A Republican Failure to Reform CBO and JCT Would Be Ideological Surrender

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Fri, Dec 26 - 9:00 am EST | 3 years ago by
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    Free Radical

    Imagine you were participating for years in a high stakes contest that was consistently rigged in favor of your opponent. Specifically, the contest hinges heavily on the verdict of third-party judges that claim neutrality, but in fact choose to interpret the rules in a way that tilts the field in favor of the opposition.

    Now, image you have the opportunity to replace those judges with new ones, as well as to make their deliberations more transparent and accountable. Would you take advantage and replace the judges, even if the opposition cried foul? The answer to this question may seem obvious, but for Congressional Republicans it’s not just a hypothetical, and they are pondering once again making the stupid choice to accept the status quo.

    The organizations represented by the biased judges in this scenario are the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT), which score policy proposals and predict the impact of legislation on the economy. They’ve typically held tremendous power over what does and does not make it into law, and for years have been actively hostile to the limited government agenda.

    With current CBO Director Douglas Elmendorf’s term about to expire, Republicans not only have the power to name a better replacement, but also the opportunity to make some much needed rule changes that will ensure a fairer, more accurate, and more accountable legislative scoring system.

    The CBO was created by Congress to counter what was perceived as executive branch domination of the budget-making process. Through the executive’s own scoring via the Office of Management and Budget, Presidents presented their budget plans along with misleading or unjustifiably rosy projections about their pet initiatives, effectively subordinating Congress in an area where it was intended by the Constitution to have primary responsibility. CBO’s creation thus served to return the power of budgeting back into Congressional hands.

    This was a positive development, as Presidents have way too much power even without the ability to dictate budgets. But CBO is far from perfect. The chief complaint against the agency is that it uses simplistic models that systemically favor bigger government. And the primary complaint against JCT is the same. Specifically, they do static analysis that ignores macroeconomic changes due to raising or lowering taxes, instead of considering the dynamic impact that fiscal policy can have on economic performance.

    The economic evidence is quite clear that the dynamic approach is more accurate. While there is plenty of debate over precisely how much impact particular tax changes have, it is overwhelming understood by economists that fiscal policy – especially through taxes on savings and investment – can have profound effects on economic growth. Having CBO or JCT deny this scientific consensus is about the equivalent of having NASA deny that the Earth orbits the Sun.

    JCT is particularly bad on this point. They are responsible for revenue estimates, which fluctuate heavily depending on the state of the economy. A strong economy produces more tax revenue than a weak economy even if rates are the same. So because JCT assumes that even massive tax policy changes have no macroeconomic impact, they inevitably overestimate revenue losses from lowering tax rates and overstate gains from rate hikes.

    They take this view to absurd extremes. In 1990 when Sen. Bob Packwood asked JCT to estimate the revenue impact of a 100 percent tax on income over $100,000, they returned the ridiculous claim that it would raise $2 trillion for the government. The correct answer would have been approximately zero, because no sane person would keep working once the government was confiscating their entire paycheck.

    This is a persistent thumb on the scale toward higher taxes.

    CBO does the same thing on the spending side. They rely on Keynesian economic models that vastly overestimate the economic impact of government spending, producing a track record of high profile failures. CBO was the source, for instance, of the false prediction that the Obama stimulus would create 3 million jobs. And when asked after the fact to determine the actual impact of the stimulus, all CBO did was plug the same numbers into the same model and declare it a success, a fact which Director Elmendorf has admitted. The agency also worked with infamous Obamacare architect Jonathan Gruber to game the system to ensure the health care law received a more favorable score.

    Getting the numbers right, or wrong, is critically important in determining how Congress behaves. The other side clearly understands this, which is why they have responded aggressively to any suggestions that CBO be reformed. When Paul Ryan spoke up about the need for acknowledging economic reality in the budget scoring process, he was vilified by the usual liberal suspects.

    One common argument from the left against reform is that dynamic scoring is just too hard, or as the New York Times editorial board claimed, that estimates of macroeconomic effects are “wildly uncertain.” But as the Heritage Foundation’s Curtis Dubay quoted at a recent Congressional hearing on the topic, “It is better for estimates of tax reform to be approximately right than precisely wrong.” In other words, while it’s true that the academic literature contains disagreement on the precise degree to which taxes impact how individuals save and spend, it overwhelmingly refutes the presumption of the static model that it has no impact at all. This is simply a question of science, not politics.

    Beyond the choice of models and the systemic errors which they introduce, there are strong reasons for reforming CBO and JCT that ought to find support across the ideological and political spectrum. Namely, the agencies are shielded from scrutiny by a black box process that hides their data and methodology from the public.

    Forcing CBO and JCT to share the precise details of their models, data and methodology would allow outside groups to provide much needed competition to the scoring process. Just as competition in the market forces companies to improve their products, having numerous outside organizations not only able to score legislation as they do now, but also to directly compare their models and assumptions with the official Congressional scorekeepers, would help make it clear what CBO and JCT get right and what they get wrong. Competition will lead to a better product over time.

    Much of what CBO does is dictated by the law and the Congressional rules which govern their operation. It is up to Congress to make the necessary changes to force CBO and JCT into the light to endure the accountability of public scrutiny by reforming these rules.

    But personnel matters, too. CBO staff have for years actively resisted efforts to introduce accurate scoring through dynamic modeling. While outgoing Director Elmendorf has been better and more fair-minded than many prior Democratic appointment, he’s unquestionably a fixture of the status quo. Republicans should ignore pressure from liberals and misguided conservatives to reappoint Elmendorf and instead anoint a reformer not afraid to clean house.

    Ultimately, we should all want members of Congress to have the most accurate information available before making a decision, even when that information is inherently uncertain. When Republicans were swept into Congressional power in 1994, they failed to use their new authority to fire the old staffers and replace them with people who accepted the overwhelming consensus of the economic community. If Republicans are serious about limiting government or encouraging economic growth, they shouldn’t miss this opportunity to fix the faulty score-keeping that has long proven one of the most persistent barriers to those goals. The alternative is to spend yet another 20 years banging their collective heads against the budgetary wall of economic denial.

    Don’t miss last week’s column: The ‘Rape Culture’ Moral Panic is a Threat to Liberty.

    Brian Garst is a political scientist, commentator, and advocate for free markets and individual liberty. He also blogs at BrianGarst.com and you can find him on Twitter @BrianGarst.

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