The Trump administration is not fond of the Congressional Budget Office.
The independent, highly respected agency that analyzes the impact of legislative proposals has said the numbers in President Trump’s budget don’t add up and that Republican health care proposals would cause huge insurance coverage losses. And it will hold immense sway over the fate of Republicans’ next legislative priority: tax reform.
The White House has embarked on a rhetorical war against the agency without precedent. The White House's official Twitter account sent out a "fact-check" video trying to debunk the CBO's findings that Republican health bills would reduce health coverage by more than 20 million people. (At one point, the video misspells the word "inaccurate.")
The Congressional Budget Office's math doesn't add up.— The White House (@WhiteHouse) July 12, 2017
Faulty Numbers = Faulty Results pic.twitter.com/zdf4bZ01ma
In an interview in May, White House budget director Mick Mulvaney attacked the group, saying, “At some point, you've got to ask yourself, has the day of the CBO come and gone?”
It’s normal for politicians to be frustrated with the CBO. It’s a highly respected nonpartisan research group whose estimates of budgetary cost and other effects of legislation are treated as very credible in Washington. That can cause problems for members of Congress and the administration when the numbers don’t come out how they like, and has earned the CBO criticism from Democrats and Republicans alike in the past, some deserved and some not deserved.
What’s not normal is trying to erase the CBO’s formal role in policymaking. The agency normally gets to decide which bills reduce the deficit, meaning they can pass the Senate with a bare majority and avoid a filibuster. That could change this year or next. Senate Republicans got a competing analysis of their health care bill from the Department of Health and Human Services. They’ve also suggested they might do something similar with tax reform. Some House Republicans have even proposed cutting the agency’s staff by 38 percent, and replacing it with an “aggregator” collecting projections from various think tanks.
If that happens, the CBO will be weakened like never before, and face a fight for its own relevance and survival.
The CBO’s reports on health care made it a target
The proximate cause for the Republican attacks on the CBO is the agency’s habit of pouring cold water on attempts to repeal and replace the Affordable Care Act. Each and every time the CBO has looked into GOP health legislation, the verdict was damning.
Twice in March, it projected that the House health care bill would reduce insurance coverage by 24 million people, and increase premiums in the first few years. The day after the second report, House Speaker Paul Ryan threw in the towel on repeal, for the time being.
Then on May 24, after Ryan jammed through an updated health bill without a score, the CBO released its analysis, confirming that the law would reduce coverage by 23 million, increase premiums in 2018 before they started to fall again, and increase premiums for older Americans by as much as 850 percent.
On June 26, the CBO took up the Senate's version of the bill and concluded that it, too, would reduce coverage by 23 million. Once the Senate bill was officially dead, Senate Majority Leader Mitch McConnell announced the body would take up a bill to repeal Obamacare’s taxes and spending programs entirely while leaving most regulations in place. The CBO has already scored that proposal, and found that it would reduce coverage by 32 million and double premiums over 10 years.
All these numbers got substantial press coverage and heavily affected congressional debates over the legislation. Even Republican senators and House members recoiled at the extent of the coverage loss represented by the CBO’s numbers. “I want to work w/ my GOP & Dem colleagues to fix the flaws in ACA,” Sen. Susan Collins (R-ME) tweeted. “CBO analysis shows Senate bill won't do it.”
That made the CBO an easy target. If the numbers were wrong, then the entire critique — that the bill would strips millions of their health insurance and make those who still had coverage pay more in premiums and deductibles — was invalid. Conservative politicians and wonks started targeting the CBO’s track record and assumptions.
Health and Human Services Secretary Tom Price — who helped pick CBO Director Keith Hall to head the office and praised his “impressive level of economic expertise and experience” back in 2015 — declared that the agency’s health care analysis was “wrong,” adding, “I would suggest to you that the numbers the CBO had before with the ACA, and the numbers they have now, are not accurate.”
A frequent claim, repeated by the White House’s Twitter video, was that the agency overstated coverage gains due to Obamacare, and thus should not be trusted to forecast new health bill.
The CBO was off on Obamacare, but it was fairly close; it estimated that 7 million people would be enrolled in the Obamacare marketplaces and getting subsidies in 2014, while in reality 5 million people were. That's closer than most other estimates, according to the Commonwealth Fund, including those from the Rand Corporation, Lewin Group, and the Department of Health and Human Services' Centers for Medicare and Medicaid Services.
Other analysts tried to poke holes in the CBO’s assumptions. Avik Roy, a conservative health policy analyst and booster of the Senate health bill, argued that the CBO vastly overestimated the power of Obamacare's individual mandate and the coverage loss that its repeal would cause. The American Enterprise Institute's Joel Zinberg argued that the CBO coverage loss projections were premised on more people gaining coverage through Medicaid expansion and the health exchanges in the next few years than realistically will; he notes that the CBO assumes some new states will adopt the Medicaid expansion, and disputes that such a shift is likely.
Roy and Zinberg’s critiques were not offered as an attempt to discredit the CBO as a whole. But political actors like budget director Mick Mulvaney and HHS Secretary Price eagerly tried to sow doubts about the agency as a way to build support for a health reform bill, and went further in attacking its whole role in the legislative process; Mulvaney, for one, pondered whether the CBO’s day had “come and gone.”
The CBO has also caused problems for Trump’s budget. While Trump’s team argued that the budget would kick off 3 percent growth and end the deficit within 10 years, the CBO found it would do no such thing. It would, instead, boost growth from 1.8 percent to 1.9 percent while dramatically cutting social programs and leaving a sizable deficit.
That budget plan is unlikely to become law, so the Trump administration didn’t go nuclear against the agency for it, instead preferring to do a selective reading of its findings; White House budget spokesperson Meghan Burris told reporters, “We are thrilled that CBO confirms that the president’s proposed budget resulted in the largest deficit reduction they have ever scored.”
The CBO will be even more important on tax reform
The CBO’s role in the health care debate is primarily about public perception. There’s no procedural reason Republicans can’t pass a bill that takes health insurance away from 32 million people; they did just that back in 2015, knowing that President Obama would veto it.
But Republicans have good reason to fear a bad CBO score for their next priority: tax reform. And at every point in this process, the CBO will be a crucial actor with the ability to derail a bill entirely.
The Trump administration hasn’t released much in the way of details about what it wants, but the provisions it has spelled out are all big, expensive tax cuts:
- Cutting individual income tax rates and collapsing them into just three brackets: 10, 25, and 35 percent
- Doubling the standard deduction, e.g., from $12,000 to $24,000 for couples
- Repealing the alternative minimum tax, the estate tax, and the 3.8 percent Obamacare tax on investment income for the rich (if health reform doesn’t repeal it first)
- Adding a new deduction for child care expenses
- Cutting the corporate rate from 35 percent to 15 percent
- Treating “pass-through income” as corporate income taxed at 15 percent, rather than individual rates
- Exempting foreign income from corporate tax
These are really costly changes. The Tax Policy Center estimates the gross revenue loss over 10 years at $7.7 trillion. And that’s not even including all the cuts likely to make it in. Most Republicans also want to adopt "full expensing," a corporate tax reform that lets companies deduct the entire cost of their investments immediately, instead of spreading the deduction over several years
Under the budget reconciliation process Republicans will use to avoid a filibuster, one of the few binding constraints was that the law must reduce the deficit after a 10-year window. They couldn’t pass big cuts like this and make them permanent. They could make the cuts expire after 10 years, as with the Bush tax cuts, or they could find pay-fors to cover the cost. And every indication from congressional Republicans is that they want permanent tax cuts.
Republicans have ideas for how to cover the cost. One of the biggest is the hugely controversial border adjustment measure, which Walmart, the Koch brothers, and other influential business lobbies are loudly opposing. Another is ending the deductibility of interest for debt, a very worthwhile proposal that is sure to enrage banks that take out massive amounts of debt; Goldman Sachs veteran turned Treasury Secretary Steve Mnuchin has said he opposes this shift.
On the individual side, eliminating the state and local tax deduction, as the Trump team has proposed, would raise money and reduce a big giveaway to rich people in blue states, but then again, the category “rich people in blue states” includes a lot of GOP donors as well as Trump himself.
And even if all of those controversial changes made it through, they still might not be enough to pay for all the cuts that Republicans want.
So tax reform will be a delicate balancing act. Republicans will need to determine exactly which cuts they need, which they can reconcile themselves to abandoning, and which pay-fors they hate the least.
The CBO will be the final arbiter of how much each provision costs, on both the tax cut and tax hike sides. It will be the entity that decides if the overall bill raises or lowers deficits in the out years, and thus whether or not it can pass the Senate with 51 votes. It can indirectly boost certain pay-fors by estimating them as raising lots of revenue, or kill them by minimizing their revenue impact. For instance, border adjustment likely doesn’t raise any money in the long run; it only raises money when there’s a trade deficit, and conventional economic models say trade deficits can’t last forever.
If the CBO scored border adjustment accordingly as not raising revenue after 10 years, that would effectively kill its chances of being included in a reform package.
Republicans might try to go around the CBO altogether
Saying the CBO could “kill” a provision is perhaps ascribing too much agency to an organization that views itself as an impartial arbiter and does not make any of its cost estimation decisions based on a desire to kill or promote a given bill. But that will not keep the CBO from becoming a target if Republicans view it as an impediment to a tax reform deal. And they could be tempted to do more than just attack it, and actively try to undermine its role in the legislative process — for instance, by substituting the Treasury Department’s own score of the tax reform package to show that it doesn’t increase long-run deficits.
This idea has come up a few times before. Sen. John Thune (R-SD) floated it for health care, and as my colleague Alexia Fernández Campbell notes, the Heritage Foundation in 2015 pushed the House Budget Committee to substitute its own judgment for the CBO's and the Joint Committee on Taxation's when weighing Obamacare repeal. A move like this actually happened in 1995, when a CBO score relating to the Naval Petroleum Reserve was tweaked by the Budget Committee for technical reasons.
This could happen in a number of ways, but it would likely involve the Budget Committee substituting a different analysis for the CBO’s, such as one from the White House’s budget office or a friendly think tank like Heritage. That analysis could find a tax bill balancing when the CBO’s estimates did not, enabling passage with 51 votes.
“I don't think ... that there is anything that would prevent the Senate Budget Committee from using OMB projections instead of CBO/JCT projections,” Alan Frumin, a former Senate parliamentarian, told Fernández Campbell, adding: “Other than the institutional embarrassment of a house of Congress snubbing its own budgetary experts in favor of those from a different (and constitutionally competing) branch of the government.”
But while it’s technically viable, the consequences of such a move would be immense. As Frumin suggests, it would increase the executive’s power relative to Congress, by letting its budget agency override the estimates of Congress’s. And it would deprive the CBO of whatever power it has to ensure budget reconciliation is only used on genuinely deficit-reducing legislation.
That would be a hard bell to unring, and could permanently weaken the agency.
The CBO has always been something of a target
Of course, Trump isn’t the first president, and Paul Ryan isn’t the first House leader, to have his agenda frustrated by the CBO. As my colleague Andrew Prokop has explained, Ronald Reagan attacked the CBO in 1981 for what he viewed as overly dour deficit projections, while Newt Gingrich argued in 1995 that it wasn’t properly evaluating the effects of tax cuts.
Democrats have aggressively lobbied the body in the past too. In 1993 and 1994, CBO Director Robert Reischauer (a Democrat) was tasked with evaluating the Clinton administration’s ambitious health care reform proposal, which would have offered health coverage through government-affiliated "regional health alliances” that would organize coverage and collect premiums for most people.
Reischauer and his team had to decide whether these alliances were government agencies (in which case the premiums would be taxes, and the bill would be scored as a huge increase in taxes and spending) or merely quasi-governmental.
He concluded that it was, in fact, a government program. He had been furiously lobbied by Democrats to rule otherwise, and then-Sen. Ted Kennedy called him when the news leaked, claiming that "Reischauer was going to bring down the Clinton administration. Here was a President with a once-in-a-lifetime opportunity to do something as historic as health reform, and you, a minor staff official, are taking it upon yourself to thwart the will of the American people," as Haynes Johnson and David Broder reported in their book The System.
Reischauer stuck by his guns, but was worried that the backlash would lead the CBO to face funding cuts and mass layoffs. It did not. Instead, the report, particularly its conclusion that the bill would increase deficits in the near term, helped kill the reform effort.
Even when the CBO isn’t lobbied directly, it plays a huge role in framing congressional debates. As Prokop notes, many moderate Democrats in 2009 and 2010 demanded a health reform plan that cost less than $1 trillion over 10 years according to the CBO, even if it was totally paid for and lowered the deficit. They didn’t want to be attacked for supporting a “$1 trillion health care bill.”
But if the Trump administration and allied senators start to formally exclude the CBO from reconciliation decisions and substitute in their own numbers, we’ll be in totally new territory. It’s normal for politicians to criticize the CBO. It’s another thing entirely to reduce its role in Washington. And there’s a real possibility that’s how Republican attacks on the agency will end.