A Short Guide to Dynamic Scoring

Jason Furman writes:

http://www.cbpp.org/7-12-06bud2.pdf A SHORT GUIDE TO DYNAMIC SCORING: In recent years, official scorekeepers and academic researchers have devoted increased attention to the macroeconomic effects of tax cuts. The Administration also included a short “dynamic analysis” in this year’s Mid-Session Review of the budget. The results of much of this work indicate that tax cuts can have positive or negative effects on the economy, with the “sign” of the effects depending on... whether and how the tax cuts are paid for.

The Congressional Budget Office, the Joint Committee on Taxation (JCT), and academic researchers have all have found that tax cuts that are not accompanied by offsetting revenue increases or spending reductions — and are financed by borrowing instead — can harm the economy over the long term. The research, including the administration’s own analysis, also indicates that even if tax cuts are paid for, the economic benefits generally are relatively modest, with any increased revenues that result from stronger economic growth offsetting only a small fraction of what conventional cost estimates indicate the tax cuts will cost...