Republicans Get A New Power Broker In Washington
The Congressional Budget Office's Keith Hall will partly control legislation
Congressional Republicans have made a wise choice in their new Congressional Budget Office director, Keith Hall.
Hall, now chief economist at the U.S. International Trade Commission, was unanimously confirmed by the Senate as Bureau of Labor Statistics commissioner in 2008. He has served as chief economist at both the White House Council of Economic Advisers and the U.S. Department of Commerce. He will replace Douglas Elmendorf, who has served since 2009.
The head of the CBO, despite the office's obscurity, is a vital position in Washington because CBO is responsible for calculating, or “scoring,” the budgetary effects of tax-and-spending proposals. If the CBO estimates that a piece of legislation loses money, that proposal is blocked under congressional procedural rules until other funds can be found to make up the gap. That gives the CBO immense power over legislation.
Unlike most influential positions in Washington, the CBO director does not require a presidential appointment or Senate confirmation. While the confirmation of an executive branch agency head, a judge, or a governor of the Federal Reserve can be stopped by a filibuster; the appointment of a CBO director cannot. With Republicans in charge of both the House and the Senate, the choice was up to Republicans alone.
Hall will hold the position for a four-year term, through 2018, which includes the first two years of the next presidency. Whether the next president is a Democrat or a Republican, the passage of his (or her) proposals will be partly controlled by Keith Hall.
Some Republicans, such as the Hoover Institution's Keith Hennessey and Harvard University professor Greg Mankiw, former chairman of the Council of Economic Advisers under George W. Bush, were encouraging congressional Republicans to reappoint the Democratic director, Douglas Elmendorf. They said that this was the only way Republicans could maintain the credibility of the CBO.
Hall certainly has credibility. As well as his quarter century of experience in different government agencies, he has testified dozens of times before Congress, and taught at five universities. The idea that no Republican-appointed economist could have credibility is ludicrous.
It is surprising that some Republicans wanted to keep Elmendorf because he was one of the key players in the passage of the Affordable Care Act. Although he first questioned the financial viability of the Affordable Care Act, Elmendorf said it would reduce the deficit, paving the way for it to pass. To help pass the ACA, the CBO gave a favorable score, essentially finding it would reduce the budget deficit. Yet former CBO Director Douglas Holtz-Eakin, a Republican appointee, using a different methodology, calculated that it would increase the deficit.
Republicans want the CBO to institute more accurate methods of scoring legislation. One term frequently used is “dynamic scoring,” which takes into account the macroeconomic effects of legislative proposals. For example, if a reduction in the capital-gains tax might bring in more revenue if it causes more people to sell assets and realize gains, then the tax cut should be scored as a revenue raiser, not a revenue loser.
Those issues are complex because Republicans and Democrats do not agree on the macroeconomic effects of legislation. Each party believes in dynamic scoring to pursue its own objectives.
For instance, Democrats see positive macroeconomic growth effects in redistributive income transfers and infrastructure construction. They argue that redistributing more money to the poor will boost the economy because poor people spend a higher fraction of their income than rich people. In contrast, Republicans want to find positive effects of lowering taxes, because they say this stimulates people's incentives to work and invest.
It will be up to Hall to provide accurate effects of scoring different bills. One place to start is by reviewing the CBO's previous scores and seeing which are accurate and which are not. It is clear that the CBO's projections of growth from the 2009 stimulus package were overblown.
Hall has written extensively on the effects of regulation on macroeconomic growth and employment, a subject often overlooked when looking at the effects of legislation. A more accurate way of scoring legislation could take some of those effects into account.
As Congress moves to pass legislation relating to tax reform, the Affordable Care Act, immigration and reining in overreach of the executive branch on environmental regulations, it is vital to have a CBO director who can steer the agency toward accurate measurement.
Take corporate-tax reform, for instance. America now has the highest corporate tax rate in the industrialized world. Any score of proposed lower corporate taxes should take into account the additional earnings that would remain in America, and flow back to America from overseas. A score that just looks at revenue lost from a lower tax would be incomplete.
As President Obama once said: “Elections have consequences.” One of those consequences is that the election's winners, the Republicans, have chosen a new CBO director.
This piece originally appeared in WSJ's Marketwatch
This piece originally appeared in WSJ's MarketWatch