Dynamic scoring is a forecasting technique for government revenues, expenditures, and budget deficits that incorporates predictions about the behavior of people and organizations based on changes in fiscal policy, usually tax rates. By contrast, static scoring assumes behavior does not change with the introduction of a new policy.
Dynamic scoring depends on models of the behavior of economic agents which predict how they would react once the tax rate or other policy change goes into effect. A model may include a transitional phase as the population adapts to the new policy. Dynamic scoring would be more accurate than static scoring when the econometric model correctly captures how households and firms will react to a policy changes. The models can be controversial, and the uncertainty induced in predictions is greater to the degree that the proposed policy is unlike current policy. Difficulty and uncertainty also increases as the time horizon under consideration lengthens, e.g. because of any model's intrinsic inability to account for unforeseen external shocks in the future.
United States national government
Using dynamic scoring has been promoted by Republican legislators to argue that supply-side tax policy, for example the Bush tax cuts of 2001 and 2011 GOP Path to Prosperity proposal, return higher benefits in terms of GDP 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 included in the Budget and Accounting Transparency Act of 2014 passed the United States House of Representatives as part of their Rules adopted in House Resolution 5, passed with the exclusive support of the Republican Party (United States) 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 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:
|“||(a) An estimate provided by the Congressional Budget Office under section 402 of the Congressional Budget Act of 1974 for any major legislation shall, to the extent practicable, incorporate the budgetary effects of changes in economic output, employment, capital stock, and other macroeconomic variables resulting from such legislation.
(b) An estimate provided by the Joint Committee on Taxation to the Director of the Congressional Budget Office under section 201(f) of the Congressional Budget Act of 1974 for any major legislation shall, to the extent practicable, incorporate the budgetary effects of changes in economic output, employment, capital stock, and other macroeconomic variables resulting from such legislation.
(c) An estimate referred to in this clause shall, to the extent practicable, include--
(d) As used in this clause--
The Kansas 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 and Standard & Poor's 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's "rainy day" fund reported levels $570 million lower than before the tax cut, even though Kansas had directed more tax revenue to it.
- Wilson, D; William Beach. "The Economic Impact of President Bush's Tax Relief Plan". The Heritage Foundation. Archived from the original on 8 March 2011. Retrieved 6 April 2011.
- Ryan, Paul. "Path to Prosperity 2012" (PDF). Retrieved 6 April 2011.
- Krugman, Paul (2014-10-05). "Voodoo Economics, the Next Generation". The New York Times. ISSN 0362-4331. Retrieved 2016-12-01.
- "Brad deLong's blog". Delong.typepad.com. 2006-05-15. Retrieved 2012-03-27.
- "Center on Budget and Policy Priorities" (PDF). Retrieved 2012-03-27.
- Marcos, Cristina (6 January 2015). "House adopts 'dynamic scoring' rule". The Hill. Retrieved 12 January 2015.
- "H.R. 1874 - CBO". Congressional Budget Office. Retrieved 28 March 2014.
- "H.Res.5 - Adopting rules for the One Hundred Fourteenth Congress" US House of Representatives, January 6, 2015
- Laffer, Arthur; Moore, Stephen (September 2012), Taxes Really Do Matter: Look at the States (PDF), Laffer Center for Supply-Side Economics
- Jim Tankersley. Kansas Tried a Tax Plan Similar to Trump’s. It Failed. New York Times. 10 Oct 2017
- Goossen, Duane (July 13, 2016). "Income Tax Cuts Broke the Kansas Budget" Check
|url=value (help). Kansas Center For Economic Growth. Retrieved April 22, 2017.
- 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
- Resources on the Dynamic Scoring Issue 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
- Why the GOP loves ‘dynamic scoring’ 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