Dynamic Scoring of Tax Cuts
April 7, 2003
Many economists have long complained that the Congressional Budget Office's methods have shortchanged the contributions of tax cuts to stimulating the economy. Specifically, they have predicted revenue losses that are higher than they turn out to be.
CBO has heretofore used the "static" method of estimating revenues -- which assumes tax cuts have no effect on economic activity. But the CBO has now turned to "dynamic" scoring -- which takes into account that fact that tax cuts can increase growth and return money to federal coffers.
The result is to build the case for cuts, which had been denied before.
- One of two main economic simulations has shown that from 2004 to 2008 economic growth would increase by an average 1.4 percent a year under President Bush's tax proposals -- and the other forecast a 0.2 percent boost.
- The Heritage Foundation says the findings translate into 550,000 to 1.6 million new jobs a year.
- A Treasury report due out soon will show that 30 percent to 40 percent of the President's proposed $726 billion tax cut will flow back to the government.
The biggest bang to the economy will come from cutting marginal income tax or capital gains rates -- or eliminating the double tax on dividends. But increasing the child tax credit, for example, won't do much for growth or revenue.
Source: Editorial, "The Dynamic CBO," April 3, 2003, Wall Street Journal.
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