How the Government Estimates a $3.8 Trillion Deficit—And Why It’s Controversial
|When massive federal legislation is proposed—especially one involving trillions in tax cuts or spending—controversy over its projected impact on the national debt quickly follows. Lawmakers and analysts turn their attention to the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT), the two primary agencies tasked with “scoring” these bills. But while their estimates carry weight, they also attract fierce political criticism.
The current debate centers around a newly proposed tax measure that could add an estimated $3.8 trillion to the federal deficit over the next ten years. Critics of the legislation, including budget-conscious senators, are wary of the numbers. But others have chosen a different path: attacking the credibility of the CBO and JCT themselves.
Some conservative commentators argue the agencies routinely overestimate the fiscal consequences of such bills. Others have suggested their economic models are outdated or fail to properly account for the potential growth effects of tax cuts. However, former CBO Director Douglas Holtz-Eakin says that these claims often come from disappointment with the numbers, not from real methodological flaws.
What Does the CBO Actually Do?
The CBO’s core responsibility is to estimate the financial effects of proposed laws. That means calculating how much money the government will lose or gain in revenue, and how much it will spend or save. The Joint Committee on Taxation handles the tax portion, while the CBO handles spending projections and the overall budget picture.
Each year, the CBO develops a baseline projection—a kind of “business-as-usual” economic forecast that assumes current laws remain unchanged. New bills are scored against this baseline to determine how they would alter the federal budget. This approach ensures consistency, even if the real economy changes over time.
Because CBO doesn’t update its forecasts in real-time, its predictions might not always reflect sudden economic shifts. Still, the method is designed to provide lawmakers with an unbiased benchmark to measure proposed changes.
Why Do Politicians Attack the Scorekeepers?
When legislative agendas clash with fiscal reality, it’s common for politicians to challenge the messenger. Over the years, various figures from both parties have questioned the validity of CBO estimates, especially when the agency’s analysis doesn’t support their policy goals.
For example, critics often argue that the CBO underestimates the economic benefits of tax cuts. But Holtz-Eakin, now president of the American Action Forum, says these critiques overlook the fact that CBO uses up-to-date economic research, frequently revises its models, and even accounts for behavioral changes and long-term economic effects—something called “dynamic scoring.”
The Limits of Economic Forecasting
No model can predict the future with complete accuracy. Economic variables shift, new legislation is passed, and unexpected events—like recessions or pandemics—disrupt even the most carefully crafted projections. Still, Holtz-Eakin says that what matters most is not whether the forecast hits the exact dollar amount, but whether it gives Congress a reliable range and a clear picture of magnitude.
The $3.8 trillion estimate matters because it illustrates that the proposed tax cuts are likely to significantly increase the debt—possibly by around 10% over a decade, considering the current $37 trillion debt level.
Should the CBO Change?
Holtz-Eakin believes CBO could do a better job of explaining how it arrives at its conclusions. During his time as director, he had the agency release detailed breakdowns of complex scores, such as the Medicare Modernization Act. He argues that greater transparency about the assumptions behind estimates would help the public and lawmakers better understand the implications of major legislation.
In the end, while CBO’s projections are not perfect, they remain a crucial tool for shaping responsible fiscal policy. And for a country staring down trillions in potential debt, those estimates—however educated—are too important to ignore.