Congressional Republicans vowed this year to take a more “dynamic” approach to budgeting in their drive to eliminate the deficit within a decade. Their goal – simply put -- was to squeeze out a lot more in projected revenues over the coming years through rosy assumptions about the long-term economic and budgetary impact of their tax and spending policies.
Shortly after the GOP took control of Congress in January, the House Republicans adopted a new rule requiring budget scorekeepers at the Congressional Budget Office 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,” has been controversial among economists dating back to the Reagan administration of the 1980s because it is so imprecise.
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The end result – put on full display Thursday when the House adopted a fiscal 2016 budget blueprint along party lines, 226-197 – was far more a reflection of wishful thinking than hard-headed budgetary policy making. Republicans used dynamic scoring to hide a gaping $2 trillion hole in their “balanced budget.”
The new budget purports to reach balance by 2024 by cutting nearly $5.3 trillion in entitlement and discretionary spending from the current CBO spending projections but without increasing tax rates.
House Budget Committee Chair Tom Price (R-GA) hailed the document – which still must be passed by the Senate next week – as a “credible budget” that balances, reforms key programs and eliminates waste and inefficiencies throughout the federal bureaucracy so that taxpayer dollars are spent more wisely.
“A balanced budget can be and ought to be achieved without raising taxes,” Price said. “Washington does not need to take more from hard-working Americans. It needs to start living within its means.”
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Yet the final version of the budget is still rife with many of the same spending gimmicks and accounting sleights of hand that drew sharp criticism from budget watchdogs and the Democrats after Price and Senate Budget Committee Chair Mike Enzi (R-WY) first unveiled their respective drafts of the new budget. Those include:
- Boosting next year’s defense budget by $38 billion over a $523 billion spending cap through a back-door method that will add all of that spending to the deficit.
- Hijacking the overseas contingency operations account created to fund the U.S. wars in Afghanistan and Iraq as an all-purpose slush fund for future spending increases by the Defense Department.
- Calling for the repeal of the Affordable Care Act – something highly unlikely to happen – while retaining for accounting purposes the $1 trillion of long-term Obamacare taxes for use in other programs.
- Claiming hundreds of billions of dollars in future savings with minimal specificity of how those savings could be achieved. The budget doesn’t include so-called “reconciliation” instructions to the appropriations and authorizing committees to assure the cuts are made.
- Declining to seek offsetting cuts for at least $140 billion of the long-term cost of the recently approved Medicare ‘Doc-Fix’ legislation. The entire cost of permanently raising Medicare reimbursement fees for doctors will be added to the deficit.
Rep. Chris Van Hollen of Maryland, the ranking Democrat on the House Budget Committee, dismissed the GOP budget plan yesterday as “Alice in Wonderland Accounting.” But the situation is even worse than it appears to be, and here’s where “dynamic scoring” comes in.
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At the same time Congress is rushing to pass a new budget and spending bills for the coming fiscal year, Republicans are extolling the importance of lowering taxes to help businesses and the economy. Indeed, House Ways and Means Committee Chair Paul Ryan (R-WI) and Senate Finance Committee Chair Orrin Hatch (R-UT) are exploring ways to achieve “revenue neutral” corporate tax reforms that cut rates while eliminating costly or unnecessary tax loopholes.
“Fundamental tax reform would contribute to a healthier economy with more opportunity,” Price said in defending the virtues of dynamic scoring. By lowering tax rates, he argued, Congress would be sparking additional business expansion and investments, reducing unemployment and generating billions of dollars of additional federal tax revenues that would go towards balancing the budget.
“I remind my colleagues that every dollar that is taken for taxes and every dollar that Washington borrows is a dollar that cannot be used to pay the rent, to buy a car, to buy a home, to send a kid to college, to open a business or to expand a business and create jobs,” he said.
The phrase “revenue-neutral tax reform” would suggest that even with a complete overhaul of the tax code, the new tax system would be structured in a way to raise the same levels of revenue as was projected under the current tax code.
However, “without details on how this would be accomplished, Republicans should at most assume revenues to be no more than the long-term average, as a percentage of the economy,” John Gray, a research fellow in fiscal policy at the conservative Heritage Foundation wrote this week. “However, without any details on what the new tax system will look like, there are problems with the current budget’s revenue assumptions, particularly when they’re being used to balance the budget.”
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Indeed, Republican lawmakers are using what Gray described as “Enron-style accounting gimmicks” to hide the reality that – as currently conceived -- the GOP’s new budget will never balance. And he says the “trickery” begins with the presence of nearly $2 trillion of bogus tax revenues over the next 10 years.
Just do the math.
House and Senate GOP budget leaders begin with the assumption that – regardless of all the talk of comprehensive tax reform -- Congress will preserve 70 relatively minor tax breaks for small businesses, research and development and a myriad of other special interests known as “extenders” over the coming years. Those miscellaneous tax breaks alone will account for an estimated $900 billion in static revenue loss over the coming decade.
Then there’s the matter of the $1 trillion of Obamacare tax revenues that presumably would disappear if the Republicans -- or the Supreme Court, for that matter – manage to strike down the Affordable Care Act this year. Those taxes were meant to defray the cost of the major subsidized health insurance program. An honest accountant would have written off that $1 trillion as collateral damage in the war against Obamacare. But the GOP budgeteers are clinging to that revenue as part of its budget-balancing strategy.
“In an attempt to explain themselves, the budget authors will again claim that the revenues that are repealed along with Obamacare will be replenished, dollar for dollar, from tax reform,” Gray says. “This is disingenuous.”
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In short, nearly $2 trillion of tax revenue that would be lost under these budget assumptions concerning Obamacare and the “tax extenders” would somehow miraculously reappear in the budget as a result of revenue-neutral tax reform – or dynamic scoring.
During yesterday’s floor debate in the House, Rep. John Yarmuth (D-KY) mocked the Republicans’ reliance on dynamic scoring before the vote.
With Saturday’s running of the Kentucky Derby in mind, Yarmuth said, “It would be as if somebody went out and said, ‘I’m going to buy a two-year-old for $2 million, and then that two-year-old I’m sure is going to win the Kentucky Derby. So I’m going to use that $3 million purse that that horse is certainly going to win next year, and I’m going to plug that into my budget, so my budget will come out ahead.”
“Yes, it could happen, but there’s no evidence to believe it will happen,” he added. “That’s one of the ways this budget reaches so-called balance.”
Republicans acknowledge that they’re plowing new ground with their budget, but insist it has a good chance of working. “The CBO has defined what the current revenue level is,” said William Allison, a spokesman for the House Budget Committee. “The tax code that is currently in place meets that revenue level. Our plan would be to start all over and build a new code, but still generate the same amount of revenue as the current code.”
This article was updated at 4:30 p.m. on Friday
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