The Congressional Budget Office’s forecasts of nominal government expenditure, revenue, and deficits, as well as its estimate of nominal gross national product, are often used to decide of the future of spending programs (think about the stimulus and Obamacare) or tax cuts. As such, it is it important to ask: How reliable is the CBO?
This chart by my colleague Matt Mitchell sheds some light on that question.
The data show the difference between the CBO’s June 2009 and August 2010 projections of spending as a share of GDP. As is often the case, last year the CBO projected that spending after 2010 would drop dramatically from its 2008 level. Today, the projections look quite different. Why is that?
Mitchell argues that it is because there is no such thing as temporary spending. According to Christina Romer’s speech at the National Press Club last week, some $200 billion of the stimulus spending was extended in the FY2011 budget.
According to a study by the FreedomWorks Foundation, the CBO’s track record for estimating the cost of major legislation is terrible.
We find that although the score is important, it should at best be considered the very least that a given bill may cost. At worst, estimates have been up to 2,600% higher than the actual cost of legislation.
The bottom line is that CBO projections should be taken with a grain of salt — to say the least.