According to the Washington Post, the Cato Institute has identified another major flaw with the conservative Heritage Foundation's immigration report that further invalidates Heritage's conclusions: Heritage has repeatedly touted the use of “dynamic” scoring, as opposed to the “static” scoring used in its immigration studies, as the more accurate model for gauging fiscal impact.
As Cato Institute immigration expert Alex Nowrasteh explained, estimating a proposed bill's fiscal impact using dynamic scoring involves taking into account how legislation “will affect the rest of the economy, also changing tax revenue and government spending.” He added: “Since increased immigration will increase the size of the economy, it will also increase tax revenue and some government spending.”
As Nowrasteh went on to note, however, Heritage used “static” scoring to analyze immigration reform in 2007 -- which assumed the bill would not affect the rest of the economy.
Heritage has also employed the “static” method in a new analysis claiming that granting “amnesty” to undocumented immigrants would cost U.S. taxpayers $6.3 trillion, leading immigration experts and economists to dismiss it. The American Enterprise Institute stated that using such a model “fails to capture indirect but important economic impacts of immigration such as increasing economic activity or positively affecting American employment.”
As the Post reported, this directly contradicts Heritage's views on “dynamic” scoring:
The libertarian Cato Institute has also rebutted the Heritage Foundation's analysis and said Monday that it fails to take into account the economic benefits of immigration reform.
“We're very disappointed that our fellow free-marketers at Heritage, who have done such great work promoting dynamic scoring methodology for so long, would fail to employ it on immigration reform,” Cato spokesman Chris Kennedy said.
Indeed, as Cato noted, Heritage Foundation founder and former president Ed Feulner championed the use of dynamic scoring in a 2002 column. Fuelner called the “static” model “wrong-headed” and advised Congress to “switch to a method many business owners use-'dynamic scoring'-which assumes that if you change the way you do business, customers will react in relatively predictable ways.”
Fuelner added: “Would 'dynamic scoring' always give lawmakers perfect estimates? No, but it surely would get much closer to the true cost than 'static scoring' does.”
In a 2002 research piece on taxes, then-senior fellow Daniel Mitchell (now a senior fellow at Cato) similarly warned about the “perils and pitfalls of static forecasting” and advised against continuing to use “outdated and inaccurate static models.” He wrote:
An objective examination of the historical evidence, however, demonstrates that dynamic scoring gives policymakers more accurate information. Dynamic scoring does not predetermine outcomes; it simply ensures that lawmakers will have the most comprehensive data when making decisions.
The strong theoretical argument for dynamic scoring is buttressed by a great deal of historical evidence. The United States has experienced significant shifts in tax policy over the years, and the historical record both demonstrates the shortcomings of static analysis and provides ample proof that the revenue-estimating process should be modernized.
William Beach, Heritage director of data analysis, argued in prepared remarks to the House Ways and Means Committee in September 2011 that “the absence of dynamic economic analysis in major policy debates should be enough to stop such a debate until it is informed by such analysis.”
Moreover, a section in its April 23 report, "America's Opportunity for All" -- for which former Sen. Jim DeMint (R-SC) co-wrote the foreword with Fuelner -- calls for using dynamic scoring “to make more practical and useful fiscal information available to Congress”:
Budgeting has all but collapsed in recent years, reflecting an erosion of both fiscal policy and Congress's ability to govern. Process reforms should focus first on compelling Congress to budget regularly in a systematic and responsible way. Enforcement procedures should be strengthened to ensure spending discipline. Finally, the process should incorporate realistic projections of fiscal outcomes. For example, lawmakers should estimate and publish the projected cost over 75 years of any proposed policy or funding level for each major federal program, especially entitlements. Any major policy change should also be evaluated over a long-term horizon. In addition to calculating the costs of proposed congressional actions without regard to the economy's response to those actions (known as “static” scoring), the government should require a parallel calculation that takes that response into account (known as “dynamic” scoring) to make more practical and useful fiscal information available to Congress when it decides whether to pursue certain actions.
In criticizing the report, economist Tim Kane, a former Heritage fellow whose 2006 report on immigration for the organization concluded that the “argument that immigrants harm the American economy should be dismissed out of hand,” wrote:
The net effect of this Special Report does real damage to the cause of dynamic analysis. For more than a decade, Heritage has called on CBO to add dynamic analysis to its tax reform studies. I could not agree more. And now, ironically, I can only hope CBO does an analysis of immigration reform that will show how skewed the Heritage immigration work has become.