As Republicans assume full control of Congress in the new year, President Obama’s veto pen will make it difficult for them to enact sweeping domestic policy changes immediately. Even so, they will have an opportunity to make important changes to the way legislation is evaluated in Washington — which could pave the way for advancing longer-term policy reforms down the road.
Currently, any major piece of legislation making its way through Congress is evaluated by the Congressional Budget Office to determine how the federal government’s fiscal picture would change if that legislation became law. These CBO analyses, or scores, are extremely influential. A CBO score that shows a given piece of legislation would explode the deficit, for instance, could instantly kill its chances of passage.
The current mode of analysis by the CBO, paired with analysis from the Joint Committee on Taxation, makes it especially difficult to reduce the burden of taxation and reform the tax code. By performing an overly-simplistic analysis assuming that every dollar of a tax cut will reduce the deficit by that same dollar amount, the CBO isn’t taking into account the economic boost that cutting taxes or simplifying the tax code could provide. In a faster-growing economy, more people are working and earning more money — increasing the pool of taxable income. Though it would be going too far to say, in all cases, that “tax cuts pay for themselves” — the real-world budgetary effects of cutting taxes are more complicated than the current CBO model can predict.
That’s why it was encouraging that on Tuesday, Republicans took the first step toward reforming the process by proposing a new rules package in the House that would instruct the CBO and the JCT to take into account macroeconomic effects when evaluating the budgetary impact of major legislation. This reformed process, known as “dynamic scoring,” could make it easier for Republicans to advance serious tax reform.
There is widespread agreement that the tax code is riddled with loopholes, unnecessary deductions and special interest carve outs and is due for an overhaul. One of the long-standing impediments to reform has been disagreements over whether, once the tax code is cleaned up, the savings generated should be used to reduce tax rates by an equivalent amount, or instead, used to raise more revenue for the federal government. But dynamic scoring could show how serious reforms could accomplish both things. Reforming the tax code in a way that would minimize economic distortion would also provide an economic boost, which in turn would generate more revenue for the government.
To demonstrate, earlier this year, retiring House Ways and Means Chairman Rep. David Camp unveiled a sweeping tax reform proposal that, using the standard static analysis, was found to have a roughly neutral effect on revenue. But using dynamic analysis, the proposal was found by the JCT to generate an additional $700 billion.
Americans cannot hope to have a rational tax system if Congress does not have a rational scoring system, so we hope that Republicans will continue to capitalize on their gains in the November elections by implementing dynamic scoring.
