Nicco Mele, Doug Elmendorf, and Richard Parker

Dean Doug Elmendorf: Understanding the Congressional Budget Office

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March 23, 2017, 9:45 am

March 22, 2017— Doug Elmendorf, Dean of Harvard Kennedy School and former director of the Congressional Budget Office (CBO) from 2009-2015, discussed why the CBO exists, how it works, and how the media reports on its findings, in a conversation at the Shorenstein Center. In March, the CBO forecast that the Republican plan to replace the Affordable Care Act would result in 24 million fewer people being insured.

Below are some highlights from the event, which was moderated by Nicco Mele, Shorenstein Center director, and Richard Parker, Lecturer in Public Policy. Dean Elmendorf also discussed how the CBO makes its forecasts compared to those of the Office of Management and Budget (OMB), the dynamic scoring process, and other topics, available in the audio recording below.

Why the CBO was established

“The CBO was established in 1974 for two reasons…The high-minded reason is that Congress would like to understand better what the effects of legislation would be, before it votes on that legislation, and it would like to be able to tailor its legislation to have certain effects based on feedback during the preparation process, and not just the feedback you ultimately get as policies unfold.”

“The practical reason is that Congress would like to have more power. When the CBO was established, Richard Nixon was president. He was impounding funds that Congress had appropriated, meaning they’d asked for money to be spent on some purpose, and President Nixon wasn’t spending it…Congress wanted to reestablish its power over the budget, and it did that by establishing the Congressional Budget Office to provide Congress with information that was not filtered through the president’s Office of Management and Budget.”

A culture of non-partisanship

CBO’s job is to do the analysis, and let the chips fall where they may.

“CBO’s job is to do the analysis, and let the chips fall where they may…CBO is strictly non-partisan. That’s created and maintained in a few key ways. One is that people hired by CBO, or drawn to CBO, are people who want to get the analysis right, more than they want to get some particular policy outcome.”

“People I worked with at the CBO did not know at the time what I would do if I were running the U.S. healthcare system, they didn’t know what I would personally do about tax policy…and CBO makes no recommendations, because recommendations involve policy judgments.”

“Another part of CBO’s non-partisanship is scrutiny from outsiders. CBO has advisors, who are selected to range across the political spectrum, across the spectrum of economic views, and so on. People in the CBO, including the director, care more about the approval of experts on the outside than they care about the approval of members of Congress.”

“Then there’s the question of how do you maintain the existence of your organization when you’re basically a thorn in the side of at least half of the Congress at any given moment? The answer to that is partly that members of Congress really do want information…they differ a lot in what they think would be better for the country, but they want the information.”

Budget process confusion and gridlock

We’re spending more, we’re spending in places that people mostly like, and yet, in the abstract, people don’t much like government spending because it means higher taxes. So until we come clean with ourselves about that, it’s very hard to figure out what we should do about the budget.

“The budget process, in my time in doing this, has basically been ignored. We’re just sort of ad-libbing, and that is too bad. I think it has its roots in a more fundamental lack of understanding by the American people about the federal budget, which has led to, for the moment, an irresolvable fight between the parties. Federal spending today, as a percentage of GDP, is equal to its average over the last 50 years. Federal revenues, as a percentage of GDP, are just slightly above their average of the last 50 years. And for Americans across most of the income distribution, federal taxes are a smaller share of income than in almost any point in the last 30 years. I don’t think there’s 1 in 20 Americans who would guess that, or believe it if I said it.”

“We have had growing spending for Social Security and Medicare and Medicaid…and those programs are growing a lot relative to the size of the economy, because we have more older Americans, and because healthcare costs have grown, and those trends are both going to continue. So that’s pushing up federal spending by a lot, but it’s pushing it up for programs that are mostly pretty popular.”

“Meanwhile, other sorts of spending are mostly coming down or staying flat as a percentage of GDP. Defense spending fell a lot as a share of GDP, and it’s bounced around, but it’s bouncing around at a much lower level than was true in the 70s or 80s. Means-tested programs, benefit programs based on income, apart from healthcare programs, are flat or down as percentage of GDP over decades now.”

“We’re spending more, we’re spending in places that people mostly like, and yet, in the abstract, people don’t much like government spending because it means higher taxes. So until we come clean with ourselves about that, it’s very hard to figure out what we should do about the budget.”

“In the abstract, having a tight cap on annual appropriations seems like a good way to rein in government bureaucracy. But when you get down to the actual appropriations, and you say, well, NIH, what do we want to do? Very few people actually want to do the 18 percent cut that the Trump administration just proposed. Very few people want to reduce spending for veterans’ health care, very few want less spending on highways, very few want less spending on the Centers for Disease Control. You set targets to meet some overall objective that sounds good in the abstract that are totally unrealistic. When it comes to adding up the pieces, not surprisingly then, you get stuck, and at the last minute, there’s some deal that is cut between the two parties to get enough votes to keep the lights on.”

The difficulties of conveying the complexity of forecasts

If you have a low number and a high number, people who want the number to be low quote the low one. The ones who want it to be high, quote the high one. The ones who aren’t trying to take a side, but have a few column inches to work with, pick the number in the middle or take the average. So the newspaper stories turn out the same way, but the reprinting of the CBO estimates through the various press releases and members of Congress and advocacy groups gets totally muddled. There are always different numbers going around…it’s just a level of complexity that is hard to transmit. I spent a lot of time with reporters trying to make sure that their one paragraph, or three paragraph stories were right.”

The Trump administration’s attacks on the CBO

I think that the reaction to CBO’s analysis is a very reassuring sign that we are not in a post-factual world.

“I thought the attacks on the CBO from the administration and from some Republicans in Congress were at the high end of the range we have seen over the previous few decades, but not particularly out of that range. I think lots of people have a sort of hair-trigger reaction now to attacks by the administration on the fundamental institutions of our political system, and I think that hair trigger is right to have…because the administration has been attacking fundamental institutions of our political system in a way that has no precedent. But I think, in fact, the attacks on CBO are not so much out of that past range, as have been the attacks on the press, and the judiciary, and other foundations of our system.”

“I think that the reaction to CBO’s analysis is a very reassuring sign that we are not in a post-factual world. I think those numbers were taken very seriously, as they should have been…a lot of different [TV and radio] stations are interested in reporting on CBO’s numbers, so I think that’s a good sign.”

Article by Nilagia McCoy of the Shorenstein Center.