As you’ve probably heard, the new Republican House budget uses “dynamic scoring.” In a general sense, this is a process by which budgets take into account the indirect economic effects of the government policies. So if the the government cuts taxes, people will have more money that they will spend, and that will make its merry way through the economy. Similarly, government spending cuts also works their way through the economy — in the opposite direction. I actually have no problem with this. But as I reported back in January, this is not the way things currently work, Republican Disingenuous Changes at CBO. The Republicans are using dynamic scoring when it comes to tax cuts, but they don’t use it when it comes to the negative effects of spending cuts.
But there is an even bigger problem as Josh Barro reported at The Upshot earlier this week, Tax Cuts Still Don’t Pay for Themselves. It is primarily about a study by the conservative Tax Foundation that found that, for example, tax cuts on business investments would increase business investments so much that it would generate more tax revenue that would offset the tax cuts. But it is explicitly reversed engineered to find that. The question is whether the CBO will follow in this direction.
I think it is clear from the way that the Republicans have managed things thus far that if the CBO doesn’t descend into nuttyland, Congress will force them to do so. I wrote about the new budget earlier this week, Another Ridiculous Republican Budget. In it, I focused on how Republicans want to savage the federal government’s budget without a care in the world about the negative effects on the economy. And it is pretty simple. Imagine that you cut both taxes and spending by one dollar. A dollar will be removed from the economy because of the decreased spending. But a dollar will not be added back into the economy via the tax cut. Most of it will, but some of it will be saved.[1] So even such budget decisions will hurt the economy. And this new budget is mostly spending cuts — not that much in terms of tax cuts.
The whole thing is ridiculous. Apparently, the only point of “dynamic scoring” was to allow the one overriding Republican commitment — tax cuts — to look like they don’t cost as much as they actually do. Meanwhile, they continue to claim that no amount of spending cuts will hurt the economy. I’ve noticed this sort of thing often before. And there is a name for it: theology. There’s no economics in sight.
This is the state of things. One thing that bothers me is that it is asymmetrical. I just can’t imagine the Democrats changing the CBO rules to only use dynamic scoring on spending and not on tax cuts. That’s because Democrats are still wedded to reality. The economics profession — regardless of its many other failings — accepts that both kinds of government policy affect the economy. How could it be otherwise? Yet the Republicans just see what they want to see. The question was always going to be whether the Republicans were just going to turn the CBO into a propaganda unit. But we knew the answer to that back in January when they decided to do this one-sided dynamic scoring.
Once again, my mind flashes back to an insight I had long ago: this is how great empires fall. The Republicans fully reflect the shortsighted view of the business community. And the Democrats, when they don’t share that view, are unwilling to counter them on it. Meanwhile, our infrastructure crumbles, our children fall further and further behind, and our poor just die unnecessarily. But it is a great time to be rich! And that’s all the power elite care about.
[1] If the economy were booming, the private sector for use that saved dollar. In that case, the whole example would be a wash. But clearly, the economy is not booming. And the way economic policy is run in this country, the economy is rarely booming.
