Congress’s Budget Office Needs Better Numbers
Among the CBO's weaknesses is its inability to gauge the effect of private competition in reducing public costs.
Most of us now are familiar with MIT economist Jonathan Gruber's boast that he and others took advantage of the “stupidity of the American voter” to push ObamaCare through Congress. Behind this boast is something that many Americans don't know: When it comes to major U.S. fiscal legislation, the most powerful player is the Congressional Budget Office, whose rules were exploited by Mr. Gruber and other parents of the Affordable Care Act. If the new Republican congressional majority wants to put the country on a path toward solvency, it will have no more important task than to reform the CBO.
Progressives created the CBO in 1974. But the agency has often thwarted the talking points of both parties, thereby earning a well-deserved reputation as a nonpartisan actor in a town full of partisans. Democrats appointed the current director, Doug Elmendorf, in 2009. Yet under his watch the CBO estimated that President Obama's plan to raise the federal minimum wage could eliminate 500,000 jobs, a finding that caused consternation on the left. The agency also resisted pressure from Mr. Elmendorf's Democratic predecessor, Peter Orszag, to count some of ObamaCare's central-planning initiatives, like “accountable care organizations,” as cost-saving measures.
The CBO's job, however, is not to annoy Democrats and Republicans in equal proportion. Its job is to predict—as accurately as possible—the impact of proposed federal legislation on federal spending, tax revenues and economic growth. But when it comes to accuracy, the agency has three weak spots that Congress ought to address.
The first weakness is the failure to estimate how government policies affect behavior. The CBO and its sister organization, the Joint Committee on Taxation, rarely model the deleterious effects of tax hikes or new regulations on economic growth, and thereby tax revenue—what is called dynamic scoring. The CBO does not oppose dynamic scoring in principle, but says that “Such macroeconomic analyses require complex modeling and a significant amount of time.” The CBO and JCT ought to be asked to find the time, and offered the resources, to do such modeling.
The second weak spot is understanding how private competition reduces public costs. The CBO has routinely—and substantially—underestimated the savings that come from allowing private insurers to replace single-payer health benefits. Rep. Paul Ryan's effort to reform Medicare, for example, has been hamstrung by the CBO's theory that private insurance is less cost-efficient than government insurance. There is extensive evidence that the opposite is true. George W. Bush's privately insured Medicare drug benefit, for example, has come in 43% under CBO budget projections. Even ObamaCare's private insurance exchanges—for all their flaws—are costing the federal government less per enrollee than the CBO initially projected.
Mr. Elmendorf has noted that the CBO hasn't finished developing the “tools” to model the cost-saving effects of private-insurance competition. Given the fiscal importance of Medicare reform, it needs to complete this project sooner rather than later.
The third weak spot is opacity. As Jonathan Gruber put it, “lack of transparency is a huge political advantage” for Democratic insiders. The CBO's methods for estimating the economic and fiscal impact of legislative proposals are a black box to anyone outside the agency. This prevents most outside scholars from challenging and improving the CBO's models. It precludes policy thinkers—and most members of Congress—from figuring out the fiscal credibility of their best ideas. And it means the agency is not accountable to the taxpayers it ostensibly serves.
Washington has become increasingly concerned with what Republicans will do when Mr. Elmendorf's term expires in January. If Senate President Pro Tempore Orrin Hatch and the incoming Senate Budget Committee chairman believe that their interests are best served by having a Democrat serve as CBO director, they can do no better than to reappoint Mr. Elmendorf. If they prefer a Republican, there are many credible candidates. The University of Minnesota's Stephen Parente, for example, is the nation's leading expert in modeling premium support-style approaches to health reform.
Choosing the next director won't mean much, however, if Congress does not change the ways the CBO does business. Many Republican priorities will be stymied by presidential vetoes. CBO reform—through instructions from the House and Senate Budget Committees—is one of the few things Congress can do on its own. It happens to be among the most important.
This piece originally appeared in Wall Street Journal
This piece originally appeared in The Wall Street Journal