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The Right’s Idea Of ‘Governance’

The Right’s Idea Of ‘Governance’

WASHINGTON — This will be no ordinary Congress, so there are no ordinary ways for judging how effective it will be at governing.

That is, in any event, a preposterous standard to hold up as a brand spanking new goal. Isn’t governing what Congress was supposed to be doing all along? Imagine an everyday citizen making a New Year’s resolution promising that this year, for a change, he or she would actually show up for work.

The problem for the Republicans who now control both the House and the Senate is that they are divided between their right and their far right. The number of bona fide moderates can be counted on one hand — although, if you wanted to be generous, you might get to a second hand. As a result, the Republicans’ own measures of success will be out of line not only with President Obama’s priorities, but also with what most middle-of-the-road Americans would take as reasonable tests of what it means for government to work.

House Speaker John Boehner’s battle to hang on to his job is instructive. Boehner prevailed, but 25 Republicans on the right end of his caucus opposed his re-election. These 25 almost certainly spoke for at least 40 or 50 members who think of Boehner as some sort of sellout for his occasional willingness to pass bills with Democratic votes. Because Boehner worries most about pressure from his right, his definition of where the “middle” lies will necessarily be distorted.

The notion of Boehner as a moderate is belied by the new House rules he and the Republican leadership have concocted. They’re designed to rig the legislative playing field in favor of right-leaning policy.

One example: The new rules would provide for “dynamic scoring” of tax cuts, which sounds very cool and forward looking but for the fact that their aim is to assert that tax cuts won’t cost what they’ll actually cost. This, in turn, will make it easier for the Republicans to shower money on their favored constituencies while pretending to be fiscally responsible. Dynamic scoring, the Center on Budget and Policy Priorities noted, “could facilitate congressional passage of large rate cuts in tax reform by making the rate cuts appear — on paper — less expensive than under a traditional cost estimate.”

To understand the dynamic-scoring game, imagine a formula based on the idea that because infrastructure spending boosts the economy — which it most certainly does — we should pretend that an expenditure of $100 billion is actually, say, only $80 billion. Proving that this is about ideology and not economics, as Rep. John Delaney (D-MD) pointed out this week, the Republican rule doesn’t apply dynamic scoring to discretionary spending.

For good measure, the House leadership includes another rule flatly designed to force cuts to Social Security’s disability program. If they want to debate such cuts, fine, but don’t sneak them in through the fine print.

Then there is the move by both House and Senate Republicans to change the employer mandate in the Affordable Care Act. Currently, employers with 50 or more full-time workers have to provide health insurance to employees who work 30 hours or more, or pay a fine. Republicans want to limit the mandate to Americans who work 40 hours or more. In USA Today this week, Rep. Paul Ryan (R-WI) said the purpose of the change is “so more people can work full time.”

But the truth is that the change would have exactly the opposite effect. Currently, only 7 percent of American workers put in between 30 and 34 hours a week, but 44 percent work 40 hours a week. In other words, wrote Yuval Levin, a conservative policy analyst and a foe of Obamacare, altering the law in this way “would likely put far, far more people at risk of having their hours cut than leaving it at 30 hours.” So much for more people working “full time.”

Keep in mind that all these ideas come from the Republican mainstream, the people who tell us they are interested in “governing” and being “reasonable.”

How far have the goalposts been moved in the GOP? Just because Boehner and Senate Majority Leader Mitch McConnell say they want to avoid government shutdowns and debt-ceiling hostage taking, they are to be regarded as heroes of sane policy making. But if we’ve sunk so low that this is now the test of “governance,” we are still a long way from the real thing.

E.J. Dionne’s email address is ejdionne@washpost.com. Twitter: @EJDionne.

Photo: Speaker of the House John Boehner (R-OH) answers questions during a press conference at the U.S. Capitol Jan. 7, 2015 in Washington, D.C. Boehner discussed priorities of the new U.S. Congress, and the recent attack in Paris, during his remarks. (Olivier Douliery/Abaca Press/TNS)

Behold, The Magic Kingdom Of Dynamic Scoring

Behold, The Magic Kingdom Of Dynamic Scoring

While most citizens were distracted by the holidays, the enlarged Republican majority in Congress was laying golden pavers for its magical kingdom — a fabulous place where taxes are cut, military spending is not, and budgets balance effortlessly. The coat of arms reads, “Tax Cuts Pay for Themselves.”

And to think the rubble has hardly been cleared from the ruins of the most recent magical kingdom, ruled by George W. Bush. Not only did the Bush tax cuts not pay for themselves but tax revenue as a share of the economy today isn’t even close to what it was in 2000.

So how can Republican leaders restore the realm? For starters, they’ve launched a campaign to replace Doug Elmendorf, the economist overseeing the Congressional Budget Office. The CBO is the nonpartisan agency that estimates the cost of legislation.

Let it be noted that prominent conservative economists — among them Gregory Mankiw, chairman of W.’s Council of Economic Advisers — have called for Elmendorf’s reappointment. Elmendorf “is a superb economist and, over the past six years as CBO director, has shown himself to be scrupulously nonpartisan,” Mankiw said.

But nonpartisan may not be partisan enough for tax cut activists. They want the bean counters to make the numbers work for them through the powers of “dynamic scoring.”

The idea that reducing taxes could unleash new economic activity, generating new tax revenues, is not without merit. Dynamic scoring factors in those revenues. Count them, Republicans insist, and the burden of finding painful ways to pay for tax cuts is lightened. That makes tax cutting easier.

Rep. Paul Ryan, the incoming chairman of the House Ways and Means Committee, calls dynamic scoring “reality-based scoring.”

The problem is the ease with which politicians can make their own reality. Dynamic scoring is a dark art, producing wildly different estimates, depending on the choice of economic model and other assumptions. For example, some kinds of tax cuts raise more revenues than other kinds.

Another nonpartisan office, the Joint Committee on Taxation, did apply dynamic scoring to the tax reform plan submitted by retiring House Ways and Means Chairman Dave Camp. The result was eight scenarios, some considerably rosier than others. At the low end, the Camp plan would raise only $50 billion in additional revenue over 10 years. The high-end estimate was $700 billion — 14 times the low one.

Furthermore, the optimistic $700 billion figure included deficit reductions that future Congresses might make. Some of the assumed policy changes weren’t even mentioned in the Camp plan.

Bruce Bartlett, an economist in the Reagan and George H.W. Bush administrations, points to another flaw in the Republicans’ approach: the highly selective use of dynamic scoring on some elements of their proposals but not others.

“Republicans want to use dynamic scoring only for tax cuts,” Bartlett wrote me in an email. “They refuse to acknowledge that spending, such as public works spending, also has dynamic effects. They should either do it for spending and taxes or not at all.”

Bartlett added that “spending cuts can have negative dynamic effects that Republicans also never acknowledge.”

The Joint Committee on Taxation’s models are themselves problematic, according to the liberal Center on Budget and Policy Priorities. For example, they count the economic benefits of investments in new machinery but not investments in worker training. Human capital doesn’t get much attention.

But even when score makers do their darnedest, they’re working with numbers pulled from the air. So Republicans can use butterfly nets to catch those guesses that produce the conclusions they want. Bear in mind, the last time they performed their tax cut magic trick, things didn’t work out too well.

Follow Froma Harrop on Twitter @FromaHarrop. She can be reached at fharrop@gmail.com. To find out more about Froma Harrop and read features by other Creators writers and cartoonists, visit the Creators Web page at www.creators.com.

Photo: Gage Skidmore via Flickr

Will The GOP Turn The CBO Into A Fantasy League?

Will The GOP Turn The CBO Into A Fantasy League?

News that Doug Elmendorf will not be appointed to another term as head of the Congressional Budget Office bodes ill for future budget policy discussions.

The CBO is the official non-partisan scorekeeper for all things budgetary. The soon-to-be outgoing chief of that crucial office is held in high esteem by both parties for his fair-minded neutrality.

On occasion, Elmendorf has pleased the Democrats and frustrated the Republicans, but just as frequently the tables are turned.

The CBO’s analysis of the likely 10-year effects of the Affordable Care Act is a prime example. Democrats seized on the overall deficit savings from Obamacare that came from several cost-control measures in the Act and new taxes on “Cadillac” employer-provided insurance plans. For their part, Republicans got political talking points from the estimate that the workforce would shrink when middle-aged workers left jobs they held on to as the only way to maintain their health insurance.

No matter. The (D)s could trumpet the deficit cutting, and the (R)s could say it cost jobs.

Now, if the more aggressive members of the GOP get the kind of CBO head they want, one of the bedrock principles of CBO analyses these past several decades is likely to come to an end. The phrase we hear for the new policy is “dynamic scoring,” and it opens the door for the CBO to apply unproven — some say disproven — economic theories that favor Republican policy goals.

To be sure, even the current “rules” of CBO analyses are subject to partisan gaming. For example, when a bill increases deficits too much to be acceptable in the CBO’s standard 10-year analysis, the bills are often changed to make the expensive (but popular) aspects of the bill expire early. With a wink and a nudge, the bill’s sponsors figure that Congress will extend the popular but expensive features when they are up for expiration.

It can be so rote a change that we give names to them – like the “doc fix” for Medicare. Since 2003, the formula for Medicare spending increases has included a cut in reimbursement to doctors. And seventeen times over these past 11 years, Congress has reversed those cuts in short-term bills with the generic name “doc fix.” But the law that controls Medicare spending continues to be the law, so the CBO projects future deficits based on what is in place.

Another example was the automatic sunsetting of the tax cuts put into place in 2001 and 2003. When they were originally set to expire in 2010, the country was still suffering the after-effects of the 2008 recession, so most of the cuts stayed in place. In political speak, not extending all the cuts was labeled “raising taxes.”

The latter example is especially significant if the new head of the CBO uses the dynamic scoring that radicals like Rep. Paul Ryan (R-WI) want. According to the supply-side devotees that want the new method of scoring, tax cuts always spur additional economic growth, effectively growing our way out of the revenue shortfalls that are inevitable when tax rates are cut.

Remember the discussions before the 2001 and 2003 tax cuts became law? We were told that “deficits don’t matter,” and that the economy would grow so much that there would be huge revenue increases even at the drastically lower rates. It didn’t work out that way, and the final George W. Bush budget had a $1.3 trillion deficit even with the Afghanistan and Iraq wars “off budget,” rather than the zero deficit or surplus that supply-side economic theory had predicted.

In 2005, as the 2001 and 2003 tax cuts weren’t hitting the projected lowered deficits that their sponsors expected, some members of Congress thought they just hadn’t given the economy enough tax cut medicine. So they directed the CBO to study the effects of cutting federal income tax rates by 10 percent, and to explore what would happen if they also assumed that the tax cuts would spur additional growth, as dynamic scoring fans expect from the next director of the CBO. To be clear, they weren’t talking about lowering the 25 percent tax bracket to 15 percent; just lowering the rate by 10 percent (to 22.5 percent), lowering the 35 percent rate to 31.5 percent, and so on.

In that study, the CBO came up with estimates of additional deficits of $522 billion for the first five years, and $1,035 billion over the next five years using CBO’s conventional method of scoring. Those came from the lower tax revenues without adding in any effect of boosted growth.

To project dynamic effects they worked with external consultants at Global Insights and at Macroeconomic Advisors, who were able to give the CBO estimates of additional economic activity over a five-year horizon. Longer-term effects had to be estimated by CBO staff alone.

It’s a tough job, estimating the future, and changing the rules will make it that much tougher. The CBO decided to project multiple future paths for the economy based on how taxpayers react as their rates are lowered, how Congress deals with the revenue shortfalls created by the tax cuts, and whether capital is free to move across borders or not. Across all the scenarios, the CBO estimated that there would be incremental growth in GDP, in annual amounts varying from 0.1 percent up to nearly 1 percent.

If people simply spend and save based on how much money they have in their pockets right now (what the CBO called the “no foresight” model,) the results are not encouraging. The effect was an even higher deficit than the $1.56 trillion that conventional CBO scoring predicted.

So the CBO also imagined that taxpayers would actually change their habits based on believing that Congress would bring the budget back toward balance after 10 years through spending cuts or higher tax rates. In one set of cases, they imagined that the individual taxpayers would plan according to the effects over their entire lives. In other cases, they supposed that taxpayers would actually include the effects of their spending and saving on future generations.

Can I have a show of hands for those without professionally managed multi-generational trust funds who plan over those horizons?

Under these optimistic scenarios where people plan for at least their own lifetimes, some of the trillion and a half dollars added to the national debt by the tax cuts comes back to the Treasury by virtue of the extra growth in the economy and employment. The CBO estimated that our national debt from that relatively modest tax cut would grow by only $1.1 to $1.3 trillion with those positive feedback effects from the tax cuts.

But wait! Maybe there’s a better model, taken from reality. As Governor Sam Brownback said when he pushed Kansas to make drastic tax cuts, he was using the state as his “laboratory” — and he even hired supply-side guru Art Laffer to advise.

Kansas is bordered by four states with very similar economies. They didn’t duplicate his tax cuts. What better real-world experiment could we have?

Since the Brownback/Laffer policies were put into place, the Kansas economy grew slower and unemployment dropped less than in any of the bordering states. This year, Kansas will probably finish depleting its rainy day fund, let its roads fall apart even more, close schools all over the state, and raid specific purpose funds to give them to the general fund. That’s to plug the $279 million gap in this year’s budget that’s still left after last year’s budget cuts. And the problem being pushed into next year is already expected to be more than twice as big ($648 million). So maybe the incoming head of the CBO analysis should use this real data from the real world, where tax cuts seem to make an economy grow slower than no tax cuts.

Now that’s a plan! More unemployment, slower growth, and bigger deficits.

Watch the CBO carefully after the new boss arrives. If they don’t consider the possibility that the economy might actually shrink if taxes and spending are cut, then we know that the days of being a neutral scorekeeper are over, and fantasy sports have taken over for the real players on the field.

Howard Hill is a former investment banker who created a number of groundbreaking deal structures and analytic techniques on Wall Street, and later helped manage a $100 billion portfolio. His book Finance Monsters was recently published.

Photo: University of Michigan’s Ford School via Flickr

GOP Congressional Majority Likely To Change Way It Crunches Numbers

GOP Congressional Majority Likely To Change Way It Crunches Numbers

By Jim Puzzanghera, Los Angeles Times (TNS)

WASHINGTON — The incoming Republican majority in Congress is preparing to give number-crunching a controversial twist, and the new math could make it easier for the GOP to cut taxes.

For years, leading GOP lawmakers have wanted to change the way that the nonpartisan congressional staff calculates — or, in Washington parlance, scores — the budgetary cost of changes to the tax code.

Budget scoring now is fairly straightforward: Just figure out how much more money a tax increase would produce for the Treasury or how much a tax cut would cost in lost revenue.

Republicans, however, want two key congressional offices to use complex models to try to predict the broader effect of hikes and cuts on the economy. The process is called dynamic scoring.

“I prefer to call it reality-based scoring,” Rep. Paul D. Ryan (R-WI), the incoming chairman of the tax-writing Ways and Means Committee, said in a recent speech to financial executives.

He and other Republicans said the current process fails to take into account the idea that tax cuts can increase economic growth — and therefore government revenue — by encouraging businesses and individuals to invest more.

“We can do so much more in measuring effects of tax changes,” Ryan said.

But Democrats have their own description of dynamic scoring. They call it voodoo economics, a term dating to the Reagan administration’s trickle-down economic theory in the 1980s, holding that more money for the wealthiest eventually makes its way to everybody else.

“What’s dynamic about it?” asked Rep. Sander M. Levin (D-MI), the panel’s top Democrat. “It can backfire.”

The Congressional Budget Office and the Joint Committee on Taxation produce cost estimates for legislation that typically assume the overall size of the economy and the workforce remain fixed. That provides a baseline with which to compare different types of legislation.

Dynamic scoring produces cost estimates using scientific models that take into account how the economy and workforce might change if a bill is enacted.

Democrats have strongly opposed the mechanism in congressional policymaking, saying that the methodology is unreliable and that the basic premise that tax cuts won’t increase the budget deficit is false.

There’s no consensus among economists on the arcane issue, which is fiercely debated among liberal and conservative budgetary experts.

“Those on the left, who think it’s the end of Western civilization, need to calm down,” said Douglas Holtz-Eakin, president of the conservative-leaning American Action Forum think tank and a former Congressional Budget Office director.

“And those on the right, who think it’s a magic bullet to make policymaking easier, I think are going to be sadly disappointed,” he said.

In April, the Republican-controlled House voted 224-182 in favor of a bill that would require dynamic scoring estimates on major legislation. The Democratic-controlled Senate never took it up.

But when Republicans take control of the Senate in January to go along with their strengthened House majority, they will be in a position to make the change.

By controlling both sides of Capitol Hill, they are expected to direct the Joint Committee on Taxation and the Congressional Budget Office to add dynamic scoring cost estimates to major bills.

By doing so, Republicans could advance one of their top legislative priorities: an overhaul of the business tax code.

“Tax reform has been and will continue to be a long and difficult process,” Sen. Orrin G. Hatch (R-UT), incoming chairman of the tax-writing Senate Finance Committee, said in a speech last month.

“I believe the expanded and sensible use of dynamic analysis can, if done correctly, be an important tool to help us achieve our goals,” he said.

Republicans have committed to an overhaul that would eliminate some tax breaks and reduce the corporate tax rate to 25 percent from 35 percent without increasing the budget deficit.

Using standard congressional scoring, Republicans would have to cut a host of tax breaks coveted by businesses to accomplish the goal. Dynamic scoring could alter that equation.

“At the end of the day, it may mean that you don’t have to eliminate as many loopholes as you might have thought you had to,” said Scott Hodge, president of the nonpartisan Tax Foundation.

The concept has been around for years, and Hodge said its time has come.

“I liken it to instant replay in baseball,” he said, noting Major League Baseball’s long resistance before adopting it this year.

“As people watched umpires make bad calls, they really felt they needed to give them more information to get the call right,” Hodge said. “We’re at that point with tax and budget scoring where the scorekeepers need more information to get the call right.”

The Congressional Budget Office said it takes into account some behavioral changes that could be triggered by legislation, but does not do broader dynamic scoring because “estimates of macroeconomic effects are highly uncertain.”

Still, dynamic scoring estimates have been made for some legislative proposals to provide lawmakers with additional information on top of the standard determinations of budgetary effects.

Last year, the Congressional Budget Office incorporated some dynamic scoring components into its cost estimate for the bipartisan immigration overhaul that later passed the Senate.

The office said it did so because the bill, with its path to citizenship for about 11 million people in the country illegally, would significantly increase the size of the U.S. labor force.

The CBO concluded that the legislation would reduce the budget deficit by $197 billion in its first decade and an additional $700 billion in the following decade.

Then in February, the Joint Committee on Taxation provided a dynamic estimate for a tax reform plan by outgoing Ways and Means Chairman Dave Camp (R-MI), using two different models and a variety of economic assumptions.

The estimate said the plan, which included reducing the corporate rate to 25 percent, could increase tax revenues by $50 billion to $700 billion over a decade, depending on which model is used.

Supporters of dynamic scoring point to the Camp estimate as an example of how tax cuts can increase economic growth, though the information was admittedly not precise.

“It gives us a more realistic idea of how fiscal policy changes will affect the economy,” said Curtis Dubay, a research fellow at the Heritage Foundation, a conservative think tank.

Critics said the wide range of the estimate on Camp’s proposal showed the limitations of dynamic scoring.

Edward Kleinbard, a former chief of staff to the Joint Committee on Taxation, said the process has a fatal flaw: “No person alive” can correctly predict the future path of the economy because there are too many variables.

“It’s like trying to map out the mating dance of butterflies along the side of a highway,” said Kleinbard, a USC professor of law and business. “Just when you think you’ve seen an interesting pattern, a tractor-trailer goes by and blows the butterflies away.

“There are too many big things that can happen in the economy.”

Photo: Gage Skidmore via Flickr