“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 taxes. The 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.