Dynamic Scoring Not Novel
August 5, 1996
Static scoring assumes that people don't change their behavior in response to changes in tax rates or inflation. However, many economists support dynamic scoring, which takes account of the growth effects of cutting taxes, and the revenue loss when lower inflation slows government revenue growth. Such effects can be substantial:
- The Office of Management and Budget estimates that raising real gross domestic product growth by just 0.1 percent per year would raise federal revenues by $42 billion over seven years.
- A 1978 Congressional Budget Office estimate of the effects of the Kemp-Roth tax cut plan estimated that 24 percent of the static first year revenue loss would be recouped the first year, and revenues would rise 52 percent after five years.
- By contrast, a one percent lower inflation rate would lower revenues by almost $100 billion, according to some estimates.
Bob Dole's advisers reportedly estimate that up to 40 percent of a pro-growth tax cut could be recouped by higher growth rates.
Source: Bruce Bartlett (National Center for Policy Analysis), "Premature Ambush of Tax Cut Scorecard," Washington Times, August 5, 1996.
Browse more articles on Economic Issues