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Thursday, September 15, 2016

Trump Campaign’s “Dynamic Scoring” of Revised Tax Plan Should Be Taken With More Than a Grain of Salt

The Trump campaign endorses a standard Republican tax con. This is from Chad Stone and Chye-Ching Huang at the CBPP:

Trump Campaign’s “Dynamic Scoring” of Revised Tax Plan Should Be Taken With More Than a Grain of Salt: The revised tax plan that Republican presidential nominee Donald Trump will release today was reportedly designed at least in part to reduce the cost of his earlier plan,[1] which would have generated very large revenue losses.[2] The revised plan now looks similar to the tax plan that House Republican leaders introduced in June, which cost less than Trump’s original plan. Moreover, like the House plan, the Trump plan takes advantage of an aggressive approach to “dynamic scoring” that the Tax Foundation uses to estimate how tax cuts affect the economy and the budget, which sharply lowers the estimated revenue loss from certain tax-cut provisions.[3] We should, however, view such large dynamic effects derived from Tax Foundation estimates with considerable skepticism. That’s because the Tax Foundation, with its unusually large dynamic estimates, is considerably outside the analytic mainstream.
In particular, the Tax Foundation assumes that certain tax cuts produce far larger increases in business investment than researchers typically find. Consequently, the Tax Foundation estimates that certain tax changes will produce far greater economic activity and a far smaller revenue loss than do Congress’s highly respected official estimating bodies — the Joint Committee on Taxation (JCT) and the Congressional Budget Office (CBO). ...
Analysts continue to debate whether and how to implement dynamic scoring.[7] It’s new and controversial: the best way to model dynamic effects remains unsettled; and the estimates produced can vary depending on the assumptions used. Mainstream analysts typically find that any additional economic activity generated by tax cuts can offset, at most, a modest portion of their cost. With that in mind, the Tax Foundation’s dynamic scoring estimates — including those that the Trump campaign is relying on for its estimates of its revised tax plan — should be viewed with particular skepticism.
For instance, in 2015, the Tax Foundation estimated that making permanent the bonus-depreciation tax break (which allows businesses to deduct a larger share of the cost of their equipment in the year they purchase it) would generate enough new revenue to pay for more than 75 percent of its costs, while JCT pegged the figure at less than 5 percent. ...
The Tax Foundation produces its dynamic scoring estimates very quickly, while JCT and CBO take much more time to develop theirs. And JCT and CBO don’t analyze tax plans from candidates, so no official analysis of the Trump plan will be available. The nonpartisan Urban Institute-Brookings Institution Tax Policy Center (TPC) provides estimates of candidates’ tax plans but usually takes some time to provide them. Thus, after Mr. Trump unveils his revised plan today, the estimate based on the Tax Foundation’s model will likely be the most widely cited one for a while.
Consequently, one should approach any forthcoming estimate based on the Tax Foundation model with considerable caution. ...

After an extensive analysis and explanation, they conclude:

The initial Trump tax plan was widely estimated to lose large amounts of revenue and substantially enlarge future deficits and debt. The Trump team says that the revised plan costs substantially less. In addition to including some policy changes that lower the standard cost estimate, the Trump team will cite the estimates they have derived from Tax Foundation work to claim that the plan will produce large “dynamic” effects on economic growth and revenues.
As this analysis documents, the Tax Foundation model generates far larger economic and budgetary effects than the models of the Congressional Budget Office and Congress’s Joint Committee on Taxation, and relies on assumptions that are inconsistent with the economic evidence or well outside mainstream economic thinking. All dynamic budget estimates should be approached with caution. That admonition applies with particular force to the highly questionable dynamic estimates that the Tax Foundation model produces.

    Posted by on Thursday, September 15, 2016 at 09:47 AM in Economics, Politics, Taxes | Permalink  Comments (10)


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