One of the first things that the Republicans did during this term of Congress was to change the way that the Congressional Budget Office (CBO) “scored” proposed changes to the budget. The Republicans have long been upset that the CBO does not use “dynamic scoring.” This is when stimulative effects are taken into account. An example will help to explain it.
If you ask a Republican, she will very likely tell you that tax cuts pay for themselves. The proposed mechanism works as follows. If you cut taxes, the government will have less money coming in as a direct result — no one questions that. But given that people will have more money, they will spend it. This will stimulate the economy. The increased economic activity will increase tax revenues. There is no question that this does, in fact, happen: if you cut taxes by $100, it will hurt the budget by something less than $100. But no reasonable person thinks that the stimulative effect will end up with the full $100 in taxes being replaced. And the reason no reasonable person thinks this is because we have lots of experience with Republicans cutting taxes, saying it will pay for itself, and ending up with a big gaping hole in the budget.
But I’m not against dynamic scoring — as long as it is done reasonably. Part of the problem with introducing dynamic scoring in the CBO estimates is that it is hard to say exactly how much of this indirect effect will be produced. And that means that the whole thing can be politicized. But it doesn’t look like the CBO is turning into some kind of crank outfit that is going to say that cutting the top marginal tax rate to 25% would be a-okay because of stimulative effects.
But the Republicans have stacked the deck. That is clear from the CBO’s recently released report, Answers to Questions About Dynamic Analysis. You might be wondering, “If tax cuts partially pay for themselves, doesn’t government spending partially pay for itself because of its stimulative effect?” Yes it does! In fact, the mechanism is more direct. If you give out food stamps, they must be used. A tax break could just be hoarded. And in fact, some percentage of it will be. So anyone arguing for dynamic scoring who is being the least bit intellectually honest would call for the process on both taxing and spending sides of the ledger. But of course, that is not what the Republicans have instructed the CBO to do.
The CBO gives a special stimulus for tax cuts but not for extra spending. In an e-mail, Dean Baker told me that the base CBO model does include “some very modest productivity impact of public investment” — but that limited form of spending is “certainly on the low end of what research indicates.” The whole point of it is to weight the debate so that things like welfare programs look extra costly and tax cuts look extra thrifty. The whole thing is so frustrating. I really don’t mind that conservatives have different ideas on how best to create a booming economy. But this is just pure deception. And I don’t know of any liberals doing the same thing. In fact, liberals tend to under-sell their policy ideas.
But of course you won’t be hearing about any of this on the mainstream news. And I understand: it is too technical for most people. But CBO budget projections will continue to be quoted in mainstream news, as though they are the same as ever. And they won’t be the same as ever. There will now be a conservative thumb on the scale. And will be there at least as long as the Republicans control Congress.