Parsing the Difference between Conventional and Dynamic Scoring

Roll Call, February 19, 2015 | Go to article overview

Parsing the Difference between Conventional and Dynamic Scoring


Parsing the Difference Between Conventional and Dynamic Scoring | Commentary

By Special to Roll Call Posted at noon on Feb. 19

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By Robert G. Lynch

The new rule adopted by the House of Representatives earlier this year requiring the use of dynamic scoring for certain types of legislation seems, at first glance, like an elegant solution to a complex budgetary issue: how to take into account the effects of proposed legislation on economic growth and the feedback effects of that growth on the budget. Yet upon close inspection, the uncertainty and biases inherent in the assumptions of the macro models that underpin dynamic scoring render the exercise largely unworkable.

Factoring in the consequences of future economic growth due to tax reform enacted in major legislation -- the essence of dynamic scoring as envisioned by the House -- makes sense in theory. So, too, does its theoretical use on the spending side of the ledger for big legislative initiatives such as public infrastructure investment, or investment in early childhood education. After all, if dynamic scoring were done across the board using agreed upon, accurate, non-partisan macroeconomic models then we would presumably have a better bead on the future costs and benefits of current legislation.

But the first problem with dynamic scoring is this: The economics profession today simply does not have the capabilities and tools it needs to do dynamic scoring well. We do not know how to accurately measure the growth effects of many policies. Current macroeconomic modeling, upon which dynamic scoring depends, is unsophisticated and inaccurate. The theoretical models are built upon less than rigorous, evidence-based assumptions. And the political biases that can be built into these models leaves them subject to easy manipulation.

Here's just one of many cases in point. Back in 2003, the Joint Committee on Taxation experimented with dynamic scoring, using three different macroeconomic models with multiple sets of assumptions to come up with five different predictions, as well as the non-dynamic conventional score, about the revenue impacts of the House version of tax cut legislation that year. Twelve years later, we know the most accurate prediction was the conventional scoring method used by both the JCT and Congressional Budget Office.

The reasons? All the macro models failed to predict the Great Recession of 2007-2009 and their dynamically scored rosy revenue estimates missed by miles the actual revenue outcomes.

Conventional scoring assumes that legislation will have no effect on economic growth, calculating only how much revenue will be lost or gained by a tax change or spending proposal, although this method does take into account many changes in individual economic behavior. …

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