Budget wonks have long battled over the use of “static” versus “dynamic” budget scoring by agencies like the Congressional Budget Office or the Joint Committee on Taxation. While these organizations do often consider how changes in policies affect “micro-economic” behavior, such as the likely increase in tax evasion under higher tax rates, they take a static approach to “macro-economic” conditions. In other words, they do not consider that certain policies might change the size and rate of growth of the economy. This type of scoring contributes to bad policy, as policymakers are not forced to consider the overall consequences of their tax and spend policies.
The good news is that President Obama has recently embraced dynamic scoring.
Making the economic case for helping the states, Mr. Obama said that if teachers and others are laid off — his education secretary, Arne Duncan, has said that without federal aid, up to 300,000 fewer teachers would be in classrooms this fall — “it will mean more costs helping these Americans look for new work, while their lost paychecks will mean less tax revenues and less demand for the products and services provided by other workers.”
He continued, “That is why the actual cost of saving state and local jobs is likely to be 20 to 40 percent below their budgetary cost.”
The flaws in his Keynesian model aside, the bad news is that his rhetorical approach is entirely selective. Outside of asking for a massive bailout for teachers unions, the President has shown no interest in using dynamic scoring when arguing other policy issues. For instance, when it comes to allowing the capital gains rate to revert to 20% when the Bush Tax Cuts expire at the end of the year, Obama isn’t likely to be caught discussing the resulting lower incomes of Americans across the board. If he were to consider dynamic scoring of the pending tax increase, according to this study by IRET, he’d find that at least 90% of the expected revenue gains from government number crunchers would be lost due to lower GDP and economic output.
