- The Washington Times - Thursday, September 13, 2001

The fate of the Bush administration and the Republican House in 2002 is in the hands of a few congressional bureaucrats known as "revenue scorers" in the Joint Tax Committee of Congress. Their job is to estimate the effect on tax revenues of changes in tax rates.

If truth be known, these few obscure individuals are the country's economic policymakers. They have far more power over economic policy than the president, his economic advisers, the treasury secretary, the director of the Office of Management and Budget, or members of the House and Senate.

Although the revenue scorers have all the power, they have none of the responsibility — thus, the Republicans' peril.

The revenue scorers owe their power to the political fixation on budget deficits and surpluses. The validity of any stimulative policy, for example, depends on its effect on the surplus (or deficit), not on what the policy does for growth in the economy.

A person familiar with economics might wonder how this can be. Surely, whether the economy is growing or declining is the main factor determining whether there is a surplus or deficit. A tax cut that stimulates the economy prevents the revenue loss from an economic decline. A tax increase intended to recoup revenues lost to an economic slowdown will accelerate the decline and increase the revenue loss.

This is the way the real economic world works, but there is no real world in the static revenue model used by the revenue scorers. In their model whether tax rates are raised or lowered has no impact on economic growth. The way revenue scorers see it, a tax cut simply "uses up" revenues and erodes the surplus or enlarges the deficit.

The reason why Mr. Bush's tax cut is too small and delayed to help the economy in time to help Republicans is that it was configured to minimize its impact on the surplus, not to maximize its impact on the economy.

The economic effects of taxation are, of course, dynamic, not static. If the revenue scorers made dynamic estimates, they would capture the interaction between tax rates, economic growth and revenues. But dynamic estimates are too much work for the revenue scorers or beyond their competence. Consequently, absurd static revenue estimates that have no basis in fact or fancy determine the economic policy of the United States.

Who gave obscure unaccountable revenue scorers such power over economic and political outcomes? No one. It is a historical accident. Indeed, the "powerful" in Washington are probably too full of themselves to be aware that lowly bureaucrats really call the shots.

The revenue scorers owe their power to the demise of the Keynesian economic model. In Keynesian economics, which was institutionalized in the Joint Economic Committee of Congress, the House and Senate Budget Committees, the Congressional Budget Office, the president's Council of Economic Advisers, the Treasury Department, the Office of Management and Budget, the economics profession, universities, the media, and the Democratic Party, "deficits don't matter." If deficits don't matter, static revenue scorers have no power.

What Keynesians meant was that deficits don't matter the way Republicans think. Republicans think budget deficits drive up interest rates and prevent investment, thus choking economic growth. To the contrary, said Keynesians, deficits drive the economy by fueling consumer spending.

Ironically, revenue scorers gained their power from the supply-side overthrow of Keynesian economics in 1980. For supply-side economists deficits don't matter either, because deficits (or surpluses) reflect the economy's performance and are not its driving force.

Once President Reagan was in office and committed to cutting taxes and rolling back the size of government, the Democratic Party and Keynesian economists completely changed their tune. Suddenly, deficits mattered more than anything. Democrats flocked to the old Republican argument that tax cuts would run up the deficit and hurt the economy.

Parts of Mr. Reagan's own government began singing the old familiar refrain. Over the years a series of "budget reforms" gave more and more power over economic policy to the revenue scorers. Today President Bush is totally boxed-in by static revenue estimates.

Today's projected budget surpluses are based on the economic growth estimates. As the economy weakens, the surplus diminishes and turns to red ink.

Mr. Bush will be assailed for squandering the surplus and endangering Social Security. The static revenue scorers at the Joint Tax Committee can kill any stimulative tax reduction because of its adverse effects on the surplus or deficit. Democrats will not help Republicans save the economy, because they see their return to power in Republican impotence.

Republicans are going to rue the day that they made the budget surplus/deficit the cornerstone of their policy.


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