Let’s Have a Test Pitting ‘Dynamic’ vs. ‘Static’ Budgets

Posted February 5, 2003 at 1:31pm

The Bush administration should quit ducking and say — with dollar signs — exactly what it expects its supply-side economic policies to do for the economy and the federal budget. Who knows, the White House might be right on the money. [IMGCAP(1)]

As a matter of ideology, Bush & Co. believe that more deep tax cuts won’t ultimately reduce federal revenues and worsen deficits, but will cause the economy to boom, bring in higher revenues and restore the budget to balance.

Yet, Bush’s new budget doesn’t reflect this conviction. Instead of using “dynamic scoring,” which Republicans keep saying they favor as giving a true picture of the boosting effects of tax cuts, Bush’s budget uses traditional bookkeeping — so-called “static” scoring.

As a result, the budget shows Bush’s new tax-cut proposals and spending priorities will result in deficits totaling more than $1 trillion over the next five years.

For the first time, this Bush budget stops counting after five years, so Democrats and other Bush critics are free to calculate that over 10 years the deficit will be $2.1 trillion — an $8 trillion reversal in budget projections from just two years ago.

Citing such numbers, Senate Minority Leader Thomas Daschle (D-S.D.) calls Bush’s “the most fiscally irresponsible administration in history,” responsible for “the worst fiscal collapse in our history.”

The administration has answers to such charges — that current deficits, representing 2 percent of the gross domestic product, are far smaller than those in the 1980s, at 6 percent, and that recession, war and the stock market collapse are the main causes of the evaporation of the former surplus, not Bush’s tax cuts.

Still, despite Bush’s claims that his plan is designed to spur “jobs and growth,” economic projections accompanying his budget don’t reflect much more optimism than those of outside economists. [IMGCAP(2)]

As The Wall Street Journal reported, Bush’s Office of Management and Budget expects growth to average 3.3 percent annually between 2003 and 2008, while the Congressional Budget Office and the Blue Chip Economic Indicators consensus of private forecasters is 3.2 percent.

The Bush budget anticipates that unemployment will average 5.3 percent during that period, while the CBO and private forecasters expect 5.5 percent.

If this is truly all that can be expected of supply-side economic policies — led by new tax cuts totaling $1.3 trillion on top of Bush’s already enacted $1.6 trillion cuts — then maybe the country should turn back to demand-side Keynesianism and try to spend its way to prosperity.

In their heart of hearts, members of the Bush team expect their policies to produce better results than this. They are counting on a boom like the one that propelled President Ronald Reagan to re-election in 1984.

If so, they should make their estimates public by publishing a budget based on so-called “dynamic scoring” along with one based on “static scoring.”

The dynamic score would estimate the effects that tax cuts would have on growth, tax revenues and the budget deficit — putting numbers behind the administration’s claims.

Granted, this would open the administration up to the risk that it is relying on “rosy scenarios.” But if it published both a static and a dynamic estimate, comparisons with actual outcomes would instruct voters as to whether supply-side economics has validity.

Publishing both sets of numbers would be akin to the “A-team, B-team” exercise undertaken at the Central Intelligence Agency when Bush’s father was director, testing out competing estimates of the Soviet Union’s strategic might and intentions.

Ever since the Reagan administration, supply-side Republicans have disparaged static scoring and boosted dynamic estimates. Now is their chance to demonstrate whether the concept is valid.

Some dynamic exercises may be forthcoming from CBO under its incoming director, Douglas Holtz-Eakin, who moves over from the staff of Glenn Hubbard, chairman of Bush’s Council of Economic Advisers.

Holtz-Eakin was picked by House Budget Chairman Jim Nussle (R-Iowa), who criticized former CBO Director Dan Crippen for producing only “static” estimates.

At a Budget Committee hearing Tuesday, though, even Nussle said, “I’m not sure anyone can define ‘dynamic scoring.’”

In testimony he prepared last year that Hubbard gave to the House Ways and Means Committee, Holtz-Eakin wrote that dynamic scoring is “conceptually correct” but “fraught with difficulty” in execution.

Holtz-Eakin said he favored dynamic scoring “as a supplement to (as opposed to a substitute for) current procedures.” If the CBO starts publishing a dynamic supplement, at least it will be more informative than the White House.

In addition to publishing two budget calculations, the administration should provide two other reports — one on economic history, the other on long-range planning.

Bush allies assert that Reagan’s 1980s tax cuts not only caused the economy to grow temporarily, but also launched the productivity boom that produced the prosperity of the 1990s.

Democrats claim, of course, that President Bill Clinton’s 1993 tax increases began closing budget deficits, lowered interest rates and produced the boom.

It would be instructive if Bush’s Council of Economic Advisers would go through the old numbers and try to prove the GOP case. And if Democratic economists would produce a counter-case.

Even more important, the administration should say how it proposes to get the country started on meeting the retirement costs of the baby boom generation, estimated by the Concord Coalition at $60 trillion over 75 years.

If the Bush administration is so confident that supply-side economics works, it should put out numbers to back up its rhetoric.