NCPA - National Center for Policy Analysis

Inaccuracies In Budget Forecasting

December 27, 2001

Federal budget projections are highly inaccurate and are unlikely to get better soon, say experts. Between April and July of 2000, for example, the Congressional Budget Office (CBO) adjusted the surplus estimated for 2001 upward by $95 billion for economic and technical reasons. An Urban Institute study says the uncertainty of budget forecasts should be recognized more explicitly by the CBO, Congress and the news media. And dialogue regarding public policy decisions should pay more attention to the risks of being wrong.

The study recommends steps the Congressional Budget Office (CBO) should take to make its long-term forecasts less misleading:

  • The budget agency should de-emphasize forecasts produced for the second five years of the 10-year forecast.
  • It should not provide a cumulative value for budget surpluses or deficits or policy changes.
  • But it should continue to publish and refine estimates of the degree of confidence that should be attached to estimates of the budget balance.

Congress could reduce the political misuse of forecasts by:

  • Not inserting quantitative targets into laws governing the budget process.
  • Being cautious about promising to hit precise budget targets.
  • Devoting more effort to analyzing the risks of outcomes that may occur because the forecast is wrong.
  • Congress should seek to improve the quality of economic statistics.

And the news media could reduce public confusion by changing the language it uses to describe budget totals and policy changes, and placing more emphasis on the qualitative characteristics of proposed policies.

Source: Rudolph G. Penner, "Errors in Budget Forecasting," Urban Institute, Washington, D.C., April 2001.

 

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