NCPA - National Center for Policy Analysis

Could Dynamic Scoring Save Tax Cuts?

December 20, 2000

It is now almost a foregone conclusion that a brief recession will hit early next year. This coming storm requires immediate action by President-elect George W. Bush.

  • A slowing economy improves the chances congressional Democrats will support Bush's proposed tax cuts, a traditional form of economic stimulus, often enacted to counteract the effects of a recession.
  • However, Bush is likely to be trying to cut taxes at the same time the surplus is contracting -- current budget projections assume continuous economic growth, and budget surpluses will evaporate if there is any slowdown in growth.
  • Thus, at the very least, Bush will be forced to scale-back his tax plans severely and perhaps make some of his cuts temporary, rather than permanent.

However, Bush could embrace dynamic scoring, which takes into account the impact of tax cuts on economic variables, which tends to reduce the budgetary impact of tax cuts. Normally, budget projections assume tax cuts reduce revenues dollar-for-dollar, regardless of their impact on saving, investment or growth.

There probably is not enough time to be ready on January 20 to send a tax bill and revised budget to Congress. The official administration budget for fiscal year 2002 is now being put together by Bill Clinton.

Thus the earliest that a tax cut could be enacted is early spring, and it probably wouldn't have any significant impact on the economy for several more months. At this point, it will be too late for it to have a countercyclical effect. For that to happen, the tax cut would already need to have been passed into law and made effective January 1.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, December 20, 2000.

 

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