October 23, 2014

A Dynamic Debate

  • The national debt has grown significantly in recent years due to rising annual deficits. A deficit occurs in any year the government spends more...

Last week the House Ways and Means Committee held a hearing on “dynamic scoring,” a controversial alternative method for estimating how tax legislation will affect government revenue over the long term.

Dynamic scoring adjusts revenue estimates to account for the effects that some people believe certain tax policies will have on the size of the economy. But Diane Lim Rogers, chief economist for The Concord Coalition, warns that it is no magic solution for the nation’s fiscal difficulties.

This is a “déjà vu moment” for tax policy experts, she says in a blog post today. The dynamic scoring issue, she writes, “comes up whenever politicians want to claim that tax cuts don’t cost that much and are fiscally responsible.”

If a tax cut is deficit-financed, she explains, its effect on long-term economic growth will be relatively small. That’s because the negative impact of the deficit financing is only partially offset by higher private savings.

The debate over dynamic scoring involves long-term growth estimates and differs from the debate over short-term tax cuts designed to stimulate demand in a recessionary economy.