23 June 2017

House Republicans Offer Budget Change

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House Republican leaders late Tuesday unveiled a budget rule change that could have a significant impact on tax proposals next year, directing congressional budget analysts to estimate the economic growth created by tax cuts. The change was part of a series of proposals posted on the House Rules Committee’s website late Tuesday. Most—if not all—of the changes are likely to easily win the committee’s support early next year since the panel is dominated by Republicans. It must also be approved by a majority of the House of Representatives, where passage is also expected.

The rule change would direct the Congressional Budget Office and the Joint Committee on Taxation to take into account the “macroeconomic” impact of certain pieces of legislation when determining the “official cost estimate” of things such as proposed tax cuts.

Republicans have long complained that the CBO and the joint tax panel don’t take into account the economic growth that can occur as a result of tax cuts. The rule change would require the budget scorekeepers to adopt a methodology often referred to as “dynamic” scoring—an approach that has been popular with Republicans and conservative economists for decades.

CBO has looked at the broader economic impact of policy changes in a handful of cases, including the 2013 Senate proposal to overhaul immigration rules. But it usually doesn’t calculate these changes into its “official cost estimate,” the figure most often used by lawmakers as they debate whether to advance a proposal. In the 2013 immigration bill, though, CBO estimated that the legislation would increase the size of the labor force and impact economic growth, a change hailed by supporters of the bill as they tried to win more support.

Still, many Democrats have long opposed the inclusion of dynamic scoring as a requirement for the CBO and the joint committee. But many Republicans believe that budget estimates should take into account the economic impact of large budget proposals, namely things that either cut taxes or reduce the deficit. If tax cuts lead to more economic growth, Republicans have said, it will spur more companies to hire and more consumers to spend money, thereby creating a positive feedback loop.

No one is likely to benefit more from the modeling change than incoming House Ways and Means Committee Chairman Paul Ryan (R., Wis.), who will be the chief tax-writer in the House. He has proposed sharp cuts in both corporate and individual income-tax rates, as well as the elimination of certain deductions. Dynamic scoring changes could help the forecasts of these tax breaks result in higher future revenue compared with if the rules change didn’t occur.

One issue with such modeling, however, is that the impact is difficult to predict with any accuracy. Large tax cuts adopted in Kansas several years ago, for example, haven’t resulted in the expected revenue growth that state budget officials projected. The resulting gap has forced state officials to cut spending deeper than original estimates to offset the difference. The summary of the House rules change prepared by Republicans acknowledged the uncertainty of predictions, but said the new forecasting model would be the most accurate one used.

Click here to access the full article on The Wall Street Journal. 

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