GOP’s Budget-Busting Math Wipes Out Deficit
Policy + Politics

GOP’s Budget-Busting Math Wipes Out Deficit

The budget proposal put forward by House Budget Committee Chairman Tom Price (R-GA) yesterday would eliminate the federal deficit within ten years, but relies on a new kind of budget accounting to make that happen. The bill is one of the first pieces of legislation in the 114th Congress to trigger a new House rule that requires certain major bills to be scored “dynamically” by the Congressional Budget Office.

Dynamic scoring is a controversial practice in which analysts attempt to measure the so-called “macroeconomic impact” of policy changes. This means, for instance, if a tax cut is expected to generate economic growth, the higher tax revenue that the increased growth would generate should be measured as offsetting the cost of the original tax cuts.

House GOP Budget Would Wipe Out the Deficit in 10 Years

Republicans have long pushed for the use of dynamic scoring, claiming that ignoring the growth effects of certain policy changes amounts to willful ignorance. Opponents point out that there is so much uncertainty about how to produce a dynamic score – it requires multiple interlocking assumptions – that estimates can be wildly wrong.

According to House rules, CBO scored the plan that Rep. Price released on Tuesday and the results were…well…fairly modest. Price claims that his plan would reduce the cumulative federal deficit by $5.5 trillion over 10 years, and the CBO projected a 10-year macroeconomic impact that reduction of about $147 billion.

That’s not pocket change, to be sure, but it adds up to only about 2.7 percent of the total savings identified by Price.

“There’s much uncertainty about these things but I don’t find the CBO impacts all that wild,” said Urban Institute fellow Rudy Penner, himself a former CBO director. He said that the estimate appeared to have used methods similar to those the agency used in providing advisory estimates of the macroeconomic impact of previous budget proposals put forward in recent years by Price’s predecessor in the Budget Committee chair, Rep. Paul Ryan (R-WI).

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In its macroeconomic model, Penner said, CBO places “a fairly big emphasis” on the impact changes to the deficit have on the budget. In the CBO model, cutting the deficit increases national savings and domestic investment, reduces the need to borrow from abroad, increases national wealth and national income, all of which feed into further deficit reduction.

To be fair, though, the big payoff from dynamic scoring, at least from the GOP’s point of view, is that it makes tax cuts look much cheaper. The assumption that tax cuts spark economic growth means that a portion of the revenue lost when tax rates are reduced is recaptured because of an increase in growth driven by those same cuts.

The Price budget proposal, while it calls for comprehensive reform of the tax code, doesn’t provide enough specifics for CBO to produce a score. The projected savings, in theory could be much greater (or be reduced) if CBO had a fully fleshed-out tax plan to score alongside the budget.

Stan Collender, a budget expert and executive vice president of Qorvis MSL Group said he was highly skeptical about the Republicans’ claims of the macroeconomic impact of proposed GOP policies on the long-term deficit:  “This sounds like the Magic Asterisk without using symbols,” said Collender, recalling a major budget trick by President Reagan’s budget chief, David Stockman.

“It’s the amount of deficit reduction they need to project an eliminated deficit in eight years. That’s ridiculous. It’s also bad budgeting. What you want to do is be is conservative with a small ‘c’ and then be surprised on the upside, as opposed to assuming deficit reduction and not getting it.”

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Bill Hoagland, a former Republican Senate Budget Committee chief of staff, noted that the bulk of the projected savings aren’t expected to be realized until years from now, long after President Obama and his immediate successor are gone from the scene.

Without the use of dynamic scoring in calculating the long-term budget picture, there would still be a deficit of roughly $50 billion in 2025, according to the House Budget Committee documents. Moreover, the new GOP policies actually add to the deficit by a total of $34 billion in fiscal 2016 and 2017 and have little if any effect for another four years before beginning to put a real dent in the deficit.

“It’s a gamble,” said Hoagland, a senior vice president of the Bipartisan Policy Center. “They said from the outset they were going to get to balance, and the only way they can do that is to add the macroeconomic impact into the bottom line, there’s no question about it. And if it’s that far out, who knows?”

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Hoagland cautioned that while the Republican claims of macroeconomic impact are significant, the lion’s share of the House Republicans proposed $5.5 trillion of savings over the coming decade would come from programs of enormous importance to average Americans – including the reduction of non-defense discretionary spending below the legal cap under the 2011 Budget Control Act, the elimination of the Affordable Care Act and expanded Medicaid coverage; Medicare and Medicaid savings and overhaul, cuts in child care programs and food stamps, and other significant changes. Indeed, almost two thirds of the $5.5 trillion of projected savings would come from health care programs.

“Yes the macroeconomic impact is in there, but I think the bigger issue is all these other things,” Hoagland added. “Even if they could adopt this blueprint, it would never make it to the president’s desk in actual legislative form.”

Joe Minarik, senior vice president and director of research for the Committee for Economic Development, said dynamic scoring “seems to be the Brave New World that we’re into, given the changes in the House rules.”

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Minarik, a former budget chief to former President Bill Clinton, said he takes the CBO analysis with a grain of salt.

“As far as it goes, it seems to be a reasonable look [by CBO) at a situation given a set of ground rules which lead us in a direction that is not necessarily the most enlightening for what our choices are at this point,” Minarik said.

However, as the CBO stated, the agency’s projections do not represent a cost estimate for legislation or an analysis of the effects of any specific policies.

“Whether in fact the policies that are discussed will get you there, whether they would be enacted into law even if they did get you there – both of those questions are not answered or even asked,” Minarik said.

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