{"database": "press", "table": "releases", "rows": [["https://www.hatch.senate.gov/public/index.cfm/releases?ContentRecord_id=2e2cc06a-c070-49e9-87d6-179c16801804", "Hatch Outlines Importance of Dynamic Scoring for Major Policy Reforms in Speech at American Action Forum", "2014-11-17", "2014", "2014-11", "Republican", "House", "UT", "Orrin Hatch", "H000338", "www.hatch.senate.gov", null, null, "legacy", "Washington, DC\u00a0\u2013 In a speech today at the American Action Forum, Finance Committee Ranking Member Orrin Hatch (R-Utah) called for dynamic scoring to be used to evaluate any major reform, including an overhaul of the tax code, so that the proposal\u2019s macroeconomic effects can be fully assessed.\r\nBelow is the text of Hatch\u2019s full speech delivered today:\r\nLet me begin with a story I heard about an upstanding Utahn named Jim who recently visited a park on his way to see his friend Lisa.\u00a0 Jim happens to be keen on law-and-order and was very unnerved when he observed two people in the park apparently engaged in an illegal drug deal.\u00a0\r\n\u00a0After leaving the park, Jim drove to pick up Lisa, who has a strong libertarian streak.\u00a0 When he arrived, Jim could barely contain himself and immediately shrieked: \u201cLisa, I just saw a drug deal take place in the public park, can you believe it?\u201d \u00a0\u00a0\r\nWith strong indignation, Lisa cried out: \u201cOh my goodness, you were in a Public Park?\u201d\r\nThe story is an example of how orientation influences what we view as being important. When it comes to the effects federal spending or taxes have on the economy, views also often tend to shift depending on orientation. \u00a0\r\nSome seem oriented toward the demand side of the economy, and they focus mostly on effects of federal spending.\u00a0\r\nOthers seem oriented toward the supply side of the economy, and they focus on the effects of effective marginal tax rates.\u00a0\r\nIn my view, both are right: demand matters and supply matters.\u00a0\r\nWhat I\u2019d like to talk about today is how we have and will, in the future, bring supply, demand, and macroeconomic analysis to bear in analyzing proposals involving significant changes in taxes, spending, and other policy matters. \u00a0\r\nTo preview where I come out on these matters, I\u2019ll note at the outset that while analysis of macroeconomic effects of proposed legislation, or what we sometimes call dynamic analysis, is challenging, it has a number of benefits. \u00a0\r\nBoth Democrats and Republicans alike have acknowledged that dynamic analysis can be useful in a variety of areas. It provides valuable information that should not simply be ignored or discarded.\u00a0 And, it should be used, as it has already been used, to reach budget and revenue estimates associated with major legislative proposals, including tax reform proposals.\u00a0\r\nThat said, use of macroeconomic analysis in scoring and revenue estimation \u2013 sometimes called dynamic scoring \u2013 is not a panacea.\u00a0\r\nFor example, when applied to tax changes, macroeconomic analysis shows positive effects from reduced marginal effective tax rates on growth in productive inputs like labor and capital.\u00a0 Those effects are real and significant and they capture how a policy proposal would impact American workers and businesses.\r\nHowever, those effects are not a magic elixir.\u00a0\r\nWhile I\u2019d like to tell you that tax cuts always more than pay for themselves, or maybe even that tax cuts cure influenza, I\u2019m sad to have to tell you that just isn\u2019t the case.\u00a0\r\nNonetheless, reductions in marginal effective tax rates on labor and capital can and do have positive macroeconomic effects that cannot and should not be ignored by Congressional scorekeepers. \u00a0 \u00a0\r\nThere are statistical studies, simulations, and cross-country comparisons that show those effects are plentiful.\u00a0 It doesn\u2019t take much effort to browse through the Tax Foundation\u2019s website, for example, to find evidence of these positive results.\u00a0 And, I\u2019m sure that Doug, in his more productive academic days, produced numerous studies that show such effects. \u00a0\u00a0\u00a0 \u00a0\u00a0\r\nEconomic growth will be key to moving the economy out of the rut it has been in over the past six years.\u00a0\r\nSince the end of the recent recession in the second quarter of 2009, GDP growth has averaged only 2.3 percent, a full percentage point below the long-run average we\u2019ve seen since 1947.\u00a0 Projected over long periods, the difference in growth rates means significant differences in standards of living for future generations.\u00a0\r\nPut simply, more growth means a better future.\u00a0\r\nWe also face significant underemployment in the economy.\u00a0\r\nWhile the top-line unemployment number has gone down, other indicators confirm significant weaknesses in the labor market.\u00a0 For example, since 2009 we have an unbroken downward trend in labor force participation, which has fallen from 65.7 percent at the beginning of 2009 to rates not seen since the 1970s, like the 62.8 percent we saw in October.\u00a0\u00a0\r\nIncreased participation, job growth, and enhanced opportunities in labor markets come hand in hand with stronger economic growth.\u00a0 Economic growth comes from growth in employment and investments leading to growth in physical, human and intangible capital, and from technological change.\u00a0\r\nLong-run growth does not come from deficit-financed government spending or redistribution.\u00a0\r\nThe true drivers of economic growth, together with returns from work effort, capital formation, and innovation, get tied together in basic economic models.\u00a0 Growth and other models are used by the Joint Committee on Taxation (JCT) in analyzing macroeconomic effects primarily of tax policy changes and by the Congressional Budget Office (CBO) in analyzing effects primarily of spending or other changes.\u00a0\r\nAnd the returns to work effort, capital formation, and innovation that matter, both to Americans in the actual economy and in the macroeconomic models, are after-tax returns, where effective marginal tax rates determine decisions at the margin.\r\nWhen we refer to a piece of legislation\u2019s budget score, as most here know, we are talking about projected changes in budget authority or outlays that will result from the legislation.\u00a0 And, revenue estimation refers to projected changes the legislation will have on federal receipts.\u00a0\r\nOf course, those changes are measured according to a \u201cbaseline,\u201d which represents what outlays and revenues would be if we assume current law will remain in place or if we alternatively assume that some notion of current policy would hold.\u00a0 What policymakers choose for a budget baseline can matter a lot, as we saw in the so-called fiscal cliff episode at the end of 2012.\u00a0 In consideration of any proposed legislative change that will affect the budget, such as tax reform, policymakers need to arrive at agreement on the relevant baseline.\u00a0 The work of budget scoring and revenue estimation generally involves projecting how a legislative proposal will impact the federal budget relative to whatever is the chosen baseline.\u00a0\r\nThere are two basic types of scoring that vary as to how they measure or predict the effects a legislative proposal will have on the general economy.\u00a0 The first, usually referred to as static scoring or conventional scoring in the case of JCT, assumes that a bill will not have any effect on important macroeconomic variables like employment, GDP, or national income.\u00a0 Static scoring does often incorporate some behavioral responses to policy changes, but not general economic effects.\u00a0 This is the most typical type of scoring employed by both CBO and JCT.\u00a0\r\nFor many cases, like those that do not have large-scale effects on spending, tax rates, labor markets, or technology, a score with static assumptions is probably safe.\u00a0\r\nHowever, for large proposed changes to government spending, provisions in the tax code, or policies with significant labor force or technology effects, static scoring is downright dumb.\r\nThe second type of scoring, which I mentioned previously, is what some refer to as dynamic scoring or dynamic analysis, which simply refers to budget scores and revenue estimates that include analysis of a legislative proposal\u2019s macroeconomic effects. \u00a0\r\nBoth JCT and CBO can offer macroeconomic analysis of a proposal as either supplemental information accompanying a static analysis or as the principle score of interest to policymakers.\u00a0 Similar to a decision about what is to be the relevant baseline, it is up to policymakers to decide how to use results derived from macroeconomic analysis of a proposal.\r\nNow, if you listen to some people discussing static versus dynamic analysis, you\u2019d think that dynamic analysis is to be feared and is something that has never been used, ought to be avoided, contains mysterious features, is too hard to accomplish, or involves unmanageable uncertainties.\u00a0\r\nThose views are typically overblown and, in most instances, are also downright dumb.\r\nBut don\u2019t take my word for it.\u00a0\r\nTake the word of CBO, JCT, the Social Security Actuaries, the IMF, the Federal Reserve, members of Congress on both sides of the aisle, or the administration. All of these groups have either produced or supported and utilized dynamic analyses of large-scale policy proposals to guide decisions, acknowledging that static scores would be \u2013 to paraphrase their views \u2013 downright dumb.\u00a0\r\nSome of the debate I hear concerning use of dynamic analysis by CBO and JCT seems remarkably uninformed.\u00a0 Hearing the debate, you\u2019d sometimes think that dynamic analysis is some untested, never-before-used tool.\u00a0 But, anyone paying attention knows that is not the case.\u00a0 CBO and JCT have and will perform macroeconomic analysis of dynamic effects on the economy and the resulting budgetary implications of major legislative proposals. \u00a0\r\nAnd, not surprisingly, the Republic has survived.\r\nTake, for example, the most recent immigration proposal put forward in the Senate.\u00a0\r\nThat proposal involved policies that have the potential to generate significant effects on the labor market, including employment, earnings, and the skill mix of the labor force.\u00a0 Those opposing use of macroeconomic analysis in budget scoring would, if they were consistent in their arguments, say that CBO and JCT should have used static scoring, including an assumption that employment and GDP would remain fixed at values projected under current law.\u00a0 But, in explaining their dynamic analysis of the immigration proposal, CBO essentially wrote that with a proposal involving such a large possible labor market impact, the use of static scoring would be, in my words, not theirs, downright dumb.\u00a0\r\nInstead, CBO and JCT produced an analysis in which many macroeconomic effects were considered, which ran counter to a strict static analysis.\u00a0\r\nAnd, wouldn\u2019t you know it, the Republic survived.\u00a0\r\nIn fact, the positive economic results that CBO predicted were warmly embraced by a number of Democrats.\u00a0 Indeed, you can see the results of CBO\u2019s dynamic analysis of the immigration bill touted on the White House website. \u00a0\r\nOddly enough, these same Democrats, in other contexts, have written off dynamic scoring as some sort of fantasy used by Republicans to justify lower tax rates.\u00a0 But, when the same type of analysis could be used to bolster the case for the immigration bill, they were singing off a different song sheet altogether. \u00a0\r\nImmigration reform is not the only case in which Congressional scorekeepers have provided dynamic analyses of proposed changes to federal policy.\u00a0 While I don\u2019t have time today to review them all, it does not take much effort to browse through the CBO and JCT websites to find many examples.\u00a0 JCT even has a special tab on its main web-page titled Macroeconomic Analysis.\r\nThe question is not whether CBO and JCT should use dynamic macroeconomic analysis.\u00a0 As I have said, they have done so, can do so, and will do so.\u00a0 The question is what role that analysis should play.\u00a0 And, as we continue to work toward tax reform, that question becomes all the more relevant.\u00a0\r\nOnce again, I want to stress that dynamic scoring is not a magic elixir that solves all of our problems when it comes to tax policy.\r\nEven if we agree to use dynamic scoring on major tax reform proposals, there are a number of questions we must consider, including: what economic models to use; what so-called parameter values to choose for things like sensitivities of labor and capital suppliers to after-tax returns on their efforts and investments; what assumptions to make about possible behavior of the Federal Reserve or foreign policymakers; and what assumptions to make about how any proposal fits with the government\u2019s long-run budget constraint. \u00a0\r\nBut, while these issues are certainly challenging, they have not prevented JCT or CBO from arriving at informative projections regarding large-scale spending or tax policy changes in the past, and they shouldn\u2019t hinder such efforts in the future. \u00a0\r\nMacroeconomic analysis providing projections of future effects of policy changes are, of course, subject to uncertainties.\u00a0 And no matter what models, parameter values, and assumptions we use, that will remain.\u00a0 However, the argument that we should not use information from dynamic analysis of policy proposals because the analysis is uncertain and difficult is almost comically misguided to me.\u00a0\u00a0\r\nOddly enough, many who argue against use of macroeconomic analysis of tax proposals because of some uncertainties are the same people who argue for the embrace of point estimates from global climate-change models that are flat-out rife with uncertainties.\u00a0\u00a0\r\n\u00a0Go figure.\u00a0\r\nSo where do I stand on use of dynamic scoring for tax policy changes?\u00a0\r\nTo me, it is clear that we should continue using dynamic analysis and work with CBO and JCT to ensure that those efforts proceed and are accelerated and refined.\u00a0\r\nAs with the economics profession, the work at CBO and JCT should adapt to the advancement and development of the tools of analysis used by economists.\u00a0 I recall seeing a picture of Milton Friedman and Anna Schwartz as they were analyzing data for use in their historic work on the Great Depression and Monetary Policy.\u00a0 The picture shows the two scholars at a large table looking over a grid of data points, and they were trying to fit a trend line to the data using a long piece of string.\u00a0 Well, since that time, there have been major developments in the tools that economists use, including the development of dynamic programming and computing.\u00a0 Arguing against use of dynamic analysis by CBO and JCT is like harkening back to the days of fitting data with a string.\r\nI\u2019d like to end with a brief note on what is at stake with respect to our efforts on tax reform, especially given that I believe that there is a lot of misinformation being peddled out there about dynamic scoring. \u00a0\r\nLet\u2019s look back at JCT\u2019s projections from its dynamic analysis of Chairman Camp\u2019s proposal.\u00a0 Of course, Chairman Camp deserves a lot of credit for putting his plan out there and showing how hard it is to engage in comprehensive tax reform, especially when constrained by static revenue neutrality and distributional neutrality.\u00a0\r\nAccording to JCT\u2019s results, Chairman Camp\u2019s plan could produce, from positive macroeconomic effects, upwards of $700 billion of revenue relative to a static analysis.\r\nIf you accepted the $700 billion positive revenue effect \u2013 which was, once again, at the high end\u00a0 \u2013\u00a0 and hypothetically plowed it back in for further rate reductions, you\u2019d probably be able to lower tax rates in the various brackets by less than one percentage point.\u00a0\u00a0\r\nWhile that would be real change with real impact on Americans, it would hardly be the supercharged supply-side miracle that many, including some on my side of the political spectrum, have argued we would see.\u00a0\r\nDon\u2019t get me wrong, incentives, the supply side, growth, and capital formation matter.\u00a0 And they matter a lot for future living standards, and cannot be ignored.\u00a0 Indeed, as tax writers, we would be committing malpractice if we undertook an exercise as far-reaching as tax reform and ignore macroeconomic data.\u00a0 However, especially with the type of exercise like Chairman Camp undertook, we should not expect dynamic scoring to produce outsized miracles from either the supply side or the demand side.\u00a0\r\nAs always, there have been and continue to be political and economic debates about economic analysis, but that is healthy and useful.\u00a0 What is not healthy is to ignore useful information or to try to bias or distort analytical work done by CBO or JCT.\u00a0 And, if anyone thinks of purposefully writing legislation to distort the way bills will be scored or to dupe the American people, well\u2026don\u2019t get me started.\r\nDynamic analysis of major spending, tax, regulatory, and other proposals should be valued.\u00a0 It is intellectually dishonest to praise and accept such analysis for spending or labor-market related proposals like immigration, while arguing against the use of that same type of analysis when it comes to taxes.\u00a0\r\nTax reform involves changing many margins along which Americans make important resource allocation decisions.\u00a0 Dynamic analysis can help us analyze how changes in the margins, distortions, and deadweight losses will affect people, for better or worse. \u00a0\u00a0 \u00a0\u00a0\r\nThat being the case, such analysis should be used with regard to tax policy changes.\u00a0\r\nWe need to stay focused on what is important.\u00a0 The primary goal of tax reform and analysis of any such reform must be growth in opportunities, incomes, and jobs for Americans, as well as fairness and simplicity in the tax code.\u00a0 If we limit ourselves to static analysis, we take attention away from things that really matter.\u00a0 What matters to American households and businesses is not simply how much a proposal changes a revenue estimate or budget score; what matters is what tax policy will do to or for them. \u00a0\r\nTax reform has been and will continue to be a long and difficult process.\u00a0 I believe the expanded and sensible use of dynamic analysis can, if done correctly, be an important tool to help us achieve our goals. \u00a0\r\nI look forward to working with all of you as this effort continues.\r\nThank you, once again, for having me here today.", 1, "2026-03-30T12:14:52Z", "2026-03-30T12:14:52Z"]], "columns": ["url", "title", "date", "year", "month", "party", "chamber", "state", "member_name", "bioguide_id", "domain", "scraper", "source", "date_source", "text", "has_text", "collected_at", "updated_at"], "primary_keys": ["url"], "primary_key_values": 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