Serving Competing Principals: The Budget Estimates of OMB and CBO in an Era of Divided Government

Bill Clinton: "A real spending cut, a real revenue increase, a real deficit reduction, using the independent numbers of the Congressional Budget Office." LAUGHTER "Well you can laugh, my fellow Republicans, but I'll point out that the Congressional Budget Office was normally more conservative in what was going to happen and closer to fight than previous presidents have been."(1) Budget battles between the president and Congress have been annual events in Washington for the past two decades. A large, chronic deficit during these years posed difficult challenges to politicians who sought to avoid blame for the deficit while providing both the programs and tax relief desired by their constituents. To calculate the potential ramifications of their and others' proposals for shrinking the red ink while preserving favored policies, presidents, members of Congress, and everyone else with a stake in the budget scrupulously examines the periodic spending and revenue estimates submitted by the two budget agencies: the president's Office of Management and Budget (OMB) and the Congressional Budget Office (CBO). At first glance, OMB and CBO forecasts of the president's proposed budget (see Figure 1) appear to track each other fairly closely, suggesting that any disparities can be consigned to purely technical differences in the way these organizations gather and analyze economic data. These agencies have however, at times, provided their political principals with significantly different deficit forecasts with OMB offering the more optimistic estimates. Typically, these differences have encompassed the bulk of the discretionary dollars available for new programs and proposed changes in the tax code and have, therefore, mattered a lot to presidents and Congress as they have approached each other in their annual, nine-month-long budget game.(2) Understandably, much of these politicians' public posturing and private negotiation in recent years have concerned which agency's estimates to employ. [Figure 1 ILLUSTRATION OMITTED] The greatest disparity in CBO and OMB deficit estimates occurred in 1990 (FY 1991) when CBO reestimated the president's budget to increase the deficit by $73 billion more than OMB had predicted a month earlier. The second largest difference occurred in 1982 (FY 1983) when the two budget agencies differed by $62 billion. From 1993 to 1998, CBO once again adopted a less optimistic view of the economy and the prospect of surplus. In each instance, CBO's more conservative position undermined some part of the administration's budget requests. Moreover, they all occurred during periods when one party controlled the White House and the other party controlled one or both chambers of Congress. Given their association with divided government, perhaps--as many in Washington have openly suspected in recent years--the agencies' disagreements on deficit forecasts contained political as well as economic calculations. In this article, we examine these differences in OMB and CBO budget estimates for signs of partisan bias. We suspect that the combination of divided party control of government and sizable deficits during the past two decades--both of which constrain the quid pro quos through which diverse interests are traditionally accommodated--has tempted politicians to press their budget agencies for favorable estimates. Although both agencies voice allegiance to a professional creed that has them staying out of the political fray and providing politicians with objective advice, these dependent agencies might also be tempted to yield to their principal's pressure. The trends in Figures 1 and 2 reinforce this suspicion both in the systematic differences between agency estimates and in the fact that the largest spread occurs during periods of divided government. In the next section, we consider the capacity of each agency to resist political influence and various complaints that they have sometimes failed to do so. …