House Republicans Change Rules on Calculating Economic Impact of Bills

Source: By JONATHAN WEISMAN, New York Times • Posted: Wednesday, January 7, 2015

WASHINGTON — After the drama of electing a new speaker of the House and the changing of control in the Senate, the House on Tuesday approved an obscure but significant rule change requiring the economic effects of legislation to be included in a bill’s official cost to the Treasury.

The change on “dynamic scoring” — ardently sought since the 1990s by Republicans — could ease passage of major tax cuts by showing that their impact on economic growth would substantially reduce their cost to the Treasury. The move is widely seen as a way for Republican leaders to set ground rules for an ambitious overhaul of the entire United States tax code.

 “We’re saying, ‘If you think a piece of legislation is going to have a big effect on the economy, then include that effect in the official cost estimate,’ ” said Representative Tom Price, Republican of Georgia, the new chairman of the House Budget Committee.CreditCharles Dharapak/Associated Press 

Democrats blasted the change as “voodoo economics,” a “gamble” and “tax fraud.” Opponents said the rule change would invite politicized scorekeeping, further tilt policy to benefit the rich, and expand the budget deficit. Shaun Donovan, the White House budget director, implored the House not to “upend the level playing field that has existed for decades” and “call into question the accuracy, consistency and fairness” of congressional budget estimates.

“The basic problem remains that macroeconomic work is useful in the laboratory but not in the field,” said Edward D. Kleinbard, a law professor at the University of Southern California and a longtime chief of staff at the congressional Joint Committee on Taxation, which officially tallies the cost of tax proposals. “The models are too simplistic and the range of the possible outcomes so great that it opens the process to too much in the way of political intuitions.”

Senator Charles E. Schumer, Democrat of New York and an opponent of the change, said he expected the Senate to follow suit, although Senator Mitch McConnell of Kentucky, the new majority leader, has not unveiled his slate of rule changes yet. Even without a Senate change, the House has the authority to order the new scoring procedure.

The rule change was just one of several that passed the House on party lines, 234-172, and started the 114th Congress out on a contentious note. One change, adopted with bipartisan support, will require scholars from research organizations to disclose contributions from foreign governments to their institutions before testifying before the House.

Other changes were more partisan. 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.

“I thought we might go a day without the kind of hyperbole we’ve grown used to,” Mr. Price said of the Democrats’ responses. He called the naysaying “nonsense.”

Under the rule change, the Joint Committee on Taxation and the Congressional Budget Office will have to consider the budgetary effects of economic growth, employment, investment income and “other macroeconomic variables” when calculating the official price tag of “major legislation” — defined as any bill expected to cost at least 0.25 percent of the gross domestic product, or about $42 billion using figures from 2013.

The House Budget Committee chairman would have the discretion to declare any other tax or entitlement bill “major” and thus subject to dynamic scorekeeping. The measure would not apply to economic stimulus bills favored by Democrats, such as infrastructure or education bills paid for by spending at Congress’s annual discretion.

Proponents described the change as modest. Few bills will qualify for such scoring, and past studies of dynamic scoring have shown only limited changes to the projected costs of legislation.

“This strikes me as very sensible,” said Douglas Holtz-Eakin, a Republican and former C.B.O. director who priced the cost of a budget under President George W. Bush using a normal scoring model and one that took into account economic impacts. That exercise showed that expected growth from Mr. Bush’s proposed tax cuts would be offset by increased spending on prescription drugs for Medicare recipients.

The real impact of the change might be determined by the people crunching the numbers. Last year, when Dave Camp, the Michigan Republican who was the Ways and Means chairman before his retirement, drafted a comprehensive rewrite of the tax code, the Joint Tax Committee tried to price the plan by taking into account its impact on the economy.

One estimate suggested economic growth would shave $50 billion off its cost over 10 years, said Ed Lorenzen, a senior adviser for the Committee for a Responsible Federal Budget, a deficit watchdog group. Another estimate put the savings at $700 billion. To get that number, Mr. Lorenzen said estimators had to assume that the federal debt would remain stable against the gross domestic product. In other words, there would be undisclosed cost savings in the future.

Not surprisingly, Mr. Camp chose that estimate when he unveiled his plan.

With so much uncertainty, the importance of the new rule is likely to be determined by the next C.B.O. director, whom Republicans will appoint in the coming weeks. Emerging names range from partisan Republicans to centrists with bipartisan support.

“The hope is by choosing a particularly sympathetic C.B.O. director, the dynamic scoring as implemented will take the rosiest possible interpretations, models and assumptions to produce the most dramatic results,” Mr. Kleinbard said, expressing Democrats’ biggest fears.

Mr. Holtz-Eakin scoffed. When he moved from his role as an economist at the Bush White House to C.B.O. director, Democrats feared the worst, just as Republicans feared the appointment of Peter R. Orszag, a Democratic favorite, to the post. The office did not turn partisan in either case.

“No C.B.O. director would ever do that,” Mr. Holtz-Eakin said. “That’s at odds with any notion of history.”