There’s a fair amount of bunkum in accounting, but there is infinitely more of it in the black arts of economic forecasting, something to keep in mind as the Congressional Budget Office implements the “dynamic scoring” rules demanded by congressional Republicans.
There are two good reasons to embrace dynamic scoring: The first is that changes in fiscal policy really do have effects on economic growth, and, since static scoring fails to account for those effects, it inevitably produces inaccurate forecasts. The second, related problem is that the distortions associated with static scoring mostly run in the same direction, which makes the static method biased against things like tax cuts.
There are two good reasons to be skeptical of dynamic scoring: The first is that even the best economic models do a poor job of forecasting the impact of policy changes on actual economic conditions; the second reason is that we are not going to use the best models. Instead, we are going to use the models that congressional Republicans can pull up over their heads like security blankets.
The fundamental problem with the Republican approach to budgeting is that, with all due respect to such admirable men as Tom Price and Paul Ryan, Republicans have set themselves an impossible task: Balance the budget, forgo tax hikes, increase military spending, and increase spending on Social Security and Medicare. That means cutting your way to a balanced budget while saying that most of the budget has to be protected from cuts.
The House budget proposal would see Social Security spending increase from $921 billion in 2016 to $1.56 trillion in 2025; Medicare would leap from $571 billion to $916 billion; notional defense spending would jump from $523 billion to $687 billion, while non-defense discretionary spending — the “everything else” category of the federal budget — would be lower in 2017–2024 in total-dollar outlays, climbing just a hair north of its 2016 level in 2025. And even that’s complicated, because there’s more real defense spending than notional defense spending: From the Commerce Department to the Department of Energy, there are billions of dollars in military outlays outside the Pentagon budget.
Of the major domestic programs, Medicaid would be cut under the Republican budget, from $368 billion to $365 billion, and Obamacare would be zeroed out. Strangely, the revenue projections are the same as they would be with the Obamacare tax hikes; that is not because the Republican budget keeps those tax increases — about that, they are very insistent. It’s because the Republican budget enacts a very special variety of “tax reform” that produces effects identical to a “tax increase” without being a “tax increase,” while much of the pain elsewhere in the budget is offset by “macroeconomic effects.”
And that is the kind of dynamic scoring we’re getting. I grew up around stockyards, and this smells familiar.
Typically, roughly $1 of every $5 in federal spending goes to defense, $1 to Social Security, $1 to Medicare and Medicaid, another $1 to mandatory welfare spending and interest on the debt, leaving about $1 in the “everything else” category, which covers everything from the FBI to the actual operating expenses of federal courts and such national priorities as getting socially insecure monkeys high on cocaine.
“Everything else” comes to about 20 percent of spending. From 2004 to 2014, deficits amounted to, on average, about 22 percent of spending. If you put a velvet rope around 80 percent of the budget and rule out tax increases, it is going to be very, very difficult to eliminate deficits that have been running above 20 percent of spending. “Macroeconomic effects” are one way to go about not thinking too hard on that.
Instead of guessing what’s going happen to corporate tax receipts ten years hence, wait and see what actually happens — use accounting, not economic modeling.
At the same time, dynamic scoring does have its uses, and we should use it — just a little differently than how Republicans have proposed. Instead of using dynamic scoring in a forward-facing way to shape budget policy, we should use it retrospectively. Here’s what that means: Say you’ve proposed a reduction in the corporate-income tax that would, if scored statically, cut $500 billion from federal tax revenue over ten years. But the dynamic-scoring model says it would reduce revenue by only $200 billion. Use the $500 billion static number in your budget math today and then, instead of guessing what’s going happen to corporate tax receipts ten years hence, wait and see what actually happens — use accounting, not economic modeling. If indeed corporate tax receipts end up coming in higher than projected under your static model, then you have some extra money to pay down the national debt, to offset additional tax cuts, or to get a whole lot of monkeys really, really high on cocaine. You could even pass a budget rule that would sequester revenue in excess of projections and use it for deficit-reduction or tax cuts.
And what price did you pay for that? You enacted deeper offsetting spending cuts than you really had to when you passed your tax cut — that’s a win, not a loss, for budget hawks.
Not spending the money until you have it in hand is a sound conservative principle. Conservatives should give it some consideration.
— Kevin D. Williamson is National Review’s roving correspondent.