CBO Figures Disputed
August 31, 2001
Some economists were wary of the recent Congressional Budget Office report that suggested all of the federal government's non-Social Security surplus will be spent or rebated in tax cuts this year, requiring the federal government to dip into the Social Security surplus. The Social Security surplus is the excess of payroll tax revenues over benefit payments.
Critics say that the CBO has a record of exaggerating deficits and underestimating surpluses. For example, in early 1998 the CBO thought the next year's surplus would be $2 billion. But it turned out to be $125 billion. There is no shortage of other examples.
They say there are good reasons to expect the CBO now underestimates future surpluses in the same way it used to overestimate deficits.
- As for future economic growth, the CBO has raised its estimate of "potential" growth to 3.3 percent from 2.1 percent in 1996 -- the first figure being simply an average of growth from 1980 to 2000.
- But that average included recessions in 1980-82 and 1990-91 and economic growth between recessions has actually been much faster -- 4 percent in 1983-89 and 3.7 percent in 1992-2000.
- By disregarding below average growth in 2001-02 and restarting the clock in 2003, the CBO assumes that we never make up for below average growth during downturns.
- So setting "projected" growth at 3.2 percent has the effect of turning a temporary cyclical problem into the illusion of permanent and unabating losses of tax revenue.
In reality, dissenting economists say, the economy will grow much faster than 3.2 percent for at least a few years, sooner or later, by putting some of the nearly 30 percent of industrial capacity now laying idle back into production.
So, in their view, the CBO is still underestimating the economy and future surpluses.
Source: Alan Reynolds (Cato Institute), "Don't Trust the CBO's Numbers," August 30, 2001; "The Budget And Economic Outlook: An Update," August 2001, Congressional Budget Office, Washington, D.C.
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