The news media reports that Governor Brownback stated the newly enacted tax legislation will expand employment and bolster state revenue. The Legislative Research Department projects the opposite: that it could result in deficits of nearly $2.5 billion in fiscal year 2018. The difference is that the Legislative Research Department used static scoring while the Governor’s staff likely used dynamic scoring.
Dynamic scoring assumes that households and firms will alter their behavior due to the tax cut. Dynamic scoring is more accurate than static scoring when the econometric model correctly captures how households and firms will react to a policy change.
But dynamic scoring is difficult to apply in practice due to its complexity. In 2003 the Congressional Budget Office conducted a dynamic scoring analysis of tax cuts advocated by supply side economics advocates. Two of the nine models used in the study predicted a large improvement in the deficit over the next ten years resulting from tax cuts and the other seven models did not. In 2001, The Heritage Foundation conducted a dynamic simulation of the so called Bush tax cuts (report CDA01–01Rev) that showed that the national debt would effectively be paid off by fiscal year 2010.
So as the Governor sees it all of our state fiscal problems are over. There will be less income tax for all of us (except for the poor) and there will be more tax revenue. But if his economic models are wrong, will he reverse his tax policy? For the Governor, does it really matter?
I urge voters to make it something that matters to them and to make the impact on state revenues an important part of their decision in the next gubernatorial election.