Trying to Set the Score Straight

Posted March 19, 2003 at 6:18pm

You might say Douglas Holtz-Eakin has performed the dynamic analysis of his mission as the new director of the Congressional Budget Office.

“I’m an economist, so I’m a big believer in incentives,” Holtz-Eakin said in an interview this week. “I’ve been building a professional reputation since 1980, and I have no intention of tarnishing that reputation by providing bad information to Congress. There’s a powerful incentive not to do that.”

What helps Holtz-Eakin ought to help the CBO. The new director, who has been on the job for roughly six weeks, has taken over an agency that in recent years has been swept into the rough and tumble of budget politics. As a result — and much to its dismay — CBO has found itself defending a legacy that once was considered unimpeachable: its reputation for nonpartisanship.

The process begins today, when Holtz-Eakin appears at his first Congressional hearing, in this case before the Senate Special Committee on Aging. But the new director believes the task of reaffirming the agency’s independence will require a longer-range focus on addressing the mythologies and misunderstandings that have crept into the budget process.

“The CBO really could do a lot to improve communications with the Hill,” Holtz-Eakin said, reflecting on conversations he’s had with lawmakers and the press since he arrived at the CBO. Referring to complaints about the agency from Capitol Hill, he added, “It’s all stuff that has struck me as avoidable.”

New Liaison

As a first step, Holtz-Eakin has introduced the relatively staff-spare CBO’s first Congressional liaison, appointing longtime agency analyst Edward “Sandy” Davis as his special assistant to handle relations with lawmakers and committees. Holtz-Eakin described the appointment as a “visible commitment to making sure there’s no confusion because of miscommunication.”

The misunderstandings that exist between Congress and the CBO begin with the director himself. When Holtz-Eakin was lured away from his position as senior economist on the White House Council of Economic Advisers, contemporaneous media reports pre-billed him as a devotee of “dynamic scoring.”

That’s where Holtz-Eakin sees the first problem: It is misleading to speak of dynamic “scoring,” he maintains. The more accurate expression is dynamic analysis, which would be applied to a tax or spending proposal that has already been “scored” (basically, priced).

Holtz-Eakin’s CBO will offer dynamic budget analysis for the first time next week, when the director testifies about the White House’s fiscal 2004 proposal. Basically that means that the agency will look at how President Bush’s tax and spending proposals might impact the economy.

When coupled with the traditional standard budget analysis released by the CBO two weeks ago, it will present lawmakers with a range of possible outcomes.

Holtz-Eakin stressed that the dynamic analysis is not intended as a substitute for the standard analysis — only as a complement to it. Lawmakers will make their own conclusions based on the data.

“It’s pointless for the CBO to generate a set of figures that the user doesn’t understand at times,” Holtz-Eakin said.

The CBO basically does three things: It provides baseline projections, which are 10-year outlooks, based on current law, that assume only inflation; it scores — that is, prices — tax and spending proposals; and it produces economic forecasts. Holtz-Eakin said one of his principal goals is to improve the CBO’s “receipts forecasts,” which are the agency’s revenue projections.

Budget Bemusement?

The selection of Holtz-Eakin, a Princeton-educated economist, was initially met with whispers of distrust from some Congressional Democrats, who cited Holtz-Eakin’s White House pedigree and brief tenure as a visiting fellow at the market-oriented American Enterprise Institute, a bastion of supply-side economics.

News reports from the 2000 presidential campaign linked the economist to Sen. John McCain’s (R-Ariz.) bid, though in fact Holtz-Eakin was merely a close professional associate of the Senator’s chief economic adviser, Kevin Hassett.

In person Holtz-Eakin, 48, comes across as almost the precise opposite of a capital lifer jaded by his immersion in the game. It is likely that many who meet the garrulous and slightly frenetic CBO chief will conclude that he is more precisely the opposite of his predecessor, Dan Crippen, a gruff and bearish presence who didn’t exactly lay out the welcome mat.

It’s probably a measure of Holtz-Eakin’s newness in the Washington political culture that he can still profess himself “bemused” by the partisan crosstalk over the budget.

But he also appears to recognize the dangers that such debate could bring to the CBO if the Congressional agency doesn’t actively work to address needs and correct misconceptions among lawmakers.

Bill Hoagland, a top Congressional budget expert who now serves as a senior aide to Senate Majority Leader Bill Frist (R-Tenn.), suggested that a primary concern of Holtz-Eakin’s will likely be to firm up the CBO’s reputation for nonpartisanship after years of turbulence on Capitol Hill. He said Holtz-Eakin appears to understand the need for balance in contending with Congress’ clashing ideological currents.

“I think if anything he’s approaching it in a very very professional manner,” Hoagland said.

Congressional insiders suggest that Crippen’s tenure at CBO was doomed almost from the start by poor outreach — a failure that some chalked up to the director’s natural shyness.

Indeed, within months of Crippen’s arrival at the agency, Democrats on Capitol Hill were fuming that the new director — selected by Senate Budget Chairman Pete Domenici (R-N.M.) — was skewing his analyses to assist the GOP agenda. In their frustration, they even stripped a long-awaited pay raise for the director from a legislative spending bill. By the end of his tenure, Crippen was regularly under attack from the Republican side of the aisle as well.

Holtz-Eakin presents himself as a capital outsider of sorts who has nevertheless had a longstanding wonkish fascination with the economic impact of public policy. It was that appetite that drew him to Washington in 2001 from Syracuse University, where he had chaired the economics department.

A paper delivered by Holtz-Eakin to an American Enterprise Institute conference in March 2000 sheds light on his approach —and perhaps why some Democrats are watching him warily at the outset.

Holtz-Eakin took on the question of whether the estate tax — which raised $35 billion a year in revenue at the time — has an impact on the efficiency of the U.S. economy.

Many economists believe the estate tax —begun explicitly to prevent the pooling of riches in family dynasties — produces far less “distortion” in the economy than other revenue measures because it takes from “excess” money that is not put to use.

Holtz-Eakin’s analysis, however, found that the private sector loses 2 cents for every dollar raised through the estate tax. The impact was even sharper in the highest estate-tax brackets (where the top rate was 55 percent), taking at least 10 cents from the economy for each dollar sent to the U.S. Treasury.

So while eliminating the tax might have been assumed to “cost” the government $35 billion at the time, Holtz-Eakin argued that the inefficiencies created by the tax removed billions of dollars of investment from the private sector — money that could otherwise grow the economy and generate more revenue for the federal government.

In other words, Holtz-Eakin’s analysis suggested the estate tax provided little bang for the buck and served little purpose as a revenue-raiser. That’s dynamic analysis in action.