In an interview with CNBC, billionaire investing legend Warren Buffett told people to be wary of a trick the Trump administration is about to use to make the federal budget look more balanced — dynamic scoring.
“Everybody that wants a cut in taxes can hire some academics and they look for dynamic scoring and they say the country will really be better off if I pay less tax,” he said. “I don’t blame them, it’s very understandable. So be very, very, very suspicious of dynamic scoring.”
Trump has promised to pass “the biggest [tax cuts] in history”, and according to the Tax Policy Center, the corporate tax cut alone could cost the country $US2 trillion over the next 10 years.
To do that, and also keep the budget somewhat balanced, the administration will have to use dynamic scoring as Buffett suggested, which essentially allows it to massage the numbers a bit.
Here’s how dynamic scoring works: To make tax cuts look as if they wouldn’t put a massive hole in the budget, policy wonks estimate the future benefits of tax cuts after making a load of assumptions about how they will affect economic growth, including about what a future government might do in response to falling tax revenue.
Those imagined benefits are then added to future budget projections, and — BOOM — you’ve got a healthy-looking balance sheet for America.
“If ‘dynamic scoring’ means that Congress can use any macroeconomic model it wants, then we are thrown back 100 or 150 years in terms of the rigour of our thinking. There are too many models with a very wide variety of assumptions and implications. It is not exactly true that you can find a model that will support any claims, but this is sometimes uncomfortably close to the truth.”
It’s nice to have the Oracle of Omaha agree.
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