The House will vote today on a resolution requiring the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) to adopt a practice known as “dynamic scoring,” which would change how the Congress calculates the expected cost of a piece of legislation. Current rules require calculating a policy’s direct cost to the government, which includes looking at how affected individuals and firms would react to the policy. But dynamic scoring goes further by requiring that budget estimates also take into account how policies could affect the total size of the economy. While this may seem like another example of Washington “inside baseball” with little impact on the American public, using dynamic scoring for official cost estimates would risk injecting bias into a broadly accepted, non-partisan scoring process that has existed for decades. As a result, it could allow Congress to adopt legislation that increases Federal deficits, while masking its costs.
Non-partisan economists and analysts at CBO and JCT analyze all spending and tax bills based on a stated set of assumptions that are chosen and widely recognized to be “accurate, consistent, fair, and impartial.” Given the importance of these estimates for policymakers in deciding whether to support legislation, any change to scoring rules should enhance their accuracy, consistency and fairness.
Adopting dynamic scoring risks doing just the opposite.
First, dynamic scoring requires CBO and JCT to make assumptions in areas with unusually great uncertainty. 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.
Second, and more fundamentally, dynamic scoring would require CBO and JCT to make assumptions about policies that go beyond the scope of the legislation itself. For example, when a tax cut or spending increase is deficit financed, its long-term effect on the economy depends heavily on how and when its costs are ultimately recouped – whether through higher taxes or lower spending, and after how large an increase in debt. When the legislation itself is silent on these questions, Congressional scorekeepers would have to make an assumption – potentially putting scorekeepers in the game, rather than just referees. Moreover, in standard models, these assumptions are often the difference between a positive or negative effect on the economy.
Finally, dynamic scoring can create a bias favoring tax cuts over investments in infrastructure, education, and other priorities. While the House rule would require dynamic scoring for legislation making large changes in revenues and/or mandatory spending, and makes it permissible at the option of leadership for any such legislation (even if modest), it would not apply to discretionary spending, ignoring potential growth effects of investments in research, education, and infrastructure. More insidious, economic models that find large growth effects of tax cuts are often based on the assumption that they would be paid for entirely through reduced spending – without taking into account at all the economic consequences the reduction in government investment.
None of this is to say that policymakers should not consider economic consequences of legislation; despite the uncertainty of macroeconomic projections, these issues are often central considerations in policy debates. That’s why the Administration supports CBO and JCT’s current approach of providing supplementary macroeconomic analysis of major legislation – as they did for former Ways and Means Chairman Camp’s tax reform plan and for the Senate immigration bill. Under this approach, CBO and JCT provide estimates reflecting a range of assumptions about financing and other factors, and let policymakers use their own judgment about which set of assumptions should carry the most weight.
The Administration stands ready to work with Congress to enact legislation that will benefit the American people and strengthen the economy. But Congress should not adopt changes in scoring legislation that upend the level playing field that has existed for decades, and could call into question the accuracy, consistency, and fairness of CBO and JCT budget estimates.
Shaun Donovan is the Director of the Office of Management and Budget.