≡ Menu

Republicans are changing how Congress calculates the cost of bills. Here’s why that matters.

CBO director Doug Elmendorf testifies before the House Budget Committee

Current CBO director Doug Elmendorf testifies before the House Budget Committee

The thing that stood out most for us in the Republican response to the State of the Union last week was what was missing. Aside from a call for President Obama to approve the Keystone XL pipeline, Iowa Senator Joni Ernst didn’t mention a single specific policy. She criticized the Washington mindset that “gave us political talking points rather than serious solutions,” shortly before launching into… a list of political talking points:

  • “We’ll propose ideas that aim to cut wasteful spending and balance the budget.”
  • “We’ll advance solutions to prevent the kind of cyberattacks we’ve seen recently.”
  • “We’ll work to confront Iran’s nuclear ambitions.
  • “Let’s simplify America’s outdated and loophole-ridden tax code.”
  • “We must also honor America’s veterans.”

There was however, one substantive part of the speech– a quick mention of something the GOP had already done: “The new Republican majority you elected started by reforming Congress to make it function again.” It’s a vague claim, but since it supposedly already happened, it’s also something we could look into.

We found one helpful reform in the House: scholars from think tanks testifying before the House will now have to disclose whether their organizations have received money from foreign governments. And in the Senate, new majority leader Mitch McConnell has promised to allow members of both parties to offer more amendments to bills than they could under Harry Reid (although it’s not an official rule change– he could easily change his mind and clamp down on amendments when it suits him).

However, as the New York Times reports, rather than “making Congress function again,” many of its new rules are an attempt to game the system for Republicans:

One new rule allows the House to overturn recommendations of an independent panel created by the Affordable Care Act to trim Medicare costs. Another makes it more difficult to shift Social Security money between the program’s different trust funds, increasing the likelihood that deep cuts to disabled workers and their families will be made as the Disability Insurance Trust Fund nears depletion in 2016. That quickly drew condemnation from AARP, the powerful lobby for retired people.

But the most troubling examples of Republican “reforms” are those targeting the Congressional Budget Office: replacing its respected director and changing the way it estimates the costs of bills. If politics were a football game, this would be the equivalent or replacing the ref and rigging the rules to favor your team.  

Replacing the ref

The main job of the Congressional Budget Office is to “score”– i.e., provide a budget estimates for– each bill before Congress. It’s hard to overstate just how important the Number they produce is (although Ezra Klein does a fantastic job here). The more the CBO says a bill will cost, the harder it is to pass, since a bigger price tag means more taxes, cutting more spending somewhere else, or adding more to the deficit– none of which are popular.

Which is why one of the most important moments in the passage of health reform occurred before Democrats even put forth a bill, when the director of the CBO, Douglas Elmendorf, said the agency wouldn’t count premiums paid under the individual mandate as a tax. This decision was a big deal, as Klein explained at the time:

If the government says you have to purchase health insurance, and you give Aetna $50 to purchase some health insurance, the CBO has decided that you’re not, in fact, paying a $50 tax to the government. That $50 will not be included in the price tag of the health reform bill.

To us laypeople, that sounds pretty intuitive. But not so to CBO. In 1994, a pretty similar question was decided in the other direction. Robert Reischauer, then the director of the CBO, decided that the premiums that individuals were charged to purchase private insurance under Clinton’s plan would be included in the budget. This didn’t change the nature of the proposal. But it made its cost tag look huge.

Donna Shalala, Clinton’s secretary of health and human services, later termed the ruling “devastating.” And it was. It made health care reform look obscenely expensive. And the same thing could have happened this year. Rather than costing $100 billion per year or so, it could have cost a couple trillion a year. No change in the plan. Just a change in the budgetary treatment of the plan.

Republicans disagreed with Elmendorf’s call. They of course wanted Obamacare to look super expensive, and it’s one reason why some, like Grover Norquist, have argued for booting him now. However, Elmendorf has a reputation on both sides of the aisle for producing fair and credible analyses, and, as Slate’s Betsy Woodruff has pointed out, a number of other prominent conservative economists supported his reappointment. For example, Michael Strain, deputy director of the American Enterprise Institute (and no fan of the ACA: he recently penned an op-ed titled “End Obamacare and people could die. That’s ok”), defended Elmendorf in the conservative National Review, writing:

“A CBO director less dedicated to solid, mainstream, academic, non-partisan analysis could put a large dent in the quality of the CBO’s work and reputation. That would be bad, a very bad outcome indeed.”

In the end, the anti-Elmendorf side won out: Republicans will appoint a replacement for him this session. That’s partly retaliation for Obamacare, but it’s also because they need a Republican-friendly referee to take advantage of changes they’re making to the CBO’s rules for scoring bills.

Changing the rules of the game

Until now, in its official estimates of how much money a bill would cost and/or bring in, the CBO would only look any microeconomic changes (i.e. changes in behavior) that might result. So, for example, say Congress was considering a bill that would tax soda to pay for a children’s healthcare program. The CBO would note that the tax will cause some people to drink less soda, and thus bring in less money than if soda consumption stayed constant.

The new rules say that the CBO now has to use “dynamic scoring” when it estimates the budget effects of certain bills, meaning it also has to take into account macroeconomic effects (i.e., the bill’s effect on the larger economy). So, in the example of the soda tax/healthcare bill, the CBO would now also have to look at how it affects GDP and job creation. If a bill is good for the economy and creates jobs, that means more people paying taxes– the CBO would include the revenue from these taxes as a result of a good economy into its estimate for the cost of the bill, making it look cheaper.

Dynamic scoring could be useful– considering the larger economic impact of bills is a good idea– but the way the new Congress is applying it will make CBO estimates (1) more unreliable and (2) skewed to unfairly favor Republican policies.

1. Uncertainty: The CBO and other agencies already looked at the economic impact of bills when Congress asked for it, but typically they provided a range of estimates using different models, and this economic impact wasn’t included in the official scoring of a bill (aka “the Number”). That’s because, as the Center on Budget and Policy Priorities put it, there’s a “very large uncertainty involved in estimating how a piece of legislation will affect the economy.”

The editors of Newsday give a good example:

Last year the Joint Committee on Taxation produced a range of revenue estimates that a proposed tax reform plan might generate from its impact on economic growth. The estimates ranged from $50 billion to $700 billion over a decade. But the sponsor latched on to the $700-billion figure, which made the reforms seem more affordable, even though it was based on specious assumptions — like relying on a future Congress to approve spending cuts not included in his bill.

Under the new rules, the CBO will now have to come up with just one estimate for a bill’s effect on the economy to be included in the bill’s official price tag. As CBPP points out, this means Congress will now have less information on how bills will affect the economy, not more.

Also, since there will now be just one estimate of a bill’s effect on the economy, and it will be included in the CBO’s official score, the choice of a CBO director is even more important. Republicans claim tax cuts (particularly for the wealthy) can pay for themselves by growing the economy, but most evidence shows otherwise. The concern is that the GOP will pick a CBO director that places far too much weight on the economy-boosting power of tax cuts, making Republican bills look cheaper than they actually are.

2. Dynamic scoring will only apply when it favors Republican policies. While the evidence on the economic benefits of tax cuts is mixed at best, there’s plenty of evidence that spending on education and infrastructure (policies Democrats tend to favor) boosts economic growth.

However, the Republicans’ rule change excludes appropriations bills and smaller bills that affect less than 0.25% of GDP (i.e., if the cost of a bill is less than $42 billion) from dynamic scoring– and these bills are where most spending happens. The only major, non-appropriations bill this Congress will likely consider is comprehensive tax reform. In other words, the CBO will consider the economic benefits of tax cuts, but the clear economic benefits of healthcare research, helping kids pay for college, and new roads, bridges, ports, and railways will continue to be ignored. As Rep. John K Delaney (D-Maryland) put it in a Washington Post op-ed:

So tax cuts will be seen in a shiny new light, while smart investments will remain unattractive. One-half of the policy agenda will use one set of facts, while the other half will use a different set. This is intellectually dishonest, and it’s wrong.

{ 1 comment… add one }
  • John Nagle January 29, 2015, 12:21 am

    Thanks, Rob, very informative.

Leave a Comment