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Real Conservatives Love the CBO

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
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The Wall Street Journal is calling for the Congressional Budget Office and the Joint Committee on Taxation to be disbanded, because they are essentially liberal institutions created to serve Democrats:

The point isn’t that CBO’s economists are dishonest or part of a conspiracy. The problem is that they have been operating for decades under liberal principles embedded in Democratic legislation. As another example, thanks to the Federal Credit Reform Act of 1990, CBO must use accounting methods that even the CBO admits are bogus when evaluating federal student loans, the Export-Import Bank, and other Washington subsidy programs.

The Joint Tax Committee, for its part, scores tax bills with little regard for their impact on economic behavior in the real world. Thus it scores a tax rate increase as if taxpayers will keep doing roughly what they're doing even if their marginal rate rises to, say, 44% from 35%. Tax cuts are scored as if they will hardly change the incentives to work or invest. Recall Joint Tax’s chronic underestimates of federal revenue following the Bush tax cuts on capital of 2003.

One reason Republicans didn’t achieve more reform after taking Congress in 1994, and again after 2002, is that they didn’t either repeal or replace these institutions created to serve Democrats. The wisest course is to abolish CBO and Joint Tax and allow open debate about the tax and spending implications of policy changes. Let the politicians with the authority to make these decisions be accountable for the results.

Allow me to politely dissent: Republicans would be deeply foolish to attack these institutions. They might achieve some temporary victory by making it easier to pass a tax cut, but only by taking out checks on government overreach that do at least as much for the cause of smaller government as they do for liberals.

Consider the passage of the Medicare bill, in which the costs were absurdly underestimated, even after you adjust for inflation. In the absence of a CBO, Republicans would simply be handing more power over to institutions like the Office of Management and Budget -- in firm control of the presidency -- or to committee staffers creating their own estimates. Committee staffers are not really equipped to create such estimates; even if they have the modeling chops, they don’t have the time. And while settling the matter in open debate sounds appealing to me, as a budget nerd who would enjoy the floor show, it would make no political difference. When voters hear two parties hurling numbers at each other, they don’t sharpen a pencil and start working the arithmetic; they figure one or both parties are lying and change the channel. The net effect would be to radically empower whatever party controls Congress to generate its own politically convenient estimates.

Now, it’s true, as the Journal suggests, that this would make it easier to pass tax cuts, because Republicans could make generous use of “dynamic scoring” (evaluating the tax changes assuming a substantial effect on growth). However, when practiced responsibly, dynamic scoring is not going to make a big tax cut package free, or torpedo a huge tax hike. Whatever dynamic effects there are on growth are going to be small in the short term, which is to say, within any reasonable budget forecast window. Of course, dynamic scoring can be practiced irresponsibly. But that’s a game that Democrats can play, too, simply by assuming that any spending bill they pass promotes rapid economic growth.

Getting rid of the committee and the CBO would remove a lot of pressure to balance the budget. Now, many Republicans don’t like being pressured to balance the budget -- at least, not when that pressure prevents them from passing tax cuts. But this would also liberate Democrats to spend. And as I’ve argued before, deficit-financed government spending is a tax hike. It may not seem like one, but over the long run, that debt has to be paid, one way or another. And the way it will be paid is with tax dollars.

That’s why I say that Republicans get more out of the CBO’s restraint on spending than they lose from the restraint on tax cuts. It is those who want to keep government small who are most in need of an institution that provides a single set of reasonably consistent numbers -- because a thicket of partisan figures, produced by inconsistent methods, is a great place to hide the growing reach of the state.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Megan McArdle at mmcardle3@bloomberg.net

To contact the editor on this story:
Brooke Sample at bsample1@bloomberg.net