By Matt Rognlie
The opinions expressed are his own.
They use the same shady economic methodology to promote their policies.
If you follow the news, you’re familiar with “IMPLAN”, albeit indirectly. It’s the software package underlying the studies that pro sports teams, among others clamoring for public favors, use to claim that each new stadium will generate several gazillion dollars for the local economy—supposedly justifying a massive public outlay. Here’s a study using IMPLAN to justify a new Sacramento Kings stadium; here’s another that looks at the proposed Santa Clara stadium for the 49ers and another that attempts to justify a new stadium for the A’s. There are studies looking at the impact of the Mavericks’ American Airlines Center, the Packers’ Lambeau Field, and Oriole Park. And, of course, there are countless others: whenever someone wants to make preposterous claims about the benefits of his pet project, he’ll inevitably turn to IMPLAN or a similar package. There’s an obvious element of pseudoscience to these studies. They use “input-output” models that painstakingly track the path of spending through the economy—a worthy goal, though perhaps an overambitious one. But they fail entirely to model the supply side of the economy, effectively assuming that there is unlimited capacity, and that each additional dollar of “spending” (magically generated by the new stadium) will become an additional dollar of economic activity—even more, in fact, after you account for the multiplier.
Strangely enough, Rick Perry’s campaign is using the same model to analyze his tax plan, in a context where it makes even less sense.
As James Pethokoukis explains, the Rick Perry presidential campaign has contracted with John Dunham and Associates to run a revenue analysis of Perry’s new tax plan. The impact of the plan depends on your choice of baseline policy: it raises $4.7 trillion less than the CBO baseline for 2014-2020 under conventional, static scoring, and $1.7 trillion less under “dynamic scoring”. Relative to the CBO’s more arguably realistic alternate baseline, the plan does better. But regardless of your preferred baseline, it’s clear that the plausibility of Dunham’s “dynamic scoring” model is key: it provides an additional $3 trillion over only 6 years!
It’s troubling, then, to learn that the Perry campaign’s idea of “dynamic scoring” bears absolutely no relation to what most economists mean by the term. In fact, the Dunham model more closely resembles the shady estimates for the 49ers stadium than any accepted methodology in public finance.
The idea behind dynamic scoring—as economists generally understand the concept—is that we should account for how the incentives created by the tax system affect the economy, and how those effects might feed back into revenue. A income tax cut, for instance, might lead to higher taxable income and a new stream of tax revenue—though certainly not by enough to fully offset the initial revenue loss, as Art Laffer once claimed. In theory, capital tax cuts may lead to even larger offsetting movements in revenue, though still not enough to recover the loss completely. Greg Mankiw and Matthew Weinzierl provide a short guide here.