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Dynamic scoring is a forecasting technique for
government revenues Government revenue or national revenue is money received by a government from Tax revenue, taxes and Non-tax revenue, non-tax sources to enable it to undertake public expenditure. Government revenue as well as government spending are components o ...
, expenditures, and
budget deficits The government budget balance, also alternatively referred to as general government balance, public budget balance, or public fiscal balance, is the overall difference between government revenues and spending. A positive balance is called a '' ...
that incorporates predictions about the behavior of people and organizations based on changes in
fiscal policy In economics and political science, fiscal policy is the use of government revenue collection (taxes or tax cuts) and expenditure to influence a country's economy. The use of government revenue expenditures to influence macroeconomic variables ...
, usually
tax rates In a tax system, the tax rate is the ratio (usually expressed as a percentage) at which a business or person is taxed. There are several methods used to present a tax rate: statutory, average, marginal, and effective. These rates can also be p ...
. Dynamic scoring depends on models of the behavior of
economic agents In economics, an agent is an actor (more specifically, a decision maker) in a model of some aspect of the economy. Typically, every agent makes decisions by solving a well- or ill-defined optimization or choice problem. For example, ''buyers'' (c ...
which predict how they would react once the tax rate or other policy change goes into effect. This means the uncertainty induced in predictions is greater to the degree that the proposed policy is unlike current policy. Unfortunately, any such model depends heavily on judgment, and there is no evidence that it is more effective or accurate. For example, a dynamic scoring model may include
econometric model Econometric models are statistical models used in econometrics. An econometric model specifies the statistical relationship that is believed to hold between the various economic quantities pertaining to a particular economic phenomenon. An econome ...
of a transitional phase as the population adapts to the new policy, rather than the so-called static-scoring alternative of standard assumption about behavior of people being immediately and directly sensitive to prices. The outcome of the dynamic analysis is therefore heavily dependent on assumptions about future behaviors and rates of change. The dynamic analysis is potentially more accurate than the alternative, if the
econometric Econometrics is the application of statistical methods to economic data in order to give empirical content to economic relationships. M. Hashem Pesaran (1987). "Econometrics," '' The New Palgrave: A Dictionary of Economics'', v. 2, p. 8 p. 8 ...
model correctly captures ''how'' households and firms will react to a policy changes. This has been attacked as assumption-driven compared to static scoring which makes simpler assumptions about behavior change due to the introduction of a new policy.


United States national government, 2015-2018

Using dynamic scoring has been promoted by Republican legislators to argue that
supply-side Supply-side economics is a macroeconomic theory that postulates economic growth can be most effectively fostered by lowering taxes, decreasing regulation, and allowing free trade. According to supply-side economics, consumers will benefit fr ...
tax policy, for example the
Bush tax cuts The phrase Bush tax cuts refers to changes to the United States tax code passed originally during the presidency of George W. Bush and extended during the presidency of Barack Obama, through: * Economic Growth and Tax Relief Reconciliation Act o ...
of 2001 and 2011 GOP Path to Prosperity proposal, return higher benefits in terms of
GDP Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjective nature this measure is often ...
growth and revenue increases than are predicted from static scoring. Some economists argue that their dynamic scoring conclusions are overstated, pointing out that CBO practices already include some dynamic scoring elements and that to include more may lead to politicization of the department. On January 6, 2013, the version of the
Pro-Growth Budgeting Act of 2013 The Pro-Growth Budgeting Act of 2013 () is a bill that would require the Congressional Budget Office to provide a macroeconomic impact analysis for bills that are estimated to have a large budgetary effect. The bill was introduced into the United ...
included in the
Budget and Accounting Transparency Act of 2014 The Budget and Accounting Transparency Act of 2014 () is a bill that would modify the budgetary treatment of federal credit programs. The bill would require that the cost of direct loans or loan guarantees be recognized in the federal budget on a ...
passed the
United States House of Representatives The United States House of Representatives, often referred to as the House of Representatives, the U.S. House, or simply the House, is the Lower house, lower chamber of the United States Congress, with the United States Senate, Senate being ...
as part of their Rules adopted in House Resolution 5, passed with the exclusive support of the
Republican Party (United States) The Republican Party, also referred to as the GOP ("Grand Old Party"), is one of the two major contemporary political parties in the United States. The GOP was founded in 1854 by anti-slavery activists who opposed the Kansas–Nebraska A ...
by a vote of 234-172. The same rules package for the year had other controversial provisions funded. The bill will require the
Congressional Budget Office The Congressional Budget Office (CBO) is a federal agency within the legislative branch of the United States government that provides budget and economic information to Congress. Inspired by California's Legislative Analyst's Office that manages ...
to use dynamic scoring to provide a macroeconomic impact analysis for bills that are estimated to have a large budgetary effect. The text of the provision reads: These provisions were removed in January 2019 for the 116th Congress by H. Res. 6 section 102(u).


Kansas

The
Kansas Kansas () is a state in the Midwestern United States. Its capital is Topeka, and its largest city is Wichita. Kansas is a landlocked state bordered by Nebraska to the north; Missouri to the east; Oklahoma to the south; and Colorado to the ...
state government cut personal income taxes to stimulate economic growth, depending on optimistic assumptions from dynamic scoring for state revenue. Authors of the plan claimed that "cutting taxes can have a near immediate and permanent impact," arguing for tax cuts over rebuilding roads or improving the quality of schools. In addition, the tax on "pass-through" businesses was eliminated. After continual revenue deficits, the largest sales tax increase in Kansas history, downgrades from
Moody's Moody's Investors Service, often referred to as Moody's, is the bond credit rating business of Moody's Corporation, representing the company's traditional line of business and its historical name. Moody's Investors Service provides international ...
and
Standard & Poor's S&P Global Ratings (previously Standard & Poor's and informally known as S&P) is an American credit rating agency (CRA) and a division of S&P Global that publishes financial research and analysis on stocks, bonds, and commodities. S&P is con ...
and economic performance that lagged neighboring states, the election of 2016 was a referendum on tax policy and the legislature increased income taxes over the governor's veto
Kansas Kansas () is a state in the Midwestern United States. Its capital is Topeka, and its largest city is Wichita. Kansas is a landlocked state bordered by Nebraska to the north; Missouri to the east; Oklahoma to the south; and Colorado to the ...
's "rainy day" fund reported levels $570 million lower than before the tax cut, even though
Kansas Kansas () is a state in the Midwestern United States. Its capital is Topeka, and its largest city is Wichita. Kansas is a landlocked state bordered by Nebraska to the north; Missouri to the east; Oklahoma to the south; and Colorado to the ...
had directed more tax revenue to it.


See also

*
Laffer curve In economics, the Laffer curve illustrates a theoretical relationship between rates of taxation and the resulting levels of the government's tax revenue. The Laffer curve assumes that no tax revenue is raised at the extreme tax rates of 0% and ...


References

{{reflist, 30em


External links


Doesn't Anyone Know the Score?
by Newt Gingrich and Peter Ferrara
Dynamic Due
by Bruce Bartlett
"Here's How Part B Can Save Medicare,"
by Michael Johns, ''HME News'', July 2009.
Dynamic Scoring: An Introduction to the Issues
By Alen J. Auerbach
Dynamic Analysis at Treasury: What Are the Next Steps?
By Tracy Foertsch

By The Tax Foundation
Dynamic Scoring: A Back-of-the-Envelope Guide
by N. Gregory Mankiw and Matthew Weinzierl
The Bush Budget's Hidden Gold: Dynamic Scoring Comes to the Treasury
by William Beach, Heritage Foundation, 2006

by Suzy Khimm
The Problem with Dynamic Scoring
by Josh Barro
Dynamic Scoring at CBO
by Ben Page of CBO's Macroeconomic Analysis Division, 2015 Economic forecasting Fiscal policy