Q&A – How Accurate Is CBO Scoring?
Each day I feature a listener question sent by one of these methods.
Email: brianmudd@iheartmedia.com
Social: @brianmuddradio
iHeartRadio: Use the Talkback feature – the microphone button on our station page in the iHeart app.
Today’s Entry: Brian, I continue to enjoy the benefit of your insights and analyses of important issues. Thanks so much for what you do so well. My question is as follows: The CBO scores the fiscal impact of many bills. The most recent score is that the One Big Beautiful Bill will result in a $2.4 trillion increase to the federal deficit over 10 years. Of course, there are countless assumptions that go into these projections. If we look at Obamacare 10 years ago, the CBO projected a $137 billion reduction in the federal deficit 2016-2025. My questions are: Is there a credible study that reveals the true impact on the deficit from Obamacare. Did it really reduce the deficit, or did it increase the deficit, and by what amount? Along the same line, based on your analysis, is the CBO projection on the One Big Beautiful Bill (or any other CBO projection) credible?
Bottom Line: Great question, and though it’s not the easiest to answer either aspect of it – the CBO’s record on scoring of the (not so) Affordable Care Act, or projecting their credibility as it pertains to the recently signed One Big Beautiful Bill Act – I do have info that provides likely answers. I’ll start with the CBO’s record on estimating the budget impact of Obamacare.
In answer to your question about whether there’s been a credible study on the deficit impact of Obamacare, the answer is yes. In 2018, just one year after the CBO re-scored the ten-year impact of the ACA, as likely to reduce the deficit by $137 billion, as you noted, a study from the Mercatus Center at George Mason University provided altogether different results. According to the study, the ten-year impact of the ACA would be an increase of “at least $340 billion to federal deficits over the next 10 years, and more than $1.15 trillion to net federal spending”.
In explaining the vast difference between the study’s findings and the CBO scoring, the author noted: Under existing scorekeeping conventions, CBO must evaluate the health care law relative to a specific hypothetical budget baseline scenario. That point of comparison differs from actual law in some important respects. This scorekeeping convention dates back to the 1985 Deficit Control Act. It represents neither actual law nor historical practice.
In contrast, this study asked and answered how the health care law has changed the federal fiscal situation relative to actual prior law. It specifically takes into account the payments that Medicare would be allowed to make both before and after the passage of the ACA.
That straight-forward answer may still sound a bit confusing, but the best way to think of the differences could be explained by the CBO adhering to dated standards. Basically, the CBO hasn’t changed with the times reflecting the impact of “actual law” as mentioned by the study or, “practical law” as in the practical application of laws. This is instructive as we’re then talking about a mega-bill scoring a la the One Big Beautiful Bill Act. You might imagine if the CBO is using an outdated scoring process for a healthcare law, it’s likely to be off base with overall scoring too... So, about that.
To the Congressional Budget Office’s credit, while they are often wrong in their projections, they are also self-reflective. Each year the CBO produces a report entitled: The Accuracy of CBO’s Budget Projections for Fiscal Year (whatever it is). The most recent report was produced in January for the 2024 fiscal year. According to the CBO’s findings, they underestimated revenues to the federal government by 1% while also underestimating outlays by 6%. The net effect was underestimating the federal deficit by 1.1% for the year. How about the year before? They were off by 3.9%. So, you get the point. When you look at where the historical errors have been greatest – there's a theme. The CBO tends to provide rosier debt and deficit assessments than actually ends up happening. That might sound particularly alarming when you consider that the CBO has scored the OBBA as adding $3.3 trillion in debt over the next ten years. There is a but...however.
Looking back at the CBO’s scoring record, I was able to find one window of time in which the CBO overestimated the debt and deficit impact of a significant piece of legislation. It was none other than President Trump’s 2017 Tax Cut and Jobs Act. The original CBO projection for the impact of the TCJA over ten years (2018-2027) had the law adding $2.29 trillion to the federal debt. However, when rescored most recently with the impact of the first seven years of the law considered, the deficit impact has been lowered to $1.89 trillion. In other words, the law through the first seven years of impact, has produced $300 billion less in deficits than originally projected. That’s even more remarkable when you consider that this encompasses a period that included a once in a century, or more, pandemic that obviously roiled the economy and dramatically impacted debt and deficits.
The CBO overestimated the impact of Trump’s 2017 tax cuts largely because they underestimated the impact they would have on economic growth and thus the additional tax revenue produced by it. It’s very likely they’ve done it again with the One Big Beautiful Bill Act. The CBO did estimate that the new law, with additional tax cuts would be pro-growth, but that it would only add a half of one percent to GDP over ten years. By way of comparison, the TCJA was shown to have added more than that, 0.7%, to GDP growth in the first year alone! Given these facts, it’s reasonable to believe that the CBO has overestimated the debt and deficit impact of the OBBBA.