Yesterday, the GOP House changed how the fiscal costs of legislation are calculated:
The House on Tuesday adopted a controversial rule to require macroeconomic scoring on major legislation in the new Congress, which opponents say will politicize impartial budget analyses. … So-called “dynamic scoring” typically offers a more favorable view of cutting taxes, which is part of why Republicans support the method.
Chait claims the new GOP Congress is going after math itself:
The new, “dynamic” CBO will be systematically biased to make conservative proposals appear misleadingly cheap and liberal proposals misleadingly costly to the public fisc. This would be true even if the Republicans were soliciting a fair range of forecasting perspectives. By its design, the dynamic scoring rule allows the party in power to game its effects. It applies “dynamic scoring” only to legislation affecting 0.25 percent of Gross Domestic Product. As Chye-Ching Huang and Paul Van de Water point out, congressional leaders can manipulate this requirement easily: They can break up large pieces of legislation into smaller bills to avoid dynamic scoring, or combine smaller pieces into a major bill, if needed to make their agenda appear more affordable. Dynamic scoring is subject to abuse by its very design.
It is possible the Republicanized CBO continues to function in some distorted form, advancing Republican legislative goals by passing off slanted analysis as impartial. Or it is possible it simply loses all of its previous credibility and mutates into another partisan mouthpiece. Either way, the Republican right has struck a powerful blow against the sort of academic expert they have always loathed.
Shaun Donovan, the OMB Director, is upset by the rule change:
While all budget estimates are uncertain, there is substantially more disagreement among economists and experts about how policy changes affect the macroeconomy than about most other scoring issues. This helps explain why estimates from different CBO models of the long-run growth effects of a 10 percent tax cut differed by a factor of 15 – and ranged from positive to negative – when dynamic scoring was used.
But Keith Hennessey defends dynamic scoring:
We know that some policy changes can increase (or reduce) the size of the economy, and that to assume otherwise is wrong. The longstanding scoring process is biased against policies that would increase economic growth, and biased for policies that would shrink the economy. The size of the effect of large and broad-based reductions in tax rates is uncertain, but we’re pretty darn sure it’s not zero. Certain immigration reforms would increase domestic labor supply and increase economic growth. More accurate scoring would incorporate both types of effects.
Mark Thoma is unsure that the rule change will make a big difference:
How much of an impact would this change have? If the best evidence on this question is taken into account, not as much as Republicans hope. When previous tax cuts are examined econometrically, the impact on economic growth is hard to find. There does appear to be an effect according to some of the research (but not all), but the effect is relatively small — certainly not big enough to make a significant change in the budgetary impact.
So why are Democrats alarmed?
Some Democrats worry that CBO director Elmendorf will be replaced by someone willing to cherry pick the evidence on tax cuts to benefit Republican proposals and minimize benefits of the change to Democratic legislation. That would politicize an institution that has done its best to evaluate the budgetary impact of legislative proposals based upon solid evidence rather than politics and ideology and do great harm to an important part of the legislative process.