The controversial practice of dynamic scoring is coming to the federal budget process. There is a movement in the policy community to begin charting a path to the best method for implementing the practice, which requires budget scorekeepers to estimate the macroeconomic effects of federal fiscal policy.
The movement was on display at the Brookings Institution on Monday, where a group of experts gathered for a forum entitled “Dynamic Scoring: Now What?”
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The topic is politically freighted in a way that most debates about the esoterica of budget scoring are not. Movement conservative Republicans have long been in favor of dynamic scoring because they believe that tax cuts spur economic growth and increase government revenue. This makes tax cuts cheaper from a budgetary perspective and easier to justify in the context of federal deficits.
At the beginning of the new Congress, House Republicans passed a rule requiring that dynamic scoring be used to produce an official estimate of legislation’s cost. Until now, the Joint Committee on Taxation, which scores tax bills, and the Congressional Budget Office, which scores other spending bills, have generally offered dynamic analysis on a limited, advisory basis.
From a policy standpoint, conservatives’ general position is that if estimators know a policy change will have significant macroeconomic effects, it is foolish not to consider those effects when assessing its impact on the budget.
Democrats and some more moderate Republicans are opposed to making a dynamic score part of the official judgment of the cost of legislation because estimates from dynamic scores tend to be uncertain – sometimes wildly so.
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Len Burman, director of the Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution summed up the two sides of the debate succinctly.
“The ‘pro’ of including a dynamic score is that it removes a constraint on estimators. If they actually knew what the macroeconomic effect was, they could improve their estimates by including it,” he said. “The ‘con’ is that there are so many cases where they have no idea – in a lot of cases don’t even know the sign of the effect.”
Although the event, hosted by Brookings’ Hutchins Center for Fiscal and Monetary Policy, was meant to move the discussion toward the implementation phase, for much of the event, participants wound up addressing the more fundamental question of whether or not dynamic scoring is a good idea in the first place.
For some, such as Jane Gravelle, a senior specialist in economic policy with the Congressional Research Service, the answer was clearly “no.”
“I don’t think we’re ready for dynamic scoring,” she said.
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Former Congressional Budget Office Director Douglas Holtz-Eakin argued that the uncertainty of estimates in dynamic scoring models hardly makes them unique in the field of budget analysis.
“I’ve got a long list of things in conventional scoring that are comparably uncertain,” he said, adding that the decision to use dynamic scoring for the official estimate would ultimately advance the practice.
“I think there is a big advantage in actually putting it into the formal score,” he said. “When it’s advisory and we had this range of estimates coming out of a range of models, you were basically out there trying to give a masters level graduate course in macroeconomics in three minutes in front of a committee and that’s just not feasible.”
Putting it in the score, he said, will require Congress to pay more attention to the process, and will generate more interest among academics and researchers.
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“It might not be perfect the first time, but putting it into the process actually kicks off a dynamic that I think – no pun intended – is beneficial. We learn more about public policy when the numbers matter.”
WHY THIS MATTERS
The use of dynamic scoring to produce precise estimates of the cost of federal legislation is supposed to provide better information to lawmakers. But the degree of controversy over its introduction suggests that budget scores will simply become a point of political argument, with each side challenging scorekeepers’ assumptions rather than accepting their advice as unbiased.
Burman, for his part, echoed many economists, who argue that the number of assumptions necessary to dynamically score a major tax or spending bill, and their interconnectedness, creates large margins of error that delivering a single point estimate of a bill’s cost would obscure.
Bowing to the reality that Congress has already made its decision, Burman called for transparency in the process – particularly a clear sense of how wide the margin of error of a particular estimate is.
“I would follow the model of the Capital Weather Gang,” he said, referring to the authors of a popular DC-area weather blog published by The Washington Post. “They put out a forecast and the forecast includes the level of confidence.”
One of the arguments used to defuse criticism of the Republican move is the relatively small number of bills it would actually affect. The language of the rule adopted by Congress says that it would automatically apply only to bills that effect the federal budget by an amount greater than .25 percent of Gross Domestic Product, or about $40 billion.
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Republicans note that in the last Congress only three bills would have triggered the analysis.
However, Chye-Ching Huang, a tax policy analyst with the Center on Budget and Policy Priorities noted that the rule actually gives the Budget Committee chair the ability to request a dynamic score of any bill he or she deems “major,” regardless of size. She noted that bills that might otherwise trigger an unwelcome dynamic score could be broken into pieces in order to escape the threshold.
Alan Viard, a resident scholar at the American Enterprise Institute who generally supports the change, appeared to concede that the latitude allowed the Budget chair is a flaw. “My hope is that the budget chairs do not abuse the discretion that, in my opinion, [the rule] mistakenly gives them.”
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