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For CBO, Dynamic Scoring Is the Battle of Evermore

Congress is diving deeper than ever before into dynamic scoring, in the wake of new requirements in the fiscal 2016 budget resolution.

The tax and spending framework adopted by Congress in May orders the Congressional Budget Office and the Joint Committee on Taxation to produce dynamic scores of major legislation.

Even though both have done macroeconomic analysis in the past, this will be the first time dynamic analysis is incorporated into the official legislative score for specified legislation on a consistent basis.

Several legislative proposals in the pipeline could qualify for macroeconomic analysis under the budget resolution.

“Repeal of the Affordable Care Act would definitely qualify for dynamic scoring, and there would likely be some positive dynamic effects from repeal,” said Ed Lorenzen, senior adviser to the Committee for a Responsible Federal Budget, a nonpartisan group that presses for deficit reduction. Any comprehensive tax overhaul proposal also would qualify for dynamic scoring, as would some smaller tax proposals. A plan to pay for a highway bill with revenue from the repatriation of foreign earnings might qualify, depending on how it was structured.

In contrast to standard scoring, dynamic analysis seeks to estimate how much a proposal would expand the economy or the tax base as a result of changes in labor supply or investment. It also calculates secondary “feedback effects,” or how those changes in the economy would affect the federal budget. The CBO and tax committee conduct the analysis with the help of several macroeconomic models.

Dynamic scoring remains controversial. Many Democrats object to it being incorporated in official scores because of its uncertainty. Republicans argue that macroeconomic analysis is a potentially more accurate way to measure the impact of major tax or spending proposals, which they say may create incentives to work or invest.

Vermont Independent Bernard Sanders, the ranking member on the Senate Budget Committee, criticized the dynamic scoring requirements of the budget resolution during a recent hearing.

“I would like to be clear that several of these new requirements, I believe, are nothing more than a back-handed way to make it easier to cut taxes for those who are benefiting greatly over the past several years, and to make it harder to assist those who have not,” he said.

Shifting Resources

Even advocates of dynamic scoring acknowledge it is challenging and difficult to do. But some also say the greater focus on the practice will contribute to more sophisticated and improved analysis.

CBO Director Keith Hall told the Senate Budget Committee his agency already has shifted resources to strengthen its ability to conduct macroeconomic analysis, and is hiring additional analysts for the task.

Hall said one of his priorities is to make dynamic scoring more transparent to lawmakers, economists and the public.

“With respect to something like dynamic scoring, CBO’s already been using dynamic scoring,” Hall said. “You can sort of see how it’s been implemented. But that’s a big part, to me, of transparency, is making clear how we’re going to do the dynamic scoring, what models we’re going to use, what estimates we’re going to use.”

Hall said the agency will “offer ourselves up to criticism and comments if we’re not doing a fair job.” He added that the CBO would produce macroeconomic analysis “in a way that represents sort of the state of economic science” and seek consensus in doing so.

Under the definition in the budget resolution, the CBO and tax committee are required to produce a dynamic score of any spending or revenue proposal that would have a budgetary effect, such as a change in revenue, spending or the deficit, equal to at least 0.25 percent of projected gross domestic product in a year. If the GDP were, say, $18 trillion, the legislation would have to show, through initial standard scoring, a budgetary effect of $45 billion.

The agencies also are required, to the extent practicable, to prepare a “qualitative” assessment of the dynamic effects of legislation for the 20-year period following the budget period, which is typically the 10 years covered by the budget resolution.

The budget resolution offers additional guidance to the agencies, saying the committees intend that discrete provisions within a bill also can qualify for macroeconomic analysis even if the legislation as a whole does not equal or exceed the threshold.

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