Recently, House Republicans have quietly made some changes to how future tax and spending laws are analyzed for their estimated costs and benefits on government budgets and the economy. This concept is referred to as "scoring". Up until these recent changes, we had been using "static scoring". Republicans would prefer "dynamic scoring".
Under static scoring, the estimated effects
of proposed spending and tax policies are based on the notion of a fixed
government pie. Think of this as more of a microeconomic analysis of how the policy might alter relative prices, change behavior, and impact sensitive populations. Static scoring does
not emphasize an estimate of the future economic pie enhancing qualities of the
change in behavior, to do so would be to use the analysis to “dynamically”
score the proposed policy. Dynamic
scoring is an attempt to estimate the future economic impacts of proposed
spending and tax policies and include those estimates into a measure of how the
future economic pie might change. Therefore, dynamic scoring relies on long term
assumptions about economic growth, interest rates, inflation, and the global
economy. Policy
changes that might suggest future increases in the economic pie might be scored
higher despite near term budget deficits or adverse impacts on sensitive populations.
Static scoring evaluates the proposed
spending or tax policy with emphasis on the government’s current budget and
looks to see if the policy is paid for with offsetting taxes or spending. Static scoring also evaluates policy based on how the economic pie is divided. The logic behind using static scoring is that
if the uncertain dynamic macroeconomic benefits of the proposed policy do not
materialize, then there is less harm done because the dynamic macro effects
were not taken into account – there was no expectation. If they do materialize, then it is a
bonus. However, the downside of static scoring is
that policy makers may be too fiscally conservative (ironic?) and the process could result
in a bias away from major policy and tax code overhauls.
To adopt dynamic scoring means that spending
and tax policy proposals and their acceptance will be influenced by uncertain
macro effects. Dynamic scoring could
also include assumptions about future changes in other policies. As one might guess, this opens up
opportunities to manipulate estimates based on preferred economic assumptions which have
the potential to be politically driven. If policy proposals are favored based
on dynamic scoring and the estimated economic benefits do not materialize, we may
be left with deficit increasing and economic pie reducing policies. Dynamic scoring puts more weight and
consequences on correctly predicting the future in a very uncertain world.
