about what happens when we require that the majority of children except for those with severe cognitive disabilities take the test and what that might mean for accountability moving forward. >> so as senator casey mentioned, the vast majority of students with disabilities do not have sblul disabilities. they should be able to reach the same standards with the modifications to the assessments their given. the second point i would make is that there has to be some form of a cap on the number of students that are allowed to take those alternative assessments. i'm not sure the 1% cap that was in the no child left behind legislation was cover. but one thing we know from study of accountability and our schools respond to them more generally is that some schools will find a way to game the system. so they might reclassify students as being special education if that exempts from

the accountable pool of students in order to avoid being sanctioned. and so there needs to be some mechanism in an accountability policy to account for that dynamic. one of the concerns, there also needs to be, if there's a cap some degree of flexibility to allow for natural variation in the share of students at a given school or even at a given district that might actually be appropriately excluded from the standard assessment. and so i think those policies have been a bit more rigid than they actually should be. but there needs to be some mechanism and i'm not the one to tell you the details of how to do it. >> thank you, dr. west. i commended the committee. a suggest wouldstudy would suggest that half of the kids don't take the tests. but you're right. there are going to be variations. thank you mr. chairman. >> thank you, senator murphy.

i asked senator murray if she has any closing remarks. >> i would just say that there is tremendous interest on our side of the aisle in fixing the no child left behind law to really make sure that in this country, we really do make sure that every child, no matter where they live or who their parents are and how much money they have have the opportunity of the american dream of a good education and that is the equalizer that i think is so important for our country. and will allow all of our young people to have a job and be supportive and competitive in a global marketplace. it's a huge goal. but i think there's tremendous interest here. we want to work on a bipartisan basis to move forward on this bill and i want to thank everybody who participated today. >> thank you. this is a good beginning. i've learned a lot from the witnesses. i like the exceptional variety we had of points of view and i thank the staff for their work oncoming komcome ing up with that.

you see the large number of senators who came today and had thoughtful comments and for those who came and couldn't get in the hearing room, we'll do our best to have a larger hearing room for our next hearing, which will be next tuesday at 10:00 a.m. and it will be about fixing no child left behind supporting teachers and school leaders. so we look forward to that. i'd like to invite the witnesses. if there's something today that you wanted to say that you didn't get to say, we'd like to hear it. so if you could let us hear it especially if you could do it within the next ten days, that would be very helpful. we would welcome it. to the senators, ask. for example, senator baldwin raised the question, how do we put on the spotlight whether it's the state or local governments who come up with all of these extra tests and senator

bennett asked the same question. well, senator murray and i have written to state and local school districts trying to identify the number of tests but if you have an idea about that on senator baldwin's effort, we would appreciate it. i would, i'll send a question and ask the question whether high stakes discourage multiple assessments. i would ask that question. and then i would like to invite mr. hwazar to follow up his question. one area to provide more funding is developing better assessments. well, the dangers is that whenever the federal government does that, it likes to put sticky fingers on what to do and who must do them. your comments on that from anybody would be helpful. yes? >> i'm interested in taking advantage of that opportunity, and particularly because none of the witnesses had a chance to comment on what i said could you let me know by what time you would like our additional

questions in so that our folks, what's my deadline? >> what's convenient for you? >> end of the week. >> okay, that would be great. and we'll work with you. and i think the sooner we get the questions out, the sooner we'll get good answers. answers back and we'll see how this goes. i'll work with senator murray. maybe we'll have round table discussions rather than hearings at some point where we can sit around and actually have conversations about particular points and not be limited five minutes of questions. there's different ways to go about this. if you could let us know a week or sooner, sheldon that would be a big help and then we'll go to work on that. hmm? this friday. usually we say at the end of closing business this friday. that's what we usually say, i'm told. i'm just learning. so if you could do it by the close of business friday that would be helpful. the hearing record will be open for ten days.

we thank you for being here today. any other outburst or comment anyone wants to make? thank you to the witnesses. thank you very much for coming. the hearing is adjourned. coming up live today on c. span 2, bob schieffer with a discussion about countering violent extremeism with former officials from the obama and george w. bush administrations. live at 5:30 p.m. eastern. and national security adviser susan rice wraps up the summit on combatting terrorism with bonki moon and how to counteract violent extremism from groups

such as isis. live at 5:45. earlier today, the president spoke at the event telling the group that the notion that the west is at war with islam is an ugly lie. here's more of what he had to say. >> these terrorists are desperate for legitimacy and all of us have a responsibility to refute the notion that groups like isil somehow represent islam. because that is a falsehood that embraces the terrorists' narrative. at the same time we must acknowledge that groups like al qaeda and isil are deliberately targeting their propaganda to muslim communities, particularly, muslim youth. now, muslim communities including scholars and clerics therefore have a responsibility to push back, not just on twisted interpretations of islam but also on the lie that we are

somehow engaged in a clash of civilizations. that america and the west are somehow at war with islam. or seek to suppress muslims. or that we are the cause of every ill in the middle east. that narrative sometimes extends far beyond terrorist organizations. that narrative becomes the foundation upon which terrorists build their ideology and by which they try to justify their violence and that hurts all of us, including islam and especially muslims. who are the ones most likely to be killed. obviously, there is a complicated history between the middle east, the west, and none of us i think should be immune from criticism in terms of

specific policies, but the notion that the west is at war with islam is an ugly lie. and all of us, regardless of our faith, have a responsibility to reject it. the same time, former extremists have the opportunity to speak out, speak the truth about terrorist groups. and oftentimes, they can be powerful messengers in debunking these terrorists' ideologies. one said, this wasn't was we came for. to kill other muslims. those voices have to be amplified. and governments have a role to play. at minimum, as a basic first step countries have a responsibility to cut off funding that fuels hatred and corrupts young minds and endangers us all.

we need to do more to help lift up voices of tolerance. and peace. especially online. and that's why the united states is joining, for example, with the uae to create a new digital communications hub to work with religious and civil society and community leaders to counter terrorist propaganda. within the u.s. government, our efforts will be led by our new coordinator of counterterrorism communications and i'm grateful my organization of islamic cooperation, rashad hussein, has agreed to serve in this new role. so the united states will do more to help counter hateful ideologies and today, i urge your nations to join us in this urgent work. >> see all of the president's remarks at c-span.org and watch the conclusion of the summit live at 5:45 eastern on c-span.

here are some of our featured programs for this weekend on the c-span networks. saturday morning starting at 10:00 a.m. eastern live on c-span, nation's governors get together with issues affecting their states. dan meyer of u.s. hospitally group and maria bart low ma of fox business news. and continue the national governor's meeting including homeland security secretary jay johnson and epa administrator gina mccarthy. and c-span 2, book tv on the road. experience life in greensboro, north carolina. and part of c-span cities tour. and wes moore retraces from wall street banker to social

entrepreneur. to find his life's purpose. and on american history tv on c-span 3, saturday night just after 7:00, the 1963 interview of former nation of islam minister malcolm x discussing race relations and opposition to racial integration. and sunday at 6:30 p.m. eastern, former cia chief of disguise john menendez tells the story of a kgb spy team that infiltrated the use with sex in the '70s. find complete schedule at c-span.org and let us know what you think about the programs you're watching. call us at 202-626-3600. e-mail us at comments@c-span.org or send us a tweet at @cspan. like us on facebook. follow us on twitter. >> the brookings institution

recently hosted an event with economic and tax policy experts to discuss dynamic budget scoring. a series of panels and speakers explained the processes used by the government in drafting and assessing budgets and the steps taken to communicate and explain those figures to the congress and the public. good morning. i'm david westel. i'm director of fiscal and monetary policy here at brookings and very pleased to welcome you to this event we're sponsoring with tax policy center, which is itself a joint venture of the urban institute and the brookings institution on dynamic scoring. now, for those of us who have been in washington for a while, kind of coming to an event on dynamic scoring feels a little bit like this person will say this and then this person will say the predictable thing and

marty sullivan will say this and bob macintyre will say that and jane grasvel will say that. we'll probably have a little of that today but our goal today was to move a little bit beyond the conversation about whether dynamic scoring is either the best thing to either happen to washington or the worst thing to ever happen to washington. and to instead focus a little more on what is it actually mean and how do you do it? this is, of course, newly relevant because of the house rule which i printed out and forgot to bring down. but which requires the joint tax committee, which does taxes and that congressional budget office, which despite what some people think does not score taxes, to take into account the macroeconomic effects of policies and their feedback effects on revenues and spending. and this is hard.

there are a lot of people who think it's long overdue. there's some people who think it will lead to bad fiscal policy over time. and what we're going to focus on today is exactly how it would be done, what assumptions you'd have to make, what are the challenges that the jct and the cbo staff face in doing it. how can it be best presented so that members of congress and the rest of us have a clue as to what the analysis does. so this is a bit of an experiment and moving beyond the basic pissing contest in washington to move beyond information. let's tell you briefly how we're going to do this today. i start between doug hoelts ecan. len, of course the director of the tax policy center and he also was the assistant secretary in the late clinton years and has also worked at cbo.

doug holtz, member of the action forum, was the director of cbo from february of 2003 to december of 2005. so both of them have grappled with these issues firsthand. following that, we're going to turn to something we're very pleased to have. a presentation by the staff of the joint tax committee on how they actually look at how they do this in the mechanics followed by a discussion that my colleague, bill gail, one of the -- who was the codirector will moderate. and then following that, and you can't leave before the last event, we're going -- i'm going to talk with donald meren and steve mcmillan about the application of scoring bills other than to tax bills which is also required in some circumstances by the new house rule. so with that let me invite len and doug to come up and then we'll get started.

i should mention that, if we can keep this on time we're going to have questions after each of the three panels and in case you didn't notice there's tv cameras in the back. one is for our webcast, so there's people watching this live. it will be archived on our web site and the other is c-span. and we also have on our web site a little annotated bib leography, with references to the dtc and cto on this as well as things written by each of the people we have as panelists today. doug and len, let me get started with you. and doug, i want to start with you. i wonder if you could describe to us a little of what was going through your mind when you were at cbo and you decided that it was appropriate to do a dynamic

score, that is to factor in the macroeconomic effects of the president's budget and what did you learn from the exercise? >> so it started actually prior to my arrival at cbo. it became pretty clear during the selection process that it was something important to the members, both sides of the aisle. both sides of the congress. and so, you know i went in to cbo, you know, basically with the belief that it was a good thing to sort of look at policy change and find out all of its effects. it didn't make any sense to me to exclude the growth effects and do anything else. so it's a matter of principles. you want to look at everything, before, after, in between. the question became when do you do it? it seemed to me that the president's budget was the ideal place to do it because it's the most fully specified single set of policy initiatives. you don't have to worry about missing pieces very much. there's still some things you have to worry about.

that seemed like the right thing to do and it also gave you the right comparison because every president's budget is dynamically scored. p you read them for this president, bush, clinton it always says this is contingent on full implementation of the plan. it won't make that doesn't make the economy grow. it's unbelievable. that was the right apples to apples comparison in my view. the question again how do you do it? that was something that was pretty uncharted. a lot of formal economic models one could use for guidance and i don't think you should think of those as anything other than guidance. this isn't a mechanical -- you have to use the models for some help. have the model that our congress or president proposes. those guys are incredibly clever. there's always things in the models. you use them for guidance and the last issue that came up again and again was the presentation. how do you present the results

and how do you communicate them? we got sort of a really solid f because at that time ive substantiatively, there were the tax cuts that would effects and then the medicare prescription drug bill, not exactly a pro-growth policy and when we put out the results, we basically had a modest net effect. i thought the congress would conclude that, gee, it's not a good idea to offset this growth policy with this big new spending program. instead, they concluded we did it wrong. that was it. >> len, so it seems obvious that congress should consider the macroeconomic effects when it's considering a major piece of spending legislation. so i think the question is, what are the pros and cons of actually folding that into the score? that is, the official score that's used to decide whether particular piece of legislation

will comply with a reconciliation or some other target? >> well, the pros of including a dynamic score is that basically it removes the constraint on estimate fors. if they knew what it was, they could improve estimates by including it. the con is that there's so many cases where they actually have no idea and in some cases, no sign of the effect. there's, you know, the models themselves are these kind of stylized stylized e quillkwilquill librium models. how taxes have capital on labor effect and work effect. and those are always based on the estimates that themselves are uncertain and they aggregate just so much information.

and the models, unlike one of the issues as well, there's uncertainty in every estimate, right? the president proposed last week that we should tax capital gains at death. well we've never taxed capital gains at death. we don't know what capital gains at death are. but in that case, we have a lot of data compiled by the federal reserve board of consumer finances on how much assets, how much capital gains people have in their portfolios. we can make an assessment of death and get some idea of what capital gains unrealized capital gains are at the time of death and we know what the tax rate is we could calculate roughly what the revenue estimate will be. you might have a big variance on it but first, you would know it would raise revenue, at least before, in that case, i think you could say it raises revenue certainly before including any kind of macroeconomic effects. and then if you were to apply

dynamic scoring to that issue in the models, i would say, well, we're cutting the tax -- we're raising the tax rate on capital. there would be less saving less investment. that would hurt economic growth. in the real world, what we're doing is we're raising the tax rate on capital, but we're also removing the single biggest loophole in the individual income tax which results in a huge amount of unproductive tax sheltering and we don't have a good idea of how important that is. we know that there's a whole giant industry that's devoted to taking advantage of the zero tax rate on capital gains if you hold them until death. and different, you know depending on the assumptions, you could conclude that was good for growth or bad for growth. i actually don't know what the answer is. but the problem is that, in this case, there are going to be people who believe really fervently there's one answer or

the other answer. there's going to be enormous pressure on estimate forors in that case. there's a lot of examples of that. they did the tax reform of 1986 after it was done. i think allen ereback did this. all of us on tax reform convinced it was good for growth. larry summers after the fact said, it was bad for growth because it raised the overall tax rate on capital. it also levelled the playing field. removed a lot of distortions among different type of assets. net was probably zero but it's really hard to tell. >> so wait a minute. first of all, the rule says to the extent praktable, cto and j jct should do this. that gives jct the right and responsibility to say if something really exceeds the capacity of human knowledge to just say, we don't know. i mean, i'm sure that's difficult and won't make a lot of proponents of bills happy

but if we had to wait until we have perfect knowledge before we use these things, that seems like an unreasonable standard. so are you afraid they'll be pushed to saying more than they know or that they just don't know enough to ever do dynamic? what's the -- >> i just looked down at my notes on that specific issue. absent political constraints, removing a constraint on the estimators that my concern is exactly what you're talking about. they'll actually be pushed. the congress will be mad if most of the time they say we don't know but i think that's the right answer. the other thing is that, we actually do want congress to pay attention to the macroeconomic effects of policies. and i'm very sympathetic to the people pushing for dynamic scoring because we know numbers carry more weight than saying this is good for growth or this is bad for growth but the problem there's so many cases where the answer should be no, we don't know.

>> so -- >> we know enough to do this? >> yeah. we know just as little as about this as everything else we score. i think we know a little less about this. >> i'm not sure that's true honestly. so we know that the precise answer zero is exactly wrong. there's no virtue to being exactly wrong by knowing there might be an impact and say we'll ignore it. i think doing this makes sense. it would probably not get dynamically scored. this is only done in the house rule and should only be done from major pieces of legislation, large predictable impacts, budgetary important. >> so the rule says it's got to be 0.25% of gdp in any fiscal year. >> does it change spending or taxes by $40 billion, right? so most pieces of legislation is not going to apply to it.

>> the last congress, it would have been 3. >> this is a side show for most of the things. most of what congress does is rename post offices and that's not going to turn out to be a big deal. so it's not going to happen very often. you do want to look at it. it's a scoring issue to look in the research literature and see what the consensus tells you and in many cases you don't know much. i see conventional scoring comparable to this that are worse. frankly. and those circumstances, there's a lot of zeros that get put in there. if you think back to the aca, affordable care act, advocates desperately wanted cvo to score preventing saving money and they didn't. they were mad about it. at the time, congress was mad about the decisions we made and i don't think there's anything that changes political pressure. it's the case that scoring matters and there will be disappointed advocates on all

sides of scores. so i don't think that's different. i think the important thing to recognize is that, you know, the staffs are not slaves to these models. it's not like they have to say the model did this, it's a judge science. and a judgment art at the same time. we should hire high quality people at the jtb and the cvo. we should respect their judgment and the way they arrive at the bottom line. this is not some slavish policy exercise. that's not the way it works. >> i guess i disagree with the idea it's like doing other scores. the vast majority of this, certainly on the tax side scores basically, first of all, there are data. >> because we've done these things before. >> most important where there's the least data. when we did the medicare monetarization act, there's nothing that gave senior protection against cost of

outpatient. zero. >> you actually did have data on how much they spent on prescription drugs. >> sure. but the point is when it matters the most you're in the end making judgments because it's not like you're changing something you've done a thousand times before. so it's important in those circumstances to recognize you're always going to have a lot of uncertainty. >> but when you're doing those kinds of estimates, you typically involve a calculation base on some data and an assumption of elasticity. in macroeconomic scoring you have a variety of different models to produce wildly different estimates and a lot of cases, you don't even know, no good basis for the parameters in those models. i'm not saying we shouldn't try to do this. i'm saying it's a lot harder than most of the estimates in congress. >> so they're going to do it? for big bills and we learned a little bit. we saw cbo did basically a dynamic score. the ingredients on immigration

bill. they could talk about labor supply. that was one that was measurable. but as len points out, some things will be tricky. i can't imagine with all the things they had to estimate in the affordable care act if they had to have dynamically scored that, that would have just made it harder with the labor supply. so doug, you said that you thought you communicated the dynamic score that you did in 2003, 2004. what advice do you give to jtb and cvo today? >> i think there's a big advantage to actually putting it into the formal score. when it's advisory and we have a range of estimates, a range of models, you're basically out there trying to give a sort of mattress level graduate course in macroeconomics in three minutes and that's just not feasible. if you put it in the score you do have to come up with a number. they may not like that, but it now matters. it doesn't matter when it's

advisory. it matters when it's the number. they want to know about the number. everyone in the research literature will want to say something about that number. they might not like it that generates additional issues on the issue you care about. forces the staff to come up with the term and the economics underneath the number. it's beneficial. might not be perfect the first time but putting it into the process actually kicks off a dynamic that i think, no intended helps us learn about the policies. when it'sed advised, it's not the same. >> i'm sure jtb and cvo thought about this a lot. i'm sure there's an idea of how much macroeconomic effects are changing the results. the second thing is that it's really important to be transparent about the channels through which the growth effects are likely to occur or believed to occur in the modeled.

i know jct treasury and cto get a lot of pressure and often don't want to talk too much about their models when they're uncertain. this is a case you tell a story and alternate stories consistent with it. it's important to be transparent. i would follow the market of capital weather gain. i would see whether we're going to be snowed out. and they put out a forecast and the forecast includes in their discussion the level of confidence, low to medium. medium to high. there are some things everyone would agree these would be good for growth. maybe we're not sure about it won't be sure about the magnitude but at least we know something is going on. in other cases it's really ambiguous and i think it would be important to do that. one advantage of doing this is it might be a chance for the scorers to tell congress the deficits particularly in the context of the economy close to

full employment, the deficits have a cost and surpluses might be a good thing to think about. and you might be able to build in from the models some kind of a deficit penalty or a surplus bonus. another level of hand waving but come out with some models. the other thing doug talked about, researchers out there it would be really nice if congress would actually try to put some money into research to try to measure these things better. one problem we have in macroeconomics is that the kind related to real world policy has little attraction for academics. because it's really really hard. you have to do a lot of hand waving. so they focus a lot on these -- >> something academics never do. >> never do. but the problem you can't lay out the estimator regression and find the estimate for how to tax capital gains at death to affect the economy. and find a way to encourage

academics to real world economic questions as opposed to the kind to lead to noble prices. >> this is a different conversation but i'm not sure we're in a great place. it's going to take congress to encourage academics. >> i was just talking about money. >> wandered into another world. let me ask you one thing before questions. if i propose a tax cut on investment, that's huge, you and i would probably agree that would be good for growth. but people say, it kind of depends. are you going to pay for this? is it going to be financed or not? if i get the bill at my desk and i'm at jct, do i have to decide or assume there's some negative effects in ten years when we blow a hole in the deficit? >> the key in scoring is to recognize it's not forecasting. >> don't you have to make a forecast about what the deficit

impact is before you make a macroeconomic? >> you wouldn't -- no good forecaster would take the march baseline and in november. you do that because you want to treat all bills the same. so you can rank them correctly and that means if you're going to and this is a big part of what goes on in status scoring. both budget committees, omb, the the staffs at cbo, joint -- everyone figures out. what rules will we use for consistency and scoring to make sure? >> in other words, they have to decide if they're going to decide in the years whether we're going to have a deficit of -- >> yeah, and then use the same procedures for all pieces of legislation. raise your hand if you have a question. >> what happens with the deficit at policies is important. if you think the consequence of the 2003 tax cuts that you say was pro-growth that president obama would be elected and add high income surtaxes, basically

as a way to reduce the deficit pressure. the net effect, even in these macromodels presumably would be negative. >> over what horizon? >> well, over a horizon of 20 years. >> the score is over 10. but you're saying this is good for growth but it makes the economy worse in the long run isn't that relevant? >> yes, it is relevant and policy makers should and have been told a million times by cbo this is something they should care about. but the job is to provide budget numbers for the window that they have elected. and you can't cure all problems and a great mistake is for the staff to get this idea that we can somehow trick them into doing the right thing if we just show them the right numbers. that is a terrible place for staff to go. >> henry aaron. >> an observation and a question. the observation, doug, i think you've given the wrong answer just now.

if there is a tax cut, eventually or a spending increase eventually there has to be payment for it. either through the other side of the ledger or through interest payments, the identical value to the shift. if you are using a ten year window you have to follow what you countered at the beginning. you don't want to be exactly wrong because that is exactly wrong. even if it is the legal window. >> let me be clear. we did this. the way you do it is outside the window. you have an offsetting policy and always use the same one. >> it has to be incorporated into the estimated effect of the policy. >> no question about that. >> well, the ten year window is irrelevant. so the question i have is i'd like to suggest a practical policy which i think passes the

threshold test. let's put together a combination of constructive realization at death. the president's proposal. and a restoration of the estate tax as it existed before the 2001 legislation. so a much lower exemption, and a higher rate. i think in combination, that revenue would be sufficient to pass the threshold. all of which is used to cut corporate tax rates. do you have any inkling as to what the sign of the effect of that would be on economic growth? >> i'm not trying to understand the policy. i'm not trying to make one up on the top of my head. >> the policy is quite clear. it's an increase in taxation at the time people die of capital gains as the president has proposed. and a reduction in the state tax exemption and an increase in the

estate tax rate. quite large. so that arguably, if there are effects on behavior these changes would be large enough to affect behavior. i'm not sure what the sign of that policy would be all by itself. but i wanted to combine it with using all the revenue to cut corporate tax rates. so that it has a zero impact on the budget. can you suggest that there would be what the sign of the effect might be of that change? >> let me simplify the question. let's say there's a huge increase in the state tax and a huge cut in corporate tax rates. and henry suggesting it's hard to tell the effect on growth. >> my instinct is that it's positive for growth and i'd be happy to work through the numbers, but that's what the staff would have to go through. >> well, it would have to. the magnitudes matter.

if the deficit, i'm not sure how the rule works. it's the gdp effect. is it net or gross? gross. so if you raise a hundred million dollars of taxes and cut a hundred billion dollars of taxes, that effect on the deficit is zero but big enough to trigger the rule. is that? no, it would. it's not the net, it's the gross. total. add up all the pluses and the minuses and if the pluses or the minuses add up to a big enough swing. we'll get this later. there are regulations. first of all, hold this question because the people at jct will be able to answer more precisely how the rule works. sure briefly. wait for the mike, henry, and be brief. >> very brief. the answer has to take into account open economy consequences.

exchange rate effects. you may think there's uncertainty about domestic macro models. the uncertainty with respect to open economy models is vast and depends sensitively on the response of other countries. so i think one is on very shaky ground. >> a new estimate on corporate taxes as well. if you don't think about what the rest of the world is going to do. so your point, it's even more complicated if you have to think about it. i think we have time for another question. there's a woman right here. and then we'll go. we'll have time for questions at the end. >> laura blessing. i have a very basic question. and then a question for mr. holtz ecan. may be reiterating from earlier but given since the mid '90s, the republicans have been trying to get dynamic scoring in after they won the '94 elections and

it's always been an option to have it in addition to the options provided by the cbo. are we going to use dynamic scoring for literally every bill instead of the magnitude we've discussed? instead of the regular scoring and scoring as well? this gets to the point where we literally can't tell. i don't know if it's always an add-on or substitution or what. and the basic question, i legitimately hope it doesn't sound like a gosha question because it isn't but i've read previous remarks of yours that have been critical about the use of dynamic scoring and the efficacy of it. particularly talking about the difficulties with using it particularly in debt when we're you know the deficit is going up or in debt situations and i

was hoping you could provide whatever nuance i'm missing. i've been following dynamic scoring but not your specific remarks on dynamic scoring. >> the basic question, see what i know and ask the jtb people later. if the bill is large enough jct and cbo dynamically score in the official score to the extent practical and i don't think anybody knows exactly how that's going to work in practice. but it's required for the big bills in the house. >> and i would supplement with the score. so you'll know. on the issue of debt, this is the issue of what do you do with offsets the debts increases in policies. that don't balance over the long-term and, you know, it does have to balance over the long-term. and we're proving as a country that we have no interest imbalance over the long-term.

i'm interested in at least doing it in the models. that's a matter of, i mean that's not quote easy. the point is there are lots of things that have to be decided on operational things like, what do you do? put a tailor rule in and always use no matter what? how your deficits have an offset policy, at 20, always trigger. do it the same for every piece of legislation. these are things i think are genuinely real and have to be dealt with but don't disqualify from providing scoring to use. >> do we have a quick response before turning it over tot panel? >> i would do the deficit offset in year five. >> bill and going to introduce the next panel and we're going to hear from jct. so thank you very much guys. thank you. [ applause ]

>> we are delighted to have members of the jct staff here as well as the directors of the jct, tom barretell. in this case, we're going to hear from tim muma and nick vol on, what is that tom hanks movie, how you do that thing you do, or whatever. i'm not sure who's speaking first. but do it for 15 minutes and then nick speaks for 15 minutes. without further ado, let me introduce pam. >> hey. well, thank you all for coming out on this awful weather. i was a little worried. it just occurred to me at the last minute i didn't have a joke to start with, but then len me put in mind of an ol de but good

de. what would happen if all the economists and weather forecasters switch places? nothing. so i think that's underlying a lot of the questions. what nick and i -- we're not going to talk about the same things we usually talk about. we've all heard it a million times. i'm going to be providing some history to remind people of where we are in terms of modelling research and then nick is going to provide a lot of information about the details that goes into characterizing promises. and we are going to talk about those two rules and what the differences are between them. so with respect to the discussion that just happened that will happen at the end when

nick talks about it. so just a reminder a model is a very simplified view of the world. and that's where a lot of the concern comes from. a modeler has to make choices about what aspects of the economy they need to make sure to model carefully and what aspects they can simplify away from because no model can solve if you're going to try to include everything about the economy. so jct started working on deciding about modelling, on deciding what type of models to use with the symposium and there are people in the room on the panel part of the symposium in 1996. and you can find that pamphlet on our web site. i still think it kind of sets the table for all the discussion that came later. so if you want to get really in

the weeds read the pamphlet. what that symposium did is it invited nine groups of modelers to analyze the same sets of proposals and to the extent possible, analyze the same sets of proposals assuming same things about the current one. we had three overlapping generation models. three live agent models and three macroeconomic metro models and the policies that we have to analyze, this was driven by what was the interest in tax reform at the time. consumption-based reform. so we had a unified income tax, some people think of it as corporate integration and we had a back tax and then we had variations with them with various transitions. and these are just things from the pamphlet. i don't expect you to absorb them completely, but we had a big range of results. we also tried to summarize

parameters that went into the difference amounts. and the takeaway we had from these is that there was a huge difference between the results of the models, even though they were in theory analyzing the same proposal and in theory, starting with the same starting assumption about the economy. so in the short run, in the back, it was predicted that the gdp would decrease by 4.2% to increasing by 16.4%. a lot of the models were geared to longer run analysis. they settled down to a narrow range of 1.7% to 7.5%. going back to thinking about the concern about camp macro which results range between 6.1% and 6.5%. we've come kind of a long way. and not all the models as i said could model the short run. also, not all the models could

model the long run. and the thing about the other side on the parameters, there was less variation in the parameters wean models than there was in the gdp in the gdp results. what did we take from that going forward for developing our models? well modeling framework meaning is it an overlapping generations model, is it an econmetric matter matters. how sensitive you assume labor and capital and various other things are to the tax matters. some models model monetary policy. that matters. it was a big deal in the consumption tax. and this was a surprise. characterization of present law a matters. this suppose yum symposium meant for three or

four meetings and the results were broadly skewed more in the beginning. the details of the proposal matter. some models were very surprised to find that when they put transition relief in the results changed. so after that initial bit of learning that we did, jct staff went out and selected a couple models to work with. they be we started working with them and presenting analysis that we did with them to a lot of different groups. the criteria we ended up with they should reflect the state of the art literature, however we had to take into account several practical considerations. first there are time constraints for producing estimates so the real state of the art in the economic literature then and

even today is very fancy compute able general equilibrium models. the fancier they are the longer they take to solve. the models that the technical wizards have out today would take two weeks to run through one simulation. then if you get weird results then you have to go back and start over for another two weeks before you even get your first result. so we can't quite be at the cutting edge because we don't have that kind of time. we also wanted to be able to produce a range of results because there is this divergence in the literature. so we had several models. and most importantly given where we are, we need to be able to make sure we have the tax sector

characterized correctly. so i emphasize that again. models should have as much tax details as possible. academic models don't tend to. let's talk about the house rule we've been operating under since 2003. it's required that we provide a macro economic analysis of the effects of the proposal. gdp, labor capital and revenues basically of any bill that comes -- that is reported by the ways and means committee to the house floor. and so we've done that. now as it turns out, the vast majority of bills get reported out of the ways and means committee to the house floor are very small. they're so small that show being gdp effects within reasonable rounding you get zero. for those bills we have a statement that says results are too small to report.

now there have been other proposals that we suspect would have a measurable effect but our models haven't been configured to take them into account. for example, there have been some models that had a lot of attempts to reform international tax codes. in those cases we write a qualitative analysis. informed the best we can with our models -- since our models we don't think -- or we don't think the academic literature has enough research to tell us quantities. we don't try to give quantities. then finally we have full-scale bills. so currently the models that we use for our macro analysis are something we call a structural macro economic equilibrium growth model which we refer to

as meg. we've been working on and off with a general equilibrium model and you can see descriptions of these models on our website. we have a tab -- or link to macro economic documents. the models that we use to analyze analyze tax reform act of 2014 were the meg models and olg models. they both have basic neoclassical foundations with the mainstream that comes from the mainstream of economic literature. consumption, follows a life cycle pattern. labor supply response to marginal and average changes and after-tax wages. saving and consumption respond to after tax return savings then after-tax income. business investment responds to the respective return on investment and to something called the after-tax cost of

capital which is taking taxation of capital into account. and that in part depends on the availability of savings. both models do have cross-border capital flows so that net exports affect the domestic economy. there are exchange rate equations. so let's talk about the difference between the two models. in the meg modelling with we do have in the long run equilibrium demand adjust to supply but in the short run we can allow unemployment. that turned out to be very important because we've had to analyze bills that were short-run demand stimulus bills. our behavior equations are structural meaning we use elass tis tisties that come from empirical measurements. we divide into high and low primary earners high and low

secondary earners. the purpose is they tend to have different amounts of responsiveness to tax changes and often different proposals affect them differently. one of the things we discovered with all our experimentation is when you separate that out you can get a very different answer relative to if you just use one tax rate. the other key thing about the meg model is the people are myopic meaning they know what the economy looks like today. when they are making their decisions what it is going to look like ten years from now. what this does is it enables us to model policy changes that have a growing deficit. so the discussion we had before about, well what do you do about assuming the debt, fortunately in this model we don't have to assume it. one thing it can tell us because it does solve out to the future is where the economy blows up. that's a piece of information as well.

in contrast our olg model is more kind of coming directly from the what's going on in academic departments. so is it's constructed on microeconomic foundations uses steep parameters. it models instead of income groups, age cohorts and the people in the model have perfect foresight so they can look today and see a huge deficit in the future and this is what you're always hearing about these models. there's no rational thing for them to do so they don't and the model doesn't solve. that's why there is a lot of discussion about needing some kind of fiscal closing assumption. so recently we've also added a specific multi-national corporation sector in the olg model. we lease this from someone who's been working with that. the good thing about that is it gives us a better handle on those proposals that are

designed to affect that. ongoing model development, we work all the time to keep up with literature. do the best we can to reflect changes. we're double checking some of the parameters in the olg multi-sector. and we're still building our own in-house olg model and a dsg model. so the rest of the presentation is going to tell you why the development of your macro model is only half the story. because getting both present law tax and the tax policy right is a lot more complicated than anyone who hasn't tried to do it in the detail that we have to do it at jct for our conventional estimates can understand. and we're going to use the one

patch. every one of those items we have to decide how to add together to put into our model. there are all these items because there are a lot of different deductions and credits and we have to decide how to treat each one and that is what nick is going to talk about. >> so many people talk about dynamic analysis as though it is something that's impossible to do. note i'm talking about dynamic analysis, not dynamic scoring. dynamic analysis is what we've been doing for a decade. you can argue about whether you like the results that we have or not. we think that what we've been doing is fairly reasonable although we don't think we're perfect and we welcome comments

and discussion. many others talk about dynamic analysis as toe it is a magical thing you just press a button you can use this as a real time advice about somebody's proposed amendments. well, it doesn't work that way. but one speculative guess as to why people think it does is because -- it is an example of a law clerk that says any sufficiently advanced technology is indistinguishable from magic. well, what we're hoping is that after a few minutes of looking at -- inside the hat you'll realize there is no magic button. it's hard work and that's what we do. so pam's talked a little bit about nish liesinitializing models along with economic literature, et

cetera. we had a paper almost a decade ago where we looked at the impact of what is the impact of putting in really simple tax aexceptions, like one average tax rate for the whole economy or just an average and just a marginal or breaking it into components that address different aspects of income. we found that it is really important to get it right for multiple sources of income. in particular for individuals we compute average and marginal tax rate for wage and salaries in total and for the labor supply groups that pam mentioned, high and low primary and secondary. we compute average and marginal for capital gains, business tax returns, individual returns that's c, e and f and then other. for corporations we computer average and marginal tax rates.

then we combine with the individual pass-through rates and corporate rate to get a weighted average business read that gets fed into the macro models. finally, both the main models that we work with, olg and meg, handle depreciation separately. we talked about the confessional estimator about present value effects, liability effects, and then you have to back out of those. what's the implied change in capital assumption allowance is consistent with the way that the models set up. so pam showed you a little bit of the 15 pages of the camp table. this is just picking one provisional most at random. it is the domestic deduction production. the columns are itm im, bm so itm is if this provision is on the individual tax model, then

you'd have an indicator there. individual marginal im, domestic production deduction obviously has an individual effect through pass-through income that's reported on individual returns. similarly it has a corporate effect. that one sort of is obvious. for each provision, we can't know the details of every possible provision. what i or somebody else ends up doing is walking around the floor that are significant enough in terms of their score that you really want to find out how does this provision work and what is it doing?

so at this stage we have a good idea about the details of the proposal proposal. then the question is can the existing models handle those details or do we need to figure out how we can modify the models so that it will handle it correctly. for instance the first time that we modeled repeal of the home interest deduction in meg we had to tweak the cost of capital equations a little bit to make sure we were modeling that correctly. some provisions you might just decide you can't model it in any reasonable way. then you're sort of stuck. but you can't have -- you can't make models that can handle every possible strange thing that people come up with.

so for provisions that are modeled using the individual tax model we need to compute the effect on average and marginal rates by source of income. so we have in atr/ntr calculator that's about 3,000 lines of code. that modifies the existing roughly 52,000 lines that represent the individual model which is a model that you can put in a proposal and find out how that changes liability. for marchal tax rates by income source, you have roughly 40 iterations for each year because you've got nine sources of income. you need to figure out the marginal rate and the present law. that's a couple iterations. you need to figure it out in proposed law. that's another couple iterations. and then for each iteration you have to make sure that you're not leaving accidentally effects when you're incrementing income,

you haven't left that increment embedded in the data. you have to back that out again. it's important for proposals that include base broadening that the average and effective marginal rates are calculated with respect to a broad base rather than something that's narrow so that we can represent both present law and the proposal. seemingly simple changes can be unexpectedly difficult to debunk. so in particular, something that that -- the proposal to exclude a portion of capital gains but tax all of what remains at an ordinary rate. that's in camp. seems like it should be easy but it takes a while to get that right. having got all of this right some people would argue, jan i think will bring up a point in a few minutes that we haven't

quite got it right. we have done a little bit of experimentation to check to see quantitatively as jane's critique really something or something that for the purpose of trying to get things done we can ignore as a rounding error. in at least the preliminary experiments and maybe we haven't fully grasped what you're saying, what we've looked at sort of suggests that it's down into the rounding area. now we've got the individual tax model, atr and mtr effect. we have to look at the rest of the provision. i think we've taken care of maybe 1 or 1 1/2 pages out of the 15 with provisions that are on the itm. the rest are not on the itm and you have to figure out the average and marginal rate effects. assuming that you've got all

that, the next step is to run macro models. so pick a macro model. you're going to compute the current law macro economic baseline. read in a proposed law change. then a step that i think many people sort of don't think about and are not aware of its importance is checking to see does the liability change that you're getting at this stage -- we're not even talking about running the macro effects of the policy. just calculating something that roughly corresponds to a conventional score. then checking to see do the macro models produce the same conventional score that the 15 pages of table show. and if it doesn't then you've got to do some debunking. typically that means iterating back and forth between the individual tax modelle spread sheet inputs and the macro model

until you have the conventional estimate matching. now if you're convinced that the conventional estimate has been correctly computed, you start working on running alternate macro runs. the first question that we ask ourselves when we look at those is does the macro effect on the revenue estimate correspond roughly with the big aggregates on gdp, consumption and labor supply. does it make sense in that context. then we look at changes in the macro aggregates for ot differentfor the different models and we think about whether those are behaving in a way that's consistent with the way we and most people understand about the way those models work. ultimately sometimes we find there are aspects where we don't

understand and so we'll go back and perform debugging. often that consists of doing stacking series. you look at just the effects of the individual tax model average and marginal rate changes, just the effects of the off-model pieces, just the effect of depreciation. then you start putting them together and you're trying to understand have are you modeled this correctly or is there a step at which you've got some error in your inputs. typically we do sensitive runs. we look at policy assumptions for models that can handle that. we look at the effects of different labor supply elasticities different marginal xens propensity to consume, et cetera. meanwhile, while one person has implemented this in one of the models, somebody else has been implementing it in the other models and you're going to consolidate results into a

spread sheet. the only way you're going to add together the results, just look at the results all in one place so you can compare them between models. you're trying to figure out whether what you're looking at makes sense in the context of what you know about these models. meanwhile, by this time someone's typically written the shelf a report so they've provided background on the proposal, described it in detail, talked about its effects on tax rates. sometimes those get put in earlier on and you discover errors so you have to go back and fix them. but as macro results become available, then you're putting those into the report and that gives another stage at which people can think deeply about what these -- whether these results are consistent with models and whether they're consistent with the proposal. so we have lots of these reports already posted on the website.

this just sort of lists the most recent five or six. moving forward, there's the new house rule. so the new house rule is was discussed before, as a sort of trigger for when you have to score something. but also, something that wasn't sort of pointed out that there is a need for it but wasn't mentioned that its's already in the rule. the rule requires a qualitative analysis for the 20 years after the budget window. if you have a proposal that is running -- causing huge deficits, then what happens outside the budget window is going to obviously not be the same as something that's a revenue neutral proposal that's not only revenue neutral inside the horizon but after. what we are going to say in the qualitative analysis is still not certain. so moving forward, we've done

dynamic analysis for a long time. dynamic scoring is not something that we've done so far so that's going to be a new challenge. i think there was one other thing i was going to say but i can't remember what it is so i'm going to finish up there. i think that we are planning at this stage to move right on to the five minutes from several people on the panel. so that's jane gravelle. then questions that you have can come along afterwards. >> thanks. i want to mention again our thanks to jct staff for coming here and presenting the details of the models. i had many reactions, one of which is thank goodness i don't have to do this. but we will talk about all of that and more. we have three discussionsdiscussions.

each of them will speak for five minutes. then we'll all come up here and have a joint talk. thanks. >> thank you very much. i'm jane gravelle from if the congressional research service and i want to say the views that i presents here are not the views of the congressional research service. there may be some similarity to papers that i've written for the congressional research service. and i also want to say to our jct folks here, i have great admiration for the work you do. i know you are all dedicated public servants so i hope you

take any questions i would raise about your analysis in the context of hoping to improve it. i think there are a lot of lessons we could learn from the dynamic analysis of the kemp proposal which is a very complicated proposal and had a lot of moving parts. first is there is a big difference between individual rate cuts across the board and individual tax reform. the effects are very important. for a tax cut a really important issue is the short-run stimulus effect in the meg model, in the jct in-house model. it is not allowed in the olg model. for a revenue neutral tax reform stimulus effects are maybe less important but it is important to incorporate base changes that are marchal in nature.

this is the question nick referred to. i don't think that was done in some circumstance, for example the desuckse deduction for state and local taxes and i think it is important to find out if that is important. so i want to then talk about the reasons for the differences and the results and the kemp simulation. the top three lines of this graph show the meg -- that's their in-house model. these are without stimulus effects. you see this enormous range of effects between the two models. you can see also the stimulus. the meg is bigger on the supply side effects in the top. when did that happen? i think there are two major reasons. one is the labor supply effect in the olg model is a lot bigger than in the meg model. a little bit of it is because of

the embedded deep parameters. this is only 20% higher while the labor supply change is 160% higher. there's a little bit of difference possibly from changes in capital that can't be imported. i'm not sure what happened there but i suspect that the fiscal adjustments that need to be made in the olg plodle to become soft have probably washed out the effects from the labor response. i don't know. but i just know they're different. the other reason is intangibles. if you can sort of do a back of the envelope calculation of their results and see that the labor and capital changes in labor and capital don't account for total increase in output. about .6% or about half of the difference between the two

models. seems to be due to the shifting in intellectual property and treating it as an input of the production function. this has been done in a model by a couple respectable european economists. so it is not completely new but it is kind of novel. and i think this is not the appropriate thing to include because intellectual capital is not located physically. once it exists it can be used everywhere. the fact that the patent moves to the united states instead of abroad doesn't change output because that affect is already there in the output. so i think that probably should be reconsidered in this modeling. i just want to sum up quickly what i think the main points of what i'm saying here and the things i suggest that jct think about it in the future.

first there is a need for more transparency. jct already provides a lot of information but not enough in this case for me to understand and i've studied these models for a long time. why these results are the way they are. so i just have to speculate and it is better not to have to do that. i have to answer a lot of questions from my clients on this. second, for base broadening it is important to account for changes in the shares of income that are taxed in measuring marginal effective tax weights. we believe those were significant. we have a crs report of that looked at itemized deductions. third, should stimulus effects be included? i think there is a very strong case for excluding them. finally, the olg plodle is problemmodel is problematic, because in general it depicts individual workers as perfectly informed and with perfect foresight. it can't measure our economy so the question is should it

continue to be used and continuing to appoint estimates. >> thanks. i first want to thank brookings and the tax policy ternt for organizing this really extent conference. especially want to thank nick and pam for the amazingly informative exposition on what jct has done and is doing which i found extremely insightful. i only have five minutes. i'll just mainly comment about two features of the estimate of the kemp bill. they all have implications for thinking about what dynamic analysis and dynamic scoring can and should do. that will be my focus cuss. the first feature of the jct camp bill i think is that the

business tax reforms made in that bill do not increase the capital stock or do so to a very slight extent. again there is that variation in estimates but the majority of the estimates are actually negative that the bill would have reduced the capital stock. i think that's informative from the standpoint of economic policy. the economic intuition behind it i think is relatively clear and it pertains to the nature of rate reduction offset by base broadening in the business tax context that the rate reduction benefits existing capital as well as new capital while the brunt of the base broadening almost exclusively falls on new capital so that mixture tends to put an in -- increase the burdens on new development. it gives a windfall to the existing capital but we've already got it so there is no incentive effects on that score. therefore we would expect that probably there is a reduction in capital and the estimates do show that. marty sullivan in tax notes and

brian feeler in politico have written about this feature in estimates. i think it has some policy implications. though there are many other factors to consider. i want to emphasize here for a moment is the implications for what we're going to get as we do more dynamic analysis or as we start to do dynamic scoring which is not we're going to see the different kinds of tax measures, different kinds of tax cuts, different kinds of tax increases actually do have different effects. i think that's one of the important contributions that economic analysis can make. it is not to make all tax cuts look good or all tax increases look bad but really its most valuable function is to sort out what types of tax increases have the biggest effects on growth. things like taxes that applied to old capital and taxes that apply to new investment you feature those as really important. another feature that drew my attention also pertains to the effects of rate reduction offset by base broadening that's the labor supply effect.

some of the estimates that jct found in some of the models do show what i would view as a very large labor supply effect. the 1.3% to 1.5% increase in the olg model. of course as we know, jct did provide quite a lot of information about this estimate. but i think i would have to echo jane's comment that in this case it is maybe not quite as much as is ultimately needed. the explanation that jct put out says this proal reduce alreduces tax . just a simple example, if you had an economy with a 40% statutory tax rate, people spend half their wages on apples and half on oranges and apples are exempt and oranges were taxed you could do a

revenue neutral tax reform, lower the rate to 20% and tax both apples and oranges. the effective tax rate -- effective tradeoff at the margin between leisure and consumptionle would still be 20%. you would expect zero labor supply effect. many reasons why the effect would not be exactly zero. what economists call transition effects. the fact that the effect isn't exactly zero is not fles sarlnecessarily an indication anything is wrong. an effect this large really does cry out for an explanation. the need for greater transparency to break down what was the effective change in marginal tax rate and showing the effect of the statutory rate change. then how the base broadening march nal effects marginal effects, how much of that was taken back from that

channel. those are the two main features of the camp estimate. let me just close with mentioning something nick touched on. i think second 8c1 of the new rule is really important where it calls for qualitative analysis going out an extra two years. i think if we try to narrow it down within the ten-year window and ignore what's in the long run. i rule says go out 20 years beyond the 10. but i think that's an overlooked part of the rule that actually maybe ultimately as important as the rest of the rule. thank you.

>> so again based -- i think the question is going to be how do we avoid misinterpreting them. i think that if the dynamic score of a policy looks better than a traditional score in some way that the temptation is going to be to say simply that that means the policy must be good for the economy. but the heroic assumptions uncertainty and large gaps in the model i think means that we have to treat the dynamic scores with much more caution than that when we interpret them. the camp plan has some reasons on that. if you were to go by chairman camp's media releases his tax plan had a really big growth impact that would have led to $700 billion in extra revenues over a decade. but of course that was just the high end of jct's range of estimates and the low end of the range was a much more modest $50 billion. the $700 billion came from one run of this olg model that's

being mentioned. to get that $700 billion, jct had to pretend that there would be large tax increases and transfer cuts baked into the baseline. so those are things that are in addition to the camp plan itself. because as you've heard olg simply doesn't work if you don't assume that lawmakers enact additional deficit reduction to stabilize debt as a share of gdp over the long run. so that much touted $700 billion number didn't really tell us much about the growth effects of the camp plan or might even predict. when we get a single dynamic score it is going to be incredibly important to understand whether and how the olg model for example contributes to that score and the predictions about future congressional law making that are driving that result. now the house rule requires a

sing point estimate and to make any sense of that score at all it is going to be really critical to know that outputs from the different models and the assumptions that went into those models to produce that single score. in addition i think just echoing what some of my other panelists have said, it is going to be crucial for jct to show us results from a range of models and assumptions in addition to "the" score so that we can understand how that score is sensitive to different assumptions and models. so for example, if olg does end up being used, it's going to be really important to understand what would happen if you made different assumptions about how future lawmakers deal with deficits and when they deal with deficits. another pitfall that the camp analysis highlights in interpreting dynamic estimates is that we need to know not just how tax reform effects the budget and the economy. we also need to understand how it affects people at different parts of the income distribution.

jct's distributional analysis of the plan showed that there -- showed effective tax rates faced by people at different parts of the income scale but both and after the plan. and camp relied on those tables to support his claim that the plan was distributionally neutral. but, unlike the $700 billion and revenues from the growth estimates that he cited those distributional tables didn't bake in future deficit reduction from future congresses. if you had put that deficit reduction into those distribution tables they'd have looked very different. so when we get a dynamic score score and a distributional estimate, it is going to be pretty important to understand whether or not they show the very same post-reform set of policies. i think a final potential pitfall in interpreting these scores is the current models

have some pretty big gaps. jct can do some things off model to try and deal with them but for example, there is no explicit modeling of human capital. if you had a plan that really boosted incentives to invest in skills and training, it wouldn't show up in the score from the base models. that's despite evidence that doing such investment is associated with productivity growth and increased investment. likewise, there is a bunch of sectors that aren't currently explicitly modeled. we might want to talk about that a little bit more on the panel. again, jct is doing the very best with the very best models it has available but we have to watch out for that particularly if reform affects particular sectors. so while lawmakers -- some lawmakers will simply want to treat a dynamic score as proof that something is good or bad for the economy. and the people in it. i think we have to keep in mind

the uncertainty, the flaws the heroic assumptions that go into these models and those things may mean that that conclusion is simply not sound. >> okay. wile we are while we're getting set up, let me thank the speakers again and just say that you all normally or frequently the moderator starts a discussion among panelists but you all have been very patient and i know there are a lot of questions out there. so we're going to turn directly to questions. i'll exercise my moderator

prerogatives. so questions. mary marysol. >> i want to commend brookings tax policy center for having this excellent conference on this timely topic. i want to thank jct for coming out and being so open about what's inside the black box, giving us a view under the hood. i want to reiterate a point that jane brought up because perhaps not as much as jane i have been studying these results and i cannot figure out what is going on so i'm going to take advantage to ask jct about the multi-national sector. if i have it correct, in their analysis of the camp proposal, intellectual property migrates because we lower the tax on the united states on intellectual property and raise the tax on the foreign side.

intellectual property migrates back to the united states. as i understand it in the model, this increases productivity and economic growth in the united states. is that right, pam? >> let's have pam or nick address it. just put this in the context. we really don't have great evidence, but that nonetheless is critical to the growth effects. >> let me just put it into terms i think everybody can understand. if you have a multi-national which is -- which has domestic production, domestic factory and foreign factory i think what the model is saying is because of the tax changes in the camp plan some of the know-how -- for example, that expertise is going to move from the foreign location and reduce output there and then come in to the united states and increase

output here just because of a legal recharacterization of where this property is located. i just find this totally unrealistic but i could be missing something. i just want to ask for some clarification. >> so i think one thing that could have been improved in our report was describing what we meant by ip a little better. it isn't just intellectual property. it is really intangible property. and the multi national corporation sector with that shifting is based on the paper that was cited earlier, and, yes, it does have that effect. we are, as we mentioned, always trying to look for whether or not models need to be altered and we are researching right now what we think should be done about that.

>> just to keep the tax analysis going, this is also for nick and pam. i'm not sure if this question is too big, too complicated or something you already covered but how do you think about the issue of crowding out. because obviously the way that a tax cut is financed can affect its economic impact and i think -- i've found so far being in the tax world that that's a big factor that people kind of dance around or don't fully acknowledge when they talk about the economic effects of economic effects of tax cuts. >> where we don't have a make a closing assumption, whatever crowding out is happening because of the proposal, it is going to have the normal sort of effects the crowding out has. it drives up interest rate. it is therefore going to depress capital formation as you move

out down the horizon. for olg, we try to make -- there are two things. first of all the closing assumption, because we are trying to model tax policy we try not to use a counterfactual change to tax policy to make the closing assumption. second of all -- so what we had been doing is looking at transfers. another possibility is to change government spending. and so that's something that can be reviewed as to exactly how to split that up. but, the second thing that we do is the closing assumptions we try to make those happen after the end of the budget horizon. now that means the crowding out can happen inside the horizon and have its normal crowding out effects. but because olg is forward looking, people do. anticipate, for instance either that there is a change in transfers after the end of the horizon or change in spending, whichever one you are using. that can have inside the horizon

effects because of partsanticipation. >> this is a question to the panelists or the two of you from jct. kind of a bottom line question which is, so given what we've learned over the last 30 minutes -- which has been very helpful and very under-the-hood in ways that most of us i think are nearly as ensconced as maybe we might be. do you think that the accuracy of the budget process is legitimately enhanced improved, by a rule that forces estimators -- and i would argue nudged by partisans to make one choose, to choose one. in other words dynamic analysis, yeah. that's different than dynamic scoring. i guess just my sense sitting here is, i'd like to here your views on whether this -- whether the fact that we're talking about choosing one score, given what we've just heard, would actually improve the accuracy of our process. >> let's have our panel address

it. >> i am actually on the record as saying that i don't think we're ready for dynamic scoring when i testified before the budget committee because of the variation that we have seen here in all of the moving parts. think it is certainly possible that the camp proposal had a zero effect on growth or possibly a negative effect depending on how these sort of things that i find questionable. if you've got an estimate where one estimate is 16 times the other -- or 15 times the other i mean i don't know what kind of answer you have there. and i think when you go back to -- for many things going back to what doug was saying i think for many things the static scoring is very clear. if you're going to do rate cuts, have you very clear set of data for doing a lot of these things. but until we can get some kind of consensus about macro

effects, we're kind of forcing these guys to do -- or pam and nick who is a guy -- sorry -- if i was still in the south i'd say y'all. but i'm trying to get over saying that. that you kind of forcing them to do something that's almost impossible to do. i mean so that's how i see it. >> that is an excellent question. i think it is a judgment call because we've certainly seen how difficult and how uncertain this process is. i think this has certainly increase kd our respect for people who do the dynamic analysis. i realize we're putting another layer on them if we go with the dynamic scoring but i do think it is important to keep in mind how absolutely modest this rule change is. i think in this stage in the process after all the years of doing dynamic analysis that it should be useful to be doing one or two dynamic scores a year for the next congress. the next few years.

and see how that process plays out and improve that. we ultimately do want to get to a point brwhere we are taking these effects into account. this seems like a very modest step towards doing that. maybe what's worth stressing is that there is a consensus on a lot of things. i think we all agree that we want to take these effects into account and that it is difficult to do it right. but we also agree that the overwhelming majority of bills that we should not yet try to do this for so the only issue of dispute is should we be trying to do this for one or two a year. though i think it is possible for people of good will to disagree on this my view is yeah, let's start trying to rein those effects in. >> the house rule allows the chairman of the committees to essentially designate any bill a bill that can just be blown away

by chairs of the budget committees. alternatively, if they don't want something to be dynamically scored, just don't report it out of committee. i agree with jane on the substance and i think i disagree on the fact that the process is going to protect jct. i think the political economy issues are really important but i think it is also important to note when we do a "static score," we are really doing a static analysis. we're averaging the effects of a bunch of static scores. >> without opining at all on the substance of what everyone has just said, just a little clarifying comment. we anticipate that for something like camp you'd still have exactly the same 15 pages that were already published but now

there will be an extra line at the bottom. >> i'm not speaking on behalf of joint committee. this is just my committee. >> in the first discussion we thought it was a gross tax -- can you specify net or gross? >> we understand it should be gross. not sure what budget dearary effects means but the bill does say gross. >> hi, i'm adelle morris. policy director for climate an energy economics project here at brookings. my question is about the scoring of a bill that's got a lot of complicated elements in it that are not simply just fiscal policy or tax policy. so for example, let's suppose we had a bill that imposed an excise tax on carbon content and

fossil fuels, for example. and some of that revenue buys down business tax rates, for example. so you've got the kind of question of how you're going to dynamically score a tax swap maybe with additional elements in there. but then what if also there is a regulatory reform in there that says we're going to suspend clean air act regulations on stationary sources. how do you -- or do you deal with that? and also in that context would there be a change in how cbo would score an excise tax? because they have that standard 25% hair kurt on the gross ref into ene revenues of excise sources is. revenues of excise sources is. >> excise taxes do have allocational effects. i would have to be confronted with that issue.

an excise tax is a labor tax. i'd also think of changing the allocation. i would be clueless. i mean i would be sorry for whoever had to do that but i'm not sure they would have to do that. >> that's essentially a change in the baseline. >> thank you. i had a question about how these results get presented. i just heard nick say to close the model on the camp proposal, they cut transfer payments so what we had in the dynamic score was not an estimate of the camp proposal. we had an estimate of the camp proposal plus a cut saying social security benefits. that would play out very differently in the public mind if that were the way it were presented. i mean not question be the accuracy, the estimate in this comment. i guess my question is, should people -- since models require some closing assumption should

members in order to get a dynamic score be required to specify the closing assumption they would like used? >> simple yes or no question. thank you. >> can i correct the record for just a second? so there's -- that's a kind of common misconception on the camp proposal in particular. it is true we have to have a standard closing assumption for the so-called present law baseline in order to get a present law baseline. what is in there -- and i will concede we probably need to re-examine how important we think that might have been to the estimate, but what is in there is some of an all of the above approach where the present law economy is kept on track where debt does not grow faster than gdp by a combination of increased taxes and reduced transfer payments. now that is separate from how did we analyze the proposed

reform. one thing you want to remember about the proposed camp reform, it was explicitly designed to be budget neutral. that after all of the base broadening and all of the tax rate changes were accounted for there would be close to -- there would be zero effect on the deficit. in fact, if you look at our 15-page conventional revenue table, it is really close. so let me finish. >> one can imagine a different proposal that's not revenue neutral. >> can i just finish this part? >> yes. >> but if it's under dech sit deficit neutral you may have to make an assumption that pulls down that. for the -- this is all in our

analysis. this tells me people are looking at the table and not reading the verbiage. the verbiage explained wlat closing assumption was in the baseline and also what the closing assumption was in the proposal.hat what the closing assumption was in the proposal. >> thank you. i think the question is should -- if someone proposes something that's not revenue neutral or budget neutral should they have to propose a closing mechanism, a way to raise the revenue. that's how i interpreted eric's question. yes, no, short explanation. >> yes. >> or either give up the olg model. if you have the tax cut and do the correction with transfers, that's going to be very different outcome correction for government spending and sort of an even bigger effect of a tax

cut as if you assume taxes are going to rise in the future. you have a huge intertemporal labor supply response. i think they chose a fairly benign change. although if it would have been me, i'd have changed government. >> again, maybe this a general answer. >> i think if the member specifies it, it is actually written in the bill then that's what should be done. i think if it is not in the bill, there shouldn't be a standard assumption. it should be all of the above. that should apply to everything. that effect should be incorporated as well in considering distributional effects of the bill. >> the problem with that is you are then assuming things that policymakers will do things that they have not said that they'll do. how can a ceo avoid that assumption -- >> but you can't avoid it because budgetary -- reality requires that they do something they haven't said they're going to do. they haven't said that they're going to fix the fiscal

situation but they're going to have to. >> then the congressman says, well, my proposal would raise growth. someone says well that's because you're cutting food stamps and the congressman said well i never proposed food stamps and the congressman said oh i never proposed food stamp cuts, just tax cuts so it allows congressman or senators to talk out of both sides of their mouth. >> and -- >> that's new. >> i think you need to make very prominent what the standard assumption involves and that should be part of the analysis. and if the member says that is not what i want, then the response should be why didn't you put in the bill what it is you do want? >> the standard assumption can flip the sign of the growth effects. if a tax cut and finance by future tax rate increases you get a negative impact on long-term growth. if you finance with future welfare spending cuts you'll get maybe that positive economic -- >> one more thing about this and i won't any anything else. the i think the most benign for

a tax change in the increase in government spending. you could just say let's choose what is going to least disturb our analysis directly. >> i think going back to what i was saying earlier. whatever goes into the single point estimate however you choose it. if you make the congressperson say what it is going to be or if you leave it up to jct, whatever it is. i'd really love to see the sensitivity analysis if you chose different assumptions in the baseline and the off setting policy what would happen. >> one last question in the back. >> my name is rickey. i'm the fiscal policy intern urn doug. and university of georgia. my question is a lot of this seems to be all of nothing. either dynamic scoring are

nothing. would it make them the possible more comfortable if we kept the stack scoring and you could use it -- since dynamic scoring is going to provide a larger estimate? >> very short answers. >> yes. but i think pam said that is their plan. >> the conventional score clearly should be disclosed. i assume it will be. and it's not really all or nothing. we're talking about tbt on a small number of bills. it is my hope that the budget chairman do not abuse the discretion that the rule mistakenly, in my view gives them. >> thank you. thank all the panltelists and in particular nick and pam. i think we've established here that -- i'm not sure about len burman's suggestion that we need to provide an incentive for

dmik academics to make public policy better. but i think we are establishing the case, and i'm serious about that, that if congress is going to proceed with this, resources at jct to explain what they are doing are needed. and i think that communication's challenge of this thing is evident from the panel this morning. in addition to the idea that giving members of congress incentives to do things that would increase the rate of growth doesn't seem like the worst idea we've ever come up with. but one of the very interesting parts of the house rule is that it also applies to certain spending bills. that is, mandatory spending or entitlements that would increase spending, or decrease spending by about $40 billion a year. so would have applied, for instance, to the affordable care act. would have applied presumably to

the fiscal stimulus bill. it does not apply to ordinary appropriations and there is some debate about that. we wanted to avoid focuses only on taxes because spending matters too. and we have three people here of different viewpoints to help us do that. first is donald marron director of economic policy initiatives or something like that. >> very good. >> yeah. and don did a stint at both the cea and acting director of cbo in 2006. and with policy and anlt ant analytics. deputy director under the bush administration. and a senior fellow and stint at the chief economist in joe biden's office. starting with you donald. when you were the acting director of cbo you were

confronted with an immigration bill and you were involved in trying to figure out what the macroeconomic effects would be and how to dynamically analyze it. i don't know if you dynamically o scored it. the difference for people who aren't into the analysis. dynamic analysis means you tell them what the effects are. dynamically scoring means you figure that into the official price tag. >> first i want to emphasize i think the dynamic scoring debate has so much focused on tax that i think the spending and regulatory policy angle has not gotten enough attention. in 2006 o congress was considering a major immigration bill that would have the effect of changing the size of the u.s. population and labor force by several million people. and at the time the joint decision of jct and cbo was that you couldn't ignore that in

doing a score. that if you tried to follow the convention of holding macroeconomic aggregates constant, you would end up with results that were just completely nonsensical. so you would be letting 6 million new people join the labor force and assuming they are all unemployed. that would just literally be insane. so for large immigration bills the conventional now exception from the convention is to in fact take a count of how those immigrants would effect the macro economy but try to to it in a way that is respectful to the traditional distinction between conventionel and macro dynamic scoring. some folks are used the phrase static which i avoid. conventional scores are not static. they recognize that people respond. so if you change taxing and spending people respond too that. if you pay doctors more they

might work more or less. there is a database about that. and the you tax cigarette ss people's smoking changes. so the first order direct effects that happen to the macro economy. a bigger labor force, there is going to be more people in the workforce and wages overall and results in more tax revenue and more people around obviously so you have more spending on various spending programs and you're going to want to track through the net of that. but what the cbo and jct scores of immigration do today is don't then take the next step and tract through every indirect macro economic effect to follow. they only account for some of the increased investment that would occur. they don't account for changes potentially in overall national productivity. and what they do do though is analyze those in that separate report. so a you have a score that includes some change in macroeconomic situation and then

an advisory report that tracks through the additional things that would be incorporated if you wanted to go fully macrodynamic. >> and under the new ruled would that change? >> under the new rule you would go through all of the things and try to incorporate all of them assuming it triggered, you know, the .25% of gdp threat. >> much is often made of the inadequacy of the american investment in infrastructure. as i understand the rule it would be a little hard because they exempt appropriation bills. but in general do you think if we're going to dynamically score tax cuts we ought to dynamically score infrastructure? and wouldn't that make the case for infrastructure spending even more attractive? >> on the surface it sounds like it would. but i think this practice i fear that it wouldn't. and i fear it is even harder do that sort of thing than the tax

kinds of scores we've been discussing so far. appropriations -- this has a lot to do with budget process in the way cbo scores such measures. but appropriations are too uncertain generally for scores beyond a year. that is, the cbo can't sit there and say here are the scores -- here are the appropriations that we see in year ten. they can't even say here are the appropriations we're going build in in year two. so if a dynamic scorer showed positive effects for appropriations it wouldn't show up beyond cbo's estimate of when those appropriations would be in place. a good example is the highway trust fund. how could you possibly if you are cbo, sit there and figure out what is going to happen when the highway trust fund is going to allegedly go bust in may. which is a few months from now. we can all assume a patch and probably will be in place.

but i think it is a lot to ask cbo to do is that. >> wait a minute, if i say i want to raise the gas tax. i propose i a bill i want to raise the tax 50 cents a gallon and use all that money for infrastructure. couldn't that be dynamically scored? >> umm, that could be dynamically scored. and depending on the extent to which cbo believed that that would persist in future years, that might work. but there is another bias here, which is a low productivity bias. cbo writes in a recent paper for analyses of the changes and federal investment kr, bo that additional federal investment yields half the return with an average delay of five years. so cbo assumes for this kind of investment crowning out of private investment. and so that too would be a