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8/21/2019 Considerations in Dynamic Scoring and Macroeconomic Modeling
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Considerations in Dynamic Scoringand Macroeconomic ModelingThe Link Between Tax Cuts, Inequality, and Growth
By Anna Chu March 2015
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Considerations inDynamic Scoring andMacroeconomic ModelingThe Link Between Tax Cuts, Inequality, and Growth
By Anna Chu March 2015
8/21/2019 Considerations in Dynamic Scoring and Macroeconomic Modeling
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1 Introduction and summary
3 Background on dynamic scoring
5 Trickle-down gimmicks
8 Tax policy, inequality, and growth
11 Recommendations: Considerations for CBO and JCT
13 Conclusion
14 About the author
15 Endnotes
Contents
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Introduction and summary
Under he simple rules o mah, wo plus wo equals our. Bu House Republican
congressional leaders’ new uzzy rules or evaluaing he budgeary impac o
legislaion blur he lines o simple mah.1 Under heir new rules, wo plus wo may
soon equal five.
As an opening salvo or he 114h Congress, in a “largely pary-line voe o 234-172,”
Republicans in he House adoped a rules package ha included a provision asking
he Congressional Budge Office, or CBO, and he Join Commitee on axaion, or JC, o use so-called dynamic scoring in heir evaluaion o a proposed legislaion’s
budgeary impac.2 Under he rule, CBO and JC would have o arrive a one
esimae o he economic impac o a proposed billa difficul and uncerain
endeavorand acor ha ino a final score o he bill’s budgeary impac. Tis
differs rom curren pracice, where CBO and JC provide, when requesed, a range
o esimaes based on differen assumpions and models o how he economy would
respond o policy changes. Compared wih dynamic scoring, his range o esimaed
impacs provides lawmakers wih more inormaion abou he possible impacs o a
proposed policy.
By requiring CBO and JC o whitle down he range o macroeconomic esimaes
ino one number or a final score, he rule would make CBO and JC pick and
choose which assumpions and models coun in he macroeconomic analysis. I one
o he assumpions is ha a boos in he economy may lead o more people working
and paying more axes, hen ha addiional ax revenue received by he governmen
would offse he official cos o a bill. Tus, on paper, he proposal would have a
lower official cos because o possibly uncerain and unrealisic assumpions ha
he proposal would generae economic growh. Tis move would make i easier
or policymakers o enac more ax cus based on he conservaive rickle-downmyhology ha ax cus or he rich grow he economy. I is especially elling ha he
rule inroduced by House Republican leaders3 would “or all pracical purposes …
apply almos exclusively o ax legislaion.”4 I seems ha since conservaives
canno ge ax cus hrough he ron door, hey are rying o ge hem hrough he
side door insead.
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CBO and JC should no be orced o underake dynamic scoring. Bu since he
House passed he new rules package, responsible lawmakers should work wih CBO;
CBO’s new direcor, Keih Hall; and JC o ensure ha he so-called dynamic
scoring process is no hijacked as a vehicle o sell he conservaive rickle-down
myhology. Specifically, CBO and JC should consider he ollowing wo issues:
• The latest economic research. A growing body o empirical research undermines
he conservaive economic manra ha ax cus or he rich grow he economy.5
CBO and JC should ensure ha heir macroeconomic models reflec his
growing empirical evidence. A he same ime, more and more research suggess
ha rising inequaliy is holding back he naion’s economic growh.6 Given his,
CBO and JC should develop a macroeconomic model ha considers how a
proposed bill would impac inequaliyand hereore economic growh. While
his may be an evolving and ime-consuming process, reasonable seps can be
made oward his goal, including a CBO and JC sudy on inequaliy’s impac
on economic growh.
• The distributional impact of tax policies. Given he evidence ha or many
households, marke incomes are sagnan or declining,7 and given he emerging
evidence ha rising income inequaliy is holding back economic growh,8 CBO
and JC should conduc an analysis o he disribuional impac o ax policies.
I a proposed ax policy were o increase income inequaliy, CBO and JC should
deermine how ha increased inequaliy hurs economic growh and acor ha
ino heir dynamic score. Addiionally, CBO and JC should consider how ax
cus given o cerain income brackes could impac consumpion and demand.
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Background on dynamic scoring
CBO and JC are boh radiionally objecive, nonparisan insiuions, bu
dynamic scoring hreaens o enshrine conservaive rickle-down philosophy in
hem, easing he passage o bills o cu axes or he rich. In order o undersand
he impacs o hese proposed changes, i is imporan o undersand how CBO
and JC currenly score and analyze spending and ax measures, how dynamic
scoring changes hose procedures, and why i is problemaic o do so.
Current approach
CBO and JC currenly do no consider a proposed bill’s effec on economic growh
in producing an esimae o is budgeary impac.9 CBO and JC do, however,
consider he microeconomic, direc behavioral effecs o a specific policy. For
example, CBO and JC’s analysis o an increase in gasoline axes esimaes how
much less gas Americans would buy because o he higher effecive cos.10 Tus,
curren scoring pracices are no saichey simply leave ou more speculaive
indirec effecs, such as he indirec effecs proposals migh have on labor supply
and how hose effecs migh affec ederal revenues.
Under he curren approach, congressional members who are considering specific
proposals may reques a separae analysis rom CBO and JC o he macroeconomic
effecs o he proposal. o arrive a hese broader, indirec impacs, CBO and JC
will use a range o economic models and assumpions and repor on he resuls
rom each. JC specifically saed ha he goals or is models include he “abiliy
o reflec he range o resuls based on varying modeling assumpions and resuls
rom economic research.”11
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An example o JC’s macroeconomic analysis is is esimaes o he macroeconomic
impac o ormer House Ways and Means Chairman Dave Camp’s (R-MI) ax
reorm proposal. Tis proposal used wo differen models and varying assumpions
in is analysis and produced eigh esimaes, ranging rom a projeced 0.1 percen
increase in gross domesic produc, or GDP, all he way o 1.6 percen. Te revenue
esimaes ranged rom $50 billion o $700 billion in addiional revenue over 10 years.12 By conras, under JC’s convenional score o he budgeary impac o he
bill ha did no acor in he range o economic impacs, Rep. Camp’s ax proposal
would be almos budge neural over a 10-year window bu would add o he defici
in muliple years.13 O course, he esimae ha he proposal migh bring in $700
billion in new revenue makes i much more palaable o policymakers and he
public han he convenional score o he proposal. No surprisingly, Rep. Camp
promoed he $700 billion esimae.14
Dynamic scoring
Dynamic scoring would require CBO and JC o include an esimae o he
macroeconomic effecs o a bill in heir official score. Tis may include esimaing
how a change in he ax law migh affec he labor supply and how an expanded or
conraced labor supply may, in urn, affec he amoun o axes colleced. Te
process o esimaing he macroeconomic impac o legislaion becomes highly
problemaic, however, when CBO and JC are orced o pick one ou o a range o
esimaes in order o arrive a a final score. As Rep. Camp’s proposal illusraes, he
esimaes o he macroeconomic effecs o ax policies are highly sensiive o he
assumpions made and he models used. Rep. Camp’s proposal showcases how
difficul i is o capure he economic impacs o poenial legislaion. Obaining
he mean or median o he esimaes is also problemaic because hey are sill
subjec o he wide variances in he assumpions made and models used, while
providing less useul inormaion or policymakers.
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Trickle-down gimmicks
Despie he difficulies in arriving a a single esimae o he macroeconomic impac
o a proposed bill, House Republicans passed a rule o orce dynamic scoring upon
CBO and JC. Tis is especially problemaic in ligh o he ac ha he House rule
imposing dynamic scoring would or all pracical purposes apply “almos exclusively
o ax legislaion.”15
How dynamic scoring could be manipulated to serve theconservative tax agenda
Undersanding how he conservaive rickle-down ax ideology could be enshrined
in he legislaive process hrough dynamic scoring requires a brie explanaion o
some o he conceps surrounding ax reorm, saring wih revenue neuraliy.
House Ways and Means Commitee Chairman Paul Ryan (R-WI) has avored
“revenue-neural” corporae ax reorm.16 Generally, a revenue-neural ax reorm
would neiher increase nor decrease oal ax revenues, even i some provisions
raise revenue and some lose revenue. Tis could heoreically be accomplished by
eliminaing some ax loopholes while simulaneously reducing overall ax raes.
However, he process o finding ax loopholes o cu is a difficul endeavor. Every
ax loophole is enjoyed by a differen consiuency ha would ofen figh ooh
and nail o proec i. Bu i CBO or JC were o adop a dynamic score wih very
opimisic assumpions abou he impac o ax cus on he economy, hen he
reorm proposal would appear cheaper and hus would no need o cu as many
loopholes in order o mainain revenue neuraliy on paper.
Wha his means in real lie is ha Rep. Ryan, who previously proposed cutingpersonal ax raes or he very rich down o 25 percen, may no acually have o
pay or much o any proposed ax cus.17 Insead, dynamic scoring could lead o
Rep. Ryan’s proposals appearing cheaper han hey really are, and hus, he would
no have o cu as many loopholes o pay or his ax cus or he rich. Wha helps
Rep. Ryan pass his proposals, hough, is harmul o he economy. Tese unpaid-
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or ax cus or he rich will no jus add o he ederal defici, bu more and more
research indicaes ha hey may also increase inequaliy.18 As discussed in he nex
secion, he evidence suggess ha such irresponsible ax cus could acually slow
down economic growh.
The failure of tr ickle-down tax cuts to generate economic growth
Te heory underlying he conservaive ax agenda is ha ax cus or he rich will
rickle down o everyone else and help grow he economy. Under he rickle-down
view, lower op ax raes would allow he rich o keep more o heir money, giving
hem more money o inves back ino he economy and an addiional incenive o
work harder. However, anoher heory argues ha when lower op ax raes give
he rich more money, hey can work less o mainain he same sandard o living. I
hese wo incenives cancel each oher ou, hen cuting axes or he rich would
have no meaningul impac on he economy.19
Indeed, a growing body o credible economic research shows ha ax cus or he
rich have litle relaionship wih economic growh. Analysis o op U.S. ax raes
since 1945 conduced by he nonparisan Congressional Research Service, or CRS,
ound litle evidence o a relaionship beween he reducion o op ax raes and
increased savings, invesmen, or producive growh.20 CRS examined wheher
here was any relaionship beween op marginal ax raes or op capial gains ax
raes wih saving and invesmen, produciviy growh, and real per-capia GDP
growh. Regression analysis did no find a saisically significan relaionship,
suggesing ha op ax raes do no have any significan connecion o invesmens,
produciviy growh, or he real GDP growh rae.21
Meanwhile, a recen review o economic research on ax changes and economic
growh by he ax Policy Cener showed ha unpaid-or ax cus have litle posiive
impac on economic growh.22 For example, an analysis o he impac o he 2001
and 2003 ax cus passed by ormer Presiden George W. Bush yielded “no
firs-order evidence in he aggregae daa ha hese ax cus generaed growh.”23
Insead, by adding o he defici, he unpaid-or ax cus reduced public savings
more han hey increased privae savings and acually raised he cos o capial.Te negaive effecs o higher deficis and reduced public savings ouweighed any
posiive effecs o he ax cus. Bu wha he ax cus did do was help he rich by
“crea[ing] windall gains or he owners o old capial.”24 In oher words, ax cus
did no rickle down o help he broader public; insead, hey jus helped hose
who already had capial.
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Te recen example o Kansas’ exreme ax cu agenda deals anoher blow o he
conservaive myh. Kansas Gov. Sam Brownback (R), a big supporer o rickle-
down economics, pushed or massive, unpaid-or ax cus ha he claimed would
ac “like a sho o an adrenaline ino he hear o he Kansas economy.”25 In 2012,
Kansas cu he op personal income ax raes rom 6.45 percen or income over
$60,000 and 6.25 percen or income beween $30,000 and $60,000 or marriedcouples o 4.9 percen on income over $30,000.26 Te sae also cu he ax rae on
income under $30,000 rom 3.5 percen o 3 percen.27 In 2013, Kansas cu he
op rae urher, rom 4.9 percen o 3.9 percen by 2018.28
Gov. Brownback’s rickle-down dream experimen quickly urned ino a nighmare.
Insead o boosing he economy, Kansas’ economy lagged behind he neighboring
region and he counry in job growh. An analysis by he Kansas Cener or
Economic Growh shows ha Kansas’ job growh was below 3 percen in he ourh
quarer o 2014, while i was above 3.5 percen or he six-sae Midwes region and
more han 4 percen or he naion.29 And ar rom paying or isel in new revenue,in fiscal year 2014, revenues in Kansas were down $700 million.30 Te oulook is
so bad or Kansas ha Sandard & Poor’s downgraded Kansas’ bond raing rom
“AA+” o “AA,” ciing is “srucurally unbalanced budge.”31
No only is he evideniary case ha ax cus or
he rich boos economic growh scan a bes,
bu a Cener on Budge and Policy Prioriies
comparison o he impacs o a 1993 ax hike
and he 2001 ax cu showed ha job creaion
and economic growh were acually sronger in
he years afer he 1993 ax increases han in he
years ollowing he 2001 ax cus.32 A Cener or
American Progress examinaion showed ha a
low op marginal ax rae is acually associaed
wih weak economic growh.33 Alhough
correlaion does no mean causaion, hese
examples undermine he conservaive ax manra.
FIGURE 1
Top marginal tax rates and economic growth
Average annual growth rate of real GDP, by top marginal tax
1950 to 2013
Sources: Tax Policy Center, "Historical Individual Income Tax Parameters," available athttp://www.taxpolicycenter.org/taxfacts/displayafact.cfm?DocID=543&Topic2id=30&Topic3id=38; BurEconomic Analysis, "National Economic Accounts," available at http://www.bea.gov/national/Index.htm(last accessed February 2015).
0%
1%
2%
3%
4%
28–35% 38–50% 69–70% 71–92%
2.1%
3.3%3.6%
4.0%
Top marginal tax rate
A v e r a g e a n n u a l r e a l G D P g r o w t h r a t e
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Tax policy, inequality, and growth
Tax cuts for the rich are linked to rising inequality
Te widely acceped conservaive hinking ha ax cus or he rich rickle down
and generae economic growh is being challenged by growing evidence ha ax
cus or he rich simply make he rich richer and increase inequaliy. Tomas
Pikety, Emmanuel Saez, and Seanie Sancheva released an analysis o daa rom
18 counries in he Organisaion or Economic Co-operaion and Developmen,
or OECD, finding no correlaion beween changes in heir op ax raes andeconomic growh. Insead, here was a srong correlaion beween lower op ax
raes and higher levels o income inequaliy among he counries sudied, including
he Unied Saes.34
Te economic analysis o op ax raes by CRS similarly indicaed ha cuting op
ax raes is associaed wih “increasing concenraion o income a he op o he
income disribuion.”35 CRS examined he relaionship beween op ax raes and
he share o oal incomes going o he op 0.1 percen and op 0.01 percen since
1945. I ound a srong, saisically significan, and negaive relaionship beween
he op ax raes and he share o income going o he op, “sugges[ing] ha as he
op ax raes are reduced, he share o income accruing o he op o he income
disribuion increasesha is, income dispariies increase.”36 In conclusion, CRS
ound ha “op ax raes appear o have litle or no relaion o he size o he
economic pie,” meaning ha cuting axes or he rich has no been shown o grow
he economy. Insead, cuting axes or he rich is associaed wih making he rich
richer and increasing inequaliy.37
Te experience o he 1993 Omnibus Budge Reconciliaion Ac, which raised axes
on he op income earners by creaing wo new upper-end ax brackes, is alsoinsrucive.38 A he ime, some Republicans in Congress warned ha he ax hikes
would kill he economic recovery and pu he counry back ino a recession.39
However, no only did he economy boom, bu he ax sysem reduced inequaliy
more ollowing he changes. When looking a he level o inequaliy beore axes
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and afer axesas measured by he Gini coefficienwe find ha he ax sysem
reduced inequaliy by 7 percen afer axes in 1992.40 In comparison, in 1994he
firs ull year afer he ax changeshe ax sysem reduced inequaliy by 8.7
percen, a 23 percen increase in he ax sysem’s inequaliy reducion.41
Conversely, he 2001 and 2003 Bush ax cus lowered raes or everyone bu madehe sysem less progressive and reduced he ax code’s effec on inequaliy.42 Beween
2001 and 2004, he ax code’s reducion in inequaliy ell rom 8.6 percenage
poins o 7.8 percenage poins, a 10 percen reducion.43 Looking a he reduc-
ions saring in 2001 raher han 2000 is more elling because he end o he
echnology sock bubble grealy reduced marke-produced inequaliy.
FIGURE 2
The tax system reduces inequality more when taxes increase at the top
The change in inequality before and after taxes, as measured by the percentagedifference in pre- and post-tax Gini coefficients
Source: Author's analysis of data from the Congressional Budget Office, "The Distribution of Household Income and Federal Taxes, 2011:Supplemental Data" (2014), available at https://www.cbo.gov/publication/49440.
1992 1994 2001 2004
Before
1993 tax change 2001 and 2003 tax changes
After Before After
0%
2%
4%
6%
8%
10%
0%
2%
4%
6%
8%
10%
7.1%
8.7% 8.6%7.8%
Growing body of research shows rising inequality is holding back
economic growth
Lawmakers should be concerned abou he impac o policy changes on incomeinequaliy, especially wih he ever-growing body o research ha shows ha rising
inequaliy may be holding back economic growh.
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Recenly, he Washingon Cener or Equiable Growh released a review o he
economic research on inequaliy and economic growh.44 Te recen research
suggess ha while some amoun o economic inequaliybu no exreme
inequaliymay have some shor- and medium-erm benefis, “higher levels o
income inequaliy are derimenal o long-erm economic growh.”45 Indeed, research
conduced by Ugo Panizza o he U.N. Conerence on rade and Developmenound ha across U.S. saes, higher inequaliy is associaed wih lower growh raes,
while a srong middle class is associaed wih higher growh raes.46 Meanwhile,
research conduced by economiss a he World Bank and he Ciy Universiy o
New York ha examined sae-level daa in he Unied Saes ound ha “high
levels o inequaliy reduce he income growh o he poor and, i anyhing, help
he growh o he rich.”47
Inernaional research also suggess a negaive relaionship beween inequaliy and
growh. Te Inernaional Moneary Fund, or IMF, released research ha showed
ha counries wih more inequaliy experience more unsable growh.48 Addiionally, he IMF ound ha some o he policies aken o address inequaliy
may spur aser growh.49 Tis held rue in boh developed and developing counries.
Te OECD also recenly ound ha counries where income inequaliy was alling
experienced aser growh han counries where inequaliy was rising.50 Tis
growing body o research suppors middle-ou economicsha prosperiy and
economic growh comes rom he middle class ou, no rom he op down.
Academic researchers are no he only ones saying ha inequaliy may be harming
economic growh. Indeed, Wall Sree is jumping on he bandwagon. In Augus
2014, credi raing agency Sandard & Poor’s sounded he alarm “ha he curren
level o income inequaliy in he U.S. is dampening GDP growh.”51 Te high level
o inequaliy in he counry led Sandard & Poor’s o reduce is 10-year U.S. growh
orecas rom 2.8 percen o 2.5 percen.52 Ten, in Sepember, Morgan Sanley,
hardly a banner carrier or progressive policies, recognized ha a weakened middle
class means ha i no longer has he consumpion power needed o boos he
economy. Insead, weak wage growh is resuling in weaker domesic demand,
which is huring he economy. Morgan Sanley warned invesors ha “sronger
growh in wages and salaries is essenial o he macro oulook.”53
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Recommendations:
Considerations for CBO and JCT
Te macroeconomic analysis conduced by CBO and JC provides he mos
useul inormaion i i can reflec a range o possible oucomes based on various
assumpions and models and i i reflecs sae-o-he ar, credible economic research.
As discussed in his repor and as highlighed by oher organizaions such as he
Cener on Budge and Policy Prioriies,54 he Commitee or a Responsible Federal
Budge,55 and he Washingon Cener or Equiable Growh,56 orcing CBO and
JC o pick a single macroeconomic oucome or he purposes o a dynamic score
is highly problemaic. Bu as hese insiuions are orced o conduc dynamicscoring by some congressional leaders, oher, more responsible leaders should ensure
ha CBO and JC’s macroeconomic analysis reflecs he mos curren economic
research and is no used as a vehicle o promoe he rickle-down ax manra.
In paricular, CBO and JC should consider he ollowing wo acors.
The latest economic research
Given he mouning research dispelling he conservaive myh ha ax cus or he
rich grow he economy, CBO and JC should ensure ha hey do no use overly
opimisic assumpions abou he economic impacs o ax cus or he rich. Insead,
in ligh o growing research linking ax cus or he rich o rising inequaliy 57 and
rising inequaliy o slower economic growh,58 CBO and JC should develop a
macroeconomic model ha considers how a proposed bill would impac inequaliy
and growh.
Alhough developing such models may be a ime-inensive endeavor, orgoing his
analysis would deprive policymakers o criical consideraions as hey debae he bes mechanisms wih which o improve he naion’s economy and deliver prosperiy
o he American people. Congressional leaders could pursue inerim seps in his
process, including requesing ha CBO and JC conduc an economic analysis o
he relaionship beween inequaliy and growh.
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The distributional impact of tax cuts
CBO and JC should also conduc a disribuional analysis o proposed ax policies.
In ligh o research showing ha ax cus or he rich are linked o rising inequaliy, 59
CBO and JC should examine how proposed ax cus impac differen income
brackes and wheher he cus may increase inequaliy and slow down economicgrowh. Te resuls o his analysis should be ed back ino any macroeconomic
modeling or he legislaion.
An addiional consideraion or CBO and JC is how ax cus or differen income
brackes would affec consumpion and demand, a concern especially when demand
is low. Middle- and lower-income amilies have a lower savings rae han he rich
and a higher propensiy o consume,60 boosing demand in he economy. I we have
learned one hing in he pas decade, i is ha he economy can all shor on demand
or an exended period o ime.
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Conclusion
In 2012, Republican presidenial candidae and ormer Massachusets Gov. Mit
Romney and his running mae Rep. Paul Ryan came under fire or ailing basic
mah when hey proposed significan ax cus and ax changes ha would
disproporionaely benefi he rich and claimed ha hey would no need o raise
axes on he middle class o do so.61 Insead o learning rom hose misakes and
adjusing heir policies, Republicans in Congress are sill atemping o adjus he
basic rules o mah.62
CBO and JC should no be orced o adop dynamic scoring. In his poliical realiy
where Republicans conrol boh he House and he Senae and are demanding
ha CBO and JC adop dynamic scoring, however, CBO and JC may no have
a choice. In his scenario, progressive leaders in Congress should do all hey can o
ensure ha he macroeconomic models used in CBO and JC’s dynamic scoring
o proposals reflecs he dearh o proo ha ax cus or he rich grow he economy,
as well as he growing body o economic research ha shows ha inequaliy is
holding back he naion’s economic growh.
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About the author
Anna Chu is he Direcor o he Middle-Ou Economics projec a he Cener or
American Progress. She brings experience working on a muliude o economic
campaigns as he Policy Direcor or he TinkProgress War Room a he Cener
or American Progress Acion Fund.
She also served as he policy direcor or he Democraic Senaorial Campaign
Commitee during he successul 2012 cycle in which Democras added wo seas
o heir Senae majoriy. As policy direcor, Chu oversaw and managed all policy
issues or he commitee and Democraic Senae candidaes. Prior o working a
he Democraic Senaorial Campaign Commitee, Chu was he policy advisor or
he House Democraic Caucus, where she managed several congressional ask
orces. She previously served as a ederal law clerk and worked as an associae a
Paul Hasings.
Chu graduaed rom he Universiy o Caliornia, Berkeley, and earned a J.D. rom
he Universiy o Souhern Caliornia.
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Endnotes
1 Brian Faler, “House adopts new math rules to boost taxcuts,” Politico, January 6, 2015, available at http://www.politico.com/story/2015/01/house-tax-cuts-114010.html.
2 Ibid.
3 Rebecca Shabad and Bernie Becker, “GOP unveilsproposal to require ‘dynamic’ scoring on major bills,”
The Hill, December 23, 2014, available at http://thehill.com/policy/finance/228025-gop-unveils-proposal-to-require-dynamic-scoring-on-major-bills.
4 Robert G. Lynch, “The benefits and drawbacks of usingdynamic scoring in the federal budget” (Washington:Washington Center for Equitable Growth, 2015), availableat http://equitablegrowth.org/research/benefits-drawbacks-using-dynamic-scoring-federal-budget/.
5 Harry Stein and Michael Madowitz, “How the RyanBudget Fails Our Economy By Failing Economics”(Washington: Center for American Progress, 2014),available at https://www.americanprogress.org/issues/budget/report/2014/04/09/87430/how-the-ryan-budget-fails-our-economy-by-failing-economics/;
Thomas Piketty and Emmanuel Saez, “Top Incomes andthe Great Recession: Recent Evolutions and PolicyImplications,” Paper presented at the 13th JacquesPolak Annual Research Conference, November 8–9,2012, available at http://www.imf.org/external/np/res/seminars/2012/arc/pdf/PS.pdf ; William G. Gale andAndrew A. Samwick, “Effects of Income Tax Changes onEconomic Growth” (Washington: Brookings Institution,2014), available at http://www.brookings.edu/research/papers/2014/09/09-effects-income-tax-changes-economic-growth-gale-samwick .
6 Standard & Poor’s, “How Increasing Income Inequality IsDampening U.S. Economic Growth, And Possible Ways
To Change The Tide,” August 5, 2014, available athttps://www.globalcreditportal.com/ratingsdirect/renderArticle.do?articleId=1351366&SctArtId=255732&from=CM&nsl_code=LIME&sourceObjectId=8741033&sourceRevId=1&fee_ind=N&exp_date=20240804-19:41:13.
7 Drew DeSilver, “For most workers, real wages have barelybudged for decades,” Pew Research Fact Tank, October9, 2014, available at http://www.pewresearch.org/fact-tank/2014/10/09/for-most-workers-real-wages-have-barely-budged-for-decades/.
8 Standard & Poor’s, “How Increasing Income Inequality IsDampening U.S. Economic Growth, And Possible Ways
To Change The Tide.”
9 Paul N. Van de Water and Chye-Ching Huang, “Budgetand Tax Plans Should Not Rely on ‘Dynamic Scoring’”(Washington: Center on Budget and Policy Priorities,2014), available at h ttp://www.cbpp.org/cms/?fa=view&id=3598.
10 Congressional Budget Office, “The Economic Costs ofFuel Economy Standards Versus a Gasoline Tax” (2003),
available at www.cbo.gov/sites/default/files/12-24-03_cafe.pdf .
11 Joint Committee on Taxation, “Macroeconomic Analysisat the Joint Committee on Taxation and the Mechanicsof Its Implementation: Outline of Presentation of theJoint Committee Staff at the Brookings InstitutionProgram ‘Dynamic Scoring: Now What?’” (2015),available at https://www.jct.gov/publications.html?func=startdown&id=4687.
12 Joint Committee on Taxation, “Macroeconomic Analysisof the ‘Tax Reform Act of 2014’” (2014), available athttp://waysandmeans.house.gov/uploadedfiles/
jct_macroeconomic_analysis_jcx_22_14__022614.pdf; Van de Water and Huang, “Why Budget and Tax PlansShouldn’t Use Dynamic Scoring.”
13 Joint Committee on Taxation, “Macroeconomic Analysisof the ‘Tax Reform Act of 2014’”; The Bottom Line,“Revenue Impacts of Camp’s Tax Reform Proposal,”February 26, 2014, available at http://crfb.org/blogs/revenue-impacts-camps-tax-reform-proposal; JointCommittee on Taxation, “Estimated Revenue Effects ofthe ‘Tax Reform Act of 2014’,” February 26, 2014, availableat http://waysandmeans.house.gov/uploadedfiles/
jct_revenue_estimate__jcx_20_14__022614.pdf .
14 House Committee on Ways and Means, “Camp releasestax reform plan to strengthen the economy and makethe tax code simpler, fairer, and flatter,” Press release,February 26, 2014, available at http://waysandmeans.house.gov/news/documentsingle.aspx?DocumentID=370987.
15 Lynch, “The benefits and drawbacks of using dynamicscoring in the federal budget.”
16 Damian Paletta, “Paul Ryan to Pursue Business TaxOverhaul in 2015,” Washington Wire, December 2, 2014,available at http://blogs.wsj.com/washwire/2014/12/02/ryan-to-pursue-business-tax-overhaul-in-2015/.
17 Tony Nitti, “Tax Aspects of Paul Ryan’s FY 2014Republican Budget Proposal,” Forbes, March 12, 2013,available at http://www.forbes.com/sites/anthonynitti/2013/03/12/tax-aspects-of-paul-ryans-fy-2014-republican-budget-proposal/.
18 Stein and Madowitz, “How the Ryan Budget Fails OurEconomy By Failing Economics”; Piketty and Saez, “TopIncomes and the Great Recession.”
19 Stein and Madowitz, “How the Ryan Budget Fails OurEconomy By Failing Economics.”
20 Thomas L. Hungerford, “Taxes and the Economy: AnEconomic Analysis of Top Tax Rates Since 1945 ”(Washington: Congressional Research Service, 2012),available at http://online.wsj.com/public/resources/documents/r42729_0917.pdf .
21 Ibid.
22 Gale and Samwick, “Effects of Income Tax Changes onEconomic Growth.”
23 Ibid.
24 Ibid.
25 Michael Hiltzik, “How Tea Party tax cuts are turningKansas into a smoking ruin,”Los Angeles Times, July 10,2014, available at http://www.latimes.com/business/hiltzik/la-fi-mh-kansas-a-smoking-ruin-20140709-
column.html.
26 Ibid.
27 Michael Leachman, “Lessons for Other States fromKansas’ Massive Tax Cuts” (Washington: Center onBudget Policy and Priorities, 2014), available at http://www.cbpp.org/cms/index.cfm?fa=view&id=4110.
28 Ibid.
http://www.politico.com/story/2015/01/house-tax-cuts-114010.htmlhttp://www.politico.com/story/2015/01/house-tax-cuts-114010.htmlhttp://www.politico.com/story/2015/01/house-tax-cuts-114010.htmlhttp://thehill.com/policy/finance/228025-gop-unveils-proposal-to-require-dynamic-scoring-on-major-billshttp://thehill.com/policy/finance/228025-gop-unveils-proposal-to-require-dynamic-scoring-on-major-billshttp://thehill.com/policy/finance/228025-gop-unveils-proposal-to-require-dynamic-scoring-on-major-billshttp://equitablegrowth.org/research/benefits-drawbacks-using-dynamic-scoring-federal-budget/http://equitablegrowth.org/research/benefits-drawbacks-using-dynamic-scoring-federal-budget/https://www.americanprogress.org/issues/budget/report/2014/04/09/87430/how-the-ryan-budget-fails-our-economy-by-failing-economics/https://www.americanprogress.org/issues/budget/report/2014/04/09/87430/how-the-ryan-budget-fails-our-economy-by-failing-economics/https://www.americanprogress.org/issues/budget/report/2014/04/09/87430/how-the-ryan-budget-fails-our-economy-by-failing-economics/http://www.imf.org/external/np/res/seminars/2012/arc/pdf/PS.pdfhttp://www.imf.org/external/np/res/seminars/2012/arc/pdf/PS.pdfhttp://www.brookings.edu/research/papers/2014/09/09-effects-income-tax-changes-economic-growth-gale-samwickhttp://www.brookings.edu/research/papers/2014/09/09-effects-income-tax-changes-economic-growth-gale-samwickhttp://www.brookings.edu/research/papers/2014/09/09-effects-income-tax-changes-economic-growth-gale-samwickhttps://www.globalcreditportal.com/ratingsdirect/renderArticle.do?articleId=1351366&SctArtId=255732&from=CM&nsl_code=LIME&sourceObjectId=8741033&sourceRevId=1&fee_ind=N&exp_date=20240804-19:41:13https://www.globalcreditportal.com/ratingsdirect/renderArticle.do?articleId=1351366&SctArtId=255732&from=CM&nsl_code=LIME&sourceObjectId=8741033&sourceRevId=1&fee_ind=N&exp_date=20240804-19:41:13https://www.globalcreditportal.com/ratingsdirect/renderArticle.do?articleId=1351366&SctArtId=255732&from=CM&nsl_code=LIME&sourceObjectId=8741033&sourceRevId=1&fee_ind=N&exp_date=20240804-19:41:13https://www.globalcreditportal.com/ratingsdirect/renderArticle.do?articleId=1351366&SctArtId=255732&from=CM&nsl_code=LIME&sourceObjectId=8741033&sourceRevId=1&fee_ind=N&exp_date=20240804-19:41:13https://www.globalcreditportal.com/ratingsdirect/renderArticle.do?articleId=1351366&SctArtId=255732&from=CM&nsl_code=LIME&sourceObjectId=8741033&sourceRevId=1&fee_ind=N&exp_date=20240804-19:41:13http://www.pewresearch.org/fact-tank/2014/10/09/for-most-workers-real-wages-have-barely-budged-for-decades/http://www.pewresearch.org/fact-tank/2014/10/09/for-most-workers-real-wages-have-barely-budged-for-decades/http://www.pewresearch.org/fact-tank/2014/10/09/for-most-workers-real-wages-have-barely-budged-for-decades/http://www.cbpp.org/cms/?fa=view&id=3598http://www.cbpp.org/cms/?fa=view&id=3598http://www.cbo.gov/sites/default/files/12-24-03_cafe.pdfhttp://www.cbo.gov/sites/default/files/12-24-03_cafe.pdfhttps://www.jct.gov/publications.html?func=startdown&id=4687https://www.jct.gov/publications.html?func=startdown&id=4687http://waysandmeans.house.gov/uploadedfiles/jct_macroeconomic_analysis_jcx_22_14__022614.pdfhttp://waysandmeans.house.gov/uploadedfiles/jct_macroeconomic_analysis_jcx_22_14__022614.pdfhttp://crfb.org/blogs/revenue-impacts-camps-tax-reform-proposalhttp://crfb.org/blogs/revenue-impacts-camps-tax-reform-proposalhttp://waysandmeans.house.gov/uploadedfiles/jct_revenue_estimate__jcx_20_14__022614.pdfhttp://waysandmeans.house.gov/uploadedfiles/jct_revenue_estimate__jcx_20_14__022614.pdfhttp://waysandmeans.house.gov/news/documentsingle.aspx?DocumentID=370987http://waysandmeans.house.gov/news/documentsingle.aspx?DocumentID=370987http://waysandmeans.house.gov/news/documentsingle.aspx?DocumentID=370987http://blogs.wsj.com/washwire/2014/12/02/ryan-to-pursue-business-tax-overhaul-in-2015/http://blogs.wsj.com/washwire/2014/12/02/ryan-to-pursue-business-tax-overhaul-in-2015/http://www.forbes.com/sites/anthonynitti/2013/03/12/tax-aspects-of-paul-ryans-fy-2014-republican-budget-proposal/http://www.forbes.com/sites/anthonynitti/2013/03/12/tax-aspects-of-paul-ryans-fy-2014-republican-budget-proposal/http://www.forbes.com/sites/anthonynitti/2013/03/12/tax-aspects-of-paul-ryans-fy-2014-republican-budget-proposal/http://online.wsj.com/public/resources/documents/r42729_0917.pdfhttp://online.wsj.com/public/resources/documents/r42729_0917.pdfhttp://www.latimes.com/business/hiltzik/la-fi-mh-kansas-a-smoking-ruin-20140709-column.htmlhttp://www.latimes.com/business/hiltzik/la-fi-mh-kansas-a-smoking-ruin-20140709-column.htmlhttp://www.latimes.com/business/hiltzik/la-fi-mh-kansas-a-smoking-ruin-20140709-column.htmlhttp://www.kansas.com/2012/07/29/2424351/gov-sam-brownback-tax-cuts-needed.htmlhttp://www.cbpp.org/cms/index.cfm?fa=view&id=4110http://www.cbpp.org/cms/index.cfm?fa=view&id=4110http://www.cbpp.org/cms/index.cfm?fa=view&id=4110http://www.cbpp.org/cms/index.cfm?fa=view&id=4110http://www.kansas.com/2012/07/29/2424351/gov-sam-brownback-tax-cuts-needed.htmlhttp://www.latimes.com/business/hiltzik/la-fi-mh-kansas-a-smoking-ruin-20140709-column.htmlhttp://www.latimes.com/business/hiltzik/la-fi-mh-kansas-a-smoking-ruin-20140709-column.htmlhttp://www.latimes.com/business/hiltzik/la-fi-mh-kansas-a-smoking-ruin-20140709-column.htmlhttp://online.wsj.com/public/resources/documents/r42729_0917.pdfhttp://online.wsj.com/public/resources/documents/r42729_0917.pdfhttp://www.forbes.com/sites/anthonynitti/2013/03/12/tax-aspects-of-paul-ryans-fy-2014-republican-budget-proposal/http://www.forbes.com/sites/anthonynitti/2013/03/12/tax-aspects-of-paul-ryans-fy-2014-republican-budget-proposal/http://www.forbes.com/sites/anthonynitti/2013/03/12/tax-aspects-of-paul-ryans-fy-2014-republican-budget-proposal/http://blogs.wsj.com/washwire/2014/12/02/ryan-to-pursue-business-tax-overhaul-in-2015/http://blogs.wsj.com/washwire/2014/12/02/ryan-to-pursue-business-tax-overhaul-in-2015/http://waysandmeans.house.gov/news/documentsingle.aspx?DocumentID=370987http://waysandmeans.house.gov/news/documentsingle.aspx?DocumentID=370987http://waysandmeans.house.gov/news/documentsingle.aspx?DocumentID=370987http://waysandmeans.house.gov/uploadedfiles/jct_revenue_estimate__jcx_20_14__022614.pdfhttp://waysandmeans.house.gov/uploadedfiles/jct_revenue_estimate__jcx_20_14__022614.pdfhttp://crfb.org/blogs/revenue-impacts-camps-tax-reform-proposalhttp://crfb.org/blogs/revenue-impacts-camps-tax-reform-proposalhttp://waysandmeans.house.gov/uploadedfiles/jct_macroeconomic_analysis_jcx_22_14__022614.pdfhttp://waysandmeans.house.gov/uploadedfiles/jct_macroeconomic_analysis_jcx_22_14__022614.pdfhttps://www.jct.gov/publications.html?func=startdown&id=4687https://www.jct.gov/publications.html?func=startdown&id=4687http://www.cbo.gov/sites/default/files/12-24-03_cafe.pdfhttp://www.cbo.gov/sites/default/files/12-24-03_cafe.pdfhttp://www.cbpp.org/cms/?fa=view&id=3598http://www.cbpp.org/cms/?fa=view&id=3598http://www.pewresearch.org/fact-tank/2014/10/09/for-most-workers-real-wages-have-barely-budged-for-decades/http://www.pewresearch.org/fact-tank/2014/10/09/for-most-workers-real-wages-have-barely-budged-for-decades/http://www.pewresearch.org/fact-tank/2014/10/09/for-most-workers-real-wages-have-barely-budged-for-decades/https://www.globalcreditportal.com/ratingsdirect/renderArticle.do?articleId=1351366&SctArtId=255732&from=CM&nsl_code=LIME&sourceObjectId=8741033&sourceRevId=1&fee_ind=N&exp_date=20240804-19:41:13https://www.globalcreditportal.com/ratingsdirect/renderArticle.do?articleId=1351366&SctArtId=255732&from=CM&nsl_code=LIME&sourceObjectId=8741033&sourceRevId=1&fee_ind=N&exp_date=20240804-19:41:13https://www.globalcreditportal.com/ratingsdirect/renderArticle.do?articleId=1351366&SctArtId=255732&from=CM&nsl_code=LIME&sourceObjectId=8741033&sourceRevId=1&fee_ind=N&exp_date=20240804-19:41:13https://www.globalcreditportal.com/ratingsdirect/renderArticle.do?articleId=1351366&SctArtId=255732&from=CM&nsl_code=LIME&sourceObjectId=8741033&sourceRevId=1&fee_ind=N&exp_date=20240804-19:41:13https://www.globalcreditportal.com/ratingsdirect/renderArticle.do?articleId=1351366&SctArtId=255732&from=CM&nsl_code=LIME&sourceObjectId=8741033&sourceRevId=1&fee_ind=N&exp_date=20240804-19:41:13http://www.brookings.edu/research/papers/2014/09/09-effects-income-tax-changes-economic-growth-gale-samwickhttp://www.brookings.edu/research/papers/2014/09/09-effects-income-tax-changes-economic-growth-gale-samwickhttp://www.brookings.edu/research/papers/2014/09/09-effects-income-tax-changes-economic-growth-gale-samwickhttp://www.imf.org/external/np/res/seminars/2012/arc/pdf/PS.pdfhttp://www.imf.org/external/np/res/seminars/2012/arc/pdf/PS.pdfhttps://www.americanprogress.org/issues/budget/report/2014/04/09/87430/how-the-ryan-budget-fails-our-economy-by-failing-economics/https://www.americanprogress.org/issues/budget/report/2014/04/09/87430/how-the-ryan-budget-fails-our-economy-by-failing-economics/https://www.americanprogress.org/issues/budget/report/2014/04/09/87430/how-the-ryan-budget-fails-our-economy-by-failing-economics/http://equitablegrowth.org/research/benefits-drawbacks-using-dynamic-scoring-federal-budget/http://equitablegrowth.org/research/benefits-drawbacks-using-dynamic-scoring-federal-budget/http://thehill.com/policy/finance/228025-gop-unveils-proposal-to-require-dynamic-scoring-on-major-billshttp://thehill.com/policy/finance/228025-gop-unveils-proposal-to-require-dynamic-scoring-on-major-billshttp://thehill.com/policy/finance/228025-gop-unveils-proposal-to-require-dynamic-scoring-on-major-billshttp://www.politico.com/story/2015/01/house-tax-cuts-114010.htmlhttp://www.politico.com/story/2015/01/house-tax-cuts-114010.htmlhttp://www.politico.com/story/2015/01/house-tax-cuts-114010.html
8/21/2019 Considerations in Dynamic Scoring and Macroeconomic Modeling
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16 Center for American Progress | Considerations in Dynamic Scoring and Macroeconomic Modeling
29 Kansas Center for Economic Growth, “Fool KansasOnce… ‘100,000 New Jobs’ Promise Doesn’t Stack Up toCurrent Growth,” January 28, 2015, available at http://realprosperityks.com/fool-kansans-100000-new-jobs-promise-doesnt-stack-current-growth/.
30 Letter from Kansas Legislative Research Department toLegislative Budget Committee, July 18, 2014, availableat http://www.kslegresearch.org/SGF/2014_SGF_June_Receipts.pdf ; Michael Leachman, “A DeservedDowngrade of Kansas’ Bonds,” Off the Charts, August11, 2014, available at http://www.offthechartsblog.org/
a-deserved-downgrade-of-kansas-bonds/.
31 Reid Wilson, “Kansas bond rating downgraded after taxcuts,” GovBeat, August 6, 2014, available at http://www.washingtonpost.com/blogs/govbeat/wp/2014/08/06/kansas-bond-rating-downgraded-after-tax-cuts/.
32 Chye-Ching Huang, “Recent Studies Find Raising Taxeson High-Income Households Would Not Harm theEconomy: Policy Should Be Included in Balanced Deficit-Reduction Effort” (Washington: Center on Budget andPolicy Priorities, 2012), available at http://www.cbpp.org/cms/?fa=view&id=3756; Gale and Samwick, “Effectsof Income Tax Changes on Economic Growth.”
33 Stein and Madowitz, “How the Ryan Budget Fails OurEconomy By Failing Economics.”
34 Ibid.; Piketty and Saez, “Top Incomes and the Great
Recession.”
35 Hungerford, “Taxes and the Economy: An EconomicAnalysis of Top Tax Rates Since 1945.”
36 Ibid.
37 Ibid.
38 The Bancroft Library at the University of California,Berkeley, “1993 Omnibus Budget Reconciliation Act,”available at http://bancroft.berkeley.edu/ROHO/projects/debt/1993reconciliationact.html (last accessedFebruary 2015).
39 Pat Garofalo, “Flashback: In 1993, GOP warned thatClinton’s tax plan would ‘kill jobs,’ ‘kill the currentrecovery’,” ThinkProgress, August 10, 2010, available athttp://thinkprogress.org/economy/2010/08/10/
173450/1993-quotes/.
40 Author’s analysis of data from Congressional BudgetOffice, “The Distribution of Household Income andFederal Taxes, 2011: Supplementary Data” (2014),available at https://www.cbo.gov/publication/49440.
41 Ibid.
42 Ibid.
43 Ibid.
44 Heather Boushey and Carter C. Price, “How AreEconomic Inequality and Growth Connected? A Reviewof Recent Research” (Washington: Washington Centerfor Equitable Growth, 2014), available at http://ms.techprogress.org/ms-content/uploads/sites/10/2014/10/100914-ineq-growth.pdf.
45 Ibid.
46 Ugo G. Panizza, “Income Inequality and Economic Growth:Evidence from American Data,” Journal of EconomicGrowth 7 (1) ( 2002): 25–41; Boushey and Price, “How AreEconomic Inequality and Growth Connected?”
47 Roy van der Weide and Branko Milanovic, “Inequality IsBad for Growth of the Poor (But Not for that of theRich).” Working Paper 6963 (World Bank Group, 2014),available at http://elibrary.worldbank.org/doi/pdf/10.1596/1813-9450-6963.
48 Andrew G. Berg and Jonathan D. Ostry, “Inequality andUnsustainable Growth: Two Sides of the Same Coin?”(Washington: International Monetary Fund, 2011),available at https://www.imf.org/external/pubs/ft/sdn/2011/sdn1108.pdf ; Boushey and Price, “How AreEconomic Inequality and Growth Connected?”
49 Jonathan D. Ostry, Andrew Berg, and Charalambos G. Tsangarides, “Redistribution, Inequality, and Growth”(Washington: International Monetary Fund, 2014),available at http://www.imf.org/external/pubs/ft/sdn/2014/sdn1402.pdf ; Boushey and Price, “How AreEconomic Inequality and Growth Connected?”
50 Federico Cingano, “Trends in income inequality and itsimpact on economic growth.” Working Paper 163(Organisation for Economic Co-operation andDevelopment, 2014), available at http://www.oecd-ilibrary.org/social-issues-migration-health/trends-in-income-inequality-and-its-impact-on-eco-nomic-growth_5jxrjncwxv6j-en.
51 Standard & Poor’s, “How Increasing Income Inequality IsDampening U.S. Economic Growth, And Possible Ways
To Change The Tide.”
52 Ibid.
53 Morgan Stanley, “US Economics: Inequality andConsumption” (2014), available at http://www.morganstanleyfa.com/public/projectfiles/02386f9f-409c-4cc9-bc6b-13574637ec1d.pdf.
54 Van de Water and Huang, “Budget and Tax Plans ShouldNot Rely on ‘Dynamic Scoring’.”
55 The Bottom Line, “The House’s New Rule on DynamicScoring,” January 8, 2015, available at http://crfb.org/blogs/houses-new-rule-dynamic-scoring.
56 Lynch, “The benefits and drawbacks of using dynamicscoring in th e federal budget.”
57 Stein and Madowitz, “How the Ryan Budget Fails Our
Economy By Failing Economics”; Piketty and Saez, “TopIncomes and the Great Recession.”
58 Boushey and Price, “How Are Economic Inequality andGrowth Connected?”
59 Stein and Madowitz, “How the Ryan Budget Fails OurEconomy By Failing Economics”; Piketty and Saez, “TopIncomes and the Great Recession.”
60 Karen E. Dynan, Jonathan Skinner, and Stephen P.Zeldes, “Do The R ich Save More?”, Journal of PoliticalEconomy , 112 (2) (2004): 397–444, available at https://www.dartmouth.edu/~jskinner/documents/DynanKEDotheRich.pdf .
61 Samuel Brown, William G. Gale, and Adam Looney, “The Tax Policy Center’s Analysis of Governor Romney’s TaxProposals: A Follow-up Discussion” (Washington:
Brookings Institution, 2012), available at http://www.brookings.edu/research/papers/2012/11/07-romney-tax-followup-brown-gale-looney.
62 Faler, “House adopts new math rules to boost tax cuts.”
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8/21/2019 Considerations in Dynamic Scoring and Macroeconomic Modeling
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