Tuesday, January 13, 2015

McSally Votes To Change How Congressional Budget Office Forecasts the Impact of Tax Cuts

Posted By on Tue, Jan 13, 2015 at 3:30 PM

Earlier today, The Range mentioned that the Congressional Budget Office had estimated that a GOP proposal to change the definition of full-time work for the purposes of the Affordable Care Act would expand the deficit by more than $50 billion over the next decade.

These sorts of calculations have evidently made GOP lawmakers unhappy with the CBO, which has enjoyed a reputation as a fair forecaster of of proposed changes in tax law and other economic legislation.

Now that the Republican Party controls both houses of Congress, it appears that changes are coming. Last week, GOP lawmakers—including Southern Arizona Congresswoman Martha McSally—voted to change the way the office determines the cost legislation. GOP leaders have long pushed for so-called “dynamic scoring” in CBO estimates, which means that government accountants should include a boost in economic activity as a result of tax cuts.

That change has been criticized by left-leaning commentators as a way for Republicans to rig the future costs of their policies, particularly when it comes to tax-cut proposals. As Jonathan Chait of New York magazine puts it:

“Dynamic scoring” allows the Republican majority to impose its own ideological terms on the process of scoring legislation. Many credible economic forecasters would argue that debt-financed tax cuts actually reduce economic growth, and thereby cost the government more, not less, than their static cost. (For instance, a paper by the Brookings Institution concludes that the Bush tax cuts slightly reduced economic growth, because the negative impact of higher debt outweighed the positive incentive impact of lower rates.)

Indeed, two decades' worth of experience would point toward the same conclusion. When Bill Clinton raised the top tax rates, conservatives predicted it would trigger another recession. Instead the economy boomed. When George W. Bush reduced the top tax rates, conservatives predicted it would usher in new heights of prosperity. Instead the economy produced a tepid recovery that was itself inflated by a bubble, culminating in a devastating collapse. The current recovery has picked up speed after the Bush tax cuts for the rich expired. These events do not prove that cutting taxes for the rich causes economic decay and that raising them causes growth. They do suggest that tax rates on the rich have, at best, extremely little impact on underlying growth rates. Republicans are enshrining their doctrine into congressional law at a moment when real-world evidence on its behalf is at a low ebb.

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 dhttp://www.cbpp.org/cms/?fa=view&id=5246esign, 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.

The Center for Budget and Policy Proposals offered a similar concern:

Congress should reject calls to use “dynamic scoring,” which includes estimates of how proposed policies would affect the size of the economy and thus revenues, in official cost estimates for tax reform and other major legislation.[1] Modeling the economy is extraordinarily difficult; even the best analyses leave tremendous uncertainty and are sensitive to the economic models and assumptions used. Estimates of macroeconomic effects of policy changes are thus highly subject to manipulation. Including them in budget estimates would damage the credibility of the budget process.

But McSally spokesman Patrick Ptak downplayed the impact of the change.

“Often, the Congressional Budget Office and Joint Committee on Taxation already prepare estimates for a bill’s larger impact on our economy, instead of just the Treasury’s bottom line, as was done for immigration and budget legislation last year,” Ptak said. “This provision simply requires they include those findings in their official estimates, giving lawmakers more information as they consider legislation that will have a major effect on our economy.”

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