(Bloomberg) The U.S. House of Representatives voted to make it easier to reduce taxes, passing a rule on the first day of the new session to let lawmakers assume that lower levies boost the economy and cover some of their own budgetary costs.
The adoption of so-called dynamic scoring gives Republicans greater leeway to adopt tax policies that, before today, would have been scored as increasing the U.S. budget deficit. The policy was adopted as part of a package of House rules changes, on a 234-172 vote.
Republicans, who didn’t implement the scoring change when they controlled the House from 1995 to 2007, say the new rule reflects the reality that fiscal policy can expand the U.S. economy.
“How about the big picture?” said Grover Norquist, president of Americans for Tax Reform, a Washington group that supports tax cuts. “How about noticing that it doesn’t have zero impact on people’s behavior?”
Democrats criticize the scoring rule, saying it requires uncertain and almost impossible assumptions about future economic growth.
Representative Louise Slaughter of New York said the change “cooks the books” in favor of Republican policies. “Time and time again, the falsehoods of dynamic scoring have come to light,” she said on the House floor today.
Doesn’t Game the System’
Representative Tom Price, the new chairman of the House Budget Committee, said the scores will be more realistic.
“It doesn’t game the system at all,” the Georgia Republican said. “All that we’re trying to do is make certain that members of Congress have more information on which to make decisions.”
The revenue estimate, or score, of a bill is hugely important in the inner workings of Congress and it often can determine lawmakers’ willingness to support legislation.
The new rule would require nonpartisan congressional scorekeepers to consider how major bills are expected to affect the size of the economy.
Until now, the Congressional Budget Office and the Joint Committee on Taxation have typically assumed behavioral responses to legislation though not changes to the economy’s size. So, for example, if Congress voted to raise capital gains taxes starting in 2016, JCT has assumed that taxpayers will accelerate stock sales and pay taxes before the higher rate takes effect.
The change passed today means that instead of keeping the size of the economy fixed, CBO and JCT can assume that legislation could make the economy—and tax revenue—grow or shrink.
It’s not clear when Republican lawmakers will use the new rule or how it will be interpreted by CBO and JCT. The rule gives the scorekeepers some leeway by making the scoring change a requirement “to the extent practicable.”
Norquist said he thinks the scoring rule would be especially helpful to Republicans trying to switch from depreciation for business investments to immediate write-offs.
CBO and JCT have been making advisory estimates for several years. Most recently, JCT projected that a tax revamp proposed by Republican Dave Camp, who had led the House Ways and Means Committee, would generate up to $700 billion in additional revenue over a decade— even though it was revenue-neutral under conventional scoring methods.
One problem is that these estimates are highly uncertain and depend on assumptions about how the Federal Reserve will respond to fiscal policy and how much taxpayers’ willingness to work is affected by tax changes.
The varying scores of the Camp plan show the uncertainty in the estimates. The smallest score estimated that it would generate $50 billion over a decade, less than 10 percent of the largest score.
The biggest estimates were produced with a model that required JCT to assume unspecified spending cuts.
“Dynamic scoring could make it easier for Congress to fashion a tax reform package that appears revenue-neutral, on the basis of questionable and uncertain growth estimates,” Chye-Ching Huang and
Paul Van de Water of the Center on Budget and Policy Priorities, which advocates for low-income families, wrote yesterday.
Under the rule, the House would use dynamic scoring only for bills that have an effect exceeding 0.25 percent of the economy in any year of the 10-year budget time frame. The chairmen of the House Budget and Ways and Means committees can invoke the rule for bills that don’t meet the numerical test.
According to the House Budget Committee, the new rules would have applied to three bills over the past two years: expanded write-offs for business investments, an extension of lapsed tax breaks and a compilation of Republican jobs bills.
Under the previous rules, scorekeepers produced advisory estimates for major bills.
The new rule comes as Republicans are considering replacing Douglas Elmendorf, the CBO director. Elmendorf is remaining in office beyond the end of his term for now, though he won’t be reappointed, a party aide briefed on the decision told Bloomberg News last month.
The rules package passed by the House also would continue the Select Committee on the Benghazi attacks and require that witnesses at hearings disclose payments their organizations have received from foreign governments.
Republicans also made a late addition that would require new House members to receive ethics training.
—With assistance from Erik Wasson in Washington.
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