THE BLOG
01/05/2015 09:32 am ET Updated Mar 07, 2015

Ed Kleinbard Calls Out 'Dynamic Scoring'

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There are many strong, substantive reasons to be worried about the use of "dynamic scoring" by the new Republican Congress. As Ed Kleinbard tells it in Saturday's NYT, the new majority is instructing the official scorekeepers of the revenue implications of tax changes to employ models that incorporate macroeconomic feedback.

As I argued here, such a move engenders at least two big concerns. First, there's the uncertainty of the estimates, providing a plum opportunity for cherry picking:

Dynamic scoring calls for adding macroeconomic impacts to budget estimates. If, for example, your model of the economy is jiggered to show that cutting taxes boosts productivity, labor supply, and growth, then said growth can be tapped to offset the revenue lost by the tax cut. CBO doesn't go there, because there's insufficient evidence that such macroeconomic feedback effects can be reliably estimated (CBO does allow for some behavioral responses to tax changes, such as timing changes in realizing capital gains).

Thus, dynamic scoring that correctly reflects this uncertainty returns a range of results--that's what I mean by it gives you more numbers. For example, a dynamic score of Rep. Dave Camp's tax reform plan estimated that it would raise the level of GDP over ten years by between nothing (0.1%) and a lot (1.6%). Guess which end of that spectrum fans of his plan would choose to highlight?

Or, as Ed puts it, dynamic scoring provides us with "...greater exposure to the risk of a political thumb on the scale."

The second problem, well covered by Ed, is that the R's obviously hope that dynamic scoring will provide them the cover they need to cut taxes in ways that the current scoring approach will not (though I should note here that David Wessel disagrees-he doesn't think these scores will differ enough from current methods to provide such cover; I'm with Ed on this). That leads to larger budget deficits and since tax increases are off the table with this crowd, that means greater pressure on the spending side of the budget.

Ed:

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.

My personal opinion on all this: the change in the scoring rules is an effort to smooth the way to "tax reform" and the less we hear about "tax reform" in this Congress the better. Sure, the tax code could use some work, but the ideologies of the players involved leads me to worry that we'd be very lucky to come out of any reform efforts with revenue neutrality and more likely to lose revenue. Given the challenges we face going forward, from climate change to the aging of the population to infrastructure needs to poverty to needed human capital investments, that's an unacceptable outcome.

This post originally appeared at Jared Bernstein's On The Economy blog.