BHI: Dynamic Scoring and New CBO Director Keith Hall

Dynamic scoring is in the news as of late. BHI’s Executive Director David G. Tuerck weighs in over at NCPA with a defense of the practice. Why it’s important: the world doesn’t stand still and generate more revenue when taxes are raised; taxpayers change their behavior thus changing the base.  

The appointment of Keith Hall as director of the Congressional Budget Office coincides with the adoption by Congress of a rule change that requires “dynamic scoring” of proposed tax law changes.

Hall is chief economist at the U.S. International Trade Commission, served as head of the President’s Council of Economic Advisers under George W. Bush and was Commissioner of the U.S. Bureau of Labor Statistics from 2008 to 2012. In April 2015, he will replace CBO Director Douglas Elmendorf, who has served since 2009.

The appointment of Hall appears to signify an intention, going forward, for the CBO to adhere to the spirit, as well as the letter, of the new congressional mandate. He should not be distracted from this effort by politically-driven griping from economists who should know better than to question the congressional intent behind that mandate.

The only question that Hall or any competent economist might ask in considering the question of dynamic scoring is, “Why would we do it any other way?” Dynamic scoring means measuring the impact on tax revenues of a change in tax law by taking into account how that change will affect the base on which the tax is imposed. Because changing a tax law will always change the economic activity on which the tax is imposed, it would be nonsensical to assume the tax base will remain fixed under a new law. Yet that is exactly what the proponents of “static scoring” want to assume. And it is static scoring that dynamic scoring is intended to replace.

Suppose that someone committed to the idea of static scoring thinks income taxes are too low. If the combined federal and state income tax applicable to the top federal tax bracket is 50 percent (as it is in some states), then, under the canons of static scoring, we might as well double the rate to double the amount of revenue collected from that tax bracket. Dynamic scoring would produce the obvious conclusion that the amount of revenue collected would go to zero, inasmuch as no one will bother to earn (or report) any income that is taxed at 100 percent. Read more at NCPA.

More on dynamic scoring from today’s Wall Street Journal.(gated).

 

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