Introduction
Mr. Chairman and members of the committee: it is a great privilege to have this opportunity to appear before you today. I am an economist who is the director of economic policy studies at the American Enterprise Institute, a think tank here in Washington. Much of the research I have undertaken as a professional economist examines taxation and the consequences of tax policy. I come here today, specifically, to provide testimony on what is known as dynamic scoring in tax policy circles.
At the outset it is important to emphasize that the economics profession has made tremendous strides in the modeling of the impact of fiscal policy on the economy over the past few decades, and there is an ample amount of evidence to point to that suggests that a carefully designed fundamental tax reform could lead to a significant improvement in the wellbeing of Americans. Yet talk of tax reform has not produced truly significant action since the 1980s. I believe that one reason we have made such little progress is that scoring methods do not account for the impact that sound proposals would have on the overall economy. In my testimony today, I discuss the challenges facing those who would hope to do better.
What is dynamic scoring?
Perhaps one way to understand the concept of “dynamic scoring” of tax legislation is to examine the two words. “Scoring” refers to the process of estimating the effects of a given policy proposal. In the U.S. Congressional context, the JCT staff scores proposed legislation, focusing their estimates on the legislation’s effects on government revenue. These estimates provide Congress with a guide to thinking about the revenue implications of proposed changes. Historically, static scores of tax proposals have often relied on enormous micro data files, giving the relevant staffs an impressive ability to account for compositional issues when evaluating policies. These microsimulation results, however, have, until this year, been the final word.
“Dynamic” refers to estimating these budgetary effects in a way that allows the proposed legislation in question to alter the overall level of economic activity. That is, the “dynamic” in dynamic scoring refers to allowing the estimate of the effect of the proposal being scored to include a causal effect from the proposal to the overall level of economic activity (i.e., GDP), which in turn could have an impact on revenue. Until the rule change enacted this year, scoring practice did allow for significant compositional changes in response to tax changes, but not dynamic changes.
For many proposals, the conventional scoring process is a sound way to achieve the objectives of scoring. For example, a targeted tax on a minor pollutant might reduce that pollutant, and raise some revenue, but have little impact on the overall economy. For major proposals that seek to draw on the best evidence in the academic literature on fundamental tax reform, however, the conventional scoring process can lead to wildly misleading estimates of the revenue impact of changes. The purpose of a fundamental reform, after all, is to improve the functioning of the economy. But dynamic scoring is also challenging. Most importantly, economists need to find a way to link the static estimates drawn from large microeconomic databases with macroeconomic models that, traditionally, have far less microeconomic detail.
from AEI » Latest Content http://ift.tt/1Kx4CUV
0 التعليقات:
Post a Comment