Sunday, March 04, 2012
Dynamic Scoring and the Debt
For example, suppose Congress cuts marginal tax rates by 10%. What happens? The usual CBO practice is, more or less, to assume normal economic growth, hold everything else constant, and project what would happen -- static scoring. Of course, we know that changing tax rates changes behavior, an that this has effects on the outcome. Dynamic scoring tries to incorporate our theoretical understanding of these changes and effects. Unfortunately, in macroeconomics, our understanding is much less than perfect, making dynamic scoring an exercise in "assumptions in, assumptions out."
Currently a number of Republican politicians are advocating the use of dynamic scoring by federal authorities to evaluate tax and spending proposals...and what they have in mind is incorporating wildly wrong assertions from supply side economics. Dynamic scoring using these assumptions would almost certainly make proposals that are fiscally irresponsible appear to be reasonable -- all one has to do is assert growth effects that outweigh any negative consequences. Buckley's piece carefully dissects this dangerous nonsense.
Simon Johnson calls dynamic scoring "making the United States more like Greece," in that it would be a way to hide the extent of America's debt. I suppose proponents claim to have justification for their assumptions, and there is a modicum of truth to supply side insights, but it is hard to understand how anyone can believe strong supply side assumptions. Cutting taxes won't balance the budget. The GOP is promoting accounting fraud as a political tool.
Bruce Bartlett, former economic advisor to Ronald Reagan, makes exactly this argument in New York Times, that this is primarily a political strategy. I hasten to add that these conservative proponents are also poisoning economic science with this fraudulent nonsense (something Bartlett has argued elsewhere). This harms the case for the free market, for limited government, and for fiscal responsibility. The advocates of this smoke and mirrors accounting only pretend to be interested in the free market, limited government and fiscal responsibility -- and their nonsense makes it extremely difficult for those of us who really do care.
Buckley's piece is important. Read it!
Thanks to Simon Johnson and Tax Analysts for making Buckley's piece publicly available.