Tuesday, December 16, 2014

The Incoming Republican Congress Should Terminate Douglas Elmendorf and the Congressional Budget Office

The Congressional Budget and reconciliation Act of 1974 created the Congressional Budget Office to provide objective, non-partisan analysis of proposed legislation. In essence, its job is to “score” legislation. The Director of the CBO serves a four year term and can be reappointed. The CBO is a Congressional agency rather than in the Executive Branch. The Director is therefore appointed by the Speaker of the House and the President Pro Tem of the Senate. Doug Elmendorf is the current CBO Director. His term is up. A debate is underway in Washington and within the Republican Party whether to reappoint Mr. Elmendorf and perhaps even abolish the CBO. The answer should be easy. The Congressional Budget Office is a failed experiment. Part of the failure is inherent in its charge from Congress. First, it is to score legislation on a ten year basis from the date of enactment, which creates many opportunities to game the scoring. Second, it must score legislation on a static rather than dynamic analysis. By way of explanation, static scoring assumes changes in taxes will have no effect on behavior, a clearly unreasonable assumption. A proposed tax increase of $25 billion in capital gains will result, as proven time after time, in a decrease in revenues as investors adjust their financial planning. Conversely a cut in the capital gains tax rate results in an increase of tax revenues. Dynamic scoring accounts for real life responses to taxes and regulations. Third, the CBO adopts Keynesian economics as a cornerstone of the benefits of government spending. Thus, House Speaker Nancy Pelosi said in 2010 that “for every dollar a person receives in food stamps, $1.79 is put back into the economy.” The $1.79 comes from the CBO. Speaker Pelosi followed in December 2011 by stating that extending unemployment benefits would add “600,000 jobs to our economy.” By that reasoning we should become an economic colossus with 100% unemployment. The more unemployment we have, the more jobs unemployment compensation would create. Policy reasons justify unemployment compensation, but Keynesian multipliers are not a valid one. Fourth, the CBO uses baseline budgeting, which assumes a percentage increase annually in the baseline. Attempts by Republicans to cut the growth rate results in political, demagogic cries the Republicans are “cutting” whatever, such as food lunches. The fifth reason is that the CBO is not an objective, non-partisan agency, which brings us to ObamaCare. One of Professor Jonathon’s offensive statements is that “The Bill was written in a tortured way to make sure the CBO did not score the mandate as taxes. If the CBO scored the mandate as taxes, the Bill dies. So it’s written to do that.” That was a disingenuous statement in more ways than one. The reality is that the CBO worked hand in glove with Congress to massage the Bill so that it would show a positive cash benefit to the economy. The CBO advised the Congressional drafters on how to manipulate the numbers. Professor Gruber has become persona non gratis, indeed a nonentity, within the Democratic Party and the Obama Administration. Professor Gruber met in the White House on July 20, 2009 with President Obama, Doug Elmendorf of the CBO, and administrative officials. Professor Gruber described the critical meeting as follows: “ So we had a meeting in the Oval Office with several experts, including myself, on what can we do to get credible savings on cost control that the Congressional Budget Office would recognize and score as savings in the law.” Remember the ten year scoring requirement? ObamaCare was structured such that the tax increases would go into effect in 2010, but the coverage would not occur until January 1, 2014. Thus, ten years of revenues would be front loaded, but only 6 years of expenditures would be scored. Thus, the CBO could report with a straight face that ObamaCare would reduce the deficit by $180 billion by 2019. We also learn that the CBO’s calculations essentially followed Professor Gruber’s econometrics model to score the Act. Garbage in, Garbage out! The CBO reported in February 2014 that ObamaCare would result in the loss of 2 million jobs by 2018, 2.3 million by 2021, and 2.5 million by 2024. The CBO reported later this year that the original estimated cost of $940 billion has now doubled to $1.76 trillion. The CBO admitted ObamaCare will add $131 billion to the deficit over ten years rather than cutting it. Doug Elmendorf and the Congressional Budget Office were complicit in foisting ObamaCare on the American people. They should join the Democratic Senators and Representatives out of office because of ObamaCare before they do more damage.

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