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Reforming the Numbers Game: How the RSC Budget Aims to Improve CBO’s Fiscal Analysis

 

By Demian Brady, National Taxpayers Union Foundation 

The Republican Study Committee (RSC) introduced its “Fiscal Sanity to Save America” budget proposal. In addition to bringing the budget to balance by 2031, the RSC’s blueprint brings reforms to the Congressional Budget Office (CBO). The changes would improve the transparency and quality of the cost estimates that CBO produces for legislation.

Debt Service Costs in Estimates

The RSC budget adopts Rep. Michael Cloud’s (R-TX) Cost Estimates Improvement Act (H.R. 311). H.R. 311 requires the CBO to include the projected debt service costs in its legislative cost estimates. This would ensure that CBO’s estimates provide a more comprehensive fiscal analysis. A similar reform was also included in Rep. Daniel Meuser’s (R-PA) Budgetary Accuracy in Scoring Interest Costs Act of 2023 (H.R. 362). The Cost Estimates Improvement Act, however, would also require CBO to include information regarding overlapping or duplicative programs.

Dynamic Scoring

The RSC includes dynamic scoring of legislation. Dynamic scoring, or budget estimates that attempt to account for the macroeconomic impact of major proposals, help lawmakers to understand how legislation’s impact on economic growth will impact budgets. For example, under a static analysis, decreasing marginal income tax rates are projected to result in reduced tax revenues. However, a dynamic scoring approach would not only consider the immediate impact of the lower rates but also assess how they might stimulate increased investment and foster economic growth, resulting in some amount of revenue gains that would otherwise not be accounted for. Democrats sought to include a dynamic score of the new spending in the Build Back Better Act to suggest that federal spending on infrastructure would have a positive impact on economic activity.

The House rules package for the 118th Congress restored dynamic scoring for major legislation. This methodology should be also set in statute.

Fair-Value Accounting Reform

The federal government obligates taxpayer dollars through 131 different credit assistance programs that lend money or provide taxpayer guarantees of loans. Unfortunately, the government does not adequately account for the risk of these programs when borrowers default and fail to pay back what was borrowed. The RSC blueprint would enact Reps. Ralph Norman’s (R-SC) and Glenn Grothman’s (R-WI) Fair-Value Accounting and Budget Act (H.R. 5571) to provide for a more accurate assessment of the market risk of federal credit programs.

Trigger Reauthorization Vote if CBO’s Estimate is Wrong

Estimating costs for complex legislation typically involves varying degrees of uncertainty, which escalate with the duration of the projection. The RSC budget mandates a reauthorization vote for mandatory spending programs if actual expenditures exceed the CBO’s estimate by a specified margin. However, entitlement programs like Social Security and Medicare, which draw funding from dedicated trust funds, would be exempt from this provision.

Account for the Inflationary Impact of Legislation

The RSC budget also incorporates Rep. Ashley Hinson’s (R-IA) Informed Lawmaking to Combat Inflation Act (H.R. 3640). This bipartisan bill ensures that lawmakers have information on the inflationary impact of major legislation before it comes up for a vote. It requires CBO to provide inflation estimates for direct spending legislation that is projected to cause an annual gross budgetary effect of at least 0.25% of projected GDP (approximately $70 billion in 2024). Additionally, Senators Joe Manchin (D-WV) and Thom Tillis (R-NC) introduced companion legislation (S. 3895) in the Senate.

Require CBO to Show More of its Work

Rep. Warren Davidson (R-OH) CBO Show Your Work Act (H.R. 1492) requires CBO to make publicly available the data, models, and assumptions used in cost estimates of legislation so that third parties can replicate the estimates. The RSC budget would also require CBO, the Joint Committee on Taxation, and the Office of Management and Budget to publish the confidence intervals related to their projections. This would help shed light on the degree of uncertainty in the estimates.

Provide More Information on the Cost Estimates of Appropriations Bills

The RSC would require CBO to make its appropriations bills analyses publicly available. These reports display account-level details of the budgetary effects of the proposals but are normally just distributed to “interested parties in the Congress.” This data should be made available to the general public.

Conclusion

The reforms proposed by the RSC in its “Fiscal Sanity to Save America” budget would significantly enhance the effectiveness and transparency of CBO and bolster its capacity to produce more accurate estimates. With better analysis, lawmakers can understand the true fiscal impact of proposals being considered in the House and Senate.

 


Demian Brady is the Vice President of Research for the National Taxpayers Union Foundation.