Discrepancies in Budget Estimates for Trump’s Proposed Bill
A substantial piece of legislation aimed at advancing President Donald Trump’s agenda may not have the severe impact on the national deficit that some critics are warning about.
The Congressional Budget Office (CBO) has projected that the Senate’s version of the Republican settlement bill could increase the deficit by $3.3 trillion over the next ten years. On the other hand, the President’s Council of Economic Advisors (CEA) estimates it could actually reduce the deficit by $4.5 trillion.
This stark difference in projections stems mainly from varying assumptions regarding what constitutes acceptable policy baselines. The CBO bases its figures on a “current law” model, which predicts that fundamental elements of the 2017 Tax Cuts and Jobs Act (TCJA) will eventually expire. Conversely, the Trump administration, along with some fiscal advocates, argues for a “current policy” perspective, assuming that these tax cuts will continue and therefore should not be treated as new expenditures.
Recently, Congressional Democrats voiced frustration with the CBO’s warnings about the deficit impact of the settlement bill. Senator Ron Wyden expressed concerns that this legislation could lead the U.S. to become a “weak, sick, and poor country.”
The debate around budget baselines has gained traction in the Senate, where Democrats compelled a discussion on maintaining the current law standards. They criticized Republicans for perceived inconsistencies in their calculations. If Democrats had prevailed, Republicans would need to revise the tax components of the bill significantly.
While the CBO is legally bound to use current law baselines, advocates for the current policy perspective have deemed this method fundamentally flawed. Analyst Hayden Dublois noted that the CBO assumes that discretionary spending for certain programs will automatically continue, even in scenarios where necessary adjustments might lead to cuts.
Dublois also warned that CBO estimates should be regarded skeptically, citing a history of underestimating savings from reforms and government costs. Similar sentiments were echoed by Management and Budget Director Russ Vought, who criticized what he deemed a misleading comparison of budget forecasts that don’t account for ongoing tax laws. He claims that the bill will indeed lower the deficit in the coming decade, despite contrasting predictions.
Interestingly, the CEA’s projections suggest that the tax cuts in the bill would expire by 2028, which might lead to a deficit increase of about $1.5 trillion, according to the Bipartisan Policy Center.
Beyond the debate over baselines, the White House contends that the CBO overlooks the broader positive economic impact that Trump’s policies could yield. CEA estimates indicate that the legislation could boost GDP by 2.5% to 2.8%, whereas CBO’s forecast remains much more conservative, at only 0.4%.
Officials highlighted that the administration’s deregulation efforts and policies related to energy and trade are likely contributors to encouraging robust economic growth. They also believe the bill will effectively cut the deficit if considered alongside a comprehensive suite of Trump’s policy initiatives.
The CBO has also faced scrutiny in its past evaluations. Initially, the office estimated that the inflation reduction law under President Biden would significantly decrease the deficit. However, a recent outlook calls for an increase of $428 billion instead, largely due to revenue adjustments from the electric vehicle tax incentives.
Moreover, there have been concerns surrounding the CBO’s methodology and potential political bias, with a recent report indicating that a majority of its staff identify as Democrats. This raises questions about the impartiality of its evaluations.
Overall, as the debate continues, some professionals express doubt regarding the CBO’s reliability, citing its historical errors and deficiencies in economic forecasting.
