Blog: Proposed Budget "Reforms' in the House Would Undermine Fiscal Responsibility

Statement

One of the most important parts of responsible budgeting is looking ahead to the future and responding appropriately to changing circumstances. And in order to do that successfully, policymakers must rely on clear and consistent budget projections and cost estimates that are as fair and as accurate as possible. Without such information, it would become impossible to make smart fiscal choices. Unfortunately, the House of Representatives this week is considering three separate bills that, together, would significantly undermine all four key characteristics of useful budget numbers, resulting in projections and estimates that are less fair, less accurate, inconsistent and unclear. Enacting this package of legislation would make it more difficult to implement responsible policies that adequately address all of our fiscal and economic challenges.

The first task of any budget projection is to give policymakers a fair and accurate estimate of what the budget is likely to look like in future years, assuming policies stay on the current path. A budget projection based on unrealistic or overly political assumptions is going to be far less useful than one that is nonpartisan and subject to real-world probabilities. The "Baseline Reform Act" (H.R. 1871) would violate both of those principles. The bill would instruct the Congressional Budget Office (CBO) to build its projections on the assumption that all discretionary funding remains frozen at current year levels, indefinitely.

This assumption is not only unrealistic--after all, even simply maintaining the same level of services costs more over time as simple inflation affects the overall cost of goods and services--but it is also ahistorical. The Center on Budget and Policy Priorities analyzed every ten-year period dating back to 1962, the first year for which there is comparable funding data, and found that there has never been a decade in which discretionary funding stayed constant. Explicitly instructing the CBO to incorporate an assumption of annual reductions in the real value of funding that has no precedent in history can only result in projections that are inaccurate, misleading, and unreasonable.

A second piece of legislation in the House of Representatives would also result in projections and cost estimates of legislation that are less accurate and therefore less useful. The "Budget Accounting and Transparency Act" (H.R. 1872) would force the CBO to change the way it accounts for credit programs like student loans or Federal Housing Administration loans. Instead of using the current system which has been in place since 1990 and has been remarkably accurate over that period, this legislation would require that official estimates artificially increase the projected costs of loans and loan guarantees.

The convoluted rationale for this change is that, in the private sector, cost estimates for these credit programs would be higher because the private sector likes to build in a "cushion" to account for uncertainty. There is an academic but fair debate to be had over whether it makes sense to assume that the federal government approaches lending the same way that for-profit businesses do. But either way, it is clear that adding in this extra cost would result in less accurate estimates of the actual dollars that flow into and out of the federal treasury. It would also create enormous confusion to have official cost estimates that deliberately and systematically overstate actual costs.

Completing the trio of proposed budget process changes is the "Pro-Growth Budgeting Act" (H.R. 1874) which would require the CBO and the Joint Committee on Taxation (JCT) to include "dynamic" scoring estimates of all major pieces of legislation. "Dynamic" estimates are supposed to take into account the broader economic consequences of policy changes, and then incorporate those macroeconomic effects into fiscal projections. The problem is that estimating the macroeconomic effects of legislation is even more uncertain than estimating the fiscal effects, and is highly dependent on which underlying assumptions that the estimators use. When the CBO and the JCT have tried to produce dynamic analyses in the past, the results have varied widely. Requiring more regular use of uncertain and controversial dynamic scoring would necessarily complicate and confuse the budgeting process, without adding significant value. In a letter to House Budget Committee Chairman Paul Ryan, CBO raised these and other concerns with performing dynamic analyses and implementing H.R. 1874.

Even worse, a reliance on dynamic scores can allow lawmakers to avoid making the tough decisions that are necessary to meet our fiscal goals. The recently released House Budget Resolution is a good example. The budget claims to reach balance in 2024, but only accomplishes this by directly incorporating "macroeconomic effects" that the CBO itself describes as "highly uncertain."

Though improving the budget process is an admirable goal, these three pieces of legislation fail to accomplish it. In fact, this package of "reforms" would make it harder for policymakers to get an accurate picture of our budgetary situation. They would result in official projections and cost estimates understating budgetary impacts in some areas, while overstating them in others. They would add unnecessary confusion and uncertainty, and they would undermine the trust that lawmakers and the public have in the fairness and consistency of budget estimates.

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