Congressional Budget Office Should Use Dynamic Long-Term Fiscal Scoring

August 22, 2013

Senators John Thune (R-S.D.) and Tim Kaine (D-Va.) have introduced legislation to require the Congressional Budget Office (CBO) to conduct long-term fiscal scoring and annual measurement of the fiscal gap. Their effort is timely. Today, the largest fiscal questions facing Congress concern policies that will determine the health of America's finances decades in the future, says Salim Furth, a senior policy analyst with the Heritage Foundation.

The CBO publishes one of the most important and influential charts in American polity: Federal Debt Held by the Public (under the alternative fiscal scenario). However, the CBO does not consistently give Congress guidance on how the debt explosion will be attenuated or exacerbated by policies currently under consideration.

  • Lawmakers routinely hide costs outside the 10-year window to receive a favorable CBO score.
  • A favorite tactic is to authorize some form of spending for one year only, scheduling it to disappear the next year.
  • But each year, the spending is predictably reauthorized.
  • When ObamaCare was introduced, its costly provisions were implemented with a delay so that its true cost was hidden.

As Thune and Kaine suggest, a long-term budget score can help lawmakers by providing them with better information -- and thwarting their shenanigans. But if lawmakers are not careful about design, budgeting tools they intend for greater honesty could easily be used for meretricious legislating. By exploiting inflation, interest accumulation, demographic change and the other complexities of the long run, politicians could easily hide unrealistic savings in the distant years of a long-run score. Thus, long-term scores should be issued with a detailed discussion of the impact of specific assumptions included in the proposed legislation and a year-by-year accounting of the estimated fiscal impact.

There are a variety of methods for measuring the long-term budgetary impact of a policy. Congress and the CBO should follow a few guiding principles as they consider various proposals:

  • The model that the CBO uses to create long-run scores should be transparent.
  • The model should be dynamic. Economic dynamics are important even in the short run because people change their behavior when prices and laws change.
  • The model should use time discounting.

Rather than relying on short-term, static scores and rough guesses about the future, Congress should avail itself of fully dynamic long-term budget scoring to be fully informed before making fiscal decisions.

Source: Salim Furth, "CBO Should Measure Long-Term Obligations and Policy Impact," Heritage Foundation, August 13, 2013.

 

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