Budget debate gets dynamic
On Tuesday, House Republicans passed a rule change instructing the Congressional Budget Office (CBO) to begin including "dynamic scoring" in its toolkit of methods for assessing legislation. The agency generally relies on "static scoring" to project the economic and budget effects of proposed policy changes — i.e. if a tax cut will reduce revenue by a certain amount, CBO simply projects deficits will increase by that amount and leaves it at that. Dynamic scoring attempts to include boosts to economic activity from the tax cut, which could create new tax revenue, offsetting at least some of the revenue loss in the static projection.
CBO's scoring currently includes small-scale behavioral responses to policy changes, like how individual workers and businesses may react. But how all those responses add up at the macroeconomic level — i.e. the economy as a whole, which is where budget effects play out — is the subject of massive debate among economists and policymakers. Everyone disagrees on how big the dynamic effect is, and how it might apply to different policies. So CBO has avoided using it.
Republicans are defending the change as a more "realistic" approach to policy, while critics contend it's a gambit to disguise budget-busting tax cuts. (Though as Joel Dodge pointed out at The Week, the spending programs often favored by Democrats could also get a leg up under dynamic scoring.) Finally, exactly how CBO will use dynamic scoring will be heavily influenced by the new head of the agency, whom House Republicans will pick in the coming weeks.