The Agenda

What Does ‘Gaming’ the CBO Mean?

I’ve been using the “gaming” locution, despite the fact that it is not sufficiently descriptive. Ezra Klein, the indispensable chronicler of the health reform debate, has written an excellent and insightful post offering notes on CBO skepticism.

First, be very careful with any criticism of CBO that seems to be merited by a particular score rather than a particular methodological difficulty. To put that slightly differently, does anyone think that conservatives would be squawking if CBO had disappointed Democrats by saying the bill would save less money than either the House or Senate incarnations? If not, then keep in mind that this is a political, not technical, dispute. To establish my own credentials on this, here’s the post I wrote defending the CBO when liberals were arguing that it was underestimating health-care reform’s savings.

That people who profit politically from the defeat of health reform legislation will emphasize some points rather than others is certainly true. And those who profit politically from the success of health reform legislation will presumably do the same. Ezra speaks of a “coordinated conservative effort to discredit the CBO’s analysis.” Should we be concerned about a coordinated progressive effort to discredit critics of the reform bill from the right and the left? The term “coordination” does a lot of work here.

The fundamental problem, as Greg Mankiw has noted, is that the CBO has a very limited ability to analyze the macroeconomic impact of regulatory changes, including the impact of implicit marginal tax rates on work effort. From Mankiw:

When CBO estimates the budgetary cost of such bills, it holds GDP constant. If you think (as I do) that large increases in marginal tax rates tend to depress labor effort and thus GDP, then you should be wary of claims based on CBO scores that the health reform bill is deficit neutral. Lower GDP will mean lower tax revenue and thus a larger budget deficit.

Given that, the scores are of limited utility in understanding the long-run fiscal impact, whether the score is a “good” one or a “bad” one. 

Second, don’t confuse uncertainty with bias. It’s true that the CBO’s estimates of the health-care reform bill are uncertain. But that cuts both ways. A lot of very respected health-care economists and experts think the CBO is being way too conservative in how much the bill’s payment reforms will save. Historically, CBO has frequently underestimated the savings from health-care reform legislation. To use one example, they heavily overestimated the cost of the Medicare Prescription Drug Benefit. More examples here.

I am absolutely certain that the CBO is not “biased” in any crude, partisan sense. (For one thing, I know people who’ve worked for the organization well enough to have a sense that it is staffed by impressively public-spirited people.) Rather, I think that the legislative constraints they face create a systematic bias towards underestimating the effect of legislation on work effort, whether positive or negative. The brief analysis Ezra provides, from the Commonwealth Fund, is very useful. Yet it neglects to mention the particularly vexing challenges posed by programs that increase implicit marginal tax rates. 

Third, some argue that the problem with CBO’s estimates is that they can’t control for Congress. The actual evidence shows that Congress ismuch better at sticking to tough cost controls than people give them credit for. But beyond that, if Congress can’t do hard things, then everyone is screwed. Conservatives, who strongly believe in entitlement reform, are perhaps in the worst shape as that’s the hardest thing to do. Moreover, the health-care bill has the Medicare Commission, which explicitly makes it easier to do hard things because it takes some of the power away from Congress and gives it to independent experts. If you think Congress is the problem here, then this bill is the best answer anyone has yet come up with.

This is an excellent point, and a good reason for conservatives to back the president’s proposal for the Medicare Commission. It’s worth noting that the CBO did not give the original IMAC proposal a very “good” score, in large part because it depended on a highly subjective analysis of its likely political consequences.

Fourth, some conservatives are arguing that Democrats “gamed” the CBO in order to get the score they wanted. That’s only true insofar as you think going to office hours and working with the teacher is the same as cheating on a test. Both parties go back-and-forth with CBO to try and get their legislation down to a price tag they’re comfortable with. But it’s not some sort of trick. In this case, Democrats changed their legislation so the subsidies grew more slowly over time and the excise tax would grow faster. In other words, CBO said that they’d need to do hard things their constituents wouldn’t like if they wanted to cut the deficit more, and they did them. That’s not gaming, it’s governing.

This is a bit peculiar. To be sure, “gaming” is a specific term. But the decision to include or not include the doc fix is an important one. The decision to include revenue from reforms to the student loan sector is also an important one. Including revenues from a long-term care insurance program is also an important choice. Moreover, tweaking the proposal so that payments send to the exchange are counted as private insurance premiums rather than as taxes does not in itself tell us much about the total costs, public and private, of the reformed health system. If our goal is to understand and improve the long-term fiscal future of the United States, rather than to derive a good score, we would likely take a different methodological approach.

Noting that this is how things are done — that it is not some underhanded truck — isn’t in itself an interesting or important point, in my view. Some of us trying to get an accurate and useful portrait of the long-run fiscal impact, and the CBO score is not adequate to that task. We need more information, and that’s what this conversation is about: context. I like context. 

The role of CBO isn’t to offer perfect estimates. Predictions are hard. Its role is to offer the best guess anyone can reasonably offer. The most common criticism of the agency is not that it is too generous to untested legislation, but too conservative. That’s a byproduct of needing evidence to build models but also needing to evaluate policies that have never really been tried before. But it’s okay. We probably want our scorekeeper to be a bit on the conservative side.

The CBO has a very narrowly defined role that is defined in federal legislation, which excludes a wide array of important variables. Ezra advisedly notes that this is about offering “the best guess anyone can reasonably offer.” Once we factor in the potential impact on GDP, the range of estimates would get unmanageably large. That is a fair point. But an estimate that does not take into account the impact of implicit marginal tax rates is ultimately going to be highly misleading.

The implication of the notion that these estimates are too conservative is that they skew towards higher costs rather than lower. Yet the methodological conservatism keeps the CBO from seriously addressing the impact of implicit marginal tax rates on work effort.

One more time: implicit marginal tax rates on work effort will have an impact on revenues. If you stand to lose thousands of dollars worth of subsidies as you climb the income ladder, it will have an impact on your decision to climb the income ladder

Trust me: I do not like or trust congressional Republicans with our fiscal future. I think that many conservatives have badly compromised themselves through single-minded devotion to the political fortunes of one of the major political parties rather than devotion to the goal of fiscal sustainability. I just don’t think that these are maladies unique to conservatives. Rather, I think we’re seeing some of the profound intellectual missteps made by conservatives in the Bush era recapitulated by liberals and moderates in the Obama era. 

Reihan Salam is president of the Manhattan Institute and a contributing editor of National Review.

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