Dynamic Scoring: A Better Way to Evaluate Taxes
Requiring the CBO to Score Dynamic Effects on the Economy Promotes Smart Taxation: NCPA
March 25, 2015
Instituting the “dynamic scoring” of proposed tax law changes would force lawmakers to weigh the bad against the good in considering new spending programs and their cost to the American people, says NCPA Senior Fellow David Tuerck in a new report.
Dynamic scoring measures how a change in tax law impacts both the citizens the tax is imposed on and the revenue it generates. It will replace “static scoring,” which assumes that the tax base will remain fixed under a new law.
“Changing a tax law will always change the economic activity on which the tax is imposed,” says Tuerck. “It would be nonsensical to assume the tax base will remain fixed under a new law, yet this is exactly what proponents of ‘static scoring’ want to assume.”
According to the report, dynamic scoring brings into focus the most important question when considering a change in tax law: whether the new spending is justified, given the inevitable shrinkage in economic activity that new taxes bring.
“Dynamic scoring has the collateral effect of revealing how every tax increase, no matter how well intended, shrinks the base on which it is imposed. If that base is income, then we get less income and less production,” says Tuerck.
“Fundamental tax change means changing the incentives people have to save, to work and to invest,” he adds. “Those incentives are negatively affected by the tax system, and have to be considered in the long run.”
New Congressional Budget Office Director Keith Hall and Dynamic Scoring: http://www.ncpa.org/pub/ba809