Day: January 13, 2015

Speaker of the House Nicholas Mattiello has been making statements demonstrating his support for “dynamic analysis,” (also known as “dynamic scoring“) a fiscally irresponsible and economically discredited accounting trick supported nationally by congressional Republicans that amounts to little more than rebranded trickle-down economics.

At Saturday’s 2015 Small Business Summit, held at Bryant University, Mattiello defended the $20 million tax break on social security income he’s proposed as a short term economic hit for long term economic gain.

“What I’ve been saying lately,” says Mattiello in the clip below, “is that everything we look at in state government, we look at the wrong way. We look at it from a very static point of view. ‘What is it going to cost us?’ ‘Oh, this year it’s going to cost us $20 million so forget it, we’re not going to do it. If we don’t have room in the budget to do it we’ll kick that issue out. Well, we have a structural deficit in Rhode Island, folks, so under that analysis we’re never going to do anything in Rhode Island to make our economy better. Sometimes you have to prioritize and you have to do what the economy needs to do to move forward.”

Then, in today’s GoLocalProv, Mattiello said, “I know that keeping people in Rhode Island, with more discretionary income in their pockets, will be a significant long-term gain for our economy.  This initiative comes with a short-term cost in our state budget.  But, we need to start using a more dynamic analysis that takes into consideration long-term benefits, instead of a static analysis that only looks at how much things cost.”

Mattiello has invested a lot of political capital to pass his signature tax break. And to make these tax breaks work, he’s going to cut the state budget accordingly. The cuts are most likely to be in the areas of social services, which the Speaker has repeatedly signaled his willingness to cut. But in order to pass his tax break, the Speaker needs an economic analysis friendly to his idea. Conventional, or what is known as static analysis, does not look kindly on Mattiello’s idea, but dynamic analysis does.

The economic analysis Mattiello wants to use here in Rhode Island is the same as what is being proposed nationally by the Republicans now in control of Congress, and it’s scarily reminiscent of the policies Kansas Governor Sam Brownback instituted in 2012 that eviscerated the economy of that state.

Congressman Chris Van Hollen of Maryland and Congresswoman Louise Slaughter of New York penned a piece criticizing dynamic analysis, writing that Republicans “are rigging the rules in favor of windfall tax breaks to the very wealthy and big corporations who can hire high-priced, well-funded lobbyists—once again choosing to leave behind working families. Their plan would further distort the nation’s fiscal outlook by applying this scoring model only to tax cuts—not the economic impact of investments in education, healthcare, infrastructure, and other areas. That means that the value of tax cuts to the economy would be exaggerated, and the value of investments in the middle class would be undercut.”

Shaun Donovan, Director of the Office of Management and Budget at the White House, outlines three reasons why dynamic analysis is little more than a ruse and it’s worth quoting from at length.

First, dynamic scoring requires CBO and JCT to make assumptions in areas with unusually great uncertainty. While all budget estimates are uncertain, there is substantially more disagreement among economists and experts about how policy changes affect the macroeconomy than about most other scoring issues. This helps explain why estimates from different CBO models of the long-run growth effects of a 10 percent tax cut differed by a factor of 15 – and ranged from positive to negative – when dynamic scoring was used.

“Second, and more fundamentally, dynamic scoring would require CBO and JCT to make assumptions about policies that go beyond the scope of the legislation itself. For example, when a tax cut or spending increase is deficit financed, its long-term effect on the economy depends heavily on how and when its costs are ultimately recouped – whether through higher taxes or lower spending, and after how large an increase in debt. When the legislation itself is silent on these questions, Congressional scorekeepers would have to make an assumption – potentially putting scorekeepers in the game, rather than just referees. Moreover, in standard models, these assumptions are often the difference between a positive or negative effect on the economy.

“Finally, dynamic scoring can create a bias favoring tax cuts over investments in infrastructure, education, and other priorities. While the House rule would require dynamic scoring for legislation making large changes in revenues and/or mandatory spending, and makes it permissible at the option of leadership for any such legislation (even if modest), it would not apply to discretionary spending, ignoring potential growth effects of investments in research, education, and infrastructure. More insidious, economic models that find large growth effects of tax cuts are often based on the assumption that they would be paid for entirely through reduced spending – without taking into account at all the economic consequences the reduction in government investment.”

Speaker Mattiello seems intent on implementing the kind of economic policy here in Rhode Island that has long benefited the rich and connected over the middle class and the poor. These policies have led to massive wealth acquisition by the very few amid crushing poverty for many. In doing so Mattiello has aligned himself with the Republican Party and against the Democratic Party of which he claims to be a member.