Republican Consulting

Congress catches up to 17th century science

By By former Rep. Geoff Davis (R-Ky.) and James Carter- 01/14/15

The Hill

 

Isaac Newton was a smart guy.

 

In 1687, he postulated his Third Law which declares that every action has an equal and opposite reaction. If an object collides with another, the force is transferred to the other object in order for equilibrium to ensue; a batter hits a baseball and it flies into the outfield.

 

Newton’s law also largely applies to human behavior. If the price of beef increases relative to chicken, all else being equal, consumers typically purchase less beef and more chicken. Action and reaction.
Newton was right. We see such truths every day in the public policy arena and the 114th Congress has finally caught up with Newton by embracing a form of budget analysis that attempts to take into account the real-world effects of tax and spending bills.

 

Under new House rules approved on the first day of Congress, when the Congressional Budget Office and the Joint Committee on Taxation analyze major tax or spending bills they, “shall, to the extent practicable, incorporate the budgetary effects of changes in economic output, employment, capital stock, and other macroeconomic variables resulting from such legislation.”

 

The term of art for this practice is dynamic scoring. It is a method long used by successful businesses to develop candid assessments about how their decisions will impact their ability to compete in tough markets.

 

Given that dynamic scoring is the recognized standard for businesses across the globe, it’s odd that some people in Washington, DC would oppose it. Some prefer the more simplistic mathematics of a static approach to budget scoring. For example, if taxes are lowered by, say, five percent, there are those who see five percent less revenue to the government and nothing more. But it’s not quite that simple in real life.

 

In reality, tax cuts (and increases) adjust incentives and influence behavior. Inasmuch as a change in tax policy results in widespread or intense changes in behavior, it can have a profound impact on the economy. Reducing marginal income tax rates, for example, can improve the incentive to work, save, and invest and the positive impact on economic growth will usually result in a less-than-proportional revenue loss. Action and reaction.

 

Moreover, different kinds of tax policy changes can have vastly different economic effects. For example, changing the child tax credit will have a different impact on the economy than changing depreciation schedules or adjusting taxes on capital gains and dividends. This is not speculation; this is how life works. And these are the distinctions that U.S. policy makers ought to be aware of before they vote on spending bills and proposed changes to tax law.

 

Some argue dynamic scoring is simply too difficult. That has not prevented the Joint Committee on Taxation from routinely producing macroeconomic analyses of major pieces of legislation. It’s just that these analyses were, prior to the recent rule change, routinely ignored when it came to producing the official score.

 

Dynamic scoring has gotten a bad rap over the years, mainly from people who don’t understand it. Perhaps it ought to be called reality scoring. It takes into account the real-world effects of proposed laws and gives policy makers, prior to having to vote on a given piece of legislation, a truer picture of how the legislation would likely impact the economy.

 

Dynamic scoring is no panacea but, as Senate Finance Committee Chairman Orrin Hatch (R-Utah) has pointed out, “Both Democrats and Republicans alike have acknowledged that dynamic analysis can be useful in a variety of areas. It provides valuable information that should not simply be ignored or discarded. And, it should be used ... to reach budget and revenue estimates associated with major legislative proposals, including tax reform proposals.”

 

The 114th Congress should be applauded for having adopted dynamic scoring. It’s good idea that is long overdue. We think Newton would agree.

 

Davis is a former U.S. Representative from Kentucky and served on the House Ways and Means Committee. Carter was a deputy assistant secretary of the Treasury under President George W. Bush and served on the staff of the Senate Budget Committee.

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