The Black Box of the Congressional Budget Process

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This is voodoo economics at its best: the Congressional Budget Office "CBO" baseline projects a spending increase for the federal government of approximately $9.5 trillion over the next 10 years. Thus, through the magic of baseline budgeting, an increase in federal expenditures of only $7.5 trillion over the same period would be characterized as a budget CUT of $2 trillion! That's right, in 2021, even if we were spending $7.5 trillion more than we are today, we would all be celebrating the "significant" budget cuts that were made in 2011. A "non-cut" cut!

What would happen if you ran your household budget that way? It would mean that if you spent $1,000 on baseball tickets this year, you'd assume that the next year you'd spend maybe $1,100, regardless of your financial situation. And, if you decided to only spend $1,075 the next, you could pat yourself on the back for "cutting" your budget. Except we all know that in reality, you're actually spending more than the previous year. That's insane, right?

Perhaps worse than the impact of baseline budgeting is the period of 10 years that is the current vernacular of budget-speak. Ask any business person you know how far out he or she projects revenue and expenses. I asked two good friends of mine, one of whom had been the founder and CEO of a New York Stock Exchange listed company and other had been the President of a sizable regional bank (that was gobbled up by a larger institution that was inhaled by yet a larger institution that was swallowed by an even larger institution that bought an equally large institution and changed its name during the heyday of the bank consolidation craze and then collapsed during the great financial 'Smores melt of 2008). The question was whether or not they found 10-year projections to be at all useful in running their businesses.

They both just laughed; so should you—unless it makes you cry. Even Mao didn't have the cheek to plan his economy more than five years ahead.

[Related article: Of Debt Ceiling Debates, Non-Denial Denials and Non-Default Defaults]

Here's something else that you probably don't know, and neither did I until very recently: according to the Harvard Law School budget policy seminar, ten-year baseline projections are not intended to be precise. In fact, they can't be… because baseline budgets are projections and actual budgets change every year. As is intuitively obvious, baseline budgeting itself assumes that everything is OK, and thus no major restructuring is required.

So what should we assume when we hear politicians from both sides of the aisle bloviating about historic cuts or necessary revenue increases? Everyone who talks about a cut is talking about a cut that might happen over the next 10 years, assuming we have no financially devastating terrorist attacks, mortgage crises or failing governments in Europe. And of course it's not really a reduction in absolute terms. It's only less than the growth in expenditures required by the baseline analysis. What I assume is that all of this rigmarole will have the effect—I hope not an intended effect—of making certain that most voters don't really understand what the hell is going on in Washington when it comes to money.

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