On May 21, Senator Rob Portman (R–OH) introduced an important piece of legislation, the Accurate Budgeting Act (S. 2371). It would require the Joint Committee on Taxation (JCT) to dynamically score all major pieces of tax legislation.
Dynamic analysis, which takes into account economic and behavioral changes as a result of policy changes, gives legislators an accurate and realistic appraisal of tax bills. It is certain that the static score of a given bill will be wrong, and with dynamic scoring analysis, policy makers get a better assessment of the full impact of a bill.
While Senator Portman’s legislation would still keep static scoring as the official score of a bill, policymakers would be given important additional information through dynamic analysis. The JCT would be able to show how tax legislation affects the economy through providing more or less incentives for work or investment. As tax analyst Martin Sullivan has said:
Gradually, lawmakers, the press and the public would be far better acquainted with the following important and powerful economic ideas.… Marginal rate reductions are more economically beneficial than infra-marginal tax giveaways. Inefficient taxation of residential investment reduces economic growth. Overtaxation of corporate capital hinders economic growth.
Senator Portman has been a leader on driving dynamic analysis in the Senate. In 2013, he successfully pushed a budget amendment to call for more dynamic scoring, although the amendment was excluded in final passage of the legislation. This new legislation is yet another step in the right direction for enacting better tax policy.
The JCT used dynamic analysis to estimate the economic impact of House Ways and Means Committee chairman Dave Camp’s (R–MI) tax reform bill. That was a victory for better tax policy, and Senator Portman is building on that momentum. Legislation such as the Accurate Budgeting Act shows legislators that tax changes have real-world impacts and that people respond to incentives and disincentives in the tax code.