Why the CBO cost estimate is so important

Tom Curry National affairs writer • Profile • E-mail

What is the Congressional Budget Office?
The Congressional Budget Office is the non-partisan budget estimator for Congress. It calculates how much each piece of proposed legislation would cost the taxpayers.

Congress created the agency in 1974 in response to its budget struggles with President Richard Nixon.

Members decided they needed more in-house expertise so that they could challenge the president's experts.

The CBO "scores" a proposed bill by calculating its cost — how much it will either increase or decrease federal spending and tax revenues.

The CBO also calculates how many people would be eligible for benefits when Congress expands a program such as Medicaid. It also does assessments of the effect on the U.S. economy of legislation such as a bill to reduce greenhouse gas emissions.

What’s the political impact of Wednesday's cost estimate for the Senate Finance Committee's insurance reform bill?
By estimating that the bill would result in a net reduction in federal deficits of $81 billion between 2010 and 2019, the CBO probably helped to ensure passage of the bill. The net savings forecast will likely reassure some wavering senators about the cost of the bill.

The CBO predicts that the bill will increase spending by $829 billion — but that figure will be more than offset by the tax increases, fees, penalties and spending cuts also proposed in the legislation.

At least at first glance, the bill now meets President Barack Obama’s test of not adding to future federal deficits. Obama said last month, “I will not sign a plan that adds one dime to our deficits, either now or in the future.”

But the CBO also said the bill would not fully solve the problem of the uninsured.

“The number of nonelderly people who are uninsured would be reduced by about 29 million, leaving about 25 million nonelderly residents uninsured (about one-third of whom would be unauthorized immigrants),” the CBO analysis said.

Could the insurance reform bill change further? And if the bill is revised, will CBO do another estimate?
Yes, it could change and yes, CBO will do another estimate.

The Senate Finance Committee bill is likely to be changed when it is melded with the Senate health committee bill and then amended during the Senate floor debate.

Then the Senate legislation must be merged with the House bill.

CBO will do at least one more cost estimate of the revised bill. Once a House-Senate conference committee designs a compromise version of the bill, the CBO will do a cost estimate of that bill.

Why is this CBO estimate significant?
The CBO has a reputation for producing cost estimates for proposed legislation — known as "scoring" — that are non-partisan, objective, and rigorous.

The CBO works with the staff of the Joint Committee on Taxation which assesses the effect of changes in tax law.

Even when members of Congress disagree with CBO’s scoring, they almost always respect its expertise and integrity.

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The CBO has credibility partly because it often tells members of Congress what they don’t want to hear: that a proposed bill will cost more than its proponents think it will, or that a proposed tax increase will raise less revenue than its proponents had hoped.

For example, in August the CBO said that more use of preventive care would cost the taxpayers more money, not save money. In their budget projections, Democratic leaders had counted on preventive care as a money-saver.

"It's not too much of an overstatement to say CBO can make or break health care reform … because we've got to go by your numbers," Sen. Max Baucus, chairman of the Finance Committee, told CBO Director Douglas Elmendorf during a hearing earlier this year. "I cannot think of anything that depends so much on CBO as this."

A Republican on the Finance Committee, Sen. Jon Kyl of Arizona, referred to the CBO last week as “our holy grail here.”

Kyl and the other Republican members of the Finance Committee have urged that Elmendorf and JCT chief of staff Thomas Barthold be present before the final committee vote on the health overhaul bill. "It is important that members have an opportunity to ask questions about the legislation’s deficit impact," the ten Republicans said.

And a group of centrist Democratic senators has asked that the CBO score of the House-Senate compromise bill be published on a congressional web site at least 72 hours prior to the final Senate vote.

Who's the boss at CBO?
CBO director Elmendorf is a Harvard-trained economist, who had Lawrence Summers, currently the president's economic policy coordinator, as one of his mentors.

Among Elmendorf’s earlier jobs were serving as an economist at the Council of Economic Advisers under President Bill Clinton and an official in the Treasury Department under Clinton and Treasury Secretary Summers.

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Elmendorf was chosen by Democratic congressional leaders at the recommendation of Senate Budget Committee chairman Sen. Kent Conrad D-N.D., and House Budget Committee chairman Rep. John Spratt, D-S.C.

What tensions have developed between Elmendorf and Democratic congressional leaders?
In July Elmendorf suggested Congress could reduce the tax break for employer-provided health insurance coverage. Senate Majority Leader Harry Reid scornfully dismissed Elmendorf's suggestion. "What he should do is maybe run for Congress," Reid said.

Two weeks ago, Baucus urged Elmendorf to quickly finish scoring the committee’s bill. When Elmendorf said a formal score would take two weeks, Baucus said that was unacceptable.

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