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This is one of a series of TaxVox guest blogs discussing dynamic scoring.
Macroeconomic scoring, aka dynamic scoring, has been debated for years. For the 114th Congress, the House has adopted a rule to institute the procedure for major bills. But what would dynamic scoring really mean in practice?
Why would changing to dynamic scoring matter?
As the non-partisan referees of budget analysis, the Congressional Budget Office and Joint Committee on Taxation scores carry substantial influence. Their cost findings often make or break a piece of legislation and history is littered with bills that might have passed if they had not scored poorly.
Some analysts contend that dynamic scoring could significantly alter the projected cost of legislation, thereby giving a potential boost to some proposals that look more attractive when scored dynamically, while hurting the chances of those that may show larger deficit increases (or less deficit reduction).
In reality, however, this scoring change will be applied only to “major” pieces of legislation. That said, those would also be some of the most consequential – and potentially controversial – bills that Congress considers.
The House rule does not distinguish between tax and direct spending legislation – both would be subject to the same dynamic scoring rules. But the rule applies only to bills with a fiscal impact of at least 0.25 percent of Gross Domestic Product (currently about $45 billion annually). Total discretionary appropriations are controlled by aggregate spending limits and unless Congress increases those caps and significantly raises appropriations for a particular purpose (e.g., infrastructure, education, national security) the rule would not apply.
What are some of the pros and cons?
Economic growth should be a national policy objective regardless of political persuasion, and that goal should not be enslaved to a particular economic model or theory. Nonetheless, the role of CBO and JCT is to give their best advice to the ultimate decision makers, the elected representatives.
Those in favor of dynamic scoring argue that accounting for the macroeconomic effects of major legislation is essential to accurate fiscal projections. They note that many reforms enacted by Congress do impact the U.S. economy in ways that alter the budgetary effects of that legislation and that overlooking the expected macroeconomic impacts automatically biases policy against pro-growth reforms.
Critics respond that even the best macroeconomic baselines are almost always wrong, so trying to estimate the impact of a particular policy would only introduce more error into CBO’s scores and convey undue certainty about them.
The practical problem is that “pro-growth” is often in the eye of the beholder – or rather, in this case, the eyes of the staff of CBO and JCT who must craft the many difficult assumptions that are needed for “macrodynamic” estimates. Often, the economic literature is inconclusive about what those assumptions should be and thus, the resulting score can become increasingly subjective.
Another issue often omitted from dynamic scoring discussions is that while tax cuts and spending increases tend to show positive dynamic effects in the years immediately following enactment, those effects often reverse in the out-years, particularly beyond any projected budget window. Thus, policies that are shown to spur short-term growth when scored dynamically might also have the unintended (and not projected) result of limiting growth over the long term.
Is there an institutional problem caused by the House and Senate having different rules?
While the Senate has 43 standing rules, none include direct provisions related to budget scoring. However, they do specify that the Committee on the Budget has jurisdiction over matters reported under titles III and IV of the Congressional Budget Act. Title III gives the Chairman of the Budget Committee the authority to determine budget estimates. Senate rules continue from one Congress to the next and remain in effect until amended. Changes are rare in part because ending debate on a rules change requires an affirmative vote of two-thirds of all senators present and voting. Thus, it is unlikely that the full Senate will adopt the House rule. However, Budget Committee Chairman Mike Enzi has the authority to accept the House’s new dynamic scoring requirement, and is likely to do so.
G. William Hoagland is senior vice-president of the Bipartisan Policy Center. He served as the director of Budget and Appropriations for Senate Majority Leader Bill Frist and staff director of the Senate Budget Committee.
Posts and Comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.