U.S. GOVERNMENT PUBLISHING OFFICE

30–530 WASHINGTON : 2018

CBO OVERSIGHT: ECONOMIC ASSUMPTIONS, BASELINE CONSTRUCTION, COST ESTIMATING, AND 

SCORING 

HEARING 

BEFORE THE

COMMITTEE ON THE BUDGET 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

SECOND SESSION 

HEARING HELD IN WASHINGTON, D.C., FEBRUARY 6, 2018 

Serial No. 115–8 

Printed for the use of the Committee on the Budget 

( 

Available on the Internet: 

www.govinfo.gov 

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(II) 

COMMITTEE ON THE BUDGET 

STEVE WOMACK, Arkansas, Chairman 

TODD ROKITA, Indiana, Vice Chairman 

DIANE BLACK, Tennessee 

MARIO DIAZ-BALART, Florida 

TOM COLE, Oklahoma 

TOM MCCLINTOCK, California 

ROB WOODALL, Georgia 

MARK SANFORD, South Carolina 

DAVE BRAT, Virginia 

GLENN GROTHMAN, Wisconsin 

GARY J. PALMER, Alabama 

BRUCE WESTERMAN, Arkansas 

JAMES B. RENACCI, Ohio 

BILL JOHNSON, Ohio 

JASON SMITH, Missouri 

JASON LEWIS, Minnesota 

JACK BERGMAN, Michigan 

JOHN J. FASO, New York 

LLOYD SMUCKER, Pennsylvania 

MATT GAETZ, Florida 

JODEY C. ARRINGTON, Texas 

A. DREW FERGUSON IV, Georgia 

JOHN A. YARMUTH, Kentucky, 

Ranking Minority Member 

BARBARA LEE, California 

MICHELLE LUJAN GRISHAM, New Mexico 

SETH MOULTON, Massachusetts 

HAKEEM S. JEFFRIES, New York 

BRIAN HIGGINS, New York 

SUZAN K. DELBENE, Washington 

DEBBIE WASSERMAN SCHULTZ, Florida 

BRENDAN F. BOYLE, Pennsylvania 

RO KHANNA, California 

PRAMILA JAYAPAL, Washington, 

Vice Ranking Minority Member 

SALUD O. CARBAJAL, California 

SHEILA JACKSON LEE, Texas 

JANICE D. SCHAKOWSKY, Illinois 

PROFESSIONAL STAFF

DAN KENIRY, Staff Director 

ELLEN BALIS, Minority Staff Director 

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CONTENTS 

Page 

Hearing held in Washington, D.C., February 6, 2018 .......................................... 1 

Hon. Steve Womack, Chairman, Committee on the Budget ......................... 1 

Prepared statement of ............................................................................... 4 

Hon. John A. Yarmuth, Ranking Member, Committee on the Budget ........ 8 

Prepared statement of ............................................................................... 9 

Mark Hadley, J.D., Deputy Director, Congressional Budget Office ............. 10 

Prepared statement of ............................................................................... 14 

Committee on the Budget, questions submitted for the record .................... 56 

Answers to questions submitted for the record .............................................. 60 

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(1) 

CBO OVERSIGHT: ECONOMIC ASSUMPTIONS, 

BASELINE CONSTRUCTION, COST ESTIMATING, AND SCORING 

TUESDAY, FEBRUARY 6, 2018 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON THE BUDGET, 

Washington, D.C. 

The Committee met, pursuant to call, at 10:00 a.m., in Room 

1334, Longworth House Office Building, Hon. Steve Womack 

[Chairman of the Committee] presiding. 

Present: Representatives Womack, Sanford, Brat, Grothman, 

Palmer, Renacci, Lewis, Bergman, Smucker, Arrington, Ferguson, 

Yarmuth, Lee, Lujan Grisham, Jeffries, Wasserman Schultz, 

Jayapal, Jackson Lee, and Schakowsky. 

Chairman WOMACK. Thank you. The hearing will come to order. 

Welcome to the Committee on the Budget’s hearing on the Congressional Budget Office’s economic assumptions, baseline construction, cost estimates, and scoring. This is the second of five hearings 

that the Committee plans to hold this spring on oversight of the 

Congressional Budget Office. 

As we discussed during our first hearing, CBO was created more 

than 40 years ago as part of the Congressional Budget and Impoundment Act of 1974. Since then, CBO has been a vital congressional support agency that provides nonpartisan budgetary analysis and directly assists the House and Senate Budget Committees. 

These hearings with CBO are intended to help us learn more 

about how the agency carries out its mandate of supporting Congress in the Federal budgeting process and to consider areas in 

which the agency can improve. 

CBO has not undergone a comprehensive review since it was 

founded. However, the demands on the agency have undoubtedly 

changed since 1974. So, we are here to make sure the agency has 

everything it needs to effectively and efficiently fulfill its mission 

in the 21st century. 

Last week, during our hearing with CBO’s director, Dr. Keith 

Hall, we looked more broadly at CBO’s organizational and operational structure, including its staffing, assumptions, processes, 

and work products. In today’s hearing and at our next hearing, we 

are diving deeper to explore the nuts and bolts of how CBO actually crafts the impartial work product Congress relies on to make 

informed legislative decisions. 

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2 

Today’s discussion will be largely technical in nature, but it will 

provide the Committee with great insight into CBO’s work, with 

the goal of making that work more useful to Congress. 

We will discuss CBO’s budget and economic reporting responsibilities, which include providing information on the national economic outlook, as well as cost estimates for proposed legislation. 

As our Committee members know well, CBO regularly produces 

an economic outlook and details long-term budget projections. 

Based on current laws that affect Federal spending and revenues, 

CBO’s budgetary and economic projections are updated regularly 

throughout the year and together form a baseline. 

Congress intended this baseline to be a neutral benchmark in the 

budget process, and CBO uses the baseline to project the impact of 

proposed legislation. CBO’s baseline, or ‘‘The Budget and Economic 

Outlook,’’ as it is called in report form, is instrumental to building 

the budget each fiscal year. This annual report details the expected 

levels of spending, revenue, surpluses or deficits, and debt over the 

forthcoming 10-year cycle. 

Using CBO’s baseline, Committees and members of Congress 

consider policy options through the lens of whether they increase 

or decrease spending and revenues. So, it is essential we on the 

Budget Committee have a firm grasp on this process. As we learn 

the ‘‘how’’ behind these various work products, I am also interested 

in exploring CBO’s efforts for maintaining an appropriate level of 

transparency. 

Transparency within CBO is critical to ensuring the agency can 

effectively fulfill its nonpartisan mission to support the work of 

Congress. At the same time, the Budget Act recognizes there is a 

delicate balance between CBO’s need for access to good private sector data and the appropriate transparency of that data, and in this 

series of hearings, we look forward to carefully evaluating and understanding this balance. 

So, with that in mind, I am pleased to welcome three individuals 

from the agency who are here today to help improve our understanding of CBO’s work. Each one comes with expert knowledge related to CBO’s processes for constructing various types of analysis 

and providing support to Members and congressional staff. 

First, we have Mark Hadley, Deputy Director of CBO. Mark is 

responsible for assisting the CBO director in managing the daily 

operations of the agency and coordinating between the divisions. 

Also joining us is Wendy Edelberg, Associate Director of Economic Analysis. Wendy is here to provide us with her expert insight into how CBO handles its economic forecasting and analysis. 

And finally, we welcome Teri Gullo, Assistant Director for Budget 

Analysis. Teri’s division is responsible for producing baseline projections, formal cost estimates, and informal support to congressional staff. 

Before we hear from our witnesses, I want to stress again that 

we are not here to invite attacks on an agency so vital to Congress’ 

ability to budget independently. But we are here to see how things 

are being done and identify potential areas for improvement. 

Today, I look forward to hearing from our witnesses and engaging in more productive conversation. And with that, I would like 

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3 

to yield to the ranking member from the great commonwealth of 

Kentucky, Mr. Yarmuth, for his opening comments. 

[The prepared statement of Chairman Womack follows:] 

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4 

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Chairman Steve Womack's Opening Statement: 

Hearing on CBO'S Economic Assumptions, Baseline Construction, Cost Estimates, and 

Scoring 

Washington, February 6, 2018 

As prepared for delivery- House Budget Committee Chairman Steve Womack 

Good morning, and thank you to everyone for being here as we continue the 

House Budget Committee's series of oversight hearings on the Congressional 

Budget Office. 

As we discussed during our first hearing, CBO was created more than 40 

years ago as part of the Congressional Budget and Impoundment Act of 1974. 

Since then, CBO has been a vital, congressional support agency that provides 

nonpartisan budgetary analysis and directly assists the House and Senate 

Budget Committees. 

These hearings with CBO are intended to help us learn more about how the 

agency carries out its mandate of supporting Congress in the federal 

budgeting process and to consider areas in which the agency can improve. 

CBO has not undergone a comprehensive review since it was created. 

However, the demands on the agency have undoubtedly changed since 1974. 

So we are here to make sure the agency has everything it needs to effectively 

and efficiently fulfill its mission in the 21st century. 

Last week during our hearing with CEO's director, Dr. Keith Hall, we looked 

more broadly at CEO's organizational and operational structure, including its 

staffing, assumptions, processes, and work products. 

In today's hearing and at our next hearing, we're diving deeper to explore the 

"nuts and bolts" of how CBO actually crafts the impartial work-products 

Congress relies on to make informed legislative decisions. 
5 

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Today's discussion will be largely technical in nature, but it will provide the 

Committee with greater insight into CEO's work, with the goal of making 

that work more useful to Congress. 

We will discuss CEO's budget and economic reporting responsibilities, which 

include providing information on the national economic outlook, as well as 

cost estimates for proposed legislation. 

As our committee members know well, CBO regularly produces an economic 

outlook and details long-term budget projections. 

Based on current laws that affect federal spending and revenues, CBO's 

budgetary and economic projections are updated regularly throughout the 

year and together form a "baseline." 

Congress intended this baseline to be a neutral benchmark in the budget 

process, and CBO uses the baseline to project the impact of proposed 

legislation. 

CBO's baseline, or The Budget and Economic Outlook as it is called in report 

form, is instrumental to building the budget each fiscal year. 

This annual report details the expected levels of spending, revenue, surpluses 

or deficits, and debt over the forthcoming 10 years. 

Using CBO's baseline, committees and Members of Congress consider policy 

options through the lens of whether they increase or decrease spending and 

revenues. 

So it is essential we on the Budget Committee have a firm grasp on this 

process. 

As we learn the "how" behind these various work products, I am also 

interested in exploring CEO's efforts for maintaining an appropriate level of 

transparency. 
6 

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Transparency within CBO is critical to ensuring the agency can effectively 

fulfill its nonpartisan mission to support the work of Congress. 

At the same time, the Budget Act recognizes that there is a delicate balance 

between CEO's need for access to good private sector data and the 

appropriate transparency of that data. 

And in this series of hearings, we look forward to carefully evaluating and 

understanding how to strike the right balance. 

So with that in mind, I am pleased to welcome three individuals from the 

agency who are here today to help improve our understanding of CEO's work. 

Each one comes with expert knowledge related to CEO's processes for 

constructing various types of analysis and providing support to Members and 

congressional staff. 

First, we have Mark Hadley, Deputy Director of CBO. Mark is responsible for 

assisting the CBO Director in managing the daily operations of the agency 

and coordinating between the divisions. 

Also joining us is Wendy Edelberg, Associate Director of Economic Analysis. 

Wendy is here to provide us with her expert insight into how CBO handles its 

economic forecasting and analysis. 

And finally, we welcome Teri Gullo, Assistant Director for Budget Analysis. 

Teri's division is responsible for producing baseline projections, formal cost 

estimates, and informal support to Congressional staff. 

Before we hear from our witnesses, I want to stress again that we are not 

here to invite attacks on an agency so vital to Congress's ability to budget 

independently. 

But we are here to see how things are being done and identifY potential areas 

for improvement. 
7 

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Today, I look forward to hearing from our witnesses and engaging in more 

productive conversations. 
8 

Mr. YARMUTH. Thank you very much, Mr. Chairman. I would like 

to join you in welcoming our three CBO witnesses today, Deputy 

Director Hadley, Associate Director Edelberg, and Associate Director Gullo. Thank you all for coming before the Committee to testify 

and answer our questions about how the Congressional Budget Office makes economic assumptions, constructs the baseline, and estimates the cost of our legislative proposals. 

Last week, Director Hall testified before the Committee, and that 

discussion touched on all of these subjects in varying degrees of detail. The take away from last week’s hearing, at least my 

takeaway, was pretty clear. CBO has a regimented, well-documented, and consistent process to produce work that is accurate, 

fair, and nonpartisan. 

The budget analysts, policy experts, and economists at CBO have 

a tremendous amount of experience and are well-respected in their 

fields of expertise. They certainly could make more money working 

fewer hours in the private sector, but they choose to serve their 

country in this very important capacity. I am not suggesting that 

there is not room for improvement at CBO, or that we all have to 

agree with every CBO conclusion. 

Much of the public policy with which we are dealing is complicated, involving many variables and interactive effects. CBO, 

rightfully, has to make assumptions and judgments, and we have 

the right to ask questions to better understand the conclusions 

they reach. What is not appropriate, as the Chairman mentioned, 

is to launch ad hominem attacks to undermine the credibility of 

CBO. 

Last year, CBO was subjected to a number of vicious attacks 

purely for political purposes. These attacks weaken the institution 

and add to the dysfunction that the American people overwhelmingly reject. Mr. Chairman, I was heartened by the tenor of last 

week’s hearing. 

On the whole, and as you encouraged, the questioning was respectful, and members made genuine attempts to better understand how CBO operates. Ideas were explored on ways to make improvement at the agency so that Congress can be better served. I 

hope that continues with this hearing. 

We are holding a series of five oversight hearings on CBO. This 

is a tremendous amount of time that we are dedicating to one 

agency. So, Mr. Chairman, I hope that we will be just as diligent 

in our other responsibilities and find time to hear from other agencies as well. 

We have not had our customary annual hearing with the Federal 

Reserve Board Chairman since 2012. I guess we ought to let him 

get his feet on the ground past a week or so. We have not had the 

Treasury Secretary testify since 2013. We have not had the Department of Defense testify since 2013. 

We have not heard testimony from the Secretary of Health and 

Human Services since 2011. I think it would be valuable to hear 

from these agencies and others as we consider priorities for the 

2019 budget. I thank, once again, our witnesses for coming and I 

look forward to their testimony. So, thank you, Mr. Chairman, and 

I yield back. 

[The prepared statement of Mr. Yarmuth follows:] 

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9 

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Ranking Member John Yarmuth's Opening Statement: 

Hearing on CEO'S Economic Assumptions, Baseline Construction, Cost Estimates, 

and Scoring 

Washington, February 6, 2018 

As prepared for delivery- House Budget Committee Ranking Member John Yarmuth 

I would like to join the Chairman in welcoming our three CBO witnesses today. Deputy Director Hadley, 

Associate Director Edelberg, and Associate Director Gullo, thank you for coming before the committee 

to testify and to answer our questions about how the Congressional Budget Office makes economic 

assumptions, constructs the baseline, and estimates the cost of our legislative proposals. 

Last week, Director Hall testified before the Committee and that discussion touched on all of these 

subjects in varying degrees of detail. The take away from last week's hearing was clear. CBO has a 

regimented, well-documented, and consistent process to produce work that is accurate, fair, and 

nonpartisan. 

The budget analysts, policy experts and economists at CBO have a tremendous amount of experience 

and they are well-respected in their fields of expertise. They certainly could make more money working 

fewer hours in the private sector, but they choose to serve their country in this very important capacity. 

I am not suggesting that there isn't room for improvement at CBO, or that we all have to agree with 

every CBO conclusion. Much of the public policy with which we are dealing is complicated, involving 

many variables and interactive effects. CBO, rightfully, has to make assumptions and judgments, and we 

have the right to ask questions to better understand the conclusions they reach. 

What is not appropriate is to launch ad hominem attacks to undermine the credibility of CBO. Last year, 

CBO was subjected to a number of vicious attacks purely for political purposes. These attacks weaken 

this institution and add to the dysfunction the American people overwhelmingly reject. 

Mr. Chairman, I was heartened by the tenor of last week's hearing. On the whole, and as you 

encouraged, the questioning was respectful and members made genuine attempts to better understand 

how CBO operates. Ideas were explored on ways to make improvement at the agency so that Congress 

can be better served. I hope that continues with today's hearing. 

We are holding a total of five oversight hearings on CBO. This is a tremendous amount of time that we 

are dedicating to one agency. Mr. Chairman, I hope that we will be just as diligent in our other 

responsibilities and find time to hear from other agencies as well. We haven't had our customary annual 

hearing with the Federal Reserve Board Chairman since 2012. We haven't had the Treasury Secretary 

testify since 2013. We haven't had the Department of Defense testify since 2013. We haven't heard 

testimony from the Secretary of Health and Human Services since 2011. It would be valuable to hear 

from these agencies and others as we consider priorities for the 2019 budget. 

I thank our witnesses for coming and I look forward to their testimony. 
10 

Chairman WOMACK. Thank you, Mr. Yarmuth. In the interest of 

time, if any other members have opening statements, I would like 

to ask unanimous consent that members submit them for the 

record. Without objection, so ordered. 

I would like now to recognize the Deputy Director of the Congressional Budget Office, Mark Hadley. Mr. Hadley, thank you for your 

time today. The Committee has received your written statement. I 

will be part of the formal hearing record. We are going to give you 

10 minutes, and now the floor is yours. Make sure that mic is on, 

and talk directly into it, if you would. 

STATEMENT OF MARK HADLEY, DEPUTY DIRECTOR, 

CONGRESSIONAL BUDGET OFFICE 

Mr. HADLEY. Chairman Womack, Ranking Member Yarmuth, 

and members of the Committee, thank you for inviting me and my 

colleagues here today to talk about CBO’s forecast, baseline, cost 

estimates, and scorekeeping more generally. 

The House and Senate Budget Committees are the scorekeepers 

for the Congress, crafting the budget resolution and enforcing the 

budgetary rules. CBO prepares its forecast, and baseline, and cost 

estimates to help the Budget Committees carry out those duties. 

Some people think that CBO makes the rules that we follow, but 

in fact, most of the rules that govern the production of those products are set in statute. Others come from House and Senate rules, 

budget resolutions, and the conference reports that accompanied 

major budget legislation. Still others were generated in conjunction 

with the Budget Committees directly. 

Some of the rules require that CBO develop estimates using 

specified assumptions. When that happens, CBO also provides information from other perspectives and that Budget Committees 

have found useful. And we would like to hear from you. What information could we add or present differently that would be helpful? 

Today, I will describe our projections and cost estimates, what 

they are, the function that they serve. I will then turn to the rules 

that govern their content. CBO’s baseline projections include estimates of spending, revenues, the deficit, and the public debt. CBO’s 

economic forecast covers the major economic variables, gross domestic product, the unemployment rate, inflation, and interest 

rates, along with a broad array of other economic measures. 

The baseline and the forecast represent CBO’s best estimate of 

the way the budget and the economy would evolve if existing laws 

generally remained in place. They are developed together to be consistent with each other and cover the entire 10-year period used in 

the congressional budget process. The Budget Committees typically 

use CBO’s baseline as a starting point for budget resolutions and 

as a neutral benchmark to assess the budgetary effects of some legislation. 

The baseline provides consistency and stability to the budget 

process. Baselines provide consistency because each estimate is 

built on a common set of assumptions that helps the Congress consider the relative cost of competing proposals in the same subject 

and proposals across other subjects, from agriculture to unemployment insurance. 

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11 

Consistency also helps the Congress ensure that legislation complies with the target set in the budget resolution. Baselines add 

stability, because they do not change with each new piece of budget 

or economic information. Instead, that information is included in 

the next baseline. 

Cost estimates describe the budgetary effects attributable to a 

single piece of legislation. Each cost estimate tells a concise story 

about a proposal’s likely effects on the budget outlays or revenues 

compared with what would happen under current law; that is, 

what would happen if the legislation were not adopted. CBO’s cost 

estimates are advisory. 

The Budget Committees enforce the budget rules of the Congress, and they are not required to use CBO’s estimates. The Congressional Budget Act of 1974 requires that CBO produce cost estimates for every bill reported out of a full Committee, the authorizing Committees. We also prepare estimates when requested at 

other stages of the legislative process. 

The Budget Act directs CBO to give priority to Committees, particularly the House and Senate Budget Committee. Though we try, 

given our staffing, we are generally not able to satisfy requests for 

cost estimates that do not come from the Budget Committees, the 

Committees of jurisdiction over the legislation, or the House or 

Senate leadership. 

Now, to the content of our products; I will start with the rules 

governing the baseline and then turn to the rules governing our 

cost estimates. Section 257 of the Balanced Budget and Emergency 

Deficit Control Act of 1985 defines the baseline and sets out the 

rules for its construction. For mandatory spending and revenues, 

the touchstone is that we assume that current laws will remain in 

place and they will operate as they are set in statute. 

So, for example, for individual income taxes, we assume that 

changes scheduled in law will occur. There are, however, three important differences, or exceptions, under 257, and they come with 

tradeoffs. Let me take each of them in turn. 

First, under section 257, CBO is required to assume that certain 

taxes and spending programs will continue beyond their expiration 

date. Those include excise taxes dedicated to a trust fund, such as 

the Federal gasoline tax. They also include certain payments with 

current year outlays greater than $50 million; for example, the 

Children’s Health Insurance Program. This is sometimes referred 

to as the $50 million rule. 

There are tradeoffs that come with this rule. On the one hand, 

because expiring programs often are extended, the rule improves 

the accuracy of baseline projections of the deficit. On the other 

hand, the rule makes certain extensions of those policies appear 

costless because the cost of extension is already in the baseline. To 

help, CBO and the staff of the Joint Committee on Taxation show 

how baseline projections would change if the provisions that we 

must assume are extended were instead assumed to expire. 

The second exception deals with entitlement authority. CBO is 

required to assume that entitlement programs, such as Social Security and Medicare, will be fully funded, and thus, all scheduled 

payments will be made. 

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12 

For example, CBO must assume that scheduled Social Security 

benefits would be paid even after the program’s trust funds were 

exhausted and annual payroll tax revenues were inadequate to 

fund those payments. That rule, too, presents tradeoffs. 

On the one hand, a baseline that shows the benefits being paid 

regardless of the resources in the trust funds, may be more informative about the budgetary challenges facing the nation if policymakers want to maintain Social Security in its present form. On 

the other hand, it is less informative about the challenges facing 

the program. In our products, we present both the deficit affect 

from making all of the benefit payments and the percentage by 

which benefits would have to be cut if no additional funding were 

provided. 

And finally, the third exception deals with discretionary spending. Section 257 specifies how CBO must construct the baseline for 

discretionary programs. It requires CBO to use specified inflators 

to increase the most recent appropriation for each program over 

time. However, to project total defense and nondefense discretionary spending, we apply the caps that limit the spending for 

those categories through 2021. 

And again, CBO provides alternate paths with its reports. For 

example, one where inflation for discretionary appropriations is assumed to be zero. That is, it continues at the level in the most recent appropriation. 

Turning now to four rules that broadly apply to cost estimates, 

and four of these may sound familiar to you. 

First, CBO must consider the effects across the entire Federal 

budget. Therefore, cost estimates sometimes include effects on programs other than those specifically addressed in the legislation. 

Second, CBO’s cost estimates generally do not include the interest costs that would result from increasing the deficit or the interest savings that would result from decreasing the deficit. 

Third, CBO reports point estimates of the budgetary effects of 

legislation because they are necessary for the enforcement of the 

budgetary rules. But CBO strives to indicate which factors underlying an estimate may be particular uncertain. 

Fourth, for appropriations and authorizations of appropriations 

the benchmark is current law, but it is not the baseline. As I mentioned, 257 requires that we assume that spending inflate over 

time, the benchmark for many programs. The starting point is actually zero because there is no appropriation or authorization for 

future years under current law. 

Let me end with two sometimes controversial principles related 

to a limited group of cost estimates, dynamic scoring, and when a 

program should be considered Federal for purposes of the budget. 

CBO always tries to estimate the effects that legislation would 

have on people’s behavior; for example, changes in how many people would enroll in a program. But effects on the economy as a 

whole are taken into account only when CBO produces a dynamic 

score for major legislation. 

Nevertheless, when CBO prepares its economic projections the 

agency incorporates the macroeconomic effects of all enacted legislation. 

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13 

Finally, when Congress considers legislation that would establish 

a new program or mandate a new activity, CBO must determine 

whether the associated cashflows would be Federal transactions. 

For most legislation, that determination is straightforward because 

the activity would be carried out by a Federal agency. But where 

the determination is less clear, we look to the guidance found in 

the 1967 Report of the President’s Commission on Budget Concepts. We try very hard to be even-headed, and we look forward to 

hearing from you what we could do better. 

[The prepared statement of Mark Hadley follows:] 

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Mark 

Director 

Before the 
15 

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Chairman \Vonuck, Ranking l'v1cmbcr Y<mnuth, ,1nd 

l'vkrnber;, of the Committee, thank you f(H 

tunity w discuss rhe process and 

the of the Congressional 

projections and cost estimates. 

of the budget and the economy, 

cost estimates, and dozens 

\Vhile providing technical assisuncc ro LOJWJTSSJonal 

staff as thomands of lcg:isLnivc proposals 

provides that information in 

of vvays and at various points the legislative 

proces:-; used to create the economic indudhovv CBO ensures comistcncy them and 

is described in How CBO Pt·oducrs Its 

~l11c budget projections (which arc known as th~ 

line) a neutral benchmark that the Congress usc 

in the budgetary effects of legislation. When 

cost cstim,1tcs for proposed changes in 

\\CI-'W.Lh\l.gov/.thc}\1t/p!t>\lth. b. 

cnh!ro:mcnt. 

Of n.:VC11\lCS, 

b.1:.elint: b 

Finally, the Congress can usc the hJsc-

\\"ould 

1hc hasdinc projections arc nor intended to he a prediction of bndgctary outcomes. Rathn, the projccrions :1rc 

CBO's hcsr c.'>timates of how the budget would evolve if 

Lnvs did nor updated t\VO or 

and 

Cost Estimates 

Congrt;:;sion.tl Act of l 'J7,i (often called the 

Hudgct An) requires to the extent practicable, to 

prepare cosl estimates for legislation that amhmiz.ing 

committees hJ.vo;: ordered rcportcd~dEit is, agreed to 

send ro the full House or ,Senate for consideration. Over 

the past decade, the agency has produced such estimates 

for 1norc than 9') puccnr of rcportt:d bills. 

bills, CBO sometimes provides 

other of the process, 

bills, d_mcndmcnts, otht:r 

increased each 

estimates. 

Various provisions the Budget Act-·-especialty in 

:-:ections 202, 402. and how ( :nu 

cost estimates. The .statutory requirements ·were 

to cmurc that CB() prioritizes cstirnatcs for tht.: 

brion h likeliest to receive :tct!vc consideration by 
16 

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CEO's cost estimates provide infOrmation that the 

can usc a:. it implements rules and procedures 

rules or rargcrs. However, those cost 

11Ky can-bw do nnt have 

uuu;ccruun. Moreover, CHO 

Each cost estimate tells a concise 

proposal's etfCcrs 011 fCdcral 

compared what vvould 

(that with w-hat would ocntr was not 

cnaCLcd). For bills th,u would authorize drscrci'!Orlarv 

afFect mandatory spending 

or revenues, the period 10 For most tax 

larion, CBO uses C'stimatcs provided by the 

Joint Commirrcc on 'T.1xarion (JCT). 

ln -addition ro 6wmal, \Vrlnen estimates for hills 

to accomproposals 

thdr proposals 

public, some rimes in response to 

In such s!tuarions, CRO n::cot:,nizcs tluJ the confidentialof its work is to co;nmittccs' deliberations, so 

1t preliminary and estimates confidential 

long as the proposals ,uc nm mad(' In conrra:.r, 

the flxmal \<~tchsitc. 

Other Products 1n addition ro budget 

and cnst cstim,Hes, 

at the request 

inflmnation about 

inhmnation enhances the transp::~rency of 

agency's work -n1e reports include: 

• A monthly analysis of federal spending and 

• A periodic rdCrcncc volmne examining numerous 

{'ptions fOr budget deficits; and 

and rules that govern the fOrmulation projections and cost csrim~-ncs arc set 

in Jaw. Others originated in budgcr rcso!urions, House 

or Senate ruks, conference rt:'Pons thar acc:on:<JHilicd 

budget legislation, and the 19(1] 

Conapts. In some have 

in consul ration with the} louse 

nen:ssary to uncertainty about how to implement 

the ruh:s particular cases, 
17 

BU00-A363290 with DISTILLER


TL'>T!MO\) 

For t\vo 

nmstrnction or the 

those esl ima1 es, 

s!ons that would aflt:ct 

prinFor example, jf a rule requires CBO to assume 

bascliuc that an expiring program will be extended, 

rhc estimate the cost or savings from a pro-

!O the in relation to a 

Examples of Principles and Rules That (lnvern Baseline 

Proje-t::tions 

Ffhe Balanc-ed Hudgcr and Control 

Act, \Nhirh was enact>::d in amended several 

times, ddlnes CBO's baseline projections and spdls our 

rules for them. CBO 

the baseline for 

irnport~ 

automatically to 

August 5, 1997; consults with the budget committees to dcrnmiuc whether it will ncvv 

established thcrc.aft-eL) to th<lt 

prograrns are often extended. the rule 

improves accuracy ofbasdine projections of tht· dcfi" 

And because the rnle is <tlso to cost -estimates 

fo1 lt·gislatinn, the rule often 

t'Stimatc of the ultimate cost 

in a more accurate 

when e:;tablish~ 

ing. expanding, shrinking, or diminating .1 progr:m1, On 

to occur in the baseline. 

policym<Jkc•s' dcdsionmaking, CBO and JCT 

also show the baseline projections would change if 

expiring spending or tax provisions were instead assumed 

to expire. 

lhat rule too 

basdi:w that 

would he paid {'Vt'n after the 

exhausted and annual payroll 

inadequate to fund those paymt'nt.'>. 

trade-offs. On the one hand, a 

Section of the Deficit 

Control Act specifies how CBO must construct the 

bJsclinc fi.}r discrctio1ury progran1s. It require:- CBO tn 

usc specified inflators to inflate rhe mosr recent discretionary .1ppropriarion for e;Kh program. Howt·vcr, to project 
18 

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in 

limit funding h-n· those cltegories through 

do not constrain certain types of funding, 

at 

Examples of Principles and Rules That Govern Cost 

Estimates 

Pay-As-You-Go 

contrast, budgetary points of order and PAYGO procedures do nor 10 authorizaliom of new discretionary 

PROCESS FEBR!",\RY6, !.0!~ 

in irs co<;t estimates in certain circumstances. 

and Revenues. A key dement in 

is the b::nchmark agrl.inst 

estimated effects 

that benchmark is 

covering current 

used Ex estimates involving 

mandatory spending or revenues because various budget 

cnf{xccment rule-; apply to !\)-year budgetary effects. 

"nrnotomtten resources on 

rc~ponsihilities. ~IhcrchHe, in C;B()'s -estimate?>, 

of curyi ng out the ·would be the 

amounr of r6ourcc\ to be used. 
19 

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Point Estimates. CBO reports point est1!1l<\te,-----

do!lar J.rnounts---of the 

because they arc necessary tht: 

enforcement of budget rules during Congressional 

deliberation.' For example, rcsolutiom 

comm.ittccs \Vitll allocations 

Y<tlucs, and rhc 

10 track the 

lying an may be particularly t111ccrrain. 

W'hether New ActiYities Are Considered GovernmentaL 

When the Congress considers that would 

csrahlish a new program or a new 

must decide whether ro n-c<lt rhc ;1ssociarcd cash 

federal trans:lctions in its t~stimarc:; of the bill\ budwould j)CJ-fonn 

Snmcrin1t:S, however, the dcrcrmination is rnore ,;;ompli~ 

cared because the legblative proposal \Vould authorize 

nnnfederai entitk·s to out certaill activities that 

might or might not be considered governmentaL and 

the cash flows rdatrd to those might or might 

not involve the Treasury, In such instances, to 

whether the new activity ,should be considered governmental in cost estimates, CBO on recommendations of rhe Report of t/;e !)resident's Cormm~>sion on 

Budget G:mapts and on past precl'Jcnt, than on 

a stature. In preparing its cost estimates, CBO 

the transactions of nonfCderal entities 

transactions if those entities \vould use the sovpo·wcr of the h:dcral government, \vmdd wmk ro 

or would be snbjccr ro a 

comroL~ 

Dynamic tries ro incorporJ.tc imo 

its cos! csrirnates dkcts legislation W(•uld have 

on people's hchavior-·-fOr example, in how 

many people would enroll in a ci+Ccts on 

the economy as a \vholc 

the limited circumstances in which CBO produces a 

"dynamic 

can bave 

examplC', became l1 affects 

investment), most docs not. 

of a bill '\.vould equal or 

<.'xcccd percent of gross domestic product (the economy's toral output) in the Congress ha:; directed 

CBO, if practicable, to 

the estimated budgetary 

economic dft:cts-that 

effects would influence 1hc Such a dynamic score 

also may be requested hy the or Senare Budget 

Comrniucc h:ll· bill and is prepared if it 1s 

fr:11 CBO w do 

Other 

go\'cmment on 

amount of debt. 

a specific for estimating the 

costs Pell grant program, and principles governing the bndg-t:rary trcatmC'nt of certain transportation 

program.<.. 

CBO's Estimates 

( :BO does not produce the .<.ame of written cost 

t(Jr appropriation bills that it products for 
20 

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years from the hudf!;Ct amhoriry 

sur•p!emcntat appropriation hills, CRO 

reports to imcrenz:d parties in the and 

tables on irs website showing the 

and outlays over rhc next 

legbhuion. 

llaseline Projections 

tb: year in which they released) is 

• Since 1982, CBO has also tended !o overestimate 

tot<.d revenues. 'lhe mean absolute error is 

in its projections and is 10.4 percent in its 

sixth-year projections. :l 

Judging the accmacy of CBO's cost estimates tOr 

islarion that is ultimately emKtcd is often much more 

difficult, because the: actual costs or savings 

enacting the legislatioH are a small p'-art 

account or rt'vcnuc stream and cannot 

As a rcsuk \-vhcn for 

however, CRO does 

vvith its cost estimates. 

and economic projections. It found the records the outcomes that 

because all 

• Since 1984, CRO has rendc:d to overestimate total 

outlays (afte-r for 

been made) for 

which the: 

"D1e rnran 

error rrojecr!ons of 

outlay,) (thar is, those rh:ar project outlays t't1r fifth 

of legislation. 1hat is the 

for the provided under the 

AftOrJ,tbk Care Act {AC\), for instance. l11e 

and the staif ofJCT around the time 

or that ro he dose to the 

bur much too hiu:h 

other organizations' estimat~s 

health produced around the time or the 

ACA's enactment were much too high for all three 

is also possible for CBO's 

mares under the Ame-rican Rccovcrv and 

Reinvestment Act of 2009 (ARRA), \Vhich was ~nactc:d 
21 

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tlnderesrinlatc is ,1ccounred f\1r by provisions related 

nernnlnvrnerll ins\uanu:, nutrition ,ls"lstance, and 

tax credits; those costs boosted b? the 

vveakcr~than-·expcctcd economic 

Edclbcrg 

the Con;,;rcssional 

Budget Offlcc's to provide objc~tivc, 

imparrial analysis, the testimony contains no 

recommendations, 

K\~ith J-lall, Robt'rt Sunshine, 

7 
22 

Chairman WOMACK. Thank you, Mr. Hadley. Now, let’s welcome 

to the table two additional witnesses. They are Teri Gullo, the Assistant Director for Budget Analysis at the CBO office, and Wendy 

Edelberg, the Associate Director for economic analysis at the Congressional Budget Office. 

TESTIMONY OF WENDY EDELBERG, ASSOCIATE DIRECTOR 

FOR ECONOMIC ANALYSIS, CONGRESSIONAL BUDGET OFFICE; AND TERI GULLO, ASSISTANT DIRECTOR FOR BUDGET 

ANALYSIS, CONGRESSIONAL BUDGET OFFICE 

Chairman WOMACK. All three of our witnesses will be available 

to take your questions once they begin. 

Let me make an administrative note. It is expected that there 

will be votes called in a little over an hour and assuming, and I 

think this practically speaking here, assuming that we are in the 

middle of this hearing, we will just simply recess at a moment during that first vote series where we can all leave, go do our job in 

voting on the floor. And then, immediately following the last vote, 

within a matter of a few minutes, we will come back and reconvene 

the hearing. 

So, at that moment that we break, and we will find a soft spot 

in the Q-and-A to do it, we will recess subject to the call of the 

chair, where we will come back and resume the hearing. The ranking member and I have talked before the meeting this morning and 

being respectful of the time of our fellow members, and I know 

there are other Committee meetings going on and markups, and 

there will be a constant ebb and flow of members here at the dais, 

it is my intent to withhold my questions until my fellow members 

have had a chance to give their Q-and-A. And Mr. Ranking Member has agreed to do the same. 

Mr. YARMUTH. I will do the same. 

Chairman WOMACK. So, with that in mind, let’s begin our testimony this morning. And I am going to yield the floor to the gentleman from Ohio, Mr. Renacci, for his round of questions. You 

have 5 minutes, sir. 

Mr. RENACCI. Thank you, Mr. Chairman, and thank you for holding this hearing. And I want to thank you, Mr. Hadley and the 

other witnesses, for your participation. As someone who has spent 

my entire life in the business world making decisions, and as a certified public accountant, I use to pour through financial information before I made business deals or business transactions. 

So, it was always great to see the information get greater transparency and I am glad that we are talking about the CBO because 

we make all of our decisions. The CBO always seems to be the 

thing. ‘‘Well, let’s see what the score is. Let’s see what the score 

is’’; and it comes to: we look at your conclusions when many decisions are made—or when people want to complain about the decisions that were made, they use the CBO score. So, I think it is important that we get a better understanding of how you come up 

with your information. 

Deputy Director, my colleague and friend Representative Warren 

Davidson recently introduced the CBO Show Your Work Act. This 

legislation would require the CBO to publish the data, models, and 

processes that are used to score proposals. Would you consider this 

BU00-A363290 with DISTILLER

23 

to be valuable for Members of Congress? And do you have any concerns with this legislation? 

Mr. HADLEY. So, in general, we think that the approach to having more transparency is a great one, and we fully support the general idea of having more transparency. There are many ways to be 

more transparent, and we want to look at the different options and 

find the ones that are most effective, most useful to you all, but are 

also the most cost effective that come with the least cost to taxpayers. 

So, what we are trying to do right now is a bunch of different 

approaches where we look at different things, different ways we 

can be transparent. And they include additional descriptions. They 

include technical details about our modeling, and ultimately, also 

some of the model code itself. 

And we want to see what you all find the most useful. I suspect 

in some cases the thing that would be the most useful is for us to 

generate some interactive tools that the staff of the members could 

go and look at how the results would be different under a different 

set of assumptions. But we want to explore each of those options. 

But I also agree with kind of what you alluded to, that there are 

some concerns that we have about our access to information and 

just putting up every single model. And as you know, we try to be 

also careful stewards of the information that we are given. And 

some of it has to be protected very carefully because it involves details about people and businesses. 

Mr. RENACCI. So, you do not fear that general acknowledgment 

of transparency, how you came up with this information? I do understand some of the things are confidential, the information you 

get, and you want to protect that. But you do understand that we 

need to know how you come up with this information? It sounds 

like you would like to come up and help us better understand how 

you come up with this information as you do come up with the information. 

Mr. HADLEY. Yes, we would, and we would also be happy to come 

up and talk with you at any time, if that is also helpful. I mean, 

there are many ways we want to do more. One of the things we 

tried to do recently was to come and do a presentation to a broad 

array of congressional staff and that was very successful. We met 

with over 150 of them and explained how we came up with a group 

of our estimates and answered questions. Any kind of engagement 

like that we look forward to. 

Mr. RENACCI. I want to switch over now to something that concerns me. It is an issue of national debt and national deficits. In 

fact, I have introduced bipartisan legislation requiring the Comptroller General come before Congress on an annual basis to provide 

an overview of our Nation’s long-term financial outlook. 

Of particular concern to me is the rising cost of interest which 

will be, by 2027, more than $750 billion per year. This is more than 

double what it is today. Even more concerning, an article from the 

Committee for a Responsible Federal Budget noted that interest 

rates were 1 percentage point higher annually that what is projected through 2027 by the Congressional Budget Office, the national debt would be $1.7 trillion higher. Can you please discuss 

BU00-A363290 with DISTILLER

24 

the process that CBO goes under to determine the 10-year interest 

rate? 

Mr. HADLEY. I can, but I think Dr. Edelberg would be better positioned to do that. 

Ms. EDELBERG. We think about that projection somewhat differently in both the near-term and the long-term. I think it is on. 

Is it on? I have a green light. Can you hear me? 

Mr. RENACCI. I can hear it. 

Ms. EDELBERG. So, when we think about how to project the 10- 

year rate as well as short-term interest rate, like 3-month interest 

rates over the near-term, we pay very close attention to what financial markets seem to be saying. And so, for example, we will 

look at the Fed Fund futures markets very carefully to think about 

what the Fed Fund’s rate might be over the next several years. 

When we think about what interest rates will be over the longterm, we have less outside information to go on. There are fewer 

private sector forecasters that are thinking about long-term interest rates. And we find that information from financial markets is 

less useful for telling us what interest rates should be over the 

next 10 years, or even longer. 

So, for that we think more about the various factors that we 

think should have a strong influence on long-term interest rates. 

So, as you mentioned Federal borrowing, we think that is one of 

the most important factors driving interest rates over the next 10 

years. So, we think hard about that. 

But there are other ones as well. So, deficits, we think, are pushing up interest rates over the next 10 years. A factor that we think 

is pushing down interest rates, at least over the next 10 years relative to recent decades, is what we think will happen to labor force 

growth. 

So, the fewer workers we have for each machine, the less productive each machine is. And so, we think that that pushes down interest rates over the next 10 years. And so, we have a variety of 

factors, like productivity growth, labor force growth, the level of 

savings in the economy, and we think about all of those factors together and that helps us to project what we think interest rates 

will be over the next 10 years. 

Mr. RENACCI. Thank you. I yield back. 

Chairman WOMACK. Ms. Lee of California, the floor is yours. 

Ms. LEE. Thank you very much. Thank you, Mr. Chairman, and 

our ranking member for this hearing, and thank our witnesses for 

being here; very important hearing and presentations from you. 

First, I want to ask you about the recent tax bill law now which 

increases the deficit by approximately $1.8 trillion, it raises taxes 

on about 86 million middle-income families, and kicks about 13 

million off of their health insurance. It is clear that there is going 

to be a devastating impact on the budget and the economy, and I 

know the CBO has taken this into account. So, can you walk us 

through how these changes are actually built into your baseline? 

Mr. HADLEY. I will start and then invite my colleagues to jump 

in after I give a brief overview. So, the way we think about legislation is, of course, we start with what have been the changes that 

have occurred in the economy and the budget to date as we are 

putting together the next economic forecast and the new budget 

BU00-A363290 with DISTILLER

25 

baseline. It is critically important then that we think about how 

the tax bill, how H.R. 1 affected both of those, and we look first 

to the estimates produced by our colleagues at the Joint Committee 

on Taxation, because they studied that bill in detail. 

And then, we are currently in the process of trying to parse out 

how much of kind of the data that we have seen to date was in 

anticipation of the tax bill and how much we should consider the 

tax bill to be layering on top of it. So, we are currently in the process of updating both our economic forecast and our estimates of the 

budget baseline. 

Ms. EDELBERG. That hit a lot of the high points. But I guess I 

will talk about our work basically in three different large buckets. 

So, one important thing that we do in using the work that the 

Joint Committee on Taxation has done is we think about how the 

tax bill will change incentives to work and invest over the next 10 

years. 

And there are some short-term effects. There are some mediumterm effects. There are some long-term effects. So, we are going 

carefully through the tax bill to think about how incentives are affected. We also think about how changes to Federal borrowing because of the tax bill will change the amount of net foreign inflows 

coming into the U.S. So, either foreign investors buying up U.S. 

debt, changing the amount of U.S. debt that they are going to hold, 

or U.S. investors holding U.S. debt, instead of foreign assets. 

So, we think about how changes to debt and deficits will affect 

private investment through its effect on how many funds are available for private investment. And then, finally, we think about how 

the tax bill might change the aggregate demand in the near-term. 

So, there are, for example, some important changes to disposable 

income that different households will have because of the tax bill. 

And so, we think about how those can affect, in particular, nearterm growth over the next couple of years. 

Ms. LEE. Thank you very much for that. So, you are still in the 

process of just doing this. 

Ms. EDELBERG. We are. 

Ms. LEE. The Overseas Contingency Operations, the OCO account—some of us call it a slush fund, which I believe it is—it is 

a fund that the Pentagon uses for off-budget war funds. How is 

that treated in the baseline? And OCO funding increases, I think 

it is $75 billion for fiscal year 2018. How does that affect the deficit, and do you know if there is a better way and method for reflecting OCO and other emergency spending in the baseline? 

Mr. HADLEY. So, again, I will start and one of my colleagues will 

jump in. In this case, it will be Teri Gullo. So, the way we show 

OCO spending, it is a form of discretionary spending. 

So, when we are producing an estimate of Overseas Contingency 

Operations spending, it is essentially scored from zero. That is, we 

estimate the total amount that is affected, or that is provided in 

a year, as new budget authority. And then, for the baseline, we 

project that using the specified inflators. Now, unlike the other defense and nondefense discretionary spending, OCO spending is not 

constrained by the caps on those categories. 

Ms. GULLO. But OCO spending is used in calculating the total 

deficit. So that money is in the baseline and it is used. It is just 

BU00-A363290 with DISTILLER

26 

that when Congress is judging whether or not you have exceeded 

the caps, any spending under OCO is not included for those cap 

calculations. But that money is included when we are doing the 

overall deficit estimates. 

Chairman WOMACK. Thank you, Ms. Lee. Mr. Palmer, from Alabama. 

Mr. PALMER. Thank you, Mr. Chairman. Ms. Edelberg, can you 

discuss in general terms if this will impact an economy growing at 

three percent versus an economy growing at less than two percent? 

In other words, how would stronger GDP impact your budget baseline? 

Ms. EDELBERG. In general, stronger GDP growth will improve 

the deficit projections. So stronger GDP is generally associated 

with greater taxable income, and that will lead to greater revenues, 

and that will lead to less Federal borrowing. One thing that can 

be important, though, is thinking about what it is that we believe 

is going to drive faster GDP growth relative to our baseline. 

So, to the degree that it is something that we think has other 

effects, that can either also reduce Federal borrowing or it can 

work in the opposite direction. One thing I have in mind, for example, is productivity growth. So, we think that if factors are expected 

to push GDP growth above our baseline; so, for example, as you 

say, 3 percent. 

If those factors are productivity growth, we would expect interest 

rates to also be higher than our baseline, and that will increase net 

interest cost. And because of the high level of debt, even small increases in interest rates relative to our baseline can have notable 

effects on our projection of net interest cost. 

Mr. PALMER. I ask that in context to the Atlanta Federal Reserve 

projecting that this quarter will have 5.4 percent growth and the 

prospects that that gives for being three percent or better for the 

year. 

Mr. Hadley, thank you for being here. In our last hearing, Director Hall said that the single biggest problem we have when it 

comes to the capability of the economy to increase production, and 

thus improve economic growth and the prospects for it, is the labor 

supply. Do you agree with that statement, and what types of things 

can we do to be able to get more people into the workforce? 

Mr. HADLEY. I agree with the Director’s assessment. I am, unfortunately, unable to make recommendations about different strategies you might pursue to change things. 

Mr. PALMER. Well, the CBO put out a report in March of 2015 

and reported on the effects of repealing the Affordable Care Act, 

and I am reading, ‘‘The ACA directly imposes higher taxes on labor 

income, thus, discouraging work.’’ And that, ‘‘Repealing the ACA 

would increase the supply of labor.’’ Does the CBO stand by that? 

Mr. HADLEY. Yes, we do. 

Mr. PALMER. I think the same report also indicated that repealing the ACA would increase capital stock because, as businesses 

have fewer workers, there is less incentive to expand, to invest in 

the capital equipment, things like that for production. But as the 

labor supply increases in a growing economy, you will have more 

capital investment. Can you talk a little bit about how that might 

impact CBO’s projections? 

BU00-A363290 with DISTILLER

27 

Mr. HADLEY. I will turn this over to Wendy, who will do a much 

better job with the economics than I would. 

Mr. PALMER. I would be happy to hear Ms. Edelberg’s answer. 

Ms. EDELBERG. I think you have it right, that we think that investment in capital, in large part, is driven by what is happening 

to the labor force. So, firms feel like they need to outfit their workers with a certain amount of capital. And when those workers earn 

wages, they save part of those wages and that saving becomes 

funds available for investment. So, for all of those reasons, we 

project that in the cases when a particular policy would boost labor 

force growth, what would go hand-in-hand with that is typically an 

increase in investment. 

Mr. PALMER. One of the things I know the CBO is not in a position to estimate, and I do not think really anybody in this room or 

in this town is able to estimate, is the benefit of unleashing the talent, and intellect, and imagination of people who have been caught 

in the welfare trap. 

We know that there are millions of people, able-bodied adults, 

who are out of the workforce that are not even counted when we 

make calculations about employment. And I think the bigger picture here is not only how an increased labor supply impacts capital 

investment and how it impacts the economy, but also how it 

unleashes this talent, and intellect, and imagination of people that, 

if you look at some of the advances, and inventions, and things, it 

is coming from people who were basically blue-collar that got into 

the workforce and saw a problem and solved it. 

And I really, again, appreciate the work that you guys do, but 

I really think that this is the key to growing a healthy economy 

that will really benefit the entire country. Mr. Chairman, I yield 

back. 

Chairman WOMACK. Thank you, Mr. Palmer. Once again, I remind everyone we will have votes. They have moved it up now. 

They say it will be sometime between 11:05 a.m. and 11:10 a.m. 

We will find a soft spot in our Q-and-A at that time and recess and 

come back subject to the call of the chair. Ms. Wasserman Schultz 

from Florida. 

Ms. WASSERMAN SCHULTZ. Thank you, Mr. Chairman. I will note 

that CBO has endeavored to increase your outreach in hiring of 

women economists, so, it is good to see two women at the table. In 

follow-up to Mr. Palmer’s question, could you, for example, give us 

a sense of what effect a sharp decrease in the levels of legal immigration would do to employment levels? 

Ms. EDELBERG. Well, as you can imagine, one of the most important factors underlying our labor force projections is population 

growth. So, if a policy would have a significant impact on population growth, then that would feed in many direct ways to our projections of labor force growth. 

Ms. WASSERMAN SCHULTZ. And my understanding is that CBO, 

in the past, has done analyses of comprehensive immigration reform legislation. Is it accurate to say that comprehensive immigration reform, if it became law, would significantly contribute to employment levels? 

Mr. HADLEY. So, the version of comprehensive immigration reform that we considered earlier did increase employment levels 

BU00-A363290 with DISTILLER

28 

and, therefore, resulted in additional revenues. And that was one 

of the things that we discussed in that cost estimate. 

Ms. WASSERMAN SCHULTZ. Sorry. And thereby, increasing revenues, and thereby, reducing the deficit. 

Mr. HADLEY. That is correct, but I should note that it depends 

in part on the specifics of the policy that you are considering. 

Ms. WASSERMAN SCHULTZ. Of course. And I want to stress again, 

as I did, Mr. Chairman, in the last meeting, that I do not agree 

with the dynamic scoring approach that CBO currently uses under 

the leadership of CBO at the moment. But in spite of that, I have 

tremendous respect for the people who work at CBO, for your expertise, and for your commitment to giving us accurate analysis. 

With that said, last year, the House considered an amendment 

that attempted to cut 89 people from CBO’s staff. They justified the 

cut on the claim that CBO’s estimates are inaccurate. Ironically, 

proponents even used CBO’s score of the amendment itself as part 

of that justification. The criticism was that CBO offered no savings 

in their score of the amendment itself, even though it seemingly 

eliminated the salaries of 89 staff. 

My understanding, and correct me if I am wrong, is that the actual member author of that amendment incorrectly drafted it, and 

the text of the amendment did not actually cut CBO’s budget. Did 

the author of that amendment contact CBO for technical assistance 

in drafting that amendment? Is that assistance that you would 

offer if a member did reach out to you to ask for technical assistance in drafting? And was there any attempt to contact you to find 

out why the amendment scored with no savings? 

Mr. HADLEY. So, I think it would be helpful to take this question 

in two parts. So, I will talk first about that amendment, and then, 

Terri will talk more about the policy and the procedures we typically follow. 

Ms. WASSERMAN SCHULTZ. Great. 

Mr. HADLEY. So, with respect to that amendment, I cannot speak 

to the intent of the member other than what was written in the 

text of the amendment. And the way the amendment was written, 

it would eliminate positions and transfer the responsibilities for 

carrying out those actions to the Director’s office. And it did not 

change the topline appropriation for the Congressional Budget Office. 

So, we would have had to use other resources. We would have 

had to use those kinds of topline resources in a different way, 

which is why our score or estimate of that proposal did not result 

in savings. But I cannot talk about the specific interactions we had 

with the member, because requests for technical assistance are confidential. 

Ms. GULLO. But I think it is fair to say that that was an amendment to an appropriations bill. And we worked very closely back 

and forth with various staff on the Appropriations Committee to 

help them understand how we were looking at the legislation. 

We also consulted the parliamentarian’s office and ledge counsel 

on the drafting of the language. So, there was a fair amount of 

back and forth among congressional staff and CBO to make sure 

we understood everyone is thinking on what the potential effect of 

the amendment would be. 

BU00-A363290 with DISTILLER

29 

Ms. WASSERMAN SCHULTZ. And Mr. Chairman, as a member of 

the Appropriations Committee representative on the Budget Committee, I appreciate that. Thank you. I yield back the balance of 

my time. 

Chairman WOMACK. Thank you. Let’s go to the gentleman from 

Pennsylvania who is still coming down from soaring with his Super 

Bowl champion Eagles, Mr. Smucker. 

Mr. SMUCKER. Thank you. Thank you, Mr. Chairman. I appreciate you pointing that out. Mr. Hadley, good to see you again. 

You have already been asked about the Tax Cuts and Jobs Act 

and its impact. And I would like to just drill down a little more on 

how that has impacted your forecast because, from my perspective, 

my view, and what I have seen in the district that I represent, it 

has had a tremendous impact already; at least in the short-term, 

and I believe, a long-term impact. 

We have seen, of course, companies like Home Depot, FedEx, 

Comcast, Starbucks, Fulton Financial in my area who are providing pay raises, bonuses to their employees, specifically because 

of tax reform. And starting this month, millions of Americans will 

be going home, or are already starting to go home, with a bigger 

paycheck because of the Tax Cuts and Jobs Act. So, specifically, 

what I would like to hear from you is whether the act, the tax reform, has forced any last-minute changes to your upcoming economic forecast? 

Mr. HADLEY. So, we typically would finish our forecast generally 

in early December. And obviously, that was before the tax legislation was enacted; and, so, we did not finish at that time. Instead, 

we are still working on it. We are trying to trace through all of the 

ways in which it is going to affect the economy, both in the nearterm and over the longer period. 

Mr. SMUCKER. How about the Department of Labor report that 

200,000 new jobs were created, and wages grew at the fastest pace 

that we have seen in the past 8 years? Do you foresee that your 

economic growth rate will be increasing because of that forecast? 

Mr. HADLEY. Well we expect to take that information on board 

as well. Yes, sir. I do not know yet. I cannot speak to exactly where 

we are going to come out yet because we have not finished. 

Mr. SMUCKER. But it will impact it? 

Mr. HADLEY. It will be considered as part of that process. Yes, 

sir. 

Mr. SMUCKER. The other thing that I am hearing from businesses 

in my area, and as a small business owner myself—in fact, it was 

one of the things I was hoping to accomplish coming to Congress— 

was to provide regulatory relief to businesses and to American taxpayers. And we have already, in this Congress, made some great 

strides to save taxpayers as much as $36 billion by getting rid of 

at least 860 erroneous regulations. 

And to that end, there has been an increasing interest among 

Members of Congress to ask CBO to begin to estimate regulatory 

costs in addition to its current duties. Is that something that is 

possible for CBO to begin to do? 

Mr. HADLEY. So, we started to by looking at the experiences that 

states and other nations have had with trying to estimate the impact of regulatory change. And so, we have done a fair bit of reBU00-A363290 with DISTILLER

30 

search looking into that. And we would be happy to write a report. 

I will give you kind of some outline of kind of what we have found 

so far. 

How feasible it is will depend on what you are asking for. So, if 

it is more information about legislation that would turn back a regulation that the Administration has proposed? Then at that point 

there is a fair bit of detail about what that regulation would entail, 

and more can be done. 

If it is looking at the point when legislation is first enacted, then 

there was obviously less information available at that time. And it 

is somewhat different in other countries because a lot of the legislation originates, particularly in countries with parliaments, the difference between the legislature that creates the program and the 

executive that carries it out is a little bit different. 

Mr. SMUCKER. I am sorry because I am running out of time. So, 

would that be a function that is different than what you currently 

do? That would be an added function? 

Mr. HADLEY. So, we would be broader. We have done some analysis, like we looked a little more than a year ago at the overtime 

rule and the effects of repealing it. And in that case, the stars 

aligned, and we were able to provide an economic analysis of what 

those effects would be. 

But doing burden analysis can be tricky on a case-by-case basis. 

And so, particularly for environmental regulations, we are not yet 

well-positioned to address those. I mean, we do not have the chemists and those types of scientists on staff. 

Mr. SMUCKER. It would take additional resources, you are saying, 

in order to provide those kinds of estimates? 

Mr. HADLEY. It would take additional resources. Yes, sir. 

Mr. SMUCKER. Thank you. 

Chairman WOMACK. To the great State of Washington, Ms. 

Jayapal. 

Ms. JAYAPAL. Thank you so much, Mr. Chairman. And I do appreciate very much, going back to my days in investment banking 

and as a master’s in business and running a nonprofit, the ability 

for us to really understand exactly how you come up with these 

projections. So, thank you all so much for the work that you do. 

One of you said earlier that in looking at the estimates of the tax 

plan on the baseline that you would at things like incentives to invest, and I think it might have been you, Dr. Edelberg. Can you 

tell me how you think about that specifically? Do you look at history? 

If you look at history, I am struck by the comments from Sarah 

Sanders at the White House about how she contextualized the 

Reagan tax cuts. There is a lot of disagreement around those tax 

cuts. The country was recovering from an economic recession at 

that time. Reagan also increased taxes three times. 

And so, I am just wondering how do you look at and evaluate 

what is going to happen to the economy and investments in the 

economy? Do you look at a State like Kansas, that did similar 

things to what the GOP tax plan included, and in fact, had a 

hugely detrimental impact on Kansas’ economy? And eventually 

those tax cuts ended up being rolled back by a Republican legislaBU00-A363290 with DISTILLER

31 

ture. What kinds of things do you look at to come up with those 

projections? 

Ms. EDELBERG. So, there is an extensive economic literature that 

thinks about how investment responds to changes in rates of return. And it is a complicated literature, because there are lots of 

different types of investment. There are lots of different ways of 

measuring what the rate of return is. 

So, it is not a literature that comes to a very strong consensus 

as to what that relationship is. But there is something to go on, 

and that literature can look at particular episodes, like the ones 

you have mentioned, but it can also look at broader time series and 

look at how investment generally speaking in the U.S. economy has 

fared over decades in response to changes in rates of return. 

So, we are taking all of that onboard, and we have put out some 

of our own papers walking through how we think about how investments respond to incentive. I should say more broadly, we are 

using much the same machinery that we use when we put together 

the baseline projection. The pre-policy baseline projection, before 

the tax bill was passed, has all of these same channels in it, as we 

had to think about what investment would be before the tax bill 

passed. 

Ms. JAYAPAL. But the impact of the tax bill is going to be enormously substantial, given how much it increases the deficit. And 

so, the impact of this particular bill, it seems to me, would have 

sort of a very unusual effect on your baseline, unlike some of the 

other things that have happened over time; maybe not the ACA because I think that was also substantial. 

Ms. EDELBERG. It certainly has a complicated effect. The changes 

relative to the entire economy are perhaps not as outsized as you 

have in mind. But we are deep in this analysis and so, I do not 

want to predispose what the conclusions will be. But I am worried 

about characterizing it as being so outsized. 

Ms. JAYAPAL. Thank you. Just moving to the Affordable Care Act 

now. Our colleagues on the other side of the aisle have made repeated attempts to, in our view, undermine the Affordable Care 

Act. And as a result, we are now seeing an uptick in the uninsured 

rate among U.S. adults since 2016. Can you tell us how the CBO 

will account for those in the upcoming baseline projections? 

Ms. GULLO. So, not dissimilar from Wendy’s comments, we are 

constantly reviewing the data that is currently available. We have 

information on what the enrollment numbers for 2018 through the 

marketplaces, and all of that data and State-level reactions to some 

of the regulatory changes are all things that we are taking into account as we update our baseline this time around. So, all of that 

will be taken into account to come up with the most recent estimates that we can. 

Ms. JAYAPAL. Thank you very much, and I yield back, Mr. Chairman. 

Chairman WOMACK. Mr. Lewis of Minnesota. 

Mr. LEWIS. Thank you, Mr. Chairman. And thank you, panel, for 

coming today. Very, very important topic as we get to the best 

model for economic growth and a rising tide. I have a couple of 

questions; one on process, and one on theory. Theory dealing with 

the penchant of some of my friends on the other side of the aisle 

BU00-A363290 with DISTILLER

32 

of all you have to do is raise taxes, and raise spending, and voila, 

you get economic growth; sort of a demand-side model. I will get 

to that in a second. 

But first, tell me or describe the difference between the baseline 

and the cost estimate as a matter of process. So, the baseline assumes current policy going forward, and the cost estimates assume 

pending legislation or legislation that has been reported. What are 

the differences we need to know on this Committee between those 

two? I am a little confused there. 

Mr. HADLEY. Sure, I would be happy to discuss that. So, the key 

difference between the two of them is really how we think about 

discretionary spending. So, for discretionary spending in the baseline, it is inflated, as if future discretionary appropriations will be 

provided. And the reason for that is we need some estimate of discretionary spending to have a realistic 10-year view of the debt in 

order to do debt calculations. 

But for cost estimates, whether it is for an appropriations bill or 

an authorizing bill that authorizes future appropriations, the estimates are done relative to current law. So, for most cases, that 

means starting from zero and then looking at the amount added by 

the provision. 

Mr. LEWIS. But if you are in the middle of pending legislation to 

the Tax Cuts and Jobs Act, and we are doing a baseline and we 

are doing a cost estimate, what is the difference there? 

Mr. HADLEY. Well, so we do our cost estimates relative to the 

baseline, and it is usually the baseline that was adopted as part 

of the budget resolution that Congress then determines when we 

switch to a new baseline. 

Mr. LEWIS. Okay. So, we do a baseline with a resolution. Then 

you take pending legislation or reported legislation and apply that 

to the baseline. Correct? 

Mr. HADLEY. Correct. And not all baselines get picked up by 

budget resolutions. 

Mr. LEWIS. Okay. Got you. Thank you. I noticed when you are 

doing your forecasting models and your macroeconomic model, it is 

purely an aggregate demand exercise; consumer spending, business 

investment, residential investment, government spending, net exports. 

We all had that in economics. You could have used wages, plus 

interest, plus rent, plus profits. Either one, it is a totally demand 

side. So, naturally, if we are going down that road, the best way 

to increase GDP and growth would be to raise consumer spending, 

which is vastly overstated when you consider business-to-business 

purchases. 

But raise government spending. Well, you just put in the multiplier, and boom, you got an increase in GDP. And the problem, of 

course, with this demand-side emphasis is the first rule of economics and that is opportunity cost. 

If you increase government spending, where does it come from? 

There is no such thing as a free lunch. Milton Friedman was right. 

And so how much are you relying on this old Gaussian aggregate 

demand model, and how much are you relying on the changes in 

behavior from a supply-side model that encourages work, savings, 

BU00-A363290 with DISTILLER

33 

and investment, which of course will create demand without having 

to prime the pump? 

Ms. EDELBERG. Okay. So, you are absolutely right that we think 

about the components of GDP and how the Bureau of Economic 

Analysis thinks about the different sectors that aggregate up to 

GDP. And we have to keep track of those over the full 10 years. 

And you are absolutely right that one can think of both GDP and 

GDI. But setting those aside, I think what anchors our projection 

over the full 10 years is our estimate of potential output. So, we 

try to measure something that cannot be observed, which is the 

maximum output that our economy can produce without creating 

undesirable inflationary pressures. And so, we have an estimate of 

potential output—— 

Mr. LEWIS. Okay, let me interrupt. 

Ms. EDELBERG.——in any year over the projection period. 

Mr. LEWIS. Thank you for that. But I come from the school that 

growth is actually anti-inflationary; and I know there is a bias on 

the bond market. I know there is a bias in some economic circles 

that if you have got increases in growth, oh my goodness, you are 

going to get bottlenecks. It has got to be inflationary. Then interest 

rates have got to go up, and the Fed dutifully starts to raise rates. 

The fact is, we have had experiments in the 1920s, in the 1960s, 

in the 1980s where growth actually decreased inflation. Inflation 

went down in the 1980s after those tax cuts. Because the same 

amount of dollars chasing more goods and services is anti-inflationary. I do not hear you talking about that. 

Ms. EDELBERG. So, I cannot speak to those episodes in particular, 

but any policy, for example, or any other factor that improves the 

economy’s potential output will have those sorts of deflationary 

pressures that you are talking about. That is embedded in our 

models for sure. 

Mr. LEWIS. Not necessarily inflationary. 

Ms. EDELBERG. No, it will have deflationary pressures. 

Mr. LEWIS. Exactly, okay. 

Ms. EDELBERG. If you boost the economy’s potential, you will— 

and that is all you have done—you will produce deflationary pressures. 

Mr. LEWIS. My time is up, thank you very much. 

Chairman WOMACK. Thank you, Mr. Lewis. The first vote has 

been called, but I am going to yield now to the gentleman from 

New York, Mr. Jeffries, for his round of questions. And then we 

will take a break and a recess subject to the call of the chair. Mr. 

Jeffries. 

Mr. JEFFRIES. Thank you, distinguished Chairman for yielding, 

and the witnesses for your presence and service to the country. Let 

me simply point out that when Ronald Reagan cut taxes for millionaires and billionaires in the 1980s, it did not lead to significant 

economic growth. It exploded the deficit. 

And when George Bush cut taxes for millionaires and billionaires 

in 2001 and 2003, it did not lead to explosive economic growth. We 

got the worst economic crisis since the Great Depression. 

And when the Republican Governor and Republican Legislature 

in Kansas decreased taxes for millionaires and billionaires in that 

State, it did not lead to massive economic growth. It led to overBU00-A363290 with DISTILLER

34 

crowded classrooms, crumbling infrastructure, and prison riots—so 

much so that Republicans rolled back their so-called tax cut. 

This notion of trickle-down economics has been widely discredited over, and over, and over again. Now Ms. Edelberg, the notion 

of consumer spending as a result of increased consumer demand 

leading to an increase in GDP is a relatively sound economic theory 

and policy, is that right? 

Ms. EDELBERG. Yes, sir. 

Mr. JEFFRIES. And is it fair to say that if you have a context 

where 83 percent of the benefits of a tax bill go to the wealthiest 

1 percent in the country, that would not necessarily lead to the 

same type of consumer spending increase as if the benefits were 

more equitably distributed? 

Ms. EDELBERG. So, we generally think that what we call the 

marginal propensity to consume is generally lower for higher income households. 

Mr. JEFFRIES. So, is it fair to say that an increase of $1.50 in a 

weekly paycheck would not necessarily lead to some dramatic increase in consumer spending? 

Ms. EDELBERG. I think what you have in mind is thinking about 

what the marginal propensity to consume is for perhaps a lower income household. And in that circumstance, we generally think that 

those marginal propensities to consume are higher because those 

households have a greater probability of being constrained, of being 

liquidity constrained. 

Mr. JEFFRIES. Right. So, the greater the increase in the weekly 

paycheck the greater the increase in consumer spending and therefore, perhaps, the greater the increase in GDP. Is that right? 

Ms. EDELBERG. Generally speaking yes, in the short-term. 

Mr. JEFFRIES. Okay. Yeah, and I am making reference to the fact 

that the Speaker—who I do respect, who used to be the chairperson 

of this Committee—touted an increase of a $1.50 in a paycheck as 

if that was some significant accomplishment to be celebrated. I 

found that to be astonishing. 

Now the CBO, Mr. Hadley, was created in 1974 to give Congress 

direct access to expertise, is that right? 

Mr. HADLEY. Yes, Congressman, that is correct. 

Mr. JEFFRIES. And prior to that period of time when Congress 

needed information on economic estimates, it would get it from the 

executive branch, is that right? 

Mr. HADLEY. That is correct. 

Mr. JEFFRIES. And I think the theory in creating the CBO was 

that if you got information from the executive branch, it did not 

carry the objectivity that a separate and coequal branch of government as embedded in Article I of the United States Constitution 

should receive, is that right? 

Mr. HADLEY. That is correct. 

Mr. JEFFRIES. And, you know, over that 40-year period, I think 

there has been nine different directors. Fair to say that CBO has 

consistently provided high-quality information to Congress that is 

objective and free of partisan political taint? 

Mr. HADLEY. We have done our best. 

BU00-A363290 with DISTILLER

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Mr. JEFFRIES. Okay. And the CBO appoints staff based on their 

qualifications to do their jobs without deference to political party 

ideology, is that right? 

Mr. HADLEY. That is correct. 

Mr. JEFFRIES. And so, I find, you know, the attacks on the CBO 

somewhat astonishing. But I guess if you put it in the context of 

what is happening in this country, maybe or not. We have folks in 

this town who attack the free press, attack the FBI, attack the Department of Justice, attack the article III Federal judiciary, labeling folks so-called judges, attack the national security apparatus. 

I am hopeful that these constant attacks on institutions important to our democracy will cease. And certainly, that we here in the 

United States Congress should not attack the work that the CBO 

has consistently done, as I would point out now, under the leadership of a Republican-appointed Director in terms of both the Speaker and the Senate majority leader. I yield back. 

Chairman WOMACK. I thank the gentleman from New York. Ladies and gentlemen, the votes have been called. We are in the first 

few minutes of that vote series. I would remind our members this 

hearing will continue within just a few minutes following the call 

of the final vote of the series. This hearing is recessed and is subject to the call of the chair. 

[Recess.] 

Chairman WOMACK. The hearing will come to order. And once 

again, thank you for your patience to our witnesses as we did our 

duty and voted. Before we took the recess, Mr. Jeffries of New York 

was the last questioner. So, in that case we are going to move back 

to the other side of the table and the gentleman from Georgia. Mr. 

Ferguson, the witnesses are yours. 

Mr. FERGUSON. Thank you, Mr. Chairman, and thank each of 

you for being here. Last week with Dr. Hall, I asked him some 

questions about the accuracy of the scoring. And he said that within 6 years, it got to 3 percent of what CBO does. It goes back and 

looks the numbers and says, ‘‘Okay, 6 years out we are at 3 percent.’’ 

The challenge that I had with that is that we are being asked 

to make decisions on a 10-year window, and yet we only score a 

6-year window, okay. So, the first question is why is that? Why do 

not we look at the 10-year window—and just, you know, whoever 

wants to answer this one. And if you could, be brief because I have 

got a bucket of questions to ask on that. 

Ms. GULLO. So, Congressman, I think you are referring to our recent outlay accuracy report where we looked at the budget year, 

which was basically a year and a half after the estimate. And then 

we looked at the 6th year. The reason we did not go out 10 years 

was because we were looking at data that went all the way back 

to the early 1990s. And when we were only doing 5-year estimates, 

in order for us to do a complete look over a 10-year period we did 

not have enough observations. 

Mr. FERGUSON. And yet we are asked to make decisions on a 10- 

year with absolutely no certainty of what years 6, 7, 8, 9, and 10 

are going to look at. 

Ms. GULLO. Well, but what I can tell you is we did take a look 

at those observations we had from year 6 through 10. And our conBU00-A363290 with DISTILLER

36 

clusion was that the error rates were roughly in line with what 

that 6th year error was. 

Mr. FERGUSON. So, I think it is important if I am going to be 

asked to vote on a policy that is going to have a 10-year window 

on it, I want to know what those accuracy numbers are in years 

7, 8, 9, and 10. Otherwise, I might as well cut the lights out and 

throw darts at the window. 

So, I think it is really, really important because the question has 

been asked, or the discussion has been had, for you all to look at 

15- and 20-year windows. And that is not a realistic ask if we cannot even determine if year 10 is accurate as it should be. 

So that is going to be something I am going to focus on is accuracy in that 10-year window so that we know—and I think we just 

need to be honest about that and say in year 2 we are at 98 percent accuracy. By year 6 it goes to 97. And at year 10, you are 

going to be making a decision on something that has an accuracy 

of 80 percent. Whatever that number comes out to be, okay. I think 

that is important to do that. 

So, Ms. Gullo, I am going to ask this question too. When you are 

looking at this, the budgeting process, does the CBO take into account Congress’s inability to pass appropriations bills on time and 

the constant environment of C.R.s that we have been in? What 

does our inability to do the work here have on the scoring? 

Ms. GULLO. So, when we score continuing resolutions, our normal 

practice is to what we call ‘‘annualize’’ them. So, even if there is 

a 1-month C.R., we provide the score to the Congress on an 

annualized basis. So, that provides you with information on what 

it would look like for the whole year if you appropriate it at that 

level. 

Mr. FERGUSON. Let me ask it a different way then. 

Ms. GULLO. Okay. 

Mr. FERGUSON. When you are doing your 10-year projections, 

okay, when we ask you to score something when we bring forward 

the 2019 budget, and you are going to give a 10-year estimate on 

that to see if it comes into balance, will you take into account in 

that the fact that we may or may not get an appropriations bill 

done? Not how you score the C.R. that we are inevitably apparently 

going to do. But how does that play into it, or is it just something 

that you cannot account for? 

Mr. HADLEY. Well so, when we put together our estimates and 

the baseline, we start first with what were the actuals in prior 

years. And in many prior years, most prior years, we have continuing resolutions. And so, some of the agency behavior that you 

would expect to occur under a C.R., like delaying when they make 

major procurements, that is already baked into the data. 

And so, in our projections going forward that include using those 

spend out rates of budget authority, it already captures those historical experiences. 

Mr. FERGUSON. Would it be more helpful if we refined our budget 

process to ensure that we had authorizations and appropriations 

done in the allotted time in a given year? Would it give you more 

certainty in your scoring? 

BU00-A363290 with DISTILLER

37 

Mr. HADLEY. It would give agencies more certainty in how they 

plan their behavior. And then as we gained experience with 

that—— 

Mr. FERGUSON. That’s a long way of saying ‘‘yes.’’ 

Mr. HADLEY. Yes. 

Mr. FERGUSON. Okay. Thank you. That is just all I needed from 

you. Mr. Chairman, with that I will yield back. 

Chairman WOMACK. I thank the gentleman from Georgia. Let’s 

go next to the gentlelady from Illinois. Ms. Schakowsky, the floor 

is yours. 

Ms. SCHAKOWSKY. Thank you, Mr. Chairman. Ms. Gullo—am I 

saying that right? 

Ms. GULLO. Yes. 

Ms. SCHAKOWSKY. Okay. Do the CBO and Joint Committee on 

Taxation base their cost estimates on how a bill is written, or do 

they try to assume the future legislation that might follow if a bill 

is passed? 

Ms. GULLO. So, Congresswoman, if I understand your question, 

CBO in scoring a piece of legislation looks at the legislative language and how we think that legislative language will be implemented. 

Ms. SCHAKOWSKY. So, a bill’s score would not include the future 

cost, for example, of extending provisions that expire after a few 

years. Is that correct? 

Ms. GULLO. Well I think it depends on the program. We do have 

this $50 million rule that requires us to assume for certain programs, and for certain excise taxes that are part of trust funds, 

that those do extend in the baseline even after their expiration 

date. So, it depends on the program. 

Ms. SCHAKOWSKY. Well let me ask you about the tax bill. Are you 

the one that worked on the tax bill? 

Ms. GULLO. Among the three of us we will get you the answer. 

Ms. SCHAKOWSKY. Okay, good. So, the Republican tax bill that 

passed in December had an estimated cost of $1.5 trillion. Which 

I understand does not include interest on—— 

Ms. GULLO. That is right. That is right. 

Ms. SCHAKOWSKY. But it includes several sunsetting provisions 

that Republicans actually have suggested would be extended. So, is 

the cost of extending those expiring tax cuts in the $1.5 trillion 

CBO JCT cost estimate for the bill? 

Mr. HADLEY. No, as a general matter they are not because the 

legislation had the tax rates returning to a higher level. And we 

reflect that in both the cost estimates, and we consider that as we 

are putting together our forecast and baseline based on current law 

now that the bill has been enacted. 

Ms. SCHAKOWSKY. So, you are making the assumption that the 

individual tax rates will go back to what they were, that they are 

not permanent. 

Mr. HADLEY. That is correct. 

Ms. SCHAKOWSKY. Okay. It seems to me though, since it has been 

suggested that they may be continued, that one explanation is that 

the Republicans gamed the scoring roles to make it look like their 

tax bill is actually cheaper in terms of debt than it was intended 

to be. Another is that they are willing to let the taxes go up on over 

BU00-A363290 with DISTILLER

38 

half of middle class families in a few years, while making sure that 

the big corporations and super wealthy get the permanent tax cuts. 

I have another question. The Republicans have argued that the 

tax bill will pay for itself once we take into account the economic 

effects of the legislation. Last week, the CBO moved up its projection for when the Federal Government will hit the debt limit by 

several weeks at, ‘‘After incorporating the anticipated effects of recent tax legislation.’’ So, whomever of you, how did passage of the 

tax bill effect the CBO projection for the debt limit? 

Ms. EDELBERG. The main reason why we moved up our anticipated date, our best guess of when we think we would reach the 

debt limit, is because the IRS published new withholding tables 

that we think will lead to a lower estimate of tax revenues coming 

in between now and then. 

Ms. SCHAKOWSKY. Thank you. As far as the debt limit is concerned, is it fair to say that the economic effects of the tax bill are 

not currently projected to offset the decrease in revenue the bill 

caused? And is that what you are saying, that there will be less 

revenue that will come in? 

Ms. EDELBERG. I think it is important to think separately about 

some of the near-term effects of the tax bill—like the withholding 

tables that the IRS might be putting out and how those will affect 

tax revenues as they come in over the next several weeks—relative 

to what we think the overall effect that the tax bill will have on 

revenues, you know, including its macroeconomics effects. 

One estimate of that broader estimate is the Joint Committee on 

Taxation’s estimate of the macroeconomic effects of the tax bill as 

it was passed out of Conference, and that suggested that revenues 

would be higher after incorporating the macroeconomic effects relative to just a conventional estimate, but not by enough to fully offset the deficit effects. 

Ms. SCHAKOWSKY. Thank you. I yield back. 

Chairman WOMACK. Gentleman from South Carolina, Mr. Sanford. 

Mr. SANFORD. I thank the chair. I guess my question to each one 

of you all would be, are we walking our way toward the most predictable financial crisis in the history of man, and are you abetting 

in that process? And here is what I mean by that and let me throw 

out a caveat. 

Trying to guess anything 10 years out is amazingly complex deliberation, you know. It becomes at best a well-reasoned educated 

guess and nothing more than that. I mean, it is awfully, awfully 

tough to go 10 years out and project. So, you have my empathy on 

that front. 

But I looked at some of the numbers that are built into the baseline, and in some ways, they could be argued to be optimistic. So, 

what we see in terms of budget forecast in terms of projected deficits and accompanying debt in many ways may be the optimistic 

case because Murphy’s Law always exists, bad things happen. 

Wars come about, a lot of things might come about that we cannot 

build into a model. 

But I do look to the things that are built into the models. So, on 

mandatory spending, as I read it, it funds entitlement authority basically regards to the trust fund amount. And I think that that is 

BU00-A363290 with DISTILLER

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a somewhat optimistic projection because we can end up with a 

real squeeze based on some of the fund balances. It presumes that 

caps still exist, at least in my reading of the baseline, though I 

think a political reality is they are about to disappear. 

I do not see a recession built into the front end of the 10-year 

model. It assumes an averaging, but if that recession were to come 

near-term—and we are now in the third longest economic recovery 

in American history—that would again dampen down the numbers. 

The interest rate numbers to me seemed a little bit optimistic. 

When I look at the average between 1990 and 2007 at 5.8; we are 

at 4.4. I think that one could argue that that might be a little bit 

optimistic. I look at the labor productivity, which is just really complex given the aging of America. 

And the numbers I see in terms of projected downdraft on both 

fertility rate and on overall growth of the population. In other 

words, people that live longer, but we are having fewer people come 

in. That puts a real squeeze in terms of our entitlement programs. 

But nonetheless, labor productivity as I see it stays about the same 

as it did for the 30 years previous. Which I think could be argued 

to be a little bit optimistic. 

I look at some of the—what were these numbers, my eyesight is 

getting so bad—well interest rates, I was going to go back to those. 

If we were to go back to the numbers that we saw over the last 

30 years on interest rates, there would be a $4 trillion delta as I 

read it in terms of future debt amount. 

So, I will not belabor the point. But as I look at this, I see some 

numbers that could be argued to be a little bit optimistic. Give me 

your thoughts on that, and a little bit of maybe foreboding or forewarning with regard to some of the economic realities we might 

have to contend with as a Congress if these numbers do not pan 

out. 

Mr. HADLEY. Sure, we would be happy to. So, the first thing I 

would note is that, you know, we produce the baseline and forecast 

under the rules that we are required to use. But we also supply 

information, if you would use alternative assumptions. And the deficit and debt paths would be higher if those alternative assumptions were used. But I want to note that even under the baseline 

assumptions, we are on an unsustainable path for deficits and debt. 

Mr. SANFORD. So, which one of the alternative assumptions 

scares you the most? 

Mr. HADLEY. Well so, one of the things that concerns me is mostly about productivity. And if productivity does not return to historical levels, depending on which window you look at, then that is 

pretty troubling. And that is—— 

Mr. SANFORD. Well can we go to more than troubling? Maybe, 

like, completely, wildly optimistic? I mean, we had globalization 

occur over the last 30 years. We had the internet which has just, 

I mean, radically changed sourcing and a whole host of things in 

terms of the way that people are able to interface with machinery, 

and equipment, and technology. I mean we have had some rather 

amazing developments, and we now have a substantially aging 

population. 

So, I mean, I look at some of these productivity numbers and, 

yeah, we could hit them if we get everybody in Sun City in my disBU00-A363290 with DISTILLER

40 

trict in South Carolina to go back to work. I do not think they are 

going to do it, but I think that there are some optimistic forecasts 

that I would love to dig in deeper but I am out of time. Thank you, 

Mr. Chairman. 

Chairman WOMACK. Always enjoy listening to the gentleman 

from South Carolina. Gentlelady from Texas, Ms. Jackson Lee. 

Ms. JACKSON LEE. Let me thank the Chairman and the Ranking 

Member for these hearings. And let me say to Mr. Hadley, I am 

going to ask a potpourri of questions, some I hope that will just get 

a ‘‘yes’’ or ‘‘no.’’ But you are aware of the tax cut—some of us have 

called it a tax scam—of the last year. You are aware of the projected $1.4 trillion in deficit that will occur? 

Mr. HADLEY. Yes. 

Ms. JACKSON LEE. And it has come to my attention that we 

might be in a posture next year to borrow close to $1 trillion. 

Would you combine those two elements as to the impact on your 

economic forecast and how you would counsel Congress as asked? 

Mr. HADLEY. So, we are going to certainly take on board the effects of the tax bill, that is what the thing that is, but—— 

Ms. JACKSON LEE. Say it again, I am sorry. 

Mr. HADLEY. We are working hard to take on board all of the effects of the tax bill as we produce the new economic baseline and 

forecast. And I would note that also includes taking on the debt effects of those provisions. And so, we will show higher levels of debt 

and also the interest rate effects that would occur. And so, interest 

rate changes on a higher debt will also be different, and usually 

larger. 

Ms. JACKSON LEE. And a higher debt, you do not view that as 

a positive impact on working Americans overall having to bear a 

high amount of debt? 

Ms. EDELBERG. All else equal, no. It is a negative effect, particularly over long periods of time. 

Ms. JACKSON LEE. And as we well know, let me quickly do this, 

we have had some movement in the market Friday, et cetera. And 

the concept may be what is good for Wall Street is not good for 

Main Street. How do you view that movement in the market being 

speculated to be a response to higher wages, of which the tax cut 

was to advocate for that? How do you see that market impact when 

people are getting higher wages and then they get hit from the 

back end? Because if they have any kind of savings or 401K, it impacts them when the market responds to them getting higher 

wages. 

Ms. EDELBERG. So, we are certainly paying very close attention 

to what is happening to the markets in the past week or so. I 

should say it is never a good idea to pay too close attention to particular movements on particular days. The market can be pretty 

volatile. That said, these have been big movements and we will 

think hard about them as we put together the economic projection. 

It would not be good professional practice, though, for me to try to 

guess why the exactly the markets have moved. 

Ms. JACKSON LEE. And I appreciate it. Let me go to my other 

line of questioning. I would say that a trillion-dollar tax cut has not 

been the Christmas tree full of gifts that everybody has speculated. 

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41 

In fact, I think it will be very detrimental, and we will see that as 

you go forward on your forecast. 

But let me give you the story of a teacher in Texas who was 38- 

years old—and I say was—married with children, and died of flu 

just a few days ago. And one of the reasons why she died of flu is 

because she thought the Tamiflu purchase, or the purchase of 

Tamiflu—or maybe let me just say that she did not purchase 

Tamiflu because it was too expensive. 

Let me go back to the Affordable Care Act and the present Administration’s destruction and tempting to destroy and undermine 

the Affordable Care Act. And we see there is evidence of an uptick 

in the amount of uninsured rate among U.S. adults. And of course, 

they are bragging about ending the mandate. 

In what ways is the legislation not being implemented as intended? Because you had a construct of what you perceive the Affordable Care Act would do. And we saw over the last couple of 

years a huge surge, really, of those enrolling in the Affordable Care 

Act. If you would give that, and then what are some of the intervening events at the Federal or State level, like the Supreme Court 

decision—2012 decision—which put us going forward, that the CBO 

could not have anticipated? 

Ms. GULLO. You are absolutely right that the Supreme Court, the 

intervening Supreme Court decision, really did change how we 

looked at the costs of the Affordable Care Act relative to what we 

had originally estimated. There also were delays in imposing some 

of the penalties on large employers that we had anticipated that 

did not end up coming to pass. 

And there also were extensions of hardship exemptions for people 

to not have to pay the penalties. So, there were a host of things 

in the implementation of the law that we had not anticipated when 

we originally did the estimate. And that certainly changes what we 

now think the effects of the ACA are. 

Ms. JACKSON LEE. So, people wound up losing their lives because 

you were not able to implement it as it was constructed. We had 

a good bill, and it was destroyed. But we are still fighting to insure 

people. Were you going to answer, Mr. Hadley? No. 

Mr. HADLEY. Not necessarily. 

Ms. JACKSON LEE. With that, Mr. Chairman, I thank you and I 

yield back. 

Chairman WOMACK. Thank you. Gentleman from Virginia, Mr. 

Brat. 

Mr. BRAT. Thank you, Mr. Chairman. Lot of discussion about 

labor force contributing to wage inflation, labor force issues related 

to immigration, et cetera. I just googled right now it is true that, 

you know, large GDP I guess is good. But most people care about 

GDP per capita in terms of their welfare, et cetera. 

And so, while bringing labor into the country certainly does increase the size of the total pie GDP, in the growth models going 

back to Solow who won the Nobel Prize for growth, and then 

Mankiw at Harvard who followed it up. In your view, GDP growth 

I do not think depends on labor force size. To my recollection in the 

Solow model, and in Mankiw, and the growth literature coming out 

of Harvard and Nobel Prize, GDP growth rates depend on producBU00-A363290 with DISTILLER

42 

tivity and human capital accumulation. Is that true to the best of 

your knowledge? 

Ms. EDELBERG. I think what you are getting at is that growth 

in GDP per capita is a function of labor productivity, which includes human capital. That is right. 

Mr. BRAT. Right. Right. Right. So, growth rates depend on labor 

productivity and human capital, et cetera. And so, that is the key. 

People say well, if you have more folks coming into the country 

that is good for GDP. That is true, but it is not necessarily true 

that it is good for GDP per capita. 

And if you look at the highest GDP per capita countries—I just 

googled it—Luxemburg is largest in the world, $101,000 GDP per 

capita. It does not have a huge population. So, how did they do 

that? Probably through good productivity growth and good human 

capital. Would you make that assumption? 

Ms. EDELBERG. I suspect that that is true. 

Mr. BRAT. Suspect it, right. Good. Thank you. I hate to get too 

much out on speculating but is it true that the stock market plunge 

was basically, right, debt has been with us, right. We have $21 trillion in debt; interest rates are going to go up at some time. Is it 

probably likely the major cause of the market unrest was wage rate 

inflation? Was that, do you think, the primary inflation worry that 

came about that will increase interest rates? 

Ms. EDELBERG. I certainly saw news articles attributing the decline to that. But I know nothing more than what those news articles are saying. 

Mr. BRAT. Right. And so, I mean, that would be my assumption. 

That was the new piece, right. If you anticipate GDP growth in the 

next quarter of 5 percent plus, like the Fed is now forecasting, that 

is a wakeup call to something, right. So, we need to all sort that 

out. 

So those same news articles and the financial markets all refer 

to tight labor markets. I am not so sure about that, right. Labor 

markets are tight if you look at just the technical definition where 

the unemployment rate is low. 

But Paul Ryan, Speaker of the House, wants to bring 25 million 

people who have left the labor force altogether, right. Frustrated 

workers could not find jobs after the financial crisis. What is your 

commentary on how tight the labor markets can be if we have 25 

million able-bodied folks on the welfare rolls or discouraged workers that we can bring back in the labor force? Might that help wage 

rate pressure somewhat? 

Ms. EDELBERG. I think the channel that you are talking about 

would have an effect on wage pressure. I think there are two main 

measures that are useful for looking at and thinking about slack 

in the labor market. One is the unemployment rate. And as you 

talked about it is quite low, and we think lower than its natural 

rate. 

Another useful measure is looking at labor force participation. 

And there we actually do see a little bit of slack. We think that 

participation is slightly lower than where we might think it should 

be, given you know, when labor markets settle down. But that said, 

our estimate of labor force participation rates and our so-called potential labor force participation rates reflect long downward trends 

BU00-A363290 with DISTILLER

43 

in the participation of prime-age men. So, these are not really new 

forces at work. 

Mr. BRAT. Right. 

Ms. EDELBERG. And we do have to grapple with what will happen to those trends over the projection period, and to be sure if 

policies or something else reverse those trends that would matter. 

Mr. BRAT. Right. Yeah, and I did not mean to suggest that there 

is anything new there, right. The workforce participation rate is 

terrible, wage rates have been roughly flat for 30 years. A lot of 

that has to do with our human capital development in K to 12, et 

cetera. 

And I will just close, finally, that is 25 million people I am talking to. If productivity growth is the number one driver of GDP 

growth, what is the productivity growth currently of those 25 million people out of the labor force, right? That is Y over L, right? 

So, output per worker or output per hour. If they are not working 

and not in the labor force, what is their productivity? 

Ms. EDELBERG. I see where you are going. And yes, I mean, the 

measured productivity would be zero. 

Mr. BRAT. Right. The measured productivity would be zero. And 

so, it seems to me if you put those 25 million people back in the 

labor force using their God-given gifts and talents, et cetera, that 

would be a good thing for our economy. I got 12 seconds, thank you 

all very much for coming today. Thank you, Chairman. 

Chairman WOMACK. You did not have 12; you used an extra 12. 

Just want to make sure that we got the numbers correct. 

Mr. BRAT. Fair, judge. That is fair. 

Chairman WOMACK. Mr. Grothman of Wisconsin. 

Mr. GROTHMAN. Okay. We will see if I can get three quick questions in. Yesterday in The Wall Street Journal, there was an article 

commenting that soon may be very costly programs in which the 

government gives credit and, particularly, they mentioned the student loan program. 

Right now, you use estimates based on the Federal Credit Reform Act, but you have talked about using other ways to estimate 

the cost of these programs. Can you comment on what would happen if you made changes or suggested changes? 

Mr. HADLEY. Right. So, we are required to use the estimates 

under the Federal Credit Reform Act. And what we are capturing 

there is an accrual measure of the cost of loans and loan guarantees that the government makes. And we also provide estimates on 

a fair value basis where we take into account another factor. 

So, I think it helps to talk about the ways that those estimates 

are the same and the ways that they are different. So, in the context of the way we do credit reform estimates is we are looking at 

a set of cash flows and those expectations about what is going to 

happen in terms of defaults, and recoveries, and fees that are paid. 

We use exactly that same set of cash flows and those same expectations and probabilities when we put together a fair value estimate, but we include one other element. And so, this is a reason 

why we talk about fair value estimates as being more comprehensive than credit reform. 

That other element is that the likelihood of default is correlated 

with bad states of the economy. And if you are in the private secBU00-A363290 with DISTILLER

44 

tor, you demand compensation for the cost of that risk. And so, 

that fair value estimate takes on board the government’s cost of 

bearing that risk. 

Mr. GROTHMAN. Okay. I will give you a couple of other questions 

kind of coming back to what Congressman Brat said. We plan on 

doing some sort of—or, I would hope we would do some sort of welfare reform. There are many programs out there, virtually all of 

them—low-income housing, SNAP—that kind of discourage you 

from working. 

If we did something to cut the amount that is going out on these 

programs, in your estimates would you take into account that now 

people are going to be more likely to work? So not only would you 

have less going out for these programs, you would have higher income tax coming in. Do you think that is something that you would 

do? And if not, why not? 

Ms. EDELBERG. I think we would incorporate two effects from the 

kinds of policies that you are describing. One would be an income 

effect. Generally speaking, we estimate that if you take income 

away from people they are, at least in the medium-term, up into 

the medium-term they are more inclined to work. So, if you lower 

their income they will work harder. That is one effect. 

And if you change their marginal tax rates, if you change how 

much for each additional, let’s say, hour of work what their wage 

will be and if you change the tax code in a way that changes their 

marginal tax rates, we would also incorporate that effect. But those 

changes on marginal tax rates can be quite complicated by taking 

programs in and out of the whole suite of programs that people 

have access to. 

Mr. GROTHMAN. Okay. There was a question that one of my colleagues on the other side of the aisle asked. And there was a 

premise in it that I just questioned. In these tax cuts, obviously 

some people will have more immediate money. I always think the 

long-term benefit is the Laffer benefit and that people work harder, 

invest differently. 

But in her question, she wanted you to estimate if you cut taxes 

how much people would save and how much they would spend. I 

had always felt in the long-term, it was good for an economy if people saved money. But I am going to ask you. Is it good or bad if 

people save money? Is the economy stronger if we save nothing and 

spend every dime I get in my paycheck, or is it better for the economy if I save 20 percent of my paycheck? 

Ms. EDELBERG. Well now, it matters what you want to measure. 

So, if you are measuring GDP, then the more saving we have available for private investment and the greater your productivity 

growth and the greater your GDP is, that is definitely one effect, 

but that is not necessarily what households care about. What 

households really care about is consumption and other things that 

give them, you know, give them satisfaction. 

Mr. GROTHMAN. I completely disagree with you. I feel better 

when I got more money in my bank account, I do not care if I 

spend money. But you would know what the average person thinks. 

I will give you one more final quick question, just so we clarify this. 

As far as determining GDP, if we hire more people in this building, 

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I do not know that it would necessarily make us wealthier as a society. But does that cause the GDP to go up? 

Ms. EDELBERG. So, one of the components of GDP is government 

spending and investment. So, by that accounting, yes. 

Mr. GROTHMAN. Okay, thank you much. And thank you for letting me go over by 15 seconds. 

Chairman WOMACK. Mr. Bergman. 

Mr. BERGMAN. Thank you, Mr. Chairman. Thanks to all of you 

for being here today. Did I hear you right, Ms. Edelberg, when you 

said if you lower someone’s wages they will work harder? 

Ms. EDELBERG. If you lower someone’s income, they will work 

harder. So, if you take income away from someone having nothing 

to do with the wage that they earn for a particular hour of work— 

if you take $1,000 out of somebody’s pocket—the economic literature suggests that because they feel poorer, the ultimate effect 

will be that they will want to work more. In a sense to replace that 

lost income. That is a separate effect from the wage. 

Mr. BERGMAN. Okay. That is all right, I do not want to waste my 

time. That is just I think my mother is rolling over in her grave 

right now with that. She was Depression-era farm girl from Minnesota, and my dad was from the Upper Peninsula Michigan. I respectfully disagree from the human factor side, which leads me to 

my next question. 

When you develop your models, tell me about the human factors. 

You have got to remember I am a career pilot, both in the military 

and commercial. And every time there is an accident or an incident, we go into the human factor’s side. So, tell me about the 

human factors that CBO uses when you come up with your model. 

Mr. HADLEY. Human factor that we start with is our own track 

record, right. We look at how we did compared to what actually 

happened, and that is the starting point. 

Mr. BERGMAN. When you look at what you did exactly as what 

happens, that is kind of reviewing your game films. Do you not 

only look at, but do you assess the why or what potentially changed 

in the game, if you will, that caused a different outcome than you 

had anticipated? 

Mr. HADLEY. Yes. We try to break out, to the extent we can, how 

much of that was caused by something that was kind of anticipated 

to happen. So—— 

Mr. BERGMAN. Like for the public consumption. Is the average 

American who is listening to, ‘‘The CBO scores this and the CBO 

scores that,’’ is it information in the public domain that they can 

see how well you scored, you know, the last time? Is that set up 

in such a way that all of our citizens can see how you did on the 

last game? 

Mr. HADLEY. So, we have three reports that each go over how we 

did for outlays, how we did for revenues, and how we did for the 

forecast. Those are up on our website. And we are looking for ways 

to show more of this kind of play-by-play for—— 

Mr. BERGMAN. Would you say the average, to get back with Mr. 

Grothman, talks about as far as saving as we try to help folks understand the importance of having money in their bank account for 

a rainy day, or wherever that savings are. Do you think those are 

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pretty simple decisions for a lot of folks who pretty much add up 

two and two and get four? 

Is your report laid out in such a way that that person who 

maybe, you know, needs to understand more that, you know, how 

the CBO did in their scoring? They can look at the football score, 

baseball score, and they could see, you know, the points—pretty 

simple math. 

Mr. HADLEY. We have tried to make it so, but we also welcome 

suggestions for make it better. 

Mr. BERGMAN. Okay. I am going to change because I have only 

got—I almost said an hour and 45 minutes. No, I know it is a 

minute 40. Do you think that Congress would benefit from focusing 

on smaller, more incremental policy items at a time? Or is, you 

know, is CBO’s modeling better suited for a big picture, large-scale 

legislative packages? 

In other words, can we play, you know, three yards in a cloud 

of dust continually as we advance our policies and our laws forward? How is CBO’s modeling set up to evaluate the differences in 

game plans for us legislatively? 

Mr. HADLEY. So, I cannot make recommendations. But I can observe that it is easier for us to estimate small incremental changes 

than it is if there is a substantial portion of the economy that is 

being affected all at the same time. 

Mr. BERGMAN. Thank you. And in the interest of saving, I yield 

back. 

Chairman WOMACK. Thank you, Mr. Bergman. Mr. Arrington 

from Texas. 

Mr. ARRINGTON. Thank you, Mr. Chairman. And panelists, appreciate your time. Going back to the line of questioning and discussion, Ms. Edelberg, on when you take income away from somebody that they work harder. That is a dynamic that is sort of economic theory, or something, maybe you have experienced it in your 

own life. What happens when the government replaces that income, what happens to that dynamic? 

Ms. EDELBERG. Well so, we estimate that that effect is basically 

symmetric so that if you boost somebody’s income—having nothing 

to do again with the wage that they earn on a particular hour of 

work—but if you boost somebody’s income, we estimate that that 

depresses their labor supply. 

Mr. ARRINGTON. Okay. So, in other words if you supplement, assist with outside income, in this case my question has to do with 

Federal income, people do not work harder they actually work less. 

Or, they do not work more, they work less. Is that what you are 

trying to say? 

Ms. EDELBERG. That is correct. Let me make two caveats. I do 

not want to overstate this effect, it is rather small in the economic 

literature. But nonetheless, it is there. And the other thing is that 

it is probably something like a medium-term effect. And I say that 

because obviously incomes have dramatically changed, for example, 

in the U.S. over time. And we have not seen anything like the 

kinds of effects that then you would expect on labor supply—— 

Mr. ARRINGTON. Let me just cut—— 

Ms. EDELBERG.——in keeping with those changes. 

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Mr. ARRINGTON. Thank you. And I appreciate the elaboration, 

and it is an interesting point. But the debt, incalculable debt in 

most Americans’ minds, unsustainable deficit spending. We are getting to the point where we are going to have a trillion-dollar deficit 

some predict soon. 

Interest payments in the next 10 years or less will be greater 

than what we spend on national defense. That is scary to me, and 

to most Americans. What are the long-term economic effects of that 

level of debt and deficit spending, as an economist? 

Ms. EDELBERG. In general, we think that an increase in a dollar 

of borrowing by the Federal Government crowds out approximately 

33 cents of private investment for various reasons. So, that is an 

effect that is in our models and is important. 

One thing that I want to say, though, is that it is not really just 

about the level, it is also about the trajectory. So, it does not just 

matter what the level of debt is today or in year 10, it is what financial markets and households think that trajectory is going to 

look like over time. 

Mr. ARRINGTON. So, in Greece for example, before the sovereign 

debt crisis, were the CBOs or the CBO-like government agencies 

predicting a crisis? 

Ms. EDELBERG. Oh, I have no idea. 

Mr. ARRINGTON. Has anybody followed that? I mean, it is a recent sovereign debt crisis, and—— 

Ms. EDELBERG. Those were dramatic changes that were happening quite quickly. So, I—— 

Mr. ARRINGTON. What would happen—— 

Ms. EDELBERG.——think those are as likely to have been predicted as the financial crisis, for example. 

Mr. ARRINGTON. So, what would happen if we went into a 

Greece-like debt crisis on the economy? 

Ms. EDELBERG. I think this gets back to that it is not just the 

level of the debt that matters, but it is also the trajectory insofar 

as once financial markets think that the level of debt is going to 

rise without bound credibly, the day those expectations change is 

the day you have a problem. I think. 

Mr. ARRINGTON. Is it measurable the profound adverse effects on 

the economy if the United States were to enter into a sovereign 

debt crisis? 

Ms. EDELBERG. Not particularly, no. I can for sure tell you the 

sign. 

Mr. ARRINGTON. You do not think it is profoundly adverse in its 

effects. 

Ms. EDELBERG. No, I am sorry. It is whether or not I can measure it. 

Mr. ARRINGTON. Can you predict it? 

Ms. EDELBERG. I know it is bad, and I know it is negative. 

Mr. ARRINGTON. Okay. Why do not you all consider Administration policy and sort of the high-probability legislation in your baselining? I understand it may be statutory. And if it is, then would 

you consider expanding from that? Would that help your reliability 

and prediction if we were to expand that? 

Ms. GULLO. So, we do take account of administrative actions that 

we know are final. And we incorporate those in our baseline. As a 

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matter of fact, any Federal regulation that is a proposed regulation 

we fold into the baseline at a 50/50 probability that it will get enacted, and 50 percent chance that it will not. 

So, we are continuously watching what is happening in the administration. And whenever there is a final rule, we do fold the effects of that into the baseline. If we are not close to updating a 

baseline for the purposes of doing cost estimates, we also take account when doing that cost estimate of the regulations that have 

been finalized since the last time we updated the baseline. 

Mr. ARRINGTON. Mr. Chairman, my time has expired. 

Chairman WOMACK. Thank you, Mr. Arrington. And appreciate 

my ranking member’s patience. But I also appreciate the fact that 

he is willing to defer his questions to the end so that members who 

have to come and go because of other commitments are given an 

opportunity quickly to make their concerns known and ask their 

questions. So, with that I am going to yield to the ranking member, 

Mr. Yarmuth. 

Mr. YARMUTH. Thank you very much, Mr. Chairman. Once again, 

thanks to all the witnesses for spending your morning with us. We 

have enjoyed it very much. I want to follow up on the notion that 

if you take income away from someone they tend to work harder, 

and if you give them more they tend to work less. 

Would the same theory apply to taxes? That if you lower someone’s taxes and thereby give them more income, would they tend 

to work less? And if you tax them more and took income away from 

them, would they tend to work harder? 

Ms. EDELBERG. I think it is useful to think about differences in 

effects on average tax rates versus marginal tax rates. So, if I increase someone’s marginal tax rate—or let me do the flipside. If I 

decrease someone’s marginal tax rate that means for each additional, let’s say, hour that they work, they keep more of their wage 

because the marginal tax rate is lower. We think that boosts labor 

supply. 

But if we do not change that marginal effect and instead we just 

change their average tax rate, that is in a sense like just taking, 

you know, taking money in or out of their bank account. That we 

do think if you take money out of somebody’s bank account they 

will work more. If you put money in their bank account, they will 

work less. 

Mr. YARMUTH. Makes sense to me. So, I want to go more to get 

in the modeling on taxation. And it seems to me that when you are 

looking at a comprehensive bill like the one Congress just enacted, 

there is some incredibly complex interrelationships there. And I 

look at the corporate side, and we theoretically reduced taxes by 

$1.3 trillion or so over 10 years, corporate taxes. But there is a 

wide range of things corporations can do with the money they theoretically save. 

So, they could hire new people, or pay people more, or give them 

bonuses. They could automate and eliminate jobs, as apparently 

Kimberly-Clark is doing. They are going to eliminate 5,000 jobs, 

and they said that they are using the tax break to facilitate that 

reduction in staffing. They could pay dividends; they could buy 

back their stock, or they could do combinations of those. 

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So, Walmart is giving, as reports say, roughly $300 million worth 

of bonuses to employees and buying back $4 billion worth of stock. 

So, I am curious as to what kind of model could possibly anticipate 

all the different permutations of things that they might do. And 

then when you translate that to the individual’s side, we know if 

you get more money you can pay off debt, you can spend it, or you 

can save it basically. 

And all of those things have different impacts in terms of the 

cost to the Treasury. And so, I guess my question is when the cost 

projections are done for something like the tax bill, are the impacts 

broken out by let’s say—just theoretically throwing up a number— 

that 20 percent of all the corporate tax savings are going to be used 

to buy back stock. Do the models break out those kinds of impacts 

by decisions that are made? 

Ms. EDELBERG. Those are the sorts of estimates that we have to 

keep in mind. As you say, it is a very complicated bill and there 

is a lot going on. And those are just the sorts of issues that we 

have to think through. The amount of money being repatriated, 

that is a big slug of money. And it is important for us to keep track 

of where it goes, and that can affect things for sure in the nearterm. 

But generally speaking, we can simplify our lives by putting 

things into two different buckets. There is one bucket where we 

think about what is happening, for example, to retained earnings, 

what is happening to corporate profits. And once we get a handle 

on that, and I should say the Joint Committee on Taxation has 

done a lot of work and, you know, we are using the very, very good 

work that they have done. Once we see what is happening to corporate profits, then we can trace that money through the economy 

and think of how that affects things, particularly over the next few 

years. 

The other bucket is what is happening to corporations’ after-tax 

rates of return. And so, a lot of the complicated affects you are 

talking about that come out of the tax bill can actually be narrowed 

down to that one affect. And we can see at the end of the day, 

given all of these changes that the tax bill is going to cause, what 

is the effect on the after-tax rate of return? And then, once we 

know that, we can turn to a relatively deep literature on what do 

corporations do when their after-tax rate of return changes. 

Mr. YARMUTH. Okay. Because it seems to me that one of the 

things that we would be responsible for is following the impact of 

these different tax policies and see whether they actually turned 

out the way it was anticipated. 

Ms. EDELBERG. As will not surprise you, that is extraordinarily 

difficult because—well I mean even now looking at changes in, you 

know, as corporations announce that they are going to make some 

particular change, they may ascribe that to the tax bill. But, of 

course it is impossible to know for sure whether or not that really 

is a change being made in response to the tax bill, or they would 

have done that anyway. 

Mr. YARMUTH. Right. 

Ms. EDELBERG. Magnify that times, you know, exponentially as 

we look over the next 10 years and try to tease out what the effects 

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50 

were from the changes from the tax bill versus other policies. And 

that is, of course, why there is an economics profession. 

Mr. YARMUTH. Right. Well on occasion, as with this tax bill, Congress passes major legislation that greatly impacts the economy. I 

think obviously the Affordable Care Act was an example of that. 

And I also think of the GI Bill passed after World War II that was 

largely accredited with building the middle class. And I think the 

statistics are that there was eventually a 7-to-1 positive return to 

the Treasury based on the investment in that program. 

So, if similar spending plans were passed today, are CBO’s current models able to predict or account for that kind of economic impact? 

Ms. EDELBERG. Well so, I think the short answer is yes. One of 

the main effects of the GI Bill, for example, was improving access 

or decreasing the cost to higher education for veterans. Changes to 

Federal investment in education is one of the effects that we are 

explicitly set up to model. 

So, there are three kinds of Federal investment that we think ultimately boost the productivity growth of the economy. It is Federal 

spending on infrastructure, Federal spending on education, and 

R&D. So, we are well equipped to do that kind of analysis. 

Mr. YARMUTH. Okay, even though a large percentage it seems to 

me—and I know it was true in the GI Bill—a large percentage of 

the positive economic impact is realized outside the budget window. 

Ms. EDELBERG. That is quite true. And so, that would be a case 

where we would want to report longer term estimates in a broad 

sense. 

Mr. YARMUTH. Got you. Real quickly, one of the proposals that 

we are going to be dealing with in the next day or so is apparently 

to raise the defense budget by $80 billion a year. Obviously, there 

is a simulative effect by building weapons and so forth, but how do 

you model basically—since we probably do not know exactly how 

that $80 billion is going to be spent—how do you model defense 

spending? What are kind of the considerations there, in this 

minute or so you have left? 

Ms. EDELBERG. Want to talk about discretionary defense? 

Ms. GULLO. Well so, from a spending point of view, most defense 

spending is discretionary. So, we take the current year’s appropriation and inflate that into the out-years. It then gets adjusted an aggregate down to the cap levels, so that gives us a total amount of 

spending presumably. And then that would feed into the economic 

effects. 

Ms. EDELBERG. To the economic projections 

Mr. YARMUTH. So, in that you are not doing dynamic scoring on 

defense spending, I guess. 

Ms. EDELBERG. So, the entire economic baseline is in a sense dynamically scored because it is incorporating all of the economic effects of fiscal policies under current law. We rely heavily on history 

to tell us how defense spending seems to support overall economic 

growth. We have no particular insight on that other than what history tells us. 

Mr. YARMUTH. All right, thank you Mr. Chairman. I yield back. 

Chairman WOMACK. I thank the ranking member. Mr. Arrington, 

it is impressive that besides the chair and the ranking member, 

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51 

you are the only member remaining and I give you, I would be 

more than happy to yield the gentleman a couple of extra minutes 

if he would like to have any other follow up questions for the panel. 

Mr. ARRINGTON. Thank you, Mr. Chairman. 

Chairman WOMACK. And the same goes for any other member 

that might walk in here in the next few minutes. 

Mr. ARRINGTON. I hope my constituents back in West Texas 

know that we are staying late and doing the work of the people. 

But this is important, obviously. We got to get this right. I want 

to be clear with you all. I do not need to be an economist and the 

American people do not need to have the economic analysis ability 

and education and expertise to know that this national debt is 

awful, horrible and that our spending spree is out of control. And 

we do need transparency, reliability, validity, accuracy, all the 

things that you guys do so that we can do our job. But unless you 

can give us a little pill that we can all take that will give us a boost 

in our political courage, I do not know that you can help us with 

this. 

I think this has to be the United States Congress saying, enough 

is enough. It stops now and we are going to safeguard our children’s future. So, I am usually pretty irritated with the panel, but 

I am actually irritated with now an institution that I belong. And 

I just pray I can have a positive influence towards that end because I think the national debt is, I think, the greatest threat to 

the future of this country. 

Regulatory costs are—if you all already covered that, my apologies. But can you calculate those? Should you calculate those? 

What do you need from us to have that—those sort of costs implications and estimations when legislation is being considered? 

Ms. GULLO. So, if you are talking—if you are speaking of the cost 

to the Federal Government of imposing new regulations or backing 

off on regulations, that is something we attempt to incorporate in 

both cost estimates that might have an effect and in the baseline. 

There then also is the larger component of the effect of deregulation or additional regulation on the economy. Which would not be 

picked up in a cost estimate, but would be picked up in our forecast. 

Ms. EDELBERG. So, we are for sure thinking about, for example, 

how changes in the regulatory environment that we have seen, let’s 

say over the past year, what effect those have already had on the 

economy and how we want to think about those effecting the economic projection, for example. 

Mr. ARRINGTON. Yeah, I think it is very important and the 

Chairman has been very generous. So, I do not want to take advantage of that. So, Mr. Chairman, thank you again for the extra time 

and I yield back. 

Chairman WOMACK. I thank the gentleman from Texas. And I 

have got a few questions before we conclude today. Teri, it has 

been brought up a couple of times in our hearing today about member involvement, consultation with CBO between members. Whether they are budget Committee members or members from the Congress at large. Is this something that the CBO people encourage to 

happen and how so? How is the best way to engage in a member 

to CBO dialogue? 

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52 

Ms. GULLO. Yes, Congressman, we welcome interactions with 

congressional staff and members. It always makes me sad when I 

have somebody say, I could not make heads or tails of your cost estimate. We work really hard to be clear. Granted we are talking 

about some pretty difficult arching concepts. But, to the extent that 

we are not being clear, and a member has questions, or staff have 

questions, we urge you to contact us. 

We are here to work with you and for you. And if our work is 

not clear to you then we have more work to do. And it is always 

our intention to provide you with the information you need to do 

your jobs. And that, you know, goes across—I mean, our resources 

are limited. So, we focus our resources on working with the budget 

Committees, the appropriations Committees, and the authorizing 

Committees. Our ability to help individual members is much more 

limited just because of our resource constraints. 

But we urge you to call us, ask us for briefings, ask us to walk 

you through cost estimates. There was a staffer on the Senate 

Budget Committee who used to send back to me line item edits to 

cost estimates where he thought they were not clear enough. But 

we met with him. We had him come over to CBO. Walk us through 

why he was not—why he felt that cost estimate was not giving him 

the information he needed. And as a result of that meeting, we 

changed how we showed the costs of transportation estimates. 

So those sorts of interactions do yield differences. We are listening. We do want to be as clear as we can. And if we are not being, 

you know, we encourage you to call us. 

Chairman WOMACK. Thank you, Ms. Edelberg. It has been said 

many times in this hearing, and in recent hearings that CBO, by 

its very nature, has to make decisions based on primarily two criteria, facts, which statute would be a fact and then assumptions. 

Things that CBO would suggest have—are going to happen. Just 

assume they are going to happen. Maybe because they always have 

or maybe there is a political reason why you make an assumption 

that something is going to continue. 

One that was brought up earlier in this hearing was OCO, the 

Overseas Contingency Account and the question was about how 

you forecast OCO, the overseas piece, that is off the base defense 

bill. 

I can think of another, and that would be how we forecast disaster funding. And there—I am sure there are many others that I 

am not thinking about right now. But, how do you go about putting 

actual dollar amounts against these assumptions so that you can 

accurately predict the budgetary impact? 

Ms. EDELBERG. So, the one thing I will say before turning it over 

to my colleagues, who may have more to say on this is that when 

the particular rules that you are alluding to, whether it is with 

OCO or disaster funding, we think are telling one possible story 

that might affect the budget baseline and the economy. But there 

are actually, there would be alternative assumptions that one could 

make that would lead you down a different path. We try very hard 

to present both of those alternatives or a handful of alternatives 

when we present the data. And we present our projections knowing 

that those assumptions can actually matter how someone sees the 

budget. 

BU00-A363290 with DISTILLER

53 

Ms. GULLO. For in the same way with OCO, there are rules, 

there are score keeping guidelines about what we can count and 

not count for the purposes of counting against the caps or what can 

be used as an offset to some other program. But the fact is for 

things like OCO, program integrity, any of the effects legislation 

has on those things, we fully account for in the baseline. 

But then there are then scorekeeping rules that might limit how 

those savings or costs might get accounted for. But that is not to 

say that for the purposes of developing our bottom line deficit estimates those kinds of things are accounted for in the baseline. 

Chairman WOMACK. My colleague from Texas talked a lot about 

the debt, as well he should. It is a major concern. One of my big 

concerns has always been interest rate risk. The fact that as you 

heat up an economy there is an expectation there is going to be a 

situation involved where the net effect will be impacted by the 

amount of interest we are paying on our debt. There, I suppose, 

there is another impact on interest rates. 

Another interest rate risk and that would be the potential for the 

credit agencies to take a look at the credit of the United States of 

America and to down grade it which we all know would immediately make the borrowing a bit higher for our country. 

In your analytical jobs, is there a way to be able to predict, at 

some point in time—the last time there was a down grade it was 

about the Congress’s inability to resolve itself to fixing it. Is there 

a more quantitative measure that can predict the potential for a 

down grade and its corresponding impact? 

Ms. EDELBERG. So, we have no quantitative measures of the risk 

of a measure of a downgrade. That is a—we have written about the 

risks of a fiscal kind—— 

Chairman WOMACK. But you agree with me that that would impact the borrowing of this country? The cost? 

Ms. EDELBERG. I do. I think that there is a way to think about 

this as an incremental problem that can affect interest rates and, 

you know, the cost of Federal borrowing and a far less incremental 

problem where you would see more of a seismic change. I think on 

the incremental side, we think about inflation risks and right now 

we think that inflation expectations are pretty well anchored at 2 

percent. It looks like financial market participants are pretty satisfied that monetary policy and other factors in the economy will be 

able to keep inflation at around 2 percent. 

You might think that if the budgetary pressures got big enough 

that inflation expectations, for example, might become unanchored 

and that would lead to, you know, higher inflation expectations, 

higher inflation, and thus higher interest rates. That is something 

we are keeping close tabs on, but we do not see those risks right 

now. That would be an incremental effect on interest rates. 

A far more seismic effect on interest rates is, as I said, the day 

that financial market participants credibly expect that debt to GDP 

will rise without bound to, you know, unprecedented, you know, 

levels. The day that happens, I suspect that you will—that history 

will not be a very good guide and you will see, you know, something like what we wrote about on the fiscal crisis. 

Chairman WOMACK. Are we on that trajectory? 

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54 

Ms. EDELBERG. I do not think that there is any suggestion in financial markets that there is a lot of concern about that. We think 

about it, we write about it. But I do not see those pressures in financial markets right now. 

Mr. HADLEY. But that is in the near term. So, in the long term— 

so we are already at historically high levels of debt. And deficits 

are very large and so they are going to keep adding to the debt and 

at some point, there will be a problem. There will be a reckoning 

if we do not change our ways. 

Chairman WOMACK. In my last minute, Mr. Deputy Director, I 

will direct this to you. It is not unprecedented that Federal bureaucracy sometimes allow personal bias to enter into their decisions. I will not go into those; my time will not permit me to. Convince me and our panel that the – we are all human beings. We 

all have certain ideas and ideology. What steps do you take to ensure that the information you give back to the Congress is free of 

anyone’s personal bias? 

Mr. HADLEY. We work very hard at that, Mr. Chairman. The 

first thing is, we start with our hiring procedures. We work very 

hard to hire people who are able to do objective work and able to 

be perceived as doing objective work. And then they go through vigorous training where we train them to present just the facts and 

to consider all sides of an issue. 

One of the things that we have cost analysts do is talk to the 

Committees who are offered legislation and say, okay, who do you 

think we should have talked to? And then you talk to people on the 

other side. It is not that we necessarily take on board all that we 

are told. We evaluate it. We do it independently. But we want to 

consider the full range of viewpoints. 

We then construct the estimate and we have then a rigorous review process. And that process in different ways, depending on the 

products involved, not only the people within CBO, managers, like 

ourselves, but also reaching out to people on the outside for their 

perspectives on our work. Because what we are trying to represent 

to the Congress is not just what CBO says about a topic, but in 

general the middle of where the economics profession is. 

So, in some sense we are trying to represent the entire range of 

viewpoints and it gets difficult, because we are asked to produce a 

single point estimate. But even where we do that, we try to provide 

the sources of uncertainty around that and the differing viewpoints 

on a particular issue. 

And I think one example of how we try to show just how, you 

know, not biased we are, we follow the rules that we are laid out, 

that are laid out for us in statute. But, we also provide information 

to the Congress from other perspectives so they can get a full view 

of what is going on with a particular estimate or with a particular 

piece of legislation. 

Chairman WOMACK. I appreciate that and I apologize for going 

over just a bit. Mr. Hadley, Ms. Gullo, Ms. Edelberg, thank you for 

appearing before us today. 

I want to advise the membership of our Committee to submit 

written questions to be answered later in writing. Those questions 

and your answers will be made part of the formal hearing record. 

Any members who wish to submit questions or any extraneous maBU00-A363290 with DISTILLER

55 

terial may do so within 7 days. Again, our thanks and with that. 

This Committee stands adjourned. 

[Whereupon, at 12:59 p.m., the Committee was adjourned.] 

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House Budget Committee 

CBO Oversight: Economic Assumptions, Baseline Construction, Cost Estimating, and Scoring 

Questions for the Record 

I. Your economic grow1h forecast has changed dramatically in recent years. In 2012, CBO 

expected that the economy would grow by an average of 3.0 percent over the I 0-year 

budget window, consistent with the long-term average of annual real GDP growth in the 

U.S. With every passing year, however, that growth assumption has been ratcheted down. 

Last year, you predicted that U.S. economic growth would average just 1.9 percent over 

the next 10 years. Why did your growth assumption fall so rapidly in such a short period 

oftime? 

2. How have your near-term economic growth assumptions changed since the passage of 

H.R. I, the Tax Cuts and Jobs Act? Have you increased your near-term GDP forecast as 

many other private-sector economic forecasters have? 

3. What are the key levers inside a macroeconomic analysis that rely on CBO analysts' 

judgement or assumptions? 

4. The Federal government's Bureau of Economic Analysis announced in January that real 

economic growth in calendar year 2017 was 2.3 percent measured on a year-to-year 

basis. I mention this because CBO's June 2017 baseline lowered projected growth for last 

year to 2.2 percent from the January baseline's 2.3 percent. In other words, the most 

recent June baseline was a bit too pessimistic on growth for last year. 

As it turned out, CBO's June baseline revised growth for last year in the wrong direction. 

One tenth of one percent on the growth rate may not sound like a big difference, but if it 

persisted over the budget window the cumulative budget deficit over ten years would be 

more than $300 billion lower. Why do you think CBO's June baseline turned out to be a 

bit too low on growth last year and why was it revised in the wrong direction? 

5. Between CBO's release of its economic forecast, typically in January or February, and its 

official update in July or August, does CBO ever change its assumptions before the next 

formal update and if so, why? 

6. How many analysts are involved in developing the baseline? What happens in the process 

if an error is discovered? 

7. CBO currently produces 23 separate baseline projections on programs beyond its overall 

baseline. Why does CBO publish program-specific baselines for major programs, in 

addition to its comprehensive baseline? How does CBO determine which programs rise 

to the level of requiring a separate baseline? 
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8. Can this Committee request a separate baseline be constructed for a particular function or 

program? 

9. What are the merits of a current-law baseline versus a current-policy baseline? 

l 0. Why does CBO assumes that mandatory spending automatically increases? Does the 

assumption that these programs continue to increase bias the baseline in favor of higher 

spending? 

11. Who develops the revenue part of the baseline that serves as the benchmark against 

which cost estimates and budget projections are developed? Does CBO use the same 

revenue assumptions in developing the baseline as the Joint Committee on Taxation uses 

when estimating the cost of tax legislation? How are these differences managed? 

12. Sometimes scoring rules lead CBO to produce estimates that do not reflect reality. For 

instance, in the cost estimate for H.R. 3053, a bill changing the way we deal with nuclear 

waste, CBO's estimate assumed receipts coming from a fee that has not been collected in 

years. Why did CBO make this assumption and what was the basis for the actual amount 

it assumed would be collected? 

13. How feasible would it be for CBO to provide a cost estimate prior to Committee 

consideration? What resources would be needed to implement this? 

14. What types of internal controls does CBO use in writing cost estimates? Can you please 

walk the Committee through the agency's internal review process for an estimate before 

it is released? 

15. What does CBO do in the instances in which it faces internal disagreements between its 

analysts regarding the effects of a bill the agency is scoring? 

16. Are there additional reviews in place for cost estimating work done by newer analysts? 

17. How do analysts account for directives to a Federal agency that CBO believes the agency 

will carry out anyway when developing a cost estimate? 

18. How does CBO account for costs oflegislation imposing new activities on Federal 

agencies without increasing the amount that is authorized for the agency? 

19. There has been growing interest for CBO to estimate regulatory costs. Does CBO 

currently have the necessary resources to establish a regulatory baseline and estimate the 

regulatory costs oflegislation? What resources would be needed for CBO to implement 

such reforms? 
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20. Has CBO considered whether to implement any external reviews for cost estimates? 

21. How does CBO's scoring of appropriations acts differ from authorization legislation? 

22. How feasible would it be for CBO to provide Congress cost estimates of appropriations 

bills? 

23. Has CBO rescored enacted legislation to account for any potential differences between its 

initial estimates and actual projections? Is this something that CBO would consider 

studying? 

24. CBO has a long-standing convention of cost estimating on a static basis, which can 

understate the effects of major legislation that would affect the economy significantly. 

Why does CBO use static scoring, rather than dynamic scoring? 

25. In fulfilling its scoring duties for Congress, would it be more efficient for CBO if the 

House and Senate had the same set of budget rules under a budget resolution for purposes 

of enforcing the budget? 

26. Although OMB is responsible for calculating the Statutory PayGo scorecards for PayGo 

effects oflegislation, does CBO similarly track such PayGo effects? 

27. For purposes ofscorekeeping, to what extent does CBO interact with OMB? 

28. How often does CBO assess current scorekeeping guidelines? 

29. Would you please explain how CBO determines whether legislation requires long-term 

scoring, in addition to its standard l 0-year window cost estimates? 

30. How has CBO's approach toward dynamic scoring evolved over time? 

31. Why is there tension between CBO' s access to private sector data and data transparency? 

32. Why does CBO not publish its models? 

33. Why does CBO not publish all of the assumptions that its analysts make in estimating the 

cost of a bill? 

34. Why is confidentially a prerequisite to getting agency information? 

35. How often does CBO verify information provided by the agencies through its own 

research? 
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36. Are there other ways to get the same information that do not require confidentiality? 

37. Deputy Director Hadley, you stated in your testimony that CBO uses current law to 

construct its baseline by long standing convention. Are there alternative approaches that 

CBO has considered in order to reflect a more accurate benchmark? 

38. How can CBO do a better job of explaining when baseline rules require the agency to 

produce cost estimates with seemingly nonsensical results? For example, when statute 

requires a mandatory program to drop out of the baseline even while it is expected to 

continue. 

39. CBO provides numerous informal estimates of floor amendments before legislation is 

considered in the House. Does CBO's standard process for cost estimates differ when 

providing estimates of floor amendments? 

40. How does CBO determine the order of provisions and the weight of assumptions when 

constructing a cost estimate that includes interactive effects? 

41. Does CBO lack adequate access to key data necessary to produce timely and accurate 

estimates and projections? 

42. Can you please explain CBO's process for estimating the cost of public-private 

partnership proposals? What are the factors that CBO assumes contribute to increased 

spending? 
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Answet·s to Questions for the Record Following a Hearing 

Conducted by the House Committee on the Budget on CBO Oversight: 

Economic Assumptions, Baseline Construction, Cost Estimating, and Scoring 

Macroeconomic Analysis 

Question. Your economic growth forecast has changcJ dramatically in recent years. In 2012, 

CBO expected that the economy would gro\v by an of 3.0 percent over the 

window, consist-:nt with the average real GDP in 

every hO\vcvcr, growth has hccn down. 

Last year, you U.S. economic growth average just l.9 percent over the 

next 10 years. did your growth assumption f.1ll so rapidly in such a short period of 

time? 

Answer. More than half of the difference between CBO's growth projections in 2012 and 

2018 reflects di:H-erences in conditions that existed when the projections 

in thte gro\-vth of pott:ntial (maximum sustainDifference.~- in Business Cydes. In 2012, the American economy "\Vas still recovering from the 

2007-2009 recession and financial crisis, and there was still substantial room f(H relatively 

rapid as the returned to full employment. 1hereforc, CBO that 

about 2.9 per year over the following (20 12 to 

more than percentage points per rear than irs 2.3 projection !Or 

In contrast. in 2018 the economy is very ncar employment and there is 

recovcry~drivcn expansion. As a consequence, over the coming decade (2018 

expects actual output to grow rhe same rare potential output. 

Prm:e.u rmd Pnnnp!eJ" 
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D~f/frmL'I's in tht' Grmuth r:( Fott'!l.lJd! Output. CBO's current prnjccrion fOr 

grO\vth in potential over the 20 18-·-2028 pcriod-.. -1. 9 

centage points per than irs 2012 projection over 

rea.sons account hr that diftCrcncc: 

point of the to the potential projccgrowth potentiallabor revision, 

reassessment since 20 12 of trends in the rates of labor 

groups (such as by younger workers) and from the aging of 

• Slower growth of the potemial labor f(">rcc and of potential TFP also 

of investment and the How of capital services inro production. 

lowered its of invcsunent even more ro reflect the fat:r that the of 

investment has 

account trends in the labor force and in TFP. That 

growth accounrs for 

output over the coming 

Question. Hmv have assumptions changed since rhe 

oftLlt 1, Cuts and Jobs Acr? you increased your near-term GDP 

as many other private-sector economic forecasters have? 

Answer. In CBO's real (intl.ation-adjustcd) 

(GDP) is boosted points in 2018 

a rcsulr of the 20 l7 tax a cr. positive effects on to 

continue 2022, when the peak effect on the level of real 

cent-i~ For other estimates that CBO examined, the average 

on the !tl!el of real GDP over 2018--2022 ranges from 0.3 percent to l.3 percent, 

with a median of 0.6 percent, corn pared with csrimJtc of 0. 7 pcrccnr for rh:H period. 2 

Question. What arc rhe key levers inside a macroeconomic analysis rhar rely on CBO 

,malysts' judgement or assumptions? 

conducted by CBO differs on the details of 

agency's analysis of the 2017 example, the m~1jor 

from increases in investment, on net, and from increases in the 

labor "-l'<)ll1 of which tend to boost potcnrial output. In addition. increases in 

consumption boost actual output in relation to potential output the first half of the 

projection period. l11nsc flctors, along wirh the act's effects on fednal deficits, arc 

to afl(·ct the ratc- ofinHation and interest rates--.. and those rate1> have importefFects. 

Outlook: 2018-·~2028 {Apr!! 201B), Box B-2, 
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CBCYs an::dysh of each of rhosc ways in which GDP 

CRO described 

year's of lhc Bud,get 

estimates synthesizing inf(Hmation from 

reading of rhar n:scarch suggests the following, all else 

• A 1 percent decrease in the user cost of c:tpital---vvhich is the before-tax return 

the required return to investors covering taxes and 

!On-tnu!SI;!tcs into a 0.7 percent increase in inv..:stment; 

tax rate translates into an increase of about 

the base production rhat CBO anticipates is 

• A 1 percent increase in the after-tax wage rate increases hours worked by an average of 

percent; 

• A onetime increase of a dollar in income results in increased consumption of 81 cents, 

cents, and 30 cents, respectively, for the lower, middle, and upper thirds of the incomt: 

distribution; and 

The federal borrowing from the act tends to reduct: invc~rmcnt by cents for 

every dollar of increase in the 

1n mhcr parts of the analysis, CRO's analysts cxtt<lpolated from historical experience. For 

in CBO's estimares, 20 percent of businesses and households expect provisions 

ro expire in 2026 to expire at that time, and 80 percent expect that the 

provisions wi!l be extended. agency formulated those estimates to be consistent 

tn:atmcnt of past expirations of major tax provisions. 

Bureau of Economic Analysis announced in January 

that real economic in calendar year 2017 was 2.3 percent measured on a ve";c-to-vcor 

basis. I mention rhis het:ausc CBO's June 2017 baseline lmvcrcd 

In words, the most reccllt 

on growth last ycJr. As it turned om, CEO's June 

revised growth for year in direction. One~renth of one on the 

not sound like a big difFi:~rence, if it persisted over the 

cumulative deficit over ren would be more than $300 billion 

you think CEO's June baseline 

revised in the wrong direction? 

Answer. CBO revised its estimate of GDP growth in 2017 

to he s!ov·i growth in real GDP 

CBO its projection in June, rhc Bureau 

estimated first-quarter growth to be only 0.7 percent; later, it raised its 

rhar qu;1rrcr by 0. ') pcrccmagc points, to 1.2 percent. 

Forecasting economic grmvth is difficult because it is 

the f:~erors that influence the spending decisions businesses, 

estimate for 

all of 

«Key lvkrhods 'Iklt CBO Lls\'d to Estim,\tt: rhc lVlacrocconomic EHCtts of 

(SHf'plcoiC,otal materiJl f(H lhe Rudgcr lttiill:'conomJc Outlook· 2018 to 2028, Aprii 2018), 

3 
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is quite \!11.ll! by historicll standards and lud 

in future. b.:,·n ~dtcr :l quarter is over, estimates by 

in that quarter often rcYiscd hy more than 0.1 pcrccnugc 

point. 

Question. Between CBO's rckasc of irs economic !()recast, typically in January or February, 

and its offi>:.'ia! in July or August, dou CBO ever ch;m.gc its assurnptions before the 

formal and if so, why? 

Outlook. In 

incorporate:. improvcmcnrs in its 

remains in place until an 

and in consultation with the 

between cditiom of rhe Outlook. 

after the publication of its January 

dun~dng cconornic conditions. and ro rake inm account significant changes in fiscal 

CBO's Baseline 

Question. How 

pnKC$S if ,m error is 

provis.ions. 

llrojections 

developing the lnselind What happens in the 

ln 

projections, worked on revenue projections, 

ln addition, more than 20 nunagcrs helped develop. 

tnost of their time on work rdatcd to the baseline in the 

support for the models, 

materials 

projcctiom arc \Vith actual spending f()r the most recently 

and with the prcviom baseline. and the dithcn:·nccs >lfl' cxpl-tincd in the 

or managers discover an error, identify the source of the 

thar were not transcribed dctcrmillc 

or nurnber~ it aitCct, and then develop a to fix the error, ensure 

i.<- correct, and communicatt' abour the nror. After the EKt and \vhcn 

tries to develop procedures to minimize the chances of that 

happening again. 
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Question. CBO currently 

ovcnll hasclinc. \X:hy dn('S 

:1ddition to its comprehensive 

the lcYcl of requiring a separate bas~;_·] inc~ 

Answer. CBO produces :1 single baseline; it 

!!Ot:SE C0\1MJHEL 0\ TilE Bl m;u 5 

on programs beyond 

h:1selincs for major progr:trns, in 

determine which programs to 

spending projections h:n I ,7\lS accounts. As pan nf !ts lor>g··o;tarrdl1112 

tnllr~sparenr. CBO Ins additional information about manr 

with which it is associated. -lhosc projections are not separate 

that underlie the basdiw: projections for that program, such 

receiving benefits, the avcr:1gc benefit, or the amount of spending in 

progmm. 

Most of the addirional information that CBO posts on wcbsitT is because 

Congressinna! staff have fi.mnd the inh1rnution to be usd\1l as they kgislarivcrc!arcd to the different Knowing important inputs to the 

affect beneficiaries; or bend1t 

provides additional information has 

"nnc•·c"i<>rul staff have expressed interest and CBO has f()und 

a useful fOrmaL 

Can this Commim:c request a separate baseline be constructed t()r a particular 

Answer, CBO already constructs baseline projections for each federal that 

incorporated in thz· agency's overall baseline \\?hen the 

other committees arc interested in int()tmation about the inputs into the baseline 

program, CBO works with them to proYidc that 

Question. \X!hat arc the merits current-law baseline versus a current-policy baseline? 
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Question. \XIhy Jocs CBO assume that mandatory spending automatically increases? Does 

rhe assumption that these programs continue to increase bias the baseline in ftvor of higher 

spending? 

Answer. \\!hen the costs of nnndatory 

dirccrlon of section 257 Balanced Budget Emergency 

(the Ddlcit Control Act), which establhhed rules fOr 

directs CBO to calcubrc a baseline using the assumption that 

direct for mand-atory programs oper-ate in a m:mner specified in for the 

each subsequem year. 'I11at section also directs CBO ro assurne rhat funding 

cn1 itli'm<cnr amhority in those programs is adequate to make all paymenrs required hy 

those lavvs. 

In most cases, but not all, those laws cause the 

example, Medicare's cosrs increase each year in part 

ciarics each year, and by law the makes exp,e<Hiin.~res 

projections provide a sound basis years if 

current la-vvs 

for assessing 

a benchmark 

lf a program vdth outlays greater than $50 million (the Supplemental Nutrition Assistance 

for is statutorily scheduled to expire during the baseline window, the 

CBO to 3ssmnc that the progr;;m \vill conrinuc fO 

before (l11at rule :.~utomaticdlly to pmgrams 

1997; committees to 

identifie;<; ;.;uch 

so continuations are re-_1dily identifiable."' On the one 

for such programs that is not authorized under currc·m 

projections arc prohably more rcalisrk because 

those programs usually extended. 

Question. Who develops the revenue part of the baseline that 5crvcs as the benchmark 

against which cost estimates and arc devdopl'd? Docs CBO usc the same 

revenue assumptions in as the Joint Committee on lilxation us<.·s 

of all federal revenues, including revenues 

of the economy. For frorn 

to varlons fees, and oih('f non tax revenue--CRO works 

dost'ly stafT of the Joint Committee on Taxation on how to data from 

returns, how to interpret tax law, and how to model the effects of tax -I11is revenue 

baseline is used by both CBO and JCT as rhc benchmark for estimates of the hudgnary 

dft.'Cts JCT is responsible for estimating the dfects of changes to LlX 

is responsible for estimating the effects of other in la\v. 

Following the enactment of tax legislation, JCT provides CBO with detailed estimates of 

the dlect.'} of the changes, which CBO uses as the basis to 

to 1hc 

is completed, 

lhr BurZr;tt dnd Ewwmic Ouilook: 20/R :o 2028 (April201B). 'l:1blc 
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HOl'SE C0:-.1:\HTTEE 0\ 

projections of the economy and tbc revenue baseline tO J< T to f.tci!itatc the incorporation 

of those in JCT's mod,,ls. "I his dose between CBO and JCT 

ensures that baseline projections and estimate<; 

understanding of the economy aml the tax system. 

reflect a consistent 

Question. stated ln your testimony that CBO uses current bw 

tong-sta""'"'g convcmion. An: there alternative approache:; dut 

to n:Acct a more accurate benchmark? 

Answer. Yes. in the course of providing estinutcs to many CBO has used alternative so rhat they can construct their 0\'1./11 oertcnmatcKs. 

be mca~urcd relative to the goals of the 

is nor simply a convention-it is 

that definition would require a change in lavv. 

altering 

Question, How can CBO do a better when baseline rules require the 

agency ro produce cost estimates nonsensical results? For example, when 

statute requires a mandatory program to drop out of the baseline even while it is expected to 

continue. 

Answer. 1he Deficit Control Act established ruks for the baseline which sometimes c.msc 

results, and CBO strives to provide infOrmation to Congressional stafF in person 

that might occur. An example of such a 

IV"'""'ecnncrll and Budget (OM!l) 

Research Grants (with funding million) were subject to in 

2013 whereas the largcrTCmporary Assistance for Families program (with 

of $17 billion) was not. As a rc,q_dt, CBO that Welfare Research Grants 

reclassified as a ofTANF. 11J.at distincthar 

ro cxpir~· and is expected to have outlays of greater 

of authorization, it should be assmncd to continue in rhc 

baseline. lhus, when the of 

TANF, it was assumed to continue in CBO's baseline, 

Research Grants \Verc considered after 

for the research grants for one is to communicate clearly \Vith 

CongJ't\ssiorral stafF if a similar situation occur~ in future. 

Cost Estimates 

Question. Sometimes scoring rules lead CRO to produce estimates tlut do not reflect reality. 

For instance, in the cost estimate for H.R .. 3053, a bill the we deal with nudcar 

waste, CEO's estimate assumed receipts not collected in 

Why did CBO make this assumption what wa:.:- the basis for the actual amount it 

assumed would be collected? 

7 
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8 

baselines and cost estimates, CRO 

;1bout a 

occur in the fl1turc under current law even if they are not 

that an action will occur, CBO reduces its estimate of the 

SO percent. ll1:1t adjustment is 

an action having the full eHCct 

have no budgetary eftCct. 

to predicting tbn there is 50 percent chance 

take place and a 50 percent chance that an action will 

In the case of nudcar-\vastc fees, even though their collection was suspended pursuant ro 

a court order 2014, collection could be rcinsrarz'd through administrative action under 

current law, "Ihus, CBO's (and OMB's) baselines reflect a 50 chance rhar the fees will 

be reinstated in the future, resulting in an expected value 

collcctions.h 

$385 million annually in 

Question. How feasible would it be fOr CBO to provide a cost estimate prior to Committee 

consideration? \'Vhar resources would be needed to implement this? 

Answer. CBO sometimes provides estimates, before committee markups 

occur. Hnwcvcr, if tht' Congress were interested in estimates for authorizjng 

bills on <l routine hasis before full committee markups occurred, the time and resources 

needed would depend on when in the those estimatl·s would be required. Producing 

formal cstimarcs l()r all introduced were abour 8,700 in 2017) would nor be 

feasible. after .subcommittee 

arion \.vould be possible hut would rl·quirc resources. (Committees also 

would have ro allow time in their schedules for estimates to be prepared.) Currently, about 

65 an,tlysts are devoted w cost estimates after fl1ll committee markup, hut producsome of the work that now occurs afterward. 

resources that v, .. ould be would be substantiaL 

CBO would be happy to prepare a detailed estimate ·would be 

CBO's work with the appropriations commine:·cs is quire different. lhc 

provides hcf()rc marktlps occ11r the committee's' 

technology systems for compi!ing [he budgetary effects or rheir bills. 

Question. What 

please walk 

of internal connols docs CBO use in writing cost estimates? Can 

through the agency's inrernal review process for an estimate 

iris released? 

Answer. Pornul estimares go through extensive reviev..- hcforc 

public. lhar review is meant to ensure that the analysis is 

as accurate possible. 

finJlized and made 

consistent, obj{.tctive, and 

Analysts, who arc experts in their suhjcct areas, must justif}r their methods and results, and 

rn.1kc their documentation available to to review, ll1osc managers 

at least one unit one of the Deputy Assistant for Budget 

and the Assistant Director fOr Budget Analysis. And all formal estimates arc 

hy the Director or Director. In addition, analysts 

at CBO \vdl as to provide informarion 

for comparison. 
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Question. \Xlhat docs CBO do in the instances in which it bees internal disagreements 

herwcen its .1n,1lysrs n:g.uding rhc dl~:cts 1lf :1 hill dtt' .\gcncy is scoring? 

Answer. CBO \velcomes ;l \vide rangt: of views among its -'>t,dT and analysts 

involved in the prepJ.rJ.tion of a cost c:,timatc to their opinions offer ~uggesrions. 

'Ihe :-~gcncy encnungcs debate and, within the time available, considers difFering vie>vpoints 

~H1d clpproachcs to problem. about legislation, 

jnnior ana!vsts, senior and an 

"TIK 

that cannot he n:solvcJ. 

Question, Arc there additional rcvi<:ws in place for cosH.'stimating work done by 

atulysts? 

Answer. New 

unir chief guides 

a mcmor (a senior analyst) who, along with thdr 

also has a \Vt.'ll-ddined training program !"Or budget 

analysts rhm, over the course of their addresses the 

the the 

·work. 

Question. Has CBO considered whether to implement ~my t.:xtcrnal rt'vicws t()r cost 

e"limates? 

Answer. CBO has decided to nor send om drafts of estimates for cxtcnnl revic\Y 

because of the time constraims invoked in producing those estimates. I Iowcvcr, 

mmindy con~ult out~:>ide when they arc the of proposed 

Congressional staft; 

st~ikchnldcr.<. including experts in state govcrnrncms, interest groups, and industry; 

think tanks or in academia. 

Question. How do analysts account t{Jr directives to a fCderal agency that CBO bdinTS the 

:1gcncy ·will carry out J.nyway when developing a c-ost estimarc? 

Answer. \Xlhcn a bill directs an to UllLkrtakl: an activity that Cl)() 

in the futun: under Cl!ff('nt !avv, 

! he provision would JTsult in no addition;< I costs. 

Question. How docs CBO account for costs 

without increasing the amount that is 

imposing new activities on fedcnl 

for rhc 

\vould nor 

New rcquirernents could inHucnce the amount of new budget authority made available to the 

in the fmurc. Bur even if future funding for the agency was not increased, the agency 

them to 

needed to 

~"'"o:n~<ncu resources on th<tt new activiry of spending 

'"-'if'Olmlnill[CS. In those instances, the t'stimatc of the resources 

"opportunity cost<' of not 

9 
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Question. How does CBO's 

tion? How f;_;asiblc would be for 

bills? 

Answer. Section 308 of the Cong:rcss:iord 

t louse and Senate Budget and Anmrmn,moo 

hili ties< CBO already produces cost estimates 

fwm the written estimates provjdcJ f{y As a bill is being considered by 

an appropriatiolls commitrce, CBO provides estimates of budget in a 

Comparative Statement Authoti1y report. using the cotlm!!w:·cs 

rnation technology system fOr purpose. 

To help the Congress track the effects 

proces.<., cno presents dctalls 

status reports, the latest 

"D10se rcporrs arc first provided when an amnouri:ltic!!J 

Senat<, and updated as the bill progresses 

of Jiscretionary give the total 

biil. CRO W~\ys to provide other inf(-mnarion fOr '""'""n,·i"ti•m 

form an(l in ways that vmuld, f()r example, allow to vie.,v the dao 

agency. Detailed account-hy··account estimate~ an:· available to l'v1cmbcrs 

them; CBO is currently Jn·doping a plan to make more of the accowll·l•cvd 

nmnncut•nn bills puh!icly available in an accessible t(m1Ht. 

on irs website, estimates of the 

am.lropri<ltlrl!l bills and (ontinuing hy 

Congress. provides the budget committees "currcnr 

which ar~: published in the Congressional Record ~nd summarize the budgetary 

enacted legislation. including appropriation hi!k 

CBO rescored enacted legislation ro account for any potential dJJTercnccs 

its initial cstinutcs .wd actual proje-ctions? this something that CBO \VoulJ 

consider studying? 

Answer. CBO's fOcus on providing the Congress ·with intiwmation about legisconsidered. I Iowevcr, whenever possible the reviews 

in the context of new inf(mnation or actual results a~ p::Jrt of 

a CBO cosr esrimare wirh actual results is offcn quire dHficu!t-~hecause rhe 

or savings resulting from enacting a small part of a L:ug:c 

stream and cannot As a result. when 

or lower than CBO had f"\p(·cted 

error should be attributed ro rhc 

or to CBO's estimate of rhc 

scrutinin·s in its projections, 

reviews data on patterns for f(,dcral programs, and consults with mmide experts on 

those programs in order to improve it5 estimating mcthodolo~;y. 

!(']) 26, .!OlR 
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\Xihcn ir i.s possible tO separately 

,1ppc,tt in sep;narc budget accounts). comp,uc:- those actual results 

estimarcs to refine future estimates. I~or cx;imple, has compared irs f'Stlm<lfCS 

~tvith acrual result:; for Pan uf !vkdicarc (the prcsLr!ption drug program) the :>ubsidics 

for health insurance under the Afhndablc Care Ace' 

Question. \'\lould 

term scoring, in 

pkasc explain hmv CBO determines whether 

to standard l 0-year vvindmv cost 

Answer. Both dw Senate and the I Iousc have poinls of order that can he 

increase in rhc on-budget deficit (fiH rhc Scn<Hc) or ncr 

excet'ds a specific dollar amount in of the f()ur dcu.dcs after 

CBO's cost estimates indicate \vhcthcr or not thmc thresholds arc 

H-'i.}tlircs longQuestion. CBO has a lon~-standnt" convention of cost vstimating on a basis, which 

can understate the eHCcts that would affect rhe economy significantly. 

\'\/hy docs CBO usc static scoring, than dynamic scoring? 

lll<Krneconomk cfFcct.s inro its cost estimates, 

have eHCcts th:u substantial to have 

(~lffccting the overall demand fOr 

f(lr instanct:), most bills do not. 

more feasible the time :md resources 

unnplicucd rime-consuming, so iflcgisbtinn is moving quickly, l! on be dit1icult rn 

prt'P~Hc them on ,1 tim.dy b:1sis. 

Even when legislation would not significant m:Krocconorrdc dfects, CHO's analyst:. 

assc;;s the t'xtcnt to ·which proposed policies \Vnuld aHCct people's bch~wior in ways that 

would saving;s and tlmsc rout indy incorporated in the 

co:.t csrirnatcs reports. hJr example. rhe <tW-'IH-'/s l'Stima1cs include 

of variou.;; crop.\ that would result fl:orn new farm policies, 

likdihood that people \Vould up ccrtaill p:ovcrnnwnt if policlc•s 

to those benefits altered, and chMlgt'S in the of health care services 

be provided 1fNlcdican:s payment L-ltcs to certain were adjusted, (Simibrly, in 

estirnates of the efhxts of tax !cghlation, the staff of the Joint Committee 

in rhc systC'm····--for example, 

gains rcaliz:.Hions if the 

11 
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Question. How has CB< )'s approa..-h toward dynamic scoring evolved over time? 

Answer. t:BO's Jbility to analy-z.c the nncroccnnomic effects oflcgi:'ilation has improved over 

time, and the circumstances under which such analyses arc performed have CBO 

has the on the economy in a number of its 

tOrtg-srart<1111g (,on<>rcssirn,rl budget procedures, such 

not addressed in cost csrimarcs legislation as it was 

effects of enacted in its baseline macroeconomic 

of the President's '

1 In its cost estimates, CBO 

tries to incorporate the effects that legislation on bchavior~but 

effect:; on the economy as a whole are taken into account only in 

incorporating macroeconomic dfcct;,, of 0.25 

next 10 been designated such by 

however. do not rneet the definition of majo1 ;md 

if any, nucroecnnomic effects. 

CBO ha;, conducted its dynamic an;Jlyscs~induding those of the President~<> budget and 

l()r major a variety of modds over time. ln May 2004, fOr CBO 

ttsed two commercially n1acrocconomic modds, a textbook growth 

overlapping-generations model, and a Ramsey model to estimate the 

of a 10 percern cur in income tax rates. in 2009, CBO 

of the impact of the American 

combining short-term and long-term 

ln recent years, CBO has continued to estimate the short- and long~tcrm effects of fiscal 

policy proposals on the economy using a combination of macroeconomic models. 11 

9, 

!0. 

lL 

To assess the short-term cffCcts (driven in overall demand for 

services), CBO uses empirical cvidrncc effects of changes in 

the results generated b;.· commercially available macroeconomic models. 

and 

policies and 
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t!Ol'SE CO~lM!TlTE 0\ THE BLDGET 13 

TO estimate the medium- to 

and incentives to work, ~ave, 

!ifc-cydc grmo:th model, and a dynamic-stochastic general 

bcnvccn the short term :md the long term, CBO uses a 

estimates of the shnrr-rcrm and long-term eHCcts thar assigns 

to the long-term estimates over the course of that period. 

CBO has used and continm::s to usc a range of empirical results and economic models, rather 

than ;my single result or model, to develop its estimates. models and results 

the uses are inf(mm:d by the oF t:conomlcs literature and arc 

oursidc experts. CBO relevant research literature, and 

to dyn:1mic scoring as new t:vidcnce, findings, and insig:hrs 

literature and from its own independent research. 

numerous informal estimates of floor amendments hcf(lre legi~lation is in the House. Does CBO's standard process for cost cstinutcs diHCr when 

providing estimates of floor amc-ndments? 

Answer. ll1e 

:.igniflcwrly 

committee 

the office 

for prqxning estimates of the effects of floor amendments differs most 

the cost estimates fiH legislation reported hy com-

,md the release of estimates. In 

CBOworks 

the leadership 

Prioriti('S can 

CBO coordinarcs \Vith th(' rules and 

basis. "The estimate:'> are communicdtcd to the 

The rcleJ.sc of estimJtes for floor amendments :md for f!tnendmenrs to appropriation hills is 

di!fi:rcnt, mostly because of the volumt; of amendments that have to be reviewed and 

of the short rime frames involved in arncndments. To the extcllt that CBO 

has time, given the demand f()r \vork on other 

according to priorities set 

;1nd the committees 

generally not website, given and rime frames involved. As ~m 

example, in 

esrim;~rcd rhc 

stalf information 

between August 24,2017, and September 6, 2017, CBO 

of, contacted sponsors of, and transmitted to commim:c 

the dTects of more than l ,000 amendmenrs to H.R .33'54, rlw 

House-passed omnibus "PI'ropriati<>n legislation (the Make America Secure anJ Prosperous 

Appropriations Ace 

Question. How docs CBO determine the order of provisions and the weight of assumptions 

when constructing a cost cstim;1te that includes interactive cffens? 

assigned to 

for 

of a bill are estimated simultaneously and not 

order in which the provisions are considered would 

a dererrnin.arion. and there is no mathematical or statistical rbat 

compels a p;Hticular :11locarion. lhereforc, 

require the requester of the estimate to 

alloc1tion of the inrerat:tive would 

the order in which to consider the provisions. 
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14 

explain CBO\ proccs::; h1r c~timar!ng the cost of public-private 

\\7hat arc the f;lctoc~ rhar CBO ,t\S\mws ,.-omributt' incrc1scd 

Answer. How CBO of using public--private partnerto finance the acquisirion of tCJeral c;w he understood through an example. 

In Cl.Sc of energy savings p{:rformancc contracts (ESPC:,), a of !:nvs and 

orders require fcrler;ll agencies to the of tlwir f,1Ci!ities and to 

of or her cm:rgrNc·rarrG 

ro 

parry agrees to to design, acquire. instalL ;~nd, in some case<;, operate and 

energy-conszTV<ttion cquipmcnt·--such as new "vindows or lightinF;-in a fCdcral hcility. In 

return, the federal to repay dw private h)r those services and 

over cosrs those investments, on 

anticipated and realized reducriom in rhc .lgcncy's energy cost.~. 

Given con~rraints on the ttsc of such contr.Kts may make 

it and rhus may lead to reductions in 

nN othcnvi:.e occuc compared \Vith 

up front \vith appropri::ucd funds, relying on 

to investment-s results in grcatn financing costs to the In CBO's 

J.sses.srnent. the govcrnnH:nt's financing co:.!:. an: under for three 

cn(:rgy companies assume some financial that would orhcrwise be borne 

govemmc-llt (and \-vant to be for that risk); those comJX1Hk's more 

tics raising funds in the markets capita! dun the federal government docs {which makes 

the more expensive}; ;md even within rhc t:apiral markets to whit.h those companies 

may nor be obtaining financing at rhe lowest possible cosL 

arc allO\vcd to cmcr inro ESPCs \Vithout an appropriation 

gnv'Crt'd1lrm' legal urH.:kr those contracts. l..Tndcr 

long-standing Ulner'essror"u rules, in the nf 2ppropriarions sufficient ro cover 

the contractually such authority is a form of mandatory rather discretionary 

from the investments \Vould to discretionary 

be subject to tltturc appropriation actions. Aho according 

Oll mancbtory ,1nd discrttionary spending are considered 

suhjc<.:r to ~cp:nate types of budget enforcement rules. 

The comparison of costs and qvings nuder ESPCs is complicated 

all of the to the cqtdpmcnt would nccur early 

much savings would occur later. For 

f1L[(Jgr,Hv:lat<·u p(\ints of order fOr considered by rhc section 5109 

H. Res. 71, the Concurn:nt on the for Fiscal Ye.1r 20] 8, spt·cifies 

how CBO should cost estimates for ESPC.s. that resolution 

CRO to estimate net cosr nr 

contracts and to record that ;mlount as ;m 

Res. 71 also sp(,cifics that, in the House 

nn that basis may not he used as an oHSct for 

c~rlmates. CBO cominHCS to sho\V the 

rules and the directive the hudget resolution. 

)11.\ 
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Question. Why does CHO not publish all of the as,~umptions that its amlysts make in 

estimating tht' cost of a bill? 

Answer. Almost all of CBO~<> cost estimates provide a basis t{H the estimate th;Jt 

the probable timing of implementation. data sources, key clcmcnts of t!w analysis. significant sources of uncert:>inty. ~[hat discussion aims to provide readers with a clear understand--

it is not 

a written <.'stimatc may not be 

or set of tables. 

and the key to rhc process. Bur given 

of 500 to 700 cost estimates a 

the many factors that ::tffecr some cstimare:;, 

derail of every estimate. When time is very short, 

CBO's cosr estimate may consist only of a t<1hle 

CBO is exploring ways to make more of the documentation for the methods 

used in preparing cost estimates documentation could provide 

information ahour voriables p:uticubr cost estimates--inflation rates, .for 

It also show dt'tailcd results and associated fi)rmulas underlying estimates and 

to supplemental information. However, because the 

and its resources arc constrained, the needs tr; 

balance more about finished analv!>es with for new and 

with its such regularly upda~ing irs budget and economic 

projections. 

Modeling and Data 

Question. Why docs CBO not publish its models? 

a time-consuming 

new estimates. 

It is to note that models do not 

that 

into modds that arc used 

computer code related to 

it f(x publication woulJ have been 

resources away from producing 

to usc, how ro 

changes in law inro combine the results models 

with other available to produce a final estimate. "l11Us, additional explanation 

beyond publicarion of a model is understand the basis of an e;,;timatc. ?\1orcovcr, 

models constamly evolve, and CRO 

usc of models. So a model that is 

be so uscfu!~or 

Nevertheless, to enhance the to increase the public 

documentation of it:, madding by publishing more decks, \>Vorking 

appt'ndixcs, data, related spre;!dshccts, and other technical 

cxampk, \Viii update clements of its long~tcrm budget model ;md 

documentation and computer code the updates. When its model of 

health insuranCL' coverage is publish conceptual overviews and 

documentation of all part~ of rhe model, JS more detailed 

codc~-{tbout key aspects of the rnodcling. CBO looks forward to gening 

usefulness of those transparency efforts. 
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16 

Question. Why is there tension between CBCrs access ro privatl'-;;cctor dat~l and data 

1 r;tnspan:ncy? 

Answer. CBO uses some data from the sector under agreements that prohibit the 

from sharing the information. keep information confidential 

the private-sectOr entities intend to those data to other because the 

entities want to prC'vcnt their competitors from obtaining the data, or other reasons. 

Question. Why is confidentiality a prerequisite to getting agency information? 

is not ahvays a prerequisite tOr 

information is readily available 

for, and receives, data that arc 

inf(Hmation from glwcmnot confidentiaL In ;;omc 

or the 

, "11H:' agencies that have such infOrmation to share 

it unkss CBO promised to maintain its security and confidentiality. 

In addition, CRO needs and receives useful information hom the staff of government 

agencies about the details of particular programs and abour the possible of 

proposed Bm those staff arc sometimes reluctant to provide such int•:>rnurion. 

does nor conform with their official position. So ensuring rhc 

ro CBO's ability to obtain accurate 

information. 

Question. How often docs CBO vcrif), information provided by the agencies through its 

own research~ 

Answer. When infOrmation provided government 

CRO verifies it whenever possible but not tracked 

b.s occurred. 

conrriburcs to an estimate, 

number or times that veriJication 

Question. Are there other ways to get the same inf(mnation that do not require 

confidentiality? 

Answer. CBO always strives to get the most For many 

the best ::wailahlc data arc in the domain, so can 

But if confidential data would provide a better basi:> for analysis, triC's to 

obtain that information and must maintain confidentiality or risk losing access to it. 

Question. Docs CBO lack adequate 

accurate estimates ::md projections? 

to key data nco .. ·ssary to produce timely and 

Answer. In some instances, there arc little or no data that bear on the cstimatcs---such as 

in the case of a completely new program or dramatic chang~.:s to an existing one. In other 

instances, there is insufficient tiine to locate, obtain, and process the data, or the government 

agl·ncy involved cannot or will not supply such data. 
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Other Issues 

Question. -nltrc has twcn grov·.:ing interest l~)r CRO to estimJte 

currently have rhc necessary resotures to cst<.Jhlish a 

costs of legislation? \Xlhat resources \vmdd 

Answer. CBO h,1s concluded that creating a 

m:my thousands of fCdcn1! rcgnL:niom th.;t 

As part of that determination, the 

no country h,td constructed ~l cornp!Th'c'mivc 

tr;:~cks the c-osts of existing regulations. 

costs. Docs CBO 

and 

l11at assessment serves as a of what can be done under the right circumstances. 

Tn that instance, CBO -..vas a good estimate ofrhc savings ro the n:gularcd 

entitic:; dnd tlw economic that But it ,1lso :.erves as a cautiontale: Producing an original took several momhs. 

because the focus was On markets, CRO had ready ;tCCCSS to rclcvam 

data, and CBO's analysts had the skills and training tn ,uulyzc question. In other ar(>:lS, 

the rnighr h<tve considerably lcs:- information and kno\vlcdgc to draw upon. 

In fulfilling its scoring dmics f{1r 

House and Senate had the same set 

purposes of enforcing th~ budget? 

\votdd it be more efficient for CBO 

rules under a budget resolution f(w 

Answer, Difh_'rt:'nccs in rhe cham her-\' committee jurisdictions ~nd 

c.m add to CBO's workload and sorncrimc~ 

intornoation provided to c<1ch chamber. I·lowcvcr. strives ro 

and the Senate with the information needed to enf()rcc budget 

Question. 

PayGo dfccrs 

responsible fOr calculating the 

does CBO similarly track such PayGo 

enforcement 

in comparing the 

both the l louse 

track dw amounts required to be entered on the Statutory 

Pay-As-You-Go scorecards. Howe-ver, CBO certain products 

that include simibr information. In March 2017, CBO its second cdirion 

report dct;liling the dlCcts of authorizing legislation on mandatory spending anri revenues 

17 
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18 

in the pn:violl~ Congress. 1' That report listed the estimated 

authorizing bill t'nactcd during the lllhh over the 

through 2025 for the first session, and 2016 2026 for the 

report also contained, where possible, links to the written estimates for the legislation. 

fn addition, CBO tracks the amounts that the Senate Budget Committee records on its 

own PAYC~O scorec-ard. pursuant ro Senate rules. Fina!ly, pursuant to section 308(h) of 

the Congressional Act, CBO assists the committees ofborh chambers 

effects of all 

an assessment of 

Question. For purposes of scorckecping, to what extent docs CBO interact with OMB? 

consults with its OMB counterparts on both technical and 

thcorcrical smcckccninq and on the implications of actions taken by the Ad ministration. 

of view. 

arc able to hear and understand nne another':; 

cor1cl!JsHms thar differ from 

careful to maintain the confidentiality of legislation under cor\SJctercmo 

OMB. 

ln addition, OMB is required by section 25] (a)(7) of the Deficit Control Act to provide 

estimates of discretionary \Vithin seven calendar aher t:nactment of any 

CBO provides inforQuestion. How often docs CBO assess current scorekceping guidelines? 

Answer. 'The arc laid our in the conh:rence report accomoaiJVHl£ 

the Balanced and arc changed the 

scorekeepers (the committee of each chamber, 

strives to ensure consistency and in how it applies 

the budget committees and 

ll4rh Cim_~TfJS lhf11 Afjlxts /'vftmdatmy Spending ,,r