Gov. Deal on “dynamic scoring” and a static budget

At an event the other night, the Governor opened the floor to questions and someone asked him about repealing the sales tax on energy used in manufacturing. The Gov. said that the “cost” of the tax cut was roughly $170 million, but that he thought they could identify enough savings to make it feasible.

“I read that we’ve lost $1 billion worth of jobs,” asked the gentleman who offered the original question. “Don’t we make enough in taxes on those jobs to pay for the tax cut.” That sounds like a no brainer but it’s a bit more complicated than that.

Dynamic scoring” is a budgetary concept over which Congress has been fighting for years. Dynamic scoring includes changes in behavior that are expected from proposed tax cuts. For example, if we exempt the sales tax on Porsche automobiles, we expect more to be sold, and we might anticipate additional income tax from new salesroom jobs.

So in the example of the sales tax on energy used in manufacturing, a dynamic scoring model would include additional income tax revenues from jobs attracted to Georgia, or less income tax lost to jobs moving to other states.

But Georgia uses a static model for budgeting that doesn’t account for anticipated changes that ramify from tax cuts. So we must find a way to “pay for” tax cuts in a down economy like we currently experience.

I recognize that we may have gotten into the weeds on a technical budgeting issue, but I hope there are enough policy wonks among our readership that this little segment was worth producing.

12 comments

  1. Dave Bearse says:

    Bring this up again in two or three years AFTER the state has actually established a sound record of following up on and scoring its static special interest handouts.

  2. Max Power says:

    Dynamic scoring includes changes in behavior that are expected from proposed tax cuts. For example, if we exempt the sales tax on Porsche automobiles, we expect more to be sold, and we might anticipate additional income tax from new salesroom jobs.

    Except those predictions are little more than WAGs intended to bolster a policy position.

  3. Dave Bearse says:

    There are traps to be considered. Benefits associated with additional economic activity may be overstated.

    As it is, the focus on economic activity may not properly account for the public costs of the additional activity. I offer motor fuel taxes as an example. Are the additional motor fuel taxes collected with increased transportation demand associated with a proposal a net benefit? The answer is clearly no. Motor fuel taxes fall well short of the cost of highway transportation. Property and sales taxes pick up much of the direct shortfall. The general public incurs indirect air, water and healthcare costs.

  4. Blake says:

    I truly do not understand the question that started this off:

    “I read that we’ve lost $1 billion worth of jobs,” asked the gentleman who offered the original question. “Don’t we make enough in taxes on those jobs to pay for the tax cut.”

    If you’ve lost $1 billion worth of jobs, haven’t you lost the taxes on those jobs, so they are unable to pay for anything, much less a tax cut?

        • Todd Rehm says:

          My understanding is that $1 billion figure represents jobs that were considered to be located in Georgia but went elsewhere, or jobs that were transferred to other states. I’ve seen that figure several times and I understand the argument about offsetting the tax loss from repealing the sales tax on energy used in manufacturing to mean that $1 billion worth of jobs, if attracted here from other states or retained, would generate enough additional tax revenue in other categories to “pay for” the revenue lost to the tax cut.

          • Blake says:

            Thanks Harry. I had a feeling I was missing the tone in both your comment and maybe the originator; I’m pretty bad at math, though, never mind tax policy, so I wanted to know if it was just me that noticed that glaring error.

            And thank you, Todd; it makes sense that there was a missing assumption that those $1 billion worth of jobs would be recovered and thus pay for the energy tax cut. It does make it a bit hard on those of us trying to follow along when questioners (and Gov. Deal, the responder!) don’t make that apparent.

  5. CobbGOPer says:

    How about we do something to simplify these tax codes? Why must we always move to an ever more complex system that only serves to benefit those with enough money to pay an army of tax lawyers and accountants? Why is this never a priority for our legislators?

    Oh, right: because it gives lobbyists jobs. Screw you Jay Morgan, Trip Martin, etc.

  6. 5stringjeff says:

    Dynamic scoring is difficult, and not always cut-and-dry, but is essential to understanding the long-term ramifications of a proposed policy. In your example, tax cuts on Porsches would result in an uptick in Porsche sales. How much? You’d have to look at the profile of a typical Porsche owner, determine how many are in the GA Porsche market, determine the rough number of additional (marginal) Porsche buyers there will be, and what the effect will be, i.e. higher income taxes from commissions, as was mentioned. Obviously, the more far-reaching the policy, the harder the estimation process becomes, but it does allow the government to show more accurate effects of the policy. For instance, by static scoring, the Porsche exemption might cost $500K in sales taxes (totally made up number). But the increased income tax might replace $100K of that. So the real cost to the state is only $400K.

    Unfortunately, Georgia is not alone. The CBO also uses static scoring.

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