Daily Breeze Op-Ed: Rule change in Congress takes reality out of the budget

January 26, 2015
In The News

On the first day of the 114th Congress, the House of Representatives enacted a budgetary rule change that could radically alter our nation’s budgets.

In a party-line vote, Republicans mandated the non-partisan Congressional Budget Office (CBO) to apply “dynamic scoring” to major tax expenditures, but not to discretionary spending, such as on infrastructure or education. While many liberals oppose dynamic scoring because it can be used to justify tax cuts, this should not be a partisan issue. I believe America will get more realistic and progressive budgets if we ask for more dynamic scoring.

What is dynamic scoring and why is such scoring important?

Dynamic scoring is based on the theory that budgets should take into account second-order effects of how people react to policy changes, which in turn can result in more revenue and growth. For example, having a research and development tax credit should cause more R&D jobs to be created in America leading, ultimately, to more revenue for the budget.

The score that CBO applies to a piece of legislation will often determine if the bill dies or becomes law. A bill that is scored as being costly and increasing the federal deficit will rarely see the light of day. Conversely, a proposal that is scored as reducing the deficit stands a much better chance of becoming law.

Accounting for behavior changes resulting from governmental policy is not a partisan issue. Last year in California I worked on bipartisan legislation, signed by a Democratic governor, that significantly increased the film and TV production tax credit. Both Democrats and Republicans understood that stopping entertainment jobs from leaving would eventually result in more revenue for the government.

Some of President Obama’s tax reform proposals—including cutting taxes for middle class families in which both spouses work—are designed to encourage behavior change that results in increased job growth.

What makes the budgetary rule change partisan, however, is that Republicans cherry pick only certain parts of the budget for dynamic scoring, which results in wildly inaccurate models and a skewed view of reality. I agree with Rep. Paul Ryan, former chairman of the House Budget Committee, who stated that dynamic scoring is essentially “reality-based scoring.” But reality doesn’t just start and end with tax expenditures.

Just as a R&D tax credit creates jobs and increases growth, so does building public transit, improving our roads and highways, and ensuring our bridges our safe.

Multiple studies also show that on average, people with college degrees earn more income than those with only high school degrees. This is one reason President Obama is proposing free community college for all. Investing in education would not only increase America’s tax base; such investments have also been shown to reduce crime.

The GOP budget rule change, however, intentionally excludes all discretionary spending from dynamic scoring analysis. This is not just partisan, it is asking for intentional ignorance—a fear of too much knowledge.

The new rule has already altered the playing field for our nation’s budgets. Rather than complain about it, those who believe America should invest — rather than cut — need to field the best team possible to apply dynamic scoring analysis to the rest of the budget that CBO has been instructed to ignore. That means think tanks, economists, and nonprofits have to step up their game and start creating economic models based on the second-order effects of not just tax expenditures, but spending expenditures.

In early February, President Obama will release the administration’s budget proposal. Applying dynamic scoring across the entire federal budget would yield not only a more realistic budget, but also a more progressive budget. As the experience in Kansas shows, massive tax cuts resulted in budgetary chaos in part because the positive economic effects of spending were ignored by budget analysts and legislators. It is time to apply reality-based budget analysis to the actual reality in which we live.

Congressman Ted Lieu, D-Manhattan Beach, represents the 33rd District and is on the House Committee on the Budget.

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