Q. What’s the rule do?
A. Under the rule, for “major legislation,” the Congressional Budget Office or the Joint Committee on Taxation will incorporate their estimate of the bill’s macroeconomic effects into the bill’s official cost estimate. The rule will allow members to make use of the best information available when considering this kind of legislation.
Q. What’s major legislation?
A. The rule defines “major legislation” as any revenue or direct-spending bill that causes a gross increase or decrease in revenues, outlays, or deficits of more than 0.25 percent of GDP in any year covered by the budget resolution. In addition, the chair of the House Budget Committee and, for purely revenue legislation, the highest-ranking House member on the Joint Committee on Taxation (either chair or vice chair) can designate legislation as “major” for purposes of this rule if a bill is likely to have a significant economic impact, but does not meet the numerical threshold.
Q. How much is 0.25 percent of GDP?
A. In 2014, CBO projected GDP to be about $17.1 trillion, so the threshold would have been $43 billion. As CBO projects GDP to grow in the future, the threshold grows with it, reaching $67 billion in 2024.
Q. How many bills in the last Congress would have crossed the threshold?
A. In the 113th Congress, the House considered three bills that would have crossed the threshold: The Jobs for America Act (H.R. 4), the Permanent Bonus Depreciation Act (H.R. 4718), and the Tax Increase Prevention Act of 2014 (H.R. 5771).
Q. Why doesn’t this rule apply to appropriations bills?
A. This rule builds on section 402 of the Congressional Budget Act, which requires formal cost estimates for legislation. This longstanding provision of the Budget Act has never applied to appropriations bills. In addition, since the rule applies to legislation making large increases or decreases in budgetary effects, it would be unusual for an appropriations bill to meet the threshold because it would have to make such a large change in annual funding levels.
Q. Aren’t macroeconomic effects highly uncertain?
A. Uncertainty is inherent in the process of estimating the future fiscal and economic impact of proposed legislation. This uncertainty is present today in the conventional estimates prepared by CBO and JCT. As CBO Director Elmendorf recently noted, CBO is “acutely aware of the uncertainty of the budgetary and economic estimates we provide to Congress.” This uncertainty, however, is no reason not to ask the nonpartisan, professional estimators at CBO and JCT to give Congress their best analysis—including their economic analysis—of the effects of legislation. As noted budget expert Yogi Berra once said, “It's tough to make predictions, especially about the future.”
Q. But CBO’s and JCT’s models produce broad ranges of estimates. How are they supposed to arrive at a point estimate?
A. This is a problem both CBO and JCT confront today with their conventional estimates. We expect that they will approach the problem in the same way that they do today. As CBO Director Elmendorf explained, “We view our estimates as representing the middle of the distribution of possible outcomes.”
Q. Are you doing this so you can say tax cuts don’t increase the deficit?
A. No. Tax analysis will be done by the non-partisan Joint Committee on Taxation. In the past, JCT has found that lowering tax rates leads to lower revenue. But analysis from JCT, backed up by academic research and macroeconomic models, has also shown that some pro-growth tax policies reduce revenues by smaller amounts once the economic growth effects are taken into account.
Q. Will this rule compromise CBO’s and JCT’s independent analysis?
A. No. Over the past two decades, CBO and JCT under leadership appointed by both Republicans and Democrats have developed multiple models of the economy that allow them to prepare estimates of the macroeconomic effects of legislation. This rule does nothing but require CBO and JCT to apply the models that they developed over the last two decades.
Q. How do CBO and JCT model the economy?
A. Both CBO and JCT have published papers describing their modeling techniques which are available on their websites. The House Budget Committee has published a brief synopsis of the methodologies involved on its website as well.
Q. Why does this rule exclude proposals like infrastructure and education funding that could benefit the economy?
A. The legislation applies to mandatory spending and revenue legislation. Pell grants and student loans are mandatory funding and would be covered by the rule if the legislation had a budgetary effect greater than 0.25 percent of the economy. The rule modifies existing requirements for formal cost estimates for reported legislation. The Congressional Budget Act does not require CBO to produce a formal written cost estimate for appropriations bills. As a result, the rule does not apply to appropriations bills. And even if it did, it almost certainly would not be triggered, since appropriations bills provide funding only one year at a time, and the change in spending caused by an appropriations bill is unlikely to reach 0.25 percent of the economy.
Q. It’s incorrect to say current estimates are “static.” They already take into account behavioral responses. Doesn’t this rule move to “dynamic” scoring to allow the system to be gamed?
A. While CBO and JCT do take into account some behavioral responses in their cost estimates, their estimates are static with respect to the impact on the overall economy. As JCT has noted, “In providing conventional estimates, the Joint Committee Staff assumes that a proposal will not change total income and therefore holds Gross National Product fixed.”