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The new budgetary mantra of the House GOP appears to be: if you can’t make the math add up, change the rules of math.
On Tuesday the House did exactly that with its passage of a new rule requiring the non-partisan Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) to use “dynamic scoring” rather than static scores for official cost estimates on proposed tax changes. Dynamic scoring is a controversial method of assessing the effect of tax cuts. It allows lawmakers to claim that a tax reform proposal is revenue neutral, even if it would lose revenue under a conventional score. House Republicans embrace the method because they can claim tax cuts pay for themselves, rather than increasing the deficit or making it even more difficult to raise enough revenue to fund basic priorities. The ability to obscure the true cost of tax cuts could prove especially appealing to incoming Chairman of the Ways and Means Committee Paul Ryan, who has long proposed steep tax cuts for the rich, while at the same time calling for massive cuts to programs for low- and moderate-income people.
The idea behind dynamic scoring is that, in addition to accounting for the behavioral impacts of a given piece of legislation which is included in a static estimate, budget estimates should include the overall impact on the economy. The problem is that there is just too much uncertainty about the overarching economic impact of individual pieces of legislation, which is why this has not been included historically as part of single-point budget estimates.
The high level of uncertainty in these estimates is demonstrated by the fact that when JCT was asked to do a dynamic score of former Rep. Dave Camp’s tax-reform bill, they estimated that the legislation could increase GDP anywhere from 0.1 percent to 1.6 percent during its first decade, meaning that there was a 16-fold spread between its high and low estimates. What drove this extreme level of variability between JCT’s different estimates were changes in the whole host of assumptions that go into modeling the legislation’s impact. Based on this, one of the biggest potential problems with dynamic scoring is that it could politicize the estimate process by allowing more space for estimators to make politically motivated assumptions in their economic modeling.
Advocates of tax cuts intend to use dynamic scoring to push the thoroughly debunked supply-side economics idea that tax cuts pay for themselves. In reality, even President George W. Bush’s own Treasury Department rejected this idea when it found that his massive tax cut package might make no difference at all on growth over the long term.
Looking forward, it remains to be seen just how JCT and CBO will respond to this new requirement and what kind of assumptions they will use in estimating the dynamic impact of future legislation. Let’s hope that they are allowed to remain a bulwark against fiscally irresponsible tax cuts, rather than being used to lend faux creditably to supply-side claims.