Republicans change budget-math rules. A risky walk on the 'supply side'?

The House has adopted 'dynamic scoring' of legislation, which would have congressional economists base tax-revenue forecasts partly on how proposed laws might result in faster or slower economic growth.

House Republicans have adopted new rules that will either A) better gauge the economic consequences of big legislation before it’s voted on or B) distort budget math to support their preferred policy of cutting taxes.

Whichever answer proves correct, it’s now game time for something called “dynamic scoring” of legislation. The idea is that if lawmakers are considering a tax cut – or other big-ticket legislation – Congress’s bean counters should base their tax-revenue forecasts partly on how the legislation itself might result in faster or slower economic growth.

The concept sounds logical enough. If you’re going to pass a major law, it’s wise to think through its likely effects.

But it’s also controversial because, critics say, it opens the door to conservative “supply side” theories that don’t end up delivering the hoped-for results. The state of Kansas, for example, recently found itself on the losing end of hopes that tax cuts would pay for themselves by fueling economic growth.

What lies ahead, though, may be neither a new golden era for tax cuts nor the quagmire of rosy assumptions that Democrats fear.

After all, President Obama isn’t about to become a rubber stamp for Congress-passed fiscal plans. And the Republican idea of new math will be implemented by congressional economists who are charged with doing their work in a nonpartisan way.

Instead, it’s possible that the accounting shift will usher in a period of healthy debate about how to best “score” the costs of legislation, and closer tracking of whether forecasts prove valid in the crucible of experience.

Beyond the politics, the big question behind the debate is whether it’s too difficult to provide useful forecasts.

“Congressional budget analysts should not be required to produce results which they believe would compromise the technical integrity of the work they do,” cautions one report on the issue from a budget watchdog group, the Committee for a Responsible Federal Budget. But the report also says that economists’ modeling abilities have “progressed significantly” and that there are “reasonable arguments both for and against dynamic scoring.”

Congressional Budget Office (CBO) economists will be tasked with implementing the new scoring for bills that involve spending, while Congress’s Joint Committee on Taxation analyzes tax proposals.

The CBO has said the effort “requires complex modeling and a significant amount of time, so they can be produced only for major proposals and reports….”

The new Republican rules in the House (it’s not clear if the Senate will adopt a similar rule) would apply dynamic scoring only to major bills, with budget impacts greater than 0.25 percent of the nation’s gross domestic product. That’s about $45 billion at present. Not many bills exceed that size.

On Tuesday, as House Republicans were approving the new budget rules, the White House Office of Management and Budget issued a sharp critique of the move.

“While this may seem like another example of Washington ‘inside baseball’ with little impact on the American public, using dynamic scoring for official cost estimates would risk injecting bias into a broadly accepted, non-partisan scoring process that has existed for decades,” OMB Director Shaun Donovan said in a blog post. “As a result, it could allow Congress to adopt legislation that increases Federal deficits, while masking its costs.”

One risk that worries Democrats: If Republican-inspired tax cuts win approval, and then tax revenues come in lower than expected, the result could be new pressure to cut federal spending.

Mr. Donovan said the administration supports the idea of weighing the economic impacts of legislation, but that this can be done by continuing the  “current approach of providing supplementary macroeconomic analysis of major legislation.”

Both sides accuse the other of opportunistic cherry picking.

Liberals say Republicans are eager to promote tax cuts for their economic effects, but not so willing to consider the positive economic feedback of legislation like immigration reform or infrastructure investment.

Some conservatives accuse the Obama administration of the precise opposite, shunting aside evidence in favor of tax relief.

“Disregarding macroeconomic impacts of legislation is not neutral and the change by the House is a change for the better,” argues Edward Lazear, a Stanford University economist who advised Republican President George W. Bush, in The Wall Street Journal.

In the end, though, some analysts say the feedback between the economy and budget policies may be smaller than the combatants in the debate hope or fear.

Economists William Gale and Andrew Samwick, in a Brookings Institution analysis published in September, argued that tax-cut plans can often give little long-term boost to economic growth, such as in cases where the benefits to taxpayers are offset by new debt burdens for the government.