Dynamic scoring

Dynamic scoring predicts the impact of fiscal policy changes by forecasting the effects of economic agents' reactions to incentives created by policy. It is one of two main methods for analyzing policy changes, the other being static scoring.

The method has a potential for heightened accuracy coming from forecasting the responses of economic agents' future behavior under the new policy. Difficulty increases as the proposed policy becomes increasingly unlike current policy. The difficulty of dynamic scoring also increases as the time horizon under consideration lengthens. This is due to any model's intrinsic inability to account for unforeseen external shocks in the future. Dynamic scoring is more accurate than static scoring when the econometric model correctly captures how households and firms will react to a policy changes.

When dynamic scoring was used to draw the 2013 budget in Kansas, the state chose to cut personal income taxes to stimulate economic growth. The authors of the plan claimed that "cutting taxes can have a near immediate and permanent impact,"^[1] arguing for tax cuts over rebuilding roads or improving the quality of schools. Kansas' "rainy day" fund reported levels $570 million lower than before the tax cut,^[2] even though Kansas had directed more tax revenue to it.

United States

Using dynamic scoring has been promoted by Republican legislators to argue that supply-side tax policy, for example the Bush tax cuts of 2001^[3] and 2011 GOP Path to Prosperity proposal,^[4] return higher benefits in terms of GDP growth and revenue increases than are predicted from static scoring. Some economists^[5] argue that their dynamic scoring conclusions are overstated,^[6] pointing out that CBO practices already include some dynamic scoring elements and that to include more may lead to politicization of the department.^[7]

On January 6, 2013, the version of the Pro-Growth Budgeting Act of 2013 included in the Budget and Accounting Transparency Act of 2014 passed the United States House of Representatives as part of their Rules adopted in House Resolution 5, passed with the exclusive support of the Republican Party (United States) by a vote of 234-172.^[8] The same rules package for the year had other controversial provisions funded.^[9] The bill will require the Congressional Budget Office to use dynamic scoring to provide a macroeconomic impact analysis for bills that are estimated to have a large budgetary effect.^[10] The text of the provision reads:

“

(a) An estimate provided by the Congressional Budget Office under section 402 of the Congressional Budget Act of 1974 for any major legislation 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.

(b) An estimate provided by the Joint Committee on Taxation to the Director of the Congressional Budget Office under section 201(f) of the Congressional Budget Act of 1974 for any major legislation 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.

(1) a qualitative assessment of the budgetary effects (including macroeconomic variables described in paragraphs (a) and (b)) of such legislation in the 20-fiscal year period beginning after the last fiscal year of the most recently agreed to concurrent resolution on the budget that set forth appropriate levels required by section 301 of the Congressional Budget Act of 1974; and

(2) an identification of the critical assumptions and the source of data underlying that estimate.

(d) As used in this clause--

(1) the term `major legislation' means any bill or joint resolution--

(A) for which an estimate is required to be prepared pursuant to section 402 of the Congressional Budget Act of 1974 and that causes a gross budgetary effect (before incorporating macroeconomic effects) in any fiscal year over the years of the most recently agreed to concurrent resolution on the budget equal to or greater than 0.25 percent of the current projected gross domestic product of the United States for that fiscal year; or

(B) designated as such by the chair of the Committee on the Budget for all direct spending legislation other than revenue legislation or the Member who is chair or vice chair, as applicable, of the Joint Committee on Taxation for revenue legislation; and

(2) the term `budgetary effects' means changes in revenues, outlays, and deficits.^[11]

”

References

↑ Laffer, Arthur; Moore, Stephen (September 2012), Taxes Really Do Matter: Look at the States (PDF), Laffer Center for Supply-Side Economics
↑ Goossen, Duane (July 13, 2016). "Income Tax Cuts Broke the Kansas Budget" Check |url= value (help). Kansas Center For Economic Growth. Retrieved April 22, 2017.
↑ Wilson, D; William Beach. "The Economic Impact of President Bush's Tax Relief Plan". The Heritage Foundation. Retrieved 6 April 2011.
↑ Ryan, Paul. "Path to Prosperity 2012" (PDF). Retrieved 6 April 2011.
↑ Krugman, Paul (2014-10-05). "Voodoo Economics, the Next Generation". The New York Times. ISSN 0362-4331. Retrieved 2016-12-01.
↑ "Brad deLong's blog". Delong.typepad.com. 2006-05-15. Retrieved 2012-03-27.
↑ "Center on Budget and Policy Priorities" (PDF). Retrieved 2012-03-27.
↑ http://clerk.house.gov/evs/2017/roll006.xml
↑ Marcos, Cristina (6 January 2015). "House adopts 'dynamic scoring' rule". The Hill. Retrieved 12 January 2015.
↑ "H.R. 1874 - CBO". Congressional Budget Office. Retrieved 28 March 2014.
↑ "H.Res.5 - Adopting rules for the One Hundred Fourteenth Congress" US House of Representatives, January 6, 2015

External links

Doesn't Anyone Know the Score? by Newt Gingrich and Peter Ferrara
Dynamic Due by Bruce Bartlett
"Here's How Part B Can Save Medicare," by Michael Johns, HME News, July 2009.
Dynamic Scoring: An Introduction to the Issues By Alen J. Auerbach
Dynamic Analysis at Treasury: What Are the Next Steps? By Tracy Foertsch
Resources on the Dynamic Scoring Issue By The Tax Foundation
Dynamic Scoring: A Back-of-the-Envelope Guide by N. Gregory Mankiw and Matthew Weinzierl
The Bush Budget's Hidden Gold: Dynamic Scoring Comes to the Treasury By William Beach
Why the GOP loves ‘dynamic scoring’ by Suzy Khimm
The Problem with Dynamic Scoring by Josh Barro

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Dynamic scoring

United States

See also

References

External links