The Senate narrowly adopted an amendment to its recent budget resolution that would require the Congressional Budget Office and Joint Committee on Taxation to prepare “dynamic” estimates of the budgetary impact of tax legislation. But, policymakers should reject the temptation to use “dynamic scoring” to estimate how tax reform proposals would affect the budget, as we have explained.
Contrary to widespread misunderstanding, the standard estimates of tax and spending proposals from CBO and other federal agencies aren’t “static.” They incorporate many changes in individual and business behavior that occur in response to changes in tax rates and other policies. They don’t, however, include estimates of whether (and by how much) a change in tax or spending policy would affect the overall economy, such as its impact on economic growth — which, in turn, would affect revenues.
There are several very good reasons why federal agencies don’t use dynamic scoring.