Dynamic Scoring Considered Harmful: Focus

I had always thought that dynamic scoring was a bad idea because it leads to a ratchet–Democrats when they are in power claim deficit reduction from a stronger economy if their policies are enacted , and then Republicans when they are in power claim deficit reduction from a stronger economy if they undo what the Democrats did. You have no chance of getting policy-effect forecasts that are unbiased on average if you allow the party in power to shape CBO’s estimates of macroeconomic impacts.

The vir clarissimus Robert Lynch has a good look at all the other issues in this can of worms:

Robert Lynch: Benefits and Drawbacks of Dynamic Scoring: “Dynamic scoring has theoretical advantages but practical problems that undercut its usefulness… is likely to lead to greater budgetary uncertainty and… less accurate… forecasts….

The new will apply almost exclusively to tax bills and rarely, if ever, to spending bills. The rule does not apply to spending bills that are ‘discretionary’ as opposed to ‘mandatory’ even if discretionary spending proposals exceed the 0.25 percent-of-GDP threshold. Thus, it does not apply to… regular appropriations… almost all spending or investment in infrastructure, education, health, research, science, national defense…. The House Committee on the Budget has noted that the rule would have applied to only 3 bills in the last Congress, all of which were primarily tax bills….

The theoretical advantages of dynamic scoring… run into an array of serious practical hurdles…. Dynamic scoring relies on less-than-accurate, theory-based macro models… controversial and unproven…. There are numerous studies that have tried to quantify these incentive effects in the real world and have come to contradictory conclusions about whether there are incentive or disincentive effects…. We do not know today how legislation will be financed over time, but the financing method we input into a macro model will affect the model’s prediction for future economic growth. If JCT guesses incorrectly how the tax cut will be financed in the future, then their dynamic score will necessarily be wrong even if the macro models they use are accurately constructed…. So, if we insist on dynamic scoring, which macro model, with which assumptions, will we use?…

If we are going to use dynamic scoring, at minimum it should be done in an appropriate and balanced manner…. [But] CBO and JCT do not have the time or resources to dynamically score all proposals…

February 15, 2015

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