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Two takeaways from the House Budget Committee’s 2016 fiscal plan: A) It is impossible and B) It is the latest example of the challenges of trying to include macroeconomic effects of tax and spending choices in budget scoring.
Let’s start with A. Like most budget resolutions, this one builds only a broad fiscal framework to be completed later by other committees. It sets several extraordinarily ambitious goals: It would cut spending by nearly $5.5 trillion over the next decade, or by about 13 percent, and balance the budget by 2025. It would rewrite the tax code, repeal the Affordable Care Act and replace it with a new unspecified health law, completely restructure Medicare, redesign Medicaid, and remake federal transportation, education, and income support programs.
Because this is a budget bill, Congress would have to do all these things in about six months, before next Sept. 30. This would be the same Congress that took five months after the beginning of the fiscal year to agree to fund one piece of one federal agency—the Department of Homeland Security.
Of course, in reality Congress won’t have to do all these things because this budget will not be adopted, not even by a Congress where the GOP holds majorities in both the House and Senate. It is not clear whether Congress will be able to approve any budget at all this year. But if it does, it assuredly won’t be this one.
There will be no broad-based tax reform, no new health law, no new Medicare or Medicaid. Congress is not going to cut spending by $5.5 trillion. Nor will it balance the budget in 10 years.
The resolution does call for a new commission to study Social Security. Congress may approve that. It likes commissions, especially on matters where all possible solutions were identified decades ago.
Now, to the scoring issue. The budget committee proudly announced that the Congressional Budget Office scored the fiscal framework in part by measuring its effects on the overall economy. This complies with rules the House adopted early this year.
According to the House budget panel, that dynamic score shows a balanced budget would boost growth enough to further cut the projected debt $147 billion over 10 years.
There are three problems with this.
First, while for most of us $147 billion in an unimaginable amount of money, it is a rounding error in budget land. It represents 0.3 percent of the $43 trillion CBO projects the federal government will spend over the next decade. It is as if someone who spends $43,000 cuts his latte budget by $147.
Second, when looking at any modeling results, it is important to remember the difference between precision and accuracy. $147 billion is a very precise number. But it is almost certainty wrong. CBO is fully transparent about this and filled its report with a herd of caveats. For instance, it said, “The projections for federal debt and economic output in this report are highly uncertain….Estimates of…economic parameters are uncertain, and analysis using different parameters can produce results that are substantially higher or lower than CBO’s central estimates.”
Finally, and most important, CBO did not actually score any specific budget plan for the simple reason that the budget committee has not written one. All CBO could do was assume the plan’s top-line spending and revenues without taking into consideration any specific policy changes.
It is truly the fiscal equivalent of the old can opener joke. You know: Two economists trapped on a desert island find a can of beans but have no way to open it. What to do? Simple: Assume a can opener.
This budget assumes a balanced budget can opener, both in its ambitious but completely unrealistic goals and in its use of dynamic scoring.
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