House Republican leaders late Tuesday unveiled a budget rule
change that could have a significant impact on tax proposals next year,
directing congressional budget analysts to estimate the economic growth created
by tax cuts. The change was part of a series of proposals posted on the House
Rules Committee’s website late Tuesday. Most—if not all—of the changes are
likely to easily win the committee’s support early next year since the panel is
dominated by Republicans. It must also be approved by a majority of the House
of Representatives, where passage is also expected.
The rule change would direct the Congressional Budget Office
and the Joint Committee on Taxation to take into account the “macroeconomic”
impact of certain pieces of legislation when determining the “official cost
estimate” of things such as proposed tax cuts.
Republicans have long complained that the CBO and the joint
tax panel don’t take into account the economic growth that can occur as a
result of tax cuts. The rule change would require the budget scorekeepers to
adopt a methodology often referred to as “dynamic” scoring—an approach that has
been popular with Republicans and conservative economists for decades.
CBO has looked at the broader economic impact of policy
changes in a handful of cases, including the 2013 Senate proposal to overhaul
immigration rules. But it usually doesn’t calculate these changes into its
“official cost estimate,” the figure most often used by lawmakers as they
debate whether to advance a proposal. In the 2013 immigration bill, though, CBO
estimated that the legislation would increase the size of the labor force and
impact economic growth, a change hailed by supporters of the bill as they tried
to win more support.
Still, many Democrats have long opposed the inclusion of
dynamic scoring as a requirement for the CBO and the joint committee. But many
Republicans believe that budget estimates should take into account the economic
impact of large budget proposals, namely things that either cut taxes or reduce
the deficit. If tax cuts lead to more economic growth, Republicans have said,
it will spur more companies to hire and more consumers to spend money, thereby
creating a positive feedback loop.
No one is likely to benefit more from the modeling change
than incoming House Ways and Means Committee Chairman Paul Ryan (R., Wis.), who
will be the chief tax-writer in the House. He has proposed sharp cuts in
both corporate and individual income-tax rates, as well as the elimination of
certain deductions. Dynamic scoring changes could help the forecasts of these
tax breaks result in higher future revenue compared with if the rules change
didn’t occur.
One issue with such modeling, however, is that the impact is
difficult to predict with any accuracy. Large tax cuts adopted in Kansas
several years ago, for example, haven’t resulted in the expected revenue growth
that state budget officials projected. The resulting gap has forced state
officials to cut spending deeper than original estimates to offset the
difference. The summary of the House rules change prepared by Republicans
acknowledged the uncertainty of predictions, but said the new forecasting model
would be the most accurate one used.
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