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“Dynamic Scoring Isn’t A Magical Tool”: Here’s How Conservatives Rig The Budget Game In Washington

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

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.

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.

1This 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.

 

By: Danny Vinik, The New Republic, March 5, 2015

March 6, 2015 Posted by | Conservatives, Dynamic Scoring, Federal Budget | , , , , , , , , | Leave a comment

“Making Stuff Up”: A Republican Ruse To Make Tax Cuts Look Good

As Republicans take control of Congress this month, at the top of their to-do list is changing how the government measures the impact of tax cuts on federal revenue: namely, to switch from so-called static scoring to “dynamic” scoring. While seemingly arcane, the change could have significant, negative consequences for enacting sustainable, long-term fiscal policies.

Whenever new tax legislation is proposed, the nonpartisan Congressional Budget Office “scores” it, to estimate whether the bill would raise more or less revenue than existing law would.

In preparing estimates, scorekeepers try to predict how people will respond to a new tax law. For example, if Congress contemplates raising the excise tax on cigarettes, scorekeepers consider existing trends in cigarette consumption, the likelihood that the higher taxes will induce some smokers to quit, and the prospect that higher prices will increase incentives for cigarette smuggling. There are no truly “static” revenue estimates.

These conventional estimates do not, however, include any indirect feedback effects that tax law changes might have on overall national income. In other words, they do not incorporate macroeconomic behavioral changes.

Dynamic scoring does. Proponents point out, correctly, that if a tax proposal is large enough, then those sorts of feedback effects can aim the entire economy on a slightly different path.

Such proponents argue that conventional projections are skewed against tax cuts, because they do not consider that cutting taxes could lead to higher economic output, which would make up at least some of the lost revenues. They maintain that dynamic scoring will, therefore, be both more neutral and more accurate than current methodologies.

But the reality is more complex. In order to look at the effects across the entire economy, dynamic modeling relies on many simplifying assumptions, like how well people can predict the future or how much they care about their children’s future consumption versus their own.

Economists disagree on the answers, and different models’ predicted feedback effects vary wildly, depending on the values selected for those uncertain assumptions. The resulting estimates are likely to incorporate greater uncertainty about the magnitude of any revenue-estimating errors and greater exposure to the risk of a political thumb on the scale.

Consider the nonpartisan scorekeepers’ estimates of the consequences of a tax-reform bill proposed last year by Representative Dave Camp, Republican of Michigan. Using different models and plausible inputs, the scorekeepers estimated that, under the bill, total gross domestic product might rise between 0.1 percent and 1.6 percent over the next decade — a 16-fold spread in projected outcomes. Which result should be the basis of congressional scorekeeping?

But the bigger problems lie deeper. Federal deficits are on an unsustainable path (as it happens, because of undertaxation, not excessive spending). Simply cutting taxes against the headwind of structural deficits leads to lower growth, as government borrowing soaks up an ever-increasing share of savings.

The most optimistic dynamic models get around this by assuming that the world today is in fiscal equilibrium, where the deficit does not grow continuously as a percentage of gross domestic product. But that’s not true. If you add the reality of spiraling deficits into those models, they don’t work.

To make these models work, scorekeepers must arbitrarily assume either that we tax more and spend less today than is really the case — which is what they did for the Camp bill — or assume that a tax cut today will be followed by a spending cut or tax increase tomorrow. Economists describe such a move as “making counterfactual assumptions”; the rest of us call it “making stuff up.”

In practice, these models are political statements. They show the biggest economic effects by assuming that tax cuts are financed by unspecified future spending cuts. The smaller size of government, not the tax cuts by themselves, largely drives the models’ results.

Further, the models are not a step toward more neutral revenue estimates, because they assume that, while individuals make productive investments, government does not. In reality, government spending contributes significantly to economic output. Truly dynamic modeling would weigh the forgone economic returns of government investments against the economic gains from lower taxes.

The Republicans’ interest in dynamic scoring is not the result of a million-economist march on Washington; it comes from political factions convinced that tax cuts are the panacea for all economic ills. They will use dynamic scoring to justify a tax cut that, under conventional scorekeeping, loses revenue.

When revenues do in fact decline and deficits rise, those same proponents will push for steep cuts in government insurance or investment programs, because they will claim that the models demand it. That is what lies inside the Trojan horse of dynamic scoring.

 

By: Edward D. Kleinbard, Law Professor at the University of Southern California and a former Chief of Staff of the Congressional Joint Committee on Taxation; Op-Ed Contributor, The New York Times, January 2, 2015

January 4, 2015 Posted by | Dynamic Scoring, Federal Budget, Republicans | , , , , , , , | 1 Comment

“Tax Cuts Pay For Themselves”: Behold, The Magic Kingdom Of Dynamic Scoring

While most citizens were distracted by the holidays, the enlarged Republican majority in Congress was laying golden pavers for its magical kingdom — a fabulous place where taxes are cut, military spending is not, and budgets balance effortlessly. The coat of arms reads, “Tax Cuts Pay for Themselves.”

And to think the rubble has hardly been cleared from the ruins of the most recent magical kingdom, ruled by George W. Bush. Not only did the Bush tax cuts not pay for themselves but tax revenue as a share of the economy today isn’t even close to what it was in 2000.

So how can Republican leaders restore the realm? For starters, they’ve launched a campaign to replace Doug Elmendorf, the economist overseeing the Congressional Budget Office. The CBO is the nonpartisan agency that estimates the cost of legislation.

Let it be noted that prominent conservative economists — among them Gregory Mankiw, chairman of W.’s Council of Economic Advisers — have called for Elmendorf’s reappointment. Elmendorf “is a superb economist and, over the past six years as CBO director, has shown himself to be scrupulously nonpartisan,” Mankiw said.

But nonpartisan may not be partisan enough for tax cut activists. They want the bean counters to make the numbers work for them through the powers of “dynamic scoring.”

The idea that reducing taxes could unleash new economic activity, generating new tax revenues, is not without merit. Dynamic scoring factors in those revenues. Count them, Republicans insist, and the burden of finding painful ways to pay for tax cuts is lightened. That makes tax cutting easier.

Rep. Paul Ryan, the incoming chairman of the House Ways and Means Committee, calls dynamic scoring “reality-based scoring.”

The problem is the ease with which politicians can make their own reality. Dynamic scoring is a dark art, producing wildly different estimates, depending on the choice of economic model and other assumptions. For example, some kinds of tax cuts raise more revenues than other kinds.

Another nonpartisan office, the Joint Committee on Taxation, did apply dynamic scoring to the tax reform plan submitted by retiring House Ways and Means Chairman Dave Camp. The result was eight scenarios, some considerably rosier than others. At the low end, the Camp plan would raise only $50 billion in additional revenue over 10 years. The high-end estimate was $700 billion — 14 times the low one.

Furthermore, the optimistic $700 billion figure included deficit reductions that future Congresses might make. Some of the assumed policy changes weren’t even mentioned in the Camp plan.

Bruce Bartlett, an economist in the Reagan and George H.W. Bush administrations, points to another flaw in the Republicans’ approach: the highly selective use of dynamic scoring on some elements of their proposals but not others.

“Republicans want to use dynamic scoring only for tax cuts,” Bartlett wrote me in an email. “They refuse to acknowledge that spending, such as public works spending, also has dynamic effects. They should either do it for spending and taxes or not at all.”

Bartlett added that “spending cuts can have negative dynamic effects that Republicans also never acknowledge.”

The Joint Committee on Taxation’s models are themselves problematic, according to the liberal Center on Budget and Policy Priorities. For example, they count the economic benefits of investments in new machinery but not investments in worker training. Human capital doesn’t get much attention.

But even when score makers do their darnedest, they’re working with numbers pulled from the air. So Republicans can use butterfly nets to catch those guesses that produce the conclusions they want. Bear in mind, the last time they performed their tax cut magic trick, things didn’t work out too well.

 

By: Froma Harrop, The National Memo, December 25, 2014

December 26, 2014 Posted by | Federal Budget, Republicans, Tax Cuts | , , , , , , , , | Leave a comment

“Paul Ryan’s Poor Memory Fails Him Again”: Ryan Just Doesn’t Remember Current Events Very Well

I’ve long marveled at Rep. Paul Ryan’s (R-Wis.) unusually poor memory, and his latest complaints about immigration policy suggest his recall troubles are getting worse (via Jon Chait).

“We’ve gone to the president and said, ‘Give us time to do immigration reform, to work on the issue this year. We want to get this done.’ And this is the reaction he has to that?” said Rep. Paul Ryan (R-Wis.), the 2012 vice presidential candidate. “He had two years with a super-majority of his own party, and he didn’t lift a finger. And now he won’t give us a few weeks?”

It takes a truly talented individual to pack in this many falsehoods into a single paragraph.

“Give us time to do immigration reform”? Well, Republicans have controlled the House for four years, during which time they haven’t even held so much as a hearing on a piece of legislation. More to the point, the Senate passed a popular, bipartisan immigration bill 512 days ago, and soon after, House Speaker John Boehner (R-Ohio) promised the lower chamber would act on the issue. The Republican leader then broke his word and killed the reform effort.

In other words, Obama gave Republican lawmakers “time to do immigration reform,” and the GOP did nothing. Does Ryan not remember this?

“He had two years with a super-majority of his own party”? Actually, no, Democrats had a super majority in the Senate for four months, not two years. It’s a big difference.

“He didn’t lift a finger”? Actually, Democrats tried to pass the DREAM Act, which used to be a bipartisan policy, when they controlled Congress. Republicans killed it with a filibuster.

“And now he won’t give us a few weeks?” Well, President Obama not only gave Republicans all kinds of time, he also received no guarantee – from Ryan or any other GOP leader – that another delay would lead to real legislation. So what in the world is Ryan talking about?

It gets worse. Ryan also complained this week that Obama’s decision to govern on immigration policy means Republicans won’t govern on their own priorities.

Lori Montgomery reported on Wednesday on Ryan’s plans, now that he’ll be chairing the House Ways & Means Committee.

An overhaul of the nation’s tax laws will also rank high on the agenda when Ryan (R-Wis.) takes the helm of the tax-writing panel in January.

“We’d like to do it sooner rather than later, but we don’t control everything,” Ryan said in an interview. He cited Obama’s longstanding refusal to roll out his own tax plan as well as the president’s recent decision to forge ahead with a unilateral ban on the deportation of some undocumented immigrants – a move that has inflamed Republicans.

Again, comments like these suggest Ryan just doesn’t remember current events very well. In reality, Obama presented a blueprint for tax reform and asked lawmakers to work on details that could pass both chambers. A bipartisan tax-reform plan came together, at which point, House Republicans killed it.

That’s not opinion. It’s just what happened.

Complicating matters, Ryan prefers a more right-wing version of tax reform than the one outgoing Ways & Means Chairman Dave Camp (R-Mich.) unveiled, with Ryan’s version focused primary on – you guessed it – tax breaks for the wealthy.

Chait’s conclusion rings true: “It’s just bizarre for Ryan to lament that Obama’s plans to make immigration enforcement more humane is costing him the chance to cut taxes for the rich.”

 

By: Steve Benen, The Maddow Blog, November 22, 2014

November 22, 2014 Posted by | Immigration Reform, Paul Ryan, Tax Reform | , , , , , , | Leave a comment

“The Speaker In Wonderland”: Boehner Sees Basic Current Events In The Reflection Of A Fun-House Mirror

The headline, at first blush, doesn’t seem amusing. House Speaker John Boehner’s (R-Ohio) latest op-ed – a 700-word piece for Politico – begins, “Do Your Job, Mr. President.”

It gets funnier, though, once the piece gets going. Boehner (or whoever writes these pieces for him) falsely claims, for example, to have “sent more than 40 jobs bills to the U.S. Senate.” He also claims the president “rewrote the law” by helping Dream Act kids, which isn’t at all what happened.

But the crux of the piece is about tax policy. “Our tax code, like our immigration system, is badly broken,” Boehner argues. “Because we have the highest corporate tax rate in the developed world, American companies have an incentive to relocate their headquarters overseas to lower their tax bill.”

That’s not quite right. We have a relatively high corporate tax rate, which corporations don’t actually pay thanks to holes in the tax code. President Obama has proposed cutting the rate while closing existing loopholes as part of a broader tax-reform package.

Republicans have refused, which made this part of Boehner’s op-ed plainly ridiculous, even for him.

…President Obama is hinting that he may act unilaterally in an attempt to supposedly reduce or prevent these so-called “tax inversions.” Such a move sounds politically appealing, but anything truly effective would exceed his executive authority. The president cannot simply re-write the tax code himself.

The right choice is harder. President Obama must get his allies on Capitol Hill to do their job. Senate Democrats, including Senate Majority Leader Harry Reid and Senate Finance Chairman Ron Wyden, pay lip service to tax reform, but they have utterly failed to act.

It sometimes seems as if Boehner lives in an entirely different reality – one in which the Speaker sees basic current events in the reflection of a fun-house mirror.

Let’s briefly review reality in the hopes of refreshing Boehner’s memory.

As we last discussed in February, House Republicans originally gave tax reform the special H.R. 1 designation – a symbolic bill number intended to convey its significance – with the intention of unveiling House Ways and Means Committee Chairman Dave Camp’s (R-Mich.) plan in the fall of 2013. Camp had spent three years of his life on a tax-reform overhaul, and House GOP leaders saw it as an important priority.

And then they changed their minds. In November 2013, Republicans no longer wanted to tackle the difficult task of overhauling the tax code, choosing instead to complain about “Obamacare” full-time. Shifting their attention to policy work, the party decided, would have been an unwelcome distraction.

By March 2014, House GOP leaders decided to give up on the idea altogether. Sure, GOP lawmakers could try to accomplish something on the issue, but the effort would almost certainly divide Republicans, and there was no guarantee they’d get a bill done, anyway. Worse, if they succeeded, it might offer an election-year win for President Obama, the very idea of which was a non-starter.

Asked in the spring about the substance of a tax-reform bill, Boehner said, quite literally, “Blah, blah, blah, blah.”

And now the House Speaker, who hasn’t even considered bringing the issue to the House floor, is whining in an op-ed that Democrats “pay lip service to tax reform, but they have utterly failed to act.”

This kind of chutzpah is kind of scary. Boehner seems to think we’re fools, unable to remember what he said and did just a few months ago, and unable to access Google long enough to check.

I can appreciate the Speaker’s frustration – he’s proven himself incapable of governing, and when he tries, his own members betray him – but that’s no excuse for shameless dishonesty.

“Do Your Job, Mr. President”? This from the Speaker who wants tax reform but won’t even try to pass it through his own Republican-led chamber? Which of these two leaders is failing to do his “job”?

 

By: Steve Benen, The Maddow Blog, August 11, 2014

August 12, 2014 Posted by | House Republicans, John Boehner, Tax Loopholes | , , , , , , | Leave a comment

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