Opinion Editorial | |
| Monday, July 6, 1998 | |
Questions Remain About Budget Forecasts |
Many Republicans believe that the main barrier to enactment of a large
tax cut this year is the Congressional Budget Office (CBO), because it is
low-balling its forecast of future federal revenues. They think revenues
next year will come in substantially higher than CBO is predicting, allowing
for a significantly larger tax cut than Congress is currently contemplating,
without endangering the balanced budget. They note that last year CBO underestimated
federal revenues by $72 billion and they suspect revenues may be underestimated
by a similar magnitude this year. On June 23, CBO Director June O'Neill responded to her critics in a letter
to House Speaker Newt Gingrich (R-Ga.). She argued that everyone, not just
the CBO, underestimated revenues last year. O'Neill pointed out that CBO's
deficit forecasts were close to those made by the Office of Management and
Budget and private forecasters. In short, CBO did as well as economic science
allowed and should not be singled out for blame when no one else did much
better. This is a strong argument. Nevertheless, CBO's estimate of future revenues
does seem to be unusually conservative. CBO is predicting that revenues
will grow more slowly than gross domestic product (GDP) over the next decade
(see figure). Generally, because our tax system is progressive, revenues
grow faster than GDP.
Mrs. O'Neill does not give a satisfactory explanation for why revenues
are expected to grow so much more slowly than they have grown historically.
Her main point seems to be that there is bound to be a recession some time
in the next decade and that this will cause revenue growth to slow. But
the impact of past recessions is already incorporated into the historical
data on growth of actual revenues. So it seems odd for the CBO in effect
to predict a future recession will have an impact on revenues much greater
than those in the past. No one is suggesting that the CBO is deliberately fudging its numbers
for some political purpose. However, Congress is entitled to raise questions
about the accuracy of the numbers it must rely upon when making important
decisions about taxing and spending. The questions that have been raised
about CBO's revenue forecasts are legitimate and deserve a better response
than it has provided. Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis,
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