A little more than a month since his term as director of the Congressional Budget Office expired, Douglas Elmendorf made his first public appearance as a private citizen Tuesday and had a lot to say about the future of his former agency and the state of federal finances.
In a discussion with CNBC Chief Washington Correspondent John Harwood, Elmendorf touched on the introduction of the controversial practice called “dynamic scoring” to the estimates CBO makes about the future cost of laws being debated by Congress. Dynamic scoring is an effort to measure macroeconomic effects of federal policies. A tax cut, for instance, could arguably stimulate economic growth, which would drive up tax revenue, blunting the ultimate cost of the cut to the federal budget.
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Democrats in particular have bemoaned the new requirement, established by House Republicans when the new Congress assembled this year, that “major” legislation be scored using that approach. Critics see it as the first step in turning CBO, which has always been seen as above the political fray, into a partisan tool of whatever party happens to be in control.
Elmendorf disagreed.
“I do not think that CBO will be turned into a political tool,” he said. “There is very widespread support on Capitol Hill, on both sides of the aisle, on both sides of the Hill, for CBO being a strong and independent provider of information to the Congress. There are a few people on the Hill who might not share that view, but they are a very small minority.”
That said, Elmendorf said he believes that if dynamic scoring continues to be required for major legislation, Congress needs to give the CBO and the Joint Committee on Taxation, which assesses the cost of tax bills, the authority to determine how it is applied.
He also made a point that a number of commentators on the left have raised about dynamic scoring: It is typically just applied to tax bills, but really ought to be expanded. The two agencies should also assess the effects on the economy from changes to federal spending, since it is clear that federal investment and federal spending also have a macroeconomic impact.
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Given that Elmendorf was appearing at the Peter G. Peterson* Foundation’s 2015 Fiscal Summit, the discussion eventually turned to the U.S. budget and deficits, and the former CBO director warned about dire consequences of the rising federal debt.
“Our federal budget problems are very serious ones,” he said.
Elmendorf noted that, as a share of GDP, federal debt has more than tripled in the last two generations. Harwood asked if he believes there is a debt-to-GDP ratio that would act as a sort of tipping point for the economy.
“I don’t think it’s a matter of a particular line you can’t cross,” said Elmendorf. “The consequences of higher debt, some are predictable and some are unpredictable, and both are worrisome. Higher debt in the long run reduces our capacity to do productive private investments, and that’s a drag on productivity and thus a drag on peoples’ incomes. I think that’s predictable, but quantifying it precisely is hard.”
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However, he added, “What’s unpredictable is how high debt might prevent us from reacting to future challenges – domestic economic problems, international issues.”
Coming in to the Great Recession, he said, the country’s debt-to-GDP ratio was about 35 percent. Now it’s 75 percent.
“Coming in, we had room to let debt expand,” he said. “If we enter a similar crisis with debt at 75 percent of GDP we have much less room.”
*Peter G. Peterson also funds The Fiscal Times.
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