Dynamic Scoring Adds More Problems to an Already Flawed CBO Process
Policy + Politics

Dynamic Scoring Adds More Problems to an Already Flawed CBO Process

A new rule that would change the way budget scorekeepers assess the long-term costs of legislation before Congress is hugely problematic, a former director of the Congressional Budget Office said on Thursday.

June O’Neill, who was appointed to run the CBO in 1995 when Republicans controlled both houses of Congress, led the agency for four years. She said Thursday by email that a new set of rules passed by the Republican-controlled House of Representatives this week presents “innumerable problems.”

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The rule requires budget scorekeepers at CBO and the Congressional Joint Committee on Taxation to do an analysis of “major” legislation that projects the macroeconomic effects of the policy changes over time. The analysis, known as “dynamic scoring,” is controversial among economists because it’s so imprecise. A Joint Committee analysis of a tax reform plan presented last year by House Ways and Means Committee Chair Rep. Dave Camp (R-MI) determined that its effect on GDP would be somewhere between a .1 percent increase and a 1.6 percent increase over ten years, a difference of hundreds of billions of dollars.

Republicans have been working since O’Neill’s tenure as CBO head to implement a dynamic scoring approach. A driving reason is that many Republicans believe it will show that tax cuts are cheaper, from a budgetary perspective, than current analysis suggests. The thinking is when citizens keep more of their earnings it drives up economic activity – thereby increasing tax receipts.

O’Neill, who directs the Center for the Study of Business and Government at Baruch College’s Zicklin School of Business in New York, recalled that when she led CBO, there was an effort to introduce dynamic scoring into budget analysis.

“When I came to CBO, there was a rule put out by the Ways and Means Committee that … the results could not be used in an actual cost estimate. CBO often included – especially in our midyear report – an analysis of the possible economic effects of any major legislation that had been passed (can't recall if that included proposed but not passed).”

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O’Neill at the time clashed with congressional Republicans over even that inclusion of dynamic scoring in the process, but the current rule goes further.

“The difference now is that the results presumably would be used in an actual budget estimate,” she said.

Details are still somewhat vague. It is unclear how many bills would be affected; unclear what time frame the estimate is expected to cover; and unclear whether scorekeepers would be expected to deliver a point estimate or just a range of possible outcomes. O’Neill said asking forecasters to extrapolate macroeconomic effects of legislation years into the future is perilous.

“There are innumerable problems in making such an estimate – short or long term – because one would need to estimate the added effect of the bill on the economic forecast,” she wrote. “But other things may change, and those are often not predictable, which is why the economic forecast of CBO and other forecasters are seldom on the mark.”

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She added, “Think back to the Clinton tax increase of 1993. Most economists – at least the ones I know – anticipated that the sharp rise would have a negative effect on growth. Initially that seemed to be happening… But shortly thereafter the economy took off.”

The economic boom, she noted, had nothing to do with the tax increases.

“I believe that Bill Clinton later acknowledged that his tax hike was a mistake. The force responsible for the surge in economic activity was the dissemination of the fruits of the tech revolution – likely themselves the result of the decline in regulation and taxes dating from the Reagan years. All of which shows how difficult dynamic estimates could be to execute.”

Congressional Republicans have reportedly determined they will not reappoint current CBO Director Douglas Elmendorf, whose term expires this month. Some in the budget community have suggested that by shackling the next CBO director to the introduction of dynamic scoring, Republicans may drive away some qualified candidates.

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Stan Collender, a former House and Senate Budget Committee staffer and now director of financial communications for Qorvis MSLGROUP, a public affairs firm, wondered if candidates otherwise interested in the job would be reluctant to have their fingerprints on the introduction of dynamic scoring to CBO’s cost estimates.

“People question it,” Collender said of the process. There is a strong chance, he said, that “the Senate is going to go back to being under Democratic control again in two years.” That could expose a new CBO director to contentious hearings on Capitol Hill.

Others noted that a relatively small number of proposals would be affected; only bills with an impact equal to 0.25 percent of GDP in a given year would be automatically subject to the new analysis. This means it would have little effect on qualified candidates’ interest.

“I don’t think it is going to limit the pool of candidates interested in working at CBO,” said Marc Goldwein, senior policy director for the Committee for a Responsible Federal Budget. “The next director does have some important decisions to make, but I think any director of CBO could make the decisions necessary to have fair and reasonable dynamic scores if they have to. I don’t think it is going to play out every day in the director’s job.”

O’Neill, for her part, said any future director’s decision would likely be based on one-on-one discussions with members of Congress, in advance of taking the job. “It really depends on the details that are conveyed in person to the candidate,” she said.

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