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Thursday, November 17, 2016

Republicans have long argued that economic growth from tax cuts should be fed back into the model, year by year. They call this approach “dynamic scoring” or “macroeconomic analysis.” For the first time, macroeconomic analysis will likely prevail in next year’s official scores for major revenue bills from the JCT. Some Democrats, who’ve been suspicious of an approach that makes tax cuts look cheaper, are slowly warming to the same idea for appropriations bills. It could make infrastructure spending look cheaper, too.
Into this fussing over details strides Donald Trump. During the campaign, he proposed a tax cut that would cost, according to his own preferred estimate, $4.4 trillion. And to pay for it, his campaign proposed a new kind of analysis, an economic model radically more complex than what either academics or policymakers have tried in the past.
All aspects of Trump’s plan, including trade and regulatory rollbacks, would be part of the analysis. Together, the campaign argued, they would create enough growth, and therefore enough tax revenue, to offset all but about $200 billion of those tax cuts.
The real challenge of budgeting is to offer something, but at a discount. In 2017 dynamic scoring will let the Republican majority offer tax cuts without having to offset them entirely with spending cuts. It may even offer infrastructure spending—without having to renege on the promise of tax cuts. If the models are right, they’re right. If they’re wrong, the tax cuts will be a debt-driven Keynesian stimulus.
 

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