Saturday, January 8, 2011

CBO's Legislative Cost Scoring Process Is Antiquated, Confusing And Misleading

CBO's process is antiquated, confusing and does not provide useful information to balance the budget. Imagine a household that only has a $1000 available, goes to a casino, and loses all the money playing the slot machines. The family then comes home to an empty pantry/refrigerator/freezer, goes to the grocery store, and uses its credit card to buy food. Under CBO analysis, food buying increases the household's deficit, but not the gambling. Any sensible person knows the problem was the gambling and not the food purchases.

CBO deficit scoring of new legislation including the new healthcare law is very similar. Laws, like the new Patient Protection and Affordable Care Act, aka Obamacare, are substantial increases in the government's spending, about a trillion dollars of new costs.

CBO offsets the legislation's increased cost with revenues generated from a payroll tax, general tax increases, government medical program cost savings, such as in Medicare, penalties on employers for not providing healthcare or providing the wrong kind of healthcare, penalties on individuals for not obtaining healthcare, etc.

Congress can pass all of the revenue and cost reducing items in the new health law and others by themselves, without the trillion dollar cost-increasing provisions of the new healthcare law.

Imagine that Congress authorized and spends $X billion dollars to build an automobile bridge across the Grand Canyon. Imagine that to pay for it, Congress puts a nation national sales tax on pencils and CBO projects that the expected pencil tax revenues will equal the expected bridge building costs. Instead of being CBO deficit neutral, as CBO would state, the US really wasted an opportunity to use the new pencil tax revenue to reduce the deficit and the bridge is deficit increasing. Just like the gambling and not the food increased the family's debt in the previous example.

There are many ways for Congress to generate revenue and reduce costs. New government entitlement programs and program mandates are not required. CBO's scoring process forces Congress to link new programs with unrelated cost savings and revenue increases. CBO's scoring process allows Congress to waste deficit reduction on increased spending on new programs.

If Congress had just passed the revenue and cost reduction portions of the new healthcare law, instead of passing revenue neutral or slightly deficit reducing legislation, CBO would have probably projected about a trillion dollars in deficit reduction over the next ten years.

In effect, the passage of the new healthcare law that costs the government close to a trillion dollars is a lost opportunity to use the entire amount of those available cost reduction and revenue increases towards reducing the deficit.

CBO's cost scoring analysis misleads Congress, the media and the public because it unnecessarily links revenue production sources with costs increases. The process hides the true cost and negative budgetary impact of new government programs.

I also posted the above as a comment to The Wall Street Journal opinion piece, "The CBO's Fuzzy ObamaCare Math: Of course raising taxes and slashing Medicare will make the deficit look smaller" by Betsy McCaughey.

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