Trump tax reforms may hinge on ‘scoring’ panel

Obscure congressional committee

WASHINGTON • Presidentelect Donald Trump’s goal of overhauling the U.S. tax code in 2017 will depend partly on the work of an obscure congressional committee tasked with estimating how much future economic growth will result from tax cuts.

Known as the Joint Committee on Taxation, or JCT, the non-partisan panel assigns “dynamic scores” to major tax bills in Congress, based on economic models, to forecast a bill’s ultimate impact on the federal budget. The higher a tax bill’s dynamic score, the more likely it is seen as spurring growth, raising tax revenues and keeping the federal deficit in check.

As Trump and Republicans in Congress plan the biggest tax-reform package in a generation, the JCT has come under pressure from corporate lobbyists and other tax-cut advocates who worry that too low a dynamic score could show the legislation to add billions, if not trillions of dollars to the federal deficit.

“The problem is that the Joint Committee staff has adopted a whole series of assumptions that truly minimize the effects and underestimate the impact that a properly done tax reform could have,” said David Burton at the conservative Heritage Foundation think tank.

A low dynamic score could force Republicans to scale back tax cuts or make the reforms temporary.

Other analysts warn that pressure for a robust dynamic score raises the danger of a politically expedient number that could help reform pass Congress but lead to higher deficits down the road.

Until last year, JCT used a variety of economic models in its arcane calculations, reflecting the uncertainties in such work. But House of Representatives Republicans changed the rules in 2015 to require that a bill’s score reflect only a single estimate of the estimated impact on the wider economy and resulting impact on tax revenues.

Next year’s anticipated tax reform package would be the biggest piece of legislation that JCT has scored using this new, narrower approach, presenting the committee with a daunting challenge.

JCT chief of staff Thomas Barthold acknowledged the challenge of dynamic scoring in an interview with Reuters.

“The U.S. economy is so darn complex, you really can’t have one model that picks up all of the complexity and nuance. So the essence of modelling is to try to slim things down, try to emphasize certain points,” he said.

When Dave Camp, as chairman of the House Ways and Means Committee, produced a tax-reform bill in 2014, JCT used two models and forecast revenue gains ranging from US$50 billion to US$700 billion.

The tax package likely to emerge next year will probably be even more complex than Camp’s, prompting some to worry that budgetary and economic forecasts will range even more widely.

Some critics, including lobbyists for corporations that stand to gain from big tax cuts, want JCT’s numbers to look more like the nonpartisan Tax Foundation’s.

The Tax Foundation estimates that the House Republican plan would lead to a 9.1-per-cent higher GDP over the long term, 7.7-per-cent higher wages and 1.7 million new full-time-equivalent jobs. It predicts the plan would reduce government revenue by US$2.4 trillion over a decade, not counting macroeconomic effects, but by only US$191 billion once growth is taken into account.

By contrast, the centrist Tax Policy Center estimates the House plan would add one per cent to GDP over 10 years and erase US$2.5 trillion of revenue, even with positive macroeconomic feedback, due to higher federal debt interest.