The Congressional Budget Office: What is It? Why Has it Been Wrong? And How to Improve It

House Republicans earlier this week unveiled the first step in a three-part legislative process to repeal and replace Obamacare with patient-centered reforms. One thing missing is the cost of the proposed law.

Enter the Congressional Budget Office. The nonpartisan government agency is responsible for revealing the cost of legislation prior to its passage, and it periodically updates its scoring to reflect the law’s actual costs once implemented.

But few Americans understand what the CBO does or how it works. So, Opportunity Lives is here to tell you what you need to know.

What is the Congressional Budget Office?

Established in 1974, the Congressional Budget Office is an nonpartisan government agency that reports economic and budgetary information to the U.S. Congress. Signed into law by Republican President Richard M. Nixon, the CBO is supposed to provide timely, accurate reports delivered in an objective manner about proposed legislation and current law that concerns federal programs funded by U.S. taxpayers. They also provide guidance to the Joint Committee on Taxation and the U.S. Department of Treasury regarding the fiscal parameters of legislation, as well as the national debt.

The department is divided into eight divisions that report to the CBO Director Keith Hall:

  • Budget Analysis
  • Financial Analysis
  • Health, Retirement and Long-Term Analysis
  • Macroeconomic Analysis
  • Management, Business and Information Services
  • Microeconomic Studies
  • National Security
  • Tax Analysis

The CBO employs more than 230 professionals and maintains a departmental budget of approximately $47 million. All positions within CBO, including the directorship, are hired without regard to an individual’s political affiliation, and all employees are expected to remain expressly nonpartisan.

The CBO director is a joint appointment from the Speaker of the U.S. House of Representatives and the President Pro Tempore of the U.S. Senate. The director is appointed to a four-year term but may continue to serve until a new appointment is made.

What is a CBO score?

A CBO score is a cost estimate for proposed legislation or current law. The Congressional Budget and Impoundment Control Act of 1974 directs the CBO to analyze the “costs of bills and resolutions approved by Congressional committees other than the House and Senate Appropriation Committees.” Also known as “scores,” these estimates are intended to provide lawmakers with a complete view of the costs and budgetary consequences of enacting legislation.  

In order to generate a score, the CBO determines how “outlays” (how much the government spends) and “revenues” (tax dollars the government receives) would change in the federal ledger if proposed legislation were to pass. Further, each score features a statement about the forecasted costs imposed on state, local or tribal governments, as well as the private sector, if this legislation became law.

Does every bill get a CBO score?

Although every bill is eligible to receive a score, very few pieces of legislation actually do. With hundreds of members of Congress introducing thousands of bills each Congress, it should come as no surprise the CBO has a large backlog of legislation awaiting scoring.

Although every bill is eligible to receive a score, very few pieces of legislation actually do.

How accurate is CBO?

Unfortunately, not very accurate at all. In fact, the office has been way off on some significant pieces of legislation, both during consideration and after the bill has been signed into law.

the office has been way off on some significant pieces of legislation, both during consideration and after the bill has been signed into law.

The most glaring example in recent times is the CBO’s horrible performance when measuring the Patient Protection and Affordable Care Act, also known as Obamacare.

Here are just a few places the CBO missed the mark — and by a long shot:

  • In 2013, the CBO predicted 201 million Americans would have health insurance as a result of Obamacare. By 2016, only 177 million did. This is a shortfall of 24 million people, nearly the size of Texas.
  • This isn’t the first time the CBO was very wrong when it came to enrollment numbers for Obamacare. In 2016, analysts slashed the number of projected enrollees in the health exchanges from 21 million to 13 million, an 8 million person decrease from the initial estimate. The department was forced to decrease their projection by 38 percent.
  • They also apparently had no idea how much it would cost taxpayers to cover people on Obamacare. They proudly proclaimed during the health care reform debate of 2009 and 2010 that the legislation would cost only $848 billion for this massive entitlement program. The fact that it was under $1 trillion was a huge political boon for Democrats who attempted to convince skeptical Americans that taking over one-sixth of the U.S. economy would be a bargain. But by 2014, the CBO revised its predictions. Obamacare would actually cost more than $2 trillion once the law went into effect. This 12-digit update meant that the law would cost two and a half times what the experts initially declared.
  • According to healthcare analyst Jeff Anderson, this meant that in order to cover the 31 million new enrollees Obamacare promised to cover (again, an enormously incorrect figure given what we know now), American taxpayers would have to spend around $80,000 for every newly insured person. Initially, CBO estimated this number would be about $27,000. This means that the actual cost of covering these new individuals thrust into the Obamacare marketplace was about three times what CBO actually projected.

In short, Obamacare is much more expensive, covers far fewer people and costs more per patient than CBO originally projected.

Obamacare is much more expensive, covers far fewer people and costs more per patient than CBO originally projected.

Nearly all costs involving spending legislation are underestimated by the Congressional Budget Office. There are only a handful of significant examples, like Medicare Part B passed during the Bush Administration, where they overshot the actual spending. But, in almost all cases, the CBO vastly underestimates the costs and overestimates the benefits of spending legislation.

So, why is the CBO so wrong so often?

One main reason: static scoring.

Static scoring is the traditional procedure the Congressional Budget Office uses to analyze costs and revenues associated with enacting legislation. It tells us next to nothing about how costs and revenues will increase or decrease as other economic and fiscal factors change in an ever-changing environment.

Dynamic scoring would certainly be a more effective form of modeling. Dynamic scoring determines the costs and revenues of legislation while considering real world economic impacts legislation can create. While more complex, it provides lawmakers with a clearer view of what laws actually costs and what, if enacted, they’d actually accomplish.

Dynamic scoring determines the costs and revenues of legislation while considering real world economic impacts legislation can create.

Dynamic scoring offers a better view because it is rooted in reality. Static scoring, on the other hand, basically assumes that laws are enacted in vacuums and have no “ripple effect” in the economy or on the federal ledger. Since we know that our nation’s fiscal health is tied directly to what happens in Washington, D.C., static scoring is generally useless in determining how the economy will react to legislation, and thus, how much money the government would receive in the form of taxes or how much it would have to spend to perform the functions mandated by legislation.

Shouldn’t Congress use dynamic scoring?

Definitely. And that’s why Republicans have long proposed requiring dynamic scoring as a function of the Congressional Budget Office. In fact, former House Committee on the Budget Chairman Tom Price, M.D. (R-Ga.), who just vacated the position to become Secretary of the Department of Health and Human Services, introduced budgetary reform legislation that would force CBO to issue a dynamic score when it published a static one.

While a dynamic scoring requirement would certainly necessitate more funding and staffing for the Congressional Budget Office, conservatives feel it’s a small price to pay for an accurate review of how much proposed legislation would actually cost. Many Republicans believe that if lawmakers saw the true costs associated with enacting a law, it would foster greater prudence in passing laws and more fiscal restraint when crafting and amending them.

Ellen Carmichael is a senior writer for Opportunity Lives. Follow her on Twitter @ellencarmichael.