JCT

How Is Revenue Neutrality to Be Judged?

Any serious efforts to improve the tax system inevitably comes up against dubious assertions that such changes won’t improve economic growth or reduce tax avoidance, and will therefore not be “revenue neutral” but will simply increase deficits and debt for no reason.

Debunking the Debunking of Dynamic Scoring and the Laffer Curve

Many statists are worried that Republicans may install new leadership at the Joint Committee on Taxation (JCT) and Congressional Budget Office (CBO).

This is a big issue because these two score-keeping bureaucracies on Capitol Hill tilt to the left and have a lot of power over fiscal policy.

The JCT produces revenue estimates for tax bills, yet all their numbers are based on the naive assumption that tax policy generally has no impact on overall economic performance. Meanwhile, CBO produces both estimates for spending bills and also fiscal commentary and analysis, much of it based on the Keynesian assumption that government spending boosts economic growth.

I personally have doubts whether congressional Republicans are smart enough to make wise personnel choices, but I hope I’m wrong.

Matt Yglesias of Vox also seems pessimistic, but for the opposite reason.

He has a column criticizing Republicans for wanting to push their policies by using “magic math” and he specifically seeks to debunk the notion - sometimes referred to as dynamic scoring or the Laffer Curve - that changes in tax policy may lead to changes in economic performance that affect economic performance.

He asks nine questions and then provides his version of the right answers. Let’s analyze those answers and see which of his points have merit and which ones fall flat.

But even before we get to his first question, I can’t resist pointing out that he calls dynamic scoring “an accounting gimmick from the 1970s” in his introduction. That is somewhat odd since the JCT and CBO were both completely controlled by Democrats at the time and there was zero effort to do anything other than static scoring.

I suppose Yglesias actually means that dynamic scoring first became an issue in the 1970s as Ronald Reagan (along with Jack Kemp and a few other lawmakers) began to argue that lower marginal tax rates would generate some revenue feedback because of improved incentives to work, save, and invest.

Now let’s look at his nine questions and see if we can debunk his debunking:

A Weak Defense of an Illegal Fix to an ObamaCare Glitch

In this November 16 op-ed, Jonathan Adler and I explain how the Obama administration is trying to save ObamaCare (“the Affordable Care Act”) by creating tax credits and government outlays that Congress hasn’t authorized.  (The administration describes this “premium assistance” solely as tax credits.)  This week, the administration tried to reassure everybody that no, they’re not doing anything illegal.

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