Vol. 40, No. 2

A Note from the Chairman

We have tried to continue that tradition in this issue by focusing on a number of important topics that we believe will have some prominence in the coming weeks and months. We lead off with a discussion of the Suburban Agenda, an effort by a group of House Republicans to craft a positive, issues-oriented strategy […]

The Suburban Agenda

There are two basic truths to mid-term elections in America – they are won on themes, and, historically speaking at least, they are usually lost by the party in power.

Suburban Health Care

The legislative agenda developed by the suburban caucus is meant to address our everyday concerns: the safety of our children at school, congested and overcrowded roads, and dwindling open space, for instance. At the very top of that agenda is health care. Seniors enjoying their retirement, couples raising children, and individuals in the suburbs face […]

Q&A with Dave Reichert

Dave Reichert represents Washington’s 8th Congressional District in the U.S. House of Representatives. Elected in 2004, he first came to national prominence as the detective who led the effort to capture the Green River serial killer. He serves on three committees in Congress, and is Chairman of the Homeland Security Subcommittee on Emergency Preparedness, Science […]

How I See It

The question is simple enough. What do I think about increasing access to health insurance for American workers? Strengthening border security? Lobbying reform? I’m for them all, and House Republicans are taking aim at each. But beneath the veneer of these simple questions is, I believe, a fundamental misunderstanding of the role a Majority Leader […]

A Bipartisan Solution to Our Big Government Problem

The issue is the establishment of a Sunset Commission. For the second straight year, President Bush is proposing the creation of such a commission as part of his budget plan. Under this proposal, every federal agency and government program would automatically receive a 10-year expiration date, at which time they would essentially be required to […]

Devising a Terrorism Insurance Solution

When Congress enacted the Terrorism Risk Insurance Act (also known as TRIA) in 2002, the government-backed terrorism reinsurance program it established was designed as a temporary stopgap to give insurers time to regroup and sort out the complexities of dealing with terrorism risk.

Dynamic Scoring: The Time is Now

It is hard to find any serious economist who would argue that the federal government’s tax and spending policies make no difference to U.S. economic performance. Indeed, all across the political spectrum and throughout the leading schools of economic thought, a broad consensus exists that what governments do with tax dollars and how they raise […]

Dynamic Scoring: Not So Fast!

They are frustrated because formal revenue loss estimates used by Congress during the budget process ignore revenues recouped from the increase in economic activity which occurs as a result of the pro-growth tax cuts.

Politics Never Sounded So Good

We wring our hands in this third century of the American Experiment. More of us, we’re told, can identify Paris Hilton than Paris, France. Frothy celebrity magazines thrive while serious political journals struggle. Citizens seem more excited about voting for the American Idol than the American President. Entertainment trumps civic engagement; staying amused is more […]

Lincoln, King and Scripture

When Americans marked the birthdays of Abraham Lincoln and Martin Luther King, Jr., earlier this year, we were paying tribute to two leaders who did more to advance the causes of equality, human dignity, and civil rights in this country than perhaps any other Americans.

The Party Line: Great Republican Quotes from Lincoln to Reagan and Bush

Great Republican Quotes from Lincoln to Reagan and Bush

From the Archives: Thirty Years Ago in the Forum

Last month fort-five different House Republicans joined in groups of varying size to issue two in-depth statements, one on the draft, the other on foreign aid; eighteen introduced a Civil Rights Law Enforcement Act of major significance. The spearhead for the initiative was once again the Wednesday Group of moderate Republicans, joined in the draft […]

The Backpage: Maybe Clinton was right

Ten years ago this past January, Bill Clinton delivered his State of the Union Address in which he famously declared that “The era of big government is over.” In this same speech, he also reiterated his support for school uniforms and the V-chip.

Ripon Profile of Melissa Hart

I am a Republican because we are the only party that is offering positive ideas to make our country and our communities a better place to live and raid families.

Dynamic Scoring: The Time is Now


It is hard to find any serious economist who would argue that the federal government’s tax and spending policies make no difference to U.S. economic performance.

Indeed, all across the political spectrum and throughout the leading schools of economic thought, a broad consensus exists that what governments do with tax dollars and how they raise those revenues matters in the larger, dynamic, economic world.

Thus, one would suppose that President George W. Bush’s call for a new Dynamic Analysis Division in the Department of Treasury’s Office of Tax Analysis would be met with overwhelming approval. After all, the new division’s purpose is to advise the President and key policy makers on how proposed tax policy changes would affect economic activity and to use the latest advances in economic modeling to prepare that advice.

This new division may also be laying the groundwork for dynamic scoring, which is a revenue estimation technique that uses models of the U.S. economy in conjunction with so called static, non-economic models to estimate revenue change. That’s good news, if you believe that better government results from improving the information policy makers get when they are deciding on competing choices. It is even better news when one realizes that dynamic scoring not only involves more experts in the policymaking process, but provides engaged citizens, who are now outside of the “secret chambers” of policy formation, a better ability to see into the process, itself. The result is better tax policy and more transparent government by including more economics in our tax policy work.

The only criticism to greet this wholly sensible move toward better tax policy has focused on the likelihood that creating this division for dynamic or economic analysis does, indeed, constitute a major step toward dynamic scoring. Those analysts who worry about dynamic scoring base their concern in large part on a suspicion that the only reason for implementing this technique is to show that tax cuts cost less than current official estimates. For example, a static, noneconomic tax model says that a tax rate reduction might cause the government to lose $25 billion dollars, but a dynamic score that includes economic activity might estimate the revenue loss at only $12 billion, because a stronger economy produced more taxable income than the static model assumed.  

At a deeper level, opponents of dynamic scoring generally also oppose tax policy changes that focus primarily on the after-tax price of labor and capital, which most economists believe are the crucial connectors between tax policy and the economy.  They favor instead targeted tax cuts, or tax credits and deductions that subsidize certain types of economic and social behavior over others.  These critics believe that if the government were to adopt dynamic scoring, the economic models would show that targeted tax cuts do little for the economy when compared with across-the-board rate reductions on labor and capital income. This showing might induce policy makers to abandon targeted tax cuts in favor of more broadly applied tax policy changes (like the 2001 and 2003 Bush tax cuts).

No one knows, of course, what policymakers will do, even when they possess the very best analytical tools.  This we do know, however: the standard, conventional or static tax models that are used today by the official revenue estimators in Congress’s Joint Committee on Taxation (JCT) and the Congressional Budget Office are highly inaccurate because they do not include the economic effects of tax policy changes. It is this record of inaccuracy and, thus, bad policy advice which has fueled the interest in dynamic analysis and scoring and will, I believe, lead to the inevitable adoption of dynamic scoring techniques.

In the real world, we know that businesses and consumers will respond to both tax cuts and tax hikes, and they do so in fairly predictable ways. Tax cuts spur investment, which spurs hiring, which spurs additional payroll taxes – and that leads to a positive feed-back effect for government treasuries. Yet it is exactly this kind of feedback effect that static analyses miss.  

It happened in the early 1960s, when President Kennedy’s plan to cut the top marginal tax rate from 91 percent to 70 percent took effect. Total tax revenues actually climbed 4 percent, despite predictions that the cuts would plunge the country deeply into debt. It happened again when President Reagan cut the top rate from 70 percent to 50 percent in 1981.  Economists employing the static models now in use at key government agencies predicted federal revenues would fall by $330 billion over five years. Instead, they fell by $79 billion, and the economy boomed.  

Even more interesting is the recent revenue growth from capital gains. The JCT forecast revenue declines following the 2003 tax rate reduction. That’s exactly what many in official Washington expected, too. However, the recent explosion in capital gains revenues — now well above the $40 billion forecast — indicates the strong economic reaction that followed the cut in the after-tax price of trading appreciated assets, like stocks and bonds.  

In these cases, taxpayers got higher post-tax incomes, expanded economic opportunities and better financial security. The government got a faster-growing economy, more people working, more taxable earnings per worker and, thus, more revenue than “static” estimates had predicted.

Advocates of dynamic scoring must be careful not to oversell its capabilities or benefits. There are legitimate disagreements about which economic models best capture the economic effects of tax policy changes. There also is little reason to believe that tax cuts, even the best ones, will pay for themselves right away through super-nova revenue reflows from a stronger economy. Finally, the technical difficulties of economic modeling mean that this technique should be reserved for only the most important tax issues.

Even so, we get better, more transparent government by encouraging the introduction of more economics into the evaluation of tax policy choices and the occasional use of dynamic scoring models to advise policy makers on the really big tax bills. Better government and better tax policy is, I believe, a winning combination of benefits that assures the widespread adoption of dynamic analysis and scoring.  

William W. Beach is the Director of the Center for Data Analysis at the Heritage Foundation.