In today’s game of politics, it’s hard to keep score — especially for the Congressional Budget Office (CBO). Although it is tasked with providing nonpartisan analyses of budget acts, the CBO has found itself at the heart of partisan bickering. In two of the first substantive moves by the new Republican Congress, the House of Representatives voted along party lines to instruct the CBO to increase its use of “dynamic scoring,” and the Republican leadership chose to replace the CBO’s esteemed director, Doug Elmendorf, with the more conservative Keith Hall.
Since it concerns only the minutiae of economic calculations, it might seem odd that dynamic scoring has become such a thorny point in partisan politics. However, the moves of the new Republican majority to influence the CBO, though relatively unnoticed outside the Washington bubble, reflect much more than an erudite debate over the ins and outs of economic modeling. Rather, the dynamic scoring debate — and the partisan climate surrounding it — demonstrate that Washington’s mechanisms for nonpartisan policy analysis are miserably inadequate.
The battle over dynamic scoring may seem like a half-hearted effort to make budget analysis seem exciting, but it’s an important and substantial change. Generally, the CBO uses static scoring to analyze bills, meaning they assume that a given bill won’t have a macroeconomic impact. Dynamic scoring, on the other hand, attempts to account for the broader economic impacts of policies while analyzing budget proposals. Conceptually, the idea isn’t that complicated. Say a bill proposes to decrease all taxes by 20 percent; static scoring would simply measure the impact on revenue based on the economy’s current performance. But in reality, that type of change in tax policy would have significant effects on GDP and economic growth. So dynamic scoring measures how a given proposal affects the entire economy and then adjusts estimations accordingly. The CBO has historically used dynamic scoring for major legislative proposals, and the new House rule simply expands upon that precedent, ordering the CBO to dynamically score all tax proposals that would affect at least 0.25 percent of the economy and to do so only “to the extent practicable.”
If that were the whole story, the push for dynamic scoring wouldn’t be terribly controversial. Most economists and journalists agree that dynamic scoring, when done correctly, is a much better way to measure a bill’s effect. But most people agree that clairvoyance would be great, too. The problem with dynamic scoring doesn’t lie in the theory behind it — it’s in the execution. And Bruce Bartlett, a former economic advisor to President Reagan, aptly sums it up when he says that dynamic scoring uses “smoke and mirrors to institutionalize Republican ideology into the budget process.”
The Republican decision to encourage dynamic scoring has less to do with a desire for accurate budget analysis than it does with conservative economic theory. The centerpiece of the Republican economic platform is that tax cuts lead to growth. However, statically scored CBO budget estimates consistently showed tax cuts ballooning the federal deficit, which poses a problem for the GOP. Though CBO estimates haven’t painted the whole picture — because they weren’t trying to — unflattering nonpartisan estimates became easy fodder with which Democrats could bludgeon Republicans. A cursory glance at CBO estimates would seem to make the party of fiscal responsibility look more like the party of cut-and-run economics. But in new, dynamically scored estimates, the CBO will account for growth caused by tax cuts in its estimates, providing Republican proposals with an optical boost.
The problem is that estimating the future of the economy is an arduous affair, and it requires economists to make assumptions about complex and unpredictable factors. Consider the tax proposal from earlier. For the CBO to accurately estimate the effect of a 20 percent tax decrease on the economy, there are a number of questions concerning both long- and short-term behavior that analysts would have to take into account. How do high-, low- and middle-income consumers respond to tax decreases? How would across-the-board cuts affect consumer confidence? What about business confidence? These are quite complex questions, and for this reason, dynamic scoring is much more expensive and time-consuming than static scoring. More importantly, economists’ answers to these questions are frequently incorrect, and they oftentimes end up boiling down to fundamental differences in ideology. Unsurprisingly, there’s no economic consensus on how people respond to tax cuts or what the multiplier effect from government spending is. To be fair, static scoring also includes problematic assumptions, but it has more of an ability to nail down the fundamentals of a bill — without wading out into unclear estimates on the heavier questions.
And that brings up another a huge problem with dynamic scoring: Economists aren’t fortunetellers. Pointedly, not a single dynamic score from the CBO prior to 2007 foresaw the Great Recession, rendering just about every dynamic score from the early 2000s horribly inaccurate. It’s not just recessions that the CBO can’t predict; the agency also can’t foresee congressional behavior or the Federal Reserve’s monetary policy. These factors are particularly important because evidence suggests that the effect of tax cuts depends entirely on whether they are eventually paid for with spending cuts or future tax hikes. None of this information will be reflected in CBO dynamic scores, though. They’ll just show tax cuts leading to smaller deficits and higher growth.
Other moves from the GOP further indicate that their changes to the CBO extend beyond a commitment to truth-seeking. In March, the leaders from the Senate and House Budget Committees chose not to reconfirm Doug Elmendorf, the CBO director for the previous six years, and instead to replace him with Keith Hall, who was formerly a top economic advisor to the Bush administration. Since the CBO currently has discretion in exactly how it uses dynamic scoring, the director will have a heavy influence on the outcomes of CBO scores. It’s conceivable that Hall will implement dynamic scoring in a way that is as favorable as possible to the conservative platform. And if he does, Democrats would have almost no recourse except for public vilification of the CBO, an action that would gravely undermine the organization’s credibility.
It’s also unclear why Elmendorf, a Democrat widely hailed for his nonpartisanship, needed to go in the first place. During a recent celebration of the CBO’s 40th anniversary, Alice Rivlin, the first director of the CBO, suggested that future CBO directors should strive to “be as much like Doug Elmendorf as [they] can,” a statement that caused the CBO employees in attendance to erupt in applause. Gregory Mankiw, a top advisor to President Bush and a senior advisor to former Governor Mitt Romney, also lamented Elmendorf’s departure, writing in a New York Times editorial that he had done a “remarkable job.” Nor is Mankiw the only conservative who has come to Elmendorf’s aid; Mankiw’s position is shared by the director of the conservative American Enterprise Institute, among others. Elmendorf’s only real opponents were hyper-conservative groups like Heritage Action and Grover Norquist’s Americans for Tax Reform. And although it’s not uncommon for the party in power to promote one of its own to run the CBO, the partisan minefield surrounding dynamic scoring and the overwhelming support that Elmendorf already had makes the Republican Party’s choice of Hall a particularly dubious move.
The dynamic scoring episode demonstrates the enormous structural barriers to the CBO’s ability to act as a nonpartisan referee. Some of this may have to do with the fact that the CBO’s modern role differs from the one for which it was originally designed. When the CBO was founded in 1974, it was supposed to be a bulwark against presidential impoundment, since at the time, only the Office of Management and Budget would produce budget scores for legislation. Over time, the CBO evolved into something more — a tried and true source of economic data. But it’s becoming apparent that the CBO may not be equipped to keep producing credible research as partisanship continues to ramp up.
Republicans have continued to defend their changes as a way to provide more information to the public. Senator Orrin Hatch (R-UT), for instance, argued that the CBO should produce both static and dynamic scores on the grounds that “it’s stupid to do the one and not do the other.” But here Hatch and his comrades miss the point. The CBO is nonpartisan and credible in the eyes of the public — that’s why politicians care so much about the contents of its reports. However, if the CBO produces multiple studies and some are filled with inaccurate and partisan assumptions, then each party, for obvious reasons, will cite only the politically favorable one.
There are some fixes that could help the CBO remain neutral. To begin with, it’s unwise to entrust a nonpartisan organization to a director primarily responsible to the party that elected him or her. If politicians are indeed committed to having the CBO serve the role of neutral arbiter, they should have the organization feature equal representation for major factions. In addition, the CBO should increase transparency in its modeling so that other organizations and politicians can more easily critique reports when they disagree with their outcomes. These moves almost certainly won’t happen in the next couple of years. But perhaps in the next Congress, both sides may come together to realize that an overactive and partisan CBO is a pox on both houses.
Art by Soraya Ferdman.