OPINION:
No matter which of the contestants becomes our next president and no matter who controls what in Congress, pretty much all of 2025 in Washington will be dedicated to tax legislation, federal spending and deciding what to do about the debt ceiling.
As we head toward that inevitable rendezvous with destiny and as every element of our tax code is subject to scrutiny and, hopefully, reform, it might be worth considering the accuracy of the assessments of the Congressional Budget Office — usually referred to by its initials, CBO — on the economic and revenue effects of legislation.
For those who have real lives that involve productive uses of their time, the CBO is a group of economists and analysts who tell Congress how much any particular law or provision of law will increase or decrease federal revenue.
As you might imagine, that’s an important function, especially when Congress is considering tax legislation. The unfortunate reality is that while the CBO’s scoring tends to be treated as dispositive, it doesn’t deserve that level of deference. Let’s take two examples.
The CBO originally concluded that the Inflation Reduction Act would cost taxpayers $366 billion over 10 years. A little more than a year later, Goldman Sachs (of all people) constructed its own scoring and concluded that the actual cost of the legislation to taxpayers will be more like $1.6 trillion over 10 years. So the CBO was off by a factor of four.
In 2017, the CBO was wrong about the Tax Cuts and Jobs Act, or TCJA. Immediately after passage of the legislation, the CBO estimated that the measure would cost the federal treasury approximately $1.45 trillion in lost revenue between 2018 and 2025 (when most of the provisions of the legislation sunset).
That sounds reasonable enough, and the theory is simple: Reduced taxes mean foregone revenue.
How did that score — and that theory — match up with reality? Well, federal tax revenue for 2018-2023 was virtually the same as what was projected by the CBO before the TCJA, and through 2025, total federal tax revenue is estimated to be nearly $620 billion higher than projected before the TCJA.
How about the legislation’s effect on the larger economy? Between 2018 and 2023, real gross domestic product exceeded the CBO’s pre-TCJA estimates by $4 trillion. Through 2025, real GDP is estimated to be $12 trillion higher than was projected before the TCJA for the years 2018 through 2025.
Between 2018 and 2023, real wages and salaries exceeded the CBO’s pre-TCJA estimates by $1.8 trillion, and real wages and salaries are projected to be $3.6 trillion higher than projected before the TCJA from 2018 through 2025.
In short, the CBO projected that the legislation would be a net loser for the federal treasury, and it wasn’t. Moreover, it seems as if the legislation played at least some part in expanding the economy and raising wages, which almost certainly had the knock-on effect of increasing — not reducing — federal revenue.
It is certainly possible to argue that perhaps federal tax revenue would be greater absent the TCJA, but the data doesn’t really support that. The data seems to support — and it would also be fair to argue — that the enhanced economic growth resulting from reduced taxes resulted in greater revenue for the federal government.
Finally, the data absolutely and unequivocally supports that the CBO’s scoring is broken, probably beyond repair. That seems like an important point as we enter the most consequential tax policy discussion in decades.
• Michael McKenna is a contributing editor at The Washington Times and a co-host of the podcast “The Unregulated.”
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