What is "dynamic scoring"?

Apr 10th, 2017

"The Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) estimate the budgetary effects of tax, spending, and regulatory legislation. The resulting scores play a major role in policy deliberations because of congressional budget rules and public concern about the budget.

CBO and JCT recognize that households’ and businesses’ economic activity can be sensitive to changes in policy. An increase in the cigarette tax, for example, will reduce smoking, while new subsidies for health insurance will increase coverage. The agencies account for those behavioral responses in their estimates.

For many years, however, CBO and JCT budget scores did not account for the secondary impact on employment, gross domestic product, and other macroeconomic measures. The agencies often analyzed those macroeconomic impacts separately in what is called dynamic analysis, but did not include their feedback effects in official scores. An exception is immigration reform scoring: the effects on population and labor force are so direct that CBO and JCT did account for them.

In 2015, Congress adopted new budget rules that required dynamic scoring in certain cases. CBO and JCT now include macroeconomic feedback in official scores if proposed legislation has a sufficiently large budget impact (more than 0.25 percent of gross domestic product in any year in the budget window, equivalent to about $45 billion in 2016) or if one of the budget committee chairmen requests it. These rules cover major tax and mandatory spending proposals; an unresolved question is how these rules might also apply to investments, like infrastructure and education, funded through discretionary spending.

For dynamic scoring, CBO and JCT prepare conventional, nondynamic scores of proposed legislation and then use economic models to identify any short- or long-run effects on the overall economy. The agencies then estimate the budget effects of those macroeconomic feedbacks. The agencies have long done dynamic analyses of major legislation, using multiple models and parameter estimates. A major difference with dynamic scoring is the distillation of those scenarios down to the single set of estimates the budget process requires."

http://www.taxpolicycenter.org/briefing-book/what-are-dynamic-scoring-and-dynamic-analysis