“The reality of tax reform . . . is that any politically feasible plan to scale back tax benefits doesn’t generate enough money to significantly cut tax rates without increasing the deficit,” my latest post for U.S. News’Economic Intelligence notes. “Rather than grapple with this reality, . . . House Budget Committee Chairman Paul Ryan invoked the last refuge of supply-side tax cutters in recent comments about how to proceed with tax reform.” Specifically:
Ryan wants to change long-established methods for estimating the revenue effects of proposed tax changes that the Congressional Budget Office and Joint Committee on Taxation use to “score” the budgetary effects of such legislation. Ryan . . . badly mischaracterizes existing revenue estimation methods while ignoring the fatal flaws in requiring budget crunchers to use so-called dynamic scoring.
Contrary to Ryan’s claim, current revenue estimates reflect many kinds of changes in households’ and business’ behavior resulting from proposed policy changes. But they don’t reflect possible changes in the overall level of economic activity that might result from proposed legislation — and with good reason:
First, estimates of the macroeconomic effects of tax changes are highly uncertain. Second, the most credible estimates usually show changes that are quite small. Finally, and quite importantly, dynamic scoring would impair the credibility of the budget process because the resulting budget estimates will inevitably be controversial and subject to political manipulation.
Adopting dynamic scoring for tax reform, my post concludes, is a gimmick that would only invite more mischief.