Who did the management believe knew the time necessary to accomplish the task? You guessed it – the person who made one piece – in a vacuum.

  3. josephurban says:

    Dynamic scoring works in sports, too. Take my Chicago Bears who once again had a dismal won-lost record.(I think it was 5-11). Using dynamic scoring they COULD have had more touchdowns. I am PROJECTING that they COULD have won all their games this year, I will not let the actual evidence of their won-lost record cloud my predictions. I am projecting that since they paid their players a whole lot of money these players ran faster and tackled harder than ever. That is why, using dynamic scoring, I am predicting a Super Bowl victory for the Bears !

  4. pystew says:

    Joseph and Deb, Thanks to both of you for your insight. Economics is very complicated and the average person doesn’t deal with more than the basics in their normal affairs. That is why we elect people to represent us…do what is best for us… and we are suppose to trust them. (I know I’ve got to back to reality, but I can dream, can’t I?)

  5. Anne says:

    To paraphrase someone else here: if you laid all the economists in the country end-to-end, Tom Reed would still be wrong about everything.

  6. Norbrook says:

    I love the statement from Ryan, about how “Elected officials can’t strengthen the economy if they don’t even know how their decisions affect the economy,” when there’s ample results from their previous tax decisions and use of dynamic scoring. The problem is that he (and all other Republicans) don’t believe them.

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