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Beware of the Congressional Budget Office’s empirical tricks

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By Edward Woodson

Op-ed views and opinions expressed are solely those of the author and do not necessarily represent the views of BizPac Review.

Gideon J. Tucker once famously quipped, “’No man’s life, liberty, or property are safe while the legislature is in session.”  That is especially true when Congress is looking for arbitrary “offsets” to satisfy the budgetary bureaucrats of the Congressional Budget Office (CBO).

The Congressional Budget Office (CBO) is a federal agency housed within Congress providing budgetary, tax, and economic guidance to Congress.  The CBO estimates essentially write the rulebook in which Congress must play when passing legislation as they estimate the impact bills have on the federal budget.

It sounds good in theory, but the CBO has been notoriously wrong time and time again.  On Obamacare alone, the CBO has made numerous errors, including inflating the number of people who would gain access to insurance and concluding that the creation of a massive spending entitlement would save the government money.

Given the CBO’s past history, many Republicans are now rightfully concerned that the office’s recent calculation of 24 million people losing their health insurance from pending Obamacare repeal is wildly inaccurate. This has caused some conservative icons like Newt Gingrich to express “great [disappointment] with the Republicans in Congress” for  “[failing] to abolish the CBO.”

The CBO is often wrong because they use “static scoring,” meaning they don’t take the revenue effects of political actions into account. For example, If Congress reduces the capital gains tax rate, we all know that more revenue will certainly flow into the government’s coffers as people will cash in investments and make other changes in behavior. Yet to the CBO crowd, a capital gains tax cut is scored as a net revenue loser.  They refuse to use “dynamic scoring,” which would account for incentives and changes in people’s behavior to changes in policy.

Despite these massive errors in calculation, Congress continues to play by the CBO’s rules and that often requires enactment of illogical measures to gain a better “score” from the bean-counters.  When Congress moves forward on pressing tax reform legislation, CBO will become front and center.

As the Reagan tax cuts showed, a reduction in taxes means more economic activity, more prosperity and thus more taxes to the government.  The Reagan tax cuts were not “offset” by tax increases elsewhere.  Yet, some in Congress will seek to cut taxes for some and raise it for others to appease the CBO to avoid being accused of increasing the deficit.

Examples of offsets enacted solely to please the accountants include the dreaded medical device tax included as part of Obamacare. This tax added $29 billion in revenue to the books but its impact was devastating on an industry that literally works to save lives.   The industry has said the tax has cost upwards of 40,000 jobs.

Even Republicans have sometimes fallen into the CBO trap.  Earlier drafts of tax reform included a provision called “accrual accounting.”  The measure would force partnerships, small businesses doctors, dentists, lawyers, and even accountants to get taxed on “phantom income;” income that has been promised but not received.  Forcing businesses to be taxed on accounts receivable rather than income brings a short-term boost in paper revenue to the government.  That, of course, pleases the congressional bookkeepers.   Rep. Kevin Brady (R-TX), the newly minted Chairman of the House Ways and Means Committee, has thankfully abandoned the provision.

All this shows that the time has come to stop playing the CBO’s shell game.  The rules have been written in a way that promotes bad policy and tax increases. Congress is long overdue rewrite the rules or abandon the CBO all-together.

Edward Woodson is a lawyer and now host of the nationally syndicated Edward Woodson Show, which airs daily from 3 to 6 pm EST on gcnlive.com. Follow him on Twitter@EdWooodsonshow.

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