Nel's New Day

January 13, 2015

GOP’s Return of ‘Voodoo Economics’

With Mitch McConnell the new Majority Leader in the Senate, House Speaker John Boehner (R-OH) is working overtime to prove that he can lead his congressional chamber into something other than gridlock. The first House vote was to change House rules, two important of them economically vital, with a majority of 234-172. All Democrats opposed the new rules, and only four Republicans voted nay with a couple of others voting present or no vote.

The first one will use Republican math in determining the costs of proposed measures. In publishing the cost, called a “score,” the Congressional Budget Office uses verifiable data to show what a proposal will cost, how it affects the deficit and revenues, how it shifts unemployment, etc. Republicans don’t like this method because it shows that tax cuts for the wealthy increases the deficit. To hide this information, they have changed the system to “dynamic scoring.” Using this system, they can claim that a bill costs less instead of more by using the myth that tax cuts for the wealthy will produce greater economic growth—perhaps even taking the cost of a bill down to $0. The change lets the GOP hide the fact that their legislation is actually increasing federal deficits, not lowering them.

Although infrastructure investment might even have this positive result, the rule also states that “the measure would not apply to economic stimulus bills favored by Democrats.”

The change doesn’t ask for more information; it only lets legislators use an unsubstantiated guess as a rationale for cutting tax rates more deeply or curbing tax breaks less substantially (or both) without showing that changes are adding to deficits and possibly violating key budget rules. If guesses don’t pan out, the increased deficits will drag down any possible economic growth. Congressional budget rules prohibit budget reconciliation bills from increasing deficits in future decades, a requirement that dynamic scoring could circumvent.

The GOP Senate will most likely follow the House’s example. It’s an extension of the way that George W. Bush didn’t put war costs into the budget, allowing him to drive the deficit sky high. Republicans have maintained in the past that government should be run like a business. This isn’t the way that businesses maintain their profit and loss projections. In fact, this kind of “cooking the books” is considered fraudulent—for businesses but not government.

“Dynamic scoring” is related to “voodoo economics,” that faulty belief of “trickle-down” economics that posits greater wealth at the top will move down to the poor. Former Secretary of Labor and professor of public policy at UC Berkeley Robert Reich explained the process:

“Dynamic scoring is the magical-mystery math Republicans have been pushing since they came up with supply-side “trickle-down” economics. It’s based on the belief that cutting taxes unleashes economic growth and thereby produces additional government revenue. Supposedly the added revenue more than makes up for what’s lost when Congress hands out the tax cuts.

“Dynamic scoring would make it easier to enact tax cuts for the wealthy and corporations, because the tax cuts wouldn’t look as if they increased the budget deficit. […]

“Few economic theories have been as thoroughly tested in the real world as supply-side economics, and so notoriously failed.”

Saying that he will fight the same rule change in the Senate, Sen. Bernie Sanders (I-VT) explained:

“What history shows is that when you give tax breaks to the rich and large corporations, the rich get richer, corporate profits climb and the federal deficit soars. In these difficult times, we need realistic economic projections, not discredited theories, not voodoo economics.”

Kansas is a prime example of the destruction that massive tax cuts, such as the ones made possible in the federal government with new “dynamic scoring,” brings to a jurisdiction. The state brought in $23 million in tax revenue in October less than predicted, following a similar shortfall for the previous month. Revenues came in over $300 million less than projections for 2014.

Kansas was ordered to increase its school funding by hundreds of millions of dollars because the education spending plan violated the state constitution. Legislators merely took money from underfunded schools and gave it to more extremely underfunded schools. With most states digging out of their financial crises, higher tax revenues have increased spending on education, but no so in Kansas. The student population has gone up by 19,000 since 2009, and the number of teachers in the state has gone down by 665. In the same time, the average district will spend $41,500 less for teacher training this coming year.

These disasters come after Sam Brownback (R) was first elected as governor in 2010. The elimination of taxes on a specific category of business income greatly benefited large businesses, and his tax cuts benefited wealthy Kansans far more than middle-income taxpayers while raising taxes for the poorest people. Job creation in Kansas is also much slower than neighboring states and the United States.

George W. Bush’s dramatic tax cuts on income and investment gains for the wealthiest people in 2003 give a very graphic example of the difference among former CBO projections, dynamic scoring, and reality. The conservative Heritage Foundation tried to show that budget surpluses would quickly return despite tax cuts. The graph shows how accurate their predictions were.

graphAnother new rule is that any representative can raise a point of order if the House tries to pass a bill redirecting funds between Social Security funds, a change that can affect the Social Security’s disability program. Because of aging baby boomers, there is a projection that this trust fund will be empty by late 2016. After that, payroll taxes will cover only 81 percent of the benefits. As it has done 11 times in the past, Congress could use payroll taxes from Social Security’s much larger retirement fund. The  new rule blocks such a move unless it improves Social Security’s finances, by either cutting benefits or raising taxes.

For the past several years, the CBO reports have not been friendly to Republican positions. Conservatives are angry because the CBO shows the cost-saving measures of the ACA and the fact that the Bush era tax cuts did not stimulate the economy. For that reason, the GOP wants to eliminate the use of facts in determining the effects of fiscal bills.

In all probability, the Senate GOP majority does not plan to reappoint the current CBO Director. Doug Elmendorf has a history with the CBO beginning in the mid-1990s and was first appointed as director in January 2009. He has maintained the nonpartisan tradition of analyses and has been commended by both Republicans and Democrats. He has also long been opposed to using dynamic scoring.

Michael Hiltzik of the LA Times was one of those who saw the writing on the wall for Elmendorf after the election of GOP majorities in Congress:

“The shame of the GOP’s dumping Elmendorf as the CBO’s director is that it signals the end of the CBO’s role as a sober analyst of policy and legislation. Over the years, its analyses have sometimes angered Democrats, sometimes Republicans; sober analysis is essentially nonpartisan. CBO estimates haven’t been immune from criticism by analysts outside Congress, either. But no one has claimed that its analyses aren’t well grounded or that it doesn’t arrive at its conclusions honestly. That may be about to change.”

That change is just a small part of the way that the GOP will try to continue the movement of politics to the right.

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