NCPA - National Center for Policy Analysis

The CBO Has Favored Keynesian Policies

November 18, 1998

Congress created the Congressional Budget Office in 1974 to provide independent analyses of the budgetary impact of legislation. Unfortunately, the methodologies it has used all along, and many of its key staff members, are Keynesian. As a result, its analyses have favored more government spending and higher taxes under every CBO director.

In the Keynesian model, the budget deficit is the driving force in the economy, monetary policy plays virtually no role, and taxes affect the economy solely through their impact on disposable income. Studies produced by the CBO have favored government spending and discounted the economic benefits of tax cuts -- thus influencing policy.

  • A typical early CBO study evaluated four alternatives for reducing unemployment and concluded a public service jobs program created the most jobs at the least net cost, and claimed tax cuts created the fewest jobs at the highest cost.
  • For years the CBO produced mountains of income- distribution data showing the rich getting richer at the expense of the poor -- justifying Bill Clinton's 1993 tax increases.
  • In 1989 and 1990, the CBO undermined efforts to cut capital gains taxes by grossly overestimating the baseline amount of capital gains realized -- that is, the revenue from income taxes paid when stocks or other assets are sold -- making a tax cut look like a big revenue loser.
  • The CBO even refused to revise its estimates of capital gains realizations when actual Internal Revenue Service data showed it was wrong.

Also, the CBO has opposed "dynamic scoring," which takes account of the economic and revenue effects of tax changes, and has produced reports critical of privatizing Social Security.

Republicans have an opportunity to appoint a new CBO director in January 1999, and thus change the direction of the CBO.

Source: Bruce Bartlett (senior fellow, National Center for Policy Analysis), "Keynes Is Still King at the CBO," Wall Street Journal, November 18, 1998.


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