Part Three: Congress has a scorekeeper. It tells us what legislation is likely to cost. What happens when we don’t like the answer?
In Part One, I asked whether tax cuts really pay for themselves.
In most instances they covered some of the tax cuts, but rarely did they cover all the tax cuts.
Tax cuts can encourage economic activity. That growth can generate additional tax revenue. But historically, it generally hasn’t generated enough additional revenue to replace everything given up.
In Part Two, I looked at the last time Washington took in more money than it spent.
That happened for four consecutive years from 1998 through 2001.
There wasn’t one magic ingredient.
A strong economy helped enormously. So did adequate revenue, spending restraint, some good fortune and budget rules that made it harder for Congress to simply borrow the difference.
After looking at those two stories, another question occurred to me.
Didn’t we know much of this before we made some of these decisions?
Increasingly, the answer is yes, which brings me to an organization most Americans probably don’t spend much time thinking about.
The Congressional Budget Office.
Washington’s Scorekeeper
Congress created the Congressional Budget Office—CBO—in 1974.
Its job isn’t to decide whether legislation is good or bad.
It doesn’t decide whether taxes should be higher or lower.
And it doesn’t tell members of Congress how to vote.
It does the math.
CBO estimates what proposed legislation is likely to do to federal spending and deficits. For tax legislation, it works with the nonpartisan Joint Committee on Taxation.
Think of them as Washington’s scorekeepers.
The players decide how to play the game. The scorekeeper tells us the score.
The Scorekeeper Isn’t Always Right
CBO makes projections. It doesn’t predict the future with certainty.
It makes assumptions about economic growth, inflation, interest rates and how people and businesses will respond to government policy.
Sometimes those assumptions will be wrong.
Recessions happen.
Pandemics arrive.
Wars begin.
Technology changes productivity.
We shouldn’t treat a CBO estimate as though it were carved into a stone tablet. But that doesn’t make it useless.
If Leah and I were contemplating a major financial decision and our financial adviser told us it was likely to cost substantially more than we expected, I wouldn’t throw away the analysis because the adviser couldn’t guarantee exactly what would happen ten years from now.
I’d want to understand it. Then we’d decide whether the benefit was worth the cost. That seems like a reasonable way to think about CBO too.
Congress Knew the 2025 “Big Beautiful Bill” Would Increase Borrowing
As Congress considered the 2025 tax and spending legislation, CBO and the Joint Committee on Taxation analyzed its likely effect on the federal budget.
The projections showed substantially more federal borrowing. Congress passed it anyway.
CBO now estimates that after including economic effects and additional interest costs, the legislation will increase federal deficits by about $4.2 trillion through 2034.
That doesn’t automatically mean Congress made the wrong decision.
Lawmakers may believe a policy is worth additional borrowing. They may believe CBO is underestimating future economic growth. They may place greater importance on other objectives.
Those are judgments Congress is entitled to make.
CBO Is an Adviser, Not a Referee
CBO describes its own cost estimates as advisory. They can be used to help Congress decide rules, but CBO doesn’t enforce those rules; congressional budget committees do.
In other words, the scorekeeper can tell Congress:
This is likely to add substantially to the debt.
Congress can respond:
We understand. We’re doing it anyway.
That surprised me.
Didn’t We Once Have a Rule Against This?
Sort of. In Part Two, I discussed PAYGO—“pay as you go.” The basic idea is wonderfully simple. If Congress creates new spending or cuts taxes, it should generally find a way to pay for it.
Spend another dollar? Find another dollar.
Cut a dollar of revenue? Find an offset somewhere else.
PAYGO still exists in various forms, including a federal statute enacted in 2010. But it isn’t an absolute barrier.
Congress can enact legislation that changes, postpones or effectively waives some of its consequences. So perhaps the more important question isn’t whether we have budget rules.
It’s whether we’re willing to live by them.
What If We Actually Required PAYGO?
Suppose Congress wanted to enact a $1 trillion tax cut.
Fine.
But Congress would also have to identify $1 trillion in spending reductions, other revenue or some combination of the two.
Or suppose Congress wanted to create a new $500 billion government program.
Fine.
Congress would have to explain how it intended to pay for it.
Suddenly the conversation changes.
Instead of:
Should we cut taxes?
It becomes:
Should we cut taxes—and what are we willing to give up to pay for them?
Instead of:
Should government provide this new benefit?
It becomes:
Should government provide this benefit—and who is going to pay for it?
Those are much harder questions. Maybe that’s exactly why Congress avoids asking them.
And Then I Started Thinking About Us
It’s easy to blame Congress. But we elected them.
Most of us say we’re concerned about federal borrowing but, the conversation becomes more difficult when the solution affects us personally.
Tell me Washington should reduce spending, and I might agree. Tell me which program you’re cutting, and I may have a different reaction.
Tell someone taxes need to increase to reduce the deficit, and they may agree. Tell them their taxes are going up, and the conversation changes.
We want Social Security.
We want Medicare.
We want national defense.
We want veterans’ benefits.
We want highways.
We want disaster assistance.
We want safe food and drugs.
There’s nothing irrational about wanting those things. But eventually the arithmetic catches up with us.
Maybe Congress Is Responding to Us
Imagine you’re running for Congress.
One candidate says:
I’ll cut your taxes and protect the government programs you depend upon.
Another says:
I’ll raise some taxes and reduce some benefits because we have to start dealing with the debt.
Which campaign speech gets the applause?
If voters reward tax cuts and new benefits but punish tax increases and spending reductions, perhaps we shouldn’t be surprised when politicians give us what we’re asking for and then borrow the difference.
That doesn’t excuse elected officials from making difficult decisions. Leadership sometimes requires telling people something they don’t want to hear.
Maybe our national debt isn’t simply something Washington did to us. Maybe it’s also something we’ve allowed Washington to do for us.
The Benefit Comes Today. The Bill Comes Later.
There’s another political reality. CBO often evaluates legislation over a ten-year period.
Members of the House face voters every two years. Presidents every four. Senators every six.
The political benefit of a tax cut or new government program can appear immediately. The debt accumulates gradually.
A taxpayer may notice additional money in a paycheck this year. The benefit is visible.
The borrowing is largely invisible. At least until the interest bill arrives. CBO now projects net federal interest costs rising from about $1 trillion in 2026 to $2.1 trillion in 2036. Eventually, later arrives.
What If Budget Neutral Were the Starting Point?
I’m beginning to wonder whether we need a much simpler expectation.
Not that taxes should always be higher. Not that spending should always be lower. Not that CBO should decide public policy. But perhaps this: Major new tax cuts and major new spending programs should normally be paid for.
If Congress wants to make an exception because of a recession, war, pandemic or genuine national emergency, explain why.
Budget neutrality isn’t a magic wand. There would be arguments about what counts as savings, what time-period should be used and whether CBO’s assumptions are reasonable. And sometimes borrowing makes sense.
But the starting question would change.
Instead of: How much can we borrow?
We would ask: How are we going to pay for this?
Maybe the Scorekeeper Isn’t the Problem
After looking at this, I don’t think our problem is that we don’t have enough information.
CBO provides estimates. The Joint Committee on Taxation analyzes tax legislation. Economists debate the assumptions. Members of Congress have staffs. The numbers are publicly available.
We may disagree with a projection. We may decide a policy is worth borrowing money for.
But we can’t really say nobody warned us. Which leaves me with an uncomfortable conclusion.
Maybe Washington’s fiscal problem isn’t primarily an accounting problem. Maybe it’s a political problem. And perhaps it’s also a voter problem.
We want benefits today, but we don’t like paying for them today. And our political system makes it remarkably easy to send part of the bill to tomorrow. To our children and to our grandchildren.
Three Questions
After working through these three articles, I’ve ended up with three fairly simple questions.
Part One: When we cut taxes, does economic growth replace the revenue we give up?
Usually, not all of it.
Part Two: Can the federal government live within its means?
We’ve done it before, although it required a strong economy, adequate revenue, spending restraint, favorable circumstances and compromise.
And finally:
Part Three: If we know a policy is likely to increase the debt, should Congress have to explain how it intends to pay for it before passing it?
Maybe that’s the conversation we ought to be having.
Not whether Republicans are better with money. Not whether Democrats are better with money. History gives both parties plenty to answer for.
The question is much simpler. If we aren’t willing to pay for the government we want, how long are we willing to keep sending the bill to our children and grandchildren?
Quote of the Day
“There is no such thing as a free lunch.”
— Popularized by economist Milton Friedman
Someone always pays.
The question is whether it’s us—or someone who comes after us.
Orchid of the Day
Today’s Orchid goes to the people at CBO, the Joint Committee on Taxation and other nonpartisan institutions whose job is to give elected officials information they may not particularly want to hear.
Good decisions require good information.
Even when we don’t like the answer.
Onion of the Day
Today’s Onion goes to all of us—including politicians and voters—when we demand fiscal responsibility right up until fiscal responsibility costs us something.
It’s easy to cut somebody else’s program.
It’s easy to raise somebody else’s taxes.
The hard part begins when the sacrifice becomes ours.
Question of the Day
Here’s the question I’d really like readers to answer:
Should Congress normally be required to pay for major new tax cuts and major new spending programs rather than adding their cost to the national debt?
And if your answer is yes, should there be exceptions for recessions, wars and genuine national emergencies?
Lyrics of the Day
Yesterday’s answer:
“You Can’t Always Get What You Want” — The Rolling Stones.
And for the final installment:
“You better free your mind instead.”
Name the song and the artist.
Answer in my next post.
Video of the Day:
Tom,
Thank you for sharing your perspective regarding our the subject matter with the past three blogs. I've known you as a personal friend and mentor for all of my life. The analysis that you have constructed and the resulting questions arising from that analysis helps immensely to compare my own take on this subject matter. I have always believed that asking the right questions will lead to a constructive debate and ultimately sound decisions that will cement a strong foundation that supports the intended benefits of those decisions.
Again, you have provided sound analysis and an unbiased approach for your readers and followers to formulate their own opinions. These past three blogs, in my opinion, have been the best of all the previous blogs... Hands down! You've called an exceptional game behind the plate and as a result allowed the players, coaches and spectators see and react to the game... Making judgements about how the game was played and the strategies employed by both teams. In the end, all parties benefit and are able to employ lessons learned going forward! Sometimes we miss a ball or strike, however, this time you hit a home run! Congrats!