by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Josh Siegel of the Daily Signal reminds us that no one should expect Michigan Congressman Dave Camp‘s tax reform plan to make any headway during the course of this year. But Siegel points to one element of the plan that could have important long-term implications.
Although the proposal may be little remembered, what could well live on is the use of “dynamic scoring” in analysis of such legislation.
“Camp’s proposal has given renewed energy to the tax reform debate,” said Curtis Dubay, research fellow in tax and economic policy at The Heritage Foundation, adding:
A key to maintaining that momentum is to make sure [the Joint Tax Committee of Congress] continues offering dynamic estimates of tax reform and other major pieces of tax legislation.
The Camp plan would reduce today’s seven income tax brackets to three –10 percent, 25 percent, and 35 percent — and cut the corporate tax rate from 35 percent to 25 percent, paying for the changes by closing or capping tax deductions, exclusions, and credits in the tax code.
To evaluate such proposals, Washington traditionally has relied on “static” scoring, which says that if government taxes Americans $100 less, it means $100 less in revenue.
However, conservative advocates of dynamic scoring point to evidence that cutting taxes creates new incentives to work, save, and invest. They say governments that cut taxes often see increases in the amount of revenue taken in. …
… “A tax reform plan with only a static score is like a business plan without an estimate of profitability,” Dubay said:
It is incomplete. Dynamic analysis is the right way to evaluate tax reform because we know tax reform improves the economy. It does so by increasing incentives for families and businesses to engage in productive activities like working, investing, and taking risks that are the catalysts of economic growth. And we know they all respond to incentives.
In its analysis of Camp’s reform proposal, the Joint Committee on Taxation provided a conventional score and two versions of dynamic estimates, according to an issue brief from Heritage’s Center for Data Analysis.
Dynamic analysis revealed that, although Camp’s proposal is revenue- and deficit-neutral under the traditional static method employed by the joint committee and others, it produces significant economic growth and more tax revenues under the dynamic models.