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Commentary By Charles Blahous

Should Congress Change CBO's Scorekeeping Rules?

Economics Tax & Budget

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On Monday I participated in a constructive debate with Jared Bernstein, sponsored by e21, about my paper, “The Fiscal Consequences of the Affordable Care Act.” For those unfamiliar with my paper, it shows that the enactment of 2010’s health care law will add more than $340 billion to federal deficits over the next ten years, an adverse fiscal consequence disguised by Congress’s current scorekeeping conventions.

Without getting too far into the weeds, the main scorekeeping issue involves the treatment of Medicare. Social Security and Medicare are financed under law from special trust funds and are only permitted to pay benefits to the extent they have resources in those trust funds. The scorekeeping conventions currently in use ignore these constraints. They instead implicitly assume that all financing discipline imposed by the trust funds under current law will be overridden by future Congresses.

Relative to this hypothetical scenario, the 2010 health law would indeed produce lower deficits. That scenario, however, does not represent prior law nor does it reflect prior historical practice. Relative to actual law and to how lawmakers have operated these programs to date, the health care law will substantially worsen federal deficits.

During the question period after the debate, AEI economist Alan Viard challenged me as to whether and how I thought these scorekeeping rules should change. I gave essentially the same answer I’d given in my paper, which is that I thought the scoring rules made sense for most policy evaluation purposes, but they simply had a drawback in the particular case of the ACA. I wasn’t seeking to change them, only to inform the public of fiscal effects that they miss.

Here’s how I put it in the paper:

“There are many reasons the CBO’s and trustees’ scoring convention is appropriate in many circumstances. Among these reasons is that without it, policymakers would not receive appropriate credit for tough choices made to correct the fis­cal imbalances of Social Security and Medicare and would thus be less likely to make them. . . Without the usual scoring convention, both CBO and the trustees would effectively assume that the program’s imbalance vanishes by itself as a result of benefit cuts upon Trust Fund depletion.”

I am now, however, reconsidering this position. The position I outlined in the ACA paper reflects my primary objective of explaining scorekeeping rules rather than criticizing them. But I am now coming around to the view that Congress should give serious consideration to changing the scorekeeping rules under which CBO operates, to reflect literal law for Social Security and Medicare in the same way usually applied elsewhere in the federal budget. Here’s why.

1) The current rules are internally inconsistent. They oblige CBO to take a literal view of current law in some areas but not in others. These inconsistencies are not justifiable based on past practice – quite the opposite.

Take, for example, the Alternative Minimum Tax. Under current law the income thresholds for this tax would capture huge numbers of new taxpayers starting at the end of this year. The current scoring rules assume this will happen even though lawmakers have repeatedly overridden it. Similarly, the current scoring rules assume that physician payments under Medicare’s Sustainable Growth Rate formula will be cut dramatically starting next year as they would under literal current law – even though, again, this has been repeatedly overridden.

On the other hand, the scoring rules assume that Social Security and Medicare will be allowed to spend far in excess of their trust fund resources, though this is not current law and in the past Congress has generally not overridden these constraints.

In sum, the rules assume that many aspects of current law will be observed even though they have been overridden in the past, while other aspects of current law will be overridden even though they have been upheld in the past. That’s a problem.

2) The current rules distort policy decisions. Under current rules, if you want to extend current income tax rates, you are scored as adding to the federal deficit. The same is true with further patches of the AMT income thresholds, or if you want to override an impending cut in Medicare physician payments. This is all defensible.

But the same rules assign no penalty to other similar actions, like overriding impending cuts in Social Security or Medicare Hospital Insurance benefits. Such overrides are selectively treated as not adding to the deficit. This inconsistent treatment distorts policy decision-making. It makes it easier to increase spending in some parts of the budget than in others, and also easier to do so than to maintain current tax policies.

3) The current rules incent irresponsible fiscal practices. The current rules incent lawmakers to enact the most irresponsible resolutions of Social Security and Medicare shortfalls – namely, to completely abandon all spending discipline imposed by their trust funds and to bail out the programs with debt-financed general revenue commitments. This incentive is created by the scorekeeping rules that essentially assume this outcome and thus assign no scoring penalty to it.

The rules also incent other fiscal equivalents of these irresponsible outcomes – for example, extending the spending authority of Social Security and Medicare with genuine cost-savings measures, but simultaneously spending the proceeds of those savings on other programs. This has exactly the same adverse effect on the overall budget as would the hypothetical debt-financed bailout of Social Security and Medicare described in the previous paragraph. A version of this tactic was employed, unfortunately, in 2010’s health care law.

4) The current rules dampen the urgency that should appropriately be associated with impending insolvency of Social Security and Medicare. There is a lot of discussion right now about the impending fiscal “cliff” if certain tax and spending provisions are allowed to expire at year’s end. But there are other cliffs looming in the years to come – among them sudden reductions in Medicare HI spending in 2024 and sudden cuts in Social Security disability benefits in 2016. Awareness of these “cliffs” is dimmed because our so-called current-law baseline doesn’t show the cuts happening even though under law they would.

Nor do current methods reflect the additional spending authority granted whenever Medicare or Social Security are permitted to pay additional benefits for more years into the future, as the health law did in extending Medicare HI solvency from 2016 to 2024. With other programs we generally show the consequences of impending cuts and the budgetary costs of postponing them; we don’t with Social Security and Medicare.

5) The current rules allow for misleading, demagogic politics. To take but one example: proponents of Social Security reform are often attacked for proposing to cut future benefits by huge amounts, when they would do no such thing. There have been claims this year, for example, that certain political candidates’ proposals would cut Social Security benefits by 40%.

These claims are nonsensical. They are produced by comparing benefits under a proposed, solvent Social Security system with benefits currently “scheduled” for some long-distant year like 2085 but which would not be paid under existing law. Scorekeeping rules ought not to legitimize the demagoguery of claims that benefits would otherwise be paid where there is no legal authority to do so.

One argument against changing the rules to reflect literal current law that incorporates impending benefit cuts in Social Security and Medicare is that this scenario is both politically unrealistic and paints an overly-rosy fiscal picture. As some critics pointed out in response to my study, much of our projected fiscal problem disappears if one assumes that current law plays out exactly as written.

This isn’t, however, a good reason to keep using a current-law baseline that reflects current law only in certain selective ways. First, realistic or not, lawmakers should know what current law requires. Second, CBO can elsewhere inform lawmakers of the costs of unfunded Social Security and Medicare benefit promises in its alternative fiscal scenario, just as it does with other reasonably-probable overrides of existing law. Third, we already know that the current-law scenario is politically unrealistic; it still ought to be applied consistently across federal programs. Surely it ought to include financing constraints that have historically been respected if it also includes many that have not been.

In sum our current scorekeeping rules are internally inconsistent, they create an unlevel playing field between policy choices, they incent irresponsible fiscal practices, and they can too easily be used to support misleading political demagoguery. By employing a baseline that more accurately reflects current law, the fiscal picture would indeed look unrealistically rosy but the fiscal consequences of costly budget gimmicks would be far more transparent. For these reasons – and certainly before the next round of possible changes to Social Security and/or Medicare -- Congress should carefully consider changing its scorekeeping rules.

Charles Blahous is a research fellow with the Hoover Institution, a senior research fellow with the Mercatus Center, and the author of Social Security: The Unfinished Work.