Routinely Inaccurate CBO Forecasts Shouldn't Factor With Tax Writing

As the Senate prepares to begin consideration of the House-passed tax bill, the media and congressional Democrats are suddenly worried about budget deficits.  After cheering on the Biden spending spree the last four years, they are now warning of a fiscal disaster if the tax cuts are extended.

Yes, the Senate should look for more spending cuts. But they should also be skeptical of any CBO deficit projection. CBO has not released an official cost estimate of the entire bill, and when it does, it will almost certainly be wrong. CBO has been issuing cost estimates for fifty years, and the record shows their forecasts are almost always inaccurate.

A government watchdog group, the Foundation for Government Accountability, has issued reports and testified before Congress on CBO’s forecasting record. The group has said that CBO’s track record is “questionable, at best.”  They say that CBO’s “cost estimates have been stunningly inaccurate in many cases,” and that the agency has “routinely mis-estimated revenue and outlays.”

In particular, CBO’s projections of revenue have been marked by “mistakes and inaccuracies.” The record shows that CBO tends to overestimate the cost of tax cuts and underestimate the cost of spending programs.

CBO admits that its long term forecasts are not accurate, saying that economic projections the forecasts are based on are subject to a “high degree of uncertainty,” making it “difficult to provide accurate forecasts.”

A CBO report on its forecasting record from 1983 through 2023 shows that CBO overestimated budget deficits two-thirds of the time. The report also shows that the average error rate for long term revenue projections was 6%, meaning that CBO’s current ten-year revenue projection is likely $4 trillion off the mark.

Looking back, we know that the CBO revenue forecast of the cost of the 2017 tax cuts was inaccurate. From 2018 through 2024, the actual amount of revenue collected has been $1.5 trillion more than CBO projected after the tax cuts were enacted.

This past January, CBO quietly increased its ten-year revenue projection it made six months earlier by $2.2 trillion, largely the result of higher than expected taxes on individuals and corporate. This $2.2 trillion in higher tax revenue will offset a larger portion of the “cost” of extending the  tax cuts.

CBO’s revenue projections are so often wrong because they ignore the incentive effects of low tax rates on taxpayer behavior, investment, and economic growth. Congressional Republicans should be wary of any CBO cost estimate, and not base long term policy decisions on inaccurate projections. No matter what CBO says, do not back away from the pro-growth provisions of lower tax rates and less spending.