Congressional referee needs new direction: Column

When the 114th Congress convenes on January 3rd, MIT economist and Affordable Care Act architect Jonathan Gruber might have disappeared from the headlines. Yet his recently-unearthed comments about the law should dictate one of the first items on the Republican Party's to-do list. Specifically, his boast that ACA's "tortured" design fooled the Congressional Budget Office should spur the GOP to reform the agency, which serves as Congress' official fiscal watchdog.

The Congressional Budget Office has a unique role to play in keeping Congress honest. It analyzes specific bills and estimates how much they will cost taxpayers, what effects they will have on the economy, and more. Its work and its economists are highly respected; politicians in both parties frequently rely on the agency's reports when discussing particular legislation. The CBO's rulings can even make or break a bill in the realm of public opinion.

But the CBO's accuracy is limited by several questionable accounting methods which Congress forces it to use. Exacerbating this problem is current CBO Director Doug Elmendorf's unwillingness to point out his agency's shortcomings.

Nowhere is this more evident than in the arena of "scoring" — the process by which the CBO predicts the costs of legislation. Federal law requires the agency to use "static scoring," an analytical method that does not account for a law's effects on broader economic behavior. For example: Static scoring assumes that a tax cut will only lead to a reduction in revenues over time, when in reality such cuts may spur businesses and individuals to invest and spend, thereby creating more tax revenue in the long run. Applied to other bills, static scoring might see deficit reduction where red ink is more likely.

The limitations of this approach are in full view with the CBO's fiscal analysis of the Affordable Care Act. The agency ruled in 2010 that the ACA would reduce federal deficits by $143 billion between 2010 and 2019. This rosy prediction hasn't panned out. Earlier this year, for instance, Senate Budget Committee Republicans conducted an analysis that found that the law would increase deficits by $131 billion over the same ten year period.

The CBO would likely have come to a more accurate conclusion had it conducted a longer-term analysis and used "dynamic scoring." This method accounts for a law's impact on the economy by taking human action into account — including how businesses and individuals will change their behavior under a new set of economic incentives. For this reason, dynamic scoring often leads to more accurate predictions about a law's effect on and cost to taxpayers.

Past CBO directors have recognized their agency's analytical limitations. Some have even released dual analyses — one using static, one using dynamic—to give taxpayers a better understanding of a bill's possible effects. Yet Elmendorf has largely avoided using this tactic, most notably with the ACA.

Compounding this problem is the CBO's lack of transparency.The models it uses to analyze legislation are not open to academic or even legislative scrutiny. The Affordable Care Act again provides an instructive example. Prior to the law's passage, Elmendorf repeatedly met with the White House and Gruber — a CBO consultant at the time — to discuss how the agency would score it. The CBO then developed mathematical models based off of Gruber's research to analyze a law he helped write. At no point could outside scholars — or even Congress — test or verify the model's accuracy.

This lack of transparency is inappropriate for an agency charged with keeping taxpayers abreast of a law's effects and costs. It also calls into question whether the CBO's rulings can be politically influenced — an important question considering that elected officials typically use the agency's findings to praise or denounce specific legislation.

Americans already feel that the game is rigged — that Washington serves itself, not the rest of the country. The Congressional Budget Office's failings only contribute to this feeling. The 114th Congress should replace the questionable analytical models which the CBO current uses and open up its deliberative process to wider scrutiny. Then they should appoint a new director who will speak loudly and forcefully when either party attempts to manipulate the agency and deceive the public. The American people deserve an honest appraisal of the laws which their representatives are considering.

Nancy Pfotenhauer, a senior adviser to Freedom Partners Chamber of Commerce, was chief economist for President George H.W. Bush's Council on Competitiveness.

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