Let’s not deify the Congressional Budget Office. It’s part of the problem.
FROM POLITICO | MARCH 10, 2017
Every few years, Washington rouses itself from its partisan noise and rounds its attention on the Congressional Budget Office, a sleepy, nonpartisan place that quietly wields immense influence over most legislation of any consequence. That is precisely what is happening now with the recently unveiled House Republican plan to replace the 2010 Affordable Care Act. Even before the replacement bill has been fully written and assessed, Republicans and the White House are attacking the CBO’s credibility and reliability. Asked about the implications of the forthcoming CBO analysis, White House spokesman Sean Spicer dismissed the agency, “If you're looking to the CBO for accuracy, you're looking in the wrong place.”
It’s easy to see what’s going on here: Republicans are understandably concerned that the CBO will issue a damning analysis of what their new bill might do. Will it increase the number of uninsured? Blow a hole in the federal budget? Impose new burdens on federal agencies? Partisan analysts have already warned as much, but when the CBO says it, it carries enormous weight in the public debate.
That said, the CBO is not exactly neutral. By this, I don’t mean it assesses legislation through a partisan lens, though Republicans selected its current director, the conservative economist Keith Hall. But its lack of partisan tilt does not mean it is above criticism. In fact, the CBO’s strange evolution from a minor congressional outfit to a central arbiter of new legislation has carried significant costs, and may be one reason for Congress’ increasing inability to pass meaningful legislation.
Republicans may be way off-base in their current critiques and motivated not by passionate devotion to sound public policy but rather by passionate attachment to political gain. But there is some truth in the contention that the CBO is an obstacle to constructive reform, and the health care law offers an instructive case study in why.
The usual script is for a new bill to be assessed by the CBO, or rather “scored,” which then sets off a round of defenders and detractors of the legislation to either praise or condemn the CBO’s analysis. This time, the Republican sponsors of the new health care legislation, along with the White House, have preemptively attacked the CBO’s credibility before it has had enough time to analyze and score the proposed bill, which will likely occur early next week. House Majority Whip Steve Scalise even said that Republicans are determined not to allow “unelected bureaucrats” halt the move to repeal and replace Obamacare.
It was not long ago, however, that Republicans were praising the CBO as a needed check on Democrat health care reform plans. As a Democratic-controlled Congress in 2009 deliberated what became the ACA, Republicans demanded that the process slow down to account for what the CBO might say about the effect on spending and deficits. Rep. David Camp commented at the time, “We cannot afford to guess when it comes to health care …This is not some think-tank experiment; these are people’s lives, people’s jobs we are talking about.” Fear of a negative CBO scoring was one element that helped squash single-payer options in 2009. But flash forward to today, and Democrats are saying precisely what Republicans did then about the rush to legislation in the House. “To consider a bill of this magnitude without a CBO score is not only puzzling and concerning but also irresponsible," said Democratic Rep. Richard Neal this week.
You could find a similar dynamic at play during an even earlier health care legislative push, over Medicare Part D expansion in 2003, when the CBO numbers varied widely. The CBO estimated at the time that Medicare expansion would cost in excess of $500 billion in 2004 and 2005; in fact, the actual cost proved much lower, at about $375 billion. The CBO itself, in its own post-mortem of its inaccurate projections, explained that drugs ended up costing less than anticipated, but the fact remains that the projections were significantly off, as many critics contended at the time.
Unquestionably, the CBO makes for a convenient and relatively defenseless political piñata. The office is hardly a Washington behemoth. It has a staff of 235 people, many of them economists and statisticians, some lawyers and public policy specialists. Its heads tend to be from the majority party in the House, but almost never a true partisan, as is the case with Hall, who previously served as the commissioner of the Bureau of Labor Statistics and was appointed to lead the CBO in 2015. It does not have a robust staff of PR people ready to defend its positions. The office was created in 1975 with a mandate to produce rigorous, independent analysis of congressional bills and their effects on the budget. That mandate broadened considerably in the late 1980s when the Gramm-Rudman deficit reduction process authorized the CBO to score all legislation for effects on future deficits. Since then, the CBO has acted as a check on congressional pork projects and on a long-established congressional tendency to spend first and find ways to pay later.
Given how undisciplined Congress can be when it comes to the long-term implications of spending, the creation and elevation of the CBO to a position of budgetary watchdog was not only well-intentioned but wise. Having a group of diligent technocrats assess the economic consequences of proposed new laws can serve a vital function. Many congressional representatives will happily spend taxpayers’ money without attending to costs. The CBO exists to check that tendency, so how could anyone object to it?
The issue is that laws are both art and science. The CBO, by its very mandate, treats all bills as variables in a complicated equation. Using various statistical tools and regression analysis, it can forecast a multitude of scenarios, and with current computing power being what it is, the number of possible scenarios and resulting probabilities is greater than ever. It then comes up with a range of likely outcomes for spending, which hinge on numbers such as expected rates of GDP growth, expected interest rates, expected inflation numbers, wage growth and, of course, what all of those mean in terms of anticipated tax revenues for the federal government.
In assessing this health care law, for instance, the CBO is bound by the assumption of what current tax laws are and what that likely will produce in terms of revenue in out years. It is bound by anticipated growth rates and wage levels, as well as by actuarial assumptions of the size and composition of the population and resulting insurance pools. It also can only do so much to extrapolate both insurance and health care costs going forward. As a result, the CBO is bound by data and numbers that are known in the present but are largely speculative when it comes to the future.
Those constraints are not in any way unique to the CBO. Anyone attempting to gauge future outcomes must rely on informed assumptions that draw on past patterns and current data. In that respect, the CBO is no different than the Federal Reserve. The Fed, however, is constantly revising its assumptions and forecasts based on new data. Like the CBO, the Fed “scores” future outcomes based on whether interest rates will be higher or lower, and it revisits that scoring every few months as it continually determines whether to raise, lower or maintain interest rate targets. The CBO, on the other hand, assesses a bill at the time it is being considered for passage, and that’s it. It does subsequently do a self-assessment and revisits whether its initial forecasts were correct or off. But its work is essentially static.
That is where the art of legislation comes in. Each new law, particularly major pieces of legislation, triggers an avalanche of other changes. A law is not like a house or a building, which has a projected cost and then an actual cost and that’s it. A law is more like building a new city, which can affect the entire pricing structure of materials, contractors, labor and a slew of other costs. Figuring out how all of those variables will move is more or less impossible—more like soothsaying than economic modeling. As a result, the CBO is frequently spectacularly wrong in its scoring, for the simple reason that the complexity of the systems it analyzes precludes accurate forecasting. You simply can’t know how those variables will move, and the pretense that you can distorts an already problematic legislative process.
Progressives have a different critique of the CBO. Early generations that weren’t burdened by the CBO score were able to unveil massive spending programs ranging from the New Deal to the space race to the creation of Medicare because they could argue that such programs served a myriad of social goods that would make the country stronger and more prosperous in the long term. You can argue whether that has in fact been the case, but those laws and programs were not defended by reference to future costs as much as by an argument about how they would shape society. Numbers were part of that, but only part, and all of those programs would likely have received very negative scores (for adding to future government liabilities without corresponding increases in taxes) from the CBO had it been around.
With the current debate over health care reform, Republicans’ attempt to delegitimize the CBO score is more nefarious than not. It likely reflects a real concern that the score will be damaging to the current draft and forecast huge cuts to the rolls of the insured and impose huge costs on the federal government. Undermining that analysis in advance might be the only viable tactic for a House Republican leadership that is trying to pass a bill, any bill, that can be held up as a fulfillment of a political promise to repeal Obamacare, come what may. It also reflects just how thin and inadequate the replacement law is, in that few are defending the proposal on its merits, other than it not being Obamacare.
The demonization of the CBO, however, shouldn’t trigger an opposite reaction to deify it. The rigid framework of scoring is one reason why this debate is so upside-down up from the start. Laws are written to gain a good score, and the rise of the Tea Party has meant that it is almost impossible to fly in the face of a bad score even if the spending represents good policy. Hence decades of underinvestment in infrastructure, for instance, or an inability to reform entitlements by spending more in the interim to reduce costs for the long term.
The answer is not to try to game or jawbone the CBO, but to recognize that numbers aren’t everything. We need to think of legislation in terms of desired outcomes first and then costs. As of now, those two concepts are hopelessly muddled. No wonder the quality and quantity of legislation has declined so precipitously in recent years, with a hyperpartisan Congress that attempts to design bills so that the CBO will say they don’t adversely affect the deficit—rather than design them so that they actually work as intended. That makes it all but impossible for creative changes that shift the landscape and leaves us instead with technocratic bills or ideological ones, neither of which do the country much long-term good. The CBO may fatally undermine the ill-considered bill to replace Obamacare that is currently being debated; its score next week may scuttle the current draft or force a major overhaul, but we should not forget that fundamentally, it’s the overly rigid way the CBO works that created many of these problems in the first place.