(Updates with rates in Camp approach to tax overhaul starting in fourth paragraph.)
Sept. 21 (Bloomberg) -- House Ways and Means Chairman Dave Camp said congressional revenue analysts should consider the economic growth effects of an overhaul of the U.S. tax code when estimating its revenue costs.
“I would hope that we would get dynamic analysis that would be used to come to a more accurate score,” the Michigan Republican said after a hearing on the topic. Revenue from economic growth could be used to lower the U.S. budget deficit, said Camp, who is opposed to tax increases.
Such a scoring approach would be a departure from the conventional method, which doesn’t consider how a legislative proposal affects growth. Republicans have long favored such “dynamic scoring” that includes macroeconomic feedback.
Camp, also a member of the deficit-reduction supercommittee, has been working on a proposal to overhaul the U.S. tax code. He has set a target of 25 percent for the top corporate and individual tax rates, down from 35 percent today.
Driving rates to that level would require curbing tax expenditures such as the mortgage interest deduction and accelerated depreciation for businesses. An approach that generated economic growth could, in theory, reduce the need to curtail tax breaks.
Senator Mike Crapo, an Idaho Republican who is a member of the Senate Finance Committee and the Senate’s “Gang of Six,” though not of the supercommittee, said today in Washington that moving to dynamic scoring is a “key issue” that must be settled for the supercommittee to reach agreement on deficit reduction. He made the comments at a forum sponsored by the Committee for a Responsible Federal Budget, a non-partisan group that educates the public on fiscal issues.
John Buckley, a former House Democratic tax aide, said including growth effects could raise questions of political interference.
“Those estimates then have no credibility,” said Buckley, who now teaches at Georgetown University’s law school in Washington and testified at the hearing.
Panelists at the hearing said producing a macroeconomic estimate is subject to uncertainty and requires assumptions about actions taken outside the tax code by Congress and the Federal Reserve.
The Joint Committee on Taxation, the official congressional scorekeeper for tax legislation, already produces estimates that consider macroeconomic factors for major legislation, even though they aren’t officially used by Congress.
The tax law passed in December 2010 that extended expiring income tax breaks for two years had an official 10-year revenue estimate of $858 billion.
Without other policies to offset the deficit effect, JCT estimated, a dynamic estimate of that law would have cost the government $791 billion over the first five years in forgone revenue, or about $100 billion less than the official score for that period.
In the second half of the decade, the dynamic estimate shows an additional revenue loss of $205 billion compared with a $35 billion revenue gain under the conventional method. That result stems in part from the economic drag of the budget deficit, debt and the eventual expiration of the tax breaks, according to the JCT report.
Representative Sander Levin of Michigan, the committee’s top Democrat, said the hearing on dynamic scoring was counterproductive and distracted from what he said should be the main focus of reviving the economy.
“We need analysis,” Levin said. “We also have a crisis facing this country and its families.”
--With assistance from Heidi Przybyla in Washington. Editors: Jodi Schneider, Jim Rubin.
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