NCPA - National Center for Policy Analysis

Aligning CBO Scoring with Reality

January 8, 2015

The House of Representatives has voted to require the Congressional Budget Office (CBO) to consider the macroeconomic effects of proposed legislation when analyzing the cost of new bills - basically, to consider the impact of legislation on the economy.

The CBO doesn't do that already? No. Writing in the Wall Street Journal, Hoover Institution Fellow Edward Lazear explains that the CBO ignores effects on economic growth when looking at legislation . As a result, CBO cost estimates are often at odds with reality. For example:

  • When it analyzed the Affordable Care Act, the CBO ignored the law's impact on GDP, despite likely job losses from the employer mandate.
  • Tax cuts can stimulate the economy and create economic growth, but government analyses of tax cuts do not take that expected growth into account.
  • Similarly, tax hikes can slow economic growth and result in less tax revenue. When scoring tax bills, however, the government doesn't look at this impact.

Lazear cites another problem with CBO scoring -- it is required to analyze bills as they are written rather than how they will most likely be implemented. For example, Lazear notes that each year Congress passes a fix to the alternative minimum tax (AMT) in order to reduce the number of taxpayers impacted. However, when the CBO analyzes the budget, it is forced to assume the AMT will not be patched, resulting in overestimates of government revenue.

Source: Edward P. Lazear, "'Scoring' Legislation for Growth," Wall Street Journal, January 7, 2015.

 

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