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House rule change could make tax cuts easier

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The new Republican-controlled Congress convened for the first time on Jan. 6, and Republicans in the House of Representatives immediately adopted a new rule for how to score tax legislation. The change may make it easier to reform the tax code or pass tax cuts.

The rule was adopted on a party line vote and requires the Joint Committee on Taxation (JCT) to address the overall economic impact of tax changes when estimating the revenue effects of those changes. This estimation technique, called “dynamic scoring,” could reduce the estimated cost of tax legislation if the JCT projects that the legislation will help grow the economy, thereby raising additional revenue.

The Budget Control Act of 1974 requires the JCT to provide a revenue estimate for all tax bills considered by the House and Senate, making JCT the official scorekeeper of all tax legislation. The JCT has long factored the behavioral effects of tax changes into its scores. It has also previously estimated how proposed tax legislation would affect the overall economy. However, it has never used those economic projections to adjust its official cost estimate for tax changes.

The new House rule requires the JCT to factor a dynamic analysis into the scores of House tax bills under House budget rules. A dynamic score is required only if the revenue effect of the bill exceeds 0.25% of the total economy. That translates to roughly $43 billion based on the current size of the economy, but comments on dynamic scoring from current JCT Chief of Staff Thomas Barthold seem to indicate that tax changes generally have to be much larger to measurably affect the overall economy.

Still, the new scoring rule could significantly affect larger tax bills. Tax reform could be easier if the JCT factored in dynamic effects. A revenue boost from economic growth from tax reform could allow tax writers to make deeper rate cuts or include fewer revenue offsets. Proposals to make the research credit and other popular temporary tax provisions permanent could also be less costly using a dynamic score.

But it’s still unclear exactly how the new rule will be applied. It doesn’t amend the Budget Control Act, but only requires the JCT to factor in a dynamic analysis for House budget rules. Presumably, Senate tax bills would still be scored using traditional methods. In addition, it’s unclear how easily or accurately the JCT can incorporate macroeconomic effects into its scores. The JCT estimated that last year’s tax reform proposal from former House Ways and Means Chair Dave Camp, R-Mich., would grow the economy somewhere between $50 billion and $700 billion. It would be difficult to translate that range of economic outcomes into a specific revenue effect on the bill’s overall score.

Republicans could seek to put someone new in charge of the JCT to implement the new scoring, but new tax-writing committee Chairs Sen. Orrin Hatch, R-Utah, and Rep. Paul Ryan, R-Wis., have declined to say whether they plan to replace Barthold. Republican leaders have also not decided the fate of Douglas Elmendorf, the current director of the Congressional Budget Office (CBO), the official economic and spending scorekeeper for Congress. Elmendorf’s term has expired, but he is staying on until Republicans decide whether to appoint him to another term or replace him.

Contact
Mel Schwarz
+1 202 521 1564
mel.schwarz@us.gt.com

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