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An Unusual Accounting Move in Paul Ryan’s Budget

Paul Ryan, the Wisconsin congressman and former Republican vice presidential candidate, released a federal budget proposal Tuesday for the 2015 fiscal year. Ryan’s plan aims to balance the budget in 10 years, by 2024, but it does so using an unusual accounting method: dynamic scoring. The Ryan budget for 2015 includes the second-order fiscal effects of his proposal. His past budgets didn’t use this type of accounting in this way.

The mechanics of dynamic scoring in the Ryan budget work like this: His budget has a mix of policies (lower tax rates, increased defense spending, cuts to almost everything else). These policies lower federal spending over the next decade by about $5 trillion relative to baseline projections. Then his proposal assumes that the deficit reduction boosts economic growth, thus raising tax revenue, thus further reducing the deficit.

Specifically, the Ryan proposal has a “macroeconomic fiscal impact” line item (see Page 89) that shows this effect. It reduces the deficit by a cumulative $175 billion over the next decade. At 0.3 percent of gross domestic product in fiscal year 2024, it’s just enough to balance the budget in the 10-year span.

To justify its economic growth projections, the Ryan budget cites work by the Congressional Budget Office (CBO) in a report last year. The CBO analysis estimated that $4 trillion in deficit reduction would boost real gross national product by 1.7 percent over 10 years.

In general, the CBO employs static scoring; it doesn’t consider the secondary effects on the macroeconomy, and thus the budget, of specific policies. In this instance, the CBO analysis cited by Ryan focused only on the overall budget, not on particular policy proposals.

Indeed, in a follow-up paper released Tuesday in connection with Ryan’s budget, the CBO says, “This analysis includes the macroeconomic effects of changes in federal debt but not the effects of any specific policies on output or other aspects of people’s well-being.”

So, while the dynamic scoring numbers in the Ryan budget are in line with CBO’s estimates, they don’t mean much. The CBO is modeling the overall effect of lower budget deficits assuming no change in particular policies. But Ryan’s proposal makes changes to several policies, including corporate tax rates, Medicare payments and food stamps. And the specifics of those changes matter. There’s a big difference between cutting the deficit by eliminating the Department of Education and cutting the deficit by eliminating the Department of Defense.

Whether the dynamic scoring in Ryan’s budget is realistic — and thus whether it would balance the budget — depends partly on the effects of Ryan’s specific policy proposals, and neither the CBO nor Ryan addresses that question.

Andrew Flowers writes about economics and sports for FiveThirtyEight.

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