By Sen. Rob Portman (R-Ohio) - 05/21/14 08:00 AM EDT
People often complain that Congress doesn’t know what it’s doing – and on tax policy, they have a point. Congress often doesn’t know what it’s doing on tax policy, because it has created a system that incorrectly estimates the cost of new tax policies.
Under the current “static” scoring approach, Congress’ official scorekeepers are required to assume that major tax policy changes will have zero impact on economic growth, inflation, and unemployment.
Yet 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.
Specifically, static scoring contradicts itself by asserting that individuals and firms may respond to a major tax policy, but the overall economy (which, after all, is just the sum of all individual actions) will remain unchanged.
While it doesn’t take a degree in economics to know this static approach is nonsense, virtually every economic school of thought agrees that most tax cuts create jobs, increase incomes, and bring economic growth. From this additional income will come additional tax revenue, offsetting a portion of the “static” revenue loss. On the flip side, most tax increases shrink the economy, peeling off some of the additional tax revenue.
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.
Worst of all, Congress’ official scorekeepers already have the tools to provide more accurate “dynamic” scores – but Congress censors the information from itself by requiring only the static scores.
My new bill, “The Accurate Budgeting Act,” would provide lawmakers with more information by requiring the tax scorekeepers to release these dynamic scores alongside the static scores. Although static scores would remain “official,” major tax bills would also include the dynamic scores for information only.
Why provide dynamic scores for information only? Why not make them the official scores? As I mentioned earlier, there is still debate over the precise size of the economic impact of large tax bills. So my bill would have the scorekeepers release multiple estimates from different economic models, in order to provide a natural experiment. Over time, each model’s dynamic score could be compared to the official static scores. If the dynamic scores prove inaccurate, they can be disregarded or refined. But if they prove more accurate, then Congress could eventually consider making the most accurate model the new official score.
Even critics of dynamic scoring should welcome this bill. If they believe dynamic scores will be less accurate than static scores, they should welcome the opportunity to prove (or disprove) their point. Since static scores will remain the official scores in the meantime, critics have nothing to lose.
Providing Congress with accurate information should be a bipartisan issue. That is why several Democrats joined all Senate Republicans last year to pass a dynamic scoring amendment to the budget resolution. Unfortunately, the provision was stripped from the final bill. With the House of Representatives recently passing new dynamic scoring legislation, it’s time for the Senate to do our part again.
Congress has serious work to do on tax reform: the tax code has become so complicated that most families need outside help to file a tax return, and some family businesses pay a higher marginal tax rate than Fortune 500 companies. On the corporate side, every OECD nation has reformed its tax code in the past 28 years except the U.S. This has left America with 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.
The tax code needs a major clean up to bring more fairness and create jobs. It won’t be easy, but enacting dynamic scoring means we won’t be working in the dark.
Portman is the junior senator from Ohio, serving since 2011. He serves on the Budget; the Finance; the Energy and Natural Resources; and the Homeland Security and Governmental Affairs committees.