Imagine a business that believed if it doubled prices, it would inevitably double revenue. That business would probably raise its prices to astronomical levels — and then go bankrupt from lack of sales. And yet that is precisely the logic Congress has followed in regards to tax policy under so-called static scoring.
Static scoring tells Congress that if it doubles income tax rates, those revenues will (approximately) double because the overall economy will not be harmed in any way. Similarly, tax cuts must devastate revenues because they have no positive impact on economic growth.
Economists may debate the size of tax policy’s impact on the overall economy, but virtually none assert that it is zero. Yet Congress requires its official tax scorers to make that bogus assumption. By ignoring the harm taxes have on the economy, static scoring makes higher taxes appear economically cost-free, thus creating a bias for tax increases and against tax relief.
We can’t make good legislation without good information. A proposal I drafted that is part of the Senate Republican’s latest budget will give us that information. It will require the Congressional Budget Office and Joint Committee on Taxation to include dynamic scoring in addition to static scoring when evaluating new legislation. Dynamic scoring takes into account the real-world impact of policies coming out of Washington, modeling their long term effect.
Our tax code is in serious need of reform. America has the highest corporate tax rate in the industrialized world, and one so loophole-ridden that some companies pay enormous taxes while others escape nearly all income taxes. Our code is hurting American workers, driving down wages, and killing jobs. Reforming the code won’t be easy, but at least with accurate information about the impact of reform, we won’t make our job even harder.
Dynamic scoring isn’t sexy, but it’s a win for every American who wants to see a fairer and more efficient tax code.