The Heritage Foundation has long pushed for dynamic scoring, going back almost 20 years to the creation of its Center for Data Analysis (CDA). This long and arduous work is starting to pay off, as an event tomorrow at Heritage will show.
Heritage has pushed for dynamic scoring because Congress has long used incomplete information when it considers bills that change fiscal policy. This is because the Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT) provide Congress with static estimates of spending and tax bills, respectively.
Static scoring does not account for macroeconomic changes caused by legislation when calculating changes to spending and revenue figures. For instance, if Congress lowers tax rates, the CBO and JCT do not consider how the resultant economic growth will affect revenue. Instead, they assume that no such increased economic activity occurs. Dynamic scoring rightfully accounts for that effect.
The CBO and JCT do consider how individuals change behaviors, such as working and saving, when tax rates fall, but do not translate those microeconomic changes into the macroeconomy or their revenue and spending estimates. But, of course, if people change their behavior because Congress lowers tax rates, that change will affect the larger economy, which will alter the amount of government revenue and spending.
Static scoring creates a bias against pro-growth policies because it makes them look more expensive from a budgetary perspective. In the budget-sensitive environment in Washington today, this means that policies that would increase the incomes of all Americans are harder to pass in Congress.
Furthermore, static scoring deprives Congress of basic information about fiscal policy changes, such as how much an improvement in tax policy would increase the size of the economy, the capital stock, employment, and other pertinent economic measures.
There is no doubt that Congress should know how changes to fiscal policy impact the economy, spending, and revenue. The technology and the know-how of modeling are advanced enough that the CBO and JCT can provide the information accurately to Congress.
Congress, working with the JCT and CBO, is finally making important strides toward dynamic scoring. The budget resolution passed by the House and Senate this year called for the JCT and CBO to include dynamic estimates of legislation that has a substantial impact on the economy (estimates are not official scores for budgetary purposes). This is an important first step toward the JCT and CBO conducting full dynamic scores.
On Wednesday, Heritage will host CBO director Keith Hall, PhD. Hall, in his first public appearance (other than congressional testimony) since becoming CBO director in April, will describe how the CBO plans to fulfill its new requirement to provide dynamic estimates.
Prior to Hall, Bill Beach, PhD, chief economist at the Senate Budget Committee, and Andy Morton, PhD, chief economist at the House Budget Committee, will discuss what the new rule asks the CBO and JCT to do. It is a homecoming for Beach, the founder of Heritage’s CDA, which he headed for many years, during which time he was the lead advocate for dynamic scoring.