CBO’s work follows processes specified in the Congressional Budget and Impoundment Control Act of 1974 (which established the agency) or developed by the agency in concert with the House and Senate Budget Committees and the Congressional leadership. Most of the processes that guide CBO’s work have been in place since the early days of the agency in the 1970s.
How does CBO decide what to study?
CBO’s chief responsibility under the Congressional Budget Act is to help the House and Senate Budget Committees with the matters under their jurisdiction. CBO also supports other Congressional committees—particularly the Appropriations, Ways and Means, and Finance Committees—and the Congressional leadership.
CBO produces a number of reports specified in statute, of which the best known is the annual Budget and Economic Outlook. Other CBO reports that are required by law or have become regular products of the agency owing to sustained interest from the Congress are described in products.
In addition, CBO is required by law to produce a formal cost estimate for nearly every bill that is approved by a full committee of either the House or the Senate; the only exceptions are appropriation bills, which do not receive formal written cost estimates but whose budgetary effects CBO estimates for the Appropriations Committees. CBO also produces formal cost estimates at other stages of the legislative process if requested to do so by a relevant committee or by the Congressional leadership. Moreover, CBO produces informal cost estimates for a much larger number of legislative proposals—including some that Congressional committees consider during the process of developing legislation, and some that receive consideration at other stages in the legislative process.
Beyond its regular reports and cost estimates, CBO prepares analytic reports at the request of the Congressional leadership or of the Chairmen or Ranking Members of committees or subcommittees. CBO’s managers and analysts work with requesters and their staffs to understand the scope and nature of the work that would be most useful to the Congress.
What methodology does CBO use in its analyses?
All of CBO’s work reflects the agency’s objective, impartial, and nonpartisan analytical judgment. That judgment is based on several factors:
- A detailed understanding of federal programs and the tax code.
- Careful reading of the relevant research literature.
- Extensive analysis of data collected and reported by the government’s statistical agencies and by private organizations. Such data include the national income and product accounts, surveys of labor market conditions and prices, the Statistics of Income database, the Current Population Survey, the Survey of Income and Program Participation, data on national health expenditures, various health care surveys, and data on financial transactions.
- Consultation with numerous outside experts, including professors, analysts at think tanks, representatives of industry groups, other private-sector experts, and people working for federal agencies and for state and local governments. Some of the consultations occur during periodic meetings with CBO’s Panel of Economic Advisers and Panel of Health Advisers; many more consultations occur on an informal basis.
The evolution of particular federal programs under current law, the budget as a whole, and the U.S. economy is often very uncertain, as are the effects of legislation being considered by the Congress. CBO’s goal is to develop estimates that are in the middle of the distribution of possible outcomes and to communicate clearly the basis for those estimates and the uncertainty surrounding them.
CBO does not attempt to predict the ways in which the Congress might amend existing laws or legislative proposals being considered. Therefore, the agency’s baseline budget and economic projections generally follow current laws (as well as rules for constructing baseline projections that are specified in law or that have been developed by CBO and the Budget Committees), and the agency’s cost estimates for legislation take that legislation as it is written and do not incorporate any possible future modifications to it. There is no plausible alternative to that approach. If, instead, CBO incorporated its own predictions of future Congressional action in its analysis of current or proposed laws, that analysis would ultimately be hard to interpret and less useful to the Congress and the public. However, in addition to projections that reflect current laws, the agency regularly shows the effects of adopting alternative policies that have been discussed by the Congress, so that the impact of those alternative policies is clear.
Does CBO disclose its methodology?
Yes. CBO is required by law to disclose the basis for each of its cost estimates, and the agency follows the same practice for its reports.
Read more about how CBO ensures the transparency of its work.
Who reviews CBO’s work?
All of CBO’s estimates and reports are reviewed internally for objectivity, analytical soundness, and clarity. That rigorous process involves multiple people at different levels in the organization. CBO’s analytic reports are also reviewed by outside experts who specialize in the issue at hand, when that is practical. In some cases, those experts are members of CBO’s Panel of Economic Advisers or Panel of Health Advisers. Although such experts provide considerable assistance, CBO is solely responsible for its work.
Why doesn’t CBO make policy recommendations?
Choices about public policy inevitably involve value judgments that CBO does not and should not make. To ensure that CBO’s analysis is objective, impartial, and nonpartisan, the agency does not make recommendations about what policies the Congress should enact.
Read more about CBO’s objectivity.
What is a “Baseline Projection”?
CBO’s baseline budget and economic projections are based on the assumption that current laws governing federal revenues and spending will generally remain unchanged. Some specific rules governing baseline projections have been included in legislation (in particular, the Balanced Budget and Emergency Deficit Control Act of 1985) or have been developed by CBO in consultation with the House and Senate Budget Committees.
The baseline projections are not intended to be a prediction of budgetary outcomes. Rather, the projections reflect CBO’s best judgment about how the economy and the budget will evolve under existing laws. That approach allows the baseline to serve as a neutral benchmark against which Members of Congress can measure the effects of proposed legislation.
How does CBO produce its economic forecasts?
CBO’s economic forecasts cover the major economic variables—gross domestic product, the unemployment rate, inflation, and interest rates—along with a broad array of other economic measures. CBO draws information for its forecasts from ongoing analysis of daily economic events and data, the major commercial forecasting services, consultation with economists both within and outside the federal government, and the advice of the experts on its Panel of Economic Advisers.
CBO’s economic forecasts are based on current laws governing federal taxes and spending (and on additional rules for constructing baseline budget projections that are specified in law or that have been developed by CBO and the Budget Committees). At the same time, the agency’s economic forecasts serve as a basis for its baseline budget projections.
What behavioral responses are included in CBO’s estimates?
CBO’s analysts assess the extent to which proposed policies would affect people’s behavior in ways that would generate budgetary savings or costs, and those effects are routinely incorporated in the agency’s cost estimates and reports. For example, the agency’s estimates include changes in the production of various crops that would result from adopting new farm policies, changes in the likelihood that people would take up certain government benefits if policies pertaining to those benefits were altered, and changes in the quantity of health care services that would be provided if Medicare’s payment rates to certain providers were adjusted. (Similarly, in its estimates of the budgetary effects of tax legislation, the staff of the Joint Committee on Taxation accounts for behavioral responses to changes in the tax system—for example, changes that would take place in the timing and size of capital gains realizations if the tax rate applicable to capital gains was modified.)
However, with a few exceptions, CBO’s cost estimates for individual legislative proposals have not reflected changes in behavior that would affect total output in the economy, such as any changes in the labor supply or private investment resulting from changes in fiscal policy, and that would thereby affect the federal budget. That is, CBO’s cost estimates generally have not included what is sometimes known as dynamic scoring. The convention of not incorporating macroeconomic effects in cost estimates, a practice that has been followed in the Congressional budget process since it was established in the 1970s, reflects several facts: Completing macroeconomic analysis of all proposed legislation would not be feasible; nearly all legislation analyzed by CBO would have negligible macroeconomic effects (and thus negligible feedback to the federal budget); and estimates of macroeconomic effects are highly uncertain. CBO’s only exceptions to this approach have been a few cost estimates for comprehensive immigration legislation that would have substantially increased the U.S. labor force. (Assuming that those bills would have had no effect on overall output would have ignored one of the primary effects of the bills and distorted those estimates too severely.)
In May 2015, the House and Senate passed a budget resolution requiring CBO, to the extent practicable, to incorporate macroeconomic effects into its cost estimates for major legislation. Because macroeconomic analyses require complex modeling and a significant amount of time, they can be produced only for a small number of major proposals, and only if time allows.
In selected reports—as distinguished from cost estimates—CBO has provided estimates of the effects on the overall economy of significant changes in federal spending and tax policies. Some of those analyses have also examined how the projected changes in the economy would in turn affect the federal budget, though those feedback effects have generally been small relative to the direct budgetary effects of the policies analyzed. Recent reports incorporating such analyses include the agency’s annual examination of the economic impact of the President’s budget, its annual Long-Term Budget Outlook, and several reports on the macroeconomic effects of alternative budgetary paths.
How do CBO’s analyses whose scope is budget as a whole differ from those for specific pieces of legislation?
CBO’s analyses whose scope is the budget as whole—such as those examining the Budget Control Act of 2011, the President’s budget, and alternative scenarios in reports on the long-term budget outlook—incorporate, among many other things, the effects on federal interest payments of such broad proposals’ changes to the total amount of federal debt. To be consistent with long-standing procedures used by the Congress for budget enforcement purposes, CBO does not include such effects in cost estimates for specific pieces of legislation or other analyses of specific proposals.
Analyses by CBO can also incorporate the macroeconomic effects of government policy, and the resulting feedback effects on the federal budget. In particular, the Concurrent Resolution on the Budget for Fiscal Year 2016 requires such analyses for major pieces of legislation, as discussed above. Those analyses account for the effect on federal interest payments of changes to interest rates that would result from proposed policies. In its presentation of results, CBO also includes the effects on federal interest payments of changes in the total amount of federal debt if the analytic scope is the budget as a whole, as when examining the President’s budget, but does not if it is limited to a specific piece of legislation, such as repealing the Affordable Care Act.
How accurate are CBO’s estimates and forecasts?
CBO’s baseline budget and economic projections are intended to show the future paths of the budget and the economy under existing laws. Those baseline projections then serve as a neutral benchmark against which Members of Congress can measure the effects of proposed legislation. Because lawmakers frequently enact changes to laws, however, actual budget and economic outcomes are almost certain to differ from CBO’s projections even if the projections are a perfectly accurate forecast conditional on existing laws. Therefore, the differences between projections and outcomes can be misleading measures of the quality of the projections unless adjustments are made for changes in laws.
The agency’s updates of its baseline budget projections include an analysis of the changes from the previous projections, categorizing them as legislative (the result of new legislation), economic (the result of changes in economic conditions and the economic outlook), and technical (the result of changes in other factors). CBO also regularly publishes comparisons of its economic projections with those of other forecasters. Those comparisons—which do not adjust for differences in assumed fiscal policy—show that the accuracy of CBO’s projections has been very similar to that of the Blue Chip consensus (an average of private-sector forecasters) and the Administration.
Judging the accuracy of CBO’s cost estimates for legislation that is ultimately enacted is often quite difficult—generally because the actual costs or savings resulting from enacting legislation are a small part of a large budget account or revenue stream and cannot be separately identified. As a result, when spending for a government program turns out to be higher or lower than CBO had expected after a legislative change, it is usually unclear whether the error should be attributed to the previous baseline projection for spending under that program or to CBO’s estimate of the effects of the new legislation. Nonetheless, CBO carefully scrutinizes errors in its projections, reviews data on spending patterns for federal programs, and consults with outside experts on those programs in order to improve its estimating methodology.
CBO also endeavors to communicate to the Congress the uncertainty of the agency’s estimates. For example, most of CBO’s analyses of the economic effects of changes in tax and spending policies present ranges of estimated effects; the agency’s long-term budget projections show the effects of alternative outcomes for key demographic and economic variables; and the agency’s projections of the finances of the Social Security system include ranges of outcomes derived from uncertainty about key variables.
How does CBO release its work?
CBO aims to make its work widely available to the Congress and the public. In some circumstances, though, the needs of the Congress lead CBO to keep the results of an analysis confidential. The agency performs two kinds of work, broadly speaking, and its procedures for releasing results depend on which category the work falls in.
The first category consists of formal cost estimates and analytic reports that address public legislative proposals or broad policy issues. Public legislative proposals include introduced bills and amendments, proposals in the President’s budget, policy options that CBO has analyzed in one of its reports, and bills that have been voted on by committees or by the House or Senate. They also include proposals that have been widely discussed in the public domain or that have been publicly discussed in some detail by their sponsors. Examples of such publicly discussed items include some proposals to extend an expiring provision of law, to reenact a provision that was previously in law but has expired, to enact legislation that was formally introduced in a prior Congress, or to repeal a recently enacted law.
CBO releases publicly all of its formal cost estimates and analytic reports. It delivers its work simultaneously to interested Members of Congress and their staffs, including in particular the sponsor of legislation or requester of a report, the Chairman and Ranking Member of the committees of jurisdiction, and the Budget Committees. Soon after delivery to those key interested parties, the agency posts the work on its website. In addition, an email service, Twitter announcements, and RSS feeds notify subscribers when the agency publishes work on topics that interest them.
The second broad category of CBO’s work consists of informal cost estimates and other types of information produced to assist in the development of legislation. Those informal communications are preliminary because they do not undergo the same review procedures required for formal estimates. In some cases, they are provided for legislative proposals that are already public; in those situations, CBO’s analysis is available to any interested party in the Congress. In other cases, they are prepared when Members or their staffs are evaluating alternative proposals to accomplish their goals, have not made any specific proposals public, and need the flexibility to modify their proposals before they become public, sometimes in response to CBO’s preliminary estimates. In fact, CBO’s analysts often provide informal, preliminary estimates to committee staff for a broad range of legislative options, allowing the consideration of different approaches before a specific legislative path is decided upon. In such situations, CBO recognizes that the confidentiality of its work is critical to committee deliberations, so it keeps its informal estimates confidential as long as the proposals are not made public. (Such confidentiality does not apply to proposals that differ only in minor details from ones that are in the public domain.) However, once such a proposal becomes public—as introduced legislation or through public discussion of its major elements—CBO’s estimate for that proposal is available to any interested party in the Congress.
Sometimes the Congress begins public consideration of a proposal for which CBO has developed a preliminary estimate but has not had time to complete a careful review of the legislative language that has been made public and to prepare a formal cost estimate. In such cases, CBO sometimes releases publicly its preliminary analyses and clearly indicates how those analyses differ from formal cost estimates.
Do other countries have organizations like CBO?
A number of other countries have parliamentary budget offices or independent fiscal institutions that provide budgetary and economic information for their legislatures and the public. However, the responsibilities of such offices vary among countries. The Organisation for Economic Co-operation and Development coordinates a network of officials of those offices.