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Liberals Are Overreacting to Republicans' Changes at the Congressional Budget Office

Getty Images/Chip Somodevilla

One of Republicans' first moves after they took control of both chambers of Congress was to change how the Congressional Budget Office and Congress’s Joint Committee on Taxation produce budget estimates for major pieces of legislation. If you listen to the left, Republicans have already ruined two of the last truly nonpartisan institutions in Washington.

“[The changes] would undermine the integrity of budget scorekeeping, hurt our ability to maintain fiscal discipline and lead to more financial inequality,” representatives Chris Van Hollen and Louise Slaughter, the ranking members on the House Budget Committee and House Rules Committee respectively, wrote in Politico Tuesday.

“It is possible the Republicanized CBO continues to function in some distorted form, advancing Republican legislative goals by passing off slanted analysis as impartial,” New York’s Jonathan Chait wrote Wednesday. “Or it is possible it simply loses all of its previous credibility and mutates into another partisan mouthpiece. Either way, the Republican right has struck a powerful blow against the sort of academic expert they have always loathed.”

The panic is premature. Yes, the changes have the potential to undermine CBO and JCT’s credibility, but that outcome is not guaranteed—or even likely.

In budgetary lingo, Republicans are requiring CBO and JCT to use “dynamic scoring” models, which take into account the macroeconomic impact of legislation. For instance, if CBO projects that tax cuts increase economic growth, that growth will then bring in more revenue and thus require less of a revenue increase elsewhere to keep the legislation revenue-neutral. This is how “tax cuts pay for themselves.” It also works on the spending side. If increased spending on infrastructure increases growth, that will increase revenue and require fewer offsetting spending cuts to keep the legislation deficit neutral.

CBO and JCT already produce dynamic scoring estimates right now that include an array of assumptions and produce multiple results. But policymakers need one score that legislators on both sides of the aisle accept. If they produced multiple scores, Democrats and Republicans would each pick the score most favorable to their policy preferences and it would be that much harder to pass legislation. When CBO and JCT produce that final estimate, they have, up until now, used a static scoring model—one that does not take into account the macroeconomic impact of legislation. Now, that final estimate will be produced using a dynamic model.

Taking into account how legislation affects the economy may not seem like a radical idea—and it’s not. “Theoretically dynamic scoring is the right thing to do,” said Peter Orszag, who was director of CBO under President Barack Obama from 2007 to 2008. “Just practically, it’s problematic.” That’s because it’s really hard to model the macroeconomic effects on the budget of a complex piece of legislation. “When you’re forced to pick one model, you’re pushing scientific knowledge beyond reality,” Orszag said. “You’re forcing the organization to pick one ‘true’ model when the economic science hasn’t produced a single model that works.”

However, Orszag, points out, that same critique applies to static scoring models, which are just a dynamic scoring model with an assumption of zero macroeconomic effects. But that critique is less compelling for static models, because they contain fewer variables—and more variables means more uncertainty surrounding the score. “The bigger the feedback effects relative to the static score, the more it matters obviously,” Orszag explains. “And the larger the uncertainty around the feedback effects, the more that the organization might be put under inappropriate stress to pick one parameter.”

In 2014, JCT produced both a static score estimate and eight dynamic score estimates for former Rep. Dave Camp’s tax reform plan. But those estimates varied a huge amount. By one dynamic model, his tax plan would only bring in $50 billion in extra revenue due to macroeconomic effects—a rounding error on the $40 trillion the government will collect over the next 10 years. By a different model, the plan would bring in $700 billion in additional revenue. That’s significant. You can guess which one Camp touted in press releases.

As the non-partisan scorekeepers in Washington, CBO and JCT are incredibly important to the legislative process. If Democrats and Republicans want tax reform to be revenue-neutral, CBO and JCT determine if certain plans live up to that goal. Thus, any changes to CBO and JCT’s models that heavily favor one side or the other have the potential to have a major effect on policymaking.

The key word, though, is “potential.” Just because Republicans are requiring CBO and JCT to adopt dynamic scoring, it does not mean that the institutions will choose a dynamic model most favorable to Republicans—in the case of Camp’s plan, that would be the one with $700 billion in additional revenue. What models CBO and JCT adopt will depend significantly on who leads each of them.

“I would say the risks are elevated but you can’t take what’s happened so far and conclude that disaster is upon us,” Orszag said. The key decision facing Republicans is who they appoint to head CBO, after they declined to reappoint Doug Elmendorf. Liberals are very concerned that they will appoint a partisan hack that will tarnish the institution and use models with significant uncertainty that produce results very favorable to the GOP. But that won’t necessarily happen.

“There are a number of possible Republican appointees who have strong reputations and I think would make every effort to maintain CBO’s professional independence and credibility,” said Paul Van de Water, who is currently a senior fellow at the left-leaning Center for Budget and Policy Priorities and worked at CBO for more than 18 years. Van de Water, who has written frequently about the dangers arising from dynamic scoring models, is also concerned that Republicans will appoint a new staff director to JCT that will use unrealistic models as well. “Whoever the staff director is is just as important as who the CBO director is,” he said. “Unlike the CBO director, the staff director at JCT does not have a fixed term but the director can always be replaced. We have no idea whether the JCT director will be replaced but there certainly is a lot of speculation going on about that.”

There are also a couple of signs that Republicans don’t intend to undermine CBO and JCT. They did not require the budgeteers to use a certain dynamic scoring model that is favorable to the GOP, for instance, and they did not restrict them to using dynamic scoring only for tax estimates but not spending ones. If they had done either of those things, it would have been a clear sign that Republicans intended to rig the budget scores in their favor. The heads of CBO and JCT could still choose to do that, of course, but that would quickly reveal those in charge to be partisan hacks. “If there were a CBO director that applied [dynamic scoring] only to tax cuts but not spending changes, that would be a very strong signal that this was not being done in a scientific way,” Orszag said.

In other words, liberals should be on heightened alert for different names floated for CBO director and any rumors that they intend to name a new staff director at JCT. They should carefully watch which models CBO and JCT use. But at least for the time being, it’s not time to panic.

Correction: Peter Orszag was director of CBO from 2007 to 2008, not 2009 to 2010.