In win for conservatives, CBO goes dynamic
Since the days of Jack Kemp, conservatives have pushed for “dynamic scoring” of proposed policy changes. To evaluate legislation dynamically is to consider both its costs and its benefits, taking into account macroeconomic and behavioral changes that have an impact on economic growth and government revenues.
This fight has taken place most notably over the scoring of tax cuts. The conservative Heritage Foundation points out that during the debate over the 2003 capital gains tax cut, the Congressional Budget Office (CBO) vastly under-predicted the corresponding increase in revenue. CBO’s analysis largely ignored the impact lower capital gains taxes have on investment and economic growth. If the CBO had used dynamic scoring, it would have predicted the revenue gain that ultimately materialized. Capital gains tax revenues more than doubled in the three years following the tax cut.
CBO’s static approach has been roundly criticized by conservatives, and rightly so. But it appears CBO is willing to concede the importance of dynamic scoring, at least on immigration. In a letter to Rep. Paul Ryan this week, CBO Director Douglas Elmendorf noted that immigration reform “would increase the production of goods and services and raise the gross domestic product.”
While the CBO is still calculating the impact of S.744, the immigration reform legislation currently pending in the Senate, Elmendorf pointed to CBO’s conclusion from a dynamic consideration of similar legislation in 2006. That bill, S.2611, was projected by CBO to increase GDP growth by up to 0.4 points in the near term, and up to 1.3 points in the medium term. That economic boost would have reduced the deficit by as much as $130 billion.
This makes intuitive sense. By increasing the size and flexibility of the labor force, immigration reform will make the American economy more productive. And one could argue that S.744’s shift to a more merit-based legal immigration system would increase economic growth even more dramatically than the 2006 attempt at reform would have.
The bottom line is that it is imperative that any analysis of the pending immigration reform proposal include a dynamic accounting of costs and benefits. CBO’s openness to dynamic scoring of this bill is a huge win for conservatives, as well as elected officials who expect a thorough projection of its impact on the American economy.
I hope that the forthcoming analysis of S.744 by the Heritage Foundation will be at least as dynamic and pro-growth as the pending score coming from the establishment CBO.
Josh Culling is government affairs manager for Americans for Tax Reform.