The Congressional Budget Office (CBO) was created by Congress to provide a nonpartisan assessment of the impact of policy proposals. All policy involves politics. Hence, there is no such thing as a nonpartisan analysis. As with every other agency, the CBO has an agenda.
In terms of the country’s two most pressing policy issues the CBO agenda includes opposition to free markets and tax cuts as well as an affinity for government-controlled healthcare. To implement its agenda the CBO makes use of accounting principles rather than economic principles in assessing the impact of policies.
Accounting principles involve the straightforward use of numbers. In contrast, economic principles incorporate the impact of changes in individuals’ behavior when assessing policies.
By relying on accounting principles rather than economics, the CBO has been able to effectively wrestle control of policies from Congress. This shift in power has had severe consequences for both political parties and for the public.
The current fiasco over healthcare legislation is the most recent example of how the CBO controls policy.
When the Affordable Care Act (ACA) was proposed in 2009, Democrats wanted to know how much the new regulations would add to the cost of health insurance. The CBO concluded that eventually premiums would increase by at most 10% to 13%.
A new detailed analysis from HHS shows the actual increase in insurance premiums due to the ACA regulations was 105%. Had the CBO produced an accurate assessment of the impact of the ACA, it never would have passed. Few politicians would knowingly vote to double the cost of insurance.
Last week, the CBO produced an equally flawed analysis when it was asked to assess the impact of repealing the ACA. Since costly new regulations had doubled insurance premiums, simple logic (i.e. economics) suggests removing those regulations would lead to substantially lower premiums.
Incredibly, the CBO concluded that repealing the ACA would double insurance premiums from today’s already record high levels. The CBO wasn’t through. It followed this illogical conclusion by stating that doubling premiums would make insurance so expensive that 32 million people would become uninsured.
According to CBO reasoning, putting costly regulations on insurance wouldn’t raise premiums by much, but removing those regulations would double the cost. Clearly, the CBO wants government-controlled healthcare.
After blindly accepting the CBO’s biased and inaccurate prediction of the impact of the ACA, Democrats went from a majority to a minority party. A similar fate awaits Republicans who blindly accept CBO’s analysis on either healthcare or tax cuts.
The CBO also doesn’t like lowering tax rates. As a result, when the agency assesses the impact of tax cuts it has a similar type of agenda-based analysis. The only time the CBO finds a positive impact from major tax cuts is when Congress also raises taxes to offset any lost revenue.
My book, Rich Nation/Poor Nation, shows how almost all increases in US living standards since 1900 have come when tax rates were low or during periods of major tax cuts. Don’t expect the CBO to consider any of this historical evidence. It simply doesn’t conform to its agenda.
Congress has the responsibility to use its own judgment in assessing the impact of its policies. Allowing the CBO to usurp this power represents a dereliction of duty taking us deeper into the swamp.
To reestablish control, Congress must abolish the CBO and use its own judgment to assess the impact of major policy changes.
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