NSBA Urges Dynamic Scoring of Tax Bills

October 6, 2011

NSBA recently filed a statement with the U.S. House of Representatives Ways and Means Committee in support of economically accurate scoring of tax bills. This will make it easier to achieve fundamental tax reform and enables policy-makers to adopt better, more informed policies.

People modify their behavior in response to major changes in tax policy. Revenue estimates should take these effects into account. Yet Joint Committee on Taxation revenue estimators continue to refuse to consider the impact of major tax changes on work, savings, investment and output. In their estimates, they assume that GDP will not change.

A major impediment to either incremental or fundamental tax reform is the current manner in which the Joint Committee on Taxation (JCT) estimates, or “scores” the revenue impact of proposed legislation that would reform the tax system. JCT staff don’t incorporate into their findings the well-established “macroeconomic” impact that fundamental tax reform or other major tax changes would have.

In order for a tax reform proposal to be revenue neutral, JCT staff estimates therefore require higher marginal tax rates than would actually be necessary in the real world. To be scored as “revenue neutral” by the JCT staff, a proposal must actually raise tax revenue in the real world and it becomes much more difficult to achieve the support necessary to overcome the entrenched interests that defend the current tax system.

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