Democrats are preparing to use projected “long-term economic growth” as one of the ways to pay for their massive social spending bill, a dramatic shift from criticizing the tool as “fake math” when Republicans used it to balance tax cuts.
On Tuesday, Senate Democrats announced reaching an agreement on a go-it-alone $3.5 trillion budget reconciliation proposal framework for spending for “human infrastructure” social programs. They aim to pass the bill using special rules without the need for any Republican support, and aides to Democrats reportedly say that the bill will be paid through “healthcare savings,” new taxes, and “long-term economic growth.”
At the same time, a bipartisan infrastructure framework also uses the “macroeconomic impact of infrastructure investment” as a way to offset the new spending.
The practice, called dynamic scoring, allows consideration of changes in the economy due to a bill when evaluating its budgetary effect — making a notable shift for Democrats who previously called dynamic scoring “voodoo economics,” “fake math,” and a “gimmick.”
SENATE TO BEGIN VOTING ON MASSIVE INFRASTRUCTURE AND SOCIAL SPENDING PACKAGE NEXT WEEK
Vermont Sen. Bernie Sanders, a former critic of dynamic scoring, had an if-they-do-it-we-will response when asked about Democrats’ heart on the method.
“Well, I guess if my Republican colleagues introduced the concept, they would be enthusiastically supportive of us using it as well,” Sanders, now chairman of the Budget Committee, told the Washington Examiner on Thursday.
Accusations of counting chickens before they hatch
In 2015, the then-Republican-controlled House changed its rules to allow the Congressional Budget Office and the Joint Committee on Taxation to use dynamic scoring in assessing the budgetary effects of legislation. Republicans could then use it to bolster their argument that tax cuts would not be such a detriment to the budget because they would boost economic activity, and therefore, taxes. Democrats were opposed to the change.
That year, Sanders called dynamic scoring a “gimmick to help justify more tax cuts,” saying that it means “counting the chickens before they hatch.” Massachusetts Sen. Elizabeth Warren and New York Sen. Chuck Schumer were among those who raised objections to implementing a new Congressional Budget Office director who would use dynamic scoring to “hide the true costs of tax cuts.”
A blog post on the House Ways and Means Committee’s website called the practice “voodoo economics,” adopting a phrase that George H.W. Bush used to criticize Ronald Reagan’s economic policies. The liberal Tax Policy Center warned about the “dangers of dynamic scoring,” saying that it provides an opportunity for “wishful thinking” to take over.
The issue came up again in 2017, when Republicans pushed through the Tax Cuts and Jobs Act. Consideration of the economic effect of the bill shaved about $400 billion off the deficit impact of the bill.
“Dynamic scoring is fake math. It’s just made-up, fake math to hide another deficit-busting tax cut to benefit the wealthiest Republicans,” Schumer said in September 2017. That December, he called a Treasury analysis of the Republican tax bill “nothing more than one page of fake math.”
A dynamic shift
Years after the Congressional Budget Office started using dynamic scoring, Democrats are happy to use it when it benefits their own priorities.
“The truth is that economic policy and tax policy has an impact on revenue. Everybody knows that,” Sanders told the Washington Examiner on Thursday. “What nobody knows is exactly what it will be. And it’s a kind of nebulous concept.”
“Tax revenue substantially increased for states and for the federal government in the last number of months, and that is due for a number of factors, but one of them, you know, I think has to do with the kind of investments that we’ve made,” Sanders said.
Douglas Holtz-Eakin, president of the center-right American Action Forum and a former director of the Congressional Budget Office, said that dynamic scoring is “perfectly sensible” and that Democrats shouldn’t have criticized it in the past, but using it now is “the right thing to do” despite being “a little inconvenient politically.”
He gave a hypothetical example of how it could work: An immediate $600 billion in spending, if done well, might increase gross domestic product by $30 billion per year, which taxed at an effective rate of 20% would result in about $60 billion in tax revenue over 10 years.
Political uncertainty
The bipartisan framework, which has tentative support from some Republicans, would cost nearly $1 trillion over five years or $1.2 trillion over 10 years paid for in part by expected macroeconomic effects. A fact sheet draft from Republican Sen. Rob Portman’s office obtained by PBS’s Lisa Desjardins, when the deal was announced put the expected deal’s boost from dynamic scoring to be $58 billion, though that number is likely out of date as negotiations continue.
But Maya MacGuineas, president of the Committee for a Responsible Federal Budget, warned that dynamic scoring advocates have made “wildly exaggerated claims about what those numbers are likely to be,” and that while “they’re getting better, we still don’t have very good models to predict what the growth of policies will be.”
“Do I think we should consider dynamic scores in budgeting? Absolutely. But we shouldn’t use them as pay-fors,” she said. Any macroeconomic boost “could be banked away and help to reduce the deficit.”
The $58 billion boost from dynamic scoring cited on Portman’s fact sheet for the bipartisan infrastructure framework, Holtz-Eakin said, seems to be at the “high end” of possibilities. And he doesn’t expect the $3.5 trillion reconciliation proposal to get offset by growth.
“I think that will have negative implications on economic growth, and I don’t think they’re going to dynamically score that,” Holtz-Eakin said. “That’s all bad news. That’s much higher taxes, a big social welfare state, and bad for the economy.”
Text is not yet available for either proposal, meaning the Congressional Budget Office is far from “scoring” the bill and assessing its economic effects.
The success of the reconciliation plan will depend in large part on whether West Virginia Democratic Sen. Joe Manchin, considered the most centrist Democrat in the evenly divided Senate, can accept using dynamic scoring to ensure the proposal is paid for. He signaled support for the $3.5 trillion deal on Wednesday but said that he wants to review how it will be paid for. Without his vote, Democrats would not be able to pass the reconciliation plan.
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South Carolina Republican Sen. Lindsey Graham, the ranking member on the Budget Committee, also brought up concerns about whether the bipartisan framework is fully paid for, saying earlier this week that what is in the plan now is not enough.
“Never underestimate the ability of politicians to find a free lunch,” MacGuineas said. “I’m sure we’ll see more claims of massive dynamic scoring returns to come.”
