The Congressional Budget Office (CBO), charged with producing official legislative scores that guide Congress, publishes a yearly budget and economic outlook that projects government budgets over the next 10 years. Unfortunately, for reasons outside of its control, CBO’s budget baseline is essentially a fiction. After accounting for budget gimmicks and “temporary” provisions that Congress extends every year in perpetuity, the federal government’s debt load will be $3 trillion higher over the next 10 years than CBO projects.
The problem is that CBO is required to construct its baseline based on laws exactly as written, even if reality is likely to differ substantially. This “current law” baseline ignores congressional actions that extend policies that would otherwise expire, or gimmicks employed to reduce the apparent cost of legislation. In order to account for these oversights, the National Taxpayers Union Foundation (NTUF) has produced an adjusted baseline that reflect the likely course of our finances. The findings of this “current policy” baseline paint a more realistic view of the federal government’s fiscal challenges, uncovering another $3 trillion in deficits over the next decade – over two-thirds of which is due to higher spending.
CBO’s baseline understates the level of spending that is likely to occur by 3.5 percent – $2 trillion over the next 10 years. The agency’s figures include several gimmicks that passed in the Bipartisan Budget Act (BBA) of 2018. For example, the BBA ostensibly imposed new budgetary discipline known as “sequestration” - but it doesn’t kick in for nine years, which makes it unlikely to occur at all. BBA also delayed the implementation date of several previously-enacted reforms to Medicare formulas for determining payments to providers and certain hospitals, and artificially increased the estimated savings on paper. And this wasn’t the first time those provisions had been delayed.
As if the gimmicks weren’t bad enough, the BBA busted through the spending caps for FY 2018 and FY 2019, but schedules them to return in subsequent years. This was at least the fourth time that Congress chipped away at the spending limits established in the Budget Control Act of 2011. With this track record, taxpayers can expect the elimination of the spending caps to continue beyond next year, adding $1.4 trillion in higher spending through the rest of the decade.
It’s not just on spending that CBO misses the mark. They also assume significant tax hikes that are unlikely to kick in. To avoid filibuster rules in the Senate that would have killed tax reform, several of its tax relief provisions had expiration dates in 2025. The same issue occurred with President George W. Bush’s tax cuts which were set to expire in 2010 but were eventually made permanent under President Obama. Most observers agree that Congress is likely to move toward making that relief permanent, and NTUF’s revised baseline assumes extension.
Under these alternative revenue assumptions, tax receipts would be 2.2 percent ($979 billion) lower than CBO’s projection over the next 10 years. However, if the economy continues to exceed expectations, the revenue picture would improve. Using CBO’s budget outlook data, NTUF calculated that a one percent boost in annual GDP could boost revenues by over $200 billion in 2018 alone, and by an average of $220 billion per year over the next five years. This in turn would reduce debt financing costs by approximately $500 billion over the decade. Making the TCJA’s temporary full-expensing provisions permanent would be a powerful way to promote economic growth that feeds back into higher tax revenues than foreseen in CBO’s projection.
To its credit, CBO does occasionally produce projections of “alternative fiscal scenarios, but budgetary rules prevent CBO from applying them to its official baseline. In effect, Congress is willingly blinding itself to the budget realities that their own scorekeeper is trying to highlight.
As bad as the short-term budget outlook is, worse fiscal challenges loom on the horizon: Medicare’s trust fund will be depleted in eight years and Social Security’s combined trust funds will run empty in 16 years. To improve the long-term picture, lawmakers need to reform spending and continue enacting pro-growth policies to expand the economy.
With a clear-eyed, realistic understanding of our budget challenges, they can take informed action on just such an agenda. But unless Congress and CBO get serious about producing useful, accurate research, tackling our debt will be like trying to nail Jell-O to a wall.
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