On Tuesday, the 114th Congress’ term officially began with Republicans holding the majority in both chambers for the first time in eight years. After the photo ops of swearing in ceremonies with the Vice President and congressional members’ families, Congress wasted no time to get to work (something that wasn’t done much in the previous session). Most of the day was about finding co-sponsors and votes for bills that would make great press releases for constituents back home. In the House of Representatives, however, a very important new rule was passed that will change how legislation is evaluated.
The Congressional Budget Office (CBO) provides nonpartisan economic analysis on the costs for any budgets or legislation proposed by Congress. When changes in taxation are involved, the nonpartisan Joint Committee On Taxation (JCT) issues reports regarding the revenue side. These two departments work together to create projections highlighting how a change in current policy would play out in certain scenarios.
The rule passed along a straight party-line vote in the House on Tuesday changes which scenarios are used.
Traditionally, the CBO and the JCT use two kinds of forecasting models: One that projects expenditures and revenues based on current policy assumptions (called the baseline) and another based on the result of proposed legislation (called scoring). They start with the baseline and scoring projects the possible effects on the baseline.
Forecasting is all about “what-ifs.” The CBO uses what historical data is available and makes assumptions that are less speculative by incorporating known economic trends. Using that information, the JCT then takes the proposed legislation and plugs in the changes to current policy. The CBO then makes additional projections based on the JCT’s analysis. Oversimplified, the CBO looks at the big picture (macro effects) and the JCT looks at the smaller changes (micro) effects. Congress then uses the reports issued to tweak legislation if needed, as well as well as provide the necessary numbers to sell the bills or budgets to the public.
The standard practice has long been to take a somewhat simplified approach. For example, an assumption of a number of people in the workforce paying a certain amount of taxes can give the government an estimated amount of revenue. Obviously, it is impossible to be 100 percent accurate with the number, but the estimations take in certain factors based on employment trends and tax rates. From there, the government can plan their expenditures based on that projected revenue. The CBO and JCT then take a new budget or policy and make predictions accordingly.
Instead of focusing on the impact of fiscal policy based on a range of known factors, the House now requires that unknown reactions to the proposed legislation be incorporated in the analyses. This method, called dynamic scoring, incorporates the macroeconomic effects of the legislation. The CBO and JCT already do this to some extent, but present it as a range of possibilities. They also explain that they leave out many unknown scenarios due to the high level of uncertainty.
The new rule requires that the highly uncertain scenarios be included.
In a perfect world, dynamic scoring does have its benefits when the information is there. However, the more a piece of legislation differs from current policy, the more difficult it is to predict future activity. Furthermore, government planning takes a much longer term approach (generally ten years), and it becomes nearly impossible to predict what will happen that far out. Dynamic scoring requires predicting future administrations’ policies, economic conditions and social behavior.
In other words, the CBO and JCT are now required to be clairvoyant, which isn’t sound economic policy.
The Republicans are saying that they are simply requiring more information be included in the analyses. What they are failing to say is that the information is highly speculative and not based on known factors. Democrats, including the White House, have said that this is just another way to push through additional tax cuts for the ultra wealthy. This point is supported by an analysis from the Center on Budget and Policy Priorities, which says the new rule will not only provide less information, but allow Republicans to hide tax cuts which could swell the deficit.
This is much like how the Bush era tax cuts wiped out the surplus from the 1990s, creating a huge deficit, which led to the Great Recession and a period of unprecedented income inequality.
For the past several years, the CBO reports have not been friendly to Republicans, as it has shown the cost saving measures of the ACA as well as shown the Bush era tax cuts did not stimulate the economy. So, naturally, the Republicans would like to end the use of, well, facts. In addition to the rule change, there are reports that the Republican majority in the Senate does not plan to reappoint the current CBO Director. Doug Elmendorf has a history with the CBO beginning in the mid-1990s and was first appointed as director in January 2009. He has maintained the nonpartisan tradition of analyses and has been commended by both Republicans and Democrats. He has also long been opposed to using dynamic scoring.
His term ended on January 5, but will continue as director while he awaits the Senate’s decision to reappoint or replace him.