OK, but people like Milton Friedman have modeled the effects and concluded that borrowed tax cuts cost more than a $1 per dollar of tax cuts in the long term. Partly because of the mechanics. If government borrows, then someone in the real economy has to buy a government bond, instead of invest in machinery or whatever, and interest.
I think this only holds true when you increase government spending. If you transfer a dollar that would have been taxed to a dollar that becomes borrowed - that is still a dollar that is going to the government, rather than to invest in machinery, or whatever.
Yeah, but it's because of math. If you use the currently ultra low interest rates to borrow and assume a 17% increase in output, of course anyone would borrow forever at that differential, but it's the differential that is the issue. Cut those boosts in growth to a reasonable level and the interest costs and crowding out, etc. come much closer to eating the whole amount.
A 0.5% of GDP reduction in taxation resulted in only a 0.25% increase in GDP. I'd call that fairly reasonable.
It doesn't do much good except to prove that the math works. The key is what is a reasonable long term expectation for added growth per dollar of tax cut.
:shrug: if you want to argue which-year-where, sure. If you simply want to point out that any tax cut which increases economic activity does eventually pay for itself, not really.
It's a question of time windows - a tax rate cut has not "paid for itself" or not if it achieves revenue parity (that is driven by other major factors)
within a certain number of days- the appropriate question is "
when does this pay for itself", and can we sustain, mitigate, or off-ramp damage done to government revenues in the meantime.
OK, and they won't be scoring any tax cuts as revenue positive over 10 years, dynamic scoring or not.
That's a fascinating prediction. On what do you base it. I can think of
easy ways to reduce nominal rates while increasing revenues through things like tax code simplification.
What dynamic scoring is intended to do is bias the analysis in favor of tax cuts, which is what every politician wants to do.
Have you heard of a political party called "Democrats"?
But as long as head of CBO is an actual professional economist, and not a crank from AEI or Heritage or something, it won't have that much effect, most likely.
Dynamic scoring is intended to make predictions more accurately reflect real decisions that people make, and their impacts on our economy and federal budget. Ranting about Heritage/AEI doesn't really alter that - nor do I see any reason to think that an economist working for government would be any more or less likely to be a crank than an economist working for Heritage, AEI, Brookings, Harvard, etc.
If I may quote one of those professional economists, however: “
Indeed, one of the most attractive aspects of dynamic scoring is its promise of allowing policymakers to distinguish between economically efficient tax policies that promote growth, and those that work to reduce the living standards of future generations.” (Douglas Holtz-Eakin, former CBO Director).
It would be, and thankfully that's not at all what 'static' scoring does! It's pretty amazing how often this is misrepresented.
Let's say that 500% tax was on beer. The projection would absolutely assume that a HUGE number of people would quit drinking beer and start drinking wine or liquor or soda or water...
No, that's a dynamic score. A Static Score holds inputs.... static. A static scoring of a 500% tax on beer would dutifully figure out how much beer people drank, the non-tax cost of the beer, and multiply it by 5. Static scoring assumes no impact on behavior - dynamic scoring does.
These people are VERY smart, from what I understand some of the best in the world at this, and simply would never do what you suggest.
They are very smart. But they are also required to follow political direction. If, for example, the President attaches an assumption that, because of his proposals, growth will reach 4.5% starting next year, and continue ad infinitum, then they are required to dutifully assume that. That's why you have to watch the inputs that they were given fairly closely. If they are told to score something statically.... then that is what they will do.
Sometimes they attach "
Alternative Fiscal Scenarios" where the alternative includes inputs that the CBO finds more likely.
I agree, especially about the 'under promise' stuff. It's the 'conservative' approach to budgeting!
It's the wise one. Plan for problems - and then have to worry about the "problem" of being better off than anticipated.
