A Handy Guide To This Afternoon's CBO Report

This afternoon we’ll get the Congressional Budget Office’s first look at the budgetary consequences of Donald Trump.

That is, the CBO will release its 10-year budget outlook, which was delayed by a few months to allow enough time to assess recent legislation.

Expect the media to respond in a variety of ways, including matter-of-fact reporting and editorials slamming Trump and the GOP for fiscal profligacy. But whatever the perspective, most responses will have one thing in common—they’ll accept the CBO’s figures as being accurate and authoritative.

To which we call bull****—past CBO projections have been hugely overoptimistic, and there’s little reason to expect improvement in the future.

Projections or Deceptions?

The problem is twofold. First, the CBO’s governing statutes all but require a dishonest look at America’s finances. For example, the statutes don’t allow the CBO to account for tax breaks that Congress routinely extends on a year-to-year basis. Congress knows they’ll renew the tax breaks, we know that they know, they know that we know that they know, and so on, but the CBO is required to strap on a blindfold and build its “baseline” projection on only existing law.

But that’s just one example. Another is the inevitability of supplemental appropriations, which the CBO is required to ignore even as they averaged 0.4% of GDP between 1981 and 2010 (the period covered by the last three decennial tallies). That might seem like a small amount, but over a number of years it has a meaningful effect on debt-to-GDP ratios.

Or we could look at the equally inevitable bailouts and stimulus packages that Congress will surely agree in response to future economic setbacks. Bailouts and stimulus lifted deficits historically by about the same amount (on average) as supplemental appropriations, but they’re similarly disallowed from the baseline.

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Disclosure:  For further discussion of fiscal risks and how they might play out, please consider reading our book, Economics ...

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