They don't waste time on macroeconomic effects.

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Who's Right On Dynamic Scoring? Ask Canada

Christopher Flavelle writes editorials on health care, energy and environment for Bloomberg View. He was a senior policy analyst for Bloomberg Government and chief speechwriter for the leader of the Liberal Party of Canada.
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Republicans and Democrats are once again locked in battle over whether the government should use a method known as dynamic scoring to calculate the budgetary effects of legislation. In an attempt to bridge the seemingly intractable philosophical divide, I figured the debate could use some help from a neutral arbiter. So I called Canada.

For those just joining the debate, both the Congressional Budget Office and the Joint Committee on Taxation generally employ so-called static scoring to assess tax and spending measures. This technique, largely favored by Democrats, doesn't take into account estimates of the legislation's potential effect on the size of the economy and, critics contend, its broader impact on federal revenue.

Republicans and some of their allies have periodically pushed for the agencies to provide more estimates that rely on dynamic scoring, which assesses the potential macroeconomic effects of legislation, namely the changes it could produce in economic activity and employment.

Representative Paul Ryan of Wisconsin, who will take over as chairman of the House Ways and Means Committee in January, wants the CBO and JCT to make greater use of the practice, which he calls "reality-based scoring," for tax measures. Democrats have long objected to the change, which they say would understate the actual cost of tax cuts by overestimating their impact on the economy. 

For what it's worth, the people who work for the Parliamentary Budget Officer, Canada's equivalent of the CBO and JCT, mostly agree with the Democrats. The PBO doesn't use dynamic scoring to estimate the cost of individual pieces of legislation.

Mostafa Askari, the assistant parliamentary budget officer, provided several reasons for the PBO's caution about the method.

The first is that predicting the effects of policy changes isn't as straightforward as dynamic scoring's proponents suggest, and in some cases comes down to assumptions that are a matter of belief.

"Dynamic scoring will depend on methods and methodology that are not really standard," Askari said. "You could have a wide range of views."

Another reason for Canada's decision to stick with the static method, according to Askari, is that in most cases it doesn't make that much of a difference, a conclusion many American experts share. "The assumption is there is an impact, but that impact is not significant enough to change the views of the policy," he said.

Finally, Askari said that dynamic scoring reflects an ideological agenda, derived from the belief that tax cuts always lead to growth.

"The source of this debate in the U.S. is supply-side economics," he said. "It's not an economics issue, it's a political issue."

The Parliamentary Budget Office was established in 2006  by a government run by Canada's right-of-center Conservative Party. It has authority to choose how it estimates the cost of bills, though Askari said an additional reason the PBO doesn't do dynamic scoring is that it has fewer resources than the CBO and JCT.

Nonetheless, the PBO has sometimes had to fend off political pressure. Kevin Page, who became the first parliamentary budget officer in 2008, said the Conservative government pushed him to use dynamic scoring for its tough-on-crime legislation, which included longer prison sentences. He refused.

"This upset the government, because they argued on largely ideological grounds that there were significant benefits to society," Page said in an e-mail. "We stayed out of that debate."

Page said dynamic scoring could be useful in some instances, if those conducting the studies have the independence (and the resources) to do it well -- what he called a "systematic and consistent approach."

It's debatable whether Ryan's proposal fits that description. For instance, it would mainly apply to tax measures and would prevent the CBO from considering the macroeconomic effect of major public spending bills, such as infrastructure projects or education -- an approach that Askari said made no sense. (Former Republican CBO directors have made the same argument.)

The more important test will be how the CBO and JCT would handle their new assignment. If the cost of tax bills decreases significantly, the onus will be on the scorers to show how they reached that conclusion.

But if those estimates hold up to scrutiny (and prove, over time, to be largely accurate), then the debate could finally be put to rest. Until then, the Canadian example suggests there's reason for caution.

Of course, being Canadian, the PBO would never be so blunt. "The CBO is doing a great job," Askari said. "They don't need advice from anybody else."

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:
Christopher Flavelle at cflavelle@bloomberg.net

To contact the editor on this story:
Max Berley at mberley@bloomberg.net