Dynamic scoring at a crossroads

Bruce Bartlett
Posted: Dec 02, 2002 12:00 AM
The media continue to speculate about changes in President Bush's economic team that do not appear forthcoming. They would do better to focus on current vacancies among key congressional staffers that may be far more important than who heads the White House's National Economic Council. The first critical vacancy is that of director of the Congressional Budget Office. The current director, Dan Crippen, announced some months ago that he intended to leave that post at year's end, at the end of his four-year term. There has been an informal understanding that the appointment rotates back and forth between the House and Senate. Since Crippen was the Senate's choice, this means that the new director will be appointed by House Budget Committee Chairman Jim Nussle, R-Iowa, subject to veto by incoming Senate Budget Committee Chairman Don Nickles, R-Okla. The naming of a new CBO director has always been contentious because the position is so powerful. The Budget Act of 1974 confers upon this person enormous power because the CBO is the final and undisputed arbiter of what everything Congress wants to do costs. For years, conservatives have complained that the CBO's methodology tends to make their proposals appear more costly than liberal plans. They have sought to level the playing field by getting the CBO to use "dynamic scoring" in calculating the revenue loss attributable to tax cuts. The idea is to take into consideration the increased growth resulting from tax cuts and slower growth from tax increases. Using dynamic scoring would show that the net cost of tax cuts is less than their gross cost, while the net revenue from a tax increase would be less than its gross impact. The use of static scoring as the official method of calculating the revenue effect of tax changes has long perplexed tax cutters. In effect, it assumes that all tax changes, no matter how large, have no impact on economic growth. They feel that the system is biased in favor of tax increases and against tax cuts. Furthermore, tax cuts are biased against those that would have the biggest impact on incentives, such as cutting the capital gains tax, in favor of those with no incentive effects, such as tax rebates. Therefore, given two different tax cuts that will lose the same amount of revenue on a static basis, Congress will tend to adopt those that will have the least impact on growth. In truth, the CBO always had a lot less to do with revenue estimating than most conservatives think. The really important agency is Congress's Joint Committee on Taxation (JCT). This little-known organization was established in the 1920s to provide analysis and revenue estimates for the House Ways and Means Committee and Senate Finance Committee. In every major tax bill since, the JCT has done the heavy lifting in terms of legislative drafting and interpretation of provisions. The staff director of the JCT is one of the most powerful jobs in Washington. People in this position have been known to effectively enact or kill proposed tax laws with no less power than that exercised by Roman emperors on gladiators in the arena. It is the JCT and not the CBO that actually produces the revenue estimates used by Congress in considering tax legislation. Although efforts have been made for years to force the JCT to use dynamic scoring, it still uses static methods that assume no changes in economic growth to calculate the revenue effects of tax changes. In recent days, Lindy Paull, JCT staff director, has announced her departure from this critical position. Because she was appointed by the chairman of the Senate Finance Committee, the chairman of the House Ways and Means Committee, Bill Thomas, R-Calif., will name her replacement. As an outspoken advocate of dynamic scoring, Thomas will no doubt be looking for someone who will finally make it a reality. In practice, the CBO and JCT must work together to do a dynamic score on tax legislation. Therefore, the heads of these two agencies should not be made in isolation. In any event, support for dynamic scoring should be a litmus test for both. Crippen has openly fought the idea, while Paull has done little to incorporate it into the JCT's operations. It would be desirable for congressional advocates of tax cutting -- which Thomas and Nussle are -- to ensure that the staff who work for them share their commitment to dynamic scoring, which is really nothing more than accurate scoring, as compared to the inaccurate methods used now. They should think long and hard before making their choices to head the CBO and JCT. Their decisions may have more impact on the size and shape of future tax cuts than anything President Bush does with his economic team.