The Congressional Budget Office released an analysis of the House-passed One Big Beautiful Bill Act in early June. The report found that, compared to current law, the legislation would decrease tax revenues by $3.6 trillion, decrease spending by $1.2 trillion, and thus increase deficits by $2.4 trillion over the next 10 years. The report also found that the legislation would increase the number of people without health insurance by more than 9 million.
One does not need to cast partisan aspersions at the CBO to undermine its credibility when estimating the costs and consequences of congressional policy. One only needs to look at its record to notice a pattern. When it comes to projections, the CBO is often wrong by a significant margin.
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When former President Barack Obama and the Democratic Party passed Obamacare in 2010, the CBO estimated that 13 million previously ineligible, able-bodied adults would enroll in the program. Keep in mind that when it was first passed, the Medicaid expansion was mandatory. In 2012, the Supreme Court held that it must be voluntary. If anything, this development should have lowered the number of people who enrolled in the program.
Instead, the opposite happened. By the end of the projection window, a whopping 19.5 million people had been added to the program, 50% more than the 13 million estimate. Costs were also far higher than anticipated. Meanwhile, much of the private insurance enrollment that the CBO anticipated never materialized.
Seven years later, in 2017, the CBO had a chance to demonstrate the accuracy of its healthcare modeling, and again it failed. When Republicans passed legislation repealing Obamacare’s individual mandate, the CBO predicted 4 million people would lose their health insurance coverage, including 3 million who would lose their private health insurance and 1 million who would lose their Medicaid coverage. But after the Republican repeal became law, the number of people with private health insurance grew by 3 million while the number with Medicaid grew by 10 million.
The CBO’s 2017 Tax Cuts and Jobs Act scoring was no better. For fiscal 2024, it predicted corporate tax revenues would be $421 billion. Instead, they came in at $529 billion. Cumulatively, combined tax revenues are more than $500 billion higher today than the CBO predicted.
The problem with the CBO estimates is easy to identify. The economy grew a full percentage point faster in the two years after the TCJA became law than the CBO predicted. Wages increased 5%, the fastest growth in 20 years, unemployment fell to 50-year lows, and the percentage of taxes paid by the top 1% of households went up. The CBO very badly misjudged the positive economic effects of the Trump tax cuts.
The CBO is making a mirror-image mistake today. This month’s CBO cost estimate assumes that if tax rates return to their 2016 levels, in other words, if taxes increased by almost $4 trillion, there would be no economic consequences. According to the CBO, a $4 trillion tax hike wouldn’t hurt the economy at all. Does anyone believe that?
The reality is that, for the most part, the one big, beautiful bill just keeps tax law where it is today. There are some changes to taxes on tips and the state and local tax cap deduction, but these are not the main drivers of revenue changes in the bill. Keeping rates where they are is the big ticket item.
JOSH HAWLEY’S FALSE COMPASSION FOR MEDICAID
That doesn’t mean the bill doesn’t offer real change. It does. Its $1.2 trillion spending cuts are real progress on deficit reduction. The Senate can further improve the bill by taking out the new tax loopholes created for wealthy homeowners in blue states. But when you see headlines about people losing healthcare coverage because of the bill, remember to take the CBO’s projections with a grain of salt.
Another thing to note about CBO scoring is that it always tends to side with those who argue against Republican policy. No doubt that’s just a coincidence, but it’s an interesting one.