When Republicans decided not to retain Doug Elmendorf as head of the Congressional Budget Office (CBO), Democrats became concerned that conservatives would try to rig the budget process. When the GOP required the CBO to use dynamic scoring for its legislative scores, Democrats became even more concerned. Those fears have proven overblown. The new CBO chair, whom Republicans announced last week, is Keith Hall, an economist at the Mercatus Center who was the commissioner of the Bureau of Labor Statistics under President Barack Obama. He’s a credible economist, not a partisan hack.
If you still want to see the budget gamed, though, look no further than the Tax Foundation’s score of Senators Marco Rubio and Mike Lee’s tax plan. The Foundation says that under a static scoring model, which doesn’t account for macroeconomic effects of the plan, the plan would cost the federal government $414 billion annually. That’s a huge amount of money. The government collects about $3 trillion a year in tax revenue, meaning the Rubio-Lee plan would be a 12.5 percent cut, a bold but unsurprising figure. Before Lee teamed up with Rubio, he released a first draft of his tax plan that reduced government revenue by an average of $240 billion a year. The new plan has even more tax cuts.
But when the Tax Foundation applies a dynamic scoring model to estimate the revenue effects of Rubio-Lee, the findings get downright wild. The Foundation projects that once the economy adjusts to the changes, it will grow enough to generate $508 billion (in 2015 dollars) in additional revenue each year. That would leave the American taxpayer with a cool $94 billion net annual gain.
To understand why this is so ridiculous, look at the Joint Committee on Taxation’s dynamic scoring estimates for the tax plan former Representative Dave Camp released last year. (The JCT produces revenue estimates for CBO.) The JCT used eight different dynamic scoring models and provided eight different estimates. “The increase in projected economic activity is projected to increase revenues relative to the conventional revenue estimate by $50 to $700 billion, depending on which modeling assumptions are used, over the 10-year budget period,” the report concluded. Now, $700 billion is nothing to sneer at, but that’s over a ten-year period. The Tax Foundation’s dynamic scoring model raised nearly that amount of additional revenue every single year.1
Once the Foundation releases the full report Monday, Rubio and Lee will surely cite the numbers ad nauseam to gin up favorable coverage and analyses of the proposal. The Tax Foundation is giving Rubio and Lee a major political boost by producing such a friendly score.
I’m sure the Foundation's economists would disagree that they are doing the two senators a huge favor. They would say that the Rubio-Lee plan is far friendlier to economic growth than Camp’s plan was. Maybe they’re right. But it’s not that much friendlier. These numbers are far beyond any realistic estimate of Rubio-Lee’s macroeconomic effects. And it’s basically impossible to produce realistic estimates to start. “Theoretically dynamic scoring is the right thing to do,” Peter Orszag, who was director of CBO under President Barack Obama from 2007 to 2008, told me in January. “Just practically, it’s problematic. When you’re forced to pick one model, you’re pushing scientific knowledge beyond reality. You’re forcing the organization to pick one ‘true’ model when the economic science hasn’t produced a single model that works.”
Many conservative economists agree. Douglas Holtz-Eakin, a former CBO director, has frequently said that dynamic scoring isn’t a magical tool to make huge tax cuts look fiscally responsible. Greg Mankiw, who was the top economist for President George W. Bush from 2003 to 2005, recently wrote in the New York Times that while dynamic scoring is theoretically correct, “there are also good reasons to be wary of the endeavor.”
If Republicans had required that the CBO and the JCT use the Tax Foundation’s dynamic scoring model, it would have been a major problem. At least now the two parties accept the CBO’s score as legitimate. If they demand a bill to be deficit-neutral, the CBO is the final arbiter. That would all change if the Tax Foundation’s models were used. Of course, the actual likelihood of that happening was never clear. But if Republicans had required such changes, Democrats would never have trusted any score on any legislation—and rightfully so.
The two sides have enough trouble agreeing to pass anything today. It would be that much harder if they couldn’t even agree on the scores of legislation. You can understand why Democrats were so nervous as Republicans debated how to change the agencies.
This is a slightly different comparison, because JCT’s numbers come from the 10-year period while the economy adjusted to the tax plan versus the Tax Foundation’s numbers, which are from after the economy full adjusted. The difference is still stark.