CBO gives us the complete picture five months late

Update on September 14, 2010: I have retracted this post. I blew this one.

Last week CBO released their annual summer baseline update. On page 6 (page 24 of the PDF) is a box titled “The Effects of Major Health Care Legislation on CBO’s Baseline.” It provides an important new data point that was absent when the legislation was being debated.

While I disagreed with some of the judgment calls CBO made during the health care debate, on the whole I think they did a good job under difficult circumstances. This missing information, however, was and is a significant failing by the CBO. Unlike with other major legislation, CBO’s scoring of the health laws blended spending increases and tax cuts into a single measure of deficit effects. The final scoring showed that these two bills combined would reduce the budget deficit over the next ten years.

Some analysts dispute this scoring. That’s not my point. In addition to providing the deficit effects, CBO should have told lawmakers what the separate effects would be on spending and on taxes. To make a well-informed decision, policymakers need to know the gross effects and not just the net.

The new CBO baseline document provides this information, although five months too late to affect any votes. They begin by repeating information from last March:

In March, CBO and the staff of the Joint Committee on Taxation estimated that the net effect of PPACA and the Reconciliation Act would be to reduce federal budget deficits over the 2010-2019 period by a total of $143 billion. That estimate consisted of a net deficit reduction of $124 billion from the health care and revenue provisions in both bills.

Only now does CBO tell us in a parenthetical:

Taking into account all of the provisions related to health care and revenues, the two pieces of legislation were estimated to increase mandatory outlays by $401 billion and raise revenues by $525 billion.

This is a very different picture. Imagine two scenarios of a lawmaker who was on the fence last March. He or she is a Blue Dog Democrat, or a Democrat from a fiscally conservative red district, and is deeply concerned that the legislation may be fiscally responsible. He is presented with two different statements from CBO:

  1. “CBO says these bills will reduce the budget deficit by $124 billion over the next decade.”
  2. “CBO says these bills will increase federal entitlement spending by $401 billion over the next decade, and will increase taxes by $525 billion over that same time period, for a net deficit reduction of $124 billion.”

These are very different statements. Both are true. CBO said only the first when Members were looking to understand the fiscal impacts of this legislation. This failure by CBO is important both because they failed to fully inform legislators and because that lack of information may have affected how some Members voted.

CBO had this information last March but they buried it. You couldn’t even pull the spending information out of the tables (I tried at the time), because CBO blended taxes and spending into a line labeled “net changes in the deficit from insurance coverage provisions” (see Table 1 on page 5 of this PDF). More importantly, the Director’s blog post and cover letter spoke only of the deficit reduction that would result from these bills.

CBO should not bury this information in a parenthetical in their mid-summer update, five months after the legislation was considered by Congress. It should have been part of the official scores presented to Congress before they voted. If you compare the final scoring of the stimulus law, the tables clearly separate out spending, revenues, and deficit effects.

Based on CBO’s normal scoring practices and the intense scrutiny of both CBO and this legislation, this cannot possibly have been an oversight. I would bet heavily that CBO was pressured not to show this information.

If I’m right, CBO should have resisted this pressure and provided a picture that was both more complete and consistent with how they usually score legislation.

Deficits matter. So do spending and revenues. If they remain in place, these laws will make government spending $401 B larger this decade. By reducing the budget deficit through tax increases, these bills will shift some of the fiscal burden from the future to the present. By increasing government spending, these bills will increase the cost of government on the private sector that pays for it. That latter point is an important piece of information that Congress should have had when they voted.

I am generally a fan of CBO, and please don’t group me with the bashers who say they did everything wrong. This, however, was a failure.

(photo credit: Dennis Sitarevich)

I escaped Washington, DC and now teach at Stanford's Graduate School of Business.

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Posted in budget, health, taxes
9 comments on “CBO gives us the complete picture five months late
  1. […] CBO gives us the complete picture five months late Categories: News Tags: budget, democrat, director, fiscal, health, house, kennedy, legislation, pdf, permanent-link Comments (0) Trackbacks (0) Leave a comment Trackback […]

  2. […] revenue and new spending calculations into a single element: the total effect on the deficit. But as Keith Hennessey points out, the new report breaks out the tax and revenue effects for the first time. The result—a lot more […]

  3. will says:

    Actually, you COULD pull it out of the tables, if only you looked beyond Table 1. In fact, Table 2 of the March 20 CBO memo (http://www.cbo.gov/ftpdocs/113xx/doc11379/AmendReconProp.pdf) shows it pretty explicitly. Total outlays are listed as $382 billion (you can easily back out the -$19 billion from the education provisions to get to $401 billion), and on the second page of the table total revenues are $525. So to say CBO didn't put this information out there is bogus. True, it wasn't in the text of the memo, but it's still a far cry from suppressing it.

    To the larger point, I recall plenty of GOP members blasting PPACA as a trillion dollar entitlement expansion (actually more like $900 billion) and piling on the Dems for cutting $500 billion out of Medicare. That gets you to $400-500 billion in net outlays. Thus, it's not too hard to figure out that $500 billion or so in revenue increases are necessary for PPACA to be "fully paid for." So the accusation that the new outlays and new revenues weren't known is rather laughable. I highly doubt any votes were impacted.

  4. […] Healthcare , Politics , Taxes Leave a Comment Tags: Economy, Healthcare, Politics, Taxes Keith Hennessey noticed something interesting in the CBO summer baseline update. Democrats worked hard to get the ObamaCare budget score to a $124 billion deficit reduction (which […]

  5. jay says:

    This information was available during the health care debate, Im not sure how you missed it. Even if you refused to dig through CBO reports at the time it was pretty well understood that the overall deficit reduction was because receipts (taxes) were more than outlays (new healthcare stuff). Anyone who was confused by this has deep cognitive problems that would not be helped by any version of the CBO reports. Very intellectually dishonest write up.

  6. Brian says:

    Yeah, this post is pretty confused. This is not new information at all.

  7. […] have received pushback from a couple of sources on a post I wrote a few weeks ago, CBO gives us the complete picture five months late.  In that post I said CBO failed to provide lawmakers with clear information about the gross […]

  8. […] have received pushback from a couple of sources on a post I wrote a few weeks ago, titled “CBO gives us the complete picture five months late.” In that post I said CBO failed to provide lawmakers with clear information about the gross […]

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