Making the Right Case for Dynamic Analysis

Research Report

Making the Right Case for Dynamic Analysis

April 21, 2003

Abstract

A recent Congressional Budget Office report presented many estimates, both positive and negative, for the effect of the presidents proposed tax cut on the economy. In issuing this report, CBO indirectly called into question many of the more nave statements made about the ability of Congress to "dynamically" score tax cuts in a way that significantly lowered their budget cost. However, there is a good case for dynamic analysis, which is that raising taxes (and spending money) causes distortions which generally cost taxpayers more than what is reported in the budget. The burden of proof for government action, therefore, lays with the advocates for that action. There should be gains to taxpayers from spending programs that offset the additional costs associated with taxation.

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