Congress Should Look at CBO Revenue Forecasts with Caution

The Congressional Budget Office recently released a report analyzing the accuracy of their budget projections. The agency releases this report every year comparing its forecasts of revenue, spending, and budget deficits with the actual results. As is the case every year, the report shows that the CBO projections were inaccurate. 

They were wrong on the size of the deficit by $300 billion. Last year they miscalculated the deficit by $1 trillion. The spending and revenue projections were incorrect, and they underestimated total corporate tax receipts by 10%. These were just one year estimates.

CBO deserves credit for releasing this report every year and acknowledging their shortcomings in forecasting spending and revenue. They admit that their longer term projections are even less accurate and more uncertain.

Over the years, CBO’s revenue estimates have shown the largest errors. Revenue projections from 1983 to 2023 have had an average error rate of 6%. This means that their current ten year revenue forecast could be $4.1 trillion off the mark.

CBO has been especially wrong in forecasting corporate tax receipts, admitting that their corporate tax forecasts have been “particularly uncertain.” From 1983 to 2023, CBO’s average error rate for corporate tax projections was 18%. By this measure, CBO’s current corporate revenue forecast is nearly $1 trillion too low.

CBO concedes that changes in the economy and other factors make it difficult to provide accurate forecasts over the long term. In other words, their forecasts are nothing but a best guess. Yet Congress is asked to make major policy decisions based on inaccurate budget forecasts.

Congress is now considering extending the 2017 tax cuts, which CBO has projected would cost $4.6 trillion over ten years. A year earlier, CBO confidently said that extending the tax cuts would cost $3.5 trillion, $1.1 trillion less.

In a presentation to his Republican colleagues, House Ways and Means Committee Chairman Jason Smith recently pointed out CBO’s forecasting record. In 2018, CBO projected that total federal revenue after the tax cuts would amount to $27.015 trillion between 2018  and 2024. The actual amount of revenue collected totaled $28.516 trillion, $1.5 trillion more than CBO projected. Just last year, corporate tax revenue was 26% higher than CBO projected for 2024 after the tax cuts went into effect.

Congress needs to look at CBO projections with caution. CBO has consistently ignored the incentive effects of low tax rates on taxpayer behavior and economic growth. Members of Congress need to consider the facts during the tax debate and the real life impact of tax increases on taxpayers and economic growth. They should not be pressured into raising taxes by what is almost certainly an inaccurate CBO forecast.